What is different about a budget for an economy growing at 5% from one that grows at 10%? So far, inclusion has been about providing basic protection, trying to ensure that the poor do not go hungry—the underlying rationale for food and fertilizer subsidies and the National Rural Employment Guarantee Scheme (NREGS). Today, as we target a 10% growth economy, that is too limited an ambition. Instead of just protection, the Budget should focus on enabling broad participation in our growth story. What are the signs that will augur such a transition?
Partha Mukhopadhyay, Senior fellow, Centre for Policy Research, New Delhi. Photo: Pradeep Gaur / Mint
First, the government should recognize that it is too small. As a share of output, our federal government expenditure has been consistently less than the US. The total number of employees in all forms of government is also less than the US, which has one-fourth of our population. More resources— and not limitation on spending—must continue to be the basis of fiscal consolidation, from the new direct tax code and goods and services tax, which will widen the tax net, to abjuring tax shelters such as special economic zones. We need to expand, but wisely.
Second, the government should balance public and private service delivery with public and private financing.
In education, the government has responded to the growing demand for education by trying to increase public delivery with public financing—Sarva Shiksha Abhiyan (SSA) for elementary education and Rashtriya Madhyamik Shiksha Abhiyan (RMSA) for secondary education, both funded in part by the education cess. In higher education, the effort has been to increase enrolments in existing public universities and establish more of them. So far, increasing delivery through the private sector, with public financing— scholarships, loans and vouchers—has had a limited role. The Right to Education Act mandates that at least 25% of the entering class of all unaided schools be composed of children from low-income and disadvantaged groups, with the government reimbursing the school. It remains to be seen if this Budget will go beyond SSA, RMSA and the University Grants Commission, or UGC.
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In health, the government uses public financing for private provision. The Rashtriya Swasthya Bima Yojana (RSBY)—the national health insurance scheme restricted to people below the poverty line—appears to have issued 12 million cards, with insurance premiums paid for by the government, which are currently valid at 3,690 hospitals, 2,795 of them private. Alongside, there is increasing public delivery with public financing under the National Rural Health Mission (NRHM). For health, spreading awareness is an additional challenge: The accredited social health activist under NRHM is expected to be crucial here.
Our infrastructure policy is an example of trying to provide public services with private financing. While it appears to make money, in reality, on most public-private partnership (PPP) contracts, the government loses money. If there is an upside, the private sector keeps it; else, it is back, cap in hand, for a bailout—as with the airport projects and the Commonwealth Games village in Delhi. The government retains the downside and loses the upside.
This balance will be key in how much the Budget enables participation.
Third, the government should facilitate decentralization. On urbanization, for all the talk about empowering urban local bodies, the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has progressed little towards self-governing cities, though some urban infrastructure has been built. Its focus on the state, vis-à-vis the city, has hurt decentralization. The concentration of its support in rich creditworthy cities removed their need to borrow and effectively squashed the growth of a municipal bond market that could help finance city projects.
We are yet to reach a consensus on how cities should be governed. Resources can be generated from richer urban residents to fund much of urban investment, but states are reluctant to cede control or exploit this resource base meaningfully. With JNNURM, the Centre has, unfortunately and perhaps unintentionally, become complicit in this charade. If we think that cities should be self-governing, should not JNNURM be scrapped and replaced with a grant from the Centre to states that match the amount of untied funds transferred by the state to its cities, without any conditions, to enable them to make independent decisions?
Similarly, NREGS is supposed to support decentralization, but it has limited local flexibility. While its role as a safety net is clear and laudable, NREGS also seeks to enable participation by building rural infrastructure. Rs67 can be spent on such materials and non-wage costs for every Rs100 in wages; it is this extra two-thirds that seems to be the locus of corruption. Will rural participation not benefit more from existing infrastructure schemes, such as rural roads under the Pradhan Mantri Gram Sadak Yojana or, better still, by converting the non-wage component into block grants for panchayats?
Thus, at various nodes of economic policy, there are now distinct choices. What metrics should guide these?
In providing protection to the poor, we worry mostly about targeting. In enabling participation, we need to care as much about the quality, as quantity, of service delivery. What’s more, like infrastructure, universal education and healthcare should not be designed just for the poor. The aim should be to entice the rich—who perhaps currently consume only infrastructure, higher education and public health—back into the public system. It is then that taxes will be seen not just as imposts for transfers, but as costs of truly public goods.
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