No relief for the people
The Finance Minister has said that the minimum support price (MSP) will be fixed at 1.5 times the cost of production. But the MSP is always fixed...
This is a good budget. The Finance Minister has raised monies from three sources: One, the number of income taxpayers has increased subsequent to demonetisation and introduction of the Goods and Services Tax (GST); Two, receipts from the sale of government shareholding in public sector undertakings (PSUs) are buoyant; and, three, higher customs duty and surcharge will lead to increased receipts. These monies will be substantially used for higher investment in infrastructure — highways, rural roads, Wi-Fi in small towns, railways and airports. Thus far, the budget is good.
But these measures will not translate into relief for the people of the country. The Finance Minister has promised higher outlay on rural roads and irrigation. Certainly, this will lead to increased production. But there is a huge gap between increased production and increased income. Agricultural production has been increasing since Independence along with increase in the number of farmers’ suicides. Reason is that increased production is mostly coming along with reduced prices. Thus, a year ago farmers were unable to sell the bumper crop of potatoes even at Rs 2 per kilogram. Higher production becomes a curse when the prices decline.
The Finance Minister has said that the minimum support price (MSP) will be fixed at 1.5 times the cost of production. But the MSP is always fixed above the cost of production. Let us say, at present it is fixed 1.2 times the cost of production. The farmer should have been stress-free if this was truly the case. The fact that farmers continue to be in distress despite getting 1.2 times the cost of production means that the cost of production is not calculated correctly. The Finance Minister has not resolved this basic anomaly. Paying 1.5 times the wrong cost of production instead of 1.2 times the wrong cost of production will not solve the problem.
Fact is that agriculture has become a loss proposition across the world. Production is increasing while the prices are stagnant, or declining. This has led the developed countries to making direct income transfers to the farmers. The Finance Minister could have followed that precedent. Rough calculation shows that the Union government is spending about Rs 5,00,000 crores every year on fertilisers, food and irrigation subsidies. The Finance Minister should have scrapped all these schemes and made a direct transfer of Rs 50,000 to each of the 10 crore farmer households in the country. That would have provided genuine relief.
The Medium, Small and Micro Enterprises (MSMEs) continue to be in stress as indicated in the shrinking of organised employment. The Finance Minister is not facing the internal contradiction within his policies on this count. On the one hand, he wants to promote production by automatic machines under the ‘Make in India’ programme. The cheap production made by these big businesses kills the small industries just as the big textile mills of Surat have killed the power looms of Varanasi. We can see small bakeries losing out to large bread manufacturing companies.
Small eye-glass manufacturers losing out to multinational corporations. Even small book publishers are being bought out by large companies. On the other hand, the Finance Minister wants to support the MSMEs by providing cheap loans. These loans will only push the MSMEs deeper into the quicksand of debt in the absence of protection from large companies. The main requirement for revitalising the MSMEs is to impose heavy tax on production by automatic machines. The reduction of corporate tax from 30 to 25 per cent on MSMEs is welcome but will be ineffective because the MSMEs have to earn profit before they need to pay corporate tax.
The Finance Minister has enumerated large numbers of schemes of social welfare. Some of these, indeed, provide relief to the people. The food subsidy programme, for example, has become the lifeline of the poor. They get food grains at a throwaway price of Rs 1 or Rs 2 per kilogram. But the main problem of the people is jobs that are being gobbled up by big companies. Providing cheap food grains while killing the jobs is like a doctor surreptitiously removing the kidney of the patient and then providing him with dry fruits to restore his health. The Finance Minister refuses to face the contradiction between Make in India and jobs.
Many of the welfare schemes too are deceptive. For example, providing free LPG Cylinders is a whitewash when the price of LPG is simultaneously being increased. The amount loaned under Jan Dhan scheme is reportedly one-third of the amount deposited. Thus, Jan Dhan has become a pathway for reaching the wealth of the poor to the money markets of Mumbai.
One positive feature of the Budget from the standpoint of jobs is the stress on the provision of broadband and Wi-Fi in small towns. This increases the access of the youth to the net and opens up the global market of translations, online tutorials and the like. The need is to make an ambitious programme to assist the youth to access the global markets such as by establishing a National Institute of Language in every district which provided skills in translations. The Finance Minister has failed to take any such step.
The Finance Minister has increase the budgetary allocation for health and education sectors — as has been done regularly in every budget. The problem of government provision of these services is not of money but of lack of motivation among government doctors and teachers. Th stark reality today is that free uniforms and free mid-day meals are enticing the students to enroll in government schools and to make certain that they do not learn and fail in the exams. The government is subsidising anti-education; not education.
Installation of biometric attendance machines does not solve the motivational problem one bit. Gurudev Rabindra Nath Tagore had said that the government should have no role in the provision of health and education. Need is to scrap all these schemes and use the money to provide health vouchers to all the families with which they could buy health services from either government- or private doctors of their choice; and to provide education vouchers to all eligible students with which they could buy education from either government- or private schools.
This is a good budget insofar as investment in big infrastructure is concerned. The people of the country will certainly be able to see large trucks lying on highways, but without a job in hand. (Writer is formerly Professor of Economics at IIM, Bengaluru)
By Dr Bharat Jhunjhunwala