Event ReportsPublished on Mar 10, 2018
When it comes to the Budget, we should ask ourselves two questions: Is there a rationale behind it? Is there implementation on ground?
No rationale in Budget 2018: Analyst

Initiating a discussion on Budget 2018 at the Chennai centre of Observer Research Foundation on 10 February 2018, M.R. Venkatesh, economic analyst and author, observed that it did not feel like a time for celebration, rather it felt more ritualistic.

There was, he said, a palpable disconnect between the promises made by the Prime Minister, what is now commonly referred to as Prime Minister Narendra Modi’s pre-poll promise of achche din, or ‘good day’, in 2014, and the ground realities forming the real deliveries.

Venkatesh was not convinced that the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), inherited and expanded by the incumbent government, which was touted as the largest rural jobs assurance scheme, could double farmer’s income, as promised. He pointed out that farming had become costlier in several places. While the government claimed it was undertaking a range of irritation projects, both at the macro and micro-levels, Venkatesh argued, if this was the case, there would not be such a prevalent water crisis manifesting itself across India. As many as eight states declared themselves drought-hit in 2017.

MSP, a ‘political move’

Venkatesh was again critical of the concept of Minimum Support Price (MSP) paid to the farmer for procuring food crops. The MSP worked in effect as a market-intervention tool, and an assurance from the government to the farmer, and was aimed at shielding farmers from risks by guaranteeing a minimum price of 50% higher than the cost of production. Finance Minister Arun Jaitley had declared that: “Government has decided to keep MSP for all the unannounced crops for the kharif season at least at one and half times of their production cost.”

However, on closer inspection, Venkatesh said, there was not much clarity on the production costs, as there were three different ways of calculating MSP:A-2, which referred to the actual paid-out cost, C-2 which was the comprehensive cost including imputed rent and interest on owned land and capital, and A-2+FL which was the actual paid-out cost plus imputed value of family labour. In this, C-2 is when MSP is the highest, then A-2+FL, and then finally A-2. There was a substantial difference between A-2 and C-2. The Swaminathan Commission report had stated that MSP should be calculated on the basis of the comprehensive cost of production.

The Finance Minister had declared “MSP for the majority of rabi crops at least at one and a half times the cost involved,” without stating which cost of production he was alluding to. Venkatesh explained that it appeared to be calculated on A-2, because the government had not budgeted for a higher cost. He felt this was a mistake and could prove costly in the long run. He further reflected that MSP appeared to be a political move aimed at quelling a political lobby, and not a pan-India scheme. He found that 30% of large farms as well as 15% of small farms were not even aware of this scheme.

Additionally, Venkatesh was concerned about the impact of increasing MSP on inflation. “You cannot keep frequently increase MSP and expect benign inflation — this was impossible,” he argued. Higher MSP would fuel high food inflation. While MSP was a tool to achieve food security, “there ought to be alternatives to food security,” he said.

Profound mismatch

Venkatesh said there was a profound mismatch between the promises made by the government, the kind of money that had been pumped into government schemes and the results that were visible at the macro-level. The Budget announced 47 projects completed as part of the Namami Gange programme. Given that 187 projects had been sanctioned, this meant 25% of the work has been completed. However, there was a massive difference between the claims on paper and the evidence on the ground.

The Budget has claimed this government had “scaled new heights in development of Road Infrastructure sector.” Again, ground realities were otherwise, Venkatesh said. Under Prime Minister Modi’s yet another pet project, namely, the Swachh Bharat Mission, millions of toilets were built, but in the absence of water supply and proper drainage, they have become the costliest ones. Likewise, ₹75,000 crores had been spent on rural housing in three years, but with little impact on rural employment.


Venkatesh said it was crucial to remember that ultimately a budget only allocates resources, and it cannot deliver on promises made. Delivery was the responsibility of the government at various levels, right from Cabinet Ministers down to the panchayats. However, through the Budget, the government undertakes a stock-taking of the previous plans, an understanding of what worked and what went wrong.

He was particularly struck by the disconnect between the claims made by the government and the ground realities. There was a substantial gap between allocation and outcomes, which raised very serious questions about administrative capacity. Prime Minister Modi had made extensive promises but it appeared much of it remained undelivered, he observed.

Venkatesh insisted it was important for the Budget to reflect a continuous narrative. Reflecting on the move to bring back long-term capital gains tax, he said if the government was keen to do so, it should do so for the next 10 years, at a stretch without changing the scheme every now and again. There needs to be stability and continuity when it comes to tax-planning, both for the government and for the investor and trade, and also individuals. One should be able to take what the Finance Minister announces with authority. In contrast, there were already rumours that the finance ministry was rethinking this move.

Ultimately, when it comes to the Budget we should ask ourselves two vital questions, Venkatesh said: One, is there a rationale behind it? Two, is there implementation on the ground? Unfortunately, he found this Budget wanting on both counts, and in the end it felt like “just a ritual for the day.” Crucially, he pointed out that if even after 10 days of announcing the Budget, there was uncertainty and speculation on so many fronts, this was bad for the country and bad for democracy.

Venkatesh said farmers were still struggling for water, there was no clarity on production costs and how MSP would be calculated, the tax system remains convoluted, demonetisation did nothing to catch errant black money-holdings instead it only irritated the middle classes. In short, the promised achche din had not arrived. “There was incremental growth, but no more. There was no quantum-leap, and importantly this Budget has not made life easier for our tax-payer,” he summed up.

This report was written by Dr. Vinitha Revi, Associate at Observer Research Foundation, Chennai.

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