Did I like Arun Jaitley’s Budget? Ummmm…Yyes, is my overall assessment. The “ummmm” preceding the Yes and that extra Y indicate that Econ Mommy is not quite convinced there. Hmmmm, and yet, readers will note that I have not said Nno. I have said a Yyes…so let me qualify.
What is a Budget as an intrinsic instrument supposed to do? Well, it is supposed to spur growth. Now, in the reduced growth trajectory of India, if you try to analyze the rogue fundamental that is contributing to lower growth, it is private sector investment. One of the chief reasons for the investments not picking up has been the presence of the huge excess capacities built across major sectors (think automobile, cement, steel, IT). Whilst this is indeed a systemic issue, the other one (comin’ up!) is not. The second major reason as to why the growth rates have been down and out is demonetization, the lagged effects of which have taken their own sweet time to move through the system.
Well, till such a time as the investments do not pick up, the GOI is supposed to be the driver of the very growth it diminished with that demo move. And yet, if it spends too unwisely, it risks creating a fiscal deficit, the presence of which forces banks to lend to the public sector, leaving the private sector starved for funds. (Crowding out) Now, hence, whilst the Government spends, it cannot spend beyond limits.
And this is where I like the Budget. Fiscal prudence as a theme was not really majorly abused; sticking to the 3.5% overall fiscal deficit target is good. This implies that the Government is serious about allowing space to the private sector to grow out. It also implies that Urjit will not be under major pressure to control the deficit induced inflation- the poor man is already shivering under the impending oil price hikes.
Having said that about prudence, let us examine the quality of spending of the Government. Almost everyone from my neighbour Mrs. Joshi to Arnab have been talking about the rural focus of the Budget (Mrs. Joshi snootily, because she doesn’t understand it and Arnab loudly, because it is just one more thing to yell about). And sure, it was a rural budget. Does that mean it was an election budget?
Frankly, I do not think so (Except for that ridiculous target of doubling farmer income by 2022). I mean, it is time that we seriously learnt to focus on the farmers. I have been staking out in rural areas too much. Too much, if you ask me. According to Hubby, I now have the dubious distinction of visiting all the romantic hotspots of Maharashtra: Beed (extremely unfortunately, the suicide capital of Maharashtra), Latur (Acute water stress and trains laden with water), Malegaon (abject poverty and religion dynamics), Osmanabad (all of the above). I have been trying to analyze what drives farmers to the edge, what brings suicides culturally into Marathwada. And I have reached four solutions, if you want to keep your farmer away from suicide.
1. Get him water
2. Get him cash-flow
3. Get him better prices for his produce
4. Sabse important, get him INSURANCE
Water is the soul of rural dynamics. If you do water conservation or Jalasandharan in a planned way at a watershed level, there are lives to be gained. (Planning a blog on this soon, since we have worked actively with Jal Biradari)
Water brings about the options of supplementary occupations: Suddenly, it is possible to host a cow or two, sericulture is possible, small ruminants (goats) can be domesticated. And that gets the farmer a cash flow. He starts depositing milk in the local co-operative and gets paid for it. That is the key to survival. Those obsessed with doubling farm income should initially also start thinking about getting increased cash flows into the rural economy. Farmers, in my observation, are never unviable. They are only illiquid. That problem needs to be sorted.
Prices, in all of my observations so far, have been pricey. Governments till date (including Modi Sarkar) have all increased the Minimum Support Prices (MSPs), wanting to woo the farmer. But tell me, what is the use of declaring a minimum procurement price, when the procurement machinery is completely unprepared to procure? Decades after decades, prices have been announced and the FCI never comes a-calling into the Mandi. The farmer now does a distress sale at 20% of the MSP, and commits suicide, in absolute poverty and in virtual wealth.
When water is not available, cash flow is not available, procurements are not happening, there is only one thing that can keep the farmer alive. Insurance.
And this is where, the Budget, in my eyes, scores big. It has focussed on the Prime Minister Fasal Bima Yojana, increasing the outlay on the scheme by about 50%. That is great news in a country scarcely worried about its food-makers.
I am also personally thrilled about the other insurance I saw in the Budget: Health.
Again, my experience with the urban grassroots is that health expenditure is the chief reason for families slipping into poverty. Give them insurance, and they will have a chance of staying slightly above the poverty line.
That huge expenditure the Centre will create (Rs.2000 crores) on the National Health Insurance Scheme, with another Rs.3000 crore coming in from the States, will create a total kitty of Rs. 5000 crores for paying the insurance premium. If we assume that Rs.1000 is the family premium for a cover of Rs.5 lakh per annum, that means that 5 crore families will be under the health plan in year 1 and another 5 crore families will come in next year.
There are issues about direct public health spends (creating hospitals and mobile X-ray clinics) being more productive than insurance spends, since the latter can potentially become profits for ICICI Pru and cronies. I have two thoughts here. One, the Budget has retained space under the National Health Program for direct spends, so it is not that we have done away with it altogether. Two, I don’t really have a problem with ICICI Pru or any of those delightful companies earning profits; after all, they are getting profits against potential risks. They also stand to lose all their money if the claims: premium ratio is greater than 1.
Well, so if I am so happy with the scenario, then why the extra Y?
Because as Jagdish Bhagwati, that wily old economist says, Tier I reforms have to PRECEDE Tier II reforms. Growth has to precede distribution- “If you do not have growth, what the hell do you think you will be distributing anyway?”
In Rowling’s terminology, there is a time and a place to sprout a distributionist mouth. Had Modi Sarkar given this emphasis on insurance before demonetization, no, even better, instead of demonetization, I would have given the Budget a resounding Yes.
Of course, I have a lot more to say on the Budget, but I am getting tired with all this typing. And hell, I reserve the right to write about the things closest to my heart and top of my mind. So there. I give it a 7 on 10. Yyes.