Demonetisation For The Poor? A Look At The Government's Social Sector Spending

NEW DELHI: At the recently concluded “Agenda Aaj Tak” programme, BJP President Amit Shah stated that the purpose and agenda guiding Prime Minister Narendra Modi’s decision to demonetise Rs 500 and Rs. 1000 notes, was “Garib Kalyan Yojna” (poverty welfare plan). In this context, it is worth pointing out that the current government -- that is now stressing on poverty alleviation and welfare being the greater good -- has failed to accord priority to education, health, women and child development, or social sector spending at large. In a country like India, it is these sectors that are most crucial to the goals of poverty alleviation and welfare.

As the name suggests, the “Garib Kalyan Yojna” is based on the government using the black money collected post demonetisation in welfare schemes for the poor. “We wanted the money that was out of the system to re-enter it and be used toward the development of the nation,” Shah said. “The projection that by depositing money in bank accounts it will become white is a misconception,” he elaborated.

“The money has come into banks, but it is after assessment that it will be determined whether the money is black or white, and taxes and penalties will be imposed on money that is black. It is only after the government gets its share of the money that the money will become white,” Shah added. “11 lakh crore rupees have come into the banks, and the Indian government has made provisions for penalties on black money being deposited. And however much money is collected through those penalties, it will go toward the Pradhan Mantri Garib Kalyan Yojana,” the BJP President concluded.

When the decision to demonetise Rs. 500 and Rs 1000 notes was announced, the government estimated that Rs. 14.5 lakh crore would be affected by the decision. Rs 3 lakh crore was estimated to be “black money,” and the government’s narrative focused on wiping out this money (the term “surgical strike” was in fact used). Interestingly, as deposits have already crossed Rs. 11 lakh crore and will likely go up by December 30, it seems that even the so-called “black money” is entering the system through bank deposits. The government therefore, quickly changed its narrative to stress on the fact that this money will be taxed and penalties will be imposed, but it’s prudent to remember that tax disputes take years to resolve, and that India’s IT department is stretched as is. It is also worth reiterating that only a small fraction of black money is in the form of cash.

The above has prompted economists and analysts to argue that the demonetisation exercise has failed to effectively tackle the problem of black money, and instead, the risks associated with it have been magnified because of mismanagement and poor execution. While the goal of curbing black money is commendable, the means to do so have been disastrous.

In the same vein, while the goal of poverty alleviation and welfare is a worthy and important end in itself, the means -- specifically that of demonetisation, and the risks that it has brought with it -- remain a question mark.

Further, the government’s narrative of demonetisation being used toward poverty alleviation and welfare has to be located in the context of its treatment of education, health, women and child development, and social sector spending in general.

In the 2015-16 budget, education saw a huge 16 percent cut. Under the budget, the Sarva Siksha Abhiyan, a flagship programme of the central government aimed at universalising elementary education by increasing enrolment and checking school drop-out rate, saw massive cuts. The Ministry of Human Resources and Development had asked for Rs 50,000 crore to run the SSA, but in the 2015 budget it was allocated Rs 22,000 crore, which itself was nearly Rs 6,000 crore less than the previous year's allocation. The budget also scrapped an MHRD scheme to build 6000 model schools across India, including 2500 in partnership with private entities.

In the 2016 budget, education was listed as one of its “nine pillars”, but budget allocations tell a different story. Although the budget saw an increase of about 4.9 percent (Rs 72,394 crore compared to Rs 68,963 crore for the previous year), the allocation was possibly even lower than that of the previous year if inflation and GDP growth rate are taken into account. And even after the increased allocation, the education sector budget remains far short of the 6 percent of GDP mark, as desired by the education sector.

Further, education spending in India is significantly lower than the world average. According to World Bank data, globally 4.9 percent of GDP was spent on education in 2010 while India spent only 3.3 percent of its GDP.

Similarly, healthcare has taken a hit. In Budget 2015-2016, the Ministry of Health and family welfare saw its outlay reduced by Rs 5,897.5 crore. Riding on the election promise to increase healthcare spending to 3 percent of the GDP, the government instead moved to reduce spending on health by 8 percent, and funds for the National Health Mission were reduced by 20 percent. Although the 2016-17 budget saw attempts to make health a priority area, it is worth pointing out that the focus was on health insurance schemes and Public Private Partnership (PPP) instead of providing free healthcare services on a larger scale. In fact, the budget for the National Health Mission remained stagnant at Rs 19,000 crore.

It is worth noting that at 1.3 percent of GDP, India’s health sector is amongst the countries with the lowest relative public expenditure on healthcare. This, in a country that has the largest number of infant and maternal deaths in the world. Where every year, surging health care expenses push 39 million people into poverty.

The situation prompted the journal The Lancet to publish a hard hitting paper last year, concluding that the Modi government had failed India on health. "Since Modi has come in, health has completely vanished. India is on the edge. If PM Modi does not tackle health, India's economy combined with rising population is not sustainable,"Richard Horton, editor-in- chief of The Lancet had told a leading publication. "Maternal and child care are indicators of civilised society. Civilised society should not be letting its mothers and daughters die. India wants to play a larger role in the world, wants to be in the Security Council of the United Nations, which are very legitimate objectives for India. I don't think it can claim to be a world leader when it allows so many of its children and mothers to die of abject poverty," he added.

Additionally, in the 2016 budget, while allocations to the National Mission for Empowerment of Women doubled to Rs 50 crore, the increase was nominal for the Ministry of Women and Child Development and the National Commission for Women, and allocations to core Integrated Child Development Services and Indira Gandhi Matritva Sahyog Yojana (IGMSY) declined.

Further, while overall social sector spending in the 2016-17 budget increased by 6 percent, excluding rural development, the increase was marginal at best. The increase also needs to be located as a comparison between 2014-15 revised estimates (RE) and the current budgeted estimates (BE). On doing so, it becomes evident that social expenditure for key schemes remained more or less unchanged.

This was so even after major criticism of the previous budget, voiced even by the ministers concerned -- Panchayati Raj, Agriculture, Women and Child Development (WCD), Drinking Water and Sanitation (DWS), Water Resources, Social Justice, etc -- on the drastic reduction in social sector spending. As an article by Amitabh Kundu in The Indian Express points out, “Understandably, the ministries that suffered maximum loss — Panchayati Raj, DWS, and WCD —had to exceed their central allocation due to difficulties in obtaining compensatory funds at the state level owing to local pressing needs. It is true that spending proposed in Social Justice, Minority Affairs, Small and Medium Enterprises (SME), besides the three noted above in 2016-17, are similar to or marginally above the average revised figure for the last two years, while that for Water Resources has gone down. However, if we adjust the figures for inflation, which is likely to be high as a result of the 7th Pay Commission recommendations and OROP, these would lose their edge. Besides, the revised figures for last year in most cases are significantly below initial allocation.”