Another February 1 is arriving. And along with it the budget — the most important instrument for resource allocation and mobilisation. The budget not only helps allocate public resources, it also helps direct private sector spending to specific national priorities.
In the current Indian context, the central government budget is the most important tool for resource mobilisation, as the power to tax and borrow is effectively vested with the Centre. While the states spend more than 65% of the combined development and non-development expenditure in the country and about 63% their expenditure on economic (agriculture and rural development, energy, and infrastructure) and social services (education, health, and civic infrastructure), they don’t raise the resources in the same ratio.
With this in mind, we identify the characteristics of a good budget and argue that there is a need for reimagining our resource allocation and mobilisation strategy.
Purpose of government spending: Improving quality of life
A budget must have a purpose and we define it to be lowering a family’s cost of living, improving its quality of life, and enhancing its ability to invest in building capability to contribute to our economic and social progress. Investment in public provision of services like sanitation, education, healthcare, housing, etc. is expected to help achieve these objectives.
We must use the same approach to support businesses – help them lower the cost of doing business and enhance their ability to invest in creating employment, greater value-addition, and higher productivity through innovation. Once more, the mechanism involves public provision of economic as well as social services.
Fairness with economic rationale as the main principle for allocation
Since the family circumstances vary significantly at the time of birth, all societies create specific provisions to ensure that the under-provided families too have an opportunity to raise their quality of life and contribute to society’s well-being. It is true for businesses too, as they get started at different stages of the economic cycle.
MSMEs get supported for creating greater employment, managing the risk that the larger firms in the value-chain transfer to them, and for investing in moving up the value-chain.
The larger firms get supported for dealing with uncertainty that their shareholders find difficult to deal with. While the venture funds provide early-stage risk capital in rich countries, the government has the responsibility to invest in long-term risky projects in a capital-starved country like India. A publicly funded research programme in science and technology is a must.
Purpose of allocation narratives: Building symbiotic relationship between families and business
The government’s resource allocation processes and its narratives are expected to build a symbiotic, non-adversarial, relationship between households and business. While there will always be trade-offs that must be made, given the resource constraints, the discussion around allocation does not have to be described as arising from “revadi” mindset or that the government is doing a favour to people or businesses by providing a certain level of fiscal support for lowering their cost or enhancing their ability to contribute. It is morally wrong to position resource allocation as a favour in a democratic society. The government does not own resources, people do.
Negotiation for resources is a legitimate instrument, but timing of public spending to election cycles is not
The lobbies and interest groups will always try influencing the allocations, as negotiation for resources is a legitimate tool in a democracy. However, the elected government timing public expenditure to election cycles is not. The government’s primary duty (“kartavya”) is to allocate resources for the long-term wellbeing of society. Public resources don’t belong to a political party.
Focus on provision of quality public service, and not the lazy substitutes
The current economic and political narrative suggests that DBT is the solution for all our ills. DBT is an effective instrument, but only under certain circumstances. If we have adequate capacity and the general quality of services has reached an acceptable level, DBT enhances a family’s ability to spend and gives it a choice in selecting the provider. But if we don’t have the required capacity, DBT does nothing more than overload an already stretched system and/or pushes up prices. Similarly, health insurance is of limited use if the capacity to provide quality service is not being expanded at the same pace as the coverage.
PM-KISAN will neither help deal with climate change nor double farmers’ income
Prices for some of the key farming inputs are either controlled by firms with near-complete pricing power (e.g., seeds and pesticides companies) or are subject to geopolitics and the related government decisions (e.g., diesel and fertilisers). PM-KISAN, announced in February 2019, just before the general elections, is only a partial solution.
The farming community is also expected to deal with the cost of changes in global climate. Even as the government discusses the climate change related costs at global forums, it has not been investing adequately to mitigate the impact of these uncertainties on an average farmer.
