Social development expenditure and the needs of the people – both prior to COVID-19 but more so during and after the second wave, have not been emphasized in the current budget.

By Varna Sri Raman and Dr. Pravas Mishra

Now that the dust has settled on the initial debates around the Union budget, one can see that this year (2022-23) the budget is indeed visionary. Considering union government’s performance during the devastating second wave, the provisions made by the Finance Minister seem inadequate to say the least.

While it is true that the budget provides lop-sided impetus for growth through supply-side interventions such as focusing on infrastructure development, the budget was silent on major demand-side measures and social sector spending. The budget was also odd in that it failed to actually be an accounting exercise which is the true purpose of the budget. For instance, there was no detail presented on what was actually achieved from the last budgetary outlays and schemes. It could have been stated that, for instance, government expenditure was being increased to augment social welfare schemes or to breathe some life into India’s near-dead SMEs – but nothing was said. In hindsight, the actual numbers in the budget, provide good reason for silence. Compared to the revised estimates for 2021-22, total expenditure (after accounting for inflation) is only likely to go up by a minuscule 4.6 per cent, hardly enough to revive a dying economy.

The Union Government’s assertion about increase in Capital Expenditure (CAPEX), a collective term referring to capital or infrastructural investments by 35 per cent falls flat if detailed numbers are studied. The increase in CAPEX is at 35 per cent when Budget Estimate (BE) to BE comparison is made, but the BE is really a figure of little consequence. Instead from an accounting perspective, a comparison of BE should be done with the previous Revised Estimates (RE) and that comparison shows only a 24 per cent increase, so 10 per cent of the allocations are not new.  Turns out that to say that CAPEX has increased, the government (in this budget) looked at actual budgetary outlays and capital improvement provisions made by public sector enterprises (PSEs). But PSEs have actually allocated approximately seven per cent less money to this than last year – so in reality capital investments in the budget have gone up by only approximately 10 per cent.

Neglecting social expenditure

Social development expenditure and the needs of the people – both prior to COVID-19 but more so during and after the second wave, have not been emphasized in the current budget. The World Inequality Report 2022 depicts India as one of the most unequal countries in the world with widespread poverty along with a fast and ever-growing “affluent” class. Oxfam India’s report on inequality which states that the richest 98 Indians own the same wealth as the bottom 55.2 crore people, while 4.6 crore Indians fell into extreme poverty in 2020.

As per the Center for Monitoring Indian Economy (CMIE) some 1 crore people lost their jobs because of the second wave of the pandemic and 97 per cent of households’ incomes have declined since the beginning of the pandemic. Neglecting social expenditure and not focusing on getting money into the hands of citizens (i.e. increasing per capita personal disposable income) will only serve to increase income / wealth inequality further. Could something that focusses on revenue expenditure inducing direct demand in the economy by influencing consumption have been a better bet than something that will produce multiplier results in the far-flung future?

Data demonstrates that the annual growth of tax revenue during 2019-20 contracted and then slightly increased. In 2022 the growth rate of tax collection was projected at 9 per cent which went up to 13 per cent in the revised estimates of the same year. Budget 2022-23 projects a 10 per cent growth in tax revenue indicating recovery of the economy. However, the measures to use this tax revenue for people’s welfare are missing from the budget. This could have increased social sector spending that focuses on investing in the health, education, and livelihood of everyone.

Health, MGNREGA

Study after study demonstrates that, for instance, a good education makes the likelihood of higher incomes and lower poverty much greater. However, the overall share of the education budget (as a proportion of the total Union Budget and the country’s GDP) has witnessed a decline in budget 2022-23. Ironically while acknowledging the loss to children via school closure during the pandemic, the finance minister announced more digital education via the ‘one class, one TV channel’ programme. Even if this were a good thing (for some of the channels are at least slated to be regional languages) the allocations for the PM e-Vidya has been reduced from Rs. 50 crore in 2021-22 (BE) to mere Rs 10 lakh for 2022-23 (BE). Specific school programmes which have been known to improve India’s languishing education and nutritional outcomes together – such as the mid-day meal programme and scholarships also witnessed a decline.

Similarly, the total budgetary support in absolute amounts for the health sector stands at Rs. 89,251 crores for 2022-23; the share (as a proportion of the total Union Budget) has remained more or less stagnant over the last few years of the Modi government at a minuscule 2.26 per cent of the total budgetary expenditure in 2022-23 (BE). Indeed, allocations for the National Health Mission (NHM) declined in comparison to 2021-22(RE). This is despite a recorded deficit of doctors, paramedics and health equipment at the primary health centers and community health centers.

Several economists have pointed out the role that MGNREGA plays in augmenting livelihoods in the pandemic and in conditions of extraordinary unemployment. In 2020-21, around 13.32 crore people applied for work under MGNREGS, of which 13.29 crore were given work, and close to 11.30 crore people had applied for work of which 11.22 crore had been offered work in 2021-22 (up to the first week of January 2022). Despite this, in the 2022-23 BE allocation for MGNREGA has declined by 25.5 per cent in comparison with the 2021-22 RE.

Not visionary

What can a government do to increase rates of growth? As any student of economics will tell, a government can try and inject the economy with hope. How does a government do that? Of course, by encouraging people to spend more, make loans cheaper, for instance, which is what India is trying to do with home loans now and encouraging more and more micro-borrowing by MSMEs and individuals. This is not efficient. In a situation of high inflation, making loans cheaper, puts money into the hands of a people pushed against the wall, while doing zilch for their actual ability to repay. With increase after increase in indirect taxes and no relief in direct tax concession India’s demand driven economy appears to have effectively been left to fend for itself. Except for a limited digital assets related tax, no surcharge on the super-rich to compensate for the loss of revenue nor a one-time wealth tax – does little to inject hope.

While clean energy, electric vehicles, battery swapping policies etc., found a mention in the budget, none of the attendant infrastructure such as a much-needed revision in ethanol classification, detailing of a smart grid or power distribution infrastructure, climate resilience policy or agricultural inputs in support of small marginalised farmers that do not rely on fancy technology but instead focus on the fundamentals, find a mention. Ultimately implementation trumps vision. Yet, even the budgetary allocation utilization has proven to be a disappointment time and again. Sadly, the visionary budget appears only more and more blurry for the common man.

Varna Sri Raman is a Lead-Research and Knowledge Building  and Dr Pravas Mishra is Assistant Manager – Research & Knowledge Management at Oxfam India.

Image: Hippopx — Licenced to use Creative Commons Zero – CC0