The Budget is certainly India’s most talked about economic policy announcement, both before and after presentation. There are a plethora views on where the government should spend with compelling arguments. The speeches are worded very well to create the perception that no one is left out. Specific outlays for either the previous or coming year are highlighted to send the right signals. But is there a pattern that we are missing?
One theory says that a government should run a welfare state and use such spending to bring about redistributive justice. Another view is that the government should spend on infrastructure, where private interest is limited. As a corollary, everyone talks of government capex crowding in private investment. What is the true picture; and are there any shifts in how budgets are drawn up?
I analyse the period post 2010-11, with 2020-21 kept out as it was an unusual year. As budgets tend to focus on varied issues at different points of time, averages for the first 2 quinquennium ending 2019-20 and the same for the 3 years starting 2021-22 are considered. The idea is to get a hang of whether there is any change in approach to budgeting. These periods also coincide with different political regimes and hence could reveal inflections of political ideology.
There are around 57 ministries/departments for which budgeted expenditures are drawn up. These have been classified under 5 groups. The first, called ‘masses’, covers 10 ministries and includes the ministries of agriculture, rural development, consumer affairs, chemicals, petroleum, etc. All outlays for these ministries are linked finally to some support provided to a vulnerable class. Petroleum is classified under this as its subsidy was aimed at consumers.
The second is ‘essentials’, which includes defence, finance and home affairs. These relate to the security of the realm, which includes a commitment to service debt and other compulsions of the finance ministry. The third is infrastructure, comprising 8 ministries which cover all the broad areas under this heading. The fourth is industry, which spans 7 ministries, while the ‘others’ category has 29 ministries dealing with research, knowledge, social development and so on.
This five-fold classification not only reflects the change that has gradually been engineered by budgets, but also points to the way things will move in the coming years. This can aid expectations and help eschew naïve statements made before a budget on whether it will be populist or capitalist, because, while perceptions may be created, allocations at the end of the day are in line with the government’s ideology.
The table is interesting. First, allocations under ‘masses’ have come down sharply on a point-to-point basis. While it has risen in the latest period, this is mainly on account of help still being extended to weaker sections (farmers in particular). Compared with the second period, agriculture, fertilizers and consumer affairs have gotten higher allocations, but there have been savings made in petroleum and health. One may expect this number to come down further going ahead, as the environment stabilizes.
Second, expenditure under ‘essentials’ has shown a decline. The allocation for finance is more or less stable where the commitments are fixed, like interest payments. But with bank capitalization no longer on the agenda, there have been savings invoked. The interesting part is that the share of defence in the total has come down from 17.2% in phase 2 to 13.5% in phase 3. In phase 1, it was 16.5%. The same was witnessed in the allocation for home affairs.
Third, the infra story probably stands out the most. Its share has more than doubled in phase 3 compared with phase 1, with a consistent increase of over 50% in both these phases. This is where an ideology is revealed quite clearly, given the emphasis on creating assets and fostering economic growth. It can be said unequivocally that Indian budgets are becoming more growth-oriented.
Fourth, allocations made to ministries related to industry show that the private sector should not count on getting too many payback sops (such as the production linked incentive) and that its concerns would be addressed outside the budget via policies and not payouts.
Last, the miscellaneous category has witnessed declines, albeit only gradually, meaning thereby that as our budgets focus more on growth, things like research, section-specific schemes, etc, are likely to see cuts. The interesting thing here is that the water department has witnessed increased allocations, while the HRD ministry has witnessed sharp cuts from 4.5% in Phase 1 to 3.6% in Phase 2 and 2.1% in Phase 3.
The message that emerges from these trends is that the days of handouts can be expected to diminish to a large extent. Further, the government will be pushing hard for growth, as the crowding in of private investment has not worked so far. That is understandable, considering that the private sector does not invest unless there is profit to be made, while the government has the luxury of overlooking financial outcomes. Finally, there will be constant switching of allocations across the other ministries that will be need based. Therefore, we need not fret or get elated either which way.
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