Black Economy, Underestimation of Unemployment and Budget

Report
Learning Pundits
on
Budget analysis
REPP class 9
BUDGET REVIEW ON
What Does Budget 2007-08
Offer Women?
By- Yamini Mishra, Bhumika Jhamb
REEP, LEARNING GROUP 10
FUNCTIONAL DETAILS OF THE GENDER
BUDGETING STATEMENT
• Gender budgeting(GB) statement has been
started as a government exercise since the last 3
years.
• Government has made efforts in correcting
mistakes as pointed out by a civil society.
• Part A of the statement contains schemes in
which 100% allocations are for women. Eg: Indra
Awas Yojana, Rashtriya Mahila Kosh .
• Part B constitutes schemes in which at least 30%
of the allocation in for the women. Eg ICDS,
PMRY
REEP, LEARNING GROUP 10
BUDGET HIGHLIGHTS TOUCHING
GENDER ASPECTS
• The total magnitude of the gender budget is Rs
31,177 crore in 2007-08 that is an increase of 40
per cent.
• As a percentage of total union government
expenditure, this constitutes a rise from 3.8 per
cent to 4.8 per cent.
• Gender budgeting cells have been set up by 50
ministries/department.
• General Budget Statement demand for grants
has increased from 10 in 2005-06 to 33 in 200708.
REEP, LEARNING GROUP 10
CRITICAL ANALYSIS OF GB STATEMENT
Ambiguous and wrong allocation still remains
• Under the department of health and family
welfare all the allocation on contraceptives has
been treated as exclusively for women.
• IAY has also been treated similarly although in
2004-05 , 18% of houses constructed but allotted
to men and 29% jointly to husband and wife .
• Similar discrepancies remain in various schemes
under Labour Ministry , Ministry of youth affairs
and Sports etc.
REEP, LEARNING GROUP 10
Percentage spending in the Gender Budgeting Statement
REEP, LEARNING GROUP 10
• Women Education: Allocations high at 31%
but still insufficient to control the high drop
out rate of 73%
• Women Health: Allocation high at 24% but
much needs to be done to lower the high
maternal mortality rate.
• Women food security and nutrition: Meagre
increase in allocation and no concrete steps.
REEP, LEARNING GROUP 10
• Women Livelihood: Significant budgetary
progress by substantial and right allocation of
schemes and funds.
• Women Housing: At 8% of the allocation it
remains low considering the magnitude of the
problem.
• Women in difficult circumstances: There is no
allocation at all for provisions like these. For e.g
no provision for the efficient implementation of
the Domestic Violence Act.
REEP, LEARNING GROUP 10
GB Statement: The way forward
• Although the GB statement is a well
intentioned initiative several more steps need
to be taken.
• Women face discrimination in many aspects.
• They face discrimination on the basis of caste,
class, disability, HIV status, rural-urban divide,
etc.
• There is no mechanism to ensure that the
allocations reach the most marginalized
section of the women community
REEP, LEARNING GROUP 10
Conclusion
Conclusion
• A crucial flaw is that the GB statement
assumes the women as a homogenous mass.
It does not account for the various power
dynamics and discrepancies that remain in the
society.
• Also, women have long been discriminated
and marginalized and the GB statement needs
to take this into account.
REEP, LEARNING GROUP 10
• The Gender Budgeting exercise recognizes that
gender-neutral allocations are not enough and
the government needs to step up its allocations
for women-specific schemes.
• The Gender Budgeting exercise cannot be done
in isolation from the political and socio-economic
scenario of the country and needs to incorporate
these aspects to make it cater truly to women
welfare
REEP, LEARNING GROUP 10
Black Economy,
Underestimation
of Unemployment and Budget
2005-06
by Prof.Arun Kumar
Professor of Economics,JNU,
Author – Black money in India
Contents

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
Introduction
Model of Black Income Generation in Legal
Activities
Some Facts
Union Budget 2005-06, Employment and the
Black Economy
Conclusion
Some questions to ponder upon
Some other Links
“ An Indian is affected at every step by the
black economy. The education of a child, a
visit to a doctor, policeman who extort
money…..electricity or water departments all
demands black economy”
- Prof. Arun Kumar
Black Economy - Introduction

A hidden sector of the economy where private cash
transactions go unreported. It is a sector of economic
activities involving illegal economic activities including
buying and selling of drugs.

This definition excludes transfer incomes, like capital
gains and bribes. The definition also eliminates multiple
counting of incomes

That part of an economy that is hidden from the
government and on which taxes are not paid.
Black Economy – Introduction (cont.)

Most of the black economy is on the hand of top 3%
population so that the disparity (between these people
and the bottom 40 per cent) is considerably higher (five
times) than what the white economy data suggests.

Size of the black economy was 40 per cent in 1995-96,
that implies an additional GDP due to the black economy
of 40 per cent in that year.
Model of Black Income Generation in
Legal Activities

Profit (P) = Revenue (R) – Cost (C) …(1)

Profit may be white (what is declared) or black (what is not declared).
The declared profit appears in the income statement of the business
and is called the balance sheet profit. The undeclared profit or black
profit is called off-balance sheet profit.It accrues directly to the
management of the business.

P = White Profit (Pw) + Black Profit ( Pb) …(2)

Further,
P = Actual R – Actual C …(3)

Black Profit (Pb) is generated by declaring lower revenue and/
or overstating costs.
Some facts

The size of the black economy is estimated to be 40 per cent
of GDP for 1995-96 [Kumar 1999]. Of this 8 per cent comes
from illegal activities and 32 per cent from legal activities.

Two Sources of Black income are –
a. Overstated Costs
b. Under invoiced revenue

Then overstated costs would contribute half of the black
profits (Pb) from legal activities or 16 per cent of GDP.
Some facts (cont.)

According to the economist magazine it is estimated that
in 1998 the world’s black economy accounted for a
missing $9 trillion worth of output – a volume of output
almost equivalent that of U.S.

Black income generation process, with the most
plausible available assumptions, results in
overestimation of employment and wages by 5 per cent.
Union Budget 2005-06, Employment and
the Black Economy

Introduction of two schemes in Union Budget 2005- 06 –
1. Banking Transaction Tax (BTT)
2. Fringe benefit Tax (FBT)

The value added tax (VAT) has also been billed as a
scheme to tackle black income generation in indirect
taxes. It is supposed to lead to better compliance.

Services tax collection has shown high buoyancy. Many
more services are progressively being brought under the
net of this tax.

In the union budget for 2005-06, additional funds are
allotted to employment generation and to the social
sectors (education, health, etc).
Conclusion

It is clear that without incorporating the black economy in
the analysis, there can be no clarity on the issue of
unemployment in India.

The 7 per cent rate of growth in the last three years
raised the possibility of mobilizing more resources but
the steps taken are grossly inadequate to deal with the
problem of declared unemployment in India.

Not that the black economy does not generate
employment, but by lowering the value of the multiplier
and the potential rate of growth of the economy, it lowers
the employment potential
Some questions to ponder upon

How is the government going to tackle the twin and
interrelated problem of black economy and
unemployment?
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Is black economy really an evil?
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Is there a way to estimate and curb the black
economy?

Are we as individuals also responsible in
contributing in growth of parallel / black economy
Some Other Links

http://www.financialexpress.com/news/story/1
26853/

http://in.biz.yahoo.com/050312/32/2k54q.html

http://www.atimes.com/atimes/South_Asia/IF
05Df02.html
Budgetary Policy in the Context of
Inflation
- PRABHAT PATNAIK
Source (Article): EPW April 7, 2007
REPP LG 3
BUDGET REVIEW
“The Union Budget 2007-08
utterly fails to appropriately
respond to the social needs of a
situation of profit inflation…”
- Prabhat Patnaik
Budgetary Policy in the Context of Inflation
25
Understanding Inflation
Inflation: The overall general upward price
movement of goods and services in an economy.
 Income Inflation: Inflation in nominal wage unit,
with the price level in terms of the wage unit
remaining unchanged.
Purchasing Power
remains constant
 Profit Inflation: Inflation of the price level in
terms of the wage unit.
Fall in Purchasing
Power
Budgetary Policy in the Context of Inflation
26
Fixed level of the money wage in the
short run Ex ante excess demand at
this output
Raises the share of profits relative
to wages, through a profit inflation
Squeezes “forced savings” out of the
workers which add to the wealth of
the capitalists
Current Inflationary episode in India- “Profit Inflation”
Driven by excess demand for a variety of goods, notably primary
commodities, including food articles
Budgetary Policy in the Context of Inflation
27
Overheating of the Economy: High
Growth Rates
 Decline in profitability in the Agricultural Sector.
 Rural development expenditure as a proportion of GDP has
declined to a level much lower than in the eighth plan
period.
• Per capita foodgrain output has declined over a long
period, and especially since the beginning of this century.
• Public procurement operations have been wound down.
• The procurement prices offered for foodgrains have simply
not been remunerative enough.
Since mid-2002, the dumping of huge amounts of foodgrains on the world
market and the whittling down of procurement operations, has now carried
the economy from an ex ante excess supply to an ex ante excess demand
situation.
Budgetary Policy in the Context of Inflation
28
 Dilemma- the basic feature of a profit inflation is that
it is self-limiting, in the sense that, leaving aside the
element of speculation, the “forced savings” that
such inflation generates, eventually eliminate the ex
ante excess demand that causes it!
 The end of profit inflation, however, may not mean
the end of inflation in nominal wages and prices.
 Even if we assume it does, that will still leave the
level of real wages below what it was before profit
inflation began.
This requires an increase in fiscal transfers to the poor, financed,
ideally by an increase in taxes on the profit earners. And the basic
problem with the 2007-08 budget is that it is oblivious of these social
demands of a situation of profit inflation.
Budgetary Policy in the Context of Inflation
29
 Reduction in the revenue and fiscal deficits
relative to GDP is necessary for curbing inflation.
 It has to be achieved through a restriction on
government expenditure relative to GDP.
Otherwise the ‘animal spirits’ of entrepreneurs
will get destroyed by higher taxes, and growth
will be curbed.
 In short, what a situation of profit inflation
requires is both the ensuring of appropriate
supplies through imports, and a transfer of
purchasing power from the profit earners to the
workers.
Budgetary Policy in the Context of Inflation
30
Union Budget 2007-08
 While the government has seen the need for
“supply management”, i.e, for importing
certain essential commodities to augment
domestic supplies, it has not seen the need for
transfers.
 To check the fiscal deficit, there has been a
curtailment of expenditure, including transfer
payments.
Budgetary Policy in the Context of Inflation
31
Percentage increase in items in the budget
between 2006-07 (RE) and 2007-08 (BE)
ITEM
PERCENTAGE INCREASE
Gross tax revenue
17.2
Tax revenue net of states’ share
17.0
Total receipts and total expenditures
17.0
Plan expenditure
18.7
Non-plan expenditure
16.3
Budget support for the Central plan
22.5
Budget support for states and union territories
8.5
GDP is currently rising at over 9 per cent and prices at around 7
per cent, this 17 per cent increase in most budget items
matches the 16-17 per cent increase in the nominal GDP,
leaving their proportion to GDP unchanged.
Budgetary Policy in the Context of Inflation
32
“Transfers” decline relative to GDP
 Outlay on the National Rural Employment Guarantee
Scheme (NREGS) is supposed to rise from Rs 11,300
crore to Rs 12,000 crore, i.e, by a mere 6.2 per cent in
nominal terms
 Total expenditure on rural employment is supposed to
rise by only 3.5 per cent
 Aggregate expenditure on NREGS, Sampoorna Gramin
Rozgar Yojana (SGRY) and Swarnajayanti Gram
Swarozgar Yojana (SGSY) is supposed to increase by
just about 7 per cent
 Food subsidy is supposed to rise by a mere 6.2 per cent
Budgetary Policy in the Context of Inflation
33
Agriculture
 The Budget does little to remove the basic cause
of the profit inflation itself, which consists in the
steady decline in per capita foodgrain output.
 The Central Plan outlay on agriculture is
budgeted to increase only by 15.8 per cent, and
the outlays on rural development, and irrigation
and flood control by 11.4 and 11 per cent
respectively.
“This modest increase, in the light of the fact
that the Central Plan outlay itself is expected to
increase as much as 31 percent, suggests a
lack of emphasis”
Budgetary Policy in the Context of Inflation
34
 Lack of mention of any price-support for the farmers.
 When the talk is about “productivity” increases within
peasant agriculture, it requires a certain amount of
investment. This seems difficult unless the remuneration
improves.
 In the absence of a price support mechanism, tariff changes
in either direction may work to the disadvantage of
farmers.
 The gains from increases in tariffs may be appropriated by
middlemen (which may even be large multinationals), while the
effects of such tariff increases in the form of higher prices of
downstream goods may even hurt the farmers as consumers.
 The losses from tariff decreases on the other hand may well
get passed down by the middlemen to farmers, a possibility
that arises in the context of this year’s budget itself since duties
on several agricultural goods have been reduced apparently as
a means of combating inflation.
Budgetary Policy in the Context of Inflation
35
• There is a case for increasing the tax-GDP ratio in a
period of profit inflation.
• This is because since a profit inflation increases the
wealth of the capitalists while forcing the workers to
reduce their consumption, i.e, it first squeezes the
consumption of the workers, then transfers these
amounts arising from the reduced consumption of
the workers as savings to capitalists, whose wealth
increases as a result of this.
• This wealth inequality can be removed only by
increasing the share of taxes in profits, which, since
the share of profits in total income is rising during
the profit inflation, would necessarily mean
increasing the share of taxes in income.
Budgetary Policy in the Context of Inflation
36
Tax GDP Ratio 11.4% in 2006-07 (RE)
Tax GDP Ratio 12.0% in 2006-07 (BE)
(http://www.abnamro.co.in/Research/pdf/budget-FY2007-08-comment.pdf)
The tax-GDP ratio and the ratio of “transfers” to the
workers to GDP should both have increased in the
context of inflation, together with “supply management”
measures.
The budget for 2007-08 raises neither the taxGDP ratio, nor the ratio of GDP being transferred
to the poor and the working people.
Budgetary Policy in the Context of Inflation
37
Budget Review
Topic- Budget and Growth
LG_2
An overview of Budget 2006-07
• GDP growth likely to be 8.1 per cent with the manufacturing sector at 9.4
per cent; agricultural growth bounced back to 2.3 per cent; inflation was
4.02 per cent.
• Allocation for eight flagship programmes (Sarva Siksha Abhiyan, Mid day
meal, Drinking water and sanitation, National Rural Health mission, ICDP,
NREGS, JNNURM et.) to increase by 43.2 per cent from Rs.34,927 crore in
2005-06 to Rs.50,015 crore.
• Government to provide equity support of Rs.16,901 crore and loans of
Rs.2,789 crore to Central PSEs (including Railways).
• Farm Credit increased to Rs.175,000 crore in 2006-07 with addition of 50
lakh farmers; banks asked to open a separate window for self- help groups
or joint liability groups of tenant farmers.
Global growth spree
Contribution of Developing
& Developed nations in world economy
Developed Countries
Developing countries
Contribution in world output 54%
Contribution in world output 45.4%
Export 71%
Export 28.2%
World population 15.4%
World population 84.6%
A
Mismatch
What is exactly driving the growth of
Indian economy???
The production base
Or
The consumption base
An illustration
• Housing and retail credit registered higher
growth rate
• This fostered the growth in construction
sector
• But the Author envisages that the world wide
experience with regard to construction boon
driven growth raises doubts
• Is this growth sustainable??
• Can we have growth without production ???
• Government has reduced capital expenditure to
reduce the fiscal deficit
• Along with production, employment has taken a
back seat
• Our budget lacks coherence to approach savings
• It goes like mathematical proportion that with
the increase in employment , income increases
and what is saved is expected to be invested
Perils to Indian growth
• Barrier in the world trade in spite of ‘free and
fair’ talks.
• Inadequate measures/provisions to foster
saving and investment in 2006-2007 budget.
Overview of Challenges
Infrastructure and
Environment
Economy Related
•Poor Physical
Infrastructure
(road, sea,
airports etc.)
•Weak Rural
Infrastructure
•High Cost and
unreliable power
•Bureaucracy
Regulatory/
Governance
•Investment has
fallen short of savings
In three consecutive
years from 2001-02
to 2003-04
•Low level of domestic
Investment absorption
Capacity
•Consumption credit
Expansion lead growth
•Lack of labour market
reforms due to decline
in capital expenditure
•Politicization of
investment decisions
•Poor performance
Of Public sector
•Poor regulatory
Support to the
Unorganized sector
MDGs – Millenium Development
Goals or Moving Development
Goals?
An article by Vinish Kathuria
Government says….
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
After education, health is second sector with
major govt. spending.
Increase of 22%?? In effect, after inflation,
works out to 16.5%.
Increased outlay vis-à-vis MDGs.
Health component distribution (PHC,
Disease control programme, health
education, reproductive and child health)
At a first glance
Country
1990 (IMR)
2003 (IMR)
% change
over 13
years
China
38
30
21.05
Pakistan
96
81
15.63
India
80
63
21.25
Bangladesh 96
46
52.08
• Among the South Asian Countries, India has the
2nd highest MMR (540 per 100,000 births)
MDG Goals

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
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Related to health are primarily the 4th,
5th and 6th goals.
4th Goal – To reduce IMR.
5th Goal – To improve maternal health.
6th Goal – To combat HIV/AIDS,
malaria and other diseases.
Target 2015



IMR – 42 deaths per 1000 live births.
MMR – 109 per 100,000 live births.
HIV/ AIDS comabting is on a low. Whereas TB
and malaria statistics are gradually improving.
Bottlenecks



Inefficiency in the use of resources.
Lack of funds towards various schemes of
these goals.
Institutional changes in few states.
Health Sector Outlay by the
Govt.
Total Outlay in Crores
14000
12000
10000
8000
Total Outlay in Crores
6000
4000
2000
0
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07


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


Discrepancies in the health sector.
Budget allocations, increased outlay to be taken
with caution.
Progress made in combating leprosy and polio,
but yet to be eradicated.
Resource requirement (Rs. 19,995 crores) not
matching the actual outlay (Rs 12,100 crores).
Is the allocation sufficient to support ASHA
volunteers? Support NHRM.
Other indirect schemes like ICDS.
Conclusion



More focus on PHCs
Increase expenditure to PHCs
Insurance of poor against health
uncertainties.
Why Do the States Not Spend?
By T M Thomas Isaac, R Ramakumar
Article Review
Current Situation
 Public expenditure by states on social &
economic services is a crucial necessity.
 It is low in India by any standard & need
urgent attention.
 In 1990s & 2000s, the ratio of revenue
expenditure by all states to the GDP has
stagnated, if not declined.
 Investment outstanding by all states- Rs
64,000 crore.
The growing importance of state finances in
the macro-economy is evident from the fact
that the total expenditures of state
governments (Rs 3,25,634 or 16.6% of GDP)
have even overtaken those of the centre (Rs
313,258 crore or 16% of GDP) in the year
1999-2000.
http://www.epwrf.res.in/Archives1.asp?CatId=4
FRBM Act
The main elements of the FRBM acts passed by the states were
the following:
(a) 2 to 3 per cent target for fiscal deficit to be achieved
by
2005-06 to 2010-11;
(b) elimination of revenue deficit by around
the same time;
(c) limits to state government guarantees on debt;
(d) limits to overall liabilities that could be incurred
(e) formulation of a medium-term fiscal plan to reach
these targets &
(f) institution of a complaint redressal mechanism.
Remedial measures
 Expenditure compression such as
curtailment of benefits to employees
 Reduction in social subsidies, including
welfare pensions
 Closure of sick PSUs
 All-round increases in user charges.
 States like Haryana, Karnataka, Gujarat and Tamil
Nadu, which have been characterised as fiscally
better managed have shown declining ratio of
revenue expenditure to GSDP of state govts.
 a common factor to all state govts is the
compulsion set by the FRBM Acts to eliminate
revenue deficits by 2008-09.
Central role in Fiscal imbalance
 RoI on borrowings of states were sharply
increased after the mid-1980s.
 Coupon rates of state govts. securities were
raised sharply by the RBI from 11.5% in 199091 to 14% in 1995-96.
 Similarly, the interest rates on small saving
borrowings by states also increased from 13%
1990-91 to 14.5% in 1992-93.
 Revenue deficit of states more than doubled
from 1.1% in 1997-98 to 2.5% in 1998-99.
Central Govt. Stand
 Union Finance Minster- much more needs
to be invested in education, healthcare,
mid-day meal schemes, rural roads &
urban development.
 States are unable to spend because they do
not have absorptive capacity.
Reverse transfer from state to centre
 Investments by state in 14 day intermediary
treasury bill of centre earn them a return of 5%
per annum
 But the average cost of mobilization of funds
by state is much higher.
 In 2005-06 the interest rate on borrowing of
states against small savings was 9.5% per
annum ( the costliest debt in the market)
 The average interest rate on market borrowing
was 7.4% per annum.
Reverse transfer from state to centre
 The total transfer of NSSF loans from the centre to
states was Rs 90,000 Cr in 2005-06.
 At the end of the same period, the total reverse
investment by states in treasury bills was Rs 61,886
Cr- about 1/3rd of its NSSF borrowing.
 This has enabled the centre to make profit and the
centre is blaming states for the surpluses.
Author Stand
 Author claimed this as false and misleading argument.
 States do not spend because of legal constraints.
 Finance Ministry has forced states to pass fiscal
responsibility in their legislative assemblies.
 Revenue & fiscal deficit target- 3% of GSDP by 2008-09
 In tune with target, revenue & fiscal deficit declined
sharply in 2000s by keeping revenue expenditure to
GSDP ratio stagnant despite increase in revenue receipt
to GSDP.
 States could have raised revenue expenditure by making
use of increased receipt & kept revenue deficit constant.
 Cash surplus phenomenon is a perverse outcome of
FRBM Acts.
Case Study of Kerala
 Adverse implications of mechanically designed fiscal
adjustment programmes in context of long term
commitments to social spending & exogenous changes
like pay revisions.
 As per provisions of FRBM Act. Kerala had to sharply
cut plan expenditures- reduce social spending & curtail
devolution to local self-governments.
 Planning Commission demanded flexibility in FRBM
Act provisions.
 International experience with fiscal responsibility
legislations also endorse flexibility.
 The author advocated drastic amendment of FRBM Act.
Why Kerala?
 It is characterized by fiscal imbalance: high revenue deficit,
fiscal deficit and public debt, as ratios to GSDP.
 Its expenditure pattern- high commitment to social services
expenditure, as high priority to social sector historically.
 Focus on social sector has led to better health and longevity
to its people, resulting in a high burden of pension payments
on the exchequer. In 2005-06, pension payments in Kerala
constituted about 51 per cent of the total salary expenditure.
 According to RBI- Karnataka, West Bengal, Uttar Pradesh,
Tamil Nadu, Maharashtra, Haryana, Gujarat and Bihar have
surpluses of around Rs 3,000 crore each
Situation in Kerala is an indicative of the situation in
other states, majority of the states are facing the similar
situation and has been caught in the catch-22 situation.
http://www.cseindia.org/programme/nrml/infocus-feb07.htm
 “High level of public spending are needed in many
areas but they should and they must be achieved
through improvements in revenue mobilisation and
greater efficiency in expenditure.”
– Prime Minister, Dr Manmohan Singh
 “Due to the precarious fiscal position, we will not meet
the target set under FRBMA. The Centre needs support
for carrying on with social sector initiatives.”
-Thomas Isaac, Finance Minister, Kerala
 “FRBM targets shouldn’t come in between poverty
alleviation grants. The Centre must make concessions to
backward states like Orissa and provide more central
funds. We will oppose any such move to curtail funds.”
--Prafulla Chandra Ghadei, Finance Minister, Orissa.
 “In the long term, social sector spending creates social and
economic capital. So terming it revenue expenditure is not
sensible.”
-C P Chandrashekhar, Economic Research Foundation,
New Delhi
 “Reducing deficit may well have depressing effects on
economic activity. The large-scale fiscal deficits do not
necessarily lead to higher inflation as inflation is caused by
excess demand against supply.”
– Prof. Jayati Ghosh, JNU, New Delhi
 “There is nothing wrong in maintaining large-scale fiscal
deficits if resorting to public debt is done only to meet
investment requirements as long as their social rate of return
is higher than the rate of interest.”
-Siba Sankar Mohanty, Centre for Budget and Accountability,
New Delhi
Budget Analysis By LG:7
No ‘New Deal’ for
Farm Revival
By
S. Mahendra Dev
Economic & Political Weekly
April 7, 2007
Agriculture’s Agony
Beset with many problems
 Tenth Plan(2002-07) growth rate 2.3%
 Last decade growth rate <2%
 Farmers’ suicides have continued or increased
in some states
 Productivity, growth and profitability
declined
 Unemployment rate increased 9.5% (199394) to 15.3% (2004-05)
LG-7
76
 ‘Beware of the fury of patient man’
- John Dryden
 ‘Good economics works for everyone but not at
the same time for everyone. This budget has a
large package for agriculture’
- P. Chidambaram
 ‘Beware of the fury of Indian farmer’
- S. Mahendra Dev
LG-7
77
P. Chidambaram‘s Musings
Old Wine in new bottle
 Items on credit,
 Accelerated irrigation benefit programme
(AIBP)
 Fertiliser subsidies, agricultural insurance,
the rural infrastructure development fund
(RIDF)
 Restoration of water bodies
LG-7
78
P. Chidambaram‘s Musings
New wine
 Committee on indebtedness
 A mission for pulses,
 Special purpose funds for the plantation
 Training of farmers
 Revitalising the extension system
 Groundwater recharge
 Social security for rural landless
households
LG-7
79
Whither ‘Agriculture Focus’?
No ‘New Deal’
Expenditure on agriculture, rural development
and irrigation increased by 15.8%, 11.45% and
9.7% respectively
 Share of agriculture dropped in central plan
outlays from 3.03% to 2.67%, and in central
plan expenditure from 4.28% to 4.17%
LG-7
80
No Water, But Drops
Irrigation woes
 Public expenditure is stagnant
Target of achieving 10 million hectares
under Bharat Nirman appears remote
Outlay for irrigation Rs 4500 cr in the year
(2005-2006) & Rs
restoration of water bodies and recharge of
groundwater: no allocations
LG-7
81
Allocation in Budget under AIBP
12000
In Rs (cr.)
10000
8000
6000
Series1
4000
2000
0
2005-06
2006-07
2007-08
year
LG-7
82
Centre’s Expenditure on Agriculture, 1990-91 and 2005-06, in Current Rupees and
Constant (1993-94) Rupees
1990-91
2004-05 RE
2005-06 BE
Agriculture
(current Rs bn)
27.71
55.90
72.43
Agriculture (in
1993-94 Rs
bn*)
37.59
30.10
37.23
Irrigation &
Flood Control
(current Rs bn)
3.19
6.84
8.75
Irrigation &
Flood Control
(in 1993-94 Rs
bn*)
4.32
3.68
4.50
LG-7
83
Centre’s Expenditures on Agriculture and
Irrigation as % of GDP
• Agriculture & Allied Activities
• 1990-91- 0.49%
• 2005-06 BE - 0.21%
LG-7
84
Agricultural Credit
Farm Credit: Quantitative targets vs.
Distributional aspects
Credit plus services, farm advisory services:
Integration
LG-7
85
LG-7
86
Land Management
Land degradation: Water logging, imbalances
in fertilizer use and pesticides, extension
services
Involvement of local communities
LG-7
87
Research & Extension/ Risk
Management & Insurance
India: only 0.5 per cent of GDP on agricultural
research
NCF: knowledge gap between the yields in
research stations and actual yields in farmers’
fields
Risk mitigation: Weather based crop insurance
(NAIS)
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88
Inputs, Prices, Marketing &
Diversification
Proper supply of inputs and remunerative
prices for their output: Immediate need
Output price fluctuations & Diversification
into high value crops and
Allied activities??
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89
Other Issues
PDS strengthening: no strategy!
Social security for unorganized workers:
peanuts!
LG-7
90
Summary
No new deal: ‘incremental’ not
‘comprehensive/ holistic strategy’
More of promises AND Short on allocations
and implementation
Argument- large leakages- therefore no
allocation? Whether this should be the
approach??
LG-7
91
Budget Analysis
Implementation of
Employment Guarantee :
A Preliminary Appraisal
By
Pinaki Chakraborty
Economic & Political Weekly
February 17, 2007
What is NREGA?
An Introduction
 Enacted in 2005
 To provide minimum guaranteed wage
employment of 100 days in every
financial year
 To rural households with unemployed
adult members prepared to do unskilled
manual work
How it is different?
Unique as

Never before such mammoth scheme

It goes beyond poverty alleviation

Recognises employment as legal right

Provide opportunity to rural households

To an extent livelihood security
Budgetary Allocation
Key Budgetary Indicators to GDP Ratio (percent)
20
15
Revenue Expenditure
10
Expenditure : MORD
Rural Employment
5
Total Expenditure
0
19
96
-9
7
19
98
-9
9
20
00
-0
1
20
02
-0
3
20
04
-0
5
20
06
-0
7
% of GDP
Revenue Receipts
Year
Per Capita Income and Distribution of NREGS
26858
18494 19087
9963
11500 12244 12641
10164 11139
5606
23
22
19
20
18
11
6
10
13
Bi
ha
r
Pr
ad
es
h
O
ris
sa
Jh
M
ar
ad
kh
hy
an
a
d
Pr
ad
Ch
es
h
ha
ttis
ga
rh
Ra
ja
sth
W
an
es
tB
An
en
dh
ga
ra
l
Pr
ad
M
es
ah
h
ar
as
ht
ra
30000
25000
20000
15000
10000
5000
0
Ut
ta
r
Per Capita Income (in Rs.), No.
of Districts Covered
Selection Criteria
State
12
About NREGS Districts
% Distribution of Rural BPL Households in NREGS
Bihar
8.67
Uttar Pradesh
20.73
5.32
Orissa
Jharkhand
4.48
Madhya Pradesh
Chhattisgarh
13.58
13.49
1.07
Rajasthan
West Bengal
4.53
7.94
11.11
9.08
Andhra Pradesh
Maharashtra
Others
About NREGS Districts
% Distribution of Rural Households in NREGS
Bihar
13.89
Uttar Pradesh
14.36
Orissa
Jharkhand
6.87
13.26
Madhya Pradesh
Chhattisgarh
12.43
7.1
Rajasthan
West Bengal
13.08
2.4
6.29
3.75 6.57
Andhra Pradesh
Maharashtra
Others
Rural Development
Programmes
70
60
50
40
30
20
10
0
SGSY
SGRY
NFWP
NREGS
Other Exp.
19
99
-0
20 0
00
-0
20 1
01
-0
20 2
02
-0
20 3
03
-0
20 4
04
-0
20 5
05
-0
20 6
06
-0
7
% Contribution to
Schemes
Expenditure Distribution across various RD Prog.
Year
IMPLEMENTATION ISSUES
Multi-tier Structure
 The agencies involved are:
Central Employment
Guarantee Council
State Employment
Guarantee Council
District Programme
Coordinator
Programme Officer
IMPLEMENTATION ISSUES

The responsibility of the gram panchayat is the
identification, execution and supervision of projects as per
the recommendations of gram sabha (village assembly)

The gram sabhas are given the power to conduct a regular
social audit of individual schemes – for accountability and
transparency

For the purpose of funding and the implementation of the
NREGA, the central government will set up a National
Employment Guarantee Fund. State governments will
also set up their Employment Guarantee Fund to make
matching contribution
IMPLEMENTATION ISSUES

It has been specified in the Act that “if an applicant
under this act is not provided such employment within
15 days of his application seeking employment”, s/he
shall be entitled to a daily unemployment allowance
which will be paid by the state government.

This implies an inbuilt structure of incentive for
performance and disincentive for non-performance for
the state government.

Individual states will have to evolve a well coordinated
approach to equate supply of employment in
accordance to the demand.
IMPLEMENTATION ISSUES

It requires an in-depth understanding of regionspecific labour demand and its seasonality so
that a demand-based scheme of projects can be
implemented at a frequency matching the
demand for work

Thus, there is a need to design a monitoring
mechanism by strengthening the institutional
structure at the local level so that resources can
be used optimally.
Spatial Dimension
 Panchayat is the principal authority to implement and monitoring
(social audit) the Act of individual schemes
 Mostly the districts deprived of rural connectivity, spread of banking,
nature of rural power supply and quality of governance are taken into
consideration through this Act
Identification of Indicator for performance of NREG scheme
 The demand performance
(i) EG enrolment as percentage of total number of rural households.
(ii) EG enrolment as a percentage of rural BPL households
(iii) EG enrolment as a percentage of application for enrolment
 The supply performance
(i) EG provisioning as a percentage of rural households
(ii) EG provisioning as a percentage of rural BPL households.
(iii) EG provisioning as a percentage of number of households enrolled
NREG fund Utilization Ratio:
An interstate Competition
Observations

NREG enrolment as a percentage of the number of
applicants, it is abysmally low in Maharashtra, followed
by Karnataka, Bihar and Jharkhand

For Andhra Pradesh and Gujarat the supply of
employment has met the demand, for most other states
enrolment falls far short of the demand.

The fund utilisation ratio it is again low in poorer states
in the country

A positive slope implying that the states with higher per
capita income could manage to spend more.
Making the Indian Budget .
How Open and Participatory?
Vinod Bhanu
Economic and political weekly .
Issue : March 31, 2007.
LG9
Making the Indian Budget .
How Open and Participatory?
Vinod Bhanu
Economic and political weekly .
Issue : March 31, 2007.
LG9
Making of Indian Budget……..
Discuss about the lack of Public Participation in Budget Making
Process in India.
IBP( International Budget Project) and Open Budget Index – an
indicator of people’s participation in Budget Making.
India ranks very low as the level of participation has been found
to be dismal.
LG - 9
Compared with countries like UK, USA, South Africa and New
Zealand, Indian Government provides very little pre budget
information to common citizens.
Budget is passed by the parliament, ideally, it is approved by the
general public. But very few MPs understand the complexities of
the Budget.
Even political parties are not capable of training their MPs in
this regard.
Standing Committees of the Parliament review the drafts demands
of different departments. They are open to public but few
members of general public make representations before them.
The whole process of involvement of parliament in Budget
Preparation( which is practically non existent) and its approval
needs to be restructured.
Industrial and Corporate houses have free access to the finance
ministry, there by they have significant influence on Budget
Proposal.
CSO s have very little influence on the other hand, they can not
obtain a lot of pre budget information using the RII Act.
The article calls for making the process of budget making more
participatory and open to the general public (& CSOs)
A clear-cut legal framework for establishing the practice of
participation and transparency is urgently required
Our Parliament lacks the institutional capacity to do budget research
and provide sound analytical briefings and notes to the members
Some Issues:
 Cut motions or No confidence motions
 Roles of finance related committees of the Parliament
 Practices of transparency and participation in budget making
 winter session and pre-budget business
 Myth of closed budget process
 Why finance minister had a pre budget consultation with the
parliamentarians belonging to his party only ?
 The pre budget discussions and political parties
The International Budget Project:
 IBP was established as part of the centre on Budget and
Policy priorities (a Washington DC based non profit
research organization) in 1997.
 To support civil society organizations around the
world interested in strengthening public budget
processes, institutions and outcomes.
Source: www.openbudgetindex.org
Open Budget Initiative 2006
 First-Ever Budget Transparency Country Rankings
 civil society organizations from 59 countries around
the world participated
 India scores 52% out of a possible 100% on the open
Budget index 2006
Source: www.openbudgetindex.org
Public Availability of key Budget
Documents
1.
2.
3.
4.
5.
6.
7.
Pre Budget Statement
Executive’s Budget Proposal
Citizen’s Budget
In Year Reports
Mid Year Review
Year End Report
Auditor’s Report
Source: www.openbudgetindex.org
NDA & UPA Budget
117
Continuity or Change?
LG-5
4/8/2015
Central Theme
118
 Comparison of NDA & UPA governments’ fiscal
performance on the basis of revenue generation
through tax collection & Capital expenditure on vital
social sectors like health & education.
LG-5
4/8/2015
Three Phases
119
 Phase I (non-NDA and UPA): 1991-92 to 1997-98.
 Phase II (NDA): 1998-99 to 2003-04.
 Phase III (UPA): 2004-05 to 2005-06 (RE)
LG-5
4/8/2015
Y = α + βT + γTD1 + γTD2 + ε
120
Fiscal Performance (Y) Depends on the following
Independent variables:
1.
2.
3.
4.
5.
6.
7.
LG-5
Liabilities of the Central Government
Fiscal Deficit
Revenue Deficit
Tax Revenue
Total Expenditure
Revenue Expenditure
Capital Expenditure
4/8/2015
State of Variables Used
121
Non-NDA Non-UPA phase
 Only Total expenditure is significant
 Others are insignificant
UPA phase
 Out of 7, five variables are significant i.e., Fiscal
deficit, Revenue deficit, Tax revenue, Total
expenditure, Revenue expenditure
LG-5
4/8/2015
122
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4/8/2015
Comparison of the two Regimes
123
Attribute
UPA Government
NDA Government
Social Service as CE
0.04%
0.08%
CE on Health of TE
0.01%
0.01%
CE Allocation to Economic Services
4.03%
4.06%
Administration
3.27%
3%
Subsidies
9.23%
9.17%
LG-5
4/8/2015
UPA Govt. Highlights
124
 The present UPA Govt. has tried to cut the fiscal and




revenue deficits.
The Educational Expenditure as in terms of Capital
Exp remained constant.
2006-07 budget plans to hike the Expenditure on
health to 0.02% of Total Exp.
Allocation for Agri & Allied activities is lower by
0.01% than the NDA Average.
Allocation to Rural Development is constant but has
shifted from CE to RE.
LG-5
4/8/2015
UPA Govt. Highlights
125
 Rural Development initiatives appear more under





flagship programmes.
Food subsidies reduced by 0.01% points in the first 2
years but increased in the 2006-07 budget.
Tax per GDP ratio increased during UPA regime.
NDA fared in non-tax per GDP ratio.
Interests receipts have fallen but the dividend
receipts have increased significantly for the UPA.
Corporation, Service & Income tax has fared better
than NDA.
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4/8/2015
Thank You
126
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4/8/2015

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