Learning Pundits on Budget analysis

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Learning Pundits onBudget analysis

• REPP class 9

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BUDGET REVIEW ONWhat Does Budget 2007-08Offer
Women?By- Yamini Mishra, Bhumika Jhamb
REEP, LEARNING GROUP 10
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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
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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 2007-08.

REEP, LEARNING GROUP 10
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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
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Percentage spending in the Gender Budgeting
Statement
REEP, LEARNING GROUP 10
7

• 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
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• 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
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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
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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
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• 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
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Black Economy, Underestimationof Unemployment
and Budget 2005-06by Prof.Arun KumarProfessor
of Economics,JNU,Author Black money in India
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Contents

• 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

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• 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

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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.

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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.

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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.

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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.

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Some facts (cont.)

• According to the economist magazine it is
  estimated that in 1998 the worlds 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.

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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).

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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

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Some questions to ponder upon

• How is the government going to tackle the twin
  and interrelated problem of black economy and
  unemployment?
• Is black economy really an evil?
• 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

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Some Other Links

• http//www.financialexpress.com/news/story/126853/
  
• http//in.biz.yahoo.com/050312/32/2k54q.html
• http//www.atimes.com/atimes/South_Asia/IF05Df02.h
  tml

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Budgetary Policy in the Context of Inflation-
PRABHAT PATNAIKSource (Article) EPW April 7,
2007

• REPP LG 3
• BUDGET REVIEW

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• The Union Budget 2007-08 utterly fails to
  appropriately respond to the social needs of a
  situation of profit inflation
• - Prabhat Patnaik

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Budgetary Policy in the Context of Inflation
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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

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Budgetary Policy in the Context of Inflation
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Fixed level of the money wage in the short run -

• Current Inflationary episode in India- Profit
  Inflation
• Driven by excess demand for a variety of goods,
  notably primary
• commodities, including food articles

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Budgetary Policy in the Context of Inflation
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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.
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Budgetary Policy in the Context of Inflation
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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.

• 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.

Budgetary Policy in the Context of Inflation
29
30

• 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
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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
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32
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
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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
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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
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• 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 years 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
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• 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
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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 tax-GDP ratio, nor the
ratio of GDP being transferred to the poor and
the working people.
Budgetary Policy in the Context of Inflation
37
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Budget Review

• Topic- Budget and Growth
• LG_2

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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.

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Global growth spree
41
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
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44

• A
• Mismatch

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What is exactly driving the growth of Indian
economy???

• The production base
• Or
• The consumption base

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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??

47

• 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

48
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.

49

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Overview of Challenges
Infrastructure and Environment
Economy Related
Regulatory/ Governance

• Poor Physical
• Infrastructure
• (road, sea,
• airports etc.)
• Weak Rural
• Infrastructure
• High Cost and
• unreliable power
• Bureaucracy

• 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

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MDGs Millenium Development Goals or Moving
Development Goals?

• An article by Vinish Kathuria

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Government says.

• 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)

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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)

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MDG Goals

• 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.

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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.

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Health Sector Outlay by the Govt.
57

• 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.

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Conclusion

• More focus on PHCs
• Increase expenditure to PHCs
• Insurance of poor against health uncertainties.

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Why Do the States Not Spend?By T M Thomas
Isaac, R Ramakumar

• Article Review

60
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.

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• 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?CatId4
62
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.

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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.

64

• 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.

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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 1990-91
  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.

66
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.

67
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.

68
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.

69
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.

70
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.

71
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

72
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-feb
07.htm
73

• 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 shouldnt 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.

74

• 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

75
Budget Analysis By LG7

• No New Deal for
• Farm Revival
• By
• S. Mahendra Dev
• Economic Political Weekly
• April 7, 2007

76
Agricultures Agony

• Beset with many problems
• Tenth Plan(2002-07) growth rate 2.3
• Last decade growth rate lt2
• Farmers suicides have continued or increased
• in some states
• Productivity, growth and profitability
• declined
• Unemployment rate increased 9.5 (1993-
• 94) to 15.3 (2004-05)

LG-7
76
77

• 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

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P. Chidambarams 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

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P. Chidambarams 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

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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

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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

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Centres 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
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• Centres Expenditures on Agriculture and
  Irrigation as of GDP
• Agriculture Allied Activities
• 1990-91- 0.49
• 2005-06 BE - 0.21

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Agricultural Credit

• Farm Credit Quantitative targets vs.
  Distributional aspects
• Credit plus services, farm advisory services
  Integration

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86
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Land Management

• Land degradation Water logging, imbalances in
  fertilizer use and pesticides, extension services
• Involvement of local communities

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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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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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Other Issues

• PDS strengthening no strategy!
• Social security for unorganized workers peanuts!
  

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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??

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Budget Analysis

• Implementation of
• Employment Guarantee
• A Preliminary Appraisal
• By
• Pinaki Chakraborty
• Economic Political Weekly
• February 17, 2007

93
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

94
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

95
Budgetary Allocation
96
Selection Criteria
97
About NREGS Districts
98
About NREGS Districts
99
Rural Development Programmes
100
IMPLEMENTATION ISSUES

• Multi-tier Structure
• The agencies involved are

Central Employment Guarantee Council
State Employment Guarantee Council
District Programme Coordinator
Programme Officer
101
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

102
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.

103
IMPLEMENTATION ISSUES

• It requires an in-depth understanding of region-
• specific 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.

104
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

105
NREG fund Utilization Ratio An interstate
Competition
106
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.

107
Making the Indian Budget . How Open and
Participatory?  
Vinod
Bhanu Economic and political weekly . Issue
March 31, 2007.
108
Making the Indian Budget . How Open and
Participatory?  
Vinod
Bhanu Economic and political weekly . Issue
March 31, 2007.
109

• 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 peoples
  participation in Budget Making.
• India ranks very low as the level of
  participation has been found to be dismal.

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• 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.

111

• 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.

112

• 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

113
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

114
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

115
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

116
Public Availability of key Budget Documents

• Pre Budget Statement
• Executives Budget Proposal
• Citizens Budget
• In Year Reports
• Mid Year Review
• Year End Report
• Auditors Report
• Source www.openbudgetindex.org

117
NDA UPA Budget
117
Continuity or Change?
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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.

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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)

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• Y a ßT ?TD1 ?TD2 e
• Fiscal Performance (Y) Depends on the following
  Independent variables
• Liabilities of the Central Government
• Fiscal Deficit
• Revenue Deficit
• Tax Revenue
• Total Expenditure
• Revenue Expenditure
• Capital Expenditure

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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

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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
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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.

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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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Thank You
126

• LG-5

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