Volume 4, Track 2, February 2007 - CBGA India · example-SEZs, FRBM Act, ... conclusion. The Act and the Rules for the SEZs ... Budget TRACK Volume 4, Track 2, February 2007 In Budget

National Centre for Advocacy Studieswww.ncasindia.org

Volume 4, Track 2, February 2007

A publication by:Centre for Budget and Governance Accountability

for private circulation only

Foreword

IN THIS ISSUE

Budget and Policy Tracking of 2the Union Government

Special Economic Zones: 11Padding Gains,Discounting Losses

People’s Budget 13Initiative: An Effortto Democratize BudgetMaking Processin India

NREGA: Some key 15learnings and theway ahead

The current financial year (2006-07) has generated a lot of debate on variousimportant economic policies being pursued and implemented. From the perspectiveof the poor and marginalized sections of the society, implementation of NationalRural Employment Guarantee Scheme (NREGS) and setting up of Special EconomicZones (SEZs) are two most important developments being closely monitored fortheir implications on these sections. Apart from these, the Approach Paper toEleventh Five Year Plan also generated tremendous debate within and outsidethe Government and notably, the central focus of these debates was on theFiscal Responsibility and Budget Management Act. The arguments essentiallyrevolved around the constraints imposed on the Governments at various levels toundertake development expenditure (largely Revenue Expenditure in nature) bythis law.

This issue of the Budget Track (Volume 4, Track 2) discusses many such importantand timely issues that have come up at this stage and have significant bearingon the poor and marginalized people. The regular column on Budget and PolicyTracking of the Union Government briefs the developments that have taken placein the realm of Budget and Public Policy during the last quarter of the financialyear 2006-07. Added to this, the present issue tracks the critical issues inimplementation of NREGA. A comprehensive analysis of the developments on theSEZs front is also being presented in this issue. Last but not the least, thepanorama of the People’s Budget Initiative - a pre budget national conventionconducted by a coalition of numerous civil society organisations leading to thepreparation of people’s charter of demand for the Union Budget 2007-08 - hasalso been duly summarized in this issue.

We hope the contents of the present issue would collectively reflect the voicesof the marginalized sections of the society and strengthen the civil societymovement in empowering such people.

[Views expressed in the articles are those of the authors and not necessarily the position of the Organisation]

BudgetTRACKVolume 4, Track 2, February 2007

Budget TRACK Volume 4, Track 2, February 2007

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Budget and PolicyTracking of the UnionGovernment - Debdulal Thakur

I‘Budget’ is something more beyond money. Thenumbers and words within it speak for themselves,reflecting the vision & mission of the policy

ts an old proverb that, ‘Budget is just amethod of worrying before you spendmoney, as well as afterwards’. The proverbcan be accepted partially, since in reality

makers that shall stir the economy and the dailylife of the masses. It’s once again the time torevisit the agenda of the ruling coalition on thepart of the state and for the people to put forwardtheir agenda in the forthcoming budget session.For the UPA it’s high time to review the NCMP andmobilize resources and willingness for the yetunfulfilled promises. To mention few of them wecan site the example of the Right to Education Billwith suggested amendments & allocation of 6% ofthe GDP to Education, allocation of 3% of the GDPto Health, etc. The issues are widely discussed inseveral other publications of CBGA & by manyother civil society organisations. Therefore, in thissection dealing with the budget & policy trackingof the union government, we shall try to brieflyhighlight some of the relevant policy issues (forexample-SEZs, FRBM Act, FDI in agriculture,Outcome Budget etc.) concerning the Indianeconomy, at the current juncture.

THE ONGOING DEBATE ONSPECIAL ECONOMIC ZONE (SEZ)

BACKGROUNDSpecial Economic Zones (SEZs) are geographicalregions that have economic laws different from acountry’s typical economic laws. The goal is usuallyan increase in foreign direct investment (FDI) inthe country.

Traditionally SEZs are created as open marketswithin an economy that is dominated by liberaltrade policies, which often are partially or looselycontrolled by the government. SEZs are believed tocreate a conducive environment to promoteinvestment and exports. And hence, manydeveloping countries are developing the SEZs withthe expectation that they will provide the engines

of growth for their economies to achieveindustrialization. To achieve its three-foldobjective of attracting FDI, increasing exports andaccelerating the country’s economic growth, theGovernment of India announced the introductionof SEZs in its Export-Import (EXIM) Policy in April,2000.

Box 1a: The Export-Import (EXIM) Policy(1997-2002) introduced a new scheme fromApril 1, 2000 for establishment of theSpecial Economic Zone (SEZ) in differentparts of the country.As per the policy-1. SEZs are permitted to be set up in the public,

private, joint sector or by the State governmentswith a minimum size of 1000 hectares.

2. A number of incentives both fiscal and non-fiscalhas also been extended to the units operating inSEZs.

3. Several measures have been adopted to improvethe quality of local governance of the zones. Asfor example, relaxation in the conditions forapproval process and simplifying custom rules.

4. Development Commissioners have been given theLabour Commissioner’s powers. SEZ policy is thusthe most significant thrust towards ensuring thesuccess of export processing zones.

5. From November 1, 2000 the Export ProcessingZones (EPZ) at Kandla, Santa Cruz (Mumbai),Cochin and Surat have been converted into SEZs.

6. In 2003, other existing EPZs namely, Noida, Falta,Chennai, Vizag were also converted into SEZs.

As on June 2005, 53 SEZs have been approved by theGovernment of India (GoI) out of which 11 SEZs arefunctional and the rest 42 SEZs are underestablishment. According to the SEZ Act 2005, theGoI has proposed that multi-product SEZs must havean area of atleast 1,000 hectares, while sector-specific zones including ports and airports must havea minimum area of 100 hectares. However, the areanorms for multi-product SEZs in the northeasternstates like Assam, Meghalaya, Nagaland and thestates of Jammu and Kashmir, Himachal Pradesh andUttaranchal have been limited to 200 hectares and50 hectares in the case of sector-specific SEZs.Source: Special Economic Zones – Engines for Growth, May2006. Website of the Confederation of Indian Industries(www.ciionline.org)


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CHALLENGESThe typical arguments provided by the state hadshortcomings. A rational mind perhaps would arguefor the path of policy initiatives that fulfill thetwin objectives of growth along with development.Perhaps that could have been the underlying pointfrom where the debate regarding the SEZsgerminated. It was the left parties, Janmorcha andseveral other political think tanks that raised somecrucial & critical issues that could not be bypassedin any way before coming to any policyconclusion. The Act and the Rules for the SEZsrequires large tracts of land to be acquired andhanded over to promoter companies. These as hasbeen proposed by the academicians & many civilsociety organisations, are going to lead to large-scale displacement of farmers with meagrecompensation and no alternative means oflivelihood. On the flip side, investors and the landspeculators identified it as a cheap and dearer wayto make their fortunes out of real estatedevelopment and speculation. Indiscriminateapprovals for SEZs have serious implications foragriculture, food security, the interests of farmersand economic sovereignty. Thus, the upcomingvoices from several political parties and civilsociety organisations for changes in the SpecialEconomic Zones (SEZ) Act and Rules aresummarised in the following diagram –

clarifying the statement bit further it states that‘infrastructure is not only roads, ports andairports but also workplaces like industrial parksand Information Technology parks’. In thisdocument, it also emphasises the importance ofsocial infrastructure constituting housing facilitiesetc. Whereas, the Finance Ministry argues that theway SEZs are designed would cause a revenue lossof over Rs.160, 000 crores by 2010. Apart fromthese issues of fiscal considerations, the morefundamental issue that has been highlighted isregarding government’s intervention in acquiringland for private projects. Added to this are theissues related to adequate steps to compensate andrehabilitate the displaced people by amending TheLand Acquisition Act suitably for this, along withconsidering the coverage of farmers and alliedagricultural workers. It has been proposed that theSEZs should be set up only with the approval ofthe State governments. Also, among the right wingparties there remains considerable concernregarding a significant revision of land acquisitionnorms in the SEZ Act, for protecting the interestsof farmers whose land is diverted to non-agriculturaluses. The debate has gained momentum when thereare strong common opinions to put the farmers as“stake-holders” in the activity undertaken on theland acquired from them. Industry requires land nodoubt, but certainly not at the cost of divertingprime agricultural land to non-agricultural uses.Clearly, keeping in view the agri-dominance in ourcountry the proposal of implementing the neededSEZs must be done without jeopardizing ouragricultural prospects.

Now, one of the arguments that was proposed onthe part of the State governments in favour ofSEZs is providing the farmers with propercompensation when their land is purchased. Inthis regard, Minister for Industries, Government ofWest Bengal mentioned that land acquisition forSEZs is unavoidable, but it is the stategovernment’s effort to ease the pain through agenerous compensation package. He stated that

Budget andPol icyTracking ofthe UnionGovernment

THE EVOLUTION OF SEZsIn this regard, it is to be noted that the Commerce& Industries Ministry, the strongest proponent ofthe SEZs clearly asserts in its official website that,‘SEZs are about infrastructure creation’ and

“ the FinanceMinistry arguesthat the waySEZs aredesigned wouldcause a revenueloss of overRs.160, 000crores by 2010”


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apart from the statutory provisions, i.e. marketvalue of the land and 30% solatium, the stategovernment has given an additional incentive of 10%to landowners who have given up their land willingly.He added that, there is also a 12% interest on thetotal value of the land for the interval between theissue of notification and the final transfer (Frontline,October 20, 2006).

On the other hand, one must also agree thatthe fundamental & also operational problemsrelated to the SEZs are not encaged within theboundaries of the use of land and thedisplacement issue. Rather, in terms of itslarger goals (viz: export led growth,manufacturing-led growth and employment-ledgrowth) the SEZ agenda needs more clarity. At

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Tracking ofthe Union

Government

Weighing the pros and cons

FDI: Economic growthIncreased exportsIndustrialisation

Special Box I: Special Economic Zones (SEZs): Whither Nationalism!

Whither nation state and welcome to ‘Company Raj’.

In the last decade of the twentieth century, amidst the upheaval of crumbling ideologies and collapsingpolitical structures; the idea of nation state, fuelled by chauvinistic nationalism, seemed to have become moreresilient. In-fact, the construct of nationalism and nation state appeared to be gaining strength with a waveof ethnic and religious nationalism.

However, political commentators and observers completely underestimated the power of imperialist globalizationin undermining even the most powerful structures for expanding and fulfilling the interests of global capital.This neo-liberal march has even punctured an emotive and powerful construct like nation and nationalism byintroducing Special Economic Zones (SEZs) as means of ‘reforming governance’ and ‘economic development’.Government of Maharashtra defines SEZs as ‘specifically delineated duty-free enclaves treated as foreignterritory’. Needless to say in this newly evolving architecture there is no place for notions of social justiceand inclusive equitable economic growth.

This is a global phenomenon and the story unfolding in India is one such stark case in point. Till now Indiahas formally approved the creation of more than 150 SEZs, of these just six big corporate houses would gobblearound 1,30,625 acres (737 Sq Km) of land-which would be enough to build a city bigger than Mumbai. Thenumber of people displaced or losing their livelihood is no more relevant, even as a statistical footnote amidstthe growing enthusiasm for SEZs. Not so surprisingly, the smug Indian middle classes and the political elitesare not protesting against this creation of ‘foreign territories’ within India.

The creation of SEZs is a not so subtle euphemism for shameless land-grab by private interests. It is a harshstory of brazen conversion of public resources into private profits, while the State plays the role of a proactivefacilitator of this process. As if the illegitimate land grab is not enough, the government promises to providehuge tax exemptions and benefits for SEZs with a commitment for world-class infrastructural support.Paradoxically, the same government is unable to provide basic services like education, health and safe drinkingwater to majority of this country, where still more than one-fourth of the population sleeps hungry withoutthree square meals a day.

– Amitabh Behar, Executive Director, NCAS-CBGA

Large-scale displacementW idening gap betweenrich and poorFiscal considerations

SEZsEngines

ofGrowth???

the same time, creating so many SEZs wouldseem to exacerbate widening inequality in India– both in terms of individual income andnational infrastructure. There are instances in therecent past about how the initiative of isolatedareas of development has hardly benefited thebroader economy. Destroying valuable agriculturalplots seems especially ill-conceived, as farmersare not likely to make an easy transition to thejobs at offer at the SEZs. Therefore, to have atrickle down effect of the developmental moves wemust reconsider our age-old resettlement andrehabilitation policies, which must be strengthenedand implemented in an effective and crediblemanner, which will inspire confidence in thepeople who are displaced.

“ creating somany SEZswould seem toexacerbatewideninginequality inIndia – both interms ofindividualincome andnationalinfrastructure”


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FDI IN AGRICULTURE

BACKGROUNDTwo thirds of India’s population lives in ruralareas. Agriculture and related activities are themain source of livelihood for them. The processhas been further facilitated through newagricultural techniques and tools acquired byIndian farmers, mechanization, use of highyielding varieties of seeds, increasing use offertilizers and irrigation facilities, on-goingoperational research in the country’s numerousagricultural universities and colleges, etc.

But still with the ‘opening up’ of the agriculturaland plantation sector of our economy to 100 percent FDI by merely shifting ‘residual items’ likeagriculture and plantations to the ‘automatic list’is a matter of deep concern. Automatic list refersto those items listed (e.g. cars & motor vehicles,fertilizers & pesticides etc) for the inflow of FDIwhere the FDI can be channeled through the‘automatic route’ (i.e. no general rule of priorpermission from the government regarding theinvestment is required). The only priorrequirement is that the investors have to inform theReserve Bank of India (RBI) thirty (30) days inadvance to their investment or issuing of share. Onthe other hand, residuals list covers those left outitems from the automatic list for which there is acap on FDI limit (e.g. Defense) and for those itemsfor which FDI is strictly prohibited. So far, items likeagriculture plantations (excluding tea plantation),retail trade, gambling was kept out of the ambit ofthe automatic list.

CHALLENGESThe importance of the agricultural sector mustnot be undermined since it contributes almost62% of the employment in India. But, when thegovernment suddenly decides to replace majorcomponents of the same to the automatic list,then debate and clarity for properunderstanding of the policy is inevitable. It isto note in this regard that the Group of Ministers(GoM) on FDI, while considering the proposal forreview of FDI policy in January 2006recommended, inter-alia, the proposal to removeagriculture and plantation, with exclusions, fromthe list of prohibited activities, and recommendedlisting out the permitted activities in these sectorsunder the sectoral policy. Moreover, norecommendations were made by the GoM toopen up for 100 percent FDI through theautomatic route to agriculture and plantationsector as reported in Business Standard dated July12, 2006. However, the Group of Ministersrecommended amendment to the permittedactivities as incorporated in Foreign ExchangeManagement (Transfer or Issue of Security by aPerson Resident outside India) Regulations, 2000,amended on 18/6/2003, by inclusion of‘Aquaculture’ and deletion of ‘etc’ appearing afterthe word ‘mushroom’ (GoI Press Release, August 01,2006). However, these recommendations of theGoM headed by the agriculture minister seem toshrewdly bypass the existing Foreign ExchangeManagement Act (FEMA). FEMA states that aperson of Indian origin, resident outside India maytransfer any immovable property in India otherthan agricultural land/farm, house/plantationproperty, by way of sale to a person resident inIndia. Further, the same is valid when oneconsiders the transfer, by way of gift or sale to aperson resident in India, who is a citizen of India.Therefore, to take such a decision in hush-hush isa matter of serious concern, especially forsensitive sectors like agriculture.

FISCAL SITUATION

BACKGROUNDThe Union Budget 2006-07, taking forward thefiscal consolidation stipulated under the FiscalResponsibility and Budget Management (FRBM)Rules, 2004, projected the revenue deficit andgross fiscal deficit at 2.1 per cent and 3.8 percent of GDP, respectively, lower than that of 2.6per cent and 4.1 per cent of GDP in the revisedestimates for 2005-06. The Budget envisagedrevenue-led correction along with reprioritizationof expenditure to augment allocations forimprovement in the social and physicalinfrastructure particularly in the rural areas.Available information on Central Governmentfinances during April-May 2006 indicates buoyant


Box 1c: The Present Policy on FDI inAgriculture & Plantation1. FDI up to 100% is permitted under the

automatic route only in the under-mentionedactivities viz. Floriculture, Horticulture,Development of Seeds, Animal Husbandry,Pisciculture, Aquaculture and Cultivation ofVegetables & Mushrooms, under controlledconditions and services related to agro andallied sectors.

2. FDI up to 100% with prior Government approvalis permitted in Tea plantation subject to theconditions of divestment of 26% equity of thecompany in favour of an Indian partner/ Indianpublic within a period of five years; and priorapproval of the State Government concerned incase of any future land use change.

3. Besides the above two, FDI is not allowed inany other agricultural sector/activity.

The above information was provided by Dr AshwaniKumar, Minister of State for Industry in a writtenreply in Rajya Sabha on 23rd August 2006.

Source : www.commerce.nic.in

“ The only priorrequirement forFDI inagriculture andplantation isthat theinvestors haveto inform theRBI 30 days inadvance to theirinvestment orissuing of share”


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tax collections, particularly in respect ofcorporation tax, personal income tax and customsduties. Union excise duties, however, declinedduring April-May 2006 over their level a year ago.Non-tax revenue showed improvement mainly onaccount of returns from economic services.Aggregate expenditure during April-May 2006registered substantial growth on account ofincrease in interest payments, food and fertilizersubsidies, grants to States and higher non-defensecapital outlay. Accordingly, all the key deficitindicators, as proportion to budget estimates,during April-May 2006 were placed significantlyhigher than their levels a year ago.

INITIATIVES TAKENThe State budgets for 2006-07 proposed variouspolicy initiatives to carry forward the process offiscal correction and consolidation. The Stateshave emphasized fiscal empowerment throughbroad basing and rationalization of the taxsystem. In order to improve the accountabilityof budget proposals, some States have proposedto introduce ‘Outcome Budget’, following thepattern of the Central Government. Furthermore,many State Governments have proposed tointroduce ‘Gender Budgeting’. A number ofStates announced introduction of new pensionschemes based on defined contribution torestrict their rising pension obligations. Further,the so called progressive enactment of FiscalResponsibility Legislation (FRL) to put in placea rule-based fiscal policy at the State level (22States as at end-March 2006), as proposed bythe Twelfth Finance Commission also needs tobe scanned, since it seems to bring muchvulnerability to the State’ exchequer.

THE FRBM DEBATE: A SHORTREVIEW

BACKGROUNDThe Fiscal Responsibility and Budget ManagementAct (FRBM Act) was enacted by Parliament in2003. It received the President’s assent in Augustthe same year. The United Progressive Alliance(UPA) government had notified the FRBM Rules inJuly 2004. Under this Act, the Government isrequired to bring down revenue deficit to zero by2007-08. To understand the mechanism, let’sconsider a simple example of family budgets. Ifa family spends more than it earns, the extramust be borrowed, and paid for with interest.It’s a lesson that is seldom honoured bygovernments, since the elected representativesi.e. the politicians are much eager to spendmore at the present time even throughborrowing and thus, let the repayment costspass on to future generations to whom they arenot accountable.

ARGUMENTS AND CHALLENGESNow arises the problem. Consider, in reality largenumber of elected representatives spending a hugesum of money over a wider time frame, eventuallythe repayment problem can no longer be put offto the future. Rather, it must be addressed at thispresent point of time. This is roughly the situationunder which Parliament passed the FRBM Act. Asa matter of fact, after decades of spending morethan what could be paid for by the revenues ofthe government, the bill for the interest on thoseborrowings alone has risen to exorbitant levels. Inthe 2004-05, Finance Minister Mr. Chidambarampresented the budget outlay of about Rs.130,000 crores. This amount was used to pay theinterest on outstanding loans. It’s alarmingsince this huge sum of money was proposed tobe used as the payment for not the principal,but the interest! Imagine, if the money couldhave been spent on schools, hospitals, and allthose other social services and necessities thatpeople expect in the form of publicprovisioning. But then, by the time the interestis paid, and all the needed and essentialexpenses required for running the state are alsodisbursed, the share of cake that is left over forspending on programs for those needed socialservices are inadequate. Therefore, in a line what

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Government

Box 2a: Glossary of terms used:1. A region’s Gross Domestic Product, or GDP, is

one of the several measures of the size of itseconomy. The GDP of a country is defined as themoney value of all final goods and servicesproduced within the country in a given periodof time. GDP = consumption + investment +government spending.

2. Balance of Payments (BoP) measures thepayments that flow between any individualcountry and all other countries. The currentaccount of the balance of payments is the sumof the balance of trade (exports less imports ofgoods and services), net factor income (such asinterest and dividends) and net transferpayments (such as foreign aid). A currentaccount surplus increases a country’s netforeign assets by the corresponding amount, anda current account deficit does the reverse.

3. Revenue deficit is the gap between revenueexpenditure and revenue receipts. It istherefore the borrowing undertaken to meet thecurrent needs of the Government.

4. Fiscal Deficit of the Government is the gapbetween its total expenditure (including loansnet of repayments) and its sum total of non-debt creating receipts. Thus, fiscal deficitindicates the total borrowing requirements ofthe Government in a particular year. [FiscalDeficit = Total Expenditure – (Revenue Receipts+ Recoveries of Loans + Other Capital Receiptsexcluding debts)].

“ all the keydeficitindicators, asproportion tobudgetestimates,during April-May2006 wereplacedsignificantlyhigher thantheir levels ayear ago”


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What aboutmoney for the11th Plan???

No shifting ofGoal posts of

FRBM Act

public sector enterprises saved Rs 69,390 crore.This signifies that there was a shift in publicsector savings from a negative to a positive(2.2%) percentage of GDP. Further the combinedrevenue deficit and fiscal deficit is estimated tofall during the coming years. Therefore, from thestandpoint of the finance minister shifting FRBMtargets, as proposed by the approach paper, wouldmean decreasing public savings. If the currentaccount deficit rises by say, 1% to 1.5% from thepresent 1.3%, it can finance an additional 1% to1.5% of investment. A current account deficit ofover 3 % may not be sustainable. Precisely theministry argues that, shifting FRBM targetswould mean lower investment and lower growth.However, the finance ministry maintained asilence about the more substantive problem ofhidden or a disguised leakage in spendsoccurring under the aegis of plan programmes.Additional 1 to 2.5% of GDP would be required tobe spent on the NREGA, health, education andirrigation. The paper refers to a Pratham study(Annual Status of Education-Rural 2005)highlighting the fact that 38 % of children whohave completed four years of schooling cannot

this all means is that, it’s high time to designmechanisms for expenditure management or inother words to squeeze the flow of expenditures,and raise more money on the revenue side toreduce the deficit. These lines of argumentsinitiated a debate between the Finance Minister,Mr. P. Chidambaram, and the Deputy Chairman ofthe Planning Commission, Dr. M. S. Ahluwalia.


Special Box II: Wrinkle of Fear

In the ongoing winter session of the parliament’ TheIndia Post Amendment Bill’06 was tabled on theRajya Sabha. This proposes to render exclusiverights to ‘India Posts’ (the new name of ourneighborhood post offices) to carry and deliverletters weighting up to 300 grams. Naturally, giventhat the letters are a stronghold of the courierbusiness, the private courier operators, mostly small& medium enterprises (SMEs) are forced to faceserious challenges for their existence. Apart frominvesting high for on all India coverage, thereremains further challenge for gathering enoughfunds and invest them for building properinfrastructure for timely delivery. The interestingfact is that, according to a recent study by CreditAnalysis & Research (CARE) advisory, the size of theIndian express industry is around Rs.7100 crore with2500 players, derived from their service tax paymentof Rs.630 crore in 2005-06.Further, almost 70% to80% of these tax payers are from the SMEs.Therefore, if the bill in its current shape is passed,it simply means a revenue loss of a huge amountand also a reduction of business of 30% to 35%among the semi-organized and unorganized playersin various parts of the country. On the flip side,keeping in mind the new cost structure, the ratesfor courier services may rise, which in turn is sureto affect the consumers Therefore, keeping thoseviews in mind both from the side of the SMEs andthe consumers, there certainly remains enough roomfor dialogue and hence modification of the billbefore its is placed in the parliament.

Source: The Economic Times, 17th October 2006.

Dr. Ahluwalia has said that he was keen on gettingmore money for the 11th Plan rather than belt-tightening to meet fiscal deficit targets. On theother hand, Mr. Chidambaram does not favour theshifting of goalposts of FRBM Act in order toprovide more resources for the 11th Plan assuggested by the Commission. Under the FRBMAct, the government has reduced fiscal deficit by0.3% and revenue deficit by 0.5% of GrossDomestic Product (GDP) annually in a bid to wipeout revenue deficit and bring down fiscal deficitto 3% of GDP by 2009. The mercury soured when,on August 14, Chidambaram wrote to Ahluwaliaquestioning the fundamental assumptions of theapproach to the 11th Five-Year Plan. In the letter,the Finance Minister has said that his ministrydoes not accept the Plan Panel’s view that theburgeoning Current Account Deficit will hindereconomic growth and questioned the logic thatpoor demand will inhibit farm growth. The mostimportant objection, and perhaps the bindingone—given that Chidambaram holds the pursestrings, is his objection to the proposal to shiftFRBM targets. Now the question is whether theIndian Economy has to pay, if at all, forshifting the FRBM targets, and if so to whatextent? Further, supposing that the aboveproposition is true and the shifting of the FRBMtargets does cost the Indian Economy at large,do the benefits from higher public spendingoutweigh these costs?

Observers defending the finance ministry arguethat higher GDP growth in the last three years hascome from higher investment. In the period from2001-02, there was an increase in the investmentrate by 7% (rose from 23% in 2001-02 to 30.1%in 2004-05) of GDP. This investment was financedby a rise in both the gross savings rate and netcapital flows from abroad. The component ofsavings that showed the most remarkable swingwas public savings achieved by fiscal consolidationat both the state and central levels. In 2001-02,the public sector as a whole accrued losses of Rs46,377 crore. In 2004-05 the government and

“ 38 % of childrenwho havecompleted fouryears ofschoolingcannot readeven shortsentences and55 % amongsuch childrencannot divide athree-digitnumber by aone-digitnumber”


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read even short sentences and 55 % amongsuch children cannot divide a three-digitnumber by a one-digit number. The condition forother subjects can be rest assumed. Though, thestudy by Pratham has been criticized by somesegments of the intelligentsia, but still as a partof the approach paper document it clearly pointsout the grim pictures of Sarva Shiksha Abhiyanoutcomes.

Similarly, the Eleventh Plan Approach Paper notesthat rural health care in most states in India ismarked by absenteeism of health providers, lowlevel of skills, shortage of medicines, inadequatemonitoring and callous attitudes.

The midterm appraisal of the10th five-year plan remarks ...

“When people first seek treatment, anestimated 70-85 percent visit a private sectorprovider for their health care needs”. It further

states that, “the poor avail of the costlierservices provided by the private practitioner,even when they have access to subsidized or

free public health care, due to reasons ofdistance, but most importantly, on account of

the unpredictable availability and very lowquality of health care services provided by the

rural public primary health sector.”

The approach paper provides solution to theseproblems in the form of education vouchers ora well designed stick and carrot policy or toempower Panchayati Raj institutions to manage,administer and be accountable for healthservices in community levels and for alikesocial sectors. But, as felt by severalacademicians that considering the complexsocio-economic-politico context of India, thefeasibility of such solutions are ambiguous.Precisely, the very vision of the Approach Paper tothe Eleventh Five-Year Plan, combining innovativefinancing of infrastructure with a massivedecentralized thrust on education, health andagriculture, may be defeated, since they are ineffect grants to implementing agencies in states,even though they finance asset creation onground. To get over this difficulty, the planpaper mentions that revenue deficits as definedin India are not regarded as essential elementsof fiscal responsibility legislationinternationally. Further, considering the globalpractice of fiscal adjustments, there is a case forredefining the approach to FRBM to conform toglobal practice in the long term.

Lastly, apart from those views mentioned earlier,there remains another group of economists, whodo not find any theoretical justification whatsoeverfor putting a ceiling on the fiscal deficit. The ideathat if it is not monetized, a rise in the fiscaldeficit causes a rise in interest rates or

inflation sounds irrational. The passion forreducing the size of the fiscal deficit under theabove mentioned logic provided by the financeministry replicates the much-debated colonialpolicy of ‘sound finance’, serving sectionalinterests but which has no rationale as amacroeconomic policy. It is also clear from theapproach paper that the problem is not only thescarcity or bottlenecks in funding, but alsomingled with it is the absence of the sense ofaccountability. The path to better social servicesoutcome starts and ends with appropriatelyimplementing the service delivery mechanisms, andnot just by higher spending. The PlanningCommission therefore might adopt a stick andcarrot policy for any further spending, even by asingle rupee on the services/schemes that havestopped working or lacks far behind the desiredoutcome or output. Till then there may not besufficient justification for shifting FRBM targets.It’s worth mentioning Prof.Prabhat Patnaik’sstatement:

‘We do not anyway encourage fiscalirresponsibility, rather, we are trying toemphasize that fiscal responsibility can beenforced only through some meaningfulassumptions’.

THE OUTCOME BUDGET 2006Recently, the long awaited Outcome Budget 2006for several ministries has been published. We shallhere try to provide a quick summary of some ofthe major projects/schemes as has beenhighlighted in the Outcome Budgets under relevantministries. They are as follows:

A. MINISTRY OF HEALTH & FAMILYWELFARE (MoHFW)1. Accredited Social Health Activist (ASHA)

under the National Rural Health Mission(NRHM): The physical output to be deliveredwas to train ASHA, one for every 1000population or less / for large isolatedhabitations in 18 Special Focus States. Theoutcome budget states that 1 lakh ASHAshave been already selected during 2005-06and additional 1.5 lakh are to be selectedduring 2006-07. Further, 4 lakh ASHAs are tobe selected by 2007-08. It is also stated thatthe risk factors associated with the same isthat selection of ASHA is a communitybased process and the pace of progress isa function of the capacity and extent ofparticipation of the community.

2. Routine Immunization of Children (RIC)against six Vaccine Preventable Diseases[VPD] and reduction in morbidity andmortality rate due to VPD was carried outunder the National Rural Health Mission

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“ the 11th planapproach papermentions thatrevenue deficitsas defined inIndia are notregarded asessentialelements offiscalresponsibilitylegislationinternationally”


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(NRHM). As per the District Level Householdsurvey of 2002-03, the immunization level ofcoverage in the country is 47.6 %. On thebasis of this, the physical output is to beraised a minimum of 75 % for each of theantigens, i.e. BCG, DPT, OPV and Measles.The processes and timelines set for the samemaintained fixed days and fixed sites, weeklysessions at the sub-centre and outreach areaswith special immunization weeks in theEmpowered action Groups (EAG) and NorthEastern (NE) States. Nevertheless, theoutcome budget states that vacant posts ofAuxiliary Nurse Midwives (ANMs) at the subcentre and District Immunization Officers(DIOs) in the districts are to be filled upwithout which it would be difficult to achievethe coverage indicated.

3. To reduce the incidence of Malaria, theNRHM considered the National Vector BorneDisease Control Programme with a totalbudget outlay of Rs.378 crore for 2006-07.The physical output that was proposed to bedelivered was maintaining the Annual BloodExamination rate (ABER) at 10 % of targetpopulation under surveillance. The projectedoutcome expected to reduce Mortality by 10%.The processes for the success containedseveral agendas like fortnightly visits ofhouseholds by Health Workers,operationalization of at least one DrugDistribution Centre (DDC) / Fever TreatmentDepartment (FTD) per village in high-riskareas, provision of microscopy at sector levelPrimary Health Centre (PHC), introduction ofquality control and assurance for microscopyetc. Some of the risk factors that have tobe addressed immediately for the successof the programme identified in the outcomebudget are:

filling up of vacant posts of HealthWorkers for domiciliary visits

timely release of funds in states forprogramme implementation

submission of utilization certificates bystates to Government of India (GOI) fortimely release of funds

functional microscopy services etc.

B. MINISTRY OF WOMEN AND CHILDDEVELOPMENT (MoWCD)The major scheme/ project taken up by theMoWCD is the Integrated Child DevelopmentServices (ICDS). The budgetary outlay for ICDSduring 2006-07 has been Rs. 4,543 Crore.Considering its utmost importance for the welfareof the target stakeholders, the ministry outlinedfew physical outputs that it proposes to deliver.

They are-1. Maintain the number of Operational

Projects upto 5635.2. Maintain the number of Aanganwadi centres

(AWCs): 7.44 lakha) Number of beneficiaries: - total:

4,99,04,769; women: 91,49,359; children:4,07,55,410

b) Number of children given supplementarynutrition: 4,07,18,734

c) Number of functionaries trained (job):8,44,969

d) Number of ‘refresher’ trainings: 4,51,349

e) Number of children attended pre-school:2,30,87,619.

The projected outcome considering the physicaloutputs mentioned above are significant. Theinformation gathered by Ministry of Health &Family Welfare states a reduction in InfantMortality Rate (IMR) / Maternal Mortality rate(MMR) and an increase in number of childrenenrolled in school (from next year).

C. MINISTRY OF HUMAN RESOURCEDEVELOPMENT (MoHRD)One of the mega projects of the MoHRD for theuniversalisation of Elementary Education has beenthe Sarva Shiksha Abhiyan (SSA). The Budgetaryoutlay for SSA during 2006-07 has been Rs.11,000crore. The outcome budget states some physicaloutputs that are supposed to be delivered underthe SSA. They are shown in the following diagram.


“ selection ofASHA is acommunitybased processand the pace ofprogress is afunction of thecapacity andextent ofparticipation ofthe community”


10

Special Box III: Definitely an honour for the developing world, but …Prof. Muhammad Yunus and the Grameen Bank, Bangladesh were awarded the Nobel Peace Prize-2006 for theirwork in advancing economic and social opportunities. The economist and his bank, who will share the prize,were cited for their efforts to help “create economic and social development from below” in their home country.

Yunus used innovative economic programmes such as microcredit lending. “Across cultures and civilizations,Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their owndevelopment,” the Nobel Committee said in its citation. The committee further emphasized that unless thefemale half of humanity participates on an equal footing with the male economic growth and politicaldemocracy cannot achieve their full potential. No doubt, the honour to Yunus and the Grameen Bank is asalute to the unheard majority of the south.

But there remains a strong range of difference of opinions regarding the validity and sustainability of theprocess universally. As a matter of fact, only two countries, Bangladesh & Bolivia have successfully implementedthe mechanism, at the same time they are the two poorest economies of the globe. Nowadays, severaleconomists argue that micro loans can be seen as a tool but it should not be romanticized as a form oftransformational activity. At the end of the day micro loans do not make any macro difference. No doubt thoseloans have helped poorer women in some parts of the globe but in their own way they are reflections ofdefeat. Precisely, the trouble with the publicly–subsidized credit programms are that they are public & theyare large and run against the mandate of the neoliberal regime.

Therefore, there remains enough room for rethinking the issues from a broader perspective in terms of itsviability round the globe as a means to breakthrough the unfreedoms of life.

(Rs. in Crores)

Budget Estimates Actuals@ upto % of Actuals to2006-2007* November 2006 Budget Estimates

Rs. Rs. Current COPPY**

1 Revenue Receipts 403465 280915 69.6% (61.7%)

2 Tax Revenue (Net) 327205 232171 71.0% (61.7%)

3 Non-Tax Revenue 76260 48744 63.9 % (61.8 %)

4 Non-Debt Capital Receipts 11840 7952 67.2 % (61.8 %)

5 Recovery of Loans 8000 7952 99.4 % (61.7%)

6 Other Receipts 3840 0

7 Total Receipts (1+4) 415305 288867 69.6 % (61.7 %)

8 Non-Plan Expenditure 391263 272203 69.6 % (64.2%)

9 On Revenue Account 344430 253791 73.7 % (67.0 %)(i) of which Interest Payments 139823 92634 66.3% (60.5 %)

10 On Capital Account 1666 854 39.3 % (40.6 %)(i) of which Loans disbursed 46833 18412 51.3% (58.5 %)

11 Plan Expenditure 172728 111518 64.6 % (65.9 %)

12 On Revenue Account 143762 93901 65.3 % (64.6 %)

13 On Capital Account 28966 17617 60.8 % (71.7%)(i) of which Loans disbursed 7195 5685 79.0 % (149.8 %)

14 Total Expenditure (8+11) 563991 383721 68.0 % (64.6 %)

15 Fiscal Deficit (14-7) 148686 94854 63.8 % (71.7 %)

16 Revenue Deficit (9+12-1) 84727 66777 78.8% (83.6 %)

17 Primary Deficit {15-9(i)} 8863 2220 25.0% (159.1%)

Notes: *Financial Year runs from “April to March”**COPPY: Corresponding Period of the Previous Year@ Actuals are unaudited provisional figures.Source: Website of the Controller General of Accounts (www.cga.nic.in)

UNION GOVERNMENT ACCOUNTS AT A GLANCE(AS AT THE END OF DECEMBER 2006)

“ micro loans canbe seen as atool but itshould not beromanticized asa form oftransformationalactivity”

Budget andPol icy


Government


11

Special Economic Zones:Padding Gains,Discounting Losses

t’s a debate that is unlikely to wind downanytime soon. Since the time the SpecialEconomic Zones (SEZ) Act, 2005 has kickedin, a slew of projections of the costs and

HAVE WE FORESEEN THE WIDE RANGE OFISSUES SUCH AS REHABILITATION POLICYAND THOSE RELATED TO ENVIRONMENT?Concerns abound over several aspects of theoperationalisation and implementation of the SEZAct, ranging from diversion of prime agriculturalland and consequent implications on displacementof farmers, alternative livelihoods and overall foodsecurity, revenue losses with attendant linkagesapprehensions over real estate grab in lucrativelocations, non- application of protectivelegislations for workers in SEZ areas toenvironmental issues. There are also misgivingsrelating to the exemption of SEZ’s from applicationof other Central Acts and rules as laid down undersection 49 of the Act, including denial of popularparticipation in local self government.

The acquisition of large chunks of fertileagricultural land in and around urbanagglomerations such as, in Haryana andMaharashtra has led to protests by farmers andpublic interest groups. In Haryana for instance theSEZ big players like Reliance Industries and DLFhave projected acquisitions of land to the tune of10,000 hectares and 9,000 hectares respectively.In Maharashtra, the Mumbai SEZ alone measures

benefits are being bandied about with littleconvergence on what they are likely to achieve.SEZs were China’s biggest draw for the foreigninvestors and are believed to be the key driver inputting the country right on top as the world’sbiggest recipient of foreign direct investment(FDI). Over the years, inflows of FDI into Chinahave climbed up steeply in sharp contrast toIndian trends. Thus, UNCTAD’s World InvestmentReport 2006, records FDI inflows into China at$72.4 billion in 2005. India FDI’s inflows of $6.6billion barely match up. It has been presumed thatSEZ Act may just be the enabling trigger. Exportpromotion and employment generation through

DO WE REALLY NEED TO EMULATE THEMODEL ADOPTED BY CHINA?The first basic concern relates to its origin, overallphilosophy and historical context and whether ornot it continues to be relevant today. Simply put,it has been advanced that the Chinese model wasnecessitated because of the need to create tostringent across the board policy constraintsemanating from the insular nature of its economy.SEZs offered a practical option for attracting theOverseas Chinese investors and later MNCs. It is amoot point whether such a need exists in the postreforms Indian economy. Many economistsincluding Prof. Jagdish Bhagwati, feel that the SEZact has outlived its utility and India does notneed to copycat through distortionary incentivesand provisions.

I

provision of world class infrastructure and a raft ofspecial fiscal provisions including exemptions fromcustoms duty, excise and service taxes, drawbackon goods and services supplied to SEZs form keyattractions to potential investors and are outlinedin sections 26-30 of the Act.

Media reports estimate that around 263companies have already received formal approvalsto set up SEZs and another 169 have beengranted clearance in principle by the government.An examination of the bare details available forapproved SEZ’s reveal that they cover a widerange and include multi product ones to sectorspecific enterprises such as pharmaceuticals andbiotechnology, engineering products, IT/ITES,Gems and jewellery, textiles and electronics.Broadly, SEZs are spread over 15 states includingAndhra Pradesh, Maharashtra, Uttar Pradesh,Madhya Pradesh, Haryana, Punjab, West Bengaland Karnataka. Of course, the total number ofSEZs as well as their sizes differs across states.

While corporate India is focused on the analysis ofthe business model and time horizons when profitsstart pouring in, it is important to touch upon thekey issues and concerns which are yet unresolvedas the SEZ bangwagon rolls out.

Guest Column: Biplove Choudhary


12

Specia lEconomic

Zones:Padding

Gains,Discounting

Losses

14,000 hectares. It is inevitable that large partsof the acquisition would involve a diversion ofprime agricultural land to the industry which is yetto be firmly quantified. It is important to notethat while the Act does mention minimum arearequirement, ceilings have not been set as laiddown under Section 5 (2). Displacement of farmersand agricultural workers arising on this countwould but follow in the absence of a NationalRehabilitation policy. Besides, the governmentseems only too willing to step in and facilitate thepurchase of land at prices which are significantlybelow par than the market value of the land. Thus,the land sought to be acquired for the Mumbai SEZhas been reportedly priced at Rs. 1.7 lakhs to Rs.2.5 lakhs an acre whereas the market price for thesame is in the range between Rs. 20-40 lakhs peracre.

WHAT ARE THE LARGER IMPLICATIONS OFSEZ ACT?Projections of staggering revenue losses by theFinance Ministry to the tune of Rs. 1,75,000 croresas against the projected investment ofRs. 3,60,000 crore are deeply worrying. This isbound to put Government budgets under strain ifwe also factor in future revenue losses on accountof India’s commitments in the making at the WorldTrade Organisation. Taken together, there is boundto be an impact on social sector and other welfarespending of the government in such a scenario.The Planning Commission and the Reserve Bank ofIndia (RBI) have also sounded a cautionary noteon this count. In its Annual Report, 2005-06, RBInotes that the revenue losses can only be justifiedif the SEZ units ensure forward and backward

linkages with the domestic economy. To whatextent this would happen is not at all predictable.

ARE WE PROMOTING REGIONAL INEQUITY?At the beginning of economic reforms in China,Deng Xioping propounded his policy of ‘lettingsome areas and people getting rich forachievement of common prosperity ultimately’,there was no forethought about the potential forregional inequities embedding in such anapproach. There are reasons to believe that asimilar pattern may be witnessed in India whichwould further accentuate the uneven developmentof regions as underlined by the RBI Annual reportby drawing out resources from less developedareas.

While, a detailed discussion on other provisions ofthe Act is beyond the scope of this write up,suffice it to say that in the light of the foregoingconcerns, the SEZ Act needs to be comprehensivelyreviewed. Current policy seems be hinged on theprinciples of padding up gains and discountinglosses imminent on account of theoperationalisation of the Act. While land is a statesubject, the Centre does need to step intoappropriately in order to regulate its acquisitionand its ultimate use. Importantly, the constitutionof the Board of Approval needs to be broad basedwith all the major stakeholders represented in thedecision making process. Civil society actors needto play a role at every step in the governance ofSEZ right from policy formulation stage to itsactual implementation.

“ the land soughtto be acquiredfor the MumbaiSEZ has beenreportedly pricedat Rs. 1.7 lakhsto Rs. 2.5 lakhsan acre whereasthe market pricefor the same isin the rangebetween Rs. 20-40 lakhs peracre”

Biplove Choudhary is Centre Coordinator, CENTAD, New Delhi.


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People ’s Budget Init iative:An Effort to DemocratizeBudget Making Process inIndia - Yaminimovements in their struggle for human rights andsocial justice. At CBGA, we believe that Budgetsare the most important policy document asmoral-laden commitments without aconcomitant putting in of adequate money ismeaningless. Budgets reveal in black and whitethe government’s priorities and intentions.Unfortunately though, in India, like in many othercountries, the voices heard in the discourse on thebudget are dominated by the economists, policymakers, academics and corporate houses. What isclearly missing is the voice of the people and theperspective of the poor and the marginalised, whoconstitute a majority of the population in India.

To create a greater space for people’s voice in thebudget making process, CBGA has joined handswith several organizations and the foundation ofa new initiative, the People’s Budget Initiative,has been laid.

The People’s Budget Initiative is a broad alliancethat has been constituted to advocate for greaterdemocratisation of the budget making process andbudget documents. The alliance has representativesfrom people’s movements, grassroots organizations,academia and the media as well as national andinternational development organisations.

This initiative has been working over the pastseveral months in nine different Working Groupsreflecting on issues of concern related to theUnion Budget 2007-08. These Working Groups areon Agriculture, Infrastructure, ResourceMobilisation and Expenditure Management, Health,Education, Women, Dalits and Adivasis, Children

and on Human Rights. Over 100 individuals andaround 50 organisations have joined hands tostrengthen this initiative.

As a next step, the alliance organized a NationalConvention, (held on 27-28 November 2006 atDelhi, India) which aimed at analysing key budgetrelated issues in these sectors and putting forthour recommendations for the Union Budgets 2007-08, from a pro-people, pro-poor perspective. ACharter of Demands for Union Budget 2007-08 hasbeen drawn up, which will consolidate specific

demands for the forthcoming budget across thesesectors. Despite several invitations and faxes sentto the Ministry of Finance, to either be a part ofthe closing plenary to receive our Charter ofDemands or to receive our delegation with theCharter of Demands later, the Ministry of Financewas not represented at the event.

Attended by over 180 individuals, the two dayssaw active participation in the deliberations. ThePeople’s Budget Initiative seems to have resonatedwell with the participants, despite their diversebackgrounds and areas of work. Participants seementhused and came up with creative suggestionson how to take it forward, including a postcardcampaign, initiation activities at the local andstate level, taking the Charter of Demands forward,etc.

A series of advocacy exercises will be initiated asa follow up to push forward the Charter ofDemands. This will include meeting concernedgovernment officials and groups critical to thebudget making process, including, the FinanceMinister & the Commerce Minister, members of thePlanning and Finance Commission, secretaries inthe department of Revenue and Finance, membersof the National Advisory Council and NationalDevelopment Council, separate meeting withpolitical parties, Members of Parliament and theStanding Committees of the Parliament, etc.

The relevant sections of the Charter of Demandswill be broken up and taken to the relevantministries so that these may be incorporated inthe ministries’ demand for grants. For instance, the

In making the systems and institutions ofgovernance work, a strong and vigilant‘people’s voice’ which continuously buildspressure on these institutions to deliver

cannot be underestimated. Increasingly in thisrespect, across several countries, budget analysisis emerging as a critical tool in the hands of thecivil society to leverage state accountability. InIndia too, budget analysis and budget advocacyseems to be moving up in the agenda and prioritylist of several people’s organisations and


14

demands from the budget emerging from thesection in our Charter of Demands on women andchildren will be taken to the Ministry of Womenand Child Development, the section on agriculturecan be taken to the Ministry of Agriculture and soon.

Apart from the government, the Charter ofDemands will be circulated widely to civil societygroups to ensure that the Charter of Demandsreaches a wider population that can callcollectively for democratizing budgets and theprocess of their preparation. We are exploringpossibilities of asking the government somepointed questions using the newly founded Rightto Information Act at the right point in thebudget making process.

Consultations with farmers associations, tradeunions, etc., will also be organized as they doengage with the budgetary processes in any case,so as to try to see if our Charter of Demands canbe tucked into their advocacy calls, as well as, tourge them to join us in our advocacy. We also planto make concrete efforts for media advocacy togarner media support for our Charter of Demands.

These attempts will be made between now andearly February. However, these should be seen aspart of CBGA’s year-long advocacy along the

People ’ sBudget

Init iative: AnEffort to

Democrat izeBudgetMaking

Process inIndia

budget cycle. The Union Budget in India isreleased by the Finance Minister on February 28th,every year. Within 24 hours of the release of thebudget, CBGA publishes a quick Response to theUnion Budget, highlighting critical issues likesocial sector allocation, increase or decreasetherein, etc. A public event is also organized inwhich eminent members of the academia,parliament and media debate on the budget fromthe perspective of the poor and the marginalized.Armed with the response to the Union Budget andthe Charter of Demands, another round of lobbyingthe members of the parliament is done in theBudget Session in the parliament before the endof the session where the Union Budget is passedby the parliament.

Being able to actually influence budgets in acountry as huge and diverse as India, where theinterested parties use the ignorance of the massesto consciously keep them out of these processesis indeed a tall order. It will take several years ofconcerted effort to even become a voice that theFinance Minister cannot choose to ignore.However, in a democratic polity, where parties arevoted in and out of power, based on the promisesthey make, one can hope that such a promisinginitiative will make a dent in the system sooner orlater.

“ The People’sBudget Initiativeis a broadalliance that hasbeen constitutedto advocate forgreaterdemocratisationof the budgetmaking processand budgetdocuments”


15

What are the major challenges at the groundlevel with regard to implementation of NREGA?The NREGA requires a significant change in theway the government machinery operates,particularly at the local level but also at the stateand central levels. Therefore, there are still hugechallenges to ensure its effective implementation,and there are evident variations across states inthis regard. Some of the challenges are:1. To disseminate the information about the Act

and workers’ rights to the local population asquickly and clearly as possible.

2. To prevent local power elites and landlord-contractor groups from distorting the scheme.

3. To ensure that workers get the minimum wagefor a regular day’s work, which is nothappening in most states at present.

4. To empower the local authorities – both the

district administration and the panchayats, tocreate and implement a shelf of works whichis relevant, required and productive (indifferent ways) for the area. This requiresmuch more administrative and technicalexpenditure than is currently allowed underthe scheme.

5. To make the local authorities more responsiveto the legitimate complaints of workers andredress grievances quickly and correctly.

6. To ensure that certain groups such as women,certain castes, tribes and communities, do notget excluded from the benefits of theprogramme.

7. To make the gram sabhas and social audit thatis envisaged in the Act more effective.

What immediate steps have to be taken by theCentral and State Governments to ensure thatthe objectives of the Act are fully met?1. Money flow from Centre to States should be

smoother and more rapid than it has been so far.2. Much more money and other resources have to

be provided for administrative and technicaltasks associated with planning and implement-ing works, supervision, accounting etc.

3. State governments MUST respond quickly tocomplaints about irregularities and take strict

action against those misusing the programmeor not implementing it according to the law,especially in cases of evident siphoning off offunds and non-payment of wages, etc.

Do you think that the current funding patternof the scheme is viable?The current funding pattern is viable; it just needsto be implemented more smoothly.

What are the potential sources of funding theNREGA in the coming days as the demand forwork under NREGA has been increasingsteadily?Thus far the actual amounts utilized for NREGA arewell below the budgeted amount (I believesignificantly less than half) and this amount isalso very little even compared to the total ofprevious employment schemes taken together. Even

if the entire budgeted amount is eventually spent,it will amount to less than 0.4 per cent of GDP,which is nothing. So there is no reason at all tofear that funding NREGA will become impossible inthe near future.

Even when it is spread to the entire country, thetotal amount is not likely to exceed 1.5 per centof GDP. This can easily be raised through taxes ifthe government is serious about the matter.

What are some key learnings from the recentsocial audit exercises?The Dungarpur social audit experience shows thata major and committed programme of socialmobilization can achieve very impressive results interms of ensuring effective implementation even ina state known for it feudal practices and generallynon-responsive administration. Social mobilizationis therefore the key. But it also requires that thestate government and local administration areresponsive to the issues thrown up by suchmobilization.

Are the current work norms and measurementpractices labour friendly, and what changes haveto be made to ensure that the labourers arepaid the statutory minimum wage?The major problem currently in most states is

Interivew: Prof. Jayati Ghosh

NREGA: Some key learningsand the way ahead


16

that the work norms are so unrealistic that mostworkers do not get paid the minimum wage evenfor a full day’s work. Therefore there is urgentneed to revise these norms through appropriatetime and motion studies. Several states havealready revised the norm, but in some cases eventhe revision is still inadequate to ensure that theminimum wage is received by most workers.

Will there be possible financial constraints infunding the NREGA due to FRBM Act?The FRBM Act is problematic, but if affects allgovernment expenditure, not just the NREGA. Asnoted already, the NREGA will cost very little inrelation to total central government expenditureeven under the most expansive estimates, sothere is no reason to suppose that only thisprogramme should be adversely affected by theFRBM Act.

NREGA: Somekey learningsand the way

ahead

What are the measures that you would suggestto keep a check on the criticism of ‘wastage ofmoney’ using the current structures?Most of the mechanisms to check corruption andwastage are already described in the Act, and alongwith the Right to Information Act and large-scale socialmobilization, these should be enough. The emphasisshould be on the central and state governments toactually implement all the legal provisions.

Do you feel that there is a need to fix the wagerate across the country?The wage rate should be the minimum wage ofeach state. Given the differences in GDP and CPIacross the states, it is not sensible to think of anational uniform wage rate. In any case, thiswould violate the existing laws of the land.

“ The major problemcurrently in moststates is that thework norms are sounrealistic thatmost workers donot get paid theminimum wageeven for a fullday’s work”

Jayati Ghosh is Professor, Centre for Economic Studies andPlanning, Jawaharlal Nehru University, New Delhi.

How Open is OurBudget?

India ranks 17 among 59 countries interms of openness of its budgetdocuments. A recent study done byInternational Budget Project (IBP),Washington in partnership with variousCivil Society groups around the worldincluding Centre for Budget and GovernanceAccountability in India, reveals that budgetdocuments in countries like Botswana,Brazil, South Africa, etc. are moreaccessible as compared to India. The OpenBudget indicators in the study providecomprehensive and practical information togauge the government’s commitment to betransparent and accountable.

The results reveal that around 40 per centof the countries’ public budget documentsgave very scanty information on publicfinances. 33 per cent countries did notaudit their budgets and in the budgets ofmore than 50 per cent countries, includingIndia, information on conditions associatedwith external debt was not detailed. In a100-point scale, India scores only 52,indicating an average level of openness ofthe budgets.

In India, pre budget statements are notmade public. Even with a five-year plancycle, there is no multi year budgeting, a

common feature in many other countries.Policy proposals are not linked to budgets,and impact assessment not presented.Budgets do not give any information onnon-financial assets. The time fordiscussion in the Parliament is less thansix weeks thus restricting any effectiveparticipation of the MPs. Though we havean independent audit authority (CAG) thatmonitors government expenditure, itsrecommendations are not followed upadequately. Nonetheless, the governmenthas put budget information on theinternet, facilitating greater access tothese otherwise closed documents.However, useful information is availableonly for the Central government finances.At the state level, in most of the cases,available database is limited to BudgetSpeech. Even after enacting the ‘Right toInformation’, common people spend moneyto obtain financial information. It is worthnoting that in the year 2004, only 32people could access the internet as asource of information.

Open Budget Indices presented in thereport will be helpful for the policy makersto reorient our budget processes in orderto make them more transparent andaccessible.

CREDITSEditorial Advisory BoardM D Mistry, Vinod Vyasulu,Jayati Ghosh, John Samuel

Editorial TeamAmitabh Behar, Praveen Jha, Yamini

AdvocacyDeepak L Xavier, Anurag Srivastava,Bhumika Jhamb

ResearchSiba Sankar Mohanty, Subrat Das,Nandan Kumar Jha, Debdulal Thakur,Pooja Parvati, Indranil Mukhopadhyay,Fathayya Khan

CirculationShallu Angra,Khwaja Mobeen Ur-Rehman

AssistanceHarsh Singh Rawat

IllustrationIndranil Mukhopadhyay

DesignMayank Bhatnagar

Layout & PrintingKriti Creative Studio

FOR MORE INFORMATION, CONTACT:

Centre for Budget and Governance Accountabilitywww.cbgaindia.org

A-11, Second Floor, Niti Bagh, Khel Gaon Marg, New Delhi - 110 049, INDIAPhone: +91-11-4174 1285 / 86 / 87 Email: [email protected]

Serenity Complex, Ramnagar Colony, Pune – 411 021, IndiaTel: 91-20-22952003 / 4 Email: [email protected]

National Centre for Advocacy Studieswww.ncasindia.org

Documents

Volume 4, Track 2, February 2007 - CBGA India · example-SEZs, FRBM Act, ... conclusion. The Act and the Rules for the SEZs ... Budget TRACK Volume 4, Track 2, February 2007 In Budget