A budget of two deficits

The Union Budget 2015-16 is long on rhetoric but short on vision. Given the ruling BJP’s campaign promises, it was reasonable to expect this budget would rival the 1991 budget in launching the next phase of momentous reforms. Big bang reforms however, are not in the DNA of NDA. At best, it’s an evolutionary rather than revolutionary, budget.

Once you get past this initial disappointment, the budget has done a reasonable job on the evolution of reforms in areas as varied as inflation fighting, social insurance for the poor, ease of doing business to cooperative federalism.

The new acronym JAM, first used in the Economic Survey, captures the dilemma of NDA: a promising new approach held back by a diffident mindset. JAM is an acronym of jan dhan (bank accounts), aadhaar (unique identity number) and mobile (mobile telephony). Combine the three and you get an innovative approach to social insurance through direct benefits transfer which can completely replace the whole edifice of myriad subsidies to various interest groups, a distinctive feature of the Indian economy.  However, Budget 2015 allocates a mere Rs.10 crore for the programme. While the Central government spends Rs.667 crore per day on subsidies!

Moreover, after severely criticising NREGA (National Rural Employment Guarantee Act, 2005) while in the opposition, the BJP-led NDA government has allocated Rs.34,699 crore — the highest amount ever given to the scheme — in Budget 2015-16.

The greatest drawback of NREGA is that it creates work but no durable assets, most of its output doesn’t survive even one monsoon. The funds for building durable assets in rural India are allocated under many heads: livelihood Rs.3,243 crore, village roads Rs.14,291 crore and irrigation Rs.5,300 crore. Imagine if the Rs.34,699 crore allocated for NREGA was also spent on roads, irrigation and rural livelihoods. Then ask yourself one simple question: Wouldn’t construction of roads and irrigation works (check dams, canals etc) create jobs in rural areas? Which jobs programme is better — one that creates durable assets or one that digs ditches and fills them up? If only the BJP/NDA had the courage of its convictions!

The social sector expenditure reductions started by former finance minister P. Chidambaram have been continued by Jaitley. The education budget has been slashed from Rs.68,968 crore to Rs.61,857 crore and the SSA (primary education) budget from Rs.28,635 crore to Rs.27,258 crore. Big government NGOs are crying themselves hoarse. They can’t seem to understand why it’s more important to focus on how we spend the money than how much is spent. What good would it do to spend more in a failing system?

When the finance minister said that vocational education or skills training will be financed through “digital vouchers”, my ears perked up. Currently, vocational education and training (VET) is supply-side driven — the government invites bids from VET institutes to provide training in prescribed courses to (SC, ST or OBC) youth. The winning institute ‘recruits’ basically qualified youth and ‘trains’ them in an approved course. This system is just waiting to be gamed by unscrupulous VET providers, who obtain course attendance signatures, award certificates and collect money from the government. Maybe they even gift a little money to the ‘trainees’ so all sides are happy.

Nevertheless, the digital voucher will bring in greater transparency and accountability into VET. Instead of awarding contracts to training institutes (supply side), vouchers are given to potential trainees (demand side). The trainees will choose the institutes and courses they prefer from a list of approved, empanelled VET providers. The choice of institute and course remains with the trainee, not with a bureaucrat or training institute. A third party conducts a test and only when the trainee clears it will the institute be paid the voucher amount.

Another positive proposal in the budget is establishment of a Student Financial Aid Authority to manage scholarships and loans to students. This is a great first step towards fundamentally reforming the financing of education, particularly higher education.

Currently, a student who has spent Rs.3 lakh per year in class XII of a prestigious private school and enters an equally prestigious government college, is asked to pay Rs.3,000 per annum. Why should the government subsidise the undergraduate education of such students? Tuition fees in government colleges should reflect the actual cost of education provision with rich students asked to pay the full cost.

For secondary and higher secondary education, the majority of students attend private schools. A World Bank study indicates excess capacity in private schools which can accommodate more students without significant additional expenditure. Those who graduate from government elementary schools should also get a digital voucher to attend private secondary schools of their choice. The cost of fulfilling these vouchers, including provision of room-and-board, would be much lower than building new secondary schools as proposed by Budget 2015-16.

In short, a budget not only with a disappointing fiscal, but also vision, deficit.

(Parth Shah is founder-president Centre for Civil Society, Delhi)