Union Budget 2016-17: A missed opportunity for the government to check growing extreme inequality?

indian budgetBy Pooja Parvati*

The third Union Budget that was presented last week by India’s National Democratic Alliance (NDA) formation at the Centre is a mixed bag and retains an overall conservative outlook in terms of checking the fiscal deficit (i.e. curbing government spending) with a significant push to infrastructure.

Overall, the Budget continues to adopt a conservative approach of fiscal consolidation aiming for a fiscal deficit target of 3.9% of GDP. True to its commitment to being pro-growth (the country’s economic growth is pegged at 7.2 %1 ), the government has steadfastly kept its word as most of the announcements have focused on infrastructure creation that cornered 12.4 % of the total budgetary outlay. Let me focus on three “hits” and three big “misses”.

Three “Hits”

  1. The Jan Aushadhi2  Scheme with its promise of setting up 3000 generic medicine stores is welcome. While it is heartening that the government acknowledges the increasing out of pocket expenditure towards healthcare as a critical vulnerability, the limited number of stores announced is a bit of a dampener. In comparison, the free medicines scheme that was launched by the state government of Rajasthan in 2011 was available in all government hospitals and healthcare institutions.
  2. The increased outlays for the national right to work programme (the Mahatma Gandhi National Rural Employment Guarantee Scheme) by about Rs. 3,800 crore (or USD 564 million) is close to what was demanded for by the Ministry as well as by the activists on the ground3. What dents this somewhat is the backlog from previous year, particularly of delayed wage payments. The scheme provides right to work to about 52 million people.
  3. A few of the tax proposals seem to be in the right direction. An additional tax proposed at the rate of 10 % on dividends earned by High Net-worth Individuals (HNIs)is welcome even as wealth and inheritance tax continues to elude us. There is an increase in the surcharge by 3 % on HNIs with an income above Rs. 1 crore (or USD 150,000) and a proposed 1 % tax deduction on purchase of luxury cars priced over Rs. 10 lakh (USD 15,000) and goods and services paid in cash over Rs. 2 lakh (or USD 3,000).

Three Big “Misses”

  1. Of the two schemes announced for health sector, the new health protection scheme provides a Rs. 1 lakh (USD 1500) cover per family with an additional top-up package of Rs.30,000 (USD 450) for senior citizens. This only looks at the demand side and fails to address existing supply side constraints. Be it the need for putting in place primary healthcare with a focus on improving health outcomes, the need for better physical infrastructure (beds per 1000), number of doctors per 1000 population, or the challenge of having an effective governance framework to manage the quality of healthcare delivery.
  2. The proposals pertaining to education seem to be fundamentally flawed what with their framing to promote skills and job creation. The focus on digital literacy, Skill India Mission belies our hopes of having in place an education system that is of intrinsic and instrumental value. This translates to good quality, government-financed education system with in-built responsive governance accountability mechanisms.
  3. What also remains a matter of concern is the continued over-reliance on indirect taxes as a share of total taxes. This is problematic as these taxes negatively impact the vulnerable and most marginalised sections disproportionately. To compound this, a slew of cesses have been introduced to boost revenue collection that even conservative economists object to given that they are not shared with the states.

Thus, the proposals for basic essential services such as healthcare and education on the one hand, and a progressive tax structure (that has a higher share of direct taxes) on the other, should be the main instrument for addressing inequality. Having in place quality, government-financed essential services bridges a critical “access” gap confronting the most marginalised. And it is only fair to proportionately tax those with higher incomes over having a uniform tax structure that impacts the rich and the poor alike. The fact that this Budget failed to address both of these aspects only poses the question whether this was a missed opportunity for the government to check growing extreme inequality.

Furthermore, a vital announcement to do away with the Plan and Non-Plan4 classification of expenditure (to coincide with the last year of the 12th Five Year Plan) needs more clarity. The special provisions in the Budget related to the marginalised communities, (the Dalits and Adivasis) such as the Scheduled Caste Sub Plan and the Tribal Sub Plan5  are limited to Plan spending. It remains unclear what will happen to these provisions once the distinction is done away with. As is well-known, social discrimination continues to be a critical driver of inequality in the country.

In sum, a budget document is essentially much more than an accounts statement of the government; it outlines the policy priorities and vision of the government. Even though the FM quoted Swami Vivekananda on how the neglect of masses was a national sin and that it was vital everyone was well-educated, well-fed and well cared for, a quick analysis reveals that some of the necessary ingredients, of social inclusion and ensuring equitable development for all, remain de-prioritised.

***

1 http://indiabudget.nic.in/es2014-15/echapter-vol1.pdf
2Jan Aushadhi loosely translates to People’s Medicine
3http://indianexpress.com/article/business/budget/union-budget-2016-mgnrega-allocation-hiked-by-rs-3800-crore/
4 Plan expenditure was the spending on all the schemes that were part of the Five Year planning process. India has had 12 Five Year Plans. The current government dismantled the Planning Commission that was in charge of the Plan priorities and funding. Non-Plan expenditure denotes all other regular expenses for upkeep and maintenance. For instance, salaries of government employees, expenses incurred by government agencies, defense spending etc.
The Scheduled Caste Sub Plan and the Tribal Sub Plan are budgetary provisions that mandate governments, both at the Centre and States, to allocate budgetary resources exclusively for the Dalits and Adivasis respectively proportionate to their share in the total population. The Dalits comprise 16 % and Adivasis are 8 % of the country’s population. The SCSP and TSP have been around 9 % and 5 % respectively.

*Research Manager at Oxfam India 

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