Two Budgets, Differing Contexts, But Single Thrust Fiscal Consolidation and Reduction in Social Development

Part I (Budget 2016-17)

K.B. Saxena

Budget exercise in India carries importance disproportionate to its contribution in economic governance of the country. Policy pronouncements relating to macro-economy which provide signals about the direction of the economy are far more important. Budgets are indicative of only the priorities during the year. Budget provisions are, however, looked at eagerly by various interest groups to see how they would affect them during the financial year. The budget last year, became relatively more important due to slowing down of economy notwithstanding a reasonable GDP growth rate, and the crucial choices that have to be made to revive it. The factors contributing to the economic slowdown included, on the external side, falling oil prices, depressed demand across the world particularly from developed countries including China and dwindling exports, and, on the national side, manufacturing sector showing no signs of picking up (except in mining and electricity), lower growth rate of many industries compared to the preceding year, unutilized capacity in some industries such as steel and aluminum, slowing down of demand for industrial credit and little sign of enthusiasm in private sector to invest. This was further compounded by lack of growth in agriculture, consecutive drought for the preceding three years, persistent agrarian crisis with no respite in farmers’ suicides, falling commodity prices, declining output of important crops and increasing cost of agricultural inputs. The combined effect of depression in industrial and agricultural growth resulted in absence of employment opportunities, low purchasing power of a large section of people and very weak domestic demand for goods and services. The situation demanded increased public spending in infrastructure and social sectors to boost rural economy and generate domestic demand. Government, however, responded to these challenges by choosing to pursue the path of fiscal consolidation initiated during the preceding year with the assurance of further reduction in fiscal deficit and reduced public spending with a view to placating international investors, rating agencies and international financial institutions and incentivizing foreign direct investment which is Government’s main strategy to accelerate investment and generate jobs. The reduction in fiscal deficit was pursued by slashing subsidies rather than by raising taxes. Thus, growth fundamentalism emerged as an overarching feature of the Budget.

But the budget also claimed to have made provision for boosting rural economy to generate domestic demand by increased public spending. The claim was supported by the increased outlay for agricultural sector and rural development and enhanced budgetary expenditure (in absolute numbers) of Rs. 1.93 lakh crore. This claim, however, does not stand the test of scrutiny. With regard to the enhanced expenditure, 2/3 of it is nonplan i.e., interest payment, pensions, defence etc. which does not have any developmental dimension. Only 1/3 of government expenditure is on the plan side which includes infrastructure and social sectors, with the former getting far more weightage than the latter. This again is projected as an aid to growth. Besides, in overall terms, the government expenditure as percentage of GDP (after accounting for inflation) fell from 13.2% (2015-16 RE) to 13.1% (2016-17 BE) (CBGA, 2016). The decline was more when compared to 2012-13 when it was 14.2% and 2009-10 in which it was 15.9% of GDP. Its developmental dimension gets diluted as the expenditure profile in the Union Budget also showed a lower priority to social sector. This was achieved by two methods, direct and indirect. The direct method was by failing to provide sufficient allocation for Social Sector. Though allocation for social sector in 2016-17 BE was higher at 3.15% of GDP compared to 3.05% in the preceding year, the actual spending to sustain this only at the RE stage as usually expenditure cuts were resorted to during the second half of the year, particularly as the expectations regarding the tax receipts failed to materialize. Besides, social sector expenditure by virtually all States had been around 36% of the total state expenditure except, surprisingly, for Bihar and Jharkhand where it had been higher (CBGA, 2016). It was therefore, unlikely that States would be able to push this expenditure substantially. This level of spending in social sector was very low, given our dismal position in the HDI which is lower than some of our much smaller neighbors and lower than even the level promised to people (for education and health for example) during 2014 elections. This appeared to be by design rather than stemming from constraint of resources per se since the Government was unwilling to increase taxes to raise resources despite a very low Tax – GDP ratio in the country which in 2016-17 (BE) continued to be at 10.8%, and no growth over last year’s level of tax revenue was anticipated or projected in the budget. The implication was that not only there was little scope for public expenditure being raised during the year but also that, if the estimated revenue generation did not materialize, the axe would fall on social sector expenditure as it had happened in the past.

Public expenditure in social sectors was also reduced through indirect method, i.e., transferring greater financial responsibility for social sector schemes to the States which was justified on account of increased devolution of resources to the States by the 14th Finance Commission. This was effected by 1) Central government shedding its responsibility of funding some schemes altogether leaving the States entirely to decide whether to continue with them and, if so, to fund them. These schemes were most likely to be discontinued due to paucity of resources with most of the States 2) schemes which were transferred to the States with reduced central share of 60% instead of existing 75% thereby increasing state share to 40% in place of existing 25% and accordingly reduced allocation in the Union Budget 2016-17 for them. The schemes so affected related to major social sectors – Education, such as ICDS, Sarv Shiksha Adbiyan, Midday Meal, and Health such as National Health Mission, Swachch BharatAbhiyan etc. The change would adversely affect implementation of these schemes even at the existing level of coverage (which itself is inadequate) while the question of expansion of coverage and improvement in infrastructure and unit level increase in expenditure were unlikely to happen in many States. This was likely to be so particularly in respect of resource poor States where the coverage was lower, infrastructure deficient and which also had lower potential to generate increased revenue. This apprehension arose because of two reasons. One was the uncertainty about the quantum of net accrual of additional resources to each State post devolution and the other was whether it would be sufficient to fill the resource gap caused by reduced central share. The first apprehension was sustained by a RBI study based on 2015-16 Budget estimates which found that despite the increased share in central taxes by 0.5% of the GDP in 2015-16, the net impact of changed funding was a decline of 0.3% in central transfer of funds from the previous years (cited in Shetty, 2016). Further, Central Assistance and Special Central Assistance were reported to be subsumed in devolution implying that States would lose this amount as well which they received earlier in addition to normal plan assistance. Also, surcharges and cesses were not shared with the States. The increasing use of surcharge and cess as a taxing device in the central Budget itself was an unfair attempt to deprive the states of their legitimate share in the Central taxes and therefore eroded the spirit of federal structure. This did not exemplify the spirit of ‘cooperative federalism’ which was so eloquently being quoted as an example of greater democratic credentials of NDA government. The other concern was that the poor and marginalized sections of the society had low political clout in decision making at the State level. Faced with the competing demands for resources from other sectors of economy and more vocal and assertive interest groups, these schemes which largely benefited these sections were unlikely to receive the priority and the level of resources they deserved.

Yet another policy measure which was likely to affect expenditure in social sector was the announcement of the Government to remove the distinction between Plan and Non-Plan spending with effect from 2017-18. Non-Plan expenditure relates to any expenditure that does not fall within the Plan expenditure while the Plan expenditure relates to financing of development schemes approved under the Plan and the unfinanced tasks of the previous plan. Once a scheme / programme taken up in a Plan completes its duration, its maintenance cost and remaining expenditure in subsequent years becomes non-Plan expenditure. This distinction was rigorously maintained to ensure that there was sufficient money for taking up new development programmes. With the abolition of this distinction, there was likelihood of ‘non-plan’ expenditure increasing substantially leaving lesser resources for new development schemes or expansion of existing schemes. Besides, this decision would have an adverse impact on those planning mechanisms which involved pooling of resources from Plan allocations to ensure adequate flow of funds to certain marginalized groups who may otherwise fail to get their due share from development schemes when competing with ‘advanced’ groups. The most important of such mechanisms were the Scheduled Caste Sub-Plan and Tribal Sub-Plan which prescribed a specified percentage of plan funds flowing towards their development based on the percentage of their population. Since this mechanism only operated in respect of Plan expenditure, there was no indication of the new basis on which funds would be transferred to these two Sub-Plans. Would the combined expenditure (Plan & non-Plan) form this basis? There was apprehension that in working out an alternative basis for pooling of resources, this mechanism might get progressively diluted, with the likelihood of it getting eroded and eventually disappearing. This was so because this mechanism had emerged not from on any statutory requirement but only constituted a planning strategy pursued through executive orders. Further, this arrangement had never had a smooth sailing even when it was formally adhered to. A great deal of resistance was encountered from sectoral ministries in enforcing it. The SCs/STs were politically weak and lacked sufficient clout in decision making to ensure that their interests were not undermined in the new arrangement.

There was yet another development which created unease about its likely adverse impact on the expenditure in the social sector. This was the seriousness with which Government proposed to enforce distinction between Revenue and Capital expenditure. Expenditure is labeled as ‘Capital’ when it increases assets and reduces liabilities of the government and is non-recurring in nature. Revenue expenditure involves recurring nature of expenditure such as salaries of employees, food subsidy, procurement of medicines for hospitals etc. It is well known that revenue expenditure in social sector schemes is much larger than the capital expenditure. Central government had hinted that it would no more finance ‘revenue’ expenditure in centrally funded schemes transferred to the States and would only fund ‘capital’ expenditure. This would shift the entire burden of meeting revenue expenditure on to the States which would find it difficult to bear within the resources available to them. This could also adversely affect efficient implementation of schemes as State government would hesitate to provide for adequate staff and maintenance of infrastructure to run these schemes so as to avoid continuing liability. This was most likely to happen in respect of States which could not put in additional resources from their side due to a weak resource base and relatively low potential for increased taxation.

There was also apprehension that social sector expenditure might get curtailed because of Government’s policy to push Direct Benefit Transfer in terms of cash to the accounts of beneficiaries based on Aadhar identification notwithstanding the direction of the Supreme Court to the contrary. This was justified on the ground that it would eliminate leakage i.e., benefits going to ineligible beneficiaries since bio-metric prints of the person would authenticate his / her identity. This requirement has already been posing problems as there had been complaints of delays, authentication failures, connectivity problems among others. In Jharkhand, for example, many MGNREGS cards were cancelled for the sake of achieving 100% Aadhar seeding. MGNREGS workers had been off loaded by rural banks because their business correspondents were unable to pay them due to poor connectivity. Accounts in banks opened through Aadhar number faced authentication issues. There was thus a serious apprehension that Aadhar would turn out to be yet another mode of exclusion of the genuinely poor just as the BPL list was in the earlier dispensation.

The most significant departure in development policy made by the current Government has been the abolition of the Planning Commission and the abandonment of the planning process. This was evident as there was no Thirteenth Plan in sight. Government was replacing the plan with a long term vision document. This had implications for social sector expenditure because Planning Commission acted as a monitor to ensure that sectoral expenditures were adhered to, kept an eye on diversion, non utilization and mis-utilization of funds. It also ensured that Sub-Plan mechanisms were enforced and Central ministries and States earmarked the required percentage of funds from plan schemes to this pool. But far more important was its role in minimizing regional inequalities which had increased with the shift to a market economy. With no agency of comparable stature to oversee the pattern of expenditure at the central & state level (Niti Ayog is entrusted with Policy and advisory role), the limited thrust in favour of social sector expenditure that was pursued through the planning process would get severely undermined. Worse, the abolition of the Planning Commission had also removed the only forum available to civil society groups to raise their concerns and participate, however marginally, in the policy making process on development issues. This government, in any case, did not attach any value to the civil society groups – the social activists, NGOs and CBO and their views. This left the field wide open to the corporates and intellectuals of neoliberal persuasion to have a dominant say in the public policy making process.

The Budget 2016-17 was marked by two dominant trends. One was the rigorous pursuit of fiscal consolidation and measures undertaken to attract investment, particularly foreign. The other was the shrinking commitment to Social Development manifested in transferring of many Central schemes to States and reducing Central share in funding them and underfunding those that it still retained with the Central Government. It was also pushing favorite neo-liberal agenda of progressively replacing essential services provided by the Government with cash transfer or off loading the responsibility to the private sector providers. In the latter case, it had not hesitation in trampling on even right based entitlements. Further, an elitist approach underlined the strategy of implementation of some of the crucial social sector schemes. These brief observations became evident with reference to Budget proposals 2016-17 in respect of major Social Sectors – Education, Health, Agriculture, Food Security, Rural Development.


Education is the most important subsector of social sector basket where a statutory responsibility, bolstered by Supreme Court directions, underline the right of school going children to get access to education. Consistent with its overall approach of downsizing the involvement of Union Government in Social Sector, the budgetary allocation made a meager enhancement in allocation for School Education from Rs. 42187 cr. in 201516 (RE), to Rs. 43554 cr. in 2016-17 BE, showing an increase of Rs. 1367 cr (3.2%) and in Higher Education from Rs. 25399 cr (2015-16) RE to Rs. 28840 (2016-17) BE, accounting for an increase of Rs. 3441 cr. or around 13.5%. Between the two, the Higher Education fared marginally better than School Education but neither of them responded to the enormity of the problems each one of the two sub-sectors faces. In fact, Union Government’s expenditure in the sector showed a decline as a percentage of GDP from 0.66% in 2012-13 and 0.55% in 2014-15 to 0.48 in 2016-17 (BE). Even as a percentage of Union Government’s Expenditure, it was reduced from 4.7% in 2012-13 and 4.1% in 2014-15 to 3.7% in 2016-17 (BE) (CBGA, 2016). This was despite the fact that the norms of provisioning for school education are governed by RTE. The Programme which translates this statutory requirement into deliverables is SSA (Sarva Shiksha Abhiyan) which was allocated Rs. 22500 cr., a mere 2.2% increase over 2015-16 (BE) allocation of Rs. 22015 cr. which could not even absorb the impact of inflation. In fact, the allocation had been reduced by Rs. 1597 cr in comparison to the allocation made in 2014-15. Worse, 65% of this meager allocation was financed from Education Cess and only 29% from the Gross Budgetary Support. This violated the clarification given by the then UPA Government while introducing this levy that the money from the collection would be an additive to the normal allocation for the Programme (CSD, 2016). This arrangement virtually reduced the overall financial commitment of the Union government to the sector. The low allocation was justified on the ground that Central Government’s share in the programme had been reduced from 80% to 60% pursuant to higher devolution of resources to the States from the 14th Finance Commission. The reduced Central share increased the financial burden of States enormously as the States do not get any share in the collections from the cesses. This implied that even the existing programme implementation would suffer irreparably where States were unable to put in this amount. The problem was far graver because even if States were to contribute their required share of 40% (which was unlikely in respect of financially weak States) the overall resource commitment itself was inadequate given that only 8% of schools met all the required norms laid down by RTE and 83% schools had a single teacher and 18.3% of children in 6-14 age group were still out of school (CBGA, 2016). This was hardly a recipe for improving the quality of School Education which the Finance Minister had recognized as a major problem. Further, teachers training which was the most important factor in the improvement of quality of education witnessed a reduction in its allocation from Rs. 558 cr. to Rs. 510 cr. RTE is a central law and Union Government has a major responsibility for ensuring sufficiency of resources for its implementation. The continuing poor quality of education resulting from inadequate provision of resources is pushing more and more children to private schools and, in some areas, even closing down of schools on ground of lack of students. This was a clear enough indication, if any was needed, of subtle undermining of the right based entitlement.

The Budget also had an elitist approach to improve the quality of education (CSD, 2016). This was evident in promoting islands of improved educational institutions amidst vast number of those with poor quality. This emerged from two major announcements. One was that 62 new Navodya Vidyalyas would be setup and the other was to make 20 universities (10 public & 10 private) institutions of excellence. This was a typical method of securing the best opportunities for the better off and cornering meager resources for them. This would further reinforce inequality in access to education, its quality and outcomes. The vast majority of students who would not be able to get entry into these good quality institutions would be doomed to fail in realizing their aspiration for good quality jobs when they had to compete with students educated in them. The 750 universities and 50,000 colleges which provided access to higher education for students from non-elite families would continue to suffer from paucity of resources to improve infrastructure, and faculty. The Budget provided little hope for them in enhancing the quality of education imparted in them.

The third major announcement was about setting up a Higher Education Financing Agency with a capital base of Rs. 1000 cr. to leverage funds from private sector. This reliance on private sector to discharge a responsibility which essentially was of that government had many adverse implications. First, private sector funding would be no charity. It would have strings attached to it. The private sector financier would determine selection of institutions to provide funds, the area of study it should focus on, selection of courses, their content and orientation suited to its requirement and fee structure. Altogether this arrangement would benefit a very few selected institutions – perhaps the 20 institutions of excellence referred to earlier. This would inevitably restrict access to institutions so financed to a select few who could afford it. The students coming from the ‘AamAdmi’background would be condemned to poor quality of education and would have no chance to realize their aspirations.


Health is the other significant social sector which has relevance for the lives of the Common Persons particularly the poor. The Budget allocation for the Ministry of Health and Family Welfare was increased from Rs. 33,831 cr. to 38,206 cr. which worked out to an increase of 13%. Though this increase was higher than what had been allocated during the last three years, as percentage of GDP, the allocation continued to remain in the range of 0.25%, and was lower than what was provided 2012-13 when it was 0.27%. (CBGA, 2016) But despite this relatively higher increase, the allocation remained woefully short of the reasonable requirement considering the infrastructural deficit and shortage of manpower in the public health institutions of the country. In fact, Union govt. failed to fulfill its commitment made in the 12th Five Year Plan of raising the total public expenditure on health, centre and state combined, to 2.5% of the GDP from its existing level of slightly more than 1%.

The Budget made three new announcements 1) a new health protection scheme for the poor and economically weak families to reduce their unforeseen out of pocket expenditure which would provide a health cover to them of Rs. 1 lakh per family and for senior citizens another 30,000/- 2) to open 3000 stores under Jan Aushdhi scheme to distribute generic drugs at affordable prices. 3) A national Dialysis Service Programme through PPP mode under National Health Mission to provide Dialysis Services in all district hospitals.

Among the schemes of the Health Ministry, National Health Mission (NHM) is its flagship programme. Earlier called the National Rural Health Mission which dealt with rural areas, NHM now covered rural as well as urban areas. This required substantial increase in the size of its earlier budgetary allocations, more so because urban areas did not even have the primary level health institutions similar to the Sub-Centres, PHCS and CHCs in the rural areas. But budgetary allocation witnessed reduction from Rs. 19,715 cr. in 2014-15 (actual) to Rs. 19,037 cr. in 2016-17 BE. Public health facilities had over the years deteriorated due to crumbling infrastructure, non-availability of essential drugs and shortage of service providers. The reduced allocation showed that the Government was not really interested in improving their services. Consistent with its aggressive neo-liberal reforms, it wanted to divert patients to the private sector. This intent became clear from a continuous rise in the allocation of Health Insurance Schemes (CGHS, RSBY and RSSY) from 7.3% of the Ministry’s budget in 2014-15 to 9.5% in 2016-17 (CSD, 2016). This undermined the public health system as bulk of the funds under insurance schemes would go to private sector hospitals on account of their dominance in the tertiary care which the insurance package catered to. As per NSSO 71st round nearly 70% ailments were treated in private hospitals. Thus, public resources were being increasingly transferred to private health sector for its growth and expansion at the cost of the public health system. Besides, undermining the public health system, this reliance on private sector to provide health care to patients was also inefficient use of resources because the average amount of treatment in private hospital as per NSSO 71st round, was four times that of public hospitals (CBGA, 2016). This huge outflow of resources to the private sector would have benefited a large number of people and with greater social accountability of service providers if it had been allocated to public sector health units for improving and expanding their infrastructure. The insurance route to health care had brought out other negative dimensions as well. The scheme package covered only hospitalization cost but did not include OPD expenses and ancillary expenses incurred by the patients in availing of hospitalization. While major health episodes requiring hospitalization were fewer, larger expenditure was incurred on outpatient care – consultation and drugs. Therefore, there was likely to be no major relief to the poor in cutting down their out of pocket expenditure. Even for serious illness, the amount was inadequate as the cost of a major procedure in a private hospital was unlikely to be covered by this amount. Also, all insurance schemes were targeted. The identification of target group had always posed problems with exclusion of the genuine poor and inclusion of the non-poor. Besides, given the unethical practices resorted to by private sector and no functional regulatory system in place, exposing the poor of the country to private sector hospital services posed greater risk to their health as well. Also, given the small allocation made compared to the magnitude of the problem, the coverage of beneficiaries in the health insurance schemes would be a very small percentage of 8 crore households.

The allocation for PMSSY (Pradhan Mantri Swasthy Suraksha Yojna) which was about setting up of AIIMS type of Super Specialty Hospitals- cum-Teaching Institutes and Upgrading of State Government hospitals has been enhanced. Quite apart from low level of utilization of allocated amount in 2014-15 which could be on account of design problems, the larger question the scheme raised was about the misplaced priority of the Government which focused overwhelmingly on tertiary care and ignored primary and preventive health care. A sound public health perspective did not inform Government’s thinking. A large majority of illness episodes could be addressed with effective preventive care and efficient primary health care. This focus on tertiary care was an off-shoot of formidable clout the private sector enjoys in health policy making which had a dominance in this segment and was keen on promoting it due to enormous profits that can be earned. It was not interested in preventive or primary health care. The increasing dependence on private sector for providing health care was also manifested in the proposed new scheme of National Dialysis Service Programme which would operate in ‘ppp’ mode.

The promise made of supply of essential drugs in public hospitals free of cost was given up. Even as a mechanism to supply medicines at regulated prices, the Jan Aushdhi Scheme started in 2008 had not been successful because only 164 such stores were opened and in the last 8 years of which only 87 (50%) were functional (CBGA, 2018). The scheme received an increase of Rs. 18 crore which could not cater to even half of the proposed 1000 centres. Besides the scheme suffered from major operational problems such as non-availability of medicines under generic names, doctors not prescribing generic drugs (particularly those in private health units) and patients not in a position to make their own decision in the matter. With pharmaceutical sector having been opened to 100% FDI, there was likelihood of MNCs taking over local generic drug producing companies. The danger of generic drugs too becoming more expensive therefore loomed large.


Agriculture is considered a major social sub sector of development due to the largest segment of man power dependent upon and employed in it. Its development is crucial for their well being. Agriculture is also important for its crucial role in generating employment and income and despite its very low and diminishing contribution to GDP has a huge potential for poverty alleviation due to its employment elasticity. A small boost in investment in it can create more jobs in agriculture than in manufacturing. Ministry of Agriculture therefore was rightly targeted for attention in the Budget and was allocated Rs. 44,486 cr., compared to Rs. 35,958 cr. in 2015-16 (RE), an increase of around 13.5%. But within the Ministry, the Department of agriculture and farmers’ welfare seemed to have received a much higher share of increase of Rs. 35,984 cr. from Rs. 15,809 cr. in 2015-16 (RE), an increase of 127%. Acloser scrutiny, however, revealed that there was a bit a cleverness in this increase as Rs. 15,000 cr. on Interest subvention for short term credit was shifted from Ministry of Finance to Ministry of Agriculture. The actual increase for Agriculture, therefore, was modest. Rather, as percentage of GDP, Agriculture’s share continued to be at 0.30% which was in 2012-13 though it did increase from the level provided in 2015-16 (RE). As a percentage of Union government’s expenditure, too, it increased to 2.25% from 2.01% in 2015-16 (RE) (CBGA, 2016). But the bulk of this increase was made for Crop Insurance Scheme (Rs. 5500 cr) where there was an upward revision from Rs. 2955 cr. (2015-16 RE). The other major announcements in the Budget included 1) Government’s intention to double the income of farmers by 2022, enhancement of Rs. 500 cr for pulses production, Rs. 850 cr for four new projects in the Livestock Development sector and a dedicated long term irrigation fund in NABARD with an initial corpus of Rs. 20,000 cr. It was also proposed to levy a surcharge at 0.5% at all taxable services for exclusive benefit of the sector & farmers and another 7.5% surcharge on undisclosed income.

There was, however, no road map of how the Government would double the income of farmers. Agriculture has been under distress for a long time. The level of investment proposed in irrigation, crop insurance and interest subvention does not even begin to address the structural, developmental and environmental crisis in agriculture and lack of public investment besides several policies which contribute to it. Farmers are not wage employees whose salaries can be increased through an executive order. Their income comes from what they produce and sell, besides wages earned in non- agricultural work. Government did not even announce MSP based on 50% above cost which was promised in the BJP manifesto. The existing growth rate in agriculture was very low at less than 2% (Nayar, 2016) and far lower than that of general economy which was at 7-7.5%. Failure of three consecutive crops had reduced the growth rate of rural wages. 84% of the farms were small and marginal where average income was Rs. 2,000/- pm while it was Rs. 10,000/- or more for a middle class family (Nayar & Misra, 2016). Farmers’ suicides continued unabated due to indebtedness and failure of crops. Even if the Government was lucky with the monsoon during the calendar year, it would require a growth rate of 14%-15% per annum in farm income each and every year until 2022 to double the income in five years (Jha et al – 2016). Agriculture sector had not even been able to achieve 4% rate of growth rate that the UPA government had aspired to achieve. Massive public investment, addressing high input cost and lower output prices, restoration of environmental degradation and increase in non-farm employment was required to put agriculture on the path to recovery from existing depressing state.

While the stress on pulses production was a right step, the level of enhanced allocation at Rs. 500 cr for incentivizing it in 640 districts was too inadequate to yield any significant outcome. The provision of a meager Rs. 385 cr for soil health and fertility was too inadequate considering the magnitude of the problem. Enhancement of credit from 8.5 lakh crore to 9.00 lakh crore was unlikely to benefit the needy small and marginal farmers due not only to a large number being defaulters but also because bulk of this credit was cornered by agri-business and large farmers as conditions of eligibility to access this credit had been liberalized. Their dependence on money lenders would therefore continue. The promised coverage of rural electrification as an aid to boost rural economy had to contend with the gap between provision of connection and supply of electricity, high cost, unsustainable supply, breakdown in infrastructure and under utilization of generated power in some areas on account of high cost (CITU, 2016). The creation of an irrigation fund in NABARD was virtually a revival of AIBP scheme of UPAwhich did not produce the desired outcomes (Alagh, 2016). There were too may incomplete schemes languishing for want of resources and the area to be covered by assured irrigation was too huge for this meager level of resource input to address the enormity of the problem. Besides, policy intervention was required to address issues of water use efficiency, over extraction of ground water and revival and rejuvenation of traditional water bodies. Crop insurance scheme though better than its existing versions still did not provide comprehensive coverage of all crops against all forms of damage and at all stages of crop cycle. It also did not subsidize the entire premium besides providing assessment of crop damage Block / Taluk level rather than at village level and made area rather than individual as a unit of assessment. It covered neither comprehensive nor universal converge nor income and yield risks and exempted non-loan farmers from its operations. Besides, in the absence of updated land records, the benefits of even this proposed scheme would fail to reach the affected cultivator. In this sector too, the Budget pushed its aggressive neo-liberal agenda by providing for 100 foreign owned firms to market agriculture products, thereby exposing farmers to MNCs and creating distortion in the domestic market with shortages in one part of the country co-existing with exports in another and MNCs buying cheap from one part and selling at higher prices in another.

The decentralized procurement proposed in the Budget speech was already provided for in NFSA (National Food Security Act). But it was unlikely to materialize in the absence of storage infrastructure, a dedicated agency with working capital to operate and linking it with local production. Besides, there was apprehension that this proposal might be used to dismantle Food Corporation of India and eventually the Public District System by replacing it with cash transfers which is what the advocates of economic reforms have been pushing.

Rural Development

It had also been claimed by the Finance Minister that the budget would boost rural economy. The claim was supported on the ground of a) increase in the allocation of Ministry of Rural Development from Rs. 79228 cr. (201516) RE to Rs. 87765 cr. (2016-17). MGNREGS received a major chunk ofthis increase which had risen from Rs. 35,766 cr. (2015-16) RE – to Rs. 38,500 cr in 2016-17 BE. But MNREGS allocation as a percentage of expenditure on Rural Development, was reduced from 47.6% in 2015-16 (RE) to 44.7% in 2016-17 and as a percentage of total expenditure from 2.1% to 1.95%. Besides, this increase was too little given the fact that there was an unpaid wage liability Rs. 4000 cr (it was actually far more) and a little less of unpaid material Bill over Rs. 6000 cr. (Sainath, 2016) of the preceding year. The latter would eat up around 20-25% of the year’s allocation. In fact, the enhanced allocation for MGNREGS had not even reached the level of Rs. 40,000 cr made in 2010-11. The outlay was, in fact, much less in real terms when inflation was taken into account. The number of days of employment had increased compared to the preceding year and might exceed the average of previous years. Due to persistent droughts in many areas, the demand for work had increased considerably and number of days of guaranteed employment had been raised to 150 days in these areas. Besides, the Budget speech also mentioned cluster facilitation approach to articulate the hidden demand for work from backward and drought prone areas and ensure construction of water storage structures and natural resources management. The meager increase in allocation therefore far from boosting the rural economy would slow it down if additional allocations are not made and wages are not paid in time. Also, the delay in release of allocation would stop further work execution and increase distress migration. All this would have required far greater increase in allocation for MGNREGS than what was given. This was amply borne out by recent Supreme Court directions to the Central Government.

NRLM which focuses on self employment was also allocated an increase of around Rs. 1500 cr over the last years RE. NRLM was the least provided of the four major programmes as a percentage of 12th Plan outlay. With the intensification of efforts for formation of Self-Help Groups to promote multiple livelihoods, NRLM implementation was also expected to improve with greater utilization of funds and consequently demand for fund was likely to increase. IAY was also given an increase of Rs. 5000 cr. Though welcome, the programme had huge unmet demand. Besides, the increase made in the unit cost of the schemes recently would prevent substantial enhanced coverage which was anticipated with higher allocation. PMGSY, which related to construction of rural roads, despite Government’s emphasis on infrastructure development and even with an enhanced allocation of around Rs. 4000 cr, would end up receiving only 53% of the allocation as a percentage of 12th Plan outlay, lowest among major programmes of the Ministry.

The Budget also added five new schemes.

1. Development of3000 Urban Clusters as Growth centres under Shyama Prasad Mukherji Mission.

2. Electrification of 18452 villages in 1000 days under Dean Dayal Upadhyay Gram Jyoti Yojna and IPDS.

3. Digital literacy under which two schemes would be taken up 1) National Digital Literacy Mission with allocation ofRs. 16.8 cr. and 2) Digital Saaksharta Abhyan (DISHA) with Rs. 12.00 cr. as allocation to cover 6 cr. households in three years.

4. Modernization of Land Records for integrated land information Management system. Rs. 150 cr had been provided for this purpose.

5. Rashtriya Gram Swaraj Yojna for which Rs. 655 cr. had been provided.

None of these schemes would contribute significantly to accelerating growth in rural areas. Development of Urban Clusters would require considerable investment in rural infrastructure in the Small and Medium towns, first for improving infrastructure – sanitation, drinking water, power supply, road connectivity, housing, transport, credit and storage which not only remained neglected but would get relegated further with emphasis on Smart Cities development. Additionally, a substantial part of this infrastructure would have to be provided in these 300 clusters to spur growth. Where was the money for undertaking this massive infrastructure development?

Rural electrification of villages must confront the problem of many electrified villages getting no electricity, many villages with merely an electricity pole counting for electrification, dilapidated and damaged infrastructure, sustainability of supply and its cost. A reality check was first of all necessary regarding villages claimed to have been electrified, sustainability of power supply, power generation capacity lying idle due to high cost of supply before its contribution to the economic growth of area could be assessed.

Digital literacy targets were unachievable with poor quality of school education and absence of assured electric supply. Modernization of land records scheme had been in operation for a very long time but with little improvement in the updating of land records. Its achievement wherever registered had been largely towards digitization of information in the existing land records. But this information itself was dated. It needed to be brought up-to-date. Mere computerization of information and technological interventions in mapping of revenue villages and landholdings therein could not lead to land records upgradation. Land records updating was a very labour intensive and time taking task which required substantial resources, both financial and manpower, as well as time which states were unable to provide.

Rashtriya Gram Swaraj Yojana was virtually the renaming of the old scheme for strengthening PRIs which had been abandoned. The crucial problem which stifles PRI functioning was lack of devolution of three ‘F’s – Functions, Functionaries and Finances on the operational side, and infrastructure, capacity building and supportive manpower on the structural side. Rs. 655 cr. provided under the scheme was too inadequate to cater to the infrastructure on such a large scale. Fourteenth Finance Committee had provided substantial funds for Panchayats which hopefully would improve infrastructure to some extent. As the details of the scheme had not been spelt out, it was difficult to say on what items would the allocated money in the Budget be spent.

Food Security

The budget showed a decline from Rs. 1.39 lakh cr. (2015-16) RE to 1.34 lakh cr (2016-17) BE in food subsidy which was reflected in fall of expenditure as a percentage of Union Budget as well as the GDP. The reduction seemed surprising since implementation of NFSA (National Food Security Act) would require increase rather than decline in allocation. Many States had not yet implemented NFSA. Once they did, the allocation would need substantial increase. Besides, the Budget ignored universalization of IGMSY (Maternity Welfare Scheme) and ICDS. FCI’s unpaid Bills would further cut into the allocation. This created genuine apprehension about the lack of seriousness in implementing NFSA so as to meet the fiscal consolidation target. This was yet another instance of undermining right based entitlement.

Decentralized procurement had been proposed for addressing the problem of rotting food grains resulting from lack of storage infrastructure and high cost of transportation of food grains. While NFSA has also suggested decentralized procurement to equitably spread the benefit of procurement across the production zones and boosting local production, there was apprehension that it might be used to dismantle FCI and eventually the PDS itself which had been and continues to be an eye sore to neoliberal economists and international agencies. The provision for automation facilities and opening of ATMS in rural areas was a pointer towards shifting to cash transfer in place of PDS. If decentralized procurement was effected, without linking it to local production it would force the deficit states which overwhelmingly depended upon FCI for their PDS, to access their requirement from open market. This would push up cost of food grains. It would create a greater crisis in States which did not have a procurement agency. Some states neither had the storage infrastructure nor the working capital to undertake this shift and there was no preparation for local production either to meet the requirement. Besides, the move would affect peasantry in Punjab and Haryana most adversely which supplied a very large part of the food grains procured.

Both the UPA and NDA governments have pursued the path of increasing penetration of market in economy and provision of public services. Between the two, the former tempered this pursuit with some affirmative measures for the poor such as right based entitlements and modest increase in social expenditure at least in its phase I. The latter, however, is undermining even these measures and aggressively pushing fiscal consolidation and replacing government provisioning of services with private sector provisioning and cash transfers. The analysis of Budget 2016-17 provided modest evidence to support this. But far more was happening on the public policy making front which would be covered in part II of this article.


Alagh, Y.K. (2016). ‘Let Them Eat Schemes’, Outlook, March, 14, 2016

Sainath, P (2013). ‘If this is Pro-Farmer’, Outlook, March, 14, 2016

Patnaik, P. (2016). ‘Budget 2016-17: Hype isAll’, Peoples Democracy, July 24, 2016

Centre for Indian Trade Unions (2016). ‘Rich in Rhetoric, Poor in Substance’ People’s Democracy, February 28- March 5, 2016

Centre for Budget and Governance Accountability (2016). Connecting the Dots: An Analysis of Union Budget 2016-17, March, 2016 Council for Social Development (2016). Discussion on Union Budget 201617, SFF1/2016

Shetty, SL (2016). ‘Underutilised Fiscal Space: Maharashtra’s Budget Post Fourteenth Finance Commission’, Economic and Political Weekly, May 21, 2016

Nayar, Lola with R.K. Misra (2016). ‘Has Modi Junked Gujarat Model’, Outlook, March 14, 2016 Jha, Ajit Kumar, M.G. Arun and Shweta Punj (2016). ‘Down the Country Road’, India Today, March 14, 2016

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