Saturday, February 28, 2015

Jaitley's budget sharply cuts spending for the poor

R. Ramakumar

The devil, they say, is in the details. There is a world of difference between the budget speech of Arun Jaitley, peppered with smart announcements, and the real numbers in the budget documents. An closer examination would reveal that Jaitley's is a budget for the rich and the corporate houses; the expenditures on the poor have been massively cut.

Take the macro fiscal stance of the budget. The rate at which Jaitley wants to reduce the fiscal deficit between 2014-15 and 2017-18 is higher than the rate at which he expects the share of gross tax revenues in GDP to rise. In other words, expenditures have to be cut. In the last year's budget, Jaitley had proudly accepted the “very difficult task” of cutting the fiscal deficit to 4.1 per cent in 2014-15 from his predecessor P. Chidambaram. Jaitley promised to pick up the thread from where Chidambaram left. In my last budget analysis in Asian Age, dated 12th July 2014, I had forecast that expenditure compression would be acute in the social sectors till 2016-17. Data from this year's budget documents vindicate that stance.

Budget documents show that Jaitley's first year as Finance Minister was marked by gigantic expenditure cuts. Take the total plan expenditure by adding central plan expenditure and central assistance to States. For 2014-15, the total plan expenditure budgeted was Rs 575,000 crore. However, the revised plan expenditure figure is only Rs 467,934 crore: a massive decline over budget estimates by Rs 107,066 crore. Non-plan expenditure also fell, and thus the total expenditure declined over the budget estimates by Rs 113,734 crore in 2014-15. In this budget, Jaitley has proposed an additional cut in plan expenditure from Rs 467,934 crore in 2014-15 to Rs 465,277 crore in 2015-16, which is a decline by Rs 2,657 crore.

Specific social sectors experienced sharp falls in expenditures in 2014-15, if we compare budgeted and revised expenditure figures. Under the Scheduled Castes Sub-Plan (SCP), Rs 34,722 crore was spent in 2013-14. The budgeted figure for 2014-15 was Rs 50,548 crore, but the actual amount spent by Jaitley was just Rs 33,638 crore. Or Rs 16,910 crore less. The budgeted amount for the next year is even lower: only Rs 30,850 has been budgeted under SCP in 2015-16. If we consider the Tribal Sub-Plan (TSP), Rs 22,039 crore was spent in 2013-14 and Rs 32,386 was budgeted for in 2014-15. However, the actual spending in 2014-15 was only Rs 20,535 crore, or Rs 11,851 less. Here again, the budgeted amount for 2015-16 is lower than for 2014-15 at Rs 19,979 crore.

Taking SCP and TSP together, Rs 28,761 crore was left unspent in 2014-15 and compared to the revised estimates for 2014-15, the budgeted expenditure for 2015-16 is lower by Rs 3,344 crore.

Take expenditure on schemes for the welfare of children. The budgeted amount in 2014-15 was Rs 81,075 crore. However, the actual amount spent was lower by Rs 11,188 crore at Rs 69,887 crore. In 2015-16, this amount is to fall sharply again: only Rs 57,918 crore is budgeted for the welfare of children. Or Rs 11,969 crore less.

The multiple cuts in expenditure in 2014-15 were largely to meet the fiscal deficit target of 4.1 per cent, which has been successfully achieved. While Jaitley worked hard to cut budgeted expenditures to meet this target, he failed to replicate this success on the tax revenue front. The target for the gross tax revenue for 2014-15 was 10.6 per cent of the GDP in Jaitley's first budget. The revised estimates for 2014-15 put the gross tax revenue at just 9.9 per cent of the GDP. Tax exemptions to the rich and the corporate houses have played no small role in this failure of Jaitley. The revenue foregone from incentives in direct taxes (both corporate and personal income tax) is estimated to rise from Rs 93,047 crore in 2013-14 to Rs 102,833 crore in 2014-15. The revenue foregone from excise and customs duties is estimated to rise from Rs 456,937 in 2013-14 crore to Rs 486,452 crore in 2014-15. Together, the total revenue foregone is estimated to rise from Rs 549,984 crore in 2013-14 to Rs 589,285 crore in 2014-15. Given his failure in mopping up tax revenues, it is no surprise that Jaitley had to cut social sector expenditures across the board.

Jaitley did not just fail to mobilise adequate tax revenues last year; he has also reduced corporate tax rates from 30 per cent to 25 per cent over the next four years. As Jaitley himself admitted, even though the corporate tax rate was 30 per cent, the effective corporate tax rate was only 23 per cent in India. That, however, did not prevent him from cutting the rates even further. He also deferred the implementation of the GAAR by more than two years. At the same time, Jaitley has left out various other sources of taxing the rich. He could have brought in a well-designed inheritance tax system or a tax on capital gains. He could have amended laws related to the Hindu Undivided Family, which is one of the major instruments of tax evasion.

Jaitley's increase in allocations for the MGNREGS, although conditional and meagre by Rs 5000 crore, is effectively a rejection of Prime Minister's statement in the Parliament that it was a monument of the earlier government's failure. Indeed, the drawbacks of MGNREGS have largely to do with the rather stagnant allocations to the scheme under the UPA-2 regime. However, over the last one year, the Modi government has pro-actively squeezed the scheme of funds, apart from trying to strangle it through changes in guidelines. On the one hand, the small rise in allocation for the scheme is an admission from Jaitley that the scheme that demanded the workers to dig holes, as his Prime Minister derided it, actually did benefit them. On the other hand, in real terms, the meagre rise in allocation for the scheme is totally insufficient.

To be sure, Jaitley's is a thorough pro-corporate budget, which aims at a corporate-led growth path. The statements on public investment-based stimuli are nothing but hollow if we closely follow the numbers. The expenditures for the poor, particularly the Dalits, Adivasis and children, were sharply cut in 2014-15, and are budgeted to fall further in 2015-16. Promises of acche din for the poor, it turns out, were just one more political jumla!