Budget Fy 2023 – Saying sorry is ok

The drama and spectacle around Budgets in India are completely undeserved. More than four-fifths of the Union Budget demands relate to expenditure that is carried through from past decisions, leaving little leeway for bold new outlays.

And even when such programmes are budgeted, it is unclear who is going to pay for the added expense. Compulsorily linking all new expenses with either explicit expenditure reductions elsewhere or new revenue sources could reduce the swagger and table-thumping that such proposals evoke and enforce fiscal sustainability.

Outcomes matter more than budget outlays

Also, instead of focusing on expenditure outputs — like the length of roads built — we should focus on the outcomes thereof — like reduction in travel time or increase in traffic intensity. India does table an annual performance budget. But it is a formality — a bit like washing your feet before entering a temple — necessary, but infructuous, if you do not also clear your head and become receptive to the spirituality within.

Budgets a jumble of report cards and apologies for past errors compensated by cash

Budgets in India, by and large, are mostly a grand occasion for initiating policy change, signaling implicit acceptance of past mistakes by making amends via new allocations and building future expectations. The Narendra Modi government is particular about its “report card” and of living up to its promises. When that does not happen — for example, in getting illegally expatriated funds back home or creating ten million jobs annually — it offers a rash of substitutes, to keep hope alive.

There is much in the report card to commend

The record since 2015 is impressive. Financial inclusion extended to 422 million new, free accounts till 2021. 180 million enrolled cumulatively in basic, low premium, social security and accident insurance schemes, though the annual policy renewal rate is lower. Rs 1.6 trillion in Centrally guaranteed collateral-free bank loans for 260 million small entrepreneurs. Thirty-three million subsidised houses for the poor by 2022, of which 22 million were built for around Rs 3-4 trillion. Over 100 million poor households provided with a toilet, though both the NSSO 2018 and NHFS 2020 surveys assess 93 per cent ODF as significantly overhyped — the age-old problem of outputs like toilets not adding up to outcomes like ODF. Around Rs 0.2 trillion of bank loans to 0.1 million Scheduled Castes and women, new entrepreneurs. From 2016, 90 million free cooking gas connections allotted to poor households.

Direct cash support to 100 million farm families, just before the 2019 general election and liberalising the NPA classification norms for overdue loans of SMSE — which contribute around 39 per cent of GDP and employ around 110 million people — were ways of implicitly saying sorry for taking away your unorganised sector jobs, courtesy demonetisation in 2016-17 and GST in 2017-18 — double whammies, which deflated the economy.

After the Covid-19 pandemic, the government responded with universal ration cards, usable nationwide by migrant workers. Free foodgrains for the 794 million registered beneficiaries of the public distribution system were a prompt and welcome use of the mountains of cereals accumulated by the Food Corporation of India — 2.5X and 2X of the annual requirement of rice and wheat (June 2021), courtesy good harvests. Putting all this together, the bottom half of the income deciles have benefited from multiple schemes, in the absence of new jobs. Edelman Trust Barometer 2022 rated public trust in the government as being the highest in India.

Pre state elections appeasement

Five state level elections loom in February and early March — including Goa, where the ruling BJP faces disaffection; Uttarakhand, where the ding-dong trend between the BJP and Congress favors the latter’s win, albeit spoilt by an aspiring AAP cutting into their votes; Punjab, where an ascendant AAP scents a win against the whittled down Congress and, finally, the giant killer-kingmaker, Uttar Pradesh, which accounts for 15 per cent of Lok Sabha seats and 78 per cent of the 102 seats going to the polls — where majority satisfaction tussles with selective caste elite disempowerment.

For a party like the BJP, which expects to rule indefinitely, and can deliver on promises, what role should the forthcoming Budget play in securing a win?

Making up with farmers

The elephant in the room is the alienation of northern India’s farmers. Non-farm jobs are scarce even for graduates. Haryana has an unemployment rate of 36 per cent (CMIE Sept-Dec 2021). Distrust abounds that the actual target of the repealed farm laws was disbanding the expensive-to-administer minimum support price (MSP) mechanism where the government determines the price of purchase. Farmers also yearn for reclaiming their lost status, via an official endorsement, that they are not the detritus of an inefficient, outmoded system of production but respected entrepreneurs who supply sustenance at reasonable prices.

Rebuild trust through water saving, crop diversification incentives

A window of opportunity to rebuild trust exists in addressing the twin problems of severe ground water stress and reducing the losses of the Food Corporation of India. Seventy-one per cent of blocks in Haryana and 83 per cent of blocks in Punjab are “critical or over-exploited” according to the Central Ground Water Board 2020. Nevertheless, the FCI procures 52 per cent of its wheat and 63 per cent of rice (2020-21) from Punjab, Haryana and Uttar Pradesh, driven by political pressure to continue MSP purchases — an anachronistic income transfer scheme for farmers.

Why not offer to farmers in these water-stressed blocks an optional, assured “water saving premium” for shifting away from wheat and rice to low water-intensity crops — oilseeds, pulses or increasingly fashionable organic coarse grains? A premium of Rs 6,200 per acre for wheat (assuming yield of 2.06 metric ton per acre) and Rs 7,700 per acre for rice (assuming yield of 1.8 metric tons per acre) can be financed from the avoided cost for the FCI of uselessly procuring and storing surplus cereal stock, which it sells at a loss. If the benefits of reduced groundwater demand and rejuvenated aquifers are added, the premium can be higher, given a minimum shift away of say 20 per cent.

Keep the stimulus cash flowing, boost exports, tap corporate tax for additional revenue

Other Budget priorities are more mundane — continuing to alleviate the Covid-19 pandemic-driven financial stress and poverty, stimulating exports as a demand enhancer through supportive exchange rates, reducing duties on imports to lower domestic consumer prices, while enhancing corporate tax revenues through a two-year surcharge on the profits of listed companies, to sequester, partly, their “unearned” pandemic-driven bonanza, higher non-tax revenue from monetization and higher non-debt capital receipts from disinvestment. The good news is that it is okay to be profligate these days. That makes the fiscal deficit a residual and not the anchor metric for sustainability.

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