Learning Pundits on Budget analysis

1. Learning Pundits onBudget analysis REPP class 9

2. BUDGET REVIEW ONWhat Does Budget 2007-08Offer Women?By- Yamini Mishra, BhumikaJhamb REEP, LEARNING GROUP 10

3. FUNCTIONAL DETAILS OF THE GENDER BUDGETING STATEMENT Gender budgeting(GB) statement has been started as a government exercise since the last 3 years. Government has made efforts in correcting mistakes as pointed out by a civil society. Part A of the statement contains schemes in which 100% allocations are for women. Eg: Indra Awas Yojana, Rashtriya MahilaKosh . Part B constitutes schemes in which at least 30% of the allocation in for the women. Eg ICDS, PMRY REEP, LEARNING GROUP 10

4. BUDGET HIGHLIGHTS TOUCHING GENDER ASPECTS The total magnitude of the gender budget is Rs 31,177 crore in 2007-08 that is an increase of 40 per cent. As a percentage of total union government expenditure, this constitutes a rise from 3.8 per cent to 4.8 per cent. Gender budgeting cells have been set up by 50 ministries/department. General Budget Statement demand for grants has increased from 10 in 2005-06 to 33 in 2007-08. REEP, LEARNING GROUP 10

5. CRITICAL ANALYSIS OF GB STATEMENT Ambiguous and wrong allocation still remains Under the department of health and family welfare all the allocation on contraceptives has been treated as exclusively for women. IAY has also been treated similarly although in 2004-05 , 18% of houses constructed but allotted to men and 29% jointly to husband and wife . Similar discrepancies remain in various schemes under Labour Ministry , Ministry of youth affairs and Sports etc. REEP, LEARNING GROUP 10

6. Percentage spending in the Gender Budgeting Statement REEP, LEARNING GROUP 10

7. Women Education: Allocations high at 31% but still insufficient to control the high drop out rate of 73% Women Health: Allocation high at 24% but much needs to be done to lower the high maternal mortality rate. Women food security and nutrition: Meagre increase in allocation and no concrete steps. REEP, LEARNING GROUP 10

8. Women Livelihood: Significant budgetary progress by substantial and right allocation of schemes and funds. Women Housing: At 8% of the allocation it remains low considering the magnitude of the problem. Women in difficult circumstances: There is no allocation at all for provisions like these. For e.g no provision for the efficient implementation of the Domestic Violence Act. REEP, LEARNING GROUP 10

9. GB Statement: The way forward Although the GB statement is a well intentioned initiative several more steps need to be taken. Women face discrimination in many aspects. They face discrimination on the basis of caste, class, disability, HIV status, rural-urban divide, etc. There is no mechanism to ensure that the allocations reach the most marginalized section of the women community REEP, LEARNING GROUP 10

10. Conclusion Conclusion A crucial flaw is that the GB statement assumes the women as a homogenous mass. It does not account for the various power dynamics and discrepancies that remain in the society. Also, women have long been discriminated and marginalized and the GB statement needs to take this into account. REEP, LEARNING GROUP 10

11. The Gender Budgeting exercise recognizes that gender-neutral allocations are not enough and the government needs to step up its allocations for women-specific schemes. The Gender Budgeting exercise cannot be done in isolation from the political and socio-economic scenario of the country and needs to incorporate these aspects to make it cater truly to women welfare REEP, LEARNING GROUP 10

12. Black Economy, Underestimationof Unemployment and Budget 2005-06by Prof.Arun KumarProfessor of Economics,JNU,Author – Black money in India

13. Contents • Introduction • Model of Black Income Generation in Legal Activities • Some Facts • Union Budget 2005-06, Employment and the Black Economy • Conclusion • Some questions to ponder upon • Some other Links

14. “ An Indian is affected at every step by the black economy. The education of a child, a visit to a doctor, policeman who extort money…..electricity or water departments all demands black economy” - Prof. Arun Kumar

15. Black Economy - Introduction • A hidden sector of the economy where private cash transactions go unreported. It is a sector of economic activities involving illegal economic activities including buying and selling of drugs. • This definition excludes transfer incomes, like capital gains and bribes. The definition also eliminates multiple counting of incomes • That part of an economy that is hidden from the government and on which taxes are not paid.

16. Black Economy – Introduction (cont.) • Most of the black economy is on the hand of top 3% population so that the disparity (between these people and the bottom 40 per cent) is considerably higher (five times) than what the white economy data suggests. • Size of the black economy was 40 per cent in 1995-96, that implies an additional GDP due to the black economy of 40 per cent in that year.

17. Model of Black Income Generation in Legal Activities • Profit (P) = Revenue (R) – Cost (C) …(1) • Profit may be white (what is declared) or black (what is not declared). The declared profit appears in the income statement of the business and is called the balance sheet profit. The undeclared profit or black profit is called off-balance sheet profit.It accrues directly to the management of the business. • P = White Profit (Pw) + Black Profit ( Pb) …(2) • Further, P = Actual R – Actual C …(3) • Black Profit (Pb) is generated by declaring lower revenue and/ or overstating costs.

18. Some facts • The size of the black economy is estimated to be 40 per cent of GDP for 1995-96 [Kumar 1999]. Of this 8 per cent comes from illegal activities and 32 per cent from legal activities. • Two Sources of Black income are – a. Overstated Costs b. Under invoiced revenue • Then overstated costs would contribute half of the black profits (Pb) from legal activities or 16 per cent of GDP.

19. Some facts (cont.) • According to the economist magazine it is estimated that in 1998 the world’s black economy accounted for a missing $9 trillion worth of output – a volume of output almost equivalent that of U.S. • Black income generation process, with the most plausible available assumptions, results in overestimation of employment and wages by 5 per cent.

20. Union Budget 2005-06, Employment and the Black Economy • Introduction of two schemes in Union Budget 2005- 06 – 1. Banking Transaction Tax (BTT) 2. Fringe benefit Tax (FBT) • The value added tax (VAT) has also been billed as a scheme to tackle black income generation in indirect taxes. It is supposed to lead to better compliance. • Services tax collection has shown high buoyancy. Many more services are progressively being brought under the net of this tax. • In the union budget for 2005-06, additional funds are allotted to employment generation and to the social sectors (education, health, etc).

21. Conclusion • It is clear that without incorporating the black economy in the analysis, there can be no clarity on the issue of unemployment in India. • The 7 per cent rate of growth in the last three years raised the possibility of mobilizing more resources but the steps taken are grossly inadequate to deal with the problem of declared unemployment in India. • Not that the black economy does not generate employment, but by lowering the value of the multiplier and the potential rate of growth of the economy, it lowers the employment potential

22. Some questions to ponder upon • How is the government going to tackle the twin and interrelated problem of black economy and unemployment? • Is black economy really an evil? • Is there a way to estimate and curb the black economy? • Are we as individuals also responsible in contributing in growth of parallel / black economy

23. Some Other Links • http://www.financialexpress.com/news/story/126853/ • http://in.biz.yahoo.com/050312/32/2k54q.html • http://www.atimes.com/atimes/South_Asia/IF05Df02.html

24. Budgetary Policy in the Context of Inflation- PRABHAT PATNAIKSource (Article): EPW April 7, 2007 REPP LG 3 BUDGET REVIEW

25. “The Union Budget 2007-08 utterly fails to appropriately respond to the social needs of a situation of profit inflation…” - Prabhat Patnaik Budgetary Policy in the Context of Inflation 25

26. Understanding Inflation Inflation:The overall general upward price movement of goods and services in an economy. • Income Inflation: Inflation in nominal wage unit, with the price level in terms of the wage unit remaining unchanged. Purchasing Power remains constant • Profit Inflation: Inflation of the price level in terms of the wage unit. Fall in Purchasing Power Budgetary Policy in the Context of Inflation 26

27. Fixed level of the money wage in the short run - • Current Inflationary episode in India- “Profit Inflation” • Driven by excess demand for a variety of goods, notably primary • commodities, including food articles Budgetary Policy in the Context of Inflation 27

28. Overheating of the Economy: High Growth Rates Since mid-2002, the dumping of huge amounts of foodgrains on the world market and the whittling down of procurement operations, has now carried the economy from an ex ante excess supply to an ex ante excess demand situation. • Decline in profitability in the Agricultural Sector. • Rural development expenditure as a proportion of GDP has declined to a level much lower than in the eighth plan period. • Per capita foodgrain output has declined over a long period, and especially since the beginning of this century. • Public procurement operations have been wound down. • The procurement prices offered for foodgrains have simply not been remunerative enough. Budgetary Policy in the Context of Inflation 28

29. This requires an increase in fiscal transfers to the poor, financed, ideally by an increase in taxes on the profit earners. And the basic problem with the 2007-08 budget is that it is oblivious of these social demands of a situation of profit inflation. • Dilemma- the basic feature of a profit inflation is that it is self-limiting, in the sense that, leaving aside the element of speculation, the “forced savings” that such inflation generates, eventually eliminate the ex ante excess demand that causes it! • The end of profit inflation, however, may not mean the end of inflation in nominal wages and prices. • Even if we assume it does, that will still leave the level of real wages below what it was before profit inflation began. Budgetary Policy in the Context of Inflation 29

30. Reduction in the revenue and fiscal deficits relative to GDP is necessary for curbing inflation. • It has to be achieved through a restriction on government expenditure relative to GDP. Otherwise the ‘animal spirits’ of entrepreneurs will get destroyed by higher taxes, and growth will be curbed. • In short, what a situation of profit inflation requires is both the ensuring of appropriate supplies through imports, and a transfer of purchasing power from the profit earners to the workers. Budgetary Policy in the Context of Inflation 30

31. Union Budget 2007-08 • While the government has seen the need for “supply management”, i.e, for importing certain essential commodities to augment domestic supplies, it has not seen the need for transfers. • To check the fiscal deficit, there has been a curtailment of expenditure, including transfer payments. Budgetary Policy in the Context of Inflation 31

32. Percentage increase in items in the budget between 2006-07 (RE) and 2007-08 (BE) GDP is currently rising at over 9 per cent and prices at around 7 per cent, this 17 per cent increase in most budget items matches the 16-17 per cent increase in the nominal GDP, leaving their proportion to GDP unchanged. Budgetary Policy in the Context of Inflation 32

33. “Transfers” decline relative to GDP • Outlay on the National Rural Employment Guarantee Scheme (NREGS) is supposed to rise from Rs 11,300 crore to Rs 12,000 crore, i.e, by a mere 6.2 per cent in nominal terms • Total expenditure on rural employment is supposed to rise by only 3.5 per cent • Aggregate expenditure on NREGS, SampoornaGraminRozgarYojana (SGRY) and Swarnajayanti Gram SwarozgarYojana (SGSY) is supposed to increase by just about 7 per cent • Food subsidy is supposed to rise by a mere 6.2 per cent Budgetary Policy in the Context of Inflation 33

34. Agriculture • The Budget does little to remove the basic cause of the profit inflation itself, which consists in the steady decline in per capita foodgrain output. • The Central Plan outlay on agriculture is budgeted to increase only by 15.8 per cent, and the outlays on rural development, and irrigation and flood control by 11.4 and 11 per cent respectively. “This modest increase, in the light of the fact that the Central Plan outlay itself is expected to increase as much as 31 percent, suggests a lack of emphasis” Budgetary Policy in the Context of Inflation 34

35. Lack of mention of any price-support for the farmers. • When the talk is about “productivity” increases within peasant agriculture, it requires a certain amount of investment. This seems difficult unless the remuneration improves. • In the absence of a price support mechanism, tariff changes in either direction may work to the disadvantage of farmers. • The gainsfrom increases in tariffs may be appropriated by middlemen (which may even be large multinationals), while the effects of such tariff increases in the form of higher prices of downstream goods may even hurt the farmers as consumers. • The losses from tariff decreases on the other hand may well get passed down by the middlemen to farmers, a possibility that arises in the context of this year’s budget itself since duties on several agricultural goods have been reduced apparently as a means of combating inflation. Budgetary Policy in the Context of Inflation 35

36. There is a case for increasing the tax-GDP ratio in a period of profit inflation. This is because since a profit inflation increases the wealth of the capitalists while forcing the workers to reduce their consumption, i.e, it first squeezes the consumption of the workers, then transfers these amounts arising from the reduced consumption of the workers as savings to capitalists, whose wealth increases as a result of this. This wealth inequality can be removed only by increasing the share of taxes in profits, which, since the share of profits in total income is rising during the profit inflation, would necessarily mean increasing the share of taxes in income. Budgetary Policy in the Context of Inflation 36

37. Tax GDP Ratio 11.4% in 2006-07 (RE) Tax GDP Ratio 12.0% in 2006-07 (BE)(http://www.abnamro.co.in/Research/pdf/budget-FY2007-08-comment.pdf)The tax-GDP ratio and the ratio of “transfers” to the workers to GDP should both have increased in the context of inflation, together with “supply management” measures. The budget for 2007-08 raises neither the tax-GDP ratio, nor the ratio of GDP being transferred to the poor and the working people. Budgetary Policy in the Context of Inflation 37

38. Budget Review Topic- Budget and Growth LG_2

39. An overview of Budget 2006-07 GDP growth likely to be 8.1 per cent with the manufacturing sector at 9.4 per cent; agricultural growth bounced back to 2.3 per cent; inflation was 4.02 per cent. Allocation for eight flagship programmes (Sarva Siksha Abhiyan, Mid day meal, Drinking water and sanitation, National Rural Health mission, ICDP, NREGS, JNNURM et.) to increase by 43.2 per cent from Rs.34,927 crore in 2005-06 to Rs.50,015 crore. Government to provide equity support of Rs.16,901 crore and loans of Rs.2,789 crore to Central PSEs (including Railways). Farm Credit increased to Rs.175,000 crore in 2006-07 with addition of 50 lakh farmers; banks asked to open a separate window for self- help groups or joint liability groups of tenant farmers.

40. Global growth spree

41. Contribution of Developing& Developed nations in world economy

44. A Mismatch

45. What is exactly driving the growth of Indian economy??? The production base Or The consumption base

46. An illustration Housing and retail credit registered higher growth rate This fostered the growth in construction sector But the Author envisages that the world wide experience with regard to construction boon driven growth raises doubts Is this growth sustainable??

47. Can we have growth without production ??? Government has reduced capital expenditure to reduce the fiscal deficit Along with production, employment has taken a back seat Our budget lacks coherence to approach savings It goes like mathematical proportion that with the increase in employment , income increases and what is saved is expected to be invested

48. Perils to Indian growth Barrier in the world trade in spite of ‘free and fair’ talks. Inadequate measures/provisions to foster saving and investment in 2006-2007 budget.

50. Overview of Challenges Infrastructure and Environment Economy Related Regulatory/ Governance • Poor Physical • Infrastructure • (road, sea, • airports etc.) • Weak Rural • Infrastructure • High Cost and • unreliable power • Bureaucracy • Investment has • fallen short of savings • In three consecutive • years from 2001-02 • to 2003-04 • Low level of domestic • Investment absorption • Capacity • Consumption credit • Expansion lead growth • Lack of labour market • reforms due to decline • in capital expenditure • Politicization of • investment decisions • Poor performance • Of Public sector • Poor regulatory • Support to the • Unorganized sector