Budget TRACK Volume 5, Track 3, July 2008 Foreword The recent months have witnessed inflation (in terms of wholesale price indices) reaching an all time high of around 12 percent having very adverse implications for the poor and marginalized people. Therefore, the regular feature, Budget and Policy Tracking of this issue of Budget Track captures this problem of very high inflation in the recent months. In addition, it also attempts to highlight some crucial legislations such as Unorganised Sector Workers’ Bill, Drugs and Cosmetics (Amendments) Act and the Forest Rights Act, highlighting the key issues therein. rd th Even after one and a half decades have passed since the enactment of the 73 and 74 Constitutional Amendments, still, the devolution of funds, functions and functionaries to Panchayati Raj Institutions in many states is grossly inadequate. This has led to government interventions for rural development remaining ineffective, which is brought up in the article ‘Low Fiscal Decentralization: A Roadblock to Rural Development’. The current issue also brings attention to some of the critical aspects of the Centrally Sponsored Schemes which have proliferated in the last two decades. However, due to several limitations in the design, norms and guidelines of these schemes and ultimately in their implementation, the effectiveness of such schemes has attracted criticisms by the Planning Commission as well as the C& AG besides many development policy analysts. The article titled ‘On Some Aspects of Centre State Fiscal Relations: A Review of Centrally Sponsored Schemes’ highlights some of these. The Guest Column by John Samuel questions the efficacy of the G8 process in proposing solutions to the global food, fuel and climate crisis. Lastly, the present issue provides a brief note on what the experts from diverse fields – from the Government, Opposition, Media and Academia have to say on the Union Budget 2008-09 for what it offers to the common people. Hope this issue of Budget Track serves its intended purpose of raising significant policy issues in the public domain. IN THIS ISSUE Tracking the Budget and 2 Policies of the Union Government Low Fiscal Decentralization: 13 A Road-block to Rural Development Centre-State Fiscal 19 Relations: Role of Centrally Sponsored Schemes Guest Column: 24 John Samuel Highlights of Budget 26 2008-09: As If People Matter [Views expressed in the articles are those of the authors and not necessarily the position of the Organisation] Budget TRACK Volume 5, Track 3, July 2008 n the eve of the final budget to be last full budget of the UPA tenure. Given that presented by the United Progressive the General Election is ensuing in 2009, there O Alliance (henceforth UPA) government, in was this expectation that the FM won’t let his her first address to the joint session of neo-liberal ideology come in the way of the parliament, President Pratibha Devisingh Patil addressing the genuine concerns of the toiling claimed that “……the measures taken by my masses. It was expected that there will be government have created the necessary substantial increase in social sector spending architecture of inclusive growth.” But especially on health and education making use unfortunately the President’s address, instead of of the buoyancy in revenue generation. It was showing any roadmap to bridge the hiatus also expected that there will be sincere efforts between the `shining’ and the `suffering’ India, made to address the deepening crisis in emphasized mainly on the achievements of the agriculture and unemployment and contain price UPA. She claimed that “for the first time in rise of essential commodities. But the cat is out history, the Indian economy has grown at close of the bag and Mr. Chidambaram has proved us to 9 per cent per annum for four years in a row.” all wrong. Through the Budget Speech of 2008- Tracking the Budget and Relevant Policies of the Union Government -Sakti Golder and Indranil But her address brazenly omitted the glaring 09 the FM has proved that he will not bow down reality that a farmer continues to commit distress to the pressure from the UPA partners and the suicide every 30 minutes in our country and 78 Left and will remain loyal to neo-liberalism and per cent of our people live on less than Rs. 20 put his heart and soul behind meeting Fiscal a day. While highlighting the features of ‘shining’ Responsibility and Budget Management (FRBM) India through “a booming Sensex, unprecedented targets and keep the so-called ‘People-Centric foreign exchange reserves, high investment and Approach’ limited to rhetoric. The irony of the savings rates of over 34 per cent, the emergence situation is that, with some sops to the urban of 48 billionaires”; the President failed to middle class and a loan waiver to the farmers, recognize the plight of the ‘suffering’ India. the FM has successfully convinced the media that Worse, there was no reference to the continuing Budget 2008-09 is a People-Centric Budget. In this price rise, particularly of essential commodities, issue of policy tracking we focus on the key issue that is eroding further the living standards of of inflation, some recent legislations introduced the people. The President’s speech, in nut shell, in Parliament and some of the key concerns the reflects the economic philosophy of the UPA. The pertaining to Union Budget 2008-09. UPA seems to be unwilling to learn from the miserable plight of the “India Shining” campaign DOUBLE DIGIT INFLATION of the erstwhile National Democratic Alliance After a gap of almost 13 years, inflation rate (NDA) regime. Eyeing the General Elections it has touched double digit figures in India. For the th already started beating its own drum of success, week ending on the 7 June, according to figures while undermining the wretched situation of the released by CSO, the annual Wholesale Price majority of Indians. The Union Budget 2008-09 Index-based inflation was 11.05 percent, the clearly tells the story of continued neglect of highest since first half of 1995. While the the basic needs of the toiling masses. inflation rates went up further, the UPA put th whole-hearted efforts to convince people that the On the 29 of February, 2008 the Finance Minister present inflation is mainly due to external factors (FM henceforth), Mr. P. Chidambaram placed the 2 and the Government can do almost nothing to Budget TRACK Volume 5, Track 3, July 2008 contain it, leaving vast majority of Indians to expenditure and consequent unemployment Tracking the the vagaries of steep rise in prices of essential resulted in reduction in purchasing power, Budget and commodities. Further, it has increased prices of especially in rural India. All these factors led to Relevant petroleum and gas, fueling the inflation spiral a decline in per capita demand for food to a Policies of further. level which was below the level prevailing during the Union World War II. This distress driven decline in Government There is no doubt that a combination of national consumption demand led to huge piling up of and international factors are contributing to the buffer stock and export of food to feed cattle current rise in food prices, but actually, a series abroad at a rate much less than what was of liberalizing measures taken over a decade and offered to Below Poverty Line (BPL) families. “A combination of half have led to the present scenario. The central national and tenets of the liberalization process is reducing The approach taken by the government to deal the state’s role regulating prices through with the situation was to do away with the international withdrawal of control over agricultural prices and procurement and distribution mechanism as a factors are integration of Indian agriculture to global prices; means to control domestic prices. The contributing to shifting production towards non- food items thus liberalization of trade in many food commodities the current rise reducing emphasis on food security and led to the entry of private traders including in food prices, withdrawal of food subsidy; reducing ‘price transnational buyers. These private players offered but actually, a distorting’ measures in international trade. Since slightly higher prices than the Minimum Support series of 1990s, farmers were literally lured into producing Price (MSP) offered by the Food Corporation of non-food items, around 8 million hectares of our India (FCI) and made use of the delays made by liberalizing agricultural land have been shifted to horticultural the FCI to start procurement and cornered stocks measures taken crops, cotton, sugarcane and so on. Indian thus limiting procurement of FCI. With a over a decade agriculture was gradually integrated into the prolonged stagnation of food production, now and half have global economy and farmers were exposed to the that the supply has fallen even below the led to the fluctuations of global prices which started demand, the government is forced to import. present crashing from mid 1990s. As a result, farmers Earlier, the government could tide over the crisis could not benefit from the shift in cropping by using the soaring foreign exchange to import scenario” pattern; rather the shift coupled with declining food items which it is doing since 2005-06. investment in agriculture resulted in stagnation However, given what has been happening to of food production. Since 2000, growth in food global prices, imports have been at prices much production became so low that it fell below higher than that paid to domestic farmers, “Indian population growth. swelling the subsidy paid to cover the difference between the import price and the domestic sale agriculture was This decline in food production did not result in price.
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