Karnataka   

Welfare sidelined in State Budget for 2008-09 Business Sense

Budgets usually stay in the limelight for a couple of weeks and then fade from public memory. The Bharatiya Janata Party’s “farmer-oriented” budget for Karnataka may well go the same way if the numbers behind the promises are any indication. A good test of any budget is to see whether the promises — particularly what are regarded to be “populist” — are backed by actual allocations.

A budget usually has two parts: the central part, in which the Government proposes actual allocations for various schemes, old and new; and another part where it makes various announcements of intent, which are not necessarily backed by funds. The point is whether the Government is putting the money where its mouth is.

Just a few examples from B.S. Yeddyurappa’s budget for 2008-09 will illustrate the problems caused by spreading resources thin on a number of schemes that are unlikely to have a major impact. Several proposals in the realm of social welfare are mere announcements, without implying fresh or increased allocations.

For instance, the setting up of a State Child Development Academy or the proposal to issue smart cards for women pensioners is unlikely to directly contribute towards addressing the social segments for whom these are meant; at most, they are useful in building the support infrastructure for programmes addressing the needs of these segments — children and widows in this case.

The fears that the budget is an exercise in tokenism are worsened when seen in the context of the fiscal straitjacketing that the State has undergone in the past few years, particularly as a result of the Karnataka Fiscal Responsibility Act. One of the most significant features of the Act is the achievement of phasing out the revenue deficit. This has important implications for the poor, especially their access to social welfare provisions in critical areas such as health, education, women and child welfare, nutrition, old age pensions and many others.

The emphasis on phasing out the revenue deficit, which the State did in 2004-05 — among the first States to achieve this in the country — is often held out as a model by those in favour of economic liberalisation. However, critics refer to this all-out tightening of the belt as “fiscal fundamentalism”.

There are fears that the belt-tightening will have a two-fold impact. First, on the revenue side of the budget, it is becoming evident that tax revenues mobilised by the State Government are coming under increasing strain. This is evident from the Medium-Term Fiscal Plan for 2008-12, which was tabled in the Assembly recently. It shows that barring revenue from taxes on the sale and registration of motor vehicles, most of the other heads of revenue are not growing at the rate they ought to. In fact, there has been a slowing down of the growth of revenues from commercial taxes, State excise and other major avenues for revenue mobilisation by the State.

However, the second feature of the fiscal tightening, which pertains to revenue expenditure undertaken by the state, is even more critical. It is widely believed that the first (and easy) target of belt-tightening is usually the expenditure on the social welfare sectors.

Expenditure in any economy needs to be placed in the context of the size of the economy. The revenue expenditure in the State has barely kept pace with economic growth in the past few years. In health and education, for instance, revenue expenditure is important because it goes towards paying salaries of doctors, healthcare workers, paramedics and teachers who man hospitals and schools. A cut in such expenditure translates into an immediate closing of opportunities for the poor and less privileged.

These fears are more ominous when seen in the context of the fact that the BJP’s first budget in a South Indian State relies heavily on high-cost borrowings from the “open market”.

At a time when interest rates have increased sharply, and are likely to remain high in the foreseeable future, the Government plans to increase such borrowings by almost Rs. 3,700 crore. Such loans will constitute almost 40 per cent of all capital receipts the State plans in 2008-09.

Seen in this context, it is not surprising that the Government gave up on its most important promise: that of supplying rice at two rupees a kg for an expanded base of poor families.

V. SRIDHAR

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