It's Not the Economy, It’s the Politics, Stupid

K.B. Saxena

State of the Economy

Indian’s economy has been on a downward slide for quite some time. It is growing at its lowest rate in more than a decade, down from 6.8% in September 2017 to 4.5% and with a nominal GDP (Gross Domestic Product) at 7.5%, the lowest in four decades. Monthly per capita expenditure has fallen in absolute terms between 2011-2012 to 2017-18 by 8.8% in rural areas and 2% in urban areas leading to an all India decline of 3.7%. (Ghatak, 2020) There are four engines which drive the economy. These are a) consumption by private individuals b) demand from government for goods c), investment by business d) and demand from exports and imports. On all these fronts Indian economy is failing. (Mis- ra, 2020) As for private consumption that contributes nearly 55-60% of GDP this demand has been reduced to 26% and has been the weakest since 2015. This is attributed to deceleration of agriculture GDP growth rate to 2.9% between 2015-19 with high buffer stocks, falling commodity prices, drought in three of the last 5 years etc. This depressed farmers’ income. Rural economy has also been suffering from largely stagnant rural income which has averaged around 4.5% over the past 5 years and when adjusted for inflation, only 0.6%. (Rakshit, 2020) Along with it is low wage growth. According to the consumer price index for agricultural labourers, real rural wages have been contracting continuously from March 2019 to October 2019 (Kishore, 2020). The weakness in rural demand is compounded by a collapse in urban demand across the board manifested in depressing sales from biscuits to cars. This is due among others to disruption in credit flow from non-banking financial institutions resulting from meltdown of ILFS (Infrastructure, Leasing and Financial Services) which has dried up the overall credit systems (Misra, 2020). Reduced urban consumption is due to reduced income growth of households caused by unemployment. Unemployment is at all time high with unemployment rate at 6.1% (2017-18), the highest in 45 years. Its rate in the age group of 20-24 during September - December 2019 was 37% and, within this category, unemployment rate of graduates is over 60%.

In 2019, the average unemployment rate of graduates was 63.4%, and for those in the age group 25-29 years, it was 11% while it was 23.4% among graduates in that age group. Among Post graduates, its rate has reached a rate of 23% in 2019. The rate of urban unemployment in the age group of early twenties was 44% between September and December, 2019. This explains growing despair, anger and frustration among educated young which is fuelling protests against non-economic government policies. It is a tinder box which can explode at any time if not addressed (Sibbal, 2019, Chakravarty, 2020). Labour force participation has come down to 46.5% for 15 years and above categories and 37% for urban youth. Even among those who are employed, a large section gets low wages reflecting ‘employment poverty’ (Singh, 2020). On the other hand, economic crisis has seen job loss on a significant scale due to decline in employment in agriculture and stress in construction industry besides the adverse effects of demonetisation and GST measures. This has impacted the growth of savings by the households. Gross domestic Savings, which was 34% of GDP in 2011-12 declined to 30.5% in 2017-18. (Reddy, 2019) This was due to decline in household savings rate from 22.5% of GDP in 2012-13 to 17.2% of GDP in 2017-18 which is indicative of downward pressure on households. (Rakshit, 2020) Consumer Price Index inflation has already touched a five year high caused by sharply rising food prices to 7% with food inflation at 10% (largely due to vegetable prices) has aggravated distress caused by unemployment and stagnating wages and income. The havoc which the Corona virus would cause to the global as well as Indian economy cannot even the measured at this stage.

Government demand, the second driver of the economy, has fallen due to a sharp fall in tax collection which has witnessed the slowest pace of growth since global financial crisis of 2008-09. Net tax revenues fell short of Rs. 1.45 lakh crore, while disinvestment revenues were short by Rs. 40,000 crore. GST (Goods and Services Tax) revenue were 51,000 crore below target - (Punjand Arun, 2020). This works out to a shortfall of Rs. 3 lakh crore (Misra, 2020). The reduced tax collection is due to the slowing down of the economy, overestimation of targets, massive tax concessions and insistence on adhering to the fiscal deficit target prescribed under the FRBM (Fiscal Responsibility and Budget Management Act). There has been continuous increase in tax arrears from 201314. This short fall in tax collection compared to Budget estimates during the last two years has widened the gap between BE (Budget Estimates) and RE (Revised Estimates) and RE and Actuals. (CBGA, 2020) Central Government’s overall expenditure (Public spending impacting overall demand) has fallen from 15.4% of GDP in 2014-15 to 12.5% by 2017-18 and further to 12.2% in 2018-19 and still lower to 10% in 2019-2020. The tax concessions to corporates and foreign investors (reduction in corporate tax to 25% from 35% and incentives, concessions and tax exemptions) increased to 1.45 lakh crore and limited the fiscal space for public spending.

As for investment, the third driver of economy it has been slowing since 2011. Corporate investment has been declining from 39.6% of GDP in 2011-12 to 30.9% in 2017-18 in 2011-12 to 2.5% in 2016-17. (Reddy, 2019). Gross capital formation growth rate, an indicator of private investment in economy, has been reduced to less than 1% of GDP. This is indicative of weakness and risk aversion of investors with confidence at to all time low (Ghatak, 2020). Investment has two parts, government and private companies. Companies invest when there is an increased demand for their goods they produce. When their production capacity fails to meet the demand, they add to the capacity. The opposite has happened. They are not investing even when Government gave them a bonanza of hefty tax reduction. Data compiled by CMIE (Centre for Monitoring of Industrial Enterprises) shows that the revenues of listed companies fell by 1.6% and net profit by 14.4% in the second quarter of 2019-20. In respect of financial companies (banks, insurance etc.) their net profit was down by 28.8%. They are thus neither investing nor hiring more people (Chakravarty, 2020). The poor investment is reflected in declining industrial production to 2% of GDP, though the slowdown is widespread in all sectors, agriculture, industry & services. The tepid Foreign Direct Investment of only 30 million $ has been characterised as ‘Foreign Direct Indifference’. (India Today, 2020) Exports, the fourth driver of economy, have stagnated for six years due to the high cost of logistics which impacted on competitiveness (Aiyer, 2020). The net exports, have stagnated or even fallen due also to lukewarm global demand, domestic bottlenecks, the trend of protectionism across the world. (Misra, 2020). Both import and export growth are negative (Chidambaram, 2020)

Characterisation of Slowing Down

The large part of the FY (Financial Year) 2019-20 was spent in characterising the nature of the slowdown and its causes by media, economists, corporates and the government agencies. Some called it just a ‘soft patch’ which will disappear as soon as the sluggish sectors recover from temporary setback; others considered the crisis as a ‘cyclical one’ while most others felt it was a deep structural one. There were also those who described it as both cyclical and structural. (Rakshit, 2020) A cyclical slowdown is a period of lean economic activity that occurs at regular intervals. The slowdown continues over the short - to - medium term and is based on changes in the business cycle. To counter such slow down, interim fiscal and monetary measures, temporary recapitalisation of credit markets and need based regulatory changes are required to revive the economy. Structural slowdown is a more deep rooted phenomenon which lasts over a long term and is caused by disruptive technologies, changing demographics, and / or change in consumer behaviour. In such a situation, monetary and fiscal stimulus would not be enough to revive the economy. The economic fixing it would require is structural reforms in land, labour and product markets. The current slowdown in Indian GDP growth rate from 8.2% in 2017 to 4.5% in 2020 (estimated) is viewed by a large number of economists and professionals as structural. However, the government continues to hold the view that the slowdown is cyclical in nature not structural and the slowdown should not be gauged from the declining GDP growth of economy but by estimating its potential growth rate. There has been no change in the demographics, demand from and the ability of companies to supply. Consistent with the view, it has taken a major step to drastically cut corporate tax rate from 35% to 25% and along with it other concessions to create a favourable environment for investment for sustained economic growth. Surplus transfer by the RBI has helped increase planned spending of the Government without compromising fiscal deficit targets. It would also help in recapitalising public sector banks to tackle the NPA (Non-Performing Assets) crisis. The proposed merger of public sector banks would improve credit culture and spur investment.

Polarised view on Revival of Economy

On the road map to revival of economy too, there was a sharp polarisation of views between conservative advocacy groups such as global finance, corporates, neo-liberal economists, called the fiscal fundamentalists, and those who could be termed as liberals. IMF’s (International Monetary Fund) prescription for the economy which represents the position of the former group advised that the government should focus on managing the slowdown in domestic demand and boosting productivity growth and supporting employment creation in the medium term. Policy priorities should pursue a credible fiscal consolidation path that is more ambitious than currently envisaged by the Government, need to reduce high level debt which would free up the financial resources for private investment, clean up banks, other financial institutions and corporate balance sheets and enhance governance of public sector banks to revive bank credit provision, labour, land and product market reforms along with infrastructure investment. (Gopinath, 2019)

The liberal group considers Government expenditure as the only way right now both to increase investment and stimulate consumption and incomes. Stimulating demand is more important than keeping inflation in check or meeting the fiscal deficit target (Chakraverty, 2020; Ghosh, 2020; Sinha, 2020; Bhagat, 2020; Chanakya, 2020; Ghatak, 2020, Aziz, 2020). It should set aside provisions of the FRBM Act which restricts the governments’ ability to spend. Expansionary fiscal policy would be more effective due to the presence of a very large informal sector, cuts in corporate and income tax would fail to achieve the objective. It should put money in the hands of the poor by enhancing rural development programmes, especially those involving some form of cash transfers such as PM (Prime Minister) -Kisan scheme and MGNREGS, (Mahatma Gandhi National Rural Employment Guarantee Scheme) revive the real estate sector as it is a significant source of employment, bring back trust in the financial system, incentivise savings, rationalise and simplify GST. (Goods and Services Tax) Revival of SMES (Small and Medium Enterprises) need prioritisation to generate more jobs. Investment in infrastructure should prioritise labour intensive sectors like textiles, construction, affordable housing, agriculture and social infrastructure in education and health besides irrigation, cold storage, improving civic amenities and welfare programmes.

Challenges Faced for Boosting Growth

In this background, the Budget announcement for 2020-21 was awaited with a lot of interest, unusual in normal times. The budget is more than a statement of income and its sources, and pattern expenditure and its distribution across sectors indicating how the two would be balanced. It also reflects the policy direction and priorities of the government. The unusual interest in the Budget this year was to know how the Government was going to revive the economy. But it faced a challenge in the slowing down economy. The lukewarm rate of growth reduces tax revenue growth unless specific measures are taken to mobilise additional source of revenue. In such a situation if the government was committed to adhering to a fiscal deficit limit, it has to augment resources through other ways to expand public spending which is crucial for stimulating growth. Also, while it is important to mobilize sufficient resources, it is of even greater importance that resources are so mobilised that they are sharable with states. (CBGA, 2020)

It is precisely here that the government’s tax policy over the past few years have led to a steady decline in public expenditure. The tax concessions and incentives announced over the few years have led to a huge revenue loss, and a shortfall in total tax collection compared to the respective budget estimates which have forced the Government to reduce expenditure at the revised estimates stage. The tax concession not only reduced resources for the expenditure already committed in the budget 2019-20 but also limited the fiscal space for public spending to counter measures against slowing down. This resource availability problem was compounded by lower than expected indirect tax collection, subsumed under GST, of the monthly target of one lac crore. Further, the growing centralisation of overall taxes collected by central government implies that certain taxes are not shared with States, being outside the divisible pool such as cesses and surcharges, revenue earned through special excise duty on petrol. This limits the fiscal space for States to spend. The reduced share of States is compounded by the slowing down of GST collection as a result of which the Centre has not paid the GST compensation to a number of States that they are legally entitled to get. Worse, the centre has also indicated that such payment will depend upon what is raised from the cess for that purpose rather than the commitment made at the time of the introduction of GST. (CBGA, 2020) Delays in the compensation amount to States has complicated the fiscal position and cash flow management of States. Even some of the traditionally revenue surplus States would face revenue deficit as well as a sharp rise in fiscal deficit leading to substantially higher market borrowings (Roy & Nayyar) Cutting transfers to States is counterproductive because over the last seven years, States’ spending as a percentage of GDP has increased significantly from 14% of GDP to 18% Lower transfer to States means lower spending by them and reduced contribution to economic growth (Iyer, 2020).

Gist of the Budget Announcements

In this background, the Budget 2020-21 was presented by the Finance Minister, Nirmala Sitharaman on Saturday the first February, 2020 in the longest ever budget speech of two hours and 40 minutes, breaking her own record of 2 hr. 17 minute speech in the last budget. The Budget has a target of expenditure of Rs. 30.42 lakh crore, which is 13.3% of the GDP for 2020-21. It is woven around three themes: a) oriented to an aspirational India b) promoting a caring society c) pursuing inclusive development with several segments and programmes under each of them. Some of the key announcements in the speech include (1) moving towards Rs.103 lakh crore investment on infrastructure in five years 2) a disinvestment goal of Rs. 65,000 crore which includes selling of LIC (Life Insurances Corporation) shares via public offer 3) Lower income tax rates if people do not use the concessions and deductions 4) Dividend Distribution Tax to be scrapped and tour packages and overseas remittances have been brought under the tax net. 5) Greater protection to domestic industry via changes in customs duties and aligning FTAs (Free Trade Agreements) with domestic policies; hikes in import duties on over 100 categories of products. 6) Bank mergers to be encouraged 7) Insurance of depositors’ money up to Rs. 5 lakh per deposit. (Rs 1 lakh now) to be protected if the bank fails 8) Improved governance in respect of enforcement of contracts and taxes 9) invokes clause 4 (3) of FRBM Act to raise fiscal deficit target to 3.8% from 3.3% announced last budget. 10) concessional corporate tax rate of 15% for new domestic companies in manufacture and power sector 11) 100 more airports to be developed under UDAN (It is a Hindi Word for ‘Flight’) 12) tax concession for sovereign wealth fund of foreign government and other foreign investments 13) simplified GST returns 14) Viability gap funding for creation of efficient warehouses on PPP mode. 15) PM Kusum to cover 20 lakh farmers for standalone solar pumps and 15 lakh farmers for grid connected pumps. FM has also presented a large number of policy actions such as 16 point action agenda for agriculture, focus on education and skills, water and sanitation etc.

Critique of the Budget Proposals

The budget announcement was received, by and large, with a great deal of disappointment. It was critiqued variously as ‘pursuit of fiscal fundamentalism’, ‘denial of even slowing down of economy, ‘insipid’, ‘lacking in anything either for growth or revival of economy’, ‘had nothing to address lack of investment and demand’, ‘failed to clear the smell test’ etc. It had no concrete measures for boosting demand or increasing purchasing power of people. It was at best a ‘safe budget’ within the constraints faced by the economy. Little surprise that rating agencies reacted sharply leading to a fall in sensex. On the twin issues of demand and investment which required targeting upfront for stimulating the economy, there was no bold initiative. As for private consumption demand which accounts for approximately 57% of the total GDP, the most obvious intervention required was for government to increase its expenditure which translates into purchasing power of individuals / households which when spent generate economic activity and incomes to the participants. But the government’s lower than estimated poor tax collection by 3 lakh crore may have prevented recourse to this intervention. (Misra, 2020) This difficulty, however, could have been overcome if the Government could have gone ahead to borrow more money from the market. But the decline in the level of savings and the risk of slippage in fiscal deficit beyond the framework of FRBM (Fiscal Restorability and Budget Management Act) with its attendant adverse signals to foreign investors, ruled out this option. Therefore, Government’s total expenditure would only go up marginally by 9% over 2019-20. This indicated that Government was far too conservative in adhering to the fiscal discipline rather than to prioritise stimulating private consumption to kick start the economy and let fiscal deficit be tackled thereafter. It is also contested by none other than the former Finance Minister, Yashwant Sinha, the author of FRBM that it was aimed at eliminating revenue deficit but capital expenditure even up to 2% of GDP could be resorted to stimulate growth (Sinha, 2020) The irony is that despite the caution of not breaching the fiscal deficit, it has already happened and is now fixed of 3.8% of GDP but still within the limits 0.5% set out by FRBM. But this fiscal deficit is going to be much more than 3.8% (Kumar, 2020; Swaminathan Aiyar, 2020) because attempts have been made to transfer borrowing outside the government budget to PSUs (Public Sector Undertakings). As per CAG, it was closer to 5.8% in 2018-19 if these off budget items are included. For example, there is an unpaid liability of Rs. 2 lakh crore to the Food Corporation of India. Appropriate food subsidy required is around 1.8 lakh crore for meeting the cost of grain under PDS (Public Distribution System). But the budget provision provided much less than that amount and the gap funding was met by a loan from the National Savings Fund. This year the FCI has been asked to borrow it from NSSF (National Small Savings

Fund) rather than the Government doing it so as not to increase the fiscal deficit target. Besides, while fiscal deficit may be kept under check, the revenue deficit is expected to increase due to less than expected receipts and government may have to borrow from the market to meet its revenue expenditure (Misra, 2020).

As for boosting investment, Government had already taken a major step in sharply cutting down corporate income tax last year outside the budget to incentivise investors which cost government 1.5 lac crore in 2019-20. Though welcomed by corporates, this decision had little impact by way of investments and proved to be ineffectual at least in the immediate term. This concession would also not increase consumption since the well-off who are owners of the business have enough incomes and would not consumer more. Similarly, the RBI cut interest rates five times last year but investment has not picked up. The demand factor constrained investment decisions. High unsold inventories, underutilisation of capacity at an all-time low last year resulting from sharp decline in consumer demand did not create the condition for raising capacity or hiring more people. The Finance Minister, however, announced in the budget that soon there would be a new scheme to encourage investment in manufacturing mobile phones, electronic equipment and semi-conductor packaging (Misra 2020). As for private consumption, Government announced in the budget the choice of a new income tax regime under which all exemptions and deductions are removed along cut in tax slabs. This reform apart from cluttering income tax slabs (Chidambaram, 2020) 2 is ‘cosmetic’. It is unlikely that the tax payers would choose the option as the benefits to accrue are unattractive. Even if they were to choose the option, they would save more rather than consume. Besides, with 4% people paying income tax, a tax concession is a wrong approach to stimulate demand (Ghosh, 2020). If the fiscal space available which was wasted on tax concessions to the corporates was spent on the unorganised segment of the economy, the poor and the vulnerable sections of population and social sector spending, it would have boosted demand and revived the economy. But the basic problem is that Government is in denial that the economy is slowing down. (Chidambram, 2020)1 The FM (Finance Minister) said in the budget speech that ‘The fundamentals of the economy are strong and that has ensured macro-economic stability.’ When the problem itself is not accepted, the solutions would be difficult to come. A clear public recognition of the economic distress would have enabled radical measures to address it. (Forbes, 2020) The budget also does not show the way to leap frogging into a $ 5 trillion economy, repeated in the budget. It, however, announced Rs. 103 trillion expenditure in the next five years on infrastructure and creating a conducive climate for enforcement of contracts and tax compliance. But the budget allocation for this expenditure is only marginally higher than last year. Government is hoping that increased allocation of equity in specified infrastructure finance companies would leverage investment support for infrastructure for spurring investment which is unlikely to happen. (EPW, 2020) Its protectionist stance is a retrograde in direction and goes against its Economic Survey which made a strong case in favour of free trade. (Forbes, 2020; Chidambaram, 2020) 2 On the whole, there is a mismatch between what the Budget 2020-21 intends to achieve & what its actions and measures would lead to. It is also full of contradictions (Kumar, 2020)

Budget Statistics Lacking in Credibility

On the development side, at the outset, a general comment about reliability of data projected in the budget is relevant. It has been described as dubious statistics to hide big hidden stimulus and real fiscal deficits. (Swaminathan Aiyar, 2020) The figures of allocation in the BE under various heads carry little credibility. Most of these BE outlays in 2019-20 were drastically reduced at the RE stage due to lower collection of taxes and realisation from divestment than estimated. This is corroborated by the specific direction from Finance Ministry to prune expenditure to a level not more than 10-15% in the last three months. (Jayaswal, 2020) Further, this year’s budget statement does not provide actual expenditure under various heads in 2019-20. It is likely that this figure would even be lower than indicated in RE because as on November 2019, 34.7% of the budgeted amount remained unspent ( Jayaswal, 2020). Therefore, even the meagre allocations for most ministries / departments in the social sector indicated in the BE of 2020-21 is unlikely to materialise because the estimated collection of taxes and divestment would fall considerably short in 2020-21 also, going by the current figures of collection. Also, the FM has played the usual trick of showing that allocation in the BE allocations under various heads in 2020—21 are higher than the RE in 201920. But when compared to the BE level of 2019-20 figures, they are either a decline or at the same level. Further, even if this juggling with figures is overlooked, a marginal increase of less than 10% in allocation over 2019-20 is not of much consequence for either expansion of the coverage in schemes or their strengthening for effective implementation.

Social Sector Development


To achieve Sustainable Development Goals, to which India is committed, the social sector investment is crucial: Education, Health, Rural Development, Social Welfare for marginalised groups are key sub sectors for this purpose let us see how the budget provisions measure up to this challenge. One of the three themes in the budget speech is that it is oriented to an aspirational India. Education and skill development are important instruments for the realisation of the aspirations of the youth. One would therefore, expect a substantial increase in allocation on Human Resource Development. But the Ministry of HRD (Human Resource Development) has got just a 5% increase compared to the previous year. Its share in Union Government’s expenditure has been declining from 4.1% in 2014-15 (Actual) to 3.3% in 2020 (BE) and its share as percentage of GDP has also declined from 0.55% to 0.44% during the same period. Even the combined expenditure of theCentre and States at 3.1% of GDP is the same as it was in 2010-11 (CBGA, 2020) and far from meeting the national commitment of raising it to 6% of GDP and despite the Government’s new draft National Education Policy 2019 recommending doubling of Centre’s expenditure on education in a period of 10 years. The greatest cause for concern is that the Right to Education which provides statutory guarantee for free and compulsory school education to children - the foundation of an aspirational society, has been completely ignored in the budget even in the face of massive evidence about the poor learning outcomes of children who pass out from schools at primary levels. The Samagra Shiksha Abhiyan (SMSA) launched by the current government after integration of three centrally sponsored schemes of Prathmik and Madhaymik Shiksha and Teachers’ education has suffered from inadequacy of resources. As against the approved outlay of Rs. 34000 cr in 2018-19 (BE) and Rs. 41,000 in 201920, the budget allocation was only Rs. 30,892 cr in 2018-19 and Rs. 36,332 cr in 2019-20 (BE). Worse, this expenditure is financed through education cess / disinvestment receipts rather than gross budgetary support. (CBGA, 2020) While the Government is intending to extend MDM (Mid-day Meal) scheme to class IX and X in government schools across the country, as reported in the newspapers, the budget allocation for the scheme has not been increased implying that the announcement would remain an empty rhetoric.

But the slogan of aspirational India has received a severe knock as the access to higher education has been blocked by an 86% reduction in allocation in the Budget from the previous year in the only central scheme of higher education named as Rashtriya Ucchtar Shiksha Abhi- yan (RUSA). The budget for the entire higher educational sector has received a mere 3% increase over the previous year. This implies that government funded higher educational institutions can neither expand to accommodate increasing demand nor improve existing facilities. The Government expects them to borrow money from the recently established financing agency for higher education and generate revenue to pay it up. It is evident the Government is gradually withdrawing from higher education sector leaving the field to private sector to fill the vacuum. As a result, poor students and particularly those from vulnerable sections passing out of secondary schools, would be deprived of access to higher education to improve their mobility as they cannot financially afford to access higher education in private institutions which are proliferating and impart poor quality of education. . This is going to be a demographic disaster as more than 30% of India’s youth are neither employed nor in educational or training institutions. (CBGA, 2020) How does the Government expect to produce a skilled labour force for the economy with this kind roadblock?


For health and family welfare and Ayush, the Budget allocation (BE) in 2020-21 is just an increase of 4% over 2019-20 (BE) only but a decline from 2019-20 (RE). The combined expenditure of both Centre and States is only 1.6% of GDP in 2019-20 which is woefully short of 2.5% envisaged in National Health Policy 2017. Union Government’s expenditure on health is 0.31% of the GDP which is a decline from the revised allocation of 0.33% last year (2019-20). It has stagnated at around 0.3% since 2017-18. Its share in Union Budget has reduced from 2.6% in 2017-18 (A) to 2.31% in 2020-21 (BE) and is even lower than 2.5% 2019-20 (RE). (CBGA, 2020) Around 97% of the budget is consumed by MOFW (Ministry of Health & Family Welfare) and only 3% by Ministry of Ayush. (Auyurveda, Unani, Siddha and Homeopathy) The Government is progressively moving away from providing health care through its own managed units and is instead purchasing it from private providers through health insurance which consumes 9% of the budget on health. But health insurance only covers specified catastrophic illness and hospitalisation. Even so, a very small 2% of population benefits from it. (Muthopadhyay, 2020) What people need is access to efficient primary health care along with medicines for their numerous health problems. This part of health care remains neglected due to lack of resources, manpower and financial, for its improvement and expansion. If the huge outgo of resources to insurance companies for payment of premium were to be spent on strengthening primary health care, it would have benefitted many times more the number of people than those covered by insurance schemes. Among the insurance schemes, the most ambitious and large scale of them is AB-PMJAY, known as Ayushman Bharat - PM’s Jeevan Arogya Yojna. However, the Budget provision in 2020-21 for the scheme has remained the same as in 2019-20 (BE). This implies that expansion of coverage under this scheme too would be limited. Of all the other schemes in the health sector, the scheme for enhancing tertiary health care capacity, clinical care, medical education and research in underserved areas (PMSSY- Prime Minister’s Swasthya Surakisha Yojna) has received a very substantial increase of 50%,. The outlay is proposed to be utilised for setting up hospitals where no hospitals were empanelled under AB-PMJAY. The National Health Mission scheme which deals with 6 components has obtained a mere Rs. 464 cr increase over previous year’s budget (BE) but when compared to the RE of the same year it has declined by Rs. 75 crore. So overall, the provision remains stagnant. Of the six components, the only component to have got an increase over both BE and RE of the previous year is the scheme of human resources for health and Medical education which has gained Rs. 436 cr. This scheme is used for improvement of doctor - population ratio in rural and underserved. As hinted in the Economic Survey, this is presumably intended to be used for establishing medical colleges in PPP mode using district hospitals for practical training. (Sinha, Dipa 2020) Far from creating opportunities for candidates from backwards areas to get medical education and serve in the same area to tackle the perpetual shortage of manpower, the privatisation of medical education would bring in all the ills which afflict private medical colleges - poor quality of education, high fee structure, absence of infrastructure and qualified faculty etc. If such colleges are to be entirely managed and funded by Government and entry to them is reserved for candidates from within the underserved areas rather than open to all India competition, it would be a welcome step. There is also another worrying trend. The NHM (National Health Mission) budget allocation to States are subjected to the conditionality that 20% of the funds would be transferred to them on the basis of States’ performance in respect of certain indicators. This is a pressure tactics to induce States to perform and penalise those states which perform poorly. But it is a retrograde step as it does not take into account capacity differential in States. Poorly resourced States with deficient infrastructure and low level of human resources capability and yet saddled with larger number of under privileged sections of people would lose while competing with States, which are financially better endowed and also better provided in terms of manpower resources. The Health Strengthening and Conditionality Report (2018-19) prepared by MOHFW has confirmed these fears. Most of the economically weaker States with poor infrastructure were penalised. (CBGA, 2020) This step should be rescinded. Weaker states need assistance not punishment.


The highlight of the budget is a provision of Rs, 35600 cr for nutrition related programmes. It is not clear whether this amount is an additionality over the existing provisions in the schemes and if it is not so how this money would be distributed over the existing schemes. Presumably, it includes existing schemes. Five major nutrition schemes under the Ministry of Women and Child Development have been given Rs. 27057 cr which is an increase of 15% over 2019-20 RE but less than 100 cr when compared to the BE of 2019-20. (CBGA, 2020) The BE 2019-20 was substantially cut at RE stage. Out of these 5 schemes, the most substantial provision is made for Aganwadi Services, under ICDS (Integrated Child Development Scheme). But it is a mere increase of 3.5% from 2019-20 (BE) though it is a more respectable increase of 16% from RE of the same year. Evidently, the BE provision was reduced at RE stage. The other major scheme of National Nutrition Mission (Posh- an Abhiyan) has received an increase of 9% from previous year’s budget. The third major scheme, PM’s Matritva Vandana Yojna, (PMVY) (earlier called the Maternity Benefit Scheme) has similarly gone up by 9% from previous year’s BE outlay which was reduced at RE stage., SABLA (Scheme for Empowerment of Adolescent Girls) scheme which caters to nutritional deficiency of adolescent girls has been reduced from BE of the last year by 50 cr although it has increased over last year’s RE by 100 cr. Food subsidy allocation which provides the food input for nutritional programmes besides PDS (Public Distribution System) has been very substantially cut by Rs. 68650 cr rather than increased which would have an adverse effect on nutritional programmes.

The programme run by the M/WCD (Ministry of Women and Child Development) are not the only ones which cater to nutrition. The schemes managed by some other ministries also contribute to nutrition. Besides the food subsidy referred to, Mid-Day Meal to School Children in Government Schools is the most direct and significant of them. Its allocation remains the same as BE of last year but was reduced at RE stage. The reduced part has been restored in 2020-21. Allocation for MGNREGS which provides purchasing power to access food to unskilled workers seeking employment is the other important scheme. Its outlay has been substantially reduced over the last year’s RE budget though there is a very marginal increase over the BE provision of that year. This reduction would hurt the cause of nutrition besides leading to rationing of employment and delay in wage payment because MGNREGS has committed liabilities of wage and material payment every year implying short of budget provision.

> The ICDS (Integrated Child Development Scheme) Programme is a flagship programme which provides food supplement to children and lactating mothers at the most formative growth stage of the mind & body of a child. The fund utilisation under the scheme has been very high at all levels-national, State and district. The Programmes has not yet been universalised due to paucity of funds. The lack of funds also leads to disruption in the programme implementation. The underfunding of the programme is corroborated by the Standing Committee of Parliament Report that the programmes has received 23% less funds than sought by the Ministry. (CBGA, 2020) This leads to undercoverage of the scheme and undermines inclusive implementation. It is not only inadequate allocations, but disruption in fund flow also affects effective implementation of programme. This is exemplified by POSHAN (Nutrition in Hindi) Abhiyan Programmes where only 32.4% of the funds in 2019-20 were utilised. The reason appears to be that even as late as by Nov. 2019, no
funds were released to 15 States for various reasons. (CBGA, 2020)

PMMVY (the maternity benefit scheme) has also thrown up the problem of inadequate utilisation of fund. This is due either to inadequate efforts by implementing agency to mobilise beneficiaries, or procedural hassles in applying for the scheme or the restricted eligibility of potential applicants as against the provision made in National Food Security Act. During 2018-19, the fund utilisation was 44% of the BE for the year. This could be due to limited coverage which has been restricted to only the first live birth. As per study of M/WCD, (Ministry of Women and Child Development) 51% of eligible beneficiaries were enrolled in that year. Of them only 61% received all three instalments. This implies that even as per the restricted eligibility, inadequacy of implementation efforts led to failure to reach the entitled benefits to all those enrolled. But a large number of pregnant and lactating mothers are left out of the scheme as only 23% of all women who had live birth could be mobilised for enrolment. If the ambit of the scheme could be enlarged to first two live births as required by the NFSA, (National Food Security Act) it would lead a wider coverage and better utilisation of funds. As it is, restricted entitlement to only the first live birth is a violation of the NFSA. Orissa and Tamil Nadu are far ahead of the Central Government in implementing their own version of the scheme. The former covers two live births and every birth in respect of vulnerable tribal groups. Tamil- nadu covers two live birth for all BPL (Below Poverty Line) women and provides Rs. 18000 and two nutritional kits to beneficiaries, instead of Rs. 6000 which the Central scheme entitles them to. (CBGA, 2020) If the centre is sincere in tackling nutritional deficiency, it should increase financial entitlement which is directly transferred to beneficiaries and cover at least two live births as per NFSA.

Besides inadequacy of resources and coverage, the ICDS programme also suffers from disruption in supply of food grains, corruption , poor quality of food served and shortfall in human resources. Orissa has addressed these issues through decentralisation by involving self-help groups and mahila mandals (women’s groups). Funds for procurement of food material are directly transferred to the joint account of aanganwadi workers (AWWS). Vacancies at different levels of ICDS functionaries is largely on account of reduced central contribution towards staff salaries under ICDS and passing on the remaining burden to States. The resource poor States may be reluctant to increase the burden of salary payment because of their fiscally weak position and FRBM prescription of sticking to fiscal deficit limit. The Centre should selectively assist such States and provide additional resources to them in order that the quality of service delivery and supervision do not suffer.

Rural Economy


The Budget promised to bring prosperity to farmers though 16 Action Points for agriculture the thrust of which was improved access to marketing, higher access to credit, crops insurance, and enhancing irrigation facilities. The share of agriculture in the Union Budget has reached 7.3% from 6.2% in RE of last year and as percentage of GDP to 1.0% in 2020 (BE) from 0.8% in RE of 2019-20. (CBGA, 2020) But increased allocation to agriculture witnessed since last year is almost entirely due to PM Kisan, the cash benefit scheme for farmers as direct income support to help them double their income by 2022. This combined with crop insurance scheme and interest sub-vention provide short term relief to farmers suffering from low income from agriculture on account of various reasons and particularly, high cost of inputs and falling commodity prices. But this cash benefit does not accrue to tenants and share croppers and women farmers because their rights and interests in land do not get recorded in the land documents maintained by the Government. This problem is also encountered in Telangana’s Rhythu Bandhu scheme. Ka- lia scheme of Odisha however, does include tenants and share croppers but identification of such tenants is posing a huge the problem because land owners resist it. They want tenancy to remain informal. The Budget speech urged States to implement model agricultural land leasing Act for this purpose circulated by Niti Ayog. But enactment of the law would be of no consequence as even where tenancy is legal, it is not recorded because land owners oppose it. Besides, legalising tenancy would lead to grabbing of land by large formers and corporates (People’s Democracy, 2020) and would be a reversal of land reforms policy and morally indefensible. As for the existing PM - Kissan Scheme, funds allocated under it also remained substantially unutilised by a staggering 21,000 cr. The Ministry spent Rs 34,370 cr against Rs.75000 cr it had planned which shows incapacity of spending. So far only 84 million out of an estimated 145 million households have benefitted from the scheme. (Bera, 2020)

To reduce the cost of farming in rural areas, Government proposes to cover 15 lakh farmers through standalone solar pumps with a view to inducing them to shift from Grid connected pump sets to Solar pump sets. But this small measure to reduce the cost of farming would be more than neutralised as the government has slashed fertiliser subsidy by Rs. 9000 cr. This is likely to increase cost of cultivation besides impacting adversely on the liquidity position of fertiliser manufacturers. The cut in fertiliser subsidy, resorted to under pressure from neo-liberal economists and corporates and International financial institutions, would have an adverse effect on efforts to make farming viable. (Bera, 2020) It would increase the cost of farming and would also not help the fertilizer industry as during the last budget itself it had pending fertilisers bills of around Rs. 39,000 cr for payment by the Government. (Gulati, 2020) Worse, the fertiliser subsidy regime has promoted imbalance in fertilizer use. Government subsidises urea (N) to the extent of 75% of the cost, phosphate (P) and Potassik (K) fertilisers are subsidised only to the tune of 25% of their cost. The result is larger use of urea on farmers’ fields instead of a proportionate use of NPK giving a very low fertiliser - to - grain response ratio and degrading soil, underground water and environment with excessive nitrogen use. This is ‘cruelty’ to our natural resources and farmers. (Gulati, 2020) Also proposed is creation of additional storage capacity at the block / taluk level through public-private partnership mode. These storage facilities are proposed to be run by self-help groups. The PPP experience has not been very encouraging in areas where there is no clear and continuing potential for making profit. It is also unrealistic to expect self-help groups to run business like cold storages. Similarly misplaced and impractical is the Dhanyelakshmi scheme under which women’s self-help groups will get loans to set up seed storage centres. (Vasavi, 2020)

Market Access

To improve market access, two new schemes have been announced, ‘Kisan Rail’ and ‘Krishi Udan’, to boast supply chain ad provide market linkages to perishable products. These are fancy schemes which have no understanding of ground realities, Kisan Rail has already started. But its allocation has been reduced from Rs. 28100 cr in 2019-20 to 25,292 cr in 2021. (CBGA, 2020) In any case, only rich farmers and corporates can take advantage of these schemes. Small and marginal farmers who constitute 90% of our farmers would not have the resources to afford the freight cost. Krishi Udaan is to provide air transportation of agricultural produce which only large farmers and corporates can avail of. It has no relevance for small and marginal and who cannot even afford to avail of cold storage facilities due to inability to pay rent. They need access to markets nearby. But the much trumpeted market access to farmers through modernisation of village haats (Bazaars) announced last year with financial provisioning is failing to even take off. A 2000 cr. fund to set up a chain of modern markets for farmers by modernising existing village level haats (Bazaars) where farmers and traders could transact freely with minimal rules has failed to move forward as only 10 cr has been spent and no facility is yet ready for use. (Haque, 2020) Besides the FM’s recommendation of ‘one district, one product’ would promote monoculture to cater to the niche market in the country and abroad besides having adverse ecological effects. On the other land there is little effort on the ground to promote farmer - producer organisations. (Vasa- vi, 2020) The budget has committed to expand agricultural credit from 13.5 lakh crore in 2019-20 (BE) to Rs. 15 lakh cr. in 2020-21. This is welcome but does not address the problem of skewed credit -deposit ratio across States and regional distribution of credit in North-east States, Hilly areas and eastern states.

Reduced Food Subsidy

But rural economy and particularly its vulnerable population is hit not merely by slashing of fertiliser subsidy but also reduced food subsidy by a massive Rs. 69000 cr. Food subsidy cut would hit coverage at a time when India has slipped in the latest global hunger index and is below even small neighbours like Srilanka, Nepal and Bangladesh. There is an excess of food stocks of 75.5 million tonnes as against the buffer stock norm of 21.4 million tonnes which is more than 3.5 times. (Gulati, 2020) At the same time, there are reports of hunger and starvation deaths in the country. This stock could be used to expand PDS and improve the nutrition of children particularly in such pockets rather than exporting it at lower than cost prices. But the budget allocation is not even enough to support existing PDS under NFSA (National Food Security Act). It is higher than the previous years’ RE but much less than BE of the last year. The gap would be met by FCI borrowing from the market or NSSF which would increase its financial burden. The more ominous signal of worsening food insecurity in the near future comes from Economic survey released a day before budget presentation that the PDS coverage be restricted to the bottom 20% of Indian’s population as against 67% now. It also recommended raising of the central issue price which now is at Rs. 2-3 per kg.

Crop Insurance

PM’s crop Insurance Schemes are also floundering. There would be further collapse with two changes announced 1) in the budget speech; Central subsidy would be capped at 30% for unirrigated areas and 25% for irrigated areas 2) making enrolment of farmers voluntary. At present, central subsidy has no upper limit and farmers pay a premium of 2% of sum insured for food grains and oil seeds crop of kharif, 1.5% for Rabi crop and 5% for all horticultural crops. Rate of National Premium subsidy is shared between Centre and States. The change in policy would increase the burden of subsidy for States. As it is, States are already defaulting on their share of premium and the Centre’s cap on its share would increase their financial burden. Non-payment of share by States results in farmers not getting their claims. In some States, the expenditure on premium of the PM’s Fasal Bima Yojna (crop insurance plan) is more than 50% of their entire budget for agriculture. Besides, the policy decision would lead to increase in the rates of premium and number of enrolment will come down (Sharma, 2020). In the light of very unsatisfactory outcomes of insurances schemes, it would be far better if farmers are paid directly by government for crop loss.

Government’s agricultural policy fails to see the linkages between ecological impact, land holding size, livelihoods and the larger economy as a result of which Budget continues to sharpen rural vs urban and agriculture vs industry divide. By reinforcing the adverse integration of the agriculture sector into a financial and a market system, it would increase the exploitation of resources and the labour of disadvantaged farmers and subordinate them to capital and chemical inputs and technology market. If the Government was serious to address this problem, it should have provided support payments to farmers for conserving their soil, water and seeds i.e, farm eco system (Vasavi 2020; Jakhar, 2020)

Cut in MGNREGS Allocation

Rural Economy is also hit by a huge cut in MGNREGS fund by Rs. 9500 cr and this at a time when the rural economy is faced with distress caused by stagnant wages, cyclical vagaries of weather and economic slowdown. It has an allocation of only Rs. 61000 cr for 2020-21 when the budget provision for 2019-20 had been increased at RE stage to Rs. 71,000 cr. This is a clear indication of stress in financial resources. The cut has come even when experts had suggested further boosting of funds under the programme to create demand and put money in the hands of the rural poor. Besides the budget cut, the MGNREGS suffers from several outstanding problems which hurt the rural poor such as disparity in wage rates guaranteed under MGNREGS and those fixed under the Minimum Wages Act, delay in wage payment, adherence to wage-material ratio of 60-40, non-payment of unemployment allowance etc. The reduced provision for MGNREGS would lead to further rationing of employment, reduced job availability and work, and force distress migration.

The increased budget provision for PM Gram Sadak Yojna by around Rs. 5000 cr, over last year’s revised estimates is the usual budget trick as last year’s BE provision for the scheme was Rs. 19000 cr which was reduced to Rs. 14070 cr due to the resource crunch. Over 96% of the total budget for 2019-20 was utilised by third quarter and was increased at RE stage. For 2020-21, it has been raised to Rs.19500 cr which is a mere increase of Rs. 500 cr over BE of 2019-20. The same situation exists in respect of PMAY-G (Prime Minister Awas Yojna) (the rural housing scheme - earlier named Indira Awas Yojna). The BE of 2019-20 at Rs. 19000 cr was reduced to 18473 cr but has been raised to 19500 cr in BE for 2020-21, a mere increase of Rs. 500 cr.

In the self-employment segment much emphasis has been given to skill development. Yet, the funds for the skill development have increased by a mere 0.4% over the 2019-20 BE. Despite the inadequate provision, the entire budget provision for its flagship scheme PMKVY (Prime Minister Kaushal Vikas Yojna) could not be utilised in the last three years and only 49% of its physical targets have been achieved. (CBGA, 2020)


All this while, when the economy has been sinking, agrarian distress increasing, unemployment rising, consumption shrinking and investment not forthcoming, revival of economy does not constitute the priority of the Government. It is the political agenda to establish the Hindutava polity with supremacy of Hindus and Marginality and subordination of Muslims. (Chidambaram, 2020; Varshney, 2020) that drives the Prime Minister and his closest political advisers. The agenda is being pursued step by step through abrogation of Article 370, building of Ram Mandir, enactment of NAA, and implementation of NPR and NRC (National Population Register; National Register of Citizens). This is their burning passion. The pursuit of this agenda requires the politics of their party to stoke fears and anxiety in the minorities, primarily Muslims, and intensify continued communal polarisation through provocative slogans, hate Muslim campaign, use of brute force to curb any protest even if peaceful and eventually create condition for communal violence. The objective is to keep the communal pot boiling and ensuring that normalcy and harmony never returns (Jafferlot, 2020) so as to consolidate the Hindu vote for a more massive win in the 2024 election to stabilise the Hindu Rashtra. With all constitutional and public Institutions hollowed out, opposition being reduced to a helpless spectator and civil society dissent being pulverised by filing sedition cases, they see no threat to pursuit of this goal. Adverse reactions globally does to bother them. These can be managed with trade and diplomatic retaliation. The parallel with Nazi Germany preceding the second world war is too striking to be missed. The Budget is a minor ritual to be performed in this scenario which has already disappeared from the headlines of the newspapers and TV debates. Brace up to the next macabre episode in the chilling thriller amidst further deterioration in the economy.


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Bera, Sayantam (2020). ‘Subsidy cuts on weigh access to farm credit’, Hindustan Times, Sunday, February.

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Varshney, Ashutosh (2020). ‘Lifting the pall of fear’, Indian Express, January 28, 2020.

Vasavi, AR (2020). ‘For farmers, an empty plate’, Indian Express, February 3, 2020.

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