Union Budget 2006-07 Hitting the Aam Aadmi Below the Belt

– Girish Ghildiyal

OVER THE years the expectations from the budget as a tool of affirmative policy actions have been diminishing. However, since is the 3rd straight year of a high growth phase of Indian economy, and some important assembly elections are due, it was expected that some bold initiatives for agriculture, infrastructure and social sector would be announced. Even the Congress president Sonia Gandhi had told earlier that all the priority welfare programmes launched last year "would be adequately funded". But that was not to be.

The Budget was all for continuity of the policies. Care was taken not to introduce any measures that could curtail the consumption of the middle classes. The Economic Survey too underlined the importance of retail credit as an engine of growth.  

Chidambaram's budget exercise is based on a major fundamental contradiction.On the one hand, he harps on fiscal reduction only to cut socially necessary expenditure but refuses to tax the bourgeoisie for capital gains from listed equities and dividends.  

Even though, the biggest increase in allocations came for the Bharat Nirman Programme, it remains to be seen as to how much of it is really converted to the benefit of rural masses and how much is spent to cater to corporate interests in the areas like rural telecommunications, agri-business industry or retail food chains through proposed agri malls and the like.  

Public sector undertakings are bleeding due to increase in international prices of crude. Oil PSUs have sustained cumulative losses of Rs.5000 crore during the current year. The government has not come up with any budgetary support to the oil PSUs, which is basically a way of keeping subsidies out of books. Cess on indigenous crude has been increased by Rs. 700/- per MT. thereby hurting profitability of ONGC/OIL. This means another round of increase in the prices of petroleum products is on the cards after the buget and after the assembly elections and the Economic Survey confirms as much by saying that the Rangarajan Committee Report would be implemented in three months.  

Most of the promises of the National Common Minimum Programme have not been fulfilled. In fact, the budget outlay on working women's hostels has actually been cut. The budget is disappointing, as none of the suggestions made by trade unions has been accepted. The budget makes no mention of the proposed Social Security Bill for workers in the unorganised sector in India who remain severely exploited.  


As usual there is nothing on offer to the farmers; agriculture is out of the country's economic vision. There is no place in the budget for the biggest job provider in the country, where agriculture provides nearly 600 million direct and another 200 million indirect jobs. When an unprecedented agrarian crisis prevails in the countryside and farmers' suicides continue unabated, the Finance Minister is content with only rhetoric that the focus of the government is on agriculture. A few cosmetic measures like flow of institutional credit to the farm sector at cheaper rates are hardly likely to bring relief to the sector.  

Every year we hear of thrust to irrigation, credit, diversification and creation of a market for agricultural products with no corresponding effect at ground level. Farmers desperately need income support. A step up in investment in agricultural research and technology transfer may also facilitate the farmers in deriving the full benefit of the cheaper and easier availability of credit. Some concrete measures to revitalise the cooperative credit infrastructure, which has a much wider penetration in the rural areas, are badly needed. FM has only provided for a two per cent reduction in crop loan interest liability of farmers who took loans for kharif and rabi crops in 2005-06 and directed the banks to add 50 lakh more farmers for loan disbursement in the coming year, which is unlikely to make any noticeable dent on the existing farm distress.  

Some steps have been announced to favour agribusiness industry. Some other steps are for expanding market for the telecom and hardware manufacturers, which will hardly resolve the crisis afflicting the farm sector. There is little on diversification. On infrastructure development there is mere talk of adopting the public-private participation approach. Budget proposals for agriculture are actually aimed at facilitating corporatisation of farming. The Economic Survey calls for dismantling the minimum support price for farmers and the procurement based system of food subsidy. The FM talks of "knowledge initiative" and the supermarket giant Wal-Mart and the seed multinational Monsanto are already on board. Both the giants have already made it clear that they are not interested in sharing their technology but only in marketing their products.  

Per capita food consumption has declined to dangerous levels since 1998-99 though the prices of agricultural commodities, especially the relative prices of foodgrains, have fallen much to the distress of farmers. The budget offers nothing to address this problem but the Economic Survey even calls for abandoning the procurement system, and thus indirectly the support prices system.    

To sum up, the UPA Government's budget this year is once again nothing but an exercise to pander to the multinationals and big business lobby in the country and the newly emerging super rich upper middle class. And the Aam Aadmi is its worst victim once more.

Chidambaram's Pasta-Pepsi Budget

  On Employment

ACCORDING TO the figures released in the latest issue of Economic Survey , the number of people employed in the private sector was 86.86 lakh in 1997. This number, instead of adding up, along with the overall growth in the economy, came down to 84.21 lakh.

Manufacturing, touted much for creating new jobs, came out rather poor as far as creating employment is concerned. As many as 52.39 lakh people were dependent on manufacturing in the private sector in 1997. Their number is down to 47.44 lakh.

The number of people employed in the public sector was 168.31 lakh in 1997 and by 2003 they were not more than 156.75 lakh.

If we take the combined figure of the public and the private sector, the number of jobs got reduced from 282.45 lakh in 1997 to 270 lakh in 2003.

The phenomenon of decline in the headcount was not restricted to the industry. The central government, state governments and even the local bodies reduced their muster roll. The Centre reduced the workforce from 32.95 lakh in 1997 to 31.33 lakh in 2003; states from 74.58 lakh to 73.67 lakh and local bodies from 22.44 lakh to 21.79 lakh.

The Economic Survey reported that the unemployment rate in rural areas reached 9 percent for males and 9.3 percent for females in 2004. In urban areas, it was 8.1 percent for males and 11.7 percent for females. On the UN Human Development Index, India placed 127 out of 177 countries for the third consecutive year due to poor education and health standards.

On NREG Scheme

Chidambaram has allocated only Rs.12,870 crore for rural employment (2005-07 BE) compared to Rs.11,700 crore in 2005-06 (RE), a mere 10% increase. While the much-trumpeted NREG Scheme would get Rs.10,170 crore only, much below the estimated Rs.15,000 crore needed to cover 200 districts, the Sampoorna Grameen Rozgar Yojana has been cut by Rs. 4,950 crore and the National Food-for-Work programme for which Rs.4,050 crore was allotted last year has been totally abolished. In sum, despite all the fanfare about the NREG Scheme, the total allocation for rural employment has been reduced compared to the past. Moreover, it is important to note that the NREG Scheme covers only 200 districts and the rural poor in the remaining districts would be left high and dry. Moreover, the food-for-work programme is vital for drought-affected areas like Rayalaseema and Palamu and abolition of this programme means people in drought and flood-affected areas would not get any benefit under this scheme.

On Social Sector

Though the UPA Government boasts of higher economic growth, India has slipped three places to 127 in the social indicator ranking of 177 nations as noted by the the Economic Survey 2005-06.

On Education

Chidambaram cites increase of 31.5% allocation on education as a great achievement in increasing social sector expenditure by the UPA Government. But this is no more than peanuts. The National Common Minimum Programme promised to increase the outlay on education to 6% of the GDP and the UPA is nowhere near achieving this goal.

Total public expenditure on education during 2004-05 was only 3.47 per cent of GDP of which the Centre's and State's contributions were 0.67 per cent and 2.8 per cent of the GDP. The combined budgetary provision on education was Rs 18,337.03 crore in 2005-06 budget, which meant in actual terms reduction in the Centre's share of spending on education was around 0.58 per cent of the projected nominal GDP. In order to achieve 6 per cent of GDP spending in 2008-09, if we set a target of 4.5 per cent of GDP (estimated GDP figures for 2006-07 is Rs 35,67,384 crore) in 2006-07, this amounts to Rs 16,0532 crore to be spent both by the Centre and the States. If the states' share remains the same at 2.8 per cent of nominal GDP, the Centre's share must go up from 0.58 per cent to 1.7 per cent of GDP - from Rs 18,337 crore to Rs 60,645 crore - in the budget to be true to its own CMP. The Centre should have allocated Rs 42,308 crore over last year's budget. But only Rs 19,816 crore has been allocated.

On Health

Even with a budgetary increase of 22% over last year's health sector allocations at Rs 12, 546 for 2006-07 and additional allocations to National Rural Health Mission (NRHM) at Rs 8, 207 crore, India's public expenditure on health remains around 0.6 % of the GDP of Rs 39 lakh crore. The private sector expenditure formed about 80% of the total Rs 1,03,000 crore on healthcare services in 2005-06.

According to World Health Report 2005, the public expenditure for health by the India is just 21.3% of the total healthcare spends. In China , the corresponding figure was 33.7% while in the US it is 44.9%. Sri Lanka spends 48.7%, with Thailand footing a whopping 69.7%.

Government's health spends are among the lowest in the world. China spends around 2% of its GDP on health. The UK does it at 6% while the US spends around 16%. Even countries like Nepal and Bangladesh spend about 1.5 % and 1.6% of their GDP on health respectively.

For Farmers

Compared to the target of 4% growth, the farm sector output is likely to grow 2.3 per cent in 2005-06 ( Economic Survey 2005-06).

More ominously, the Economic Survey calls for a “A shift from the current minimum support price and public procurement system”. The Manmohan Government has been importing wheat from abroad for a price higher than what it pays to our farmers. In the face of severe protests from farmers the government promised to expand procurement this year. But this promise is bound to remain a false promise as the Union Budget figures point out. The food subsidy has been slashed to Rs.24,200 crore (2006-07 BE) compared to Rs.26,200 crore in last year's budget (2005-06 BE). This shows that there is a conspiracy on the part of the UPA Government not only to cut procurement but also PDS.

Before the budget, in January, the Manmohan Singh Government decided to slash food subsidy by Rs.4,524 crore a year by reducing ration under the PDS scheme and increasing PDS prices. Due to widespread protests the decision was put on hold. Now, the budget figures reveal that the the government would go ahead with that decision after the assembly elections are over.

The Common Minimum Programme promised that farmers would be protected from cheap international market prices for agricultural commodities. The MS Swaminathan Commission on Agriculture also suggested setting up of a price stabilisation fund. But despite much hype by Chidambaram that the focus of his budget was on agriculture, this budget doesn't address this problem at all.

The CMP promised universalisation of the crop insurance scheme. The MS Swaminathan Commission on Agriculture has also recommended universalising the crop insurance scheme. But there is nothing in this budget towards that.

The UPA Government boasts of increasing credit to farmers. But the MS Swaminathan Commission on Agriculture has also suggested reduction in the interest rate for farmers to 4 per cent. But Chidambaram refused to reduce it below 7 per cent.

The Survey reveals the share of agricultural sector's capital formation in the GDP had declined from 2.2 per cent in the late 1990s to 1.7 per cent in 2004-05. This was mainly due to the stagnation or fall in public investment in irrigation, particularly since the mid-1990s. The supposedly “Pro-Farmer Budget” doesn't reverse this trend.

The post-WTO AoA disaster on the agricultural trade front continues. Regarding foreign trade of agri-products, the Economic Survey points out that the proportion of agri-exports to total exports dropped from 11.9 per cent in 2003-04 to 10.2 per cent in 2004-05. On the other hand, the import of agricultural and allied products in 2004-05 were estimated at $ 3811 million, marginally higher than $ 3708.2 million in the previous year.

Bonanza for the Upper Middle Class and the Rich

•  Chidambaram slashes excise duty on small cars. The prices of small cars reduced by as much as Rs.20,000 a car.

•  Excise duty on costly microwave ovens slashed.

•  Ready-to eat packaged food and instant food mixes for idlis and dosas should become cheaper as duties have been reduced by half – from 16 per cent to 8 per cent. 

•  Excise duties have been removed completely on pasta as they have been on condensed milk.

•  Duties are now zero on ice creams and aerated drinks. Bonanza for Coke and Pepsi.

•  There are excise duty exemptions on DVD drives and combo drives.

•  Duties on expensive shoes reduced.

Concessions to the Corporates

•  The stock markets are booming. The BSE Sensex is well beyond the 10,000 mark and is now approaching 11,000. The bourgeoisie is making enormous capital gains without any effort, out of sheer stock market speculation. Yet, Mr.Chidambaram adamantly refused to increase the scope of capital gains tax.

•  Chidambaram also announced the “good news” that there would be no increases in corporate taxes.

•  The government is set to lose about Rs 700-800 crore in excise revenues because of the scrapping of the 8% special excise duty (SED) on small cars.

•  There has been sweeping reductions to excise duties for a range of materials, parts and products required for manufacturing and service industries. In some cases, the cuts were 50 percent or more.

•  Investment restrictions were eased. The limit on the purchase of government bonds by foreign investors was lifted from $US1.75 billion to $US2 billion. Foreign institutional investors will now be able to accumulate up to $1.5 billion in corporate debt, up from $500 million.

•  Following an outcry by big business last year, the Fringe Benefit Tax imposed on employer payments to employees for items such as entertainment and tours has been abolished.

  For Defence

This year's Union Budget has made the biggest ever allocation to defence.

Compared to the planned increase in defence spending, the government's “pro-poor” initiatives pale into insignificance. The combined rise for education and health spending amounts to less than half the increase in defence spending.

The defence expenditure is Rs. 83,000 crores and this is an increase of Rs. 6,000 crores or 7.7% over last year's budgeted estimate (BE). This comes on top of a 7.8 percent increase last year and a huge 17.9 percent rise in 2004. As soon as it assumed office, t he UPA Government went on a massive arms buying spree – French Scorpene submarine deal, Sukhoi and AJT (advanced jet trainer) and the aircraft carrier Gorshkov from Russia , Hawk jet trainers from Britain . Hence the capital outlay of the DE in FY 2004-05 jumped by almost 100 % from Rs 16,863 crores to Rs 33,483 crores.

India has more ambitious plans to acquire military hardware. Chief of Naval Staff Admiral Arun Prakash has said that India 's Navy would acquire 27 new ships in 5 years, and "another 32 ships in 10 to 15 years." The defence establishment is also planning a major artillery purchase in 2007. Bofors once more! Purchase of 125 combat aircrafts is also on the cards. India has also agreed to buy three Phalcon airborne early warning radar systems from Israel . A whopping Rs 33,483 crore out of the total Rs 77,000 crore defence outlay will go to buy new weapon systems this year. Last year, the money allocated for defence purchases was only Rs 20,953 crore. So it is a nearly 60 percent increase. This year 374 billion rupees or over 40 percent of the increased outlay is on new military hardware.

Pakistan has expressed grave concern over India 's increase military spending and arms buildup. They have warned that this would trigger off an arms race in the subcontinent. Pakistan 's 2004-2005 defence budget last year was Rs 19,392 crore (compared to India 's Rs 77,000 crore). Pakistan had increased the defence spending by 20 percent last year. The previous year the Pakistani defence budget was Rs 16,092 crore.

Economic Survey on Labour Market Reforms

On February 2, Prime Minister Manmohan Singh promised that the long-pending Sixth Pay Commission for central government employees would be set up. This appears to be a ruse to avoid the strike by the employees who had given a strike notice. The employees were expecting a formal announcement in the budget but their expectations were belied. Rather, the Economic Survey tabled by the Finance Minister P.Chidambaram on the eve of his budget clearly issued a note of caution. Even before the commission is appointed and even before it is issued the terms of reference to whom the Finance Minister was issuing the warning? To the Prime Minister!? Or, was he trying to influence the commission if it is appointed?

The Economic Survey says that the unorganised sector provides 'too little' security for 'too many' only to pit it against the organised sector and undercut it. The Economic Survey says the government may take steps to deregulate the organised labour sector. The Survey says that Indian labour laws are highly protective of labour but labour markets are relatively inflexible as these laws apply only to the organised sector. “Consequently, these laws have restricted labour mobility, have led to capital-intensive methods in the organised sector and adversely affected the sector's long-run demand for labour. Labour being a subject in the concurrent list, the State-level labour regulations are also an important determinant of industrial performance. Evidence suggests that states which have enacted more pro-worker regulations have lost out on industrial production in general,” the Survey says. “The importance of reforming labour laws to enhance productivity, competitiveness, employment generation and general economic reforms hardly needs emphasis,” adds the Survey

Before his third budget, Chidambaram promised tax incentives to firms for having a larger employment but in his successive budgets, including the present fifth budget, the fiscal policy has not moved in that direction. The Left/TUs are also not raising this demand in the pre-budget consultations. Apart from social security measures like unemployment allowance, direct government intervention in other forms of wage subsidy, especially those that induce greater employment and choice of labour-intensive technologies, are also being demanded by the trade unions. But Chidambaram seems to be in no mood to oblige.

The budget only harps on labour law reforms to usher in a regime of ‘labour flexibility' to suit globalisation. There is not only absence of any proposal for unemployment allowance but there is no public works programme or employment programme or, in short, labour market intervention policy, specifically addressing the problem of industrial unemployment arising due to restructuring. All government employment programmes are confined to rural areas. Sonia Gandhi informed the media that Unorganised Sector Workers Social Security Bill, 2005 would be introduces in the budget session of the parliament. But Chidambaram has made no provision in his budget to constitute a fund for unorganised workers, which will become mandatory if the Bill is passed. Hence it can be assumed that the Bill will not see the light of the day at least until the next budget