Budget 2016: Why Jaitley should come with a smarter social sector package

For two reasons, the social sector is quite critical from the point of view of the Union Budget.  First, this is one sector which deserves continuous attention to bring about sustained development.

Second, the government is keen on changing the perception on what it stands for. Critics have tended to interpret the government’s policies as being biased towards only growth.

 Budget 2016: Why Jaitley should come with a smarter social sector package


As a corollary, the government has less time and resources to spend on social development. The stance of the government hence needs to be clarified through concerted action.

While social expenditure has been mentioned in all budgets, it needs to be recognized that the 14th Finance Commission had provided for higher devolution to the states to the extent of 42 percent of tax collections of the centre. Simultaneously the centre has transferred several such programmes to the states for implementation.

Eight schemes have been left for the states to decide on whether or not to continue with them.  In case of 31 schemes, the centre would continue to sponsor them fully while for 24 schemes, the centre’s contribution is to be lowered on account of higher devolutions. Hence the budgeted numbers for FY16 cannot be compared with earlier years.

The government has assured that none of the expenditures in these schemes have been lowered. Therefore, this will continue to be the ideology of the government in this budget.

There are four areas which would need more attention in the budget which however has to be seen in conjunction with the state governments’ budgets. These are education, health, rural housing and roads. The approach should be different, where some programmes or schemes can be linked with other schemes of other ministries to leverage mutually the benefits from them to make money work better.

As we move towards bridging the gap between the rich and poor, it is essential to focus on education and health not just in terms of meeting targets but also improving the quality of such public services. This is where it would be useful for the government to actually channel the mandatory CSR spending by companies to these two areas.

While it can be debated whether or not companies should be asked to carry out these schemes, it will be useful if corporates are asked to sponsor a specific hospital or school in the rural areas such that their quality improves. This would also help to track such expenses which today get lost in various contributions made to NGOs that have been recognized for this purpose. We can hence move closer to achieving these objectives by simply channeling funds from one source, which does not enter the budget, to addressing issues that have not been adequately addressed by the government.

Rural roads can actually be linked with the agricultural sector as the last mile connectivity of farmers to the mandi is hindered by the absence of such roads. The last year’s budget did talk of the creation of a National Market for agriculture. If this has to work, it is essential that farmers should have access to the markets which is limited today because of the absence of roads. By doing so these two objectives can be linked together to make it more productive.

The concept of a national market will take time to fructify and making a beginning through road development is pragmatic. Today the fructification of this objective would be distant as the main reason for farmers not being able to access markets is access which makes them dependent on the adathiya or intermediary.

Last, rural housing is likely to occupy an important part of the budget and can be addressed in two ways. The first is to provide incentives to builders to provide such accommodation as these are low margins business which works commercially only in case there are high volumes. The second is to provide credit for rural households for housing.

Presently there has been concentration in urban areas and banks should be asked to provide loans in rural regions too. While it does get classified as priority sector lending, they have to be nudged for the same.  Here the rural population is brought closer to the banking system which provides them with loans and the simultaneously the builders have an incentive to scale up their operations.

The other area is the NREGA program which has been one of the scoring points of successive budgets. It has become critical in the last two years when the monsoons have been sub normal with drought conditions prevailing in some regions. The challenge for the government is to make this program more effective. This can be done by blending it with other social and economic programs of the government. NREGA is basically a wage based program which provides employment on rural and agri based projects which have low value added outcomes.

To make the money work better which has been in the region of about Rs 35,000 crore, the same can be used for a combination of skill development (Ministry for HRD) which enables the labour to also get employed in others schemes like roads, construction etc. which are linked to other budgetary targets of other departments (Ministry of urban development and Railways).

As all such projects have a wage component, with suitable training, the labour force could be deployed gainfully. Hence we would be simultaneously addressing the stated objectives of skill development, employment generation and creating infrastructure. Such an experiment would be worth trying out as it will generate economies of scale.

Last, the government is likely to take a closer look at subsidies especially food and fertilizers which are linked again to the rural economy. Fertilizer subsidy has tended to be misused with over usage leading to soil destruction as well as being too one sided in terms of  pricing. This would definitely be addressed in the budget.

Further the food subsidy issue is likely to be rationalized with the UID being largely successful to extend the use of DBT from LPG distribution to food. However, there are challenges here in terms of getting the pricing right as giving money to households and sending them to the market is fraught with two risks. The first is of ‘how much to give’ considering there is variation in prices across various centers. The other is that a sudden rush to the market by households to buy foodgrains would lead potentially to inflation.

The budget for 2016-17 would provide less room for too much to be done given the constraints of limited resources and the compulsion of fiscal consolidation. The government would have to focus on making the resources work better and hence has to try and link various schemes and expenditures to leverage synergies so that the funds spent are more effective. Moving away from a ‘silo system’ of various ministries working independently and linking their objectives with one another can save substantial resources.

This would be a route to be followed that should succeed over time.

The author is a chief economist at CARE Ratings, and his views are personal.

Updated Date: Feb 18, 2016 17:04:13 IST