If India is on the cusp of reaping benefits of growth on the back of demographic dividend, it has the potential to grow at arithmetic progression if the education system is overhauled and employment generation is given a boost.
One view on Budget 2018 is that Finance Minister Arun Jaitely has managed to strike a balance between populism and discipline. Another view is that it is a safe budget that’s short on any transformational policy in the final year of the government’s tenure. But the overwhelming view is that the finance minister’s budget speech was more like an election campaign speech inside the parliament. Whichever view is right, it is hard to miss one key take away from the budget document: it is an election budget that’s high on promises but lacks resources. Jaitely has tried to please many, but does not succeed. The budget’s core focus is the farm sector and rural India. This was not entirely unexpected, given the ominous signs in agriculture crisis and rural distress.
The economic survey had clearly pointed out that real agricultural income and real agricultural wages were constant for four years. In a pre-election year budget, the finance minister certainly could not have ignored such a strong warning from his government’s chief economic advisor. Neither could he have ignored voters of 244 rural parliamentary constituencies who are lagging far behind their urban counterparts on wages, incomes and wealth parameters. Often the Union Budget steals the thunder from the economic survey which becomes an academic document once the budget is presented. But the survey signaled several warnings. The bigger warning is the impact of climate change on agriculture over the next three decades.
Other key challenges to economy, the survey pointed out, included vulnerable macro-economic factors, sluggish credit growth, unemployment worries, poor state of basic and higher education, inadequate health care system and slowdown in private investment, among others. Apart from ground reality, if the survey was the broad context of the budget, the finance minister had a tough job to fire fight many challenges on several fronts. Instead of facing the challenges head-on, Jaitley preferred to address some of the problems through promises that may not be kept for lack of resources. There is a mismatch between actual budgetary outlay and the resources needed to fund some of the grand promises, like the healthcare protection for 10 crore households. Promises apart, Jaitley has also flubbed on the test of fiscal consolidation: fiscal deficit for 2017-18 at 3.5 per cent against the estimated 3.2 earlier and 3.3 per cent for 2018-19 against the earlier target of 3 per cent. This will have adverse impact on growth.
Reacting to budget, former prime minister Dr Manmohan Singh, a well known economist and the architect of liberalisation who presented a bold and transforming budget in 1991, which set the ball rolling for India’s growth journey, said he was worried about the ‘fiscal arithmetic’ of the budget and wondered how the government would meet its promises, like the minimum support price (MSP) for farm produce at 1.5 times the production cost. There is little clarity on how MSP will be implemented. The funding mechanism is yet to be discussed. Niti Aayog, the government think tank, is expected to work out the institutional mechanism along with state governments. This will take time and farmers will have to wait to get the MSP relief till the next kharif crop. The budgetary outlays don’t appear adequate enough to meet the MSP commitment. Lack of details on how the government will find money to boost agriculture adds more confusion to the grand promise.
There is also little clarity on how the ambitious national healthcare protection scheme (NHPS) will be implemented and funded. While Niti Aayog has calculated Rs 10,000 to 12,000 crore cost for the Centre, experts fear that it will cost much more – anywhere between Rs 30,000 to 60,000 crore or may be more – and will be difficult to implement. Initial allocation for NHPS is a paltry Rs 2,000 crore, which will be channelised from the existing insurance scheme Rashtriya Swasthya Bima Yojna (RSBY). So, the shortfall is huge and experts wonder whether the 1 per cent extra health cess will mobilise enough to make for the shortfall. There is little doubt that India desperately needs universal health coverage – like the US-type insurance-driven health coverage, if not the UK-type NHS which is considered the best in the world – that is efficient in terms of cost and service. Announcing a mega insurance-linked health coverage without clear and sustainable roadmap appears more like a promise than commitment.
Social welfare is an important aspect of economic progress. No nation has ever progressed well enough with dysfunctional education system, as deficit in education hurts economic growth. Crisis in education, as pointed out by the economic survey, has not been addressed adequately by this government, or even by governments in the past. While enrollment in schools has shown healthy signs of growth, the learning outcomes have not been satisfactory. Higher education, similarly, suffers from huge quality issues. If India is on the cusp of reaping benefits of growth on the back of demographic dividend, it has the potential to grow at arithmetic progression if the education system is overhauled and employment generation is sped up. While quality education, along with skill, is a tried and tested long term solution to spur economic activity, the finance minister has not done enough to make education a priority area for growth. Neither has he done enough to generate new jobs; EPF sops certainly don’t create many jobs that India needs badly.
Apart from the salaried class which has been ignored in the budget and the capital market which has been slapped with long term capital gain tax, by and large the finance minister has done a fine job of making people – particularly farmers, rural folks and senior citizens – believe that his government has been doing a lot for them through policy initiatives and reforms. Creating such an impression was important, given the fact that eight state elections are lined up this year before the 2019 general elections. No matter how you slice and dice the numbers, one thing is for sure: there is a problem in the economy and the problem is much bigger in rural India.
The government could not have faced a national election with the kind of mood that exists in rural India currently. The growth story has lost momentum and hence the government talks less about vikas these days. Therefore, the best available option with the government to create a feel-good effect was the last full budget before the next general elections. Littered with promises and grand schemes, Budget 2018 is therefore an election vision for 2019.
The writer is an independent senior journalist.