Budget 2012-13: Class bias revealed, again

My article on Union Budget 2012-13, which appeared in Asian Age, dated 18 March 2012.

Read original here... or text below...

A widely heard comment on Budget 2012-13 was that it has given increased attention to the social sectors. That, clearly, is a claim overstated. Further, the meagre rise in social sector expenditure has come at a cost; the expenditure on crucial economic sectors has been cut.

To understand the budget better, it is important to understand its broad fiscal contours. Given his government’s misplaced commitment to reduce budget deficits, Pranab Mukherjee had some medium-term fiscal targets to meet. He had to reduce his revenue deficit from 4.4 per cent in 2011-12 to 2 per cent in 2014-15. His fiscal deficit had to decline from 5.9 per cent in 2011-12 to 3.9 per cent in 2014-15. At the same time, his government is an utter failure in revenue generation, particularly from the corporates. As share of GDP, his gross tax revenue is set to rise from 10.1 per cent in 2011-12 to just 10.6 per cent in 2012-13, and further to 11.7 per cent in 2014-15.

Thus, Mukherjee was stuck between two dogmas, both of which mark the political economy of his government. He had to cut deficits to please international investors, even as he was unable to tax the holy corporate cows enough to be able to follow a revenue-led deficit-reduction path. Mukherjee, then, had to cut expenditure somewhere.

Mukherjee has decided to go slow on raising revenue expenditures (RE). If the RE grew at 11.6 per cent between 2010-11 and 2011-12, it is to grow at a slower rate of 10.7 per cent between 2011-12 and 2012-13. Within the slowly growing RE, which is split into “Social Services” and “Economic Services”, Mukherjee has shuffled his priority items. Between 2010-11 and 2011-12 (RE), the spending on social services had sharply declined by -14.3 per cent, or Rs 16,559 crore. In this budget, Mukherjee has reversed the trend by increasing the spending on social services by Rs 19,603 crores, or 19.7 per cent. Thus, if we compare 2010-11 and 2012-13, the nominal spending on social services rises by a meagre Rs 3,044 crores, or just 2.6 per cent. In real terms, this is stagnation.

At the same time, spending on economic services has hardly risen between 2011-12 and 2012-13; the percentage rise is only 0.6 per cent, or Rs 2,419 crore. Within economic services, the spending on “crop husbandry” has fallen in absolute terms by -9.5 per cent. The spending on rural employment had fallen in absolute terms by Rs 4,840 crore between 2010-11 and 2011-12. Mukherjee has raised this expenditure by just Rs 2000 crore between 2011-12 and 2012-13. Thus, there is a fall in net spending on rural employment by Rs 2,840 crore between 2010-11 and 2012-13.

If we dissect this pattern further, the reason for the fall in growth of revenue expenditure is a sharp cutdown of major subsidies. Major subsidies are to absolutely fall by a whopping Rs 28,949 crore between 2011-12 and 2012-13. Fertiliser subsidies are to see the sharpest cut of Rs 6,225 crore, while food subsidies are budgeted higher by a meagre Rs 2,177 crore. Within both food and fertiliser subsidies, it is rather outrageous that the Budget is pinning hopes on the Aadhaar project, which stands thoroughly discredited today.

Let us take the Aadhaar project. Consensus is growing that the introduction of Aadhaar in social sector schemes has long-term implications to their inclusiveness. It is becoming clear that Aadhaar is being used by the government to hasten the dismantling of the public distribution system (PDS), and replace it with food coupons and direct cash transfer schemes. While the real challenge in PDS is to expand its coverage to newer sections and universalise it, Aadhaar is showcased as an intervention that would actually make PDS as narrowly targeted as possible.

Further, the legal basis of Aadhaar scheme itself is in doubt, with the Standing Committee of the Parliament recently rejecting the UID Bill. This Committee report had torn apart the faith placed on biometrics to prove the unique identity of individuals. It had noted that “the scheme is full of uncertainty in technology” and is built upon “untested, unreliable technology”. The report concluded that, given the limitations of biometrics, “it is unlikely that the proposed objectives of the UID scheme could be achieved”. However, in gross disregard to the sanctity of Parliamentary ethics, Mukherjee has announced that “a public distribution system network is being created using the Aadhaar platform”.

As mentioned earlier, the deficit reduction strategy in the Budget is flawed primarily because the process is expenditure-led and not revenue-led. The interest shown by the Budget in cutting subsidies and deficits is hardly to be seen in collecting revenues/taxes. Between 2009-10 and 2010-11, the total revenue foregone of the government (by way of tax exemptions) was 4.59 lakh crore. Between 2010-11 and 2011-12, another Rs 69,727 crore had been added to this uncollected revenue; the total revenue foregone in 2011-12 stood at Rs 5.29 lakh crore. Out of this, Rs 51,292 crore was taxes foregone through corporate tax.

The mantra of inclusion repeated in the budget is just rhetoric. The budget clearly aims at withdrawing the state further from public provisioning to the poor, and leaving them in the lurch at the marketplace. While doing so, it goes the extra mile to ensure that corporate honchos are in good humour. Social scientists call this “class bias”.


(There were two errors in the original article in Asian Age, which have been corrected here.)