Budget Report

IMPLEMENTING THE CMP

Dr. Ravni Thakur

When the Congress and the Left won the ballot war on the 13th of May 2004, the victory was a resounding call for change. The people voted against, not just the narrow-minded ideological agenda of the BJP, but also against its pro-urban and pro-rich policies. The BJP’s India Shining campaign brought to the fore the contradictions inherent in their economic policies where rapidly rising consumer demand in urban metropolises contrasted sharply with rural backwardness.

The Common Minimum Programme adopted by the Congress under the leadership of Smt. Sonia Gandhi and its allies in the ruling coalition, specified the aims of the Government for the next five years. Chief amongst its objectives has been the revitalization of the agricultural sector and tackling unemployment. While the economic liberalization process is set to continue, the Common Minimum Programme is committed to ensuring that the lacunae in the economic reform process are ameliorated. Budget 2004, the first budget of the UPA Government, has tried to put in place policy measures that will help implement the Common Minimum Programme. Budgets are not just an annual exercise that balance the nations books. They are also an ideological statement that directs the nation’s economy and politics towards a specific goal. The goal of this budget is to ensure that economic reforms continue but that its benefits percolate down to the lowest echelons of society. This has been done by reorienting the focus of investment and policy on rural India. Its goal, and that of the CMP is to wipe out the dichotomy that exists between rural and urban India. Let us look at some of the provisions of the budget that seek to implement this charter :

Rural Sector Reforms

While the Indian economy has shown a remarkable resilience and continued its growth trajectory at an average rate of six percent per annum, several economic bottlenecks, especially in the rural sector, remain. A recent planning commission report pointed out that "rural poor families have remained constant in number at 55 million in the past 20 years" (India Today, 19 July). Rural poverty, based as it is on indebtedness of the small peasant land holder is one of the most glaring contrasts between India’s horrendously consumer conscious urban middle class. Rural infrastructure, especially education, health and roads remain in a state of neglect.

The CMP has accepted this challenge and realised that unless prosperity is brought to our rural belts we are not going to achieve our growth targets of 8 percent per annum. Here the example of China is instructive. China started its economic reforms by first allowing free enterprise in its rural areas and by creating alternative rural employment. Prime Minister Manmohan Singh has pointed out how developing clusters of town and village enterprises, diversifying the rural economy by giving agro-business better incentives, will help create new markets for industrial and consumer goods while creating rural employment. The Government’s focus is on agriculture and agro-industries and it hopes these can grow at 7-8 percent. A well-crafted package to boost these industries has been put forward. This includes increased irrigation schemes with an emphasis on building traditional water conservation schemes with active participation by village panchayats. Rs. 2,800 crores has been earmarked for irrigation. Tax concessions will also be given for the dairy industry and certain other activities. Floriculture and horticulture will also be given policy and financial support. Further, agricultural credit is set to double over the next three years. Along with this, the cooperative credit system will also be revamped. Several reports have indicated how the collapse of this sector played a crucial role in the ruin, and consequent, suicides of several peasant families.

The budget also focuses attention on those living below the poverty line. The Antyodaya Anna Yojana has been extended to another fifty lakh families. The Finance Minister has also mooted a special experimental food stamp system to be tried in certain regions. This would help address the problems that arise at the distribution and implementation level of food and other poverty alleviation schemes. It would also control hoarding, siphoning off earmarked rations and other layers of corruption. In its efforts to create income and employment for the poorer sections of society, an Employment Guarantee Scheme has been put in place. This envisages providing hundred days of employment for one member of each poor family. Till the scheme can be fully implemented, food for work programmes will be run for specified backward districts. This comprehensive focus on rural development is the corner stone of India’s second generation reforms and necessary if our transition from a chronically poor country to one that is prosperous is to succeed.

Education and Health Sector Development

Several reports have stressed the direct linkages between illiteracy and chronic poverty. There is also a direct relationship between sound family planning and women’s education. While India has achieved significant success at the levels of higher and research education, we have remained sadly negligent of the needs of rural primary, secondary and vocational education. India’s illiteracy levels, compared to China or Sri Lanka are abysmally high. The CMP charter has clearly targeted this oversight. It has pledged to raise public spending on education from 4 percent of the GDP to 6 percent of the GDP. However, while this is a laudable step, its implementation, dependent as it is on State infrastructure and planning, is still a road block. Village primary education centers are plagued by teacher absentieeism, unpaid salaries to staff and from little to no teaching aids. Budget 2004 has taken a step in the right direction by charging a two percent education cess generating up to Rs. 5000 crore a year. This means that the costs will be shared by the nation’s tax payers as a whole. Mid-day meal schemes will also be expanded and the facilities available with rural schools strengthened.

Similarly, public spending on health has been restructured and augmented. A redesigned health insurance scheme costing Rs. 40 crore a year and a new group health insurance scheme for the poor has been put forward. Over the next five years, the CMP envisages a rise of 2-3 percent in public spending on health. This will also entail upgrading and maintaining health facilities and ensuring that primary rural health centers are well equipped and with adequate staff. Further, the process of privatization has also been linked up with social sector schemes where the proceeds from such sales will be used for designated social sector schemes. At the tax level, the raising of non-taxable income from fifty thousand to one lakh will also bring relief to a definite segment of society. It will also augment consumption by freeing money for other goods. Further, a 9 percent return has been promised to senior citizens on special bonds to ensure they do not suffer.

The Government has also come to aid of cash strapped states by creating a Rs. 25,000 crore fund and by lowering interest rates on government to state loans.

Economic Reforms to Continue

The finance minister has in his Budget addressed the continuation of economic reforms by increasing the limits for FDI investment in the telecom, civil aviation and insurance sectors. While this has met with resistance from the Left party allies, the Minister has sought to explain this move by pointing out how this would both increase the reach of these facilities and create greater teledensity in rural areas. Today the mobile phone is used by all classes of society, its brands and range may very.

The green signal given to the budget by industry also points out how its economics and politics are both pitched in the right direction. Several industrial moghuls have come out in praise of the budget. The dereservation of 85 Small Scale Industry items, customs duty reduction and the setting up of a disinvestments commission has also boosted industry’s enthusiasm. Further, industry is also able to see the linkages between growing rural demand and prosperity with an increase in its own markets. The lowering of prices on tractors for example boosts both agriculture and industry. Steps have also been taken to strengthen manufacturing sector and take forward second generation reforms.

The Minister has also taken a decision to cut the revenue deficit (difference between current consumption and income) to just 2.5 percent of the GDP. Kumara Manglam Birla puts it succinctly when he told India Today, "The finance minister has done a fine balancing act. He focussed on fiscal prudence, defence modernization and the setting up of an industry Commission is a positive step." Further, the introduction of VAT across the country should also aid in the free movement of goods and services.

Infrastructure has also received a boost with Rs. 40,000 crore earmarked for development of airports and tourism as a whole. This coupled with raising the FDI in the aviation sector should help us turn around the sorry picture our airports and other entry points to India make in comparison to other countries in Asia. The Minister anticipates a GDP growth of between 7 to 8 percent and also hopes to expand the tax net to rope in additional funds through his service tax provisions and through corporate tax collection will help generate the funds necessary for his targets.

All in all, the budget has shifted its focus from development of a few key sectors of society to education of the poor and employment generation so that everybody participates in the development of a stronger and more vibrant India. Coupled with a fair railway budget and more funds for defence, we can rest assure that political change in India spells a change for better this time around.

(The author is an Associate Editor of Congress Sandesh).