Case3-April-2012

Reflective meet on the Budget-2012-2013

A budget is an important concept of microeconomics, which is a financial plan with a list of all planned expenses and revenue. In simple terms it is plan for savings borrowing and spending. For planning the development of a country, budget plays a crucial role. To drive the importance of budget to the various actors involved in the development process, particularly the younger generation Tata-Dhan Academy is engaged in conducting a knowledge building and review event on the budget of the country, on the day it is presented in the Indian Parliament every year. The union budget for the year 2012-2013 was presented by our Finance minister Mr.Pranab Mukherjee was presented on March 16, 2012, when the country was facing a problem, the growth being not on the expected trends (slower growth).

This year also Tata-Dhan Academy organized the reflective meeting on the Indian Budget on March 16,2012 at Hotel Germanus, Madurai, Tamil Nadu which had a overwhelming response than the previous years, showing the interest of the participants. Nearly 150 participants including from the students of American College, Fathima College, Thiagaraja School of Management and Agricultural College, Madurai participated.Apart from them faculties from Department of Economics from Colleges, Bankers, Auditors and NGO representatives participated in the event.

Fiscal Behaviour of Indian Economy - Sectorwise Growth

The event started with the analysis of Fiscal behavior of Indian Economy with focus on sector wise growth in the previous years, a presentation made by Dr.Jena and his team of Tata-Dhan Academy. The following were the highlights of the presentation.

• The India's GDP growth is a cause of concern in recent years. The GDP was as high as 9.5 and 9.6 in the year 2005-06 and 2006-07 respectively, whereas the growth was only 6.9 (as per the budget estimate 2011-12). Compared to previous years the GDP fell by 1.7 %, which is a serious cause of concern ( Fig. 1).
  
  

  Fig.1 India’s GDP growth rates (2004-05) prices)

  
• The GDP contribution of service sector, Industry, agriculture and other sectors were 9.1 %, 3.9 %, 2.5 % and 5.9 % respectively in the year 2011-12, the contribution by the agricultural sector being the lowest. The contribution by the agriculture and the industry has shown a sharp decline in 2011-12 compared to the previous years.
  
  

  
• The fiscal deficit, revenue deficit and the primary deficit remained at 4.6, 3.4 and 1.6 as per the 2011-12 budget estimates.
• The inflation rate of 6.9 % is high, this too being achieved by the country with much efforts by the government. The increase in cost of whole sale price index of food crops contributed much to the inflation.
• Concentration to agriculture and allied sector, which is a necessary condition for inclusive growth, is decreasing over the years. The land, labour and capital issues are increasing ( exploitation of land and water resources, less productive labour and the capital support declining)
• The share of agriculture and allied sector to total GFCF in 2010-2011 was only 7.2% 9( at 2004-05 prices). The GFCF in irrigation and electricity for agricultural purposes was only 0.04 crores
• The percentage of capital expenditure on agriculture and allied activities to total expenditure is declining rapidly ( Fig.3)
  
  

  Fig.3 Percentage of Capital expenditure on agriculture and allied activities to total expenditure

  
• The planned out lay for agriculture and allied activities in eighth five year plan was 5.8 % which got reduced to 3.7 % by twelfth five year plan
• There was no much increase in the minimum support price for agricultural commodities as evident from the support price of wheat and paddy which remains at Rs1285 and Rs1080 in the year 2011-12, even though the cost of production has increased manifold.
• With respect to employment in organized sector, the public employment remains stagnant whereas the private employment has improved. Employment in Khadhi and village industries, Handloom and cooperative societies shows a declining trend.
• The share of employment in industry sector is around 22 % (2009-10). When manufacturing alone is taken into consideration the share is 16 %, whereas the share of employment generated by construction works is around 10 %. Compared to china where 40 % of employment is generated through manufacturing, India falls short very much.
• The budget allocation and expenditure on Social sector is yet another cause of concern. The total social service expenditure as % of GDP in health, education and other sectors (nutrition, gender etc.,) is only 3 %, 1.25 % and 2.25 % respectively as per budget estimates 2011-12.
• With respect to poverty of the country it was reported differently by different agencies 28 % by Planning commission, 37.2 % in Tendulkar committee report and 50 % by Saxena committee report. This shows that a consensus is yet to be arrived in poverty estimation across the country, without which planning becomes difficult.
• The total public expenditure on education as % of GDP has come down from 3.94 % in 2000-01 to 3.37 % by 2007-08, though there is no much variation.
• Annual Status of Educational Report (ASER) 2011 by PRATHAM shows that, private school enrollment has risen (6-14 age group), increasing from 18.7% in 2006 to 25.6% in 2011. However it reports decline in quality of education. The % of children in Std V able to read a Std 2 level text has dropped from 53.7% in 2010 to 48.2% in 2011. The % of std III children able to solve a 2 digit subtraction problem with borrowing has dropped from 36.3% to 29.9% in 2011.(in case of STD V, 70.9% in 2010 to 61.0% in 2011)
• With respect to Environmental performance index India ranks 122 out of 132 world wide, though the process of estimation is disputable considering the size of the country. The allocation as of % GDP for environment is 2.84 %. Specific focus is expected on climate change in the current budget which is a welcome sign.

Budget 2012-13 Highlights

The participants then watched the budget presented in the parliament by the finance minister in a wider screen carefully.

• GDP growth estimated at 6.9 per cent in real terms in 2011-12. Slowdown in comparison to preceding two years is primarily due to deceleration in industrial growth. India's GDP growth in 2012-13 expected to be 7.6 per cent +/- 0.25 per cent.
• Food and fertilizer subsidies continue. In forwarding subsidies to agriculture, the system of direct subsidy to retailers and farmers will be introduced as per recommendations of Nandhan Nilakeni's Panel report.
• Microfinance bill 2012 and other banking amendment bills to be tabled.
• Government to earn Rs30000 crores through disinvestment
• Rajiv Gandhi equity scheme through which tax exemption can be had upto Rs50000 can be had to be introduced which will help the government to generate revenue to a tune of Rs60000 crores
• Budget for infrastructure doubled from Rs30000 crores last year to Rs60000 crores in 2012 -13.
• Rs5000 crores to HUDCO and SIDBI each for housing
• Rs4000 crores allotted for affordable housing project through rural housing fund ( Increased by Rs1000 crores than last year)
• R15888 crores to refinance RRBs/PSU's/agricultural cooperatives
• Agricultural outlay was marginally increased t0 18 % to a tune of Rs20208 crores.
• Rs2242 core project for dairy development with world bank assistance to commence
• Rs5.75 lakh crores allotted for agricultural credit.
• Post-harvest loan against warehouse receipt planned
• Rs200 crores for scientific research and technological development
• New PDS scheme based on AADHAAR card to be introduced.
• Rs 3915 crores allotted for NRLM scheme which is 34 % higher than previous year allotment.
• MGNERGA allotment to be reduced to Rs30,000 crores from Rs40,000 crores, primarily due to underutilization.
• Interest rebate to SHGs ( rate of interest will be 7 % for loans upto Rs 3.00 lakhs)and additional 3 % rebate on prompt repayment is announced. However this is restricted for implementation in 150 districts only.
• Right to Education (RTE)-Sarva Shiksha Abhiyan (SSA) received Rs 25, 555 crore allocation, showing an increase of 21.7%; while a 29% increase for Rashtriya Madhyamik Shiksha Abhiyan making it Rs 3,124 crore.
• A credit guarantee fund for educational loans to be set up for ensuring better flow of credit to students and prevent the present problems is ensuring educational loans
• An allocation of Rs 15, 850 crore was made for Integrated Child Development Services (ICDS) scheme, an increase of 58% and Rs 11, 937 crore for National Programme of Mid-Day Meals in schools for the year 2012-13. Also, an allocation of Rs 750 crore was proposed for Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA.
• The health sector has got a total outlay of Rs 34,488 crore in the budget estimates for 2012-13, which is 13.24 per cent more than the budget estimates of Rs 30,456 for the ongoing fiscal.
• Proposal to allow deduction of upto Rs5,000 for preventive health check up.
• National Urban health mission to be set up
• Fiscal deficit is expected to be 5.9 % in 2012-13 and the revenue deficit will be Rs1.85 crores
• The IT rebate slab was increased to 2.00 lakhs with tax of 10 % for income between Rs2.00 t0 Rs5 lakhs, 20% for Rs5 to Rs10 lakhs and 30% for income above 10 lakhs.
• Measures to revamp Airline industry

Budget Review

The post lunch session focused on reviewing the budget 2012-13 with sector focus especially on its impact on Agriculture and microfinance and Social development. The overall review of the budget was also done. The Tata-Dhan academy students remained as facilitators for these deliberations. Discussion in local language was also permitted on request from the participants so that ideas flow without any barrier.

Agriculture and microfinance

The panel for this session were Mr. A.Gurunathan, CEO, DHAN Vayalagam (Tank) Foundation and Mr.Kalyanasundaram, of INAFI-India. The panel reflected that the budget was drafted taking into account the present economic and political scenario of the country. The panel welcomed the higher allocation of funds for agriculture (18%) but felt that it is not sufficient and the interest rebate to SHGs is a welcome move by the government. The other reflections that came from the participants are

• The allocation for agriculture cannot be increased all of a sudden, but only gradually and we should see positively that something is better than nothing.
• Contrary to reports in media, the fertilizer subsidy was kept intact which shows that government has realized that some subsidies are inevitable.
• Interest rebate to the SHGs must be expanded in the near future for sustainability of the movement.
• Microfinance bill 2012, though a good effort care should be taken that it does not lead to problems of multiple lending or poses threat to SHG movements promoted by many state governments and NGOs.
• Rather than the mere allocation of higher agricultural credit to a tune of Rs5.75 lakh crores proper utilization of the same as well as their repayment is more crucial.
• Implementation of Nilakani Panel report of forwarding direct subsidy by Dec,2012 will be problematic, time consuming and may lead to corruption without placement of proper systems and accurate time saving delivery channels.

Social development

The panel for this discussion was Mrs.Bhimla Chandrasekar of Ektha Foundation and Mr.Muthuraja, Prof. of Economics, American college. The panel felt that Budget literacy among people is very important in the sense that people can participate in the development process of our country. The students can also voice their opinion in www.indianbudget.com. More gender focus could have been given in the budget, the panel felt. The participants appreciated the allocation of funds for scientific research, for education and health as reasonably good. However only when the educational and health status has improved we can feel proud about these allocations. The report that 47% of our children are malnourished, the status worse than drought affected African countries is to be viewed seriously. The increase in monthly pension to the disabled from Rs200 to Rs300/ is not at all sufficient, as strongly represented by one of the participants. It should be much higher, considering their plight and the present cost of living since it will not cause a bigger dent in the budget, the participant felt.

Overall view of the budget

The panel for this discussion was Mrs.Vidhya Suresh and Mr.Kodhanda Raman, Professors from Thiagaraja School of Management. Mrs. Vidhya quoting Chanakya said that “ a government should collect tax from the people like honey bees which collect honey from the flower i.e without the people feeling the disturbance much. In that way this budget was cautious and hence cannot be said as a unique budget, considering the economic situation of the country. The following were the response of the participants

• The widening of tax net to the entire service sector, except for 17 services (like government sector, public transport, education etc) had a mixed response viz. some welcoming the decision and some opposing.
• More than bringing a white paper on black money no other solid measures were given in the budget, because curtailing black money and corruption alone can reduce the fiscal deficit of the country.
• The income tax slab revision from Rs.1.8 lakhs to Rs.2.0 lakhs and introduction of Rajiv Gandhi equity scheme for tax redemption was appreciated.
• Taxation to industry and service sector went up as expected from 10 % to 12 %, since the government had no other option.
• Though food and fertilizer subsidy is retained, subsidy to petroleum products are likely to get reduced which means that there will be increase in the cost of petroleum products in the near future.
• The fiscal deficit for the year 2012-13 is estimated to be 5.1 % which reflects that this is a deficit budget.
• The FDI investment in defense was also debated whether it is right or wrong. Only when it is administered with at most care, this will be of benefit or otherwise may be detrimental to national health.
• Though inclusive growth is talked about, it is not possible without giving due importance to agriculture sector on par with industry and service sector.

Mr.Kodhanda Raman had a word of caution that the increasing deficit means we have to borrow more and more from outside, which will increase both the credit and interest burden of the country, which is not at all good when seen on a long term basis. The government has to borrow additional Rs5.13 lakh crores which is not at all a good sign.

The budget review meeting 2012-13 was a grand success considering the feedback from the participants that post-budget sessions on these must be held on quarterly basis to review the actual progress, where we lag and where we failed to plan. Mr.Vasimalai, Executive Director of DHAN Foundation suggested that not only the national budget, but also the state budget and the local municipal and panchayat budget should be reviewed seriously by the development practitioners to know the path towards which we are heading. The efforts of DHAN Foundation and Tata-Dhan Academy and its students in organizing this event got appreciation in the feedback.