Viksit Bharat vs Garib Kalyan, a balancing act - Hindustan Times

Viksit Bharat vs Garib Kalyan, a balancing act

Feb 01, 2024 10:23 PM IST

Garib Kalyan today remains aligned to political opportunism rather than a robust substantive welfare commitment.

Interim budgets are supposed to be just that: No big announcements, no major shifts in policy, a business-as-usual vote on account to ensure continuity in policy. The 2024 interim budget, unlike the 2019 interim budget when the government breached the norm by unveiling the PM-KISAN scheme, stuck to the original ethos. This is welcome, even if it makes the life of columnists somewhat difficult! Union finance minister (FM) Nirmala Sitharaman’s last budget speech was a confident recounting of her government’s achievements. Thus, it is only appropriate to analyse the interim budget through the prism of the fiscal stance that her budgets have taken as it seeks to realise the social and economic policies of this government.

People watch the live telecast of the interim budget 2024 by Union finance minister Nirmala Sitharaman, at a showroom in Gurugram, on Thursday. (ANI) PREMIUM
People watch the live telecast of the interim budget 2024 by Union finance minister Nirmala Sitharaman, at a showroom in Gurugram, on Thursday. (ANI)

In the second term of the Narendra Modi government, budgets have had to balance two policy and political narratives: Viksit Bharat — a growing, reform-oriented economy, speeding down the 21st-century highway to modernisation with shiny new infrastructure — whilst simultaneously “feeding” the electorally salient Garib Kalyan narrative, with the PM as the sole patron, and provider. All packaged together in a new GDP: “Governance, development and performance”.

The pressures of this new GDP required deft macro-fiscal management while remaining steadfast in the commitment to fiscal prudence. The commitment to fiscal prudence was at times, incomprehensible, given the pandemic — don’t forget India’s fiscal response to the pandemic, was remarkably parsimonious. On this measure, the FM has delivered well. The 2019 budget was disastrous. The macro-fiscalyamini ai numbers presented lacked credibility in the attempt to hide the looming fiscal crisis via excessive off-budget borrowing. But this was rectified subsequently in a visible effort to improve macro-fiscal management.

The pandemic was cleverly used to curtail the unsavoury practice of off-budget borrowing by bringing borrowing from the Food Corporation of India back on the books. This bloated the fiscal deficit in 2020-21 when markets were more forgiving. Since then, the government has been careful to stay transparent on the path to consolidation. Revenue projections have been modest and the gross tax revenue-to-GDP ratio has improved from 10% in 2019-20 to 11.69% projected for FY 2025. The modest improvement in revenues notwithstanding, pressures of fiscal consolidation have meant that the government has had to shrink spending, which had grown to 17.7% (expenditure-GDP ratio) in FY 2020-21 to 14.5% this fiscal.

And this was the challenge — shrinking public expenditure while confronting a policy and political environment that required expanded spending. Viksit Bharat needs capital expenditure while Garib Kalyan needs more revenue spending on welfare. Without a doubt, the most significant directional choice the government made was to prioritise Viksit Bharat and pivot to capital expenditure. This began, even as the pandemic was raging, in FY 2021-22 when capital expenditure increased to 2.51% of GDP. In FY 2024, this is projected to increase to 3.4% of GDP. Revenue expenditure, which accounts for the bulk of government consumption, including welfare, faced the axe — down from 87.5% of total expenditure in the FY 2020 budget (pre-pandemic) to 76.7% for FY 2025. But here is the punchline: Social sector spending, as a percentage of total government expenditure, fell from 23% in 2015-16 to 19% in FY 2024 and is projected to fall further to 18% in FY 2025!

So how has the image of Garib Kalyan been protected? By careful expenditure switching. Since 2014, this government has carefully prioritised welfare schemes that offer tangible assets — housing, cash, toilets and food — over diffuse public goods such as health and education. Tangible assets make good politics for they enable a direct connect with the voter. In its second term, this prioritisation has become even sharper. Consider this.

Between 2019-20 and 2023-24 REs (revised estimates), the annual growth rate of allocations to medical and public health, social security, and welfare and nutrition was 4%. Spending on rural development rose by 6%. In contrast, spending on housing, urban development, water and sanitation rose by nearly 30% due to Pradhan Mantri Awas Yojana and Jal Jeevan Mission. Allocations for education, sports, arts and culture too remained stagnant, growing at 9%. Critical schemes like Saksham Anganwadi and Poshan 2.0 and PM POSHAN (earlier ICDS, mid-day meals), and old age pensions have faced the guillotine or remained stagnant. This year, Saksham Anganwadi and Poshan 2.0 allocations of 11,656 crore are lower than ICDS allocations of 12,044 crore in 2018-19.

MGNREGA, a vital lifeline for rural India especially during the pandemic, has struggled because it lacks political salience for this government. Demand for work has been significant but supply constrained. In the current fiscal, the scheme generated 2.64 billion person days of work (as of January 31), compared with 2.65 billion in 2019-20, pre-pandemic. Yet MGNREGA has struggled with consistently lower than required budget allocations resulting in wage delays and serious demand compression. This year too, allocations are stagnant at 86,000 crore even though the expenditure has already exceeded the projected revised estimates.

Writing after the 2019 interim budget, one of us had argued that the new welfarism unveiled would essentially mean that we can, at best, expect some cash from its politicians. Indeed 27 lakh crore has been transferred via DBT since 2019-20. But when it comes to core human capital — better education and health — we are on our own. In the balancing act between Viksit Bharat and Garib Kalyan, this gulf has only widened. The bluster of empowerment versus entitlements of the past notwithstanding, Garib Kalyan today remains aligned to political opportunism rather than a robust substantive welfare commitment.

Yamini Aiyar is president and chief executive of Centre for Policy Research (CPR) and Avani Kapur is senior fellow, CPR. The views expressed are personal

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