res brief budget 2010

8/6/2019 Res Brief Budget 2010

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Published 28 February 2010

Project on

MONITORING AND ANALYSIS

OF BUDGETS IN

MAHARASHTRA STATE

RESEARCH

BRIEF - 1

INDIA’S UNION BUDGET 2010-11 AND THE POOR

R. Ramakumar, Aditi Dixit, Tushar Kamble

This budget belongs to the ‘Aam Aadmi’.It belongs to the farmer, the agriculturist,the entrepreneur and the investor. Theopportunity is great. The time is right.

(Pranab Mukherjee, Budget Speech, 2010-11)

The Context and Expectations

Union Budget 2010-11 has to be evaluatedbased on what was expected out of it, and theeconomic environment in which it waspresented. First, the budget was presentedthree years after the global economic crisis

began. In this period, a large number of developed and developing economies opted to“pump prime” their economies to sustainlevels of output, protect jobs and bail outfinancial institutions. Secondly, the unionbudget was presented in the midst of acontinuing global food crisis; at least inspiredby it in part, Indian food prices haveskyrocketed in the recent months. Themonthly figures for domestic food inflation

range between 18 and 20 per cent, the highestsince the mid-1970s.

Given the adverse global and domesticeconomic environment, a number of expectations were attached to Budget 2010-11.

First, it was expected to protect the Indianpeople from the adverse consequences of thecrisis. In this context, the budget could haveinitiated the establishment of a comprehensivesocial security system and raise social sector

expenditures substantially.

Secondly, the budget was expected,particularly in the wake of double-digit foodinflation, to put in place a universal system of food security as well as take measures to raisefood grain production. A number of officialcommittees have recently recommended theexpansion, even if not universalisation, of the



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public distribution system (PDS). With respectto raising agricultural production, thegovernment needed to increase publicinvestment in irrigation, research andextension and focus resources on specificproduction challenges in the dry land regions.

Thirdly, the budget was expected to sustainand further expand the fiscal stimulus packageas a demand booster for economic growthitself. Given India’s poor standard of living andlow average incomes, increased publicexpenditure has a major role to play in raisingthe purchasing power of people as well asbroad-base the pattern of economic growth.

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On all the three counts, the budget is adisappointment.

The worldview

Budget 2010-11 is driven by a strong neo-liberal worldview. It appears unconcerned with theglobal turn of debates after the economiccrisis on the role of the state. Across thedeveloped world, particularly Europe, theglobal crisis has marked the end of a phase where the “minimalist role” of the state washailed as supreme. As even the right-wing

French President Nicholas Sarkozy was toremark, “laissez faire is finished.” At the WorldEconomic Forum in Davos in 2009, one of themajor questions being asked was: “could themuch-maligned social welfare system inEurope end up being the model for the 21stcentury?”

2

Pranab Mukherjee’s budget begins with thestatement that it is not the state’sresponsibility to provide all social services to

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For instance, China decided in November 2008 tospend nearly $586 billion (Rs 29.3 lakh crore) overtwo years. It covers various areas of investment, suchas low-cost housing, rural infrastructure, water,power, new technologies and environmental projects.To the contrary, the response in India has beenprimarily on the monetary policy front to raise levelsof liquidity, as well as to extend tax concessions toselect sectors.

2 See “Is Europe’s welfare system a model for the 21stcentury?”, The New York Times, January 27, 2009.

its citizens. According to the Minister, the roleof the government is only that of an enabler in the period after economic reforms; thefocus has shifted to “non-governmentalactors,” who would make “individualenterprise and creativity” flourish. Indeed, this

narrow and confused world view guides mostof the recommendations in the budget.

We plan to analyse Budget 2010-11 by lookingat the allocations and means specified in thebudget vis-à-vis providing services to the poorand working people, or the quintessential aamaadmi.

3As James O’Connor (1973) famously

argued, “the volume and composition of government expenditures and the distributionof the tax burden are not determined by thelaws of the market, but rather reflect and are

structurally determined by social andeconomic conflicts between classes andgroups” (p. 2).4 We argue that far from givingprecedence to the needs of the aam aadmi, thepolicy stance of the government and thebudget tell a story of class bias, which haspushed inclusiveness down the priorityagenda.5 The “non-governmental actors” turnout to be none other than corporate houses,urban rich and real estate agents.

Trends in expenditure

To begin with, the total revenue expenditureof the centre is slated to rise by only 5.8 percent between 2009-10 and 2010-11 (Table 1).Between 2008-09 and 2009-10, the revenueexpenditure had risen by 12.8 per cent. Withinflation ruling at about 7 to 8 per cent, theincrease of revenue expenditure in nominalterms may actually be negative.

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A detailed analysis of the Union Budget prepared bythe Centre for Budget and GovernanceAccountability, New Delhi is available at:http://www.cbgaindia.org.

4 James O’Connor (1973), The Fiscal Crisis of the State,St. Martin’s Press, New York.

5 For a critical analysis of the extent of “inclusiveness”in the UPA government’s policies, see Nirmal KumarChandra (2010), “Inclusive Growth in NeoliberalIndia: A Façade?”, Economic and Political Weekly,February 20, pp. 43-56.



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As a ratio to the GDP, total revenueexpenditure formed 14.7 per cent in 2009-10(Table 2). In 2010-11, if we assume that theGDP would continue to grow by 7.2 per cent,the budgeted revenue expenditure wouldactually decline to 14.5 per cent of the GDP.

The reduction in the growth of aggregatespending is in line with the calibrated exitstrategy from the fiscal stimulus packagerecommended by the 13t h Finance Commission(FC). The Commission has recommended thatthe augmented debt stock of the centralgovernment should decline to 45 per cent of the GDP by 2014-15. Thus, Budget 2010-11 hasbegun the process of returning to the neo-liberal dogma of reducing deficits; as is thespirit of the dogma, deficits are to be reduced

by cutting expenditures, and not raisingrevenues.

In India, about 80 per cent of the social sectorexpenditure is undertaken by the States. Thecentre’s support to the State and UT plans isslated to increase by only about Rs 6500 crorein 2010-11, or about 7.5 per cent higher than in2009-10. Again, in real terms, there is noincrease.

The FC recommendation for States to return

to their fiscal correction path by 2011-12 hasalready ended the possibilities of autonomousfiscal expansion at the State-level. Accordingto the FC, all States have to achieve zerorevenue deficit, and fiscal deficit of 3 per cent,by 2011-12. Further, it has recommended thatthe Fiscal Responsibility and BudgetaryManagement (FRBM) Acts be amended inStates so that the fiscal reform path (or theannual targets for the reduction of revenueand fiscal deficits) are incorporated within theAct itself. In what is a bizarre logic, the FCeven goes on to recommend that “any Statethat has a revenue surplus along with a higherfiscal deficit should compress its capitalexpenditure, or alternately, increase its surpluson the revenue account”.

Expenditures on Social and Economic Services

As mentioned, many economies across the world have taken the economic crisis as anopportunity and used their fiscal stimuluspackages to fortify social security systems.6 In

India too, the crisis presented an opportunityto allow fiscal deficits to rise so as to financenew and innovative social security schemes.

However, given the overall context of stagnantrevenue expenditure, the Finance Minister leftfor himself little room to raise social sectorexpenditures in any substantive way. Thus, if the revenue expenditure on ‘Social Services’grew at 13.3 per cent between 2008-09 and2009-10, it grew at a slower rate of 11.2 percent between 2009-10 and 2010-11 (Table 1). As

a ratio to GDP, the revenue expenditure on‘Social Services’ would be staying constant at1.5 per cent in 2009-10 and 2010-11 (Table 2).

There are variations across sectors in thedistribution of this reduced growth of expenditure. The growth of revenueexpenditure on ‘General Education’ shows arise from 6.3 per cent between 2008-09 and2009-10 to 21.6 per cent between 2009-10 and2010-11 (Table 1). However, this rise is largelyan illusion. In 2009-10, the actual expenditure

under ‘General Education’ was about Rs 3000crore less than what was budgeted; the highergrowth between 2009-10 and 2010-11 appearsto be a result of the lower base yearexpenditure than a real increase. If wecompare the budget estimates of 2009-10 and2010-11, the increase is only by 10.2 per cent.

On the other hand, the growth of expenditureon ‘Medical and Public Health’ shows a fallfrom 21.6 per cent between 2008-09 and2009-10 to 13.4 per cent between 2009-10 and2010-11 (Table 1). In terms of ratio to GDP, theincrease has been paltry from 0.12 percent to

6 In 2009, China unveiled a health care reform plan toprovide free basic health care to the country’s 1.3billion inhabitants by 2011. Costing $124 billion, theplan is to subsidise basic medical insuranceprograms, support grassroots-level health facilitiesand invest in the underdeveloped western and ruralregions.



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0.13 percent (Table 2). Similarly, for WaterSupply and Sanitation, the growth of expenditure shows a fall from 102 per cent to39 per cent.

The revenue expenditure on ‘Economic

Services’ shows a rise by a meager 1.3 per centbetween 2009-10 and 2010-11 (Table 1). Withineconomic services, the revenue expenditure on‘Agriculture and Allied Activities’ continued tofall in absolute terms: at (-) 1.8 per cent.

In the categories of ‘Rural Development’,‘Rural Employment’ and ‘Irrigation and FloodControl’ also, the growth of expenditure fellbetween 2009-10 and 2010-11, when comparedto between 2008-09 and 2009-10 (Table 1). Inall the categories presented under ‘Economic

Services’, the expenditure as a ratio to theGDP is slated to fall between 2009-10 and2010-11 when compared to between 2008-09and 2009-10 (Table 2).

Expenditure on Flagship Schemes

If we consider the flagship schemes of thecentral government in the social sector, theslow and inadequate rise of expendituresbecome clearer. For National Rural

Employment Guarantee Scheme (NREGS),there has only been a meager increase inallocation of Rs 1000 crore (or 2.5 per cent)over 2009-10. Also, if we make priceadjustments for inflation, the real allocationfor the scheme has actually declined. Theinsignificant additional expenditure for NREGSappears specious, since the recent Presidents’Address actually held the scheme responsiblefor higher food prices. Was additionalexpenditure on NREGS held back to controlthe rising food prices?

Similarly, for the National Rural HealthMission (NRHM), the increase is only of Rs1500 crore. The allocation towardsstrengthening elementary education throughSarva Shiksha Abhiyan (SSA) is Rs 15,000crores, a rise of Rs 1900 crores from theallocation made in the last budget. However,taking into account the fact that the

government has to now implement the Rightto Education Act, which aims to universalizeprimary education, the rise in allocationsappears barely enough. Given these trends, thedelays in reaching the investment targets of 6per cent of GDP in education and 3 per cent

of GDP in health are going to be inordinatelylarge.

Much of the increases in expenditures onflagship schemes noted above are based onbudgeted expenditures in the last budget.However, in the light of the fact that theactual expenditures for most schemes remainbelow the budgeted allocations, theseincreases mean little. For instance, accordingto data from the NRHM’s website, Rs 6171crore from the budgeted amount for 2009-10

remains unspent. In 2008-09, thecorresponding unspent amount was Rs 1080crore. Similarly, for NREGS, the total unspentbalance for the scheme was Rs 9050 crore in2008-09 and Rs 7804 crores in 2009-10.

Tax Exemptions and Revenues Foregone

The lack of seriousness in raising social sectorexpenditures is also clear from the various taxexemptions given away in the budget. The

budget works on the myth that growth ispossible only through the private sector andthat it is important to ‘incentivise’ them toundertake investment. The total revenueforegone of the government (by way of various tax exemptions) has already risen fromRs 4.1 lakh crore in 2008-09 to Rs 5 lakhcrore in 2009-10. In 2010-11, about Rs 26,000crore is to be lost by way of direct taxexemptions to the urban elite and real estatecompanies. Ironically, the same budget thrustsnew indirect taxes – that are consideredregressive and against the poor – worth Rs60,000 crore on the people.

It is well argued in the literature on publicfinance that in the Indian context, anyredistribution of incomes in favour of thepoor must rely on greater direct tax measures.Greater reliance on indirect tax measures, asopposed to direct tax measures, is the most



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telling feature of the anti-people bias of Budget 2010-11. Increase in indirect taxes alsoreflects the core ideology of neo-liberalism asa system longing for ‘self-proclaimed stability’at any social cost.

The Sidelining of Food Security

Food security is another critical area totallysidelined in the budget. This is quitesurprising, given the background of high andrising food prices. The need of the hour is toexpand the PDS to larger sections of people,and with more number of commodities, inorder to protect them from the vagaries of inflation and meet the long-run challenge of generalized malnourishment. Progressive

political movements have also demanded auniversal right to food, with a 35 kg allocationof food grain for every Indian household at Rs2 per kg.

However, the expenditure on food subsidy, soessential in sustaining the PDS, has actuallybeen cut in absolute terms by Rs 424 crorebetween 2009-10 and 2010-11.

The cut in food subsidy is well in line withsome of the recent policy stances of the

government. Take an illustration: in January2010, the Union Cabinet approved anadditional allocation of 10 kg of wheat or riceto all eligible card holders under the PDS. Thecatch was that the price of sale was to be notthe present central issue price, but higher. Atpresent, a BPL card holder gets rice from PDSat about Rs 5 per kg. For the additionalallocation of 10 kg of rice, a BPL card holder was to pay a price three times higher.Similarly, for wheat, a BPL card holder was topay a price that was double the present price.

A lower issue price implies higher foodsubsidy; the lower food subsidy bill in 2010-11indicates that there are no plans to expand thePDS and reduce the pressure of food priceinflation in the recent future. Thus, for allpractical purposes, food price inflation is hereto stay.

The Finance Minister, in the speech, gavemuch emphasis on introducing a food securitybill. In the light of the absolute cut inspending on food subsidy, the sincerity of thegovernment in bringing in a meaningful foodsecurity bill stands in serious doubt.

It is not just that the PDS is sought to be weakened in the times of high food prices.The budget also contributes to the upwardpressure on food prices by raising indirecttaxes on petroleum products. There is to be a5 per cent increase in the customs duty oncrude petroleum and Rs 1 per litre increase inthe central excise duty on petrol and diesel. Inparagraph 18 of the budget speech, the MrMukherjee actually accepts the fact that:

Since December 2009, there have beenindications of these high food prices,together with the gradual hardening of the fuel product prices, gettingtransmitted to other non-food items as well. The inflation data for January seemsto have confirmed this trend.

The raising of fuel prices in the same budgetspeech shows nothing but a callous attitude tothe problem of food prices.

The Focus on Agriculture

According to the Economic Survey 2009-10,released a day ahead of the budget, foodproduction in India is expected to decline in2009-10 by 16 per cent over 2008-09. Thegrowth rate of agricultural GDP was negativeat (-) 0.2 per cent between 2008-09 and2009-10, compared to 1.6 per cent between2007-08 and 2008-09. As the EconomicSurvey admits, these trends have brought the“need for improving food production and

productivity to the forefront of nationalstrategy.”

There is much rhetoric in the budget speechon agriculture. However, this rhetoric sitsuncomfortably with the absolute reduction of Rs 2000 crore in the revenue expenditure for‘Agriculture and Allied Activities’ between2009-10 and 2010-11. The Finance Minister has



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spoken about a four-pronged strategy foragriculture that includes (a) increasingproduction; (b) reducing wastage of produce;(c) increasing credit support to farmers; and(d) encouraging the food processing sector.

Apart from (a), which at least looks pro-poor,the remaining three strategies are openlybiased towards promoting large businessinterests in agriculture. The two measuresthat mark the Minister’s strategy (a) toincrease agricultural production appear to bea cut in fertiliser subsidy and an absolute cutin the allocation for the flagship NationalHorticulture Mission (NHM) by 3.5 per cent.

The total fertiliser subsidy has been cut by Rs3000 crore in 2010-11 over 2009-10. Costs of

cultivation are certain to rise with the cut infertiliser subsidy. From 1991 onwards, the cutsin fertiliser subsidy have led to a sharp rises inthe prices of fertilisers. In 1990-91, the priceper tonne of Urea, Di-Ammonium Phosphate(DAP) and Muriate of Potash (MOP) were Rs2350, Rs 3600 and Rs 1300 respectively. Bythe mid-2000s, the prices of the threefertilisers had risen to, respectively, Rs 4830,Rs 9350 and Rs 4455.

In February 2010, the government decided to

increase the price of urea by another 10 percent, or Rs 50 per bag. By announcing a shiftto a nutrient-based subsidy scheme, what thegovernment did then was to fix as constant what it would pay to the private fertilisercompanies, and leave the companies free tocharge any price from the farmers. With thesubsidy cut announced in the present budget,the government has indicated how much itplans to save by exiting from this criticalsector.

The points (b), (c) and (d) in the Minister’sstrategy go patently against small andmarginal farmers. The reduction in wastage of produce is to be brought about by “openingup of the retail trade” and encouraging privatesector participation in food grain storage. It isstrange that the storage capacity of the FoodCorporation of India (FCI) is not being

increased by direct public investment, butthrough promoting private investment.

In agricultural credit, the target for 2010-11 hasbeen raised to Rs 375,000 crore from Rs325,000 crore in 2009-10. Experience tells us

that this increase, as the earlier increases inagricultural credit, is aimed primarily atfinancing new forms of commercial, export-oriented and capital-intensive agriculture,including by corporate houses. Let us look atthe trends in agricultural credit from 2000onwards.7

· About one-third of the increase incredit flow to agriculture between2000 and 2006 was on account of theincrease in indirect finance.

· The entire growth of indirect financeto agriculture originated from a majorexpansion of loans with a credit limitof more than Rs 10 crore, andparticularly more than Rs 25 crore.

· Within direct finance to cultivatorstoo, there was a major rise in theshare of advances with a credit limitof more than Rs 1 crore between 2000and 2006.

Thus, there is little evidence to argue that themajor beneficiaries of the revival inagricultural credit in the 2000s have been thesmall and marginal farmers. In fact, officialpolicy has gradually brought in the corporatesector into the fold of agricultural creditthrough a number of definitional changes. Forinstance, the Reserve Bank of India (RBI) hasstipulated that from April 2007 onwards,loans given to corporates, partnership firmsand institutions for agricultural and allied

activities (such as beekeeping, piggery,poultry, fishery and dairy) in excess of Rs 1crore in aggregate per borrower would be

7 See R. Ramakumar and Pallavi Chavan, “Revival of Agricultural Credit in the 2000s: An Explanation”,Economic and Political Weekly, 42 (52), December29, 2007, pp. 57-64.



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considered as agricultural finance.8 Indeed,meeting the task of increasing agriculturalcredit has been made much easier for banksthrough these definitional changes.

In Budget 2010-11 too, the picture is no

different. The budget speech promises to relaxborrowing limits and conditionalities for coldstorages, under the guise that they wouldbenefit farmers. In reality, such borrowals aremade only by large-scale agri-business firmsand retail chains. The budget speech statesthat:

…as a part of the farm to marketinitiative, External CommercialBorrowings will henceforth be availablefor cold storage or cold room facility,including for farm level pre-cooling, forpreservation or storage of agriculturaland allied produce, marine products andmeat. Changes in the definition of infrastructure under the ECB policy arebeing made.

It appears that given the stated role of thestate as a “facilitator” and “enabler”, the next

8 For more details and the nuances of definitionalchanges, see ibid.

logical steps would be to leave the farm sectortotally to private corporate interests. In manyStates, land reform laws are being amended toraise land ceilings, so that private firms couldcultivate unlimited areas of land. Four Stateshave already implemented these amendments

in land reform laws: Karnataka, Maharashtra,Tamil Nadu and Gujarat.

In Conclusion

In sum, the union budget for 2010-11 missesthe grade on most counts that matter to thepoor. The overconfidence that it displays inhaving addressed the global slowdown, even inthe face of a negative growth rate inagriculture, is misplaced. In the midst of the

crisis, the poor have been left to fend forthemselves. Far from protecting the standardsof living of the poor, the “enablinggovernment” is increasingly disabling theircapabilities to protect livelihoods.



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Table 1 Percentage growth rates in allocations to Social Services and Economic Services,Revenue, 2008-09 to 2010-11, in per cent

Head Selected sub-heads

Percentage (%) increase in allocat ionbetween

2008-09 and 2009-10 (RE)

2009-10 (RE) and2010-11 (BE)

So cial Services 13.3 11.2General Education 6.3 21.6

Technical Education 18.4 14.4

Sports and Youth Activities 111.1 -30.6

Art and Culture 15.2 -2.0

Education, Sports, Arts andCulture (sub-total)

11.9 16.3

Medical and Public Health 21.6 13.4

Family Welfare 12.1 18.4

Water Supply and Sanitation 101.5 39.0

Housing 0.6 15.0

Urban Development 112.2 -10.3

Welfare of SC, ST and OBC -0.4 23.6

Labour and Employment -4.8 24.1

Social Security and Welfare 10.1 -12.9

Nutrition -1.2 6.4

Economic Services -39.6 1.3

Agriculture and Allied Activities -21.7 -1.8

Rural Development 6.3 5.8

Within Rural Development: RuralEmployment

6.4 2.6

Irrigat ion and Flood control 19.2 4.5

Tot al Revenue Expenditure 12.8 5.8

Source: Budget documents.



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Table 2 Share in GDP of allocations to Social Services and Economic Services, Revenue, 2008-09to 2010-11, in per cent

Head Selected sub-headsShare (%) in GDP of allocations for

2008-09 2009-10 2010-11

So cial Services 1.47 1.51 1.56

General Education 0.50 0.48 0.54

Technical Education 0.07 0.08 0.08

Sports and Youth Activities 0.02 0.04 0.03

Art and Culture 0.02 0.02 0.02

Education, Sports, Arts andCulture (sub-total)

0.61 0.62 0.67

Medical and Public Health 0.11 0.12 0.13

Family Welfare 0.11 0.11 0.12

Water Supply and Sanitation 0.06 0.11 0.14

Housing 0.15 0.14 0.15

Urban Development 0.01 0.01 0.01

Welfare of SC, ST and OBC 0.01 0.01 0.01

Labour and Employment 0.04 0.03 0.04

Social Security and Welfare 0.31 0.30 0.25

Economic Services 8.07 4.41 4.17

Agriculture and Allied Activities 2.51 1.77 1.63

Rural Development 0.73 0.70 0.69

Within Rural Development: Rural

Employment 0.66 0.63 0.61

Irrigat ion and Flood control 0.01 0.01 0.01

Tot al Revenue Expenditure 14.41 14.70 14.51

Source: Budget documents.



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This ‘Research Brief’ was prepared at the School of Social Sciences as part of the project titledMONITORING AND ANALYSIS OF BUDGETS IN MAHARASHTRA STATE, internally funded bythe Research Council of the Tata Institute of Social Sciences, Mumbai. Corresponding email:[email protected].

Research Briefs are envisaged to be short and structured summaries on important research andpolicy issues. The opinions and comments in the research briefs are the personal views of theauthors, and do not reflect the official positions of the institutions with which they areassociated.

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