India-First-Global-Insights-Analysis -Sharing-PlatformIndia-First-Global-Insights-Analysis -Sharing-Platform

India’s Budget 2016-17: A Quick Review

, March 1, 2016, 0 Comments

quick-review-budget-2016-17-marketexpress-inThis short piece on budget 2016-17, can hardly claim to be a comprehensive or even a partial overview of all the announcements made today. I merely focus very briefly on a few aspects that relate to my own research in the past decade, qualitatively, with no numbers to support: agricultural and rural development, tobacco control and public investment.

Like many commentators have said, this is one of the most ‘inclusive’ budget in the recent years and definitely the unique superlative for the current Modi government. I tend to disagree with some of the critics of the focus on rural development and agriculture, while agreeing with others. There have been broadly two different strands of criticisms; first, there is an allegation, mainly from the opposition, that this is a populist budget, keeping in mind the general elections of 2019, recent defeats of NDA in Bihar, etc., or other state elections that are imminent; second, more neutral commentators feel that the initiatives announced for these sectors are possibly too late and too little – for example doubling farmer’s income by 2022 is not a big deal at all.

The first one above is easy to brush aside and perhaps a far too common observation for a student of political science or economy. Whenever any government attempts a good initiative, with little room to criticize, the opposition fears being branded anti-populist, and hence accuses the intention of the government, suggesting that the initiative is sort of an investment to earn votes in future. In almost all cases, such accusations are true, but they cannot be used to suggest that these initiatives are bad in themselves, because, the beauty of democracy lies in the fact the government at some point has to understand the pulse of the people and cater to them even if merely to earn votes. Even such a selfish attitude of the government can result in improvement of public welfare, since at the end of the day, they are elected by people who should be taken care of by them to be re-elected. Furthermore, in the current context, it is far-reaching to say that the government is merely eyeing a major election three years from now to announce major sops now. If anything, such an argument merely adds strength to the government.

The second one is pretty nuanced criticism, with which I tend to partly agree. Some of the issues here may be merely due to misinterpretation of the announcements, while others could be genuine. First of all, I think it is too harsh to say that doubling of ‘real’ farmers’ income in six years is not a big deal. Farmers’ real income over the years has been stagnant if not decreased. Doubling nominal income by 2022 could be criticized as a stagnancy or further decrease in their income, because inflation could wipe off the benefits of income hike. But, doubling inflation-adjusted real income, which is what I sincerely hope the Finance Minister meant to indicate, is quite an ambitious target.

However, what is worrisome to me, is that a large part of the increased funding, which in itself could be argued as too little, is merely being allocated to rural development/other banks and/or for schemes/ideas with broad and not specific targets (e.g. ‘Balanced’ use of fertilizers, expanding organic farming, more crop per drop of water, crop insurance premium subsidy which is a great idea, but has been contentious in the US Farm Bill as it may lead to Moral Hazards due to excessive risk taking). Nevertheless, it is too much to expect all these details in the speech of Finance Minister; so, I await eagerly to learn about the details of the funds allocated and schemes/ideas outlined in the area of rural development and agriculture. Further, sweeping statements and policies on Genetically Modified (GM) crops (as made in the Economic Census 2016-17) should be avoided as they involve food security of generations to come.

Outside rural development and agriculture, it is reasonably justified to say that the budget has very little to offer. However, the rural and agro economy is still a major part of the Indian economy and hence boosting rural demand will have multiplier effects on the whole economy. Furthermore, it infinitely pains every thinking person among us to see a farmer, who feeds everyone, commits suicide, for not being able to feed him and his family! We are all obliged to do something to the cause of farmers, not as charity, but merely as a token of gratitude and dutifulness. So, I have no problem with the extensive focus on these two ‘pillars’ of the economy.

It is disappointing to see very little effort taken towards tobacco control. 10-15% rise in excise taxes in tobacco products other than bidi is far too little in this regard. I always wonder why bidis should enjoy an exemption from tax increases. The policymakers should get out of the attitude of fear of job losses and other  adverse economic effects, due to tobacco control, since even the medium term economic gains arising from improved public health due to reduced tobacco consumption can be high enough to offset any potential losses in the short term. Further, the government could earmark the increased tobacco tax revenue to rehabilitate workers in the sector and absorb them into the rest of the economy.

Public investment, including that for infrastructure, has not been increased much. This is a cause of worry for all sectors in the economy and for PM’s flagship schemes such as Make in India. Perhaps the government aims at efficient allocation of this investment with minimum leakages and corruption, in which case, there is some hope indeed. I refrain from making any overall judgement on this budget, but it would be wrong on my part not to applaud the initiatives taken towards agricultural and rural development. So, eagerly I await, like many other Indians, to see how these initiatives reach the farmers and the rest of the economy in the years to come.