Post mortem of the Union Budget and political message

New Delhi: Finance Minister Arun Jaitley’s third budget has a clear political message: aimed at creating a “feel good” sense among farmers and the rural poor with an eye to the slew of state elections due soon, it is an attempt to change the perception that this is a pro-rich government.

Prime Minister Narendra Modi with Finance Minister Arun Jaitley.

In 2014, the BJP-led NDA government came to power accusing the previous Congress-led UPA regime of frittering away public money on subsidies for the poor, squandering natural resources and obstructing corporates from functioning. Monday’s budget — high on socialist rhetoric and filled with enhanced allocations for scheme such as the MGNREGA, a UPA flagship programme that the BJP had mocked at the time — would suggest that after two electoral defeats last year in Delhi and Bihar, the government would not like to take any chances.

This is also the BJP’s way of trying to woo what was always a Congress constituency — rural India.

But the fine print in the budget, opposition MPs were quick to point out, belies the promises made. For instance, the boast that the MGNREGA allocation this year — Rs 38,500 crores — is the highest ever is neither correct, as the Congress stressed (it was higher under the UPA in 2010-11) nor is the increase over the previous year significant in real terms.

There was also a sense that despite the apparent focus on the agricultural sector, the problem of rural distress has not been addressed, an issue on which the Janata Dal-United and the Congress appeared to be in agreement. Both parties were of the view that the positive signal that needed to be given by substantially increasing the Minimum Support Price for crops was not there. “The price signal should have been clear, “ former finance minister P, Chidambaram said, “one reason for the acute distress is that farmers are not getting a fair remunerative price.”

The JD-U’s KC Tyagi recalled that the BJP, in its election manifesto had promised to hike the price to 50 per cent over the cost price.

Then political parties, such as the Trinamool Congress, expressed unhappiness at the way the funding for the Pradhan Mantri Gram Sarak Yojana. Instead of the Centre funding 100%, as it did till last year, it will now provide only 60%, with the States having to bear the remaining 40%. Is this cooperative federalism, asked the Trinamool’s Derek O’ Brien.

If references to the social sector, rural development, farmers peppered the Finance Minister’s budget speech, its focus on the social sector emphasised improving of skills, promoting entrepreneurship and creating employment while giving education and health much smaller play. Only Rs. 1000 crore has been put aside for higher education, while the move to privatising of education continues. The allocation for minority education has plummeted from Rs 375 crores last year to Rs. 120 crores this year.

“We need to think beyond ‘food security’ and give back to our farmers a sense of ‘income security’. Government will, therefore, reorient its interventions in the farm and non-farm sectors to double the income of the farmers by 2022,” Mr Jaitley said. But as former Prime Minister Manmohan Singh pointed out this was an “impossible idea”.

“I think it is an impossible dream and there is no inclination, no way of telling the country how it will be achieved because it implies a 14 per cent annual increase in the farm income in each of the five years,” Dr Singh told NDTV.

But for the BJP, masters in communication, it is about creating an perception — that it stands with the poor, the vulnerable and farmers in distress. It clearly believes that the opposition’s attempts to pick holes in the budget will not work as its army of workers will fan out to spread the good word.

If the middle class — particularly the salaried middle class — has got short shrift, the BJP clearly is not that concerned about this constituency as it feels that this will not move to the Congress at this moment. The coming months will demonstrate how far the BJP’s gameplan works.

Finance minister Arun Jaitley presented the Union Budget for 2016-17 on Monday, February 29. Interesting trends have emerged from analysis of budget data over the years.

1. Government spending simplified

The Indian government has proposed to spend Rs.19,78,060 crore in the fiscal year 2016-17, which is 10.8% higher than Rs. 17,65,436 crore, revised estimates for previous year. Here is how the allocation is proposed to be distributed across ministries:

(The size of circles is proportional to the proposed amount)




2. Which ministry gained the most?

Proposed allocation to Ministry of Women and Child Development has increased by 313 per cent, from Rs. 747 crores in 2015-16 to Rs. 3,094 crores in 2016-17.

Ministry of Land Resources has been allocated Rs. 230.51, a 437 per cent increase from Rs. 43.71 crore last year.

A 13 per cent increase in Higher Education allocation, from Rs. 25,344 crore to Rs.28,765 crore.

Ministry of Civil Aviation has been allocated Rs. 2,590.68 crore, a 38 per cent decrease from Rs. 4,198 crore.

(All comparisons are between revised estimates for 2015-16 to revised estimates for 2016-17)


3. Comparison of BRICS Nations



How does government spending vary across BRICS nations? BRICS is the acronym for the association of five major emerging economies – Brazil, Russia, India, China and South Africa. As the total government revenue varies widely among the BRICS nations, budgetary allocation to a sector as percentage of GDP is good indicator to compare government spending. Russia has the highest military allocation in percentage terms, followed by India and China. For education and health, India has the lowest allocation in percentage terms.



4. Subsidy subsides


Share of subsidies as proportion of total expenditure has decreased from 2012 onwards, when it reached a peak value of 18.23 per cent. In 2016-17, 12.66 per cent of spending — Rs. 2,50,432.93 crore — has been proposed for various subsidies.


5. Food eats up bulk of subsidy



A closer look at how subsidies are distributed across various sectors reveals that share of food subsidies has been the highest since 2013. Now, half of the total subsidy goes to food. Subsidy of petroleum has varied over time, perhaps due to fluctuating oil prices. Share of fertilisers in total subsidy has gone down from 43% in 2009 to 28% in 2016-17 budget estimates.


6. How does the government earn money?


Corporation tax and income tax together constitute one third of the total government earnings.


7. How has the share of taxes changed?



Of the total tax — Rs. 16,30,887.81 crore — collected by the central government, corporation tax has the major share, though it has declined from 39 per cent in 2009-10 to estimated 30.2 per cent in 2016-17. On the other hand, the share of service tax has gradually increased, now contributing 14 per cent of total tax collected by the government.


8. More revenue forgone



From 2006-07, the government has released a statement of revenue that is forgone, which analyses the impact on government revenue due to the tax incentives available under the Central Tax system. For 2016-17, this amount is projected to be Rs. 6,11,128.31 crores — approximately a third of the total government revenue — higher than last year, when the impact on revenue was Rs. 5,54,349.04 crores.

In contrast, subsidies on various sectors amount to Rs. 2,50,432.93 crores in this year’s allocation.

Posted by on March 1, 2016. Filed under Editorial. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.