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Mainstream, Vol XLVII, No 33, August 1, 2009

A Close Look at the Union Budget 2009-10

Wednesday 5 August 2009, by Kripa Shankar

The government has been over zealous in bailing out the corporate sector. Revenue foregone through these measures has shot up from Rs 285052 crores in 2007-08 to Rs 418095 crores in 2008-09 or an increase of Rs 133043 crores in a single year (vide, Receipt Budget 2009-10 Annexure 13 Table 12). This constitutes 69 per cent of the aggregate tax collection. This has forced the government to borrow Rs 4 lakh crores in 2009-10 as against Rs 133287 crores in the Budget estimate of 2008-09. There has been a three-fold increase in the borrowing a single year. The revenue deficit has increased from Rs 55184 crore to Rs 282735 crores, a five-fold increase in a single year. Revenue foregone is more than the borrowings. If all of the exemptions were to be withdrawn there would have been no necessity to borrow which cannot but impact the inflationary pressure on the economy to the detriment of the common man. Huge borrowings will then inflate the interest payment which now totals Rs 225511 crores and takes away almost half of the tax revenue (net to the Centre).

The Tax-GDP ratio at 10 per cent is half of what it is most developed as some developing countries. The wealth tax on shares, bonds, bank deposits, debenture etc. was abolished in 1993 .Unlike many countries there is no dividend tax inheritance tax, gift tax, etc. Global Financial Integrity Report has recently revealed that Indians stash away 22-27 billion dollars every year illegally in foreign banks.The income tax return does not seek any information on money put in foreign banks as it will be embarrassing for them. It is not the lack of capital that is hindering industrial revival but it is lack of purchasing power that explains the sluggish demand. Most of the industries are utilising hardly 60-70 per cent of their capacity and in such a situation capital is not going is manufacturing sector. It is seeking speculative outlets. Agriculture occupies predominante position in generating more demands. Agriculture production is stagnating and requires massive public investment in the first instance. But what is most surprising is the fact that budgetary provision for agriculture including soil and water conservation, crop insurance, cooperation, agricultural marketing, warehousing and storage etc. has been marginally reduced and its shares at Rs 10651 crores in 2009-10 is only one per cent of the total expenditure while agriculture directly supports 60 per cent of the population. Outlay on crop insurance at Rs 700 crores shows the insensitivity of the government towards the continuing suicide of farmers. Had there been an almost free universal crop insurance scheme the farmers would have been compensated for their losses. Every motor car is the country is insured and the government provides a subsidy of Rs 10,000 per car by way of subsidised petrol and diesel. A similar amount by way of insurance premium subsidy could have enabled all the farmers to have almost free crop insurance.

A cooperative reorganisation of agricultural marketing would have eliminated the loot of farmers through price mechanism. Had there been a network of cooperative godowns and storages farmers could store their produce as also could get bank loans on the hypothecation of the produce to meet their immediate cash requirements. They could get remunerative price as the cooperatives would fix the price allowing for some margin to the farmers. At present even the price fixed by the government as minimum support price does not provide for any profit margin. This is why the National Commission on Farmers had recommended that minimum support price should be hiked by 50 per cent over the cost of production. It appears that ruling classes want agriculture to bear the cost of industrialisation so they are lukewarm towards development of cooperative marketing and construction of godowns. Total provision for agricultural marketing and cooperation is Rs 320 crores only.

Irrigation is sine qua non for agricultural growth but the Central Budget’s total provision for development of water resources is Rs 1003 crores only. About 40 million hectares of land is unutilised in the country precisely because there is no proper conservation and management of the rain water. Total allocation for what is known as National Programme for Comprehensive Land Resources Management is Rs 360 crores only in the current year’s budget. If rain water could be harvested large part of such land can be put to some productive use. Watershed development holds the key to development of such areas which is equally labour intensive. It may be noted that most of the so-called drought prone area in the country has higher rainfall than Punjab or Haryana which are the granaries of India. It is the inability to harness rainwater that explains low productivity in rainfed areas. But the budgetary outlay in the current year for watershed development is a measly Rs 1773 crores only. The Budget papers mention that it will cost about Rs 12,000 to develop one hectare.

It has now been decided to include watershed development programme under National Rural Employment Guarantee Programme and allocation for the same has been raised from Rs 16,000 crores in 2008-09 to Rs 30,100 crores in 2009-10. This is welcome but given the enormity of the problem of conservation, regeneration and augmentation of natural resources and of providing employment to roughly 80 lakh persons who are being added to the rural labour force every year investment on such activities will have to be raised manifold if in has to make any impact on the situation.

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Investment in the rural areas can get a boost if hassle-free instant loan at a much cheaper rate is made available through the banking system. The National Commission on Farmer had recommended that loan to rural population be made available at four per cent. The banks can do so if they get interest subvention of say 10 per cent as they usually lend at 14 per cent. Thus an interest subvention of Rs 10,000 crores will enable banks to disburse loans worth Rs 1,00,000 crores. It would have been much better not to give income tax concession worth Rs 10,000 crores this year and use the same for interest subvention. At present the credit deposit ratio of rural banks is round 40 per cent and about Rs 2 lakh crores is siphoned off to the urban centres. This measure will reverse the outflow and rural savings will be available to rural people. The banks have much lower rate of interest but people borrow from private money lenders as the loan is hassle free. Now banks make a cut of 10 to 20 per cent on all loans advance to the poor even in case of self help groups. It would be better if the government guarantees such loans for in that case the banks will have no hesitation in giving loans. The ratio of repayment by poor borrowers is much higher and government guarantee will not entail any loss but loan waiver as a gimmic is preferred as popular measure rather than do something to raise the flow of bank credit to the rural sector. Only 17 per cent of the bank advances goes to the rural sector. The share of housing and personal loan is much higher.

The only way whereby loan to agriculture and the rural sector can be raised is through government guarantee of such loans and reducing the rate of interest, say, to four per cent. In its absence even current rural savings will continue to be syphoned to urban centers. The budget is disappointing as regards growth in rural areas.

In 1993 the Constitution was amended to give power and funds to panchayats to emerge as organs of self government. Constitution in Schedule xi enumerated 29 developmental activities that were to be devolved to the villages panchayats and urban local bodies. Such devolution of power and funds would have led to peoples participation and control over such activities. There would have been full transparency and accountability and leakages and corruption would have been eliminated. But the politician-bureaucracy nexus is wholly opposed to such a move. This is the reason that no State Government has genuinely made any effort in this direction. So strong is this nexus those only measly funds are provided to village panchayats. The current Budget is no exception. A sum of only Rs 4781 crores has been allotted for panchayats which is no higher than what it was in the previous year.

The author is an Honorary Fellow, G.B. Pant Social Science Institute, Allahabad.

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