Cash transfers ahoy: the Centre as the sole saviour?

Cash transfers ahoy: the Centre as the sole saviour?
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First Published: Sat, Mar 01 2008. 01 07 AM IST

Updated: Sat, Mar 01 2008. 12 26 PM IST
For those of us who wanted cash transfers in the Budget, we have got it! A person earning Rs5 lakh will get Rs45,320 in saved taxes; and Rs14,420 if one earns half that. As for the loan waiver, Rs500 billion, for 30 million small and marginal farmers, is just an average of Rs16,500 per household, with bigger farmers getting more.
A happy corollary of this waiver is that banks get to replace doubtful farm loans which cost a lot to service with high rate gilts. No doubt, given the state of accounting systems of our regional rural banks, especially cooperative credit institutions, there will be a sudden discovery of a large number of agricultural loans to eligible farmers prior to the cut-off date. Ergo, farm loan waiver becomes a $15 billion (Rs60,000 crore) recapitalization of our banks. After special economic zones, is this yet another Chinese lesson?
Facetiousness aside, there is much that is disturbing in this Budget. Not least of which is reconciling the plethora of schemes that have been announced with the fact that revenue expenditure growth is less than that of nominal gross domestic product, with capital expenditure budgeted to fall by 25% from last year. Yet, it is not the numbers but the approach that is worrisome.
First, to taxes. There is a creeping comeback of use-based discrimination. A fertilizer company will pay no customs duty for naphtha; industries will. Cold chains will pay no excise for refrigeration units, others will.
Surely, it is just easier to increase the fertilizer subsidy and provide viability gap funds to cold chains than create these invitations to corruption. The exemption regime is not going away either. After all the hoopla over phasing out export exemptions, we now have tax holidays for hospitals and hotels in certain cities. Do let states subsidize them, give them cheap land, but can’t we stay away from tinkering with tax codes?
Now, to expenditure. Ten days ago, a true scholar passed away as he had lived, quietly. If one were to evaluate this Budget by Amaresh Bagchi’s federalist standard, it would be seriously wanting. When the Central government creates a sub-head in a central sector scheme to ensure the supply of drinking water in our schools, something must be amiss. Surely, this is something that can be undertaken, if not by the local government, at least by the state governments, even in water-deficient areas.
Then, along the lines of power, which has both the Power Finance Corp. and the Rural Electrification Corp. that have gone in for market listing, the government wants to establish an Irrigation and Water Resources Finance Corp. to finance irrigation projects, a subject squarely on the state list. Constitutional considerations aside, where is the cash flow that will service these loans? Currently, the state governments borrow on their balance sheet to implement these projects. Will this mean that irrigation will also now be off-budget like the state-owned power companies? They can learn from the Centre, where the finance minister admits the impropriety of below the line subsidies, but continues the practice to finance his farm relief package.
Now that education is in the concurrent list, the Centre is merrily establishing universities, specialized institutes and why not, schools. Is it an admission of utter failure to revive the existing higher education system? Is this to follow electricity’s path to private participation, from NTPC Ltd to private power producers and to, finally, ultra mega power projects? Does this mean we will see private universities next? Is skill development not to be provided by a robust multitude of providers, but by a centralized humongous non-profit corporation? I am a strong votary of establishing institutions where necessary, but do we really think we can fix India’s problems purely through Central institutions? Even where the scheme itself aims at a “fully functional, community-owned, decentralized” system, as in the National Rural Health Mission, the question is whether this can be truly achieved though a centralized financing mechanism.
All this is done with the earnest hope of improving service delivery, to further inclusive growth. The earnestness of this intention can be seen by the decision to “put in place Central Plan Schemes Monitoring System (CPSMS)” to track and report on state-wise/district-wise expenditures, outputs, etc. for about “1,000 [I hope this is a typo!] Central Plan and Centrally sponsored schemes”. In case you are wondering, the budget document has never reported actual expenditure at the level of the scheme. The provisional actual expenditure is provided at the departmental level of aggregation with a lag of one year and even at this level the audited actual expenditures are only available from various CAG reports. So, such a system to track outlays and outcomes regionally is long overdue, but does it have to be tied to the existence of central schemes?
But, there are some other slivers of hope such as CPSMS above. The minister has finally found two pilot states for his public distribution system smart card and implementation will begin this year. The Rashtriya Swasthya Bima Yojana is a good attempt at leveraging existing institutions to improve access, with cost-sharing between states and the Centre. The way forward would be to embrace more such initiatives and transfer more cash to states and local governments, which can then experiment with different models of service delivery. If you can transfer cash to people, surely their governments can hardly be less worthy!
Partha Mukhopadhyay is a senior fellow with the Centre for Policy Research, New Delhi. Respond to this column at feedback@livemint.com
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First Published: Sat, Mar 01 2008. 01 07 AM IST
More Topics: Union Budget 2008 | Centre | Saviour | Farmers | SEZs |