By Bhagirathi Panda
It is no secret that the finance Minister Mr Arun Jaitley had to present his budget in an economic environment characterized by more of gloom and less of advantage. The important manifestations of gloom are: the weak global economy with a slowdown of demand , stagnating domestic infrastructure(except highway constructions), high debt burdens of the corporates, high NPAs(Non Performing assets) of the banks, increased rural and agrarian distress, requirements of jobs far exceeding its creation and two consecutive poor monsoons. The two silver lines are the falling oil price and the comfortable foreign exchange reserves at USA $351 billon. In such a situation, making a budget and using it as cardinal instrument of economic and social development for a country like India was daunting. The budget has been presented. Now it is time for postmortem. Let me start this postmortem with my usual caveat that budget is neither the only economic policy paper nor the last word in economic policy making. There are many more policy papers, words and actions of economic policy that happen and I am sure would happen this time too, that walk off the realm of budget. Further, the recent implementation of the 14th finance commission recommendation that has raised the share of states in the divisible pool of central taxes from 32% to 42%, has to some extent squeezed the revenue and resource intervention base of the central government. In such a situation, budget is essentially a benchmarking exercise that defines the fundamental contours of economic policy of the Government of the day.
What is then, the thrust area of the budget? Without doubt, it is, economic growth through fiscal consolidation, demand enhancement, infrastructure big-push and institutional reforms. Embedded in it is the implicit assumption and explicit expectation of job creation. All these are to be realized now by a combination of ‘increased state presence in the rural economy’ and ‘predominant access to market forces in the urban economy’ and thereby giving a partial pass to the ‘get it all through market forces approach” that was the affirmed stipulation in the last budget. This is a very welcome and pragmatic step that acknowledges the complexities and nuances of development in Indian economy and society. Focus rural, start it with rural, consolidate it in rural and unleash it from rural is the reverberating principle of development of this budget. Therefore it is no surprise that the total allocation to rural development alone stands at a staggering amount of Rs. 87765 crore. The primacy of increased physical infrastructure provision through creation of augmented capacities in irrigation and road construction has been acknowledged. In a country where only 54% of its net cultivated area goes without some form of irrigation, the emphasis on irrigation was long overdue. Allocation of Rs. 38500 crore on MGNREGA and fine-tuning it to converge with irrigation, soil conservation, agriculture, horticulture and road construction etc. to create the required rural assets, dispels all the tentativeness that this Government had on MGNREGA earlier. This will give the implementing agencies at all levels a clear signal of the intent of seriousness with MGNREGA. PMGSY which was little forgotten, is again back with vigour to help in this exercise of infrastructure and job creation. Allocation of Rs. 80 lakhs as Grant-in-Aid to each GP under panchayatraj arrangement, rationalization of crop insurance scheme, introduction of animal wellness and health card, consolidation of soil health card provision etc. are all meant to revive the rural economy in terms of its productivity and job creation. There too have been increased allocations to the ministries and departments in the social sector i.e education, health and social justice and empowerment. However, one should recall that these were the ministries and departments that had witnessed substantial cuts in their budget allocations last year. When you compare the allocations on a low earlier base, you may feel an increase. But looked historically in real terms the increase is meager. Social sector deserved more.
The other thrust of the budget is growth and development through institutional reforms. Prints of Institutional reforms are visible in many a segments of the budget. Bringing Adhar on a legal platform, modernization of land records, providing a legal framework for dispute resolution and renegotiation in PPP projects and public utility contracts, freeing transportation sector from permit raj, putting agricultural marketing on e-Platform, providing regulatory architecture to ten public and ten private sector higher educational institutions to emerge as world class teaching and research institutes, digital repository for school, college degrees and mark sheets, opening up financial data management centre, introduction of DBT on pilot basis for fertilizer subsidy, launching of Ek Bharat Srestha Bharat to link states and districts in an annual programme etc. are some of the important proposals that are meant to provide the required institutional platform to facilitate the realization of various budget objectives. No doubt, these are all well meaning institutional reform measures. However, nothing has been specified about the grand institution of “Cooperative Federalism” that was the hallmark of last year’s budget. In practice, we do not see the emergence and formalization of such an institution. The sooner it is given a shape the better.
The next issue is where from the money will come? The FM has stuck to his fiscal consolidation promise of maintaining fiscal deficit at 3.5% of the GDP. In the absence of the corporate growth, he heavily depends on indirect taxes. Here he has targeted the rich and the neo-middle class. In the absence of any visible benefits to the neo middle class, this class may hold back its income by not going for a spending spree. This makes the expected indirect tax realizations uncertain. The Government has to live with this uncertainty.
Finally let us come to the North East. Unlike the yester years, there have been no many specific north east centric big announcements in the budget except creating a special fund of Rs.412 crore for promotion of organic farming. This may be because; the Government has thought it prudent to change the grammar of budget. An amount of Rs. of Rs.33,097 crore across all ministries has been allocated for development of North-eastern Region. DONER gets an amount of Rs. 2430.01 crore and NEC get Rs. 795 crore for undertaking developmental schemes in the region. Rs.300 crore has been allotted for the North-east Road Sector Development Scheme for meeting the expenditure of the project management unit of ADB-assisted North-east Road Project. An amount of Rs.223 crore has been earmarked for livelihood, skill and capacity building of the rural population to be funded by the World Bank. In addition, theoretically, in the north east, the youth and the rural can gain a lot from many of the budgetary provisions. The youth can get benefits from the 500 crore start up India scheme announced for SC/ST/Women entrepreneurs. This along with a host of other proposed schemes such as MSME hub to provide professional support to SC/ST entrepreneurs, stand up India, entrepreneurship education and training through massive open online courses, increased allocation under the Pradhan Mantri Mudra Yojana etc. can provide the youth with opportunities to get skilled and start micro enterprises. Similarly, the rural and agrarian economy of the north east can substantially benefit from the huge allocations under rural and infrastructure development programmes enlisted earlier in this write up. The region as a whole also stand to benefit from the huge allocations of Rs. 97000 crore for investment in the road projects providing the much needed intra and inter regional connectivity. But the big question is, does the region on the ground, has the required institutional and governance support to take advantage of these schemes and programmes? Unless the region effectively emerges as single economic entity, much of the proposed benefits on the infrastructure and investment front cannot be availed and internalised. This requires providing the much needed institution of “cooperative federalism”. Either NEC or DONER should be immediately prepared to take up this responsibility. Further, the region needs to reduce its high transaction costs in provisions of infrastructure development and other investments. High transaction costs arise because in many places there are no definite property rights, contract enforcement mechanisms, legal arrangements and disputes resolution mechanisms. High rent seeking culture at multiple levels also aggravate the situation. All these also limit the absorptive capacity of monetary resources of the region. Therefore, this region with the support of the centre should immediately make efforts to undertake serious institutional reforms in its economy and society so as to take full advantage of the budgetary provisions of the budget 2016-17.
(The author is a Professor in the department of Economics, NEHU)
