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‘Growth’ Story: FARMERS GAIN, HEALTH SUFFERS, By Dhurjati Mukherjee, 5 March, 2013 Print E-mail

Events & Issues

New Delhi, 5 March 2013

‘Growth’ Story


By Dhurjati Mukherjee

The Union Budget continues to be analysed by economists and political leaders. While Finance Minister P Chidambaram has received both kudos and brickbats from obvious quarters, in all fairness he has at least resisted the temptation to give a populist Budget ahead of the State Assemblies and General elections. His main concern in his own words is: “Getting back to the growth (8 per cent) is the challenge that faces the country.”    

Other than wooing investors and taxing the ‘super-rich”, Chidambaram has rightly given top priority to farmers, who constitute nearly two-thirds of India. However, on two important fronts—education and health the Finance Minister has been less generous than compared to his previous Budget. Though he may have his reasons, the concerned Ministers are upset and would like him to have a rethink. Whether they succeed is worth a watch.   

Importantly, acknowledging the fact that the “key to start the growth engine is to attract more investment both from domestic investors and foreign investors”, the Harvard-educated Minister is keeping his fingers crossed that his sop to companies yields result. To boost fresh investment in reviving industrial growth is a 15 per cent deduction for all companies that invest Rs 100 crores or more on new projects and plans. Interestingly, the investment allowance is valid for only two years from April 2013 perhaps to test waters. At the same time, the Finance Ministry hopes that its move will generate millions of fresh jobs, considered essential critical as the young generation graph is growing.

As regards the agriculture sector, the FM has taken into account the suggestion mooted by the National Commission on Farmers. They will now get much higher priority loans worth nearly Rs 700,000 crores during 2013-14 – up 40 per cent from Rs Rs 500,000 – and the interest for those paying in time, which was brought down from 7 per cent to 5 per cent in the previous budget, has been reduced to 4 per cent.

However, the allocation for a second green revolution in the eastern States is rather disappointing. This has remained unchanged at Rs 1,000 crores though the requirement is much more as many States – not just in eastern India – are the beneficiaries of the fund. Assam, Bihar, Chhattisgarh and West Bengal have already increased their contribution to rice production through the continuance of this programme.

An encouraging aspect is the proposed allocation of Rs 500 crores to a programme to encourage farmers to switch to alternative crops from rice and wheat through use of technological innovations. Also, the increase in outlay for watershed programme intended to benefit small and marginal farmers to improve productivity and the start of a new experimental programme for introducing new crop varieties – rich in micronutrients such as iron-rich bajra, protein-rich maize and zinc-rich wheat shows the innovativeness of the Finance Minister.

The latter ‘Nitrifarms’ programme got only Rs 200 crores for carrying out trials to grow super nutritious or bio-fortified crops though more could have been allotted, keeping in view the fact that well over 46 per cent of children are moderately to severely underweight due to malnutrition – more than the levels in sub-Saharan Africa.

Rural India has however got the fillip on expected lines. The attention give to it was manifest in a significant 46 per cent hike totaling Rs 80,194 crores though the Rural Development Ministry was able to spend Rs 55,000 crores this fiscal (out of budget estimates of Rs 75,000 crores). But there was discontentment as allocation for NREGA, Pradhan Mantri Gram Sadak Yojana and Indira Awas Yojana remained more or less the same.

The education and health sectors need focused attention and this is generally agreed by most economists and social scientists. But unfortunately education has effectively been given just a little over 7 per cent hike in allocation compared to the previous budgetary estimate though it works out to 17 per cent when compared to the revised estimate. Keeping into consideration the inflation rate of around 7.4 per cent, one can easily conclude there has been virtually no hike.

With Rs 65,869 crores allocation for 2013-14, the Human Resource Development Ministry will have to struggle to take up new schemes, let alone set up new colleges or institutes. Even the HRD minister is reported to have acknowledged the inadequacy of the budgetary hike for the education sector and that more funds would be needed.

Despite a hike of 28 per cent with an allocation of Rs 37,000 crores for the health sector, rising inflation and increasing costs of inputs may hamper wider coverage. The fund allocation of Rs 21,239 crores for the proposed National Health Mission – integrating the NRHM and the Urban Health Mission – has been found to be much low compared to the needs. If this trend continues, soon public expenditure on health will be around one per cent of GDP and not 2.5 per cent by the end of the 12th Plan, as envisaged by the Prime Minister.

As made quite often of the Railway budget, not benefitting the eastern States, similarly there have been allegations of the Union Budget neglecting the East. Here too, industrial corridors have been proposed in the Western and Southern States while road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh, will be awarded in the first six months of 2013-14. One needs to mention here the road network has to be expanded more in States such as Bihar, West Bengal, Jharkhand etc to improve commercial activities and improve the livelihood conditions of the economically weaker sections and the lower income groups.

While the FM has sought to provide new skills development scheme by offering training to about 10 lakh youth after which they would be given Rs 10,000 per candidate, this is clearly inadequate as the amount should have been at least Rs 25,000-Rs 30,000 to encourage them to start their own business. Nevertheless, it is an encouraging proposition and it would be wise that NGOs be involved for the task.  

Regarding personal taxation, the Minister offered tax exemption to those who earn between Rs 2 lakhs and Rs 5 lakhs of around Rs 2000 a year, a move that will benefit 18 million taxpayers or about half of the country’s tax base. But the surcharge of 10 per cent should have been for people having a taxable income of Rs 60-70 lakhs instead of Rs 1 crore as levied in the budget. After the increase of surcharge from 5 to 10 per cent on domestic companies having taxable income of Rs 10 crores per annum has been on expected lines.

Finally, though the Finance Minister has been able to contain the fiscal deficit for the current year at 5.2 per cent of GDP, this came at a cost of around Rs 92,000 crores cut in Plan expenditure which does not augur well, specially for social sector schemes. For example, the HRD ministry expenditure was revised to Rs 56,223 crores (from BE of Rs 61,427 crores), NREGA expenditure cut to Rs 55,000 crores (from Rs 76,376 crores) etc.

One may mention here that the gross budgetary support (GBS) or Plan outlay for the next fiscal is around 6.5 to 7 per cent more than the BE of 2012-13 – the hike being less than the inflation rate. It is also distressing to note that growth of consumption expenditure, which averaged 8 per cent annually between 2009-12 fell to around 4 per cent this year. It needs to be pointed out here that though fiscal consolidation is imperative, it should not come by squeezing expenditures but by widening the tax net and expanding the tax to GDP ration, which has fallen from 11.9 per cent in 2007-08 to less than 10 per cent.

Importantly, total subsidies have declined by over Rs 26,000 crores, though this related more to the oil sector. Though food security found a key mention in Chidambaram’s speech with an additional allocation of Rs 10,000 crores, the Bill simply cannot be implemented in at least the next couple of months and thus cannot be utilized as the beneficiaries have not been identified yet. Total food subsidy is actually Rs 5000 crores more than the revised estimates.

Chidambaram’s promises are limited to reforms that he can deliver and his whole attention has been on curtailing expenditure to reign in fiscal deficit, expected to be 4.8 per cent in 2013-14. The Budget is not of populist nature and represents a basic promise that the Government must deliver to prevent the economy from slipping further and also check food inflation and rising costs. It is a tall order. Will Chidambaram’s calculations yield the desired result, is worth a close watch. ---INFA


(Copyright, India News and Feature Alliance)

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