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Where the Budget Stands on Inequality

How will the budget affect the common citizen? Credit: Shome Basu

How will the budget affect the common citizen? Credit: Shome Basu

One of the major selling points of the Budget 2015-16, unveiled today by Finance Minister Arun Jaitley, is that it seeks to reach out to rural India. LPG connection mega schemes, irrigation funds and e-agricultural markets. How much will this help in lessening inequality and poverty? The Wire spoke to economists and experts for their views


Jayati Ghosh
Professor of Economics, Jawaharlal Nehru University

For several reasons, this budget will definitely not reduce inequalities and is likely to increase it. One is that the divide between urban and rural India is unlikely to be affected because despite the major statements made by the finance minister, actual spending on agriculture has hardly increased. Most of the increase is a sleight of hand because an interest subsidy that was provided by the finance ministry has been moved into the agriculture ministry’s budget, 15,000 crores of it. The full increase in spending on agriculture has only increased by 0.01% of GDP, that is to say it has gone from 0.99% of GDP to 0.1% of GDP. It’s a tiny increase.

Jayati

Secondly, in gender terms, this budget disappoints because in real terms there is decline in the spending of the women and child ministry. The ICDS spending has declined even in nominal terms. The allocation for this year is 14,000 crore but last year they spent 15,394 crore. So that means that the anganwaadi system will be really very badly affected and state governments will have to spend more.

The inequalities between Centre and state are also increasing because the Centre is managing to claw back a lot of tax revenues it had to give up under the finance commission by increasing cesses and surcharges. It doesn’t have to share these cesses and surcharges. The Centre would have got 63.7% of tax revenues in the current year according to the previous budget’s estimate, but actually it got 65.2% because it’s clawed back some in these cesses and surcharges.
Finally, the inequality in terms of the rich and the poor – that’s not likely to get better because in spite of all the big talk, this budget is not doing enough for the the conditions of farmers and small-scale enterprises. The incentives it’s providing for more employment are so minor that they unlikely to do anything.


Pronab Sen
Former Chairman, National Statistical Commission

Pronab

There’s nothing intrinsically in the budget that would reduce measured inequality. If you basically look at what this budget is trying to do: there are no increases in taxes, there is a small increase in cesses which is a bad thing to begin with because essentially what you’re doing is depriving the states of their share. In terms of income tax for instance, because you’re trying to the tax bait you’re not increasing the exemption limit, what is going to happen is that the lower middle class may get negatively effected. And since measures of inequality are very sensitive to what happens in the middle, even more so than what is happening at the extremes, you might actually see those measures of inequality going up.

As far as the lower scale is concerned, there is nothing really in the budget for them. There’s an increase in the NREGA, but that is neither here nor there because NREGA is a demand driven programme and providing more allocations doesn’t necessarily mean that more money is going to flow.

That leaves basically crop insurance, and in so far as crop insurance is concerned the real question is: will the uptake increase? At the moment, less than 20% of farmers are covered by crop insurance. How much more coverage are they going to get out of it? Crop insurance is really about protection from adverse consequences. So in a normal year it makes no difference at all. As far as the other expenditures, there is nothing that wasn’t there before, like the focus on rural growth and so on. I don’t see any of that making much of a difference, because that’s been around for a while. So I don’t see a great effect one or the other.


 C.P. Chandrasekhar
Professor of Economics, Jawaharlal Nehru University

CP

Budget 2016-17 chooses to begin the process of lowering corporate taxes to incentivize private investment. It simultaneously sticks with its target of reducing the fiscal deficit, from 3.9 per cent of GDP to a projected 3.5 per cent.

Tax forbearance and fiscal deficit obsession have two obvious implications. They increase dependence on indirect taxes that are regressive in nature and burden the middle classes and the poor more than they do the rich. They require cutting expenditure to ensure the accounts tally. With a government committed to investing in infrastructure to support its Make in India campaign, these cuts fall on social expenditures, subsidies and allocations to schemes like the rural employment guarantee scheme which benefit the poor. So there can be little doubt that the budget would worsen rather than redress inequality.


 Sudipto Mundle
Emeritus Professor, National Institute of Public Finance and Policy

I don’t think this budget has seriously addressed the question of inequalities. I don’t see it having any particular impact in reducing inequalities. In spite of all the hype, that is all cosmetic. If you look at the numbers, there’s nothing really there. The allocation has also been reduced in some areas that might have an impact, relative to the total plan output.