Black Economy, Underestimation of Unemployment and Budget

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Transcript Black Economy, Underestimation of Unemployment and Budget

Learning Pundits


Budget analysis

REPP class 9

BUDGET REVIEW ON What Does Budget 2007-08 Offer Women?

By- Yamini Mishra, Bhumika Jhamb REEP, LEARNING GROUP 10

• • • •


Gender budgeting(GB) statement has been started as a government exercise since the last 3 years.

Government has made efforts in correcting mistakes as pointed out by a civil society.

Part A of the statement contains schemes in which 100% allocations are for women. Eg: Indra Awas Yojana, Rashtriya Mahila Kosh .

Part B constitutes schemes in which at least 30% of the allocation in for the women. Eg ICDS, PMRY REEP, LEARNING GROUP 10

• • • •


The total magnitude of the gender budget is Rs 31,177 crore in 2007-08 that is an increase of 40 per cent.

As a percentage of total union government expenditure, this constitutes a rise from 3.8 per cent to 4.8 per cent.

Gender budgeting cells have been set up by 50 ministries/department.

General Budget Statement demand for grants has increased from 10 in 2005-06 to 33 in 2007 08.



• • • Ambiguous and wrong allocation still remains Under the department of health and family welfare all the allocation on contraceptives has been treated as exclusively for women.

IAY has also been treated similarly although in 2004-05 , 18% of houses constructed but allotted to men and 29% jointly to husband and wife .

Similar discrepancies remain in various schemes under Labour Ministry , Ministry of youth affairs and Sports etc.


Percentage spending in the Gender Budgeting Statement


Women Education: Allocations high at 31%

but still insufficient to control the high drop out rate of 73% •

Women Health: Allocation high at 24% but

much needs to be done to lower the high maternal mortality rate.

Women food security and nutrition: Meagre

increase in allocation and no concrete steps.


Women Livelihood:

schemes and funds.

Significant budgetary progress by substantial and right allocation of • Women Housing: At 8% of the allocation it remains low considering the magnitude of the problem.

Women in difficult circumstances: There is no allocation at all for provisions like these. For e.g

no provision for the efficient implementation of the Domestic Violence Act.


GB Statement: The way forward

• • • • Although the GB statement is a well intentioned initiative several more steps need to be taken.

Women face discrimination in many aspects.

They face discrimination on the basis of caste, class, disability, HIV status, rural-urban divide, etc.

There is no mechanism to ensure that the allocations reach the most marginalized section of the women community REEP, LEARNING GROUP 10

• A crucial flaw is that the GB statement assumes the women as a homogenous mass.

It does not account for the various power dynamics and discrepancies that remain in the society.

• Also, women have long been discriminated and marginalized and the GB statement needs to take this into account.


• • The Gender Budgeting exercise recognizes that gender-neutral allocations are not enough and the government needs to step up its allocations for women-specific schemes.

The Gender Budgeting exercise cannot be done in isolation from the political and socio-economic scenario of the country and needs to incorporate these aspects to make it cater truly to women welfare REEP, LEARNING GROUP 10

Black Economy, Underestimation of Unemployment and Budget 2005-06 by Prof.Arun Kumar

Professor of Economics,JNU, Author – Black money in India


 Introduction  Model of Black Income Generation in Legal Activities  Some Facts  Union Budget 2005-06, Employment and the Black Economy  Conclusion  Some questions to ponder upon  Some other Links

“ An Indian is affected at every step by the black economy. The education of a child, a visit to a doctor, policeman who extort money…..electricity or water departments all demands black economy” - Prof. Arun Kumar

Black Economy - Introduction

 A hidden sector of the economy where private cash transactions go unreported. It is a sector of economic activities involving illegal economic activities including buying and selling of drugs.

 This definition excludes transfer incomes, like capital gains and bribes. The definition also eliminates multiple counting of incomes  That part of an economy that is hidden from the government and on which taxes are not paid.

Black Economy – Introduction (cont.)

 Most of the black economy is on the hand of top 3% population so that the disparity (between these people and the bottom 40 per cent) is considerably higher (five times) than what the white economy data suggests.

 Size of the black economy was 40 per cent in 1995-96, that implies an additional GDP due to the black economy of 40 per cent in that year.

Model of Black Income Generation in Legal Activities

Profit (P) = Revenue (R) – Cost (C) …(1)  Profit may be white (what is declared) or black (what is not declared). The declared profit appears in the income statement of the business and is called the balance sheet profit. The undeclared profit or black profit is called off-balance sheet profit.It accrues directly to the management of the business.

 P = White Profit (Pw) + Black Profit ( Pb) …(2)  Further, P = Actual R – Actual C …(3)  Black Profit (Pb) is generated by declaring lower revenue and/ or overstating costs.

Some facts

 The size of the black economy is estimated to be 40 per cent of GDP for 1995-96 [Kumar 1999]. Of this 8 per cent comes from illegal activities and 32 per cent from legal activities.

 Two Sources of Black income are – a. Overstated Costs b. Under invoiced revenue  Then overstated costs would contribute half of the black profits (Pb) from legal activities or 16 per cent of GDP.

Some facts (cont.)

 According to the economist magazine it is estimated that in 1998 the world’s black economy accounted for a missing $9 trillion worth of output – a volume of output almost equivalent that of U.S.

 Black income generation process, with the most plausible available assumptions, results in overestimation of employment and wages by 5 per cent.

Union Budget 2005-06, Employment and the Black Economy

 Introduction of two schemes in Union Budget 2005- 06 – 1. Banking Transaction Tax (BTT) 2. Fringe benefit Tax (FBT)  The value added tax (VAT) has also been billed as a scheme to tackle black income generation in indirect taxes. It is supposed to lead to better compliance.

 Services tax collection has shown high buoyancy. Many more services are progressively being brought under the net of this tax.  In the union budget for 2005-06, additional funds are allotted to employment generation and to the social sectors (education, health, etc).


 It is clear that without incorporating the black economy in the analysis, there can be no clarity on the issue of unemployment in India.

 The 7 per cent rate of growth in the last three years raised the possibility of mobilizing more resources but the steps taken are grossly inadequate to deal with the problem of declared unemployment in India.

 Not that the black economy does not generate employment, but by lowering the value of the multiplier and the potential rate of growth of the economy, it lowers the employment potential

Some questions to ponder upon

 How is the government going to tackle the twin and interrelated problem of black economy and unemployment?

 Is black economy really an evil?

 Is there a way to estimate and curb the black economy?

 Are we as individuals also responsible in contributing in growth of parallel / black economy

Some Other Links

 26853/ 

 05Df02.html

Budgetary Policy in the Context of Inflation - PRABHAT PATNAIK

Source (Article): EPW April 7, 2007 REPP

LG 3


“The Union Budget 2007-08 utterly fails to appropriately respond to the social needs of a situation of profit inflation…”

- Prabhat Patnaik

Budgetary Policy in the Context of Inflation 25

Understanding Inflation


The overall general upward price movement of goods and services in an economy.

Income Inflation:

Inflation in nominal wage unit, with the price level in terms of the wage unit remaining unchanged.

remains constant Purchasing Power 

Profit Inflation:

Inflation of the price level in terms of the wage unit.

Power Fall in Purchasing Budgetary Policy in the Context of Inflation 26

Fixed level of the money wage in the short run Ex ante excess demand at this output

Raises the share of profits relative to wages, through a profit inflation Squeezes “forced savings” out of the workers which add to the wealth of the capitalists

Current Inflationary episode in India- “Profit Inflation”

Driven by excess demand for a variety of goods, notably primary commodities, including food articles

Budgetary Policy in the Context of Inflation 27

• • •  

Overheating of the Economy: High Growth Rates

Decline in profitability in the Agricultural Sector.

Rural development expenditure as a proportion of GDP has declined to a level much lower than in the eighth plan period.

Per capita foodgrain output has declined over a long period, and especially since the beginning of this century.

Public procurement operations have been wound down.

The procurement prices offered for foodgrains have simply not been remunerative enough.

Since mid-2002, the dumping of huge amounts of foodgrains on the world market and the whittling down of procurement operations, has now carried the economy from an ex ante excess supply to an ex ante excess demand situation.

Budgetary Policy in the Context of Inflation 28

   Dilemma- the basic feature of a profit inflation is that it is self-limiting, in the sense that, leaving aside the element of speculation, the “forced savings” that such inflation generates, eventually eliminate the ex ante excess demand that causes it!

The end of profit inflation, however, may not mean the end of inflation in nominal wages and prices.

Even if we assume it does, that will still leave the

level of real wages below what it was before profit inflation began.

This requires an increase in fiscal transfers to the poor, financed, ideally by an increase in taxes on the profit earners. And the basic problem with the 2007-08 budget is that it is oblivious of these social demands of a situation of profit inflation.

Budgetary Policy in the Context of Inflation 29

   Reduction in the revenue and fiscal deficits relative to GDP is necessary for curbing inflation.

It has to be achieved through a restriction on


will be curbed.

expenditure relative to


Otherwise the ‘animal spirits’ of entrepreneurs will get destroyed by higher taxes, and growth In short, what a situation of profit inflation requires is both the ensuring of appropriate supplies through imports, and a transfer of

purchasing power from the profit earners to the


Budgetary Policy in the Context of Inflation 30

Union Budget 2007-08

 While the government has seen the need for “supply management”, i.e, for importing certain essential commodities to augment domestic supplies, it has not seen the need for transfers.

 To check the fiscal deficit, there has been a curtailment of expenditure, including transfer payments.

Budgetary Policy in the Context of Inflation 31

Percentage increase in items in the budget between 2006-07 (RE) and 2007-08 (BE)


Gross tax revenue Tax revenue net of states’ share Total receipts and total expenditures Plan expenditure Non-plan expenditure Budget support for the Central plan Budget support for states and union territories









GDP is currently rising at over 9 per cent and prices at around 7 per cent, this 17 per cent increase in most budget items matches the 16-17 per cent increase in the nominal GDP, leaving their proportion to GDP unchanged.

Budgetary Policy in the Context of Inflation 32

“Transfers” decline relative to GDP

    Outlay on the National Rural Employment Guarantee Scheme (NREGS) is supposed to rise from Rs 11,300 crore to Rs 12,000 crore, i.e, by a mere 6.2 per cent in nominal terms Total expenditure on rural employment is supposed to rise by only 3.5 per cent Aggregate expenditure on NREGS, Sampoorna Gramin Rozgar Yojana (SGRY) and Swarnajayanti Gram Swarozgar Yojana (SGSY) is supposed to increase by just about 7 per cent Food subsidy is supposed to rise by a mere 6.2 per cent Budgetary Policy in the Context of Inflation 33


  The Budget does little to remove the basic cause of the profit inflation itself, which consists in the steady decline in per capita foodgrain output.

The Central Plan outlay on agriculture is budgeted to increase only by 15.8 per cent, and the outlays on rural development, and irrigation and flood control by 11.4 and 11 per cent respectively.

“This modest increase, in the light of the fact that the Central Plan outlay itself is expected to increase as much as

31 percent,

suggests a lack of emphasis”

Budgetary Policy in the Context of Inflation 34

   Lack of mention of any price-support for the farmers.

When the talk is about “productivity” increases within peasant agriculture, it requires a certain amount of investment. This seems difficult unless the remuneration improves.

In the absence of a price support mechanism, tariff changes in either direction may work to the disadvantage of farmers.

 The gains from increases in tariffs may be appropriated by middlemen (which may even be large multinationals), while the effects of such tariff increases in the form of higher prices of downstream goods may even hurt the farmers as consumers.

 The losses from tariff decreases on the other hand may well get passed down by the middlemen to farmers, a possibility that arises in the context of this year’s budget itself since duties on several agricultural goods have been reduced apparently as a means of combating inflation.

Budgetary Policy in the Context of Inflation 35

• • • There is a case for increasing the tax-GDP ratio in a period of profit inflation.

This is because since a profit inflation increases the wealth of the capitalists while forcing the workers to reduce their consumption, i.e, it first squeezes the consumption of the workers, then transfers these amounts arising from the reduced consumption of the workers as savings to capitalists, whose wealth increases as a result of this.

This wealth inequality can be removed only by increasing the share of taxes in profits, which, since the share of profits in total income is rising during the profit inflation, would necessarily mean increasing the share of taxes in income.

Budgetary Policy in the Context of Inflation


Tax GDP Ratio 11.4% in 2006-07 (RE) Tax GDP Ratio 12.0% in 2006-07 (BE)


The tax-GDP ratio and the ratio of “transfers” to the workers to GDP should both have increased in the context of inflation, together with “supply management” measures.

The budget for 2007-08 raises neither the tax GDP ratio, nor the ratio of GDP being transferred to the poor and the working people.

Budgetary Policy in the Context of Inflation 37

Budget Review

Topic- Budget and Growth LG_2

An overview of Budget 2006-07

• • • • GDP growth likely to be 8.1 per cent with the manufacturing sector at 9.4 per cent; agricultural growth bounced back to 2.3 per cent; inflation was 4.02 per cent.

Allocation for eight flagship programmes (Sarva Siksha Abhiyan, Mid day meal, Drinking water and sanitation, National Rural Health mission, ICDP, NREGS, JNNURM et.) to increase by 43.2 per cent from Rs.34,927 crore in 2005-06 to Rs.50,015 crore.

Government to provide equity support of Rs.16,901 crore and loans of Rs.2,789 crore to Central PSEs (including Railways).

Farm Credit increased to Rs.175,000 crore in 2006-07 with addition of 50 lakh farmers; banks asked to open a separate window for self- help groups or joint liability groups of tenant farmers.

Global growth spree

Contribution of Developing & Developed nations in world economy

Developed Countries Developing countries

Contribution in world output 54% Contribution in world output 45.4% Export 71% Export 28.2% World population 15.4% World population 84.6%

A Mismatch

What is exactly driving the growth of Indian economy???

The production base Or The consumption base

An illustration

• • • • Housing and retail credit registered higher growth rate This fostered the growth in construction sector But the Author envisages that the world wide experience with regard to construction boon driven growth raises doubts Is this growth sustainable??

• • • • • Can we have growth without production ???

Government has reduced capital expenditure to reduce the fiscal deficit Along with production, employment has taken a back seat Our budget lacks coherence to approach savings It goes like mathematical proportion that with the increase in employment , income increases and what is saved is expected to be invested

Perils to Indian growth

• • Barrier in the world trade in spite of ‘free and fair’ talks.

Inadequate measures/provisions to foster saving and investment in 2006-2007 budget.

Overview of Challenges

Infrastructure and Environment •Poor Physical Infrastructure (road, sea, airports etc.) •Weak Rural Infrastructure •High Cost and unreliable power •Bureaucracy Economy Related •Investment has fallen short of savings In three consecutive years from 2001-02 to 2003-04 •Low level of domestic Investment absorption Capacity •Consumption credit Expansion lead growth •Lack of labour market reforms due to decline in capital expenditure Regulatory/ Governance •Politicization of investment decisions •Poor performance Of Public sector •Poor regulatory Support to the Unorganized sector

MDGs – Millenium Development Goals or Moving Development Goals?

An article by Vinish Kathuria

Government says….

    After education, health is second sector with major govt. spending.

Increase of 22%?? In effect, after inflation, works out to 16.5%.

Increased outlay vis à-vis MDGs.

Health component distribution (PHC, Disease control programme, health education, reproductive and child health)

At a first glance


China Pakistan

1990 (IMR)

38 96

2003 (IMR)

30 81

% change over 13 years



India 80 63 21.25

Bangladesh 96 46 52.08

• Among the South Asian Countries, India has the 2 nd highest MMR (540 per 100,000 births)

MDG Goals

    Related to health are primarily the 4 th , 5 th and 6 th goals.

4 th Goal – To reduce IMR.

5 th Goal – To improve maternal health.

6 th Goal – To combat HIV/AIDS, malaria and other diseases.

  

Target 2015

IMR – 42 deaths per 1000 live births.

MMR – 109 per 100,000 live births.

HIV/ AIDS comabting is on a low. Whereas TB and malaria statistics are gradually improving.


Inefficiency in the use of resources.

 Lack of funds towards various schemes of these goals.

 Institutional changes in few states.

10000 8000 6000 4000 2000 0 14000

Health Sector Outlay by the Govt.

Total Outlay in Crores 12000 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Total Outlay in Crores

      Discrepancies in the health sector.

Budget allocations, increased outlay to be taken with caution.

Progress made in combating leprosy and polio, but yet to be eradicated.

Resource requirement (Rs. 19,995 crores) not matching the actual outlay (Rs 12,100 crores).

Is the allocation sufficient to support ASHA volunteers? Support NHRM.

Other indirect schemes like ICDS.


   More focus on PHCs Increase expenditure to PHCs Insurance of poor against health uncertainties.

Why Do the States Not Spend?

By T M Thomas Isaac, R Ramakumar

Article Review

Current Situation

    Public expenditure by states on social & economic services is a crucial necessity.

It is low in India by any standard & need urgent attention.

In 1990s & 2000s, the ratio of revenue expenditure by all states to the GDP has stagnated, if not declined.

Investment outstanding by all states- Rs 64,000 crore.

The growing importance of state finances in the macro-economy is evident from the fact that the total expenditures of state governments (Rs 3,25,634 or 16.6% of GDP) have even overtaken those of the centre (Rs 313,258 crore or 16% of GDP) in the year 1999-2000.


The main elements of the FRBM acts passed by the states were the following:

(a) 2 to 3 per cent target for fiscal deficit to be achieved by 2005-06 to 2010-11; (b) elimination of revenue deficit by around the same time; (c) limits to state government guarantees on debt; (d) limits to overall liabilities that could be incurred (e) formulation of a medium-term fiscal plan to reach these targets & (f) institution of a complaint redressal mechanism.

Remedial measures

    Expenditure compression such as curtailment of benefits to employees Reduction in social subsidies, including welfare pensions Closure of sick PSUs All-round increases in user charges.

 States like Haryana, Karnataka, Gujarat and Tamil Nadu, which have been characterised as fiscally better managed have shown declining ratio of revenue expenditure to GSDP of state govts.

 a common factor to all state govts is the compulsion set by the FRBM Acts to eliminate revenue deficits by 2008-09.

Central role in Fiscal imbalance

    RoI on borrowings of states were sharply increased after the mid-1980s.

Coupon rates of state govts. securities were raised sharply by the RBI from 11.5% in 1990 91 to 14% in 1995-96.

Similarly, the interest rates on small saving borrowings by states also increased from 13% 1990-91 to 14.5% in 1992-93.

Revenue deficit of states more than doubled from 1.1% in 1997-98 to 2.5% in 1998-99.

Central Govt. Stand

  Union Finance Minster- much more needs to be invested in education, healthcare, mid-day meal schemes, rural roads & urban development.

States are unable to spend because they do not have absorptive capacity.

Reverse transfer from state to centre

    Investments by state in 14 day intermediary treasury bill of centre earn them a return of 5% per annum But the average cost of mobilization of funds by state is much higher.

In 2005-06 the interest rate on borrowing of states against small savings was 9.5% per annum ( the costliest debt in the market) The average interest rate on market borrowing was 7.4% per annum.

Reverse transfer from state to centre

 The total transfer of NSSF loans from the centre to states was Rs 90,000 Cr in 2005-06.

 At the end of the same period, the total reverse investment by states in treasury bills was Rs 61,886 Cr- about 1/3 rd of its NSSF borrowing.

 This has enabled the centre to make profit and the centre is blaming states for the surpluses.

Author Stand

       Author claimed this as false and misleading argument.

States do not spend because of legal constraints.

Finance Ministry has forced states to pass fiscal responsibility in their legislative assemblies.

Revenue & fiscal deficit target- 3% of GSDP by 2008-09 In tune with target, revenue & fiscal deficit declined sharply in 2000s by keeping revenue expenditure to GSDP ratio stagnant despite increase in revenue receipt to GSDP.

States could have raised revenue expenditure by making use of increased receipt & kept revenue deficit constant.

Cash surplus phenomenon is a perverse outcome of FRBM Acts.

Case Study of Kerala

     Adverse implications of mechanically designed fiscal adjustment programmes in context of long term commitments to social spending & exogenous changes like pay revisions.

As per provisions of FRBM Act. Kerala had to sharply cut plan expenditures- reduce social spending & curtail devolution to local self-governments.

Planning Commission demanded flexibility in FRBM Act provisions.

International experience with fiscal responsibility legislations also endorse flexibility.

The author advocated drastic amendment of FRBM Act.

Why Kerala?

 It is characterized by fiscal imbalance: high revenue deficit, fiscal deficit and public debt, as ratios to GSDP.  Its expenditure pattern- high commitment to social services expenditure, as high priority to social sector historically.

 Focus on social sector has led to better health and longevity to its people, resulting in a high burden of pension payments on the exchequer. In 2005-06, pension payments in Kerala constituted about 51 per cent of the total salary expenditure.

 According to RBI- Karnataka, West Bengal, Uttar Pradesh, Tamil Nadu, Maharashtra, Haryana, Gujarat and Bihar have surpluses of around Rs 3,000 crore each

Situation in Kerala is an indicative of the situation in other states, majority of the states are facing the similar situation and has been caught in the catch-22 situation.

“High level of public spending are needed in many areas but they should and they must be achieved through improvements in revenue mobilisation and greater efficiency in expenditure.”

– Prime Minister, Dr Manmohan Singh 

“Due to the precarious fiscal position, we will not meet the target set under FRBMA. The Centre needs support for carrying on with social sector initiatives.”

-Thomas Isaac, Finance Minister, Kerala 

“FRBM targets shouldn’t come in between poverty alleviation grants. The Centre must make concessions to backward states like Orissa and provide more central funds. We will oppose any such move to curtail funds.”

--Prafulla Chandra Ghadei, Finance Minister, Orissa.

“In the long term, social sector spending creates social and economic capital. So terming it revenue expenditure is not sensible.”

-C P Chandrashekhar, Economic Research Foundation, New Delhi 

“Reducing deficit may well have depressing effects on economic activity. The large-scale fiscal deficits do not necessarily lead to higher inflation as inflation is caused by excess demand against supply.”

– Prof. Jayati Ghosh, JNU, New Delhi 

“There is nothing wrong in maintaining large-scale fiscal deficits if resorting to public debt is done only to meet investment requirements as long as their social rate of return is higher than the rate of interest.”

-Siba Sankar Mohanty, Centre for Budget and Accountability, New Delhi

Budget Analysis By LG:7

No ‘New Deal’ for Farm Revival By S. Mahendra Dev

Economic & Political Weekly April 7, 2007

Agriculture’s Agony

Beset with many problems  Tenth Plan(2002-07) growth rate 2.3%  Last decade growth rate <2%  Farmers’ suicides have continued or increased in some states  Productivity, growth and profitability declined  Unemployment rate increased 9.5% (1993 94) to 15.3% (2004-05) LG-7 76

 ‘Beware of the fury of patient man’ - John Dryden  ‘Good economics works for everyone but not at the same time for everyone. This budget has a large package for agriculture’ - P. Chidambaram  ‘Beware of the fury of Indian farmer’ - S. Mahendra Dev LG-7 77

P. Chidambaram‘s Musings

Old Wine in new bottle

 Items on credit,  Accelerated irrigation benefit programme (AIBP)  Fertiliser subsidies, agricultural insurance, the rural infrastructure development fund (RIDF)  Restoration of water bodies LG-7 78

P. Chidambaram‘s Musings

New wine

 Committee on indebtedness  A mission for pulses,  Special purpose funds for the plantation  Training of farmers  Revitalising the extension system  Groundwater recharge  Social security for rural landless households LG-7 79

Whither ‘Agriculture Focus’?

No ‘New Deal’

 Expenditure on agriculture, rural development and irrigation increased by 15.8%, 11.45% and 9.7% respectively  Share of agriculture dropped in central plan outlays from 3.03% to 2.67%, and in central plan expenditure from 4.28% to 4.17% LG-7 80

No Water, But Drops

Irrigation woes  Public expenditure is stagnant  Target of achieving 10 million hectares under Bharat Nirman appears remote  Outlay for irrigation Rs 4500 cr in the year (2005-2006) & Rs  restoration of water bodies and recharge of groundwater: no allocations LG-7 81

Allocation in Budget under AIBP

12000 10000 8000 6000 4000 2000 0 2005-06 2006-07


LG-7 2007-08 Ряд1 82

Centre’s Expenditure on Agriculture, 1990-91 and 2005-06, in Current Rupees and Constant (1993-94) Rupees

Agriculture (current Rs bn) Agriculture (in 1993-94 Rs bn*) Irrigation & Flood Control (current Rs bn) Irrigation & Flood Control (in 1993-94 Rs bn*) 1990-91





2004-05 RE



2005-06 BE







LG-7 83

Centre’s Expenditures on Agriculture and Irrigation as % of GDP

• •

Agriculture & Allied Activities 1990-91- 0.49%

2005-06 BE - 0.21% LG-7 84

Agricultural Credit

 Farm Credit: Quantitative targets vs. Distributional aspects  Credit plus services, farm advisory services: Integration LG-7 85

LG-7 86

Land Management

 Land degradation: Water logging, imbalances in fertilizer use and pesticides, extension services  Involvement of local communities LG-7 87

Research & Extension/ Risk Management & Insurance

 India: only 0.5 per cent of GDP on agricultural research  NCF: knowledge gap between the yields in research stations and actual yields in farmers’ fields  Risk mitigation: Weather based crop insurance (NAIS) LG-7 88

Inputs, Prices, Marketing & Diversification

 Proper supply of inputs and remunerative prices for their output: Immediate need  Output price fluctuations & Diversification into high value crops and  Allied activities??

LG-7 89

Other Issues

 PDS strengthening: no strategy!

 Social security for unorganized workers: peanuts! LG-7 90


 No new deal: ‘incremental’ not ‘comprehensive/ holistic strategy’  More of promises AND Short on allocations and implementation  Argument- large leakages- therefore no allocation? Whether this should be the approach??

LG-7 91

Budget Analysis

Implementation of Employment Guarantee : A Preliminary Appraisal By Pinaki Chakraborty

Economic & Political Weekly February 17, 2007

What is NREGA?

An Introduction

   Enacted in 2005 To provide minimum guaranteed wage employment of 100 days in every financial year To rural households with unemployed adult members prepared to do unskilled manual work

How it is different?

Unique as

 Never before such mammoth scheme  It goes beyond poverty alleviation  Recognises employment as legal right  Provide opportunity to rural households  To an extent livelihood security

Budgetary Allocation

Key Budgetary Indicators to GDP Ratio (percent)

20 15 10 5 0 19 96 -9 7 19 98 -9 9 20 00 -0 1 20 02 -0 3 20 04 -0 5 20 06 -0 7


Revenue Receipts Revenue Expenditure Expenditure : MORD Rural Employment Total Expenditure

Selection Criteria

Per Capita Income and Distribution of NREGS

30000 25000 20000 15000 10000 5000 0 5606 23 9963 10164 11139 11500 12244 12641 22 19 20 18 11 6 18494 19087 10 13 26858 12 Bi ha r U tta r Pra de sh O ris sa Jh ark M ad ha hy nd a Pra de C sh hh at tis ga rh R


aj as th an ng al W es t Be An dh ra Pra de sh M ah ara sh tra

About NREGS Districts

% Distribution of Rural BPL Households in NREGS












Bihar Uttar Pradesh Orissa Jharkhand Madhya Pradesh Chhattisgarh Rajasthan West Bengal Andhra Pradesh Maharashtra Others

About NREGS Districts

% Distribution of Rural Households in NREGS












Bihar Uttar Pradesh Orissa Jharkhand Madhya Pradesh Chhattisgarh Rajasthan West Bengal Andhra Pradesh Maharashtra Others

Rural Development Programmes

Expenditure Distribution across various RD Prog.

70 60 50 40 30 20 10 0 19 99 -0 0 20 00 -0 1 20 01 -0 2 20 02 -0 3 20 03 -0 4 20 04 -0 5 20 05 -0 6 20 06 -0 7




Multi-tier Structure

 The agencies involved are:

Central Employment Guarantee Council State Employment Guarantee Council District Programme Coordinator Programme Officer


 The responsibility of the gram panchayat is the identification, execution and supervision of projects as per the recommendations of gram sabha (village assembly)  The gram sabhas are given the power to conduct a regular social audit of individual schemes – for accountability and transparency  For the purpose of funding and the implementation of the NREGA, the central government will set up a National Employment Guarantee Fund. State governments will also set up their Employment Guarantee Fund to make matching contribution


 It has been specified in the Act that “if an applicant under this act is not provided such employment within 15 days of his application seeking employment”, s/he shall be entitled to a daily unemployment allowance which will be paid by the state government.

 This implies an inbuilt structure of incentive for performance and disincentive for non-performance for the state government.

 Individual states will have to evolve a well coordinated approach to equate supply of employment in accordance to the demand.


 It requires an in-depth understanding of region specific labour demand and its seasonality so that a demand-based scheme of projects can be implemented at a frequency matching the demand for work  Thus, there is a need to design a monitoring mechanism by strengthening the institutional structure at the local level so that resources can be used optimally.

Spatial Dimension

 Panchayat is the principal authority to implement and monitoring (social audit) the Act of individual schemes  Mostly the districts deprived of rural connectivity, spread of banking, nature of rural power supply and quality of governance are taken into consideration through this Act

Identification of Indicator for performance of NREG scheme

The demand performance

(i) EG enrolment as percentage of total number of rural households. (ii) EG enrolment as a percentage of rural BPL households (iii) EG enrolment as a percentage of application for enrolment 

The supply performance

(i) EG provisioning as a percentage of rural households (ii) EG provisioning as a percentage of rural BPL households.

(iii) EG provisioning as a percentage of number of households enrolled

NREG fund Utilization Ratio: An interstate Competition


 NREG enrolment as a percentage of the number of applicants, it is abysmally low in Maharashtra, followed by Karnataka, Bihar and Jharkhand  For Andhra Pradesh and Gujarat the supply of employment has met the demand, for most other states enrolment falls far short of the demand.  The fund utilisation ratio it is again low in poorer states in the country  A positive slope implying that the states with higher per capita income could manage to spend more.

Making the Indian Budget . How Open and Participatory?

LG9 Vinod Bhanu Economic and political weekly .

Issue : March 31, 2007.

Making the Indian Budget . How Open and Participatory?

LG9 Vinod Bhanu Economic and political weekly .

Issue : March 31, 2007.

Making of Indian Budget……..

Discuss about the lack of Public Participation in Budget Making Process in India.

IBP( International Budget Project) and Open Budget Index – an indicator of people’s participation in Budget Making.

India ranks very low as the level of participation has been found to be dismal.

LG - 9

Compared with countries like UK, USA, South Africa and New Zealand, Indian Government provides very little pre budget information to common citizens.

Budget is passed by the parliament, ideally, it is approved by the general public. But very few MPs understand the complexities of the Budget.

Even political parties are not capable of training their MPs in this regard.

Standing Committees of the Parliament review the drafts demands of different departments. They are open to public but few members of general public make representations before them.

The whole process of involvement of parliament in Budget Preparation( which is practically non existent) and its approval needs to be restructured.

Industrial and Corporate houses have free access to the finance ministry, there by they have significant influence on Budget Proposal.

CSO s have very little influence on the other hand, they can not obtain a lot of pre budget information using the RII Act.

The article calls for making the process of budget making more participatory and open to the general public (& CSOs) A clear-cut legal framework for establishing the practice of participation and transparency is urgently required Our Parliament lacks the institutional capacity to do budget research and provide sound analytical briefings and notes to the members

Some Issues:

Cut motions or No confidence motions

Roles of finance related committees of the Parliament

Practices of transparency and participation in budget making

winter session and pre-budget business

Myth of closed budget process

Why finance minister had a pre budget consultation with the parliamentarians belonging to his party only ?

The pre budget discussions and political parties

The International Budget Project:

 IBP was established as part of the centre on Budget and Policy priorities (a Washington DC based non profit research organization) in 1997.

 To support civil society organizations around the world interested in strengthening public budget processes, institutions and outcomes. Source:

Open Budget Initiative 2006

 First-Ever Budget Transparency Country Rankings  civil society organizations from 59 countries around the world participated  India scores 52% out of a possible 100% on the open Budget index 2006 Source:

Public Availability of key Budget Documents








Pre Budget Statement Executive’s Budget Proposal Citizen’s Budget In Year Reports Mid Year Review Year End Report Auditor’s Report Source:


NDA & UPA Budget

117 Continuity or Change?


Central Theme

118  Comparison of NDA & UPA governments’ fiscal performance on the basis of revenue generation through tax collection & Capital expenditure on vital social sectors like health & education.

LG-5 4/28/2020

Three Phases

119  Phase I (non-NDA and UPA): 1991-92 to 1997-98.

 Phase II (NDA): 1998-99 to 2003-04.

 Phase III (UPA): 2004-05 to 2005-06 (RE) LG-5 4/28/2020

Y = α + βT + γTD 1


+ γTD 2 + ε

Fiscal Performance


Independent variables: Depends on the following 1. Liabilities of the Central Government 2. Fiscal Deficit 3. Revenue Deficit 4. Tax Revenue 5. Total Expenditure 6. Revenue Expenditure 7. Capital Expenditure LG-5 4/28/2020

State of Variables Used

  121

Non-NDA Non-UPA phase

Only Total expenditure is significant Others are insignificant 

UPA phase

Out of 7, five variables are significant i.e., Fiscal deficit, Revenue deficit, Tax revenue, Total expenditure, Revenue expenditure LG-5 4/28/2020

122 LG-5 4/28/2020

Comparison of the two Regimes



UPA Government NDA Government

Social Service as CE CE on Health of TE CE Allocation to Economic Services Administration Subsidies 0.04% 0.01% 4.03% 3.27% 9.23% 0.08% 0.01% 4.06% 3% 9.17% LG-5 4/28/2020

UPA Govt. Highlights

124      The present UPA Govt. has tried to cut the fiscal and revenue deficits.

The Educational Expenditure as in terms of Capital Exp remained constant.

2006-07 budget plans to hike the Expenditure on health to 0.02% of Total Exp.

Allocation for Agri & Allied activities is lower by 0.01% than the NDA Average.

Allocation to Rural Development is constant but has shifted from CE to RE.

LG-5 4/28/2020

UPA Govt. Highlights

125       Rural Development initiatives appear more under flagship programmes.

Food subsidies reduced by 0.01% points in the first 2 years but increased in the 2006-07 budget.

Tax per GDP ratio increased during UPA regime.

NDA fared in non-tax per GDP ratio.

Interests receipts have fallen but the dividend receipts have increased significantly for the UPA.

Corporation, Service & Income tax has fared better than NDA.

LG-5 4/28/2020


Thank You