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!

Madan Mohan Malaviya's Bharat Ratna: Questions for Secular India

Madan Mohan Malaviya has been conferred Bharat Ratna by the Narendra Modi government. Who was Malaviya?

A leader of the Hindu Mahasabha in the 20th century, Malaviya helped establish the Bharat Dharm Mahamandal in 1887, and was its Chief Preceptor. The mandal aimed at the promotion of religious education based on Sanatana Dharma and knowledge of sacred texts. Malaviya was also a founder member of the Prayag Hindu Samaj in 1880. The Samaj had more militant aims than the Mandal: to promote Hindu society and Hindu religion, and train Hindus to oppose and resist their enemies. True to its spirit, Malaviya argued in 1923: "Friendship could exist between equals. If the Hindus made themselves strong and the rowdy section among the Mahomedans were convinced they could not safely rob and dishonour Hindus, unity would be established on a stable basis." For him, the reason why Hindu-Muslim unity was weak was because the Hindu was not united. Peace could be achieved only by showing the enemy (i.e., the "bad elements among the Muslims") the possible destruction that a reciprocal attack could result in. Thus, Hindu militancy could be a deterrent to the "threat" that Hindus faced from Muslims! In this way, "sanghatan" became an established aim of the Hindu Mahasabha under Malaviya. No wonder, he received the award when an RSS man is the Prime Minister.

Malaviya was also one of the first Hindu leaders in the 1920s to rake up issues of relationships between Hindu women and Muslim men, and give it a communal colour (see his presidential speech in 1923 at the Hindu Mahasabha conference in Banares). This was one of the foremost expressions of what the RSS now calls "Love Jihad".

It was also Malaviya who initiated the programme of "shuddhi" (alongside "sanghatan") of the Hindu Mahasabha, which aimed at reconverting those who moved away from Hinduism in the past. In a resolution passed under his leadership, the Hindu Mahasabha, for instance, asked the Hindu religious leaders of Malabar to "unhesitatingly...re-embrace all the converts and restore them to their former caste and social status". Emphasis: former caste and former social status! Is it a surprise, then, that he is being awarded the Bharat Ratna when the "ghar wapasi" campaign is at its peak?

Malaviya was the founder of the Banares Hindu University (BHU) and its Vice-Chancellor between 1919 and 1939. The BHU was established with the aim of promoting Hindu education. It was Malaviya as the Vice-Chancellor who allowed the RSS to open a branch and run a shakha inside the university premises in 1929. Thus, he was instrumental in saffronising the BHU, giving every course a communal colour and transforming the campus into a hotbed for communal politics in northern India.

Along with Atal Bihari Vajpayee, a life-long RSS pracharak and one who incited karsevaks in Ayodhya with his speeches, the Bharat Ratna to Malaviya represents the new trend of transforming communal leaders of the past into national icons; what secularism remains with such icons?

References

Walter Anderson, "The Rashtriya Swayamsevak Sangh: I: Early Concerns", Economic and Political Weekly, Vol. 7, No. 11 (Mar. 11, 1972).

Marzia Casolari, "Role of Benares in Constructing Political Hindu Identity", Economic and Political Weekly, Vol. 37, No. 15 (Apr. 13-19, 2002), pp. 1413-1420.

Charu Gupta, "(Im)possible Love and Sexual Pleasure in Late-Colonial North India", Modern Asian Studies, Vol. 36, No. 1 (Feb., 2002), pp. 195-221.

Gene R. Thursby, Hindu-Muslim Relations in British India: A Study of Controversy, Conflict, and Communal Movements in Northern India 1923-1928, Brill, 1975.

and others...

Arun Jaitley's Budget 2014-15, or a UPA-3 budget?

R. Ramakumar

The first budget of the Narendra Modi government, in its core thrust, represents continuity with the UPA-2 government's economic policy. In fact, Arun Jaitley's budget presents nothing innovative at all in the way it intends to deal with the challenges of low growth, high inflation and the persistence of socio-economic backwardness. His is a fall back on the old and failed strategy: contain fiscal policy, hope that it would pull down interest rates and encourage private investment, and place emphasis on foreign capital inflows to revive growth.

In his speech, Jaitley did not hide his awe for his predecessor with regard to fiscal consolidation. After stating that P. Chidambaram had set a “very difficult task” of cutting fiscal deficit to 4.1 per cent in 2014-15, Jaitley put forward his own road map for the next three years. Between 2013-14 and 2016-17, the fiscal deficit is to fall from 4.6 per cent to 3 per cent; and the revenue deficit is to fall from 3.3 per cent to 1.6 per cent. Such fiscal consolidation is to take place with no comparable rise in revenues, which would have been a progressive and expenditure-neutral road map. Gross tax revenue is targeted to rise only moderately from 10.2 per cent in 2013-14 to 11.2 per cent in 2016-17. In other words, Jaitley's fiscal consolidation path would be marked by sharp expenditure compression till 2016-17.

Expenditure cuts had begun during the last two years of the UPA-2 government itself. Between 2012-13 and 2013-14, the tax to GDP ratio fell from 10.2 per cent to 10.0 per cent, mainly on account of a fall in central excise collections by Rs 6,376 crore. The UPA-2 government also gave significant tax concessions to the corporates and the rich. If Rs 566,234 crore was the total revenue foregone in 2012-13, the total revenue foregone in 2013-14 was higher at Rs 572,924 crore. To cover for the losses in revenue, Chidambaram cut expenditures across the board; for 2013-14, the revised estimates on a variety of expenditure heads are lower than the budgeted estimates. He also aimed to disinvest heavily to open a regular channel that would fund public spending. In 2013-14, Chidambaram raised Rs 21,992 crore from disinvestment proceeds. However, in an election year, there were limits to disinvestment.

Jaitley's promise is to pick up the threads from where Chidambaram left. First, for 2014-15, Jaitley has promised an intensive disinvestment policy to raise non-debt generating revenues, and is hoping to raise Rs 55,000 crore in 2015-16 and 2016-17. In the public banking sector, Jaitley has opened the doors of a “creeping privatisation” policy by allowing them sale of shares to raise their capital requirements. Thus, the Modi government wants to step up the privatisation policy of the UPA-2 government to a totally new plane. Secondly, Jaitley also wishes to continue the go-slow policy on the question of charging retrospective taxes on corporate houses. By all accounts, he has assured them of a soft scrutiny mechanism by the CBDT before any action. Thirdly, Jaitley has signalled that he would continue compressing expenditures to bolster his road map for fiscal consolidation.

In the social and economic sectors, expenditure compression is likely to be acute in 2014-15. While the Modi government has kept most central schemes intact, the allocations to these schemes have either fallen or are stagnant. In the National Rural Livelihood Mission (NRLM), if the expenditure in 2013-14 was Rs 2371.30 crore, the budgeted allocation for 2014-15 is only marginally higher at Rs 2486 crore. The budget for the National Rural Empployment Guarantee Scheme has risen by just Rs 364 crore: from Rs 33,000 crore in 2013-14 to Rs 33,364 crore in 2014-15.

In addition, Jaitley has promised that subsidies would be “more targeted”. Targeting of subsidies is always a code for expenditure cuts. While the food subsidy is to rise by about Rs 23,000 crore, thanks to an entitlement-based Act, other subsidies are to be limited. For instance, petroleum subsidy is to fall from Rs 85,480 crore in 2013-14 to Rs 63,427 crore in 2014-15: a decline of Rs 22,053 crore. Fertiliser subsidy is to rise only marginally by Rs 4999 crore, from Rs 67,971 crore in 2013-14 to Rs 72,970 crore in 2014-15. Within fertilisers, there appears to be a rise in urea subsidy and a fall in subsidies for potash (K) and phosphoric (P) fertilisers. Between 2013-14 and 2014-15, while the overall fertiliser subsidy is to rise by Rs 4,999 crore, subsidy on urea is to rise by Rs 9,500 crore and the subsidy on decontrolled fertilisers is to fall by Rs 4,757 crore. Such a policy is likely to increase the relative prices of P and K fertilisers compared to urea, and lead to further imbalances in the N:P:K application ratio by farmers.

Finally, if Chidambaram focussed all his energies on inviting foreign capital to boost economic growth, Jaitley has promised not to be left behind. He has increased the cap of FDI in the defense sector from 26 per cent to 49 per cent. The FDI cap in the insurance sector has also been increased from 26 per cent to 49 per cent. FDI is also sought to be given a major share of the pie in the highly speculative real-estate sector. In the name of developing Smart Cities, the requirement of the built-up area for FDI has been reduced from 50,000 square metres to 20,000 square metres. The capital conditions for FDI in this sector has also been reduced from USD 10 million to USD 5 million.

In sum, the first budget of the Modi government could also be billed as the possible first budget of a UPA-3 government. In my analysis of the UPA's last full budget in the Asian Age, dated 1st March 2013, I had argued that Chidambaram's was “a poll calculation gone wrong”. The UPA was taught a harsh lesson by India's people in May 2014. The Modi government, once in power, seems intent on treading the same path. It is just a reaffirmation that there are no differences at all between the economic policies of the UPA and the NDA.

On the Rangarajan report on poverty

R. Ramakumar

“The issue of poverty estimates has been the subject matter of public debate in and outside Parliament. Government respects and is fully conscious of the sensitivities of the people on this issue…The Government has also taken a decision to set up a Technical Group to revise/revisit the methodology for estimating poverty in a manner which is consistent with the current realities.” This extract is from the government’s press note in March 2012 on the appointment of C. Rangarajan as the Chairman of the Technical Group. The Rangarajan group was appointed to contain a massive public outrage in 2011. The reason: a Planning Commission affidavit to the Supreme Court had stated that the poverty line for rural areas was Rs 29.3 per capita per day and urban areas was Rs 32.5 per capita per day.

If such an affidavit was submitted in the 1980s or the early-1990s, the outrage may not have been comparable. Till then, the interest in poverty and poverty lines was largely academic; estimates of poverty were primarily used to understand whether benefits of five year plans did indeed trickle down to the masses. However, this was not the case in the 2000s. By then, economic reforms had led to major shifts in social policy. The most significant was the shift from universal provision to targeted provision in a range of social services, especially food, health and housing. The eligibility for these service provisions were linked to the poverty rates obtained using the official poverty lines. These poverty rates were just estimates from a sample, and identification had to follow estimation. For identification, another faulty survey was used combined with a rather bizarre scoring method. As a result, there was little correlation between the levels of living of a household and whether the household was eligible to receive benefits.

Public anger over the massive exclusions from targeted schemes was growing when the affidavit was submitted. The poverty line, from then on, was no more an academic matter. It had begun to directly touch the everyday lives of common people. Media covered the controversy widely. The report on Tushar Vashisht and Matthew Cherian, both MIT graduates, who traveled to India and attempted to live on Rs 32 a day, became a hit. Neo-liberal economists, who till then prided on the self-proclaimed statistical prowess of poverty statistics, ate the humble pie and tried to explain. Montek Singh Ahluwalia said that the official poverty line was “not comfortable but…not all that ridiculous in Indian conditions”. According to him, the poverty line, by definition, “implied considerable stress”. He was adding fuel to the fire. The result: the then official poverty line became irrevocably and permanently discredited in the public sphere.

What were the earlier methods of estimating poverty? A task force of the Planning Commission in 1979 defined the poverty line as that per capita expenditure at which the average per capita per day calorie intake was 2400 calories in rural areas and 2100 calories in urban areas. Thus, for 1973-74, the poverty lines arrived at were Rs 49.09 per capita per month in rural areas and Rs 56.64 per capita per month in urban areas. These poverty lines were not freshly estimated for every future year; instead, the poverty lines for 1973-74 were simply updated by accounting for changes in consumer price indices.

Such a method turned out faulty. It did not, for instance, account for temporal changes in the consumption baskets of people. As a result, simple updating of the old poverty line led to an increasing disconnect between the poverty line and the normative calorie consumption expected at that level. As the Tendulkar Committee report itself revealed, individuals at the all-India urban poverty line, who were expected to be consuming 2100 calories per day, were actually consuming only 1776 calories per day. Left economists like Utsa Patnaik, who pointed to such errors, were derided as “calorie fundamentalists”.

The Tendulkar Committee report, submitted in 2010, substituted the old faulty method with a new faulty method. The new method was the following: we take the all-India urban poverty line as the basis for estimating every other poverty line. This all-India urban poverty line was to be estimated (a) by using the same old calorie norm of 2100 calories per day; (b) by updating Rs 56.64 (i.e., the per capita monthly expenditure at 1973-74 prices, adequate to buy 2100 calories per day) for inflation; and (c) with no regard for temporal changes in the consumption basket after 1973-74. From this all-India urban poverty line, using a parity index, we estimate what it takes for people of different States to afford the same level of consumption.

While Tendulkar’s new method was faulty on many grounds, two issues need stress. First, the poverty line was hardly raised by the new method. In per capita daily terms, for 2004-05, the poverty line was raised from Rs 12 to Rs 15 in rural areas and from Rs 18 to Rs 19 in urban areas. Secondly, the new poverty line represented a huge fall of the normative calorie requirement from 2100 calories to 1776 calories in urban areas, which was carried over to all the other poverty lines estimated from it. As Madhura Swaminathan pointed out, Tendulkar had wrongly used a report by the Food and Agriculture Organisation (FAO) while downwardly revising the normative calorie requirement. The poverty estimates that became controversial after 2011 were based on this Tendulkar report.

What does the new Rangarajan report have to offer?

First, the Rangarajan report has rejected the arbitrary method that Tendulkar report suggested, which was to take the all-India urban poverty line as a benchmark to determine all other poverty lines in the States. The report recommends that the government revert to the method of using separate rural and urban poverty basket lines.

Secondly, the Rangarajan report also rejects the recommendation of the Tendulkar report to delink poverty lines from calorie norms, though Tendulkar himself had ended up using it for estimating the all-India urban poverty line. The report adds proteins and fats to the nutrient-norm, in addition to calories. The new protein norm is 48 gm (rural) and 50 gm (urban) per capita per day. The new fat norm is 28 gm (rural) and 26 gm (urban) per capita per day.

Thirdly, however, the Rangarajan report has reduced the calorie requirement in rural areas to 2155 calories (from 2400 calories) and in urban areas to 2090 calories (from 2100 calories). When the normative calorie norms were fixed in 1979, it was assumed that a worker in rural India required at least 300 calories per day more than his/her urban counterpart. This was due to the lower levels of mechanization in rural areas, as well as the relatively poor facilities of transport and infrastructure. In the Rangarajan report, there is little difference between normative calorie norms in the rural and urban areas. If the difference between the rural and urban calorie norms was 300 calories earlier, it is now just 65 calories. While the calorie requirement in urban areas has fallen by just 10 calories (from 2100 to 2090), the calorie requirement in rural areas has fallen by 245 calories (from 2400 to 2155). Has infrastructural facilities in the urban areas not changed at all? Conversely, is it that there are now no differences between the rural and urban areas with respect to transport and other forms of infrastructure that influence energy requirements?

Fourthly, in addition to nutrients, the Rangarajan report claims to have added two more items of expenditure in estimating the poverty line: (a) clothing expenses, rent, conveyance and education expenses; and (b) all non-food expenses that meet nutrition requirements. Thus, for 2011-12, the Committee estimates the following: (a) a per capita monthly expenditure of Rs 554 in rural areas and Rs 656 in urban areas to meet calorie, protein and fat requirements; (b) a per capita monthly expenditure of Rs 141 in rural areas and Rs 407 in urban areas for clothing expenses, rent, conveyance and education expenses; and (c) a per capita monthly expenditure of Rs 277 in rural areas and Rs 344 in urban areas for non-food items that meet nutrition requirements. Together, they add up to the new poverty line: a per capita per month expenditure of Rs 972 in rural areas and Rs 1,407 in urban areas. In other words, Rs 32 per capita per day in rural areas and Rs 47 per capita per month in urban areas.

It is in the construction of these expenditure requirements that the problem lies. For instance, both Tendulkar and Rangarajan use the expenditure of the median fractile in the NSS sample to estimate the expenditure on clothing expenses, rent, and conveyance and education requirements. In both reports, the observed median is considered as the normative requirement! How much is this median expenditure considered as adequate? Just Rs 141 per capita per month in rural areas and Rs 407 per capita per month in urban areas. Or, Rs 705 per month per 5-member family in rural areas and Rs 2035 per month for a 5-member family in urban areas. Or, Rs 23 per day per 5-member family in rural areas and Rs 68 per day for a 5-member family in urban areas. Or, Rs 5 per capita per day in rural areas and Rs 14 per capita per day in urban areas. For clothing, rent, conveyance and education, all together!

Despite setting the poverty line at destitution levels, the report shows that 30.9 per cent of the rural population and 26.4 per cent of the urban population were poor in 2011-12. In absolute terms, there were 26.1 crore poor persons in rural India and 10.3 crore poor persons in urban areas. In all, India had 36.3 crore poor persons in 2011-12. If the use of a destitution line can show that 36.3 crore persons were poor, what would be the real extent and depth of poverty in India?

The outrage that the 2011 affidavit triggered has in no way been ameliorated by the Rangarajan Committee. That debate raised important questions: is the analysis of poverty a statistical issue or a livelihood issue? Is not adequacy an important concern? Or, should we be content with the view that the poverty line should necessarily reflect “considerable stress”? Three years down, and yet another report in hand, these questions remain.

Courtesy: People's Democracy.