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  1. Budget 2018: UPA’s and NDA’s starkly differing priorities

Budget 2018: UPA’s and NDA’s starkly differing priorities

The interesting aspect of these allocations is that 16 of the 49 broad ministry-heads accounted for 92% of total allocations in both the periods. As a corollary, it follows that the others are relatively less important in the broader frame.

By: | Updated: March 5, 2018 12:53 PM
When one looks at the speech of the FM, it is largely an ideological presentation that varies with governments.

The Union budget document is similar to a corporate annual report. There are some mandatory numbers that have to be presented in a fixed format. But, the tone, starting from the budget speech to the views provided in interviews, is similar to the other written parts of the annual report—like the management discussion or messages, where the prerogative is with the company. Therefore, when one looks at the speech of the FM, it is largely an ideological presentation that varies with governments.

Ideally, the same can be presented in 10 slides of a PowerPoint presentation. But, the purpose is to emphasise the ideology and, hence, there will always be a thrust on certain areas, according to the need of the day, so that it goes down well with the people. MGNREGA was the focus of the UPA government, while smart cities and Swachh Bharat have dominated the present regime’s proclivities. But finally, the actual allocations matter as they indicate where the money is being channelled.

Typically, every budget follows some standard operating processes. Outlays for various special schemes are announced, but invariably mean merging existing schemes with new ones, giving the impression of newness. Further, while the impact of the policy is made in one year, the commitment is not shown in the following one, as there are new priorities to be highlighted. Therefore, single year numbers are misleading. At times, the beneficiaries from a scheme are highlighted like the MGNREGA, without talking of the monetary allocation that could have missed the target. Or, at times, the revised numbers are lower than budgeted for the previous year, which serves well to highlight the proposed increase in the ensuing year.

To really get a taste of where governments have been spending, it would be interesting to look at allocations across various ministries, as it indicates amounts that are being channelled to different programmes. To make a comparison between the two regimes, the average for the two five-year periods has been considered, wherein the shares of various departments in the total budget are considered. The averaging concept addresses the issue of single-year spikes and troughs. Hence, the ratios or shares being compared will be the revealed preferences of the regimes in terms of fund allocations. The table below gives the average shares of various ministries in the total budget allocation for the two five-year periods of the UPA and NDA regimes. The differences in shares in the two periods are provided in the last column; these indicate the change over the two regimes. The first set of ministries consists of those for which budgetary allocations have come down, while the latter part, which has positive changes, is that where the government has allocated larger amounts relative to the budget size.

The interesting aspect of these allocations is that 16 of the 49 broad ministry-heads accounted for 92% of total allocations in both the periods. As a corollary, it follows that the others are relatively less important in the broader frame. Within the category of lower allocations in the NDA regime, the two ministries that witnessed significant changes were petroleum and fertilisers, which was mainly due to the decline in the respective subsidies. With lower crude oil prices, it was possible to lower oil subsidies—this was topped up with the linkage with DBT that helped channel these funds in a more effective manner.

The three surprise elements were rural development, water and sanitation and HR development, where the allocations in the current regime have come down, compared with the earlier one. This was notwithstanding the fact that the MGNREGA programme has witnessed higher allocations. Further, with the Swachh Bharat and HR-oriented policies being pursued quite aggressively by the NDA government, it would have been expected that it would have been spending relatively more, but this is not the case. The lower share could be reconciled with the higher emphasis in NDA budgets on the account of merging of schemes. On the departments that have received higher allocations, roads, railways, urban development, telecom, and agriculture are the sectors which are more productive and have benefited from them. The thrust of the NDA government has been on channelling the gains made from lower subsidies to those areas that add to the strength of the economy. Both defence and home have received larger quantum of funds, but this has been driven more by pensions—the capex in defence has received lower allocations. In fact, the share of defence capex was down by 0.98%, while the share of pensions increased by a similar amount in the second quinquennium.

The NDA has, however, continued to guard the consumers on the food subsidy front, as can be seen from an increase in share by 1.1%. There has been no compromise here, and if it is combined with DBT, the social orientation of the government comes to the fore. This is against the oft-held perception that the NDA is against freebies. The allocations for finance are largely driven by interest payments as well as other schemes such as providing capital to banks, financial institutions (including MUDRA loans). The conclusions that may be drawn are that there has definitely been a change in the allocation of funds, aided largely by benign commodity prices that ensured that the government did not have to make hard choices. The savings have been channelled in a manner that will help growth in the medium term, as they are the more efficient sectors where investment leads to both growth and employment.

Second, contrary to perception, there is a large human factor when it comes to agriculture and food subsidy. Third, the compulsions of maintaining the pension payouts continue to be a challenge that cannot be escaped, which had some collateral effect on defence capex. Fourth, there are some perceptions based on rhetoric that could be more in the nature of consolidation of scattered expenses under water, sanitation, women, education, etc, where the allocations have been lower. Admittedly, in these areas, states have to deliver more. This would be a practical way of reading these numbers.

Madan Sabnavis
Chief economist, CARE Ratings
Views are personal

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