Budgets priorities under different regimes
10 April 2012
Every year the budget is discussed threadbare in the media, policy and corporate circles. While on one hand the response of the stock market, financial institutions and the larger business community is considered an indicator to the quality of the budget, on the other hand, budget is also considered an integral part of the electoral dynamics. Due to the stakeholder interest and level of stakes, all discussions are passionate and sometimes loud. However, on a cursory examination of the budget coverage in the media and research reports, the emphasis is on income-tax, sales tax, excise, inflation etc. The "Part A" of the budget, which is an indicator of government intention and priority, remains relatively under explored.
"Part A" of the budget is perhaps the most important indicator of the priorities of the government towards nation development. This is also the section which will impact lives of over 65% of the population that resides in rural India. It does not determine how much an SUV would cost from the next day, but determines the outlay on the roads for transport or subsidy on diesel to run the SUV. Very little analysis is available on how different political regimes have prioritised development agenda and how it has been reflected in the annual budgets.
When the NDA advertised "India Shining" or when the UPA advertised "Aam Aadmi" - was the vision reflected in the budgets? Interestingly, the political will found strong resonance in the Part A within the budgets.
For instance, the capital expenditure since NDA regime has seen a decline with the revenue expenditures increasing significantly, indicating the NDA government's priorities towards building infrastructure and UPA penchant for social schemes such as NREGA. Further, average expenditure growth in rural sector development was only 1.62% during the NDA regimes while it was around 25% in the UPA1 & 2 regimes emphasising the sectoral priorities of the two regimes.
The preferences are also reflected by looking at the share of each sector in the total expenditure. Rural development expenditure share was about 6% during NDA while in UPA 2 it is about 10.5%.
Similarly, allocation towards subsidies has increased manifold during the UPA 2 regime. The cost of living of the rural population has been shielded by providing fertilizer subsidy and by subsidizing food grains through PDS. It must be mentioned that while such ratios demonstrate intent, they are not a proxy for efficiency which plagues the distribution system.
Education reveals a similar story. In the initial stages of Sarva Shiksha Abhiyan, the priority was to build infrastructure.
Once schools were built and the allied infrastructure set up, the capital expenditure gradually reduced. At the same time, revenue expenditure showed a steady increase each year. UPA 2 allotted 8.34% of its expenditure on education compared to 6.18% by the NDA. This increased allocation for expenditure though a positive indicator cannot be seen as a measure of quality in the government school system.
The telecom revolution from the turn of the century required investments in infrastructure in the development of this sector. The same was adequately reflected in the initial years of the NDA regime.
The percentage share of telecommunications in the total expenditure was 14% in the NDA followed by 6.9% & 3.2% in the UPA 1 and the UPA 2 respectively. Albeit, increased private participation in the telecom sector could have helped reduce the government burden.
NDA also committed heavily to capital expenditure on Sarva Shiksha Abhiyan, roads & highways, defense and some other priority areas. Interestingly, UPA 2 has had a higher revenue expenditure reflecting a larger number of flagship programmes that seek social transformation and security.
Healthcare has not been able to gain much importance in budget allocations and the percentage share of expenditure on health has hovered around 4% across all regimes. According to the WHO rankings, India's private sector ranks 17th in terms of total GDP spent on healthcare, whereas the public sector is 171st in the same list.
Points to Ponder
• Even though our growth story is fuelled by the services and manufacturing sectors, issues of the poor need to be carefully prioritised.
• The increased revenue expenditure owing to flagship programmes is not a reflection of efficiency.
• Leakages need to be minimised.
• The increased incremental capital output ratio needs to be maintained by ramping up capital expenditure.
(The writer is a Junior Fellow with India Data Labs of Observer Research Foundation)