ARE OUR BUDGET MAKERS FAITHFUL TO THE CONSTITUTION? - a tour of the Budgets 1947 to 2001 · Community Health

ARE OUR BUDGET MAKERS FAITHFUL TO THE CONSTITUTION? - a tour of the Budgets 1947 to 2001

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ARE OUR
BUDGETMAKERS FAITHFUL
TO THE CONSTITUTION?
- a tour of the Budgets 1947 to 2001

“Civil disobedience helped us to win freedom.
Criminal disobedience of the Constitution could imperil it
L.C. Jain

Inaugural Lecture
On
The National Budget - As if People Matter
7 March 2000
New Delhi.

People’s Bias

National Centre for Advocacy Studies
Pune

Patheya
Ahmedabad

2

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Contents

Perspective.................................................................................................. 7
I.

The Start............................................................................................... 7

II.

Social Deficit............................................. .......................................11

III.

Fiscal Deficit...................................................................................... 25

IV.

The end note.................................................................................... 30

Annexure..................................................................................................... 32

PREFACE
Budgets are arguably the most tangible evidence of the policy priorities of a government. An
understanding of budgetary allocation and priorities often help citizens to distinguish between the
policy rhetoric and the real performance. Unpacking of the budgetary information and analysis of
budgetary allocation and performance is one of the most important steps towards making credible
public argument and policy influencing. This task has become all the more crucial in the context of the
increasing instances of pro poor public policy rhetoric without the corollary budgetary commitments.
In the last eight years, the structural adjustment and liberalisation policies have further alienated the
poor and the marginalised from the budget priorities. Hence, there is an urgent need to demystify and.
monitor the budget from the perspective of the rights of marginalised sections.

People’s Bias (People’s Budgetary Information and Analysis Service) is all about analysing and
understanding the Budget with a bias - a bias towards the rights and survival of the most marginalised
and voiceless sections of the society. Precisely because of this, People’s Bias seeks to go beyond the
academic exercise of budget analysis to building effective public argument with budgetary information
so as to advance the livelihood rights of dalits, adivasis and rural workers, and the basic human rights
of women, children and the unorganised labourers. Such a bias is the outcome of rights-based and
people-centred perspective on transparent and accountable governance. People’s Bias is a collective
effort, promoted by a number of social change resource centres and grassroots organisations in
different parts of India, to demystify and analyse the public polieies and budget for a people-centred
advocacy to advance the rights of the most underprivileged sections of the society.

We are happy to present the inaugural lecture of People’s Bias by L.C.Jain for a wider discussion on
the budgetary priorities and constitutional guaranties. With an illuminating historical sketch of policy
rhetoric and budgetary priorities, Shri. L. C. Jain exposes the double-speak of the policy makers since
the independence of India. This paper, with its insightful analysis and rights-based perspective, clearly
demonstrates the need for more transparent and accountable budgetary process, in consonance
with the constitutional guaranties to safeguard the rights of the marginalised. We are indeed grateful
to Shri. L. C. Jain for sparing his valuable time to prepare this paper and for all his support to the
efforts of People’s Bias.
It would have been difficult to initiate and build up a wider knowledge based networking effort like
People’s Bias without the support, co-operation and collaboration of many organisations and fellow
activists. The very idea of People’s Bias has been possible because of the collaborative efforts of the
Center for Budget Studies, Mumbai; CEHAT, Mumbai; YUVA, Mumbai; Foundation for Public Interest,
Ahmedabad; ASTHA, Udaipur; Balrashmi Society, Jaipur; Environmental support Group, Bangalore;
Bailancho Saad, Goa; Tamil Nadu Social Developement Monitor, Chennai; CHR1, New Delhi; PRIA,
New Delhi; Haq Centre for Child’s Rights, New Delhi; DISHA, Ahmedabad; and NCAS, Pune. The
enthusiastic support, collaboration and encouragement extended by Dr. Mark Robinson and Dr. Abha

6

Shankar of Ford Foundation, and Ms. Maja Daruwalla of Commonwealth Human Right Initiative has
immensely enriched the process of initiating the People’s Bias. We very much appreciate and
acknowledge the support People’s Bias has received from Mr. Anil Singh of Voluntary Action Network
India, Ms. Gurinder Kaur of world Education, Mr. R. Sudarshan of UNDP, Dr. Shobha Reghuram and
Dr. Jamuna of HIVOS, Dr. Madhav Godbole, Dr. Isaac Shapiro and Ms. Suneeta Dhar from its very
inception and all through its work. The process of people-oriented Budget Analysis advocacy has
been significantly strengthened by the efforts of Dr. Vinod Vyasulu of TIDE, Mr. Vivek Pandit of
Samarthan, Dr. Sita Shekhar and her colleagues at Public Affairs Centres, and Ms. Aruna Roy and
Mr. Nikhil Dey of MKSS. The emerging sensitivity, understanding and expertise of Budget and policy
priorities is the outcome of the collective efforts of all the organisations, activists and public interest
professionals mentioned above.

There is a real need to demystify the budget and policy priorities at all levels of governance. Budgetary
information and analysis can become the crucial weapon in the hands of citizens and social activists
to demand accountability, transparency and responsibility from the policy makers and the institutions
of governance. Budgetary information and policy influence can never become a substitute for grassroots
people’s movement for transparent and accountable governance. However, Budget analysis and
policy information can be the most crucial value addition to grassroots oriented advocacy efforts. The
real challenge is to bridge the gap betweem macro-level policies and micro-level activism. Unpacking
of the budgetary information is an important aspect of such an initiative. We hope that people’s Bias
will be able to make an important value addition to the people’s movement and people - centred
advocacy for Rights and Justice.

For Peopl’e Bias

John Samuel

National Centre for Advocacy Studies
Pune.

Madhusudan Mistry

Patheya (Disha),
Ahmedabad.

PERSPECTIVE
With what perspective are we to look at the Budget? And is it just a passing annual show or is there
more to it? In the only Budget Speech (1947-59), he made during his 17-year long tenure as Prime
Minister, Nehru provided the dream and a guide:
Our objective is (to) strive with all our strength for our planned development and trying
to ensure progressively a more equitable distribution, and thus to raise the standards
of the great mass of our people.

The plan of development has to be implemented whatever the sacrifice to bring relief
and prosperity to the millions of our countrymen who have suffered for so long from
the curse of poverty.
This budget statement is a minor event in our march forward. We have to look at
it in the perspective of what we have to do and what we have to achieve.

As Nehru said the budgets are expected to subserve ‘what we have to do?’ But who has defined what
we have to do in a fundamental sense with freedom won. Unquestionably, it is the Constitution of
India in particular the Directive Principles that have set the critical social agenda of what we have to
achieve.

Here, we take a longish tour of the budgets - beginning with our very first in 1947 upto 2001, looking
at the budgets in the eyes of the Constitution. The journey has four halts. I The Start II Social Deficit
III Fiscal Deficit IV The End Note

I

The Start

Darkness

The start was beastly. Partition cast its dark shadow over the first five years of Independence. There
was murder all over. Millions on the move with life in their hands - and little else. Major instruments
all broken - railways, post and communications, irrigation networks. Defence & civil apparatus and
treasury all split:

8

In 1947 we inherited a weakened administration, a war ravaged economy and a coun
try in which only the rudiments of a welfare state had been developed. Immediately
after independence we were faced with the gigantic problem of rehabilitating millions
of people uprooted from their homes and cast adrift as refugees. Our food position
was precarious owing to the loss to us of large areas surplus in foodgrains. We had
the colossal administrative problem of bringing over 500 Princely States, of varying
sizes and in widely disparate stages of development, into the stream of the country’s
national life.
[Finance Minister, C.D Deshmukh, 1956-57]

There was little in the kitty to begin with in 1947. Annual budget was about Rs. 200 crore of which one
half went in support of defence services.

Light

In that desolate hour came light and hope from an unknown Indian, one very poor. He kindled hope
in the heart of Finance Minister John Mathai (1951 -52) and inspired the latter to lay the foundation for
the building of new India:
I have been greatly heartened by a recent communication received from an ordi
nary villager, who has remitted a sum of five rupees to me and has promised to
remit a similar sum every year. It is not the small amount that he has offered but
the spirit behind the offer that matters and, so long as the common run of our
people can produce men and women with this spirit, this country can face the
future, however difficult it may be, with confidence.

Alas, the name of this ordinary villager is not recorded anywhere. Perhaps some one in the Finance
Ministry will scan its archives in time for the next Bharat Ratna Award.

Sums
Believe it or not starting with those five rupees, we have raised and spent a total of Rs. 39,10,000
crore in the past 50 years.
It bears repetition: we have spent Rs. 39,10,000 crore in aid of our objectives. It is the most
stunning rags to riches story.

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Is it? For, this story may not taste as rich when we discover the bitter fact that inspite of this mind
boggling sum spent, millions are still wrapped in rags. It is a sobering thought that the absolute
number of such persons, below poverty line, today is larger than the total population of India at the
time of our Independence.

Stalwarts

The spending was in no ordinary hands. Just glance at the galaxy of stalwarts who have shaped our
Budgets in past 50 years.
Finance Ministers

Years

Shanmukham Chetty

2

H. M. Patel

2

John Mathai

2

R. Venkatraman

2

C. D. Deshmukh

6

Pranab Mukherjee

3

T. T. Krishnamachari

5

Vishwanath Pratap Singh

2

Morarji Desai

8

Yashwant Sinha

3

Y. B. Chavan

6

Manmohan Singh

6

C. Subramaniam

2

P. Chidambaram

2

Finance Ministers

Years

Then, there are those who had only one year term.
Jawaharlal Nehru

Rajiv Gandhi

Sachindra Chaudhury

N.D. Tiwari

Indira Gandhi

S.B. Chavan

Charan Singh

Madhu Dandavate

Although, lately, we have had a rapid turnover of Finance Ministers - but note that quite a few of them
have reigned for enviously continuous long years occupying a total of 37 years out of 50. (Morarji
Desai - 8 years; CD Deshmukh, YB Chavan and Manmohan Singh - 6 years each;TT Krishnamachari
- 5 years; Pranab Mukherjee and Yashwant Sinha - 3 years each). It signifies that a number of Finance
Ministers did get reasonable opportunity to make a mark

10

Economic Recovery

We recovered from the blows of partition sooner than one could have expected in the wildest dreams.
The ruined economy was reasonably repaired.

In this period, the country’s economy has been strengthened, inflationary stresses
have subsided or been eliminated and production expanded in many directions. In
particular, notable improvement has been made in the country’s food production. The
transport system has been largely rehabilitated. Progress, made in the construction of
large irrigation and power schemes. Vital industries, designed to reduce our depen
dence on external sources for our essential needs basic industries to improve steel
production, shipping industry. A well-knit National Plan, covering in greater or less
degree all important sections of the National life and economy, has been drawn up and
is in process of implementation.
[C.D Deshmukh, 1956-57]
Systems

We swiftly turned to the future and installed planning to direct the flow of resources as per chosen
priorities. We proceeded to bind purposively the budgets of the Centre and States on the one hand,
and to bring about compatibility between the Plans and the Budgets on the other.
The 1952-53 budget has been framed against the background of the Five-Year Plan.
The expenditure proposed in the Plan covers the budgets of not only the Centre but
also of the States.

In the context of our Plans the Central Government’s budgets have thus come to
possess a significance far exceeding that suggested by the respective constitutional
spheres of the Central Government and the States.
[Finance Minister, CD Deshmukh]

Guiding Principles

Not only had we harnessed sums, stalwarts, and systems but we were also fortunately furnished with
clear directions on ‘what we have to do’ and ‘what we have to achieve’. These came from the Directive
Principles of State Policy. The overarching principle enshrined in Article 38 being
The State shall strive to promote the welfare of the people by securing and
protecting as effectively as it may a social order in which justice, social, economic
and political, shall inform all the institutions of the national life.

11

II
Social Deficit
We shall pick up a few salient Directive Principles ordaining removal of social deficit,
and in that light compare the achievements of our Budgets.
The Directive Principles chosen here relate to provision of education, minimisation of inequalities,
right to livelihood or employment, in short to measures for removal of social deficit.
Education

Article 45:
The State shall endeavour to provide, within a period of ten years from the
commencement of this Constitution, for free and compulsory education for all children
until they complete the age of fourteen years.

The ten year target period was to commence from 1950 when the Constitution came into force.
Target was to be accomplished by 1960. We have taken 1951-1961 as the ten year period which
embraced both the First and the Second Five Year Plans.
It is noteworthy that in the relevant period upto 1961, there was rare political cohesion and stability in
the country. Besides, we had at the helm of affairs two strong and dynamic personalities: Rajendra
Prasad as President (who had been the Chairman of the Constituent Assembly and knew every
comma of the Constitution) and Nehru as Prime Minister - who gave substance to the Constitution
and provided vision and inspiring leadership to Government. Additionally a man of learning Maulana
Abdul Kalam Azad was Minister of Education in the formative years. Further, most members of
Parliament who gave approval to annual budgets during this ten year period, had themselves been
members of the Constituent Assembly. These were fortuitous circumstances. Yet, Article 45 lay under
the lid. In this ten year period, there is not to be found even a passing reference to education let alone
to Article 45, in the Budget speeches.
The Budgets treated education as marginal though for the Constitution, education was fundamental
and prior (ten year deadline -is exclusive to unversalisation of education). The total budgeted
expenditure between 1951-1961 was Rs. 12,000 crore, in which the share of education it turns out
was Rs. 341 crore. In this period pressure on budgetary resources from defence had greatly relented.
From its claim of one half of the total expenditure during the early years of 1947-1951 the relative
share of defence in the total expenditure declined sharply to less than one fifth of the total.
FirstTwo Plans : 1951 - 1961

Expenditure

Rs. Crore

Total

12,000

Defence

2,200

Education

341

12

There is no evidence of a genuine ‘endeavour’ expected by Article 45. The ten years ticked away and
we were far far away from the goal of providing education to all children upto the age of fourteen
years.
Are we close to it even today after 50 years?

Estimated 60 million of children upto the age of 14 years have still no access to education. We have
many uninformed alibis for it. Among them the prominent one is that the poor need pennies and can
ill-afford to send the child to school. “Field studies in Mumbai and Delhi have yielded the insight
that the reason for so many slum children not being in school has less to do with their families’
economic circumstances than with the school system’s shortcomings.” (Rukmini Banerji, Poverty

and Primary Schooling - Field Studies from Mumbai and Delhi, EPW, March 4, 2000). This finding is
solidly backed by the recent experience in Andhra’s Ranga Reddy District, where M V Foundation has
through community pressure made the village schools (teachers) function and within 3-4 years, over
90 percent of the children are in school in 400 villages.

In the mightiest of our IT cities Bangalore, even today about 75,000 children do not have even one
foot in a school according to a recent study by Prof. Seetharam of the Institute of Social and Economic
Change.

Some social change!

And, this despite the fact that in 1976, the 42nd Amendment was brought in to make education a
’concurrent’ subject in response to another favourite alibi that education is a state subject. Let us
therefore take the last 25 years from 1974-75 to 1999-2000. Yes, in this period; unlike the first decade,
education does appear in several Budget speeches.

There are large disparities among the States in terms of enrolment of children in schools
in the age group 6-11. Expansion of primary education facilities, particularly in the
backward areas, will help correct regional imbalance and will also provide scope for
larger employment.
[Finance Minister, C. Subramanian]

Education, the Hon’ble Members will agree, is the main instrument of change.

The ‘New Education Policy’ will be presented by the Minister of Human Resource
Development during this session of Parliament. I believe, the Policy will give the highest
priority to universalisation of primary education and to spread of adult literacy in 15-35
age-group within the shortest possible time.
[Finance Minister, V.P. Singh]

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The New Education Policy is a powerful weapon to fight poverty. It gives to the socially
and economically weaker sections the means to realise equality of opportunity
guaranteed by our Constitution.
[Finance Minister, Rajiv Gandhi]

Rajiv Gandhi who happily woke up to the Challenge of Education in 1985, was soon found distributing
black-boards to village schools and delivering Doon-School type of education through newly set up
cost-intensive Navodaya Schools (in selected districts), where entry is restricted to children who have
already eaten the fruits of Primary Education.
Even so what is the result? Here an extract from National Curriculum Framework for School
Education - A discussion Document, National Council of Educational Research & Training - NCERT,
January 2000:

Several centrally-sponsored schemes, such as ‘Operation Blackboard’ providing science
kits, musical instruments, etc. have not been too fruitful as one-time support does not
create much impact. To promote equality, it is necessary to provide for equal opportunity
to all not only in access, but also in the conditions for success.
The most crucial thrust area of providing essential facilities for effective transaction of
the curriculum in all schools/non-formal learning centres still appears to be a mirage.

In brief, the efforts made so far are not enough for developing a national system of
education as envisaged by the policy makers.

Need we see or say more.
Inequalities

The Directive Principles had also set goals in particular to minimise inequalities in income apart from
status in order to transform the social order.
Article 38:
The State shall, in particular, strive to minimise the inequalities in income, and
endeavour to eliminate inequalities in status, facilities and opportunities, not
only amongst individuals but also amongst groups of people residing in different
areas or engaged in different vocations.

What is the role of the budget-maker in banishing inequalities was spelt out by Finance Minister C.
Subramanian.

Fiscal policy, is not a matter simply, or even primarily, of raising resources to meet the
inescapable demands on the national exchequer. It must serve larger objectives as
well and guide the economy in desired directions. It must, in particular, make a significant

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impact on existing inequalities in income, wealth and economic power and reduce
ostentatious consumption.

Income accrues to 2/3'd of our work force through agriculture and allied activities. In the long stretch
of over 45 years: 1950-51 to 1996-97, inequalities afflicting this huge work force have infact gown by
leaps and bounds. While the proportion of work force dependent on agriculture for livelihood declined
only peripherally from 66 percent to 64 percent in this period, the share of this 2/3,d work force in the
National Product fell precipitously by more than half i.e., from 55 percent to 26 percent.
Agriculture & Allied Activity
Share in total

(Percent)
1950-51

1996-97

Work Force

66

64

GDP

55

26

The budgets have remained mute towards their deprivation and disparities, notwithstanding principles
enshrined in Article 38, or Nehru’s perspective or Subramaniam’s prescription.
The deprived were to wait for the trickle from growth to fill their pitcher. There was an assurance that
the chosen economic strategies will diminish social deficit by bringing about transfer of workers from
the low-productivity rural agricultural sector to the modern high productivity urban industrial sector.
This was and continues also under the new economic paradigm, to be regarded as the key to the
growth which we have funded and fuelled with both hands through our successive Budgets and other
benign policies with annual cheers from captains of industry.
Regrettably recent analysis holds out little cheer for our work force in the foreseeable future. “The
pace and pattern of growth has resulted in a situation that such a transfer has not only not taken place
so far but also appears unlikely for quite some time to come”. (Prof K. Sundaram, Delhi School of
Economics, February, 2000)
Miracle of Miracles

We seemed to have performed a miracle. We have stood the celebrated economic model on its head.
Instead of transferring workers from the agricultural sector we have transferred national income away
from agriculture and rural areas and thus enhanced inequalities instead of diminishing them.
Manufacturing Sector

Let us look next at the manufacturing sector which is the apple of our budget makers eye. It is
modern, hi-tech, heavy. But it is not sufficiently realised that this glittering modern industrial empire
conceals in itself a ghetto of excruciating inequalities affecting 83 percent of the work force engaged
in its unorganised segment compared with 17 percent in its organised (Registered Factories) segment.

15

Manufacturing Sector

Registered Factories

Unorganised Sector

(Percent)

Absorption of incremental

17

83

66

34

labour force

Share in GDP originating in
manufacturing sector

Of every 100 persons engaged in this sector, only 17 are absorbed by Registered factories in the
organised modern manufacturing sector, while 83 continue to muddy their feet in the unorganised
sector. But the share of the 83 percent work force in the product of this sector is a mere 34 percent
while a whopping 66 percent accrues to the remaining 17 percent of the work force.

Just like the manufacturing sector, the agriculture sector too has both a modern sector and a ghetto
of inequalities engulfing over 82 million marginal / small farmers. This, inspite of the fact that from
time to time, our Budget makers sing an ode to agriculture:
Greater attention to dry farming areas is not merely to avoid inequalities in the rural
areas. It is also an essential part of any programme to achieve sustained increases in
agricultural production.
(Indira Gandhi)

Agriculture is at the centre of our development strategy. The quality of agriculture
performance is the single most important factor in reducing the incidence of poverty in
rural areas.
(VP. Singh)

Agriculture is the bedrock of our economy. Growth in this sector is also crucial for the
removal of poverty.
(Rajiv Gandhi)

We must ensure that our economic strategy gives full support to agriculture on which
the livelihood and well being of the majority of our people depend.
(Manmohan Singh)

Most of the time what the budgeteers have in mind are farmers in about 15 percent of India’s 450
districts, which produce most of the marketable surplus. They of course deserve praise and support.
But they are only the top layer, hidden below are millions of marginal farms and farmers, and their
number is rising while their holdings are declining (i.e., size by area): They also constitute the core of
the population of the poor. A systematic strategy and sustained support to raise their output and
yields and extract their full employment potential (see annexure\is conspicuous by its absence.

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No. of Holdings

(‘000 Nos.)

Category of Farmers

1970-71

1990-91

Marginal

35,680

62,110

Small

13,430

19,970

No. of Holdings

(Percent)

Category of Farmers

1970-71

1990-91

Marginal

50.62

58.99

Small

19.05

18.97

Indira Gandhi did ordain that agriculture be categorised as a priority sector, and that the nationalised
banks should give it a percentage of their total loans. She probably had in mind the small farmers,
since much of the bank credit to this sector is sucked away by those at the top of the heap. But little
changed. A Small & Marginal Farmers Agency (SMFA) and programme was also launched. But it
was thin and shortlived.
Twenty-five years later, Manmohan Singh found that not all banks were meeting their assigned obli
gation to agriculture. Instead of making them perform (perhaps convinced that they won’t perform),
he devised a way out - the unfulfilled target of credit to agriculture be placed by the banks in a national
fund to be operated by NABARD. The fund was named Rural Infrastructure Development Fund
(RIDF). By its very nomenclature (infrastructure), the hitherto unused money was removed even
further away from the reach of small hands. But one activity coming under rural ‘infrastructure’ which
could service the small/marginal farmers namely watershed development has been given a short
shriff as evident from the portfolio of RIDF loaning in the past 5 years, i.e., since its inception.
Rural Infrastructure Development Fund: 1995-1999

(Rs. Crore)

Corpus

10,000

Disbursed

3,800
RIDF (Loan Portfolio)
1995-1999

Activity

Percent

Total

100

Rural Roads

35

Major/Medium Irrigation

26

Watershed Management

2.4

17

Scheduled Caste Workers

Members of the Scheduled Castes (SC) mainly earn their livelihood through their own labour, either
on land belonging to others or in occupations like scavenging, flaying and tanning of leather which
reflect social and economic subjugation. More than three quarters of the SC workers are engaged in
primary occupations, and the proportion of those engaged in the tertiary sector is nearly half the
national average. Against the national average of 26%, more than 50% of the SC workers are agricul
tural wage labourers. Despite the decline of untouchability practices, the caste system continues to
confine - SC workers in occupations looked down upon by other communities. Though with the
spread of urbanisation and governmental measures such as protective legislation and positive dis
crimination improvements have taken place in the occupational mobility and living standards of the
SCs, the majority of them continue to be worse off than members of the other communities. In the
field of literacy, as against the national average of 52%, the literacy rate of SCs is around 37%. The
situation is much more alarming amongst SC women where more than three quarters are illiterate.
These disparities are further compounded by higher drop out rates in formal education. As a result of
all these disadvantages and disparities, the proportion of SCs below the poverty line is substantially
higher than the national average.
(Scheduled Caste Development, Annual Report 1997-98, Government of India, Ministry of Social
Justice and Employment)
Scheduled Tribes Workers

Now a look at inequalities surrounding our Tribal workers.

If participation rates in industrial categories outside the agricultural sector are considered it is found
that all the Censuses since 1961 (except 1971) it has been between 12 to 13 percent of the total tribal
workers. In contrast the participation rate among the general population 1991 outside the agricultural
sector was 35.2. This indicates that diversification of occupations has taken place to a much lesser
extent among the STs than among general population. Further analysis shows that diversification
among the tribal females is much less than that among the tribal males. Besides diversification
declined among both tribal males and females.
(Draft Executive Report of the Tribal Studies Committee (TSC), Indian Council of Social Science
Research, October 1999)
Consumption inequalities

Inequalities also glare at us as we look at distribution of consumer expenditure between bottom 20
percent and top 20 percent of the population. In rural India it is 1 to 4; and in urban it is 1 to 5.5.
According to S. Mahendra Dev (Economic Reforms, Poverty, Income Distribution and Employment,
EPW 4 March 2000) the inequalities in consumption distribution and at interstate level, have widened
in the post reform period, “The inequalities in consumption distribution was higher in the post-reform

18

period as compared to pre-reform period. The indirect method also shows that the quality of employ
ment has declined and the rate of growth of rural non-farm employment and real wages have declined
in the post-reform period.
“Interstate inequalities have been increasing in the 1990s, poorer states like Bihar, Madhya Pradesh,
Rajasthan, Uttar Pradesh and Orissa have not shown reduction in poverty while richer states like
Andhra Pradesh, Gujarat, Karnataka, Kerala, Maharashtra, Tamil Nadu, West Bengal and Punjab
recorded a decline in poverty.”
Right to Livelihood / Employment
Article 39

The State shall in particular, direct its policy towards securing (a) that the citizens, men and women equally have the right to livelihood.

Article 41

The State shall, within the limits of its economic capacity and development,
make effective provision for securing the right to work, to education and to public
assistance in cases of unemployment, old age, sickness and disablement, and
in other cases of undeserved want.

Believe it or not ‘employment’ does not find a place in the key indicators which are on watch each day
by our economic surveyors who also fashion our Budgets.

The key indicators they watch are

•

Gross National Product

•

Gross Domestic Product

•
•

Agricultural Production
Foodgrains Production

•

Industrial Production

•

Electricity Generated

•

Wholesale Price Index

•

Consumer Price Index for Industrial Workers

•

Money Supply

•

Imports at Current Prices

•

Exports at Current Prices

•

Foreign Currency Assets

•

Exchange Rate

19

Inside, in the Economic Survey, after you wade through some 150 pages there is a subsection on
employment, with pedestrian treatment. The meaty part of it is mandays of wage employment (of
which more later).

It does not say a word about progress on the declaration Finance Minister Manmohan Singh made in
his first Budget speech (1990-91) about extracting employment from economic reforms:

Our longer term objective is to evolve a pattern of production which is labour-intensive
and generates larger employment opportunities.
[Manmohan Singh, 1991-92]

It goes without saying that labour-intensive pattern of production which implies durable productive
employment, is not the same thing as a programme generated wage employment which in any case
is rationed to one person in a family and restricted for 100 days, apart from its other pitfalls. To call it
employment is to add salt to injury.
What is the explanation for this indifference to employment?

According to Prof. K.N. Kabra of IIPA “what seems to make the official economic analysts ignore the
issue of employment in their macro economic review and presumably in macro economic policy
formulation as well, is basic lack of concern with the livelihood security of the people at large" which
Article 39 aspired to. In a data-based piece ‘Seven Years of Structural Adjustment' (in Alternative
Economic Survey 1991 -98), Kabra concludes after analysing the CSO data on the share of organised
and unorganised sector in the domestic product that “these data are a dependable indicator of worsening
income distribution.”

Upto the end of 80’s, the Economic Surveys used to give at least Employment Exchange data. Even
that has since been expurgated. Perhaps, to ensure that the stupendous number of persons registered
seeking jobs, estimated over 40 lakhs, does not irritate the eyes of the surveyors of our economy.

The media - official and private has made it pretty for the eyes. It shows seven times a day, only one
Exchange - the Stock Exchange. Not once in this decade has shown the Employment Exchange
except a recent telling report by NDTV.
Let us return to the Budgets.

‘Employment’, which had eluded the Budget speeches in the first 20 years of Independence, however
found a sporadic mention in the budget dispatches since 1970-71, with the advent of Indira Gandhi as
Prime Minister,
The provision of adequate employment opportunities is not just a welfare measure. It
is a necessary part of the strategy of development in a poor country which can illafford to keep any resources unutilised or under-utilised.
[Indira Gandhi, 1970-71]

20

By far the most urgent problem that needs our whole-hearted attention is the problem
of unemployment, the twin problems of mass poverty and unemployment remain as
acute as ever. In large pockets, there has perhaps been a worsening of conditions.
Large-scale poverty and unemployment degrade those who have to suffer them, and
debase those who tolerate them. We owe it to ourselves to see that these twin scourges
are eradicated as quickly as possible.
[C. Subramaniam]

The true asset of our country is its labour.

It is also necessary to use our social banking and insurance infrastructure for tackling
the problem of urban poverty. Rickshaw-pullers, cobblers, washermen, porters, barbers,
hawkers, sweepers and cart-pullers are among the particularly disadvantaged.
[VP. Singh, 1985-86 & 86-87]

Agriculture is the bedrock of our economy. Growth in this sector is also crucial for the
removal of poverty. Our farmers, farm technologists and scientists have turned India
from a net-importer of foodgrains living at the margin of survival to self-sufficiency.
I am, however concerned about the situation of agricultural labour. They are subject to
exploitation.
[Rajiv Gandhi, 1987-88]

Our first priority is employment. In the eighties, our economy grew at around 5 per
cent or more. But, according to a recent report of the National Sample Survey the
number of persons who are chronically unemployed increased from 8 million in 1983
to 12 million in 1987-88. In addition, there are a vast number who are underemployed
and whose earnings from work fall well short of a decent minimum.
[S.B. Chavan, 1989-90]

What is one to say?

Having failed to extract employment out of the pattern of production which was in no small measure
moulded by fiscakand other policies, and faced with rising social unrest (reflected on increasing and
huge expenditure on police, of which more later) the policy decided in the 70’s to provide wage
employment in the rural areas to keep them cool. There are a battery of wage programmes. The core
of them all is to dig holes. They are scarcely of durable value. In 20 years between 1980-81 and 19992000, over Rs. 62,000 crore have been spent on such programmes. These programmes are notorious
for large leakages (50 to 80 percent; Rajiv Gandhi put it at 85 percent). The Bank scam at Rs. 8000
crore was bad enough but imagine 50 percent of Rs. 62,000 crore being pocketed and that too
stealing from the plate of the poor.

21

This fact of leakages has been documented by many studies. We cite one of the best of such studies
about wage programmes in Rajasthan by Sanjoy Ghose (Rural Employment: Policy and Practice in
Rajasthan)*
Officially, only 50% of the cost of the project can be spent on materials, since after all,
the primary objective is to employ labour.

In an ordinary schoolroom type structure, the normal material labour ratio is 85:15,
i.e., for every ten thousand rupees spent, only fifteen hundred would go towards labour
payments.

So how do the schoolrooms get built, on the prescribed unrealistic ratio (50:50)?
How do they do it?
Usually, the persons who have the responsibility for building the structure - do, is to
falsify the muster rolls.
All work in JRY is supposed to be implemented by the Gram Panchayat, or
“departmentally”, so that workers would be assured of their basic wages.

In fact, almost the entire work is done through contractors.
The unemployed poor are thus robbed of even the crumbs.

‘Who was earlier with Urmul and later moved to Majhouli from where he was kidnapped
and remains todate tragically untraced.
Our tour of the Budgets brought us towards the end to the most cheerful note from Chidambaram:
One of the first acts of the Prime Minister, Shri Deve Gowda, was to convene a meeting
of Chief Ministers on Basic Minimum Services. This reflects the resolve of the United
Front to “advance the principles of political, administrative and economic federalism”.
The Chief Ministers Conference recommended adoption of seven objectives to be
attained by the year 2000:

These are 100% coverage of provision of

safe drinking water,
100% coverage of primary health centers;
universalisation of primary education;
public housing assistance to all shelterless poor families;
extension of the mid-day meal scheme;
- •

road connectivity to all villages and habitations; and
streamlining the public distribution system targeted to families below
the poverty line.
[Finance Minister,^ Chidambaram]

22

Even if famous last words, poor Chidambaram, very laudable pinpointed exertion. But before he could
suck his thumb the helpless baby was washed out with Prime Ministerial bath water - twice in a row
- Deve Gowda first, Gujral later.
Panchayats

Article 243 G
Powers, authority and responsibilities of Pancahyats -

Subject to the provisions of this Constitution, the Legislature of a State may, by
law, endow the Panchayats with such powers and authority as may be necessary
to enable them to function as institutions of self-government and such law may
contain provisions for the devolution of powers and responsibilities upon
Panchayats at the appropriate level, subject to such conditions as may be
specified therein, with respect to (a) the preparation of plans for economic development and social justice;
(b)the implementation of schemes for economic development and social justice
as may be entrusted to them including those in relation to the matters listed in
the Eleventh Schedule.

This tour of the Budgets has highlighted the limits of what government machinery and money can do,
even at their best, to translate the aspirations of the Constitution in respect of social order and equity
and to ensure universal coverage of certain services. Indeed, a similar realisation has also been
growing in government in recent years. Recall the debates/discussions initiated by Rajiv Gandhi in
mid ‘80s on responsive and representative administration/governance - which led eventually to the
73rd/74,h Amendments. Budget makers have noted and welcomed democratic decentralisation
embodied in Article 243G relating to panchayats as also their social significance and operational
value.
History was made with the passage of the Constitution (Seventy Third Amendment)
Act, 1992, which made it a constitutional requirement to set up in every State,
panchayats at the village, intermediate and district levels. The Amendment ensures
that women and other weaker sections of the society will necessarily get adequate
representation in the Panchayats.
(Manmohan Singh, 1995-96)

The National Human Development Initiative will go a long way in empowering the
weakest sections of the population and improving the quality of rural life. This will
minimise the rural-urban disparities. The effectiveness of this initiative will depend
critically on the extent to which Gram Panchayat, as an elected body, can assume a
pivotal role in implementing the various components of the programmes.

23

I propose to declare 1999-2000 as the “Year of the Gram Sabha” to affirm our resolve
to set the process of decentralised democracy in motion, with human development as
the core objective of planning.
(Yashwant Sinha, 1999-2000)

Yashwant Sinha had also specified that he would provide for active involvement of gram panchayats
in a range of rural activities: unified command of watershed development; RIDF to loan to panchayats;
development of degraded and wastelands; PDS; and funds which generate resource for health
education; active involvement in whole bunch of employment schemes.

Institute of Social Change (ISS) which brings out a monthly update on panchayats reports that nothing
has been done to implement Minister Sinha’s declarations. On the contrary, DRDA the bureaucratic
organisation (which was built up before panchayats came on the scene on the wings of The 73rd
Amendment) called DRDA, is now brought back with MP as Chairperson! The States which abolished
it and amalgamated them in ZPs are in trouble!
No measure has been taken to strengthen Gram Sabha. Year of the Gram Sabha ended without any
Gram Sabha being aware of it and worse still, without any of the Central Ministries taking even a
token notice of the message of the Finance Minister.
Performance of PDS is particularly pitiful. Purchase of food by the poor from the public distribution
system is reported to be very small, particularly in States with the highest concentrations of poverty.
According to Dr. Bimal Jalan, former Member, Planning Commission and Governor, Reserve Bank of
India, in Uttar Pradesh and Bihar, the public distribution system supplied less than 5 % of food grains
purchased in the market as compared with an average about 16 % for the country as a whole.

The reasons for halting progress are not far to seek. Various Central Ministries and State administrations
which have got accustomed in the last past 50 years to centralised control over all poverty alleviation,
employment and minimum needs programmes including education, health, drinking water and housing.
They are not able to switch on easily to a new regime of thinking and doing ordained by the 73rd
Amendment. With the exception of Kerala, most states are still dragging their feet or in other ways
dodging the transfer of functions, resources and authority to Panchayats. They fear that a change will
divest them of patronage - and as seen earlier from Sanjoy Ghose’s report, also of huge easy money
they are now able to siphon off. Another important impeding factor is that the meaning and majesty of
the Constitutional Amendments has not yet been absorbed by the executive even at the highest levels
at the Centre, State, and District.
Members of Parliament who almost unanimously voted for 73rd / 74lh Amendments have developed a
vested interest in bypassing the panchayats, with the adoption of MPs Local Development Scheme
with Rs. 2 crore per MP per year to be spent by them through district bureaucracy without the

24

participation of panchayats. The hilarious part of it is that the funds for the MPs Local Development
Scheme are drawn out of funds that ordinarily would have gone to panchayats.
There is a Kannada proverb: if fence begins to eat the crop, what can one do.
Concentration of Economic Power

Inequalities arise also from skewed control and concentration of economic power in fewer hands.
This was recognised by the Constitution makers:
Article 39
The State shall, in particular, direct its policy towards securing:
b that the ownership and control of the material resources of the community
are so distributed as best to subserve the common good;

c that the operation of the economic system does not result in the concentration
of wealth and means of production to the common detriment.

In the entire 50 year record of Budgeting only once did Article 39 figure. In 1964-65, the renowned
Finance Minister TT Krishnamachari acknowledged in his Budget speech, the fate of Article 39.
While conceding the need to provide private industry with resources for the development
we must not, in the process, allow concentration of economic power and growth of
monopolies.

It is really disturbing that despite diffused ownership, control is concentrated in a relatively
few people.
It is indisputable that in the 90’s - the decade of economic reforms, the concentration of economic
power in fewer hands has accentuated to a worse degree than ever in the past. Even a cursory look
at the data of top 300 companies is enough. Those who have evidence to prove the contrary may
please rush it to CHRI this year or next.
Concentration of economic power in fewer hands may be good for the economy - but should that
economy not also be for the good of the social order envisioned by the Constitution. Is the Constitution
being amended in this respect by stealth?

1

25

III

Fiscal Deficit
One imagined that while Budget makers may not have been upto what is admittedly a gigantic task of
diminishing social deficit set before us by the Founding fathers of the Constitution, they had at least
the requisite acumen and expertise to manage our fiscal deficit. But alas, here too their performance
is abysmal.

Commenting on the Budget 2000-01, the Centre for Monitoring Indian Economy (Public Finance,
March 2000) says:

The gross fiscal deficit (GFD) of the Central Government overshot the budgeted level
by a massive Rs. 28,943 crore and reacted Rs. 108,898 crore in 1999-00. This is one
of the sharpest slippages in this key indicator of fiscal prudence.

What greater indictment.
The numbers here will speak for the unabated march of fiscal deficit.
Gross Fiscal Deficit

Year

Rs. Crore

1980-81
1983-84

13,000

1990-91

44,600

1998-99

113,350

2000-21

111,270

Impact of Interest payments on gross fiscal deficit, (percent)

Year

Percent

1981-82

37

1991-92

73

1999-00

84

2000-01

91

The main pressure is from Interest Payment. It has caused a massive 84 percent of gross fiscal
deficit (i.e. net additional borrowing) in 1999-00, against 73 percent in 1991-92 and around 37 percent
in 1981-82. Says CMIE : What should alarm us is that Interest payment is budgeted to cross Rs.
100,000 crore in 2000-01. This would account for a new high of 91 percent of gross fiscal
deficit.

At 91 percent, We are just one little step away from 100 percent. Is that what is called a debt trap?
Some brave heart must dispel our fears.

26

Interest payments are rising both in absolute terms as well as a proportion of the revenue receipts.
Interest payment States and Centre, (combined)

Year

(Rs. crore)

1980-81

3,000

1990-91

25,000

1994-95

52,000

1997-98

81,000

1999-00

1,45,000

Interest Payment as percentage of revenue receipts
Year

Percent

1980-81

21

1991-92

42

1999-00

51

Has this happened suddenly, taking us all by surprise? No, Sir.
The shape of things to come was foreseen by the Ninth Finance Commission headed by NKP Salve,
and it administered the strongest possible warning to Central and State Governments as early as in
1988-89. It also urged the Central Government “to set an example” in reversing the steadily deteriorating
fiscal situation:
Our approach has been influenced also by the steadily deteriorating fiscal scenario in the
country.
The incurring of revenue deficits on a large scale year after year implies an infraction
of one of the fundamental principles of sound public finance in any economy,
particularly in a developing economy.

Another related disquieting feature of recent public finances in India is the rapidly growing
public debt.
And in the process if the social objectives have been served at all, the cost has been highly
disproportionate.

It is obvious that with this order of revenue deficit in the Central Budget, the entire system
of budgeting and financial management of the Central Government would face a crisis
situation during the Eighth Plan period.

27

(i)
(ii)

The Centre should set an example to the States;
The Centre should improve on its own past performance.
[Finance Commission, 1990-95]

Since then successive Finance Ministers have themselves been crying tiger - almost competing with
each other in loudness and also in stoic inaction. Sample these as also a dictum 30 years ago: from
Moraji Desai

Recognition of the urgency of economic development, and the realisation that such
development is not possible unless some restraint is kept on consumption and we submit
ourselves to a high degree of fiscal and monetary discipline.
[Morarji Desai, 1959-60 & 1962-63]

The budget is now under severe pressure to meet the growing burden of expenditure on
account of interest payments, defence, subsidies and assistance to States. This is not a
partisan issue or the problem of a particular Government in power and I believe that a
frank debate is essential for the long term economic health of our nation.
[V.R Singh, 1985-86 & 86-87]

Macro-economic imbalances which have been large and persistent are at the root of the
problem. The burden of servicing the accumulated internal and external debt has now
become onerous. Neither the Government nor the economy can live beyond its means
for long. The room for manoeuver, to live on borrowed money or time, has been
used up completely. The soft options have been exhausted.

[Yashwant Sinha, 1991-92]
The crisis of the fiscal system is a cause for serious concern. Without decisive
action now, the situation will move beyond the possibility of corrective action.

[Manmohan Singh, 1991-92]

The fiscal deficit increased sharply in 1993-94 and the pressure on the deficit has continued
in 1994-95.
[Manmohan Singh, 1995-96]
Today, we must squarely confront and overcome the critical challenge posed by a
weakening fiscal situation. A long history of high fiscal deficits has left us with a legacy
of a huge public debt and an ever-growing bill of interest payments.
[Yashwant Sinha, 2000-2001]

28

There may be two opinions whether our Budget makers have defied the Directive Principles of the
Constitution. But there is little doubt that they have defied and continue to defy their own wisdom and
words.
Is interest the real culprit?

Interest payments are menacing. But little is said about other man eaters and how much they eat
Expenditure on Civil Administration and Police

(Rs. Crore)
Year

General

Police

Total

Administration /
Pensions

1960-61

345

94

1970-71

1365

345

1980-81

4195

1163

5358

1990-91

22563

5657

Fourth Pay
Commission

1992-93

26819

7815

1993-94

32178

8789

1994-95

41250

9719

1995-96

48998

11241

1996-97

52636

12974

1997-98

68450

13366

1998-99

94359

16868

Fifth Pay
Commission

1999-00
2000-01
Economic Survey

This expenditure on civil administration and police will sit like a feather on our shoulders, if we could
say that we are being served efficiently and justly and being protected well.

Yes, interest payments have reached the danger sign. But on whose behalf are these payments
being incurred. Answer is internal / external debt which is mounting - nearly Rs. 8,00,000 crore. But
is this borrowed capital deployed in aid of productive activity? If that is so, we have less reason to

29

worry. But the stark reality is that since the Fourth Pay Commission Report, market borrowings have
sky rocketed to enable government to pay enhanced salaries of its employees. This despite the
warning of the Ninth Finance Commission.

The states do not have many productive sources of revenue although it is possible for
them to tap certain untapped sources such as taxation of land or income from land,
since their tax rates are already high, it is going to be difficult for them to get increases
in revenue other than through obtaining higher elasticities in response to growth in
deficit is to be arrested, substantial emphasis would have to be given to decelerating
the growth of revenue expenditures of both Central and State Governments.
The growth in subsidies and interest payments has been an important cause of the
fast rise in revenue expenditures at the Central level. In addition, wages and salaries
have grown rapidly as a result of both an increase in government employment and a
rise in wage payments due to dearness allowance and pay revisions. This factor has
become more important in recent years.

For the Central Government, the increase in wages and salaries has been mainly due
to the revision of scales and allowances following the recommendations of the Fourth
Pay Commission; in the States, however, this has come about due to both revision of
salaries as well as substantial increases in employment. If the present trends
continue, a growing proportion of expenditures would be incurred merely to pay
salaries to government employees, which would result in increasing revenue
deficits if offsetting cuts in other expenditures are not made. Many of the States

have followed in the footsteps of the Central Government in revising their scales of pay
without paying due regard to their capacity to raise revenues. This has a harsher
impact on the weaker States. We believe that for reasons of both growth and equity, it
is necessary to have a proper wages and income policy. But, this can be done only
in an environment of stable prices, the maintenance of which is the primary
responsibility of the Central Government and calls for proper macro-economic

management in containing overall deficits and the growth in money supply. It is time
that the Government of India paid adequate attention to these issues in order to nurse
the economy back to fiscal health.

It is necessary to remind ourselves that a satisfactory and enduring solution to the
problem of Centre - State relations cannot be found except through sound and
disciplined fiscal management. The Centre bears the larger responsibility in that it is
primarily responsible for the maintenance of price stability without which the finances
of the State Governments, weak as they are individually, are thrown out of gear.

(First Report, The Ninth Finance Commission)
But hardly had the ink dried on this advice, we have imposed on the shattered finances of the
Government, the crushing burden of the Fifth Pay Commission. Just look at the galloping payments

30

to civil administration and police. Unless we cut back on this expenditure, there is no way we can
bring down the burden of interest payments - they are indeed providing a smoke screen for the real
culprit.
Gainers and Losers

The Economic Survey 1998-99 does give us a glimpse of the gainers and losers:

The increase in GDP from ‘public administration and defence’, arising from the decisions
on the Pay Commission Report, which increased government employees’ salaries
substantially, compensated for the slowdown in growth of other services. The most
important proximate factor in the growth slowdown in 1997-98 seems to be agriculture
which affected household income, consumption and investment.
Do we still want to ask the question: do the people matter?

IV

The End Note

50 years have gone.

Both our fiscal and social order are sinking

We are minus Rs. 39,00,000 crore - but little of it has gone to aid endeavours as expected by the
Constitution, to consciously address education, inequalities and livelihood; or use the might of the
people through panchayats to overcame social deficit.

The Budgets and the Governments tendering them have been largely unmindful and unfaithful to the
Directive Principles,

Budgets are ultimately approved by Parliament. Thus not only the executive but also the legislators
have not done their bounden duty by the Constitution.
Civil disobedience helped us to win freedom. Criminal disobedience of the Constitution could imperil
it.

We are assured that there is still hope. Development may have failed but divinity can still steer us to
the shore;

31

As Swami Vivekananda used to say there is an element of divinity in each human
being. We have to create an environment in which this divine potentially can be mobilised
for building a strong economy and a just society.
[Finance Minister, Manmohan Singh]

ANNEXURE
(Extracts from “Budget: 1992-93: Will it let the roof collapse?” by L.C. Jain)

The millions of the unemployed will ask only one question of the coming Budget: What is there in it for
us?
One could most sensibly suggest that the unemployed should knock the door of the growth rate rather
than that of North Block for their livelihood. But will it not amount to a cruel joke on the unemployed
considering that the employment growth rate is falling precipitously inspite of the fact that the growth
rate of GDP is on an upswing.
Is this the structural maladjustment between the growth rate of product and employment, which the
economic reformers are intending to stabilise? If not, then is the Budget going to lock horns with this
structural maladjustment which if left unaddressed will have grave destabilising impact on our social
fabric as well as the political system based on total electoral equality between the employed and the
idle.

The Budget makers, one hopes, have taken note of the potential for 100 million jobs detailed recently
by the International Commission on Peace and Food, in its report titled: Potentials for Increasing
Agricultural Productivity in India: towards changing the economic scenario and wiping out unemploy
ment and poverty. It is authored by G. Rangaswami former vice-chancellor of Tamil Nadu Agricultural
University. The job potential is based primarily on available resources in the village economy, needing
nominal capital and energy - which are scarce resources in any case.
All that the Budget can do and must do is to apply the existing mouth-watering cash resource of
thousands of crores spent on anti poverty programmes a year (or at least half of that) right away to
back the Rangaswami plan. If the Budget applies itself seriously to this task, we could get extra one
million tonne food and seeds for edible oil - before the imports of these commodities land here - and
in the process engage the unemployed in a land army rather than in the galloping police force.

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