December 07, 2014

Cutting Social Sector Expenditure

Prabhat Patnaik

THE NDA government is reportedly planning drastic cuts in social sector spending in 2014-15 to reduce the fiscal deficit. According to a report in The Hindu of November 27, the cuts relative to the budgetary provisions for this year could be as large as 25 percent in many sectors. While the government has not confirmed these reports, the coyness of its protestations, together with the pervasiveness of such reports, and the clear evidence at least with regard to one area where cuts are being effected, viz. the MGNREGS, suggest that social sector spending is indeed about to be drastically reduced. This is strange behaviour on the part of the government, for at least three reasons. First, the ink has barely dried on the union budget that was presented just a few months ago, and no major economic catastrophe has occurred since then to warrant such a volte face by the government. Indeed, if anything, the fall in international oil prices has been a positive development from the government’s point of view, which has brought down the inflation rate, making a reduction in fiscal deficit, even on the government’s own erroneous theory (that high fiscal deficits underlie the current inflation), that much less pressing. Secondly, the parliament which passed the budget is in session at this very moment when the cuts are being proposed. For the government to keep the parliament completely in the dark, when it is drastically altering what the parliament has just recently passed, amounts to a contempt for that legislative body, and bodes ill for our democracy. Thirdly, even if we assume that expenditure has to be pruned (which is actually the very opposite of what is needed), the fact of singling out the social sector for such pruning is quite breath-taking, since governments of all hues (including even dyed-in-the-wool neo-liberal ones) wish at least to appear to be sympathetic to the poor, and hence to social sector expenditure earmarked for them. The fact that the NDA government is cutting down such expenditure, including in particular the expenditure on the MGNREGS, only confirms that it is the most brazenly pro-rich, pro-corporate and anti-poor government in post-independence India. DRASTIC CUTS The reported cuts are indeed drastic. I shall come to the MGNREGS later, but let us take education and health first. This year we have a new accounting practice, whereby the component of the expenditure in these sectors which is made available to the state governments from the union budget, is no longer shown under these heads in the union budget. But if we make appropriate calculations, then it turns out that even on the extravagant assumption that state governments will actually spend the entire amount that the union budget earmarks for their spending, the total expenditure in both these crucial sectors, taken together, will be lower in nominal terms in 2014-15 than the total expenditure according to the revised estimates for 2013-14. We are, in other words, seeing a cut even in nominal terms. Given the inflation rate, the cut in real terms is even more drastic. This clearly shows the utter vacuity of one commonly encountered argument, which goes as follows: even if the benefits of high GDP growth do not automatically “trickle down” to the poor and the working people, such high growth brings larger revenues to the government and hence allows larger government expenditure for the poor. GDP growth in other words, no matter how it is brought about, even if it is effected by providing incentives to the corporate sector and multinational corporations, is nonetheless unambiguously beneficial for the poor. Now, this claim is completely belied by the proposed drastic cuts in social sector expenditures. After all, even though the Indian economy’s growth rate has slowed down, it still exceeds an annual rate of 5 percent. And nobody has claimed, or can claim, that social sector expenditures in India had gone up in any marked way in the recent past (which would have allowed bourgeois spokesmen to pretend that only a downward “adjustment” is now being made); and yet a drastic cut in real terms is being effected in the absolute level of social sector spending whose victims will be the poor and the working people. It follows that this “growth-through-corporate-appeasement-is-good-for-the-poor” argument is a bogus argument. There is no upper limit to such corporate appeasement: when growth is high, the argument is that they have to be appeased to keep the growth high; and when growth slackens, the argument is that they have to be appeased to reverse this slackening. In all situations in other words, come hell or high weather, the corporates and the rich have to be appeased through the transfer of ever larger shares of GDP to them, which means that no matter how high the growth rate, the working people have to make do with shrinking shares even after fiscal intervention, to a point where even in absolute terms what is spent from the budget on sectors meant to benefit them is drastically curtailed. MASSIVE ATTACKS ON THE POOR Of all the cuts that are being effected, the most reprehensible are the cuts in MGNREGS which amount in effect to a winding up of the programme in its present form, and its reduction at best to a “food-for-work” programme that is implemented at the will of the government in a few select spots, typically ahead of elections to garner some votes. The very fact that in a programme that was conceived as a “rights-based programme”, where work upto a 100 days per household could be obtained on demand (failing which unemployment allowance was to be paid), the NDA government talks of effecting expenditure “cuts”, shows how out-of-sync it is with the conception of what the parliament had unanimously passed (for it is logically impossible to have “cuts” in a demand-driven programme). But even before there was any talk of “cuts” in MGNREGS, the government, starting with UPA-II itself, was sabotaging it in an indirect manner, through withholding wage payments on work already done. Such withholding would, beyond a point, turn potential employment-seekers away from the programme itself, and this would then be used as an argument for giving the programme a quiet burial, with the claim that poverty has so diminished in the country that there are no more any takers for programmes like the MGNREGS. In fact the wage arrears at present have climbed up to Rs 9000 crores. Now, if any government wishes to maintain the programme even at the same level as in the previous year, then with a wage arrears of Rs 9000 crores left over from that year, it should, in nominal terms, provide for an outlay that exceeds last year’s by Rs 18000 crores, even assuming zero inflation; with a positive rate of inflation the outlay should be correspondingly larger. This is because wage arrears mean that the previous year’s outlay fell short of what was warranted by the actual scale of the programme by Rs 9000 crores; and maintaining that scale plus paying for the wage arrears together mean that the current year’s outlay needs to be Rs18000 crores more (Rs 9000 crores plus Rs 9000 crores); and taking inflation into account it needs to be even larger. If Rs 34000 crores was the outlay last year, then to maintain the scale of the programme at the same level as last year, the outlay this year should have been at least Rs 56000 crores (assuming 9 percent inflation). Instead the budget only provided Rs 33000 crores, which means a 41 percent cut. And now there is reportedly a further cut of Rs 3000 crores, which means almost a halving of the programme compared to last year. And in any case Nitin Gadkari has talked of confining the programme to only 200 blocks in the country, roughly a third of its current coverage. This is a massive attack on the poorest segment of the working population of the country. Quite apart from the sheer bloody-mindedness of this move however, there is a further point of importance. The MGNREGA, passed unanimously by the parliament, sought to give effect to something contained in the Directive Principles of State Policy contained in the Indian Constitution. It thereby became a part of the Constitutional order. What the government, through its unilateral decision to roll back the MGNREGS, is doing is therefore an undermining of the Constitutional order of the country, an abridgement of an economic right that the parliament has enacted in accordance with the vision of the Constitution. And it is doing this without even bringing the matter to the parliament! It is a moot point whether even the parliament, through a resolution passed by a majority, can undo the MGNREGA, which, given its importance, can be considered to be a part of the “basic structure” of the Constitution. But when the government decides to undo the MGNREGA through a unilateral decision, then we are witnessing not just a gross denigration of the status of the parliament, but in fact a gross violation of the Constitutional order itself. But what is happening at present, reprehensible though it is, is merely a precursor of an even worse denouement that is likely to follow. The government is hell-bent on reducing the fiscal deficit because it wishes to attract more foreign and domestic corporate investment to stimulate growth, since the “state of confidence” of the corporates is supposed to improve when they see the government attacking the working people. The government’s hope however will be belied. While corporates do like the government’s attacking the working people, they do not necessarily invest more when they see this happening. They invest when they expect the market to be expanding. Given the abysmal state of demand in the Indian economy at present, and indeed in the world capitalist economy as a whole, not much investment will be forthcoming, no matter how fiscally conservative the government becomes. On the contrary, by reducing welfare expenditures and generally undertaking austerity measures to curtail the fiscal deficit, the government is constricting demand even further, which will actually cause a further drop in manufacturing output, a further drop in the overall growth rate, and hence a further drop in the scale of investment. In other words, the cuts in social sector expenditures and in the MGNREGS outlay will further accentuate the stagnation of the Indian economy. They will have a consequence that is precisely the opposite of what the government expects. The cuts in social sector and MGNREGS outlay therefore are not just reprehensible; they are downright counterproductive even from the point of view of growth. But when this becomes clear, as it soon will be, the conclusions that the neo-liberals will draw from it will be precisely the opposite one: they would argue that the fiscal austerity measures have been insufficient and would demand further cuts in welfare spending, which the NDA government, given its total subservience to the neo-liberal ideology, will duly carry out. The current attack on the working people in short is a precursor to much sharper attacks, against which a massive resistance needs to be built up.