Mr Modi where has minimum government gone?

narendra_modiPromises are meant to be broken, especially in politics.

Narendra Modi, the prime minister of India, in the run-up to the 2014 Lok Sabha (the lower house of Indian Parliament) had promised “minimum government and maximum governance” to the citizens of India.

He has clearly forgotten the minimum government bit of that promise. At least that is the way it seems from the third annual budget, for 2016-2017, presented by Arun Jaitley, the finance minister in the Modi government.

The allocation to the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), a scheme of which Modi has been severely critical of in the past, has been set at Rs 38,500 crore ($5.62 billion) for 2016-2017.

This is the highest allocation ever to the scheme. The scheme guarantees work for 100 days in a financial year to every household whose adults are willing to do unskilled manual work. The trouble is it doesn’t lead to the creation of any useful assets and hence, more or less works as a dole.

Also, the scheme doesn’t benefit many of those it is intended for. The economist Surjit Bhalla has called MGNREGS as the fourth most corrupt institution in the world after FIFA, the BCCI (the institution that governs cricket in India) and the public distribution system used by the Indian government to distribute food grains as well as kerosene to the poor.

The allocation to food subsidy stood at Rs 1.35 lakh crore($19.7 billion) down a little from Rs 1.39 lakh crore($20.3 billion) last year. The government sells rice, wheat and sugar at subsidised rate through 5.5 lakh( 0.55 million) fair priced shops, which form the public distribution system, throughout the country. The trouble is the system is extremely leaky and a huge proportion of the food grains are siphoned off and get diverted into the open market.

A committee to fix up this system was set up very soon after the Modi government came to power. It submitted its report in January 2015. The recommendations of the committee haven’t been taken on.

The government also sells fertilizers to farmers at a subsidised price. The subsidy towards this has marginally fallen to Rs 70,000 crore ($10.2 billion) from Rs 72,438 crore ($10.6 billion) during the last financial year. This small fall is because of a fall in fertilizer prices. This system is also extremely leaky and only around 35% of urea (a kind of fertilizer) actually reaches the small and marginal farmer it is meant for.

The same is true about kerosene as well, which the government distributes through the fair prices shops. Nearly, 46% of the kerosene is siphoned off. The allocation towards petroleum subsidies this year is at Rs 26,947 crore ($3.9 billion) against Rs 30,000 crore ($4.4 billion) during the last financial year. But what needs to be kept in mind is that oil prices have fallen during the last one year.

What this tells us very clearly is that as far as subsidies are concerned Narendra Modi has been no different from his predecessor Manmohan Singh and continues to run full throttle, what is a very leaky system.

Further, the government continues to own 27 banks. Since 2009, the government has invested around Rs 1.02 lakh crore in these banks to recapitalise them. The banks have given loans to crony capitalists close to the previous government, which they are now unable to recover.

For the next financial year, the government has allocated a further Rs 25,000 crore ($3.65 billion) to be invested in these banks. Jaitley also said that “if additional capital is required by these Banks, we will find the resources for doing so.”

What Jaitley meant here was that the government would do “whatever it takes” to keep these banks going.

The question that Jaitley did not answer is—why does the government need to own 27 banks? Over and above this, the government continues to own and run loss making companies. Until March 2014, the accumulated loss on these companies was Rs 1.04 lakh crore.

The government continues to own, a loss making airline, a loss making telecom company, a loss making scooter company, loss making hotels and so on. In his speech Jaitley did talk about strategic sale of government owned companies. But the past record of the Modi government (or the other governments before it) has been quite shaky on this front.

The government has also talked about selling some assets of these firms. As Jaitley said, we will encourage these companies to “divest individual assets like land, manufacturing units, etc. to release their asset value for making investment in new projects.”

The government also decided to set up a Higher Education Financing Agency (HEFA) with an initial capital base of  Rs 1,000 crores. As Jaitley said in his speech: “The HEFA will be a not-for-profit organisation that will leverage funds from the market and supplement them with donations and CSR funds.”

The question here is why not just allow education to be run as a for-profit business, legally. Currently, most private education institutes in India are owned by politicians, and are conduits as well as generators of black money. Black money is essentially money which has been earned but on which taxes have not been paid.

What this means is that at least the “minimum government” part of Narendra Modi’s “minimum government maximum governance” has gone for a toss. Like most electoral rhetoric it has been abandoned—lock, stock and barrel.

Now this doesn’t mean that there was nothing good in the budget. Here are some of the good points. The government buys rice and wheat from the farmers directly at a price referred to as the minimum support price. The benefits of this direct buying are concerned by farmers in a few states like Punjab, Haryana, Andhra Pradesh etc.

The government has plans to extend procurement of food grains to other parts of the country. It has plans of setting up an online procurement system through the Food Corporation of India.  Given that, a government benefit is available, it should be available throughout the country and not only in certain states.

A major problem that the Indian farmer faces is getting his produce to the market before it goes bad. As the finance minister Jaitley said in his speech: “A lot of fruits and vegetables grown by our farmers either do not fetch the right prices or fail to reach the markets.”

In order to tackle this the government plans to implement the “Unified Agriculture Marketing Scheme which envisages a common e-market platform that will be deployed in selected 585 regulated wholesale markets.”

Another interesting move in order to tackle produce going bad is allowing “100% FDI…through FIPB route in marketing of food products produced and manufactured in India.”

One of the major successes of the Modi government since coming to power has been electrification of villages.  As of April 1, 2015, 18,542 villages were not electrified. Between April 1, 2015 and February 23, 2016, 5542 villages were electrified. This was more than the total combined achievement of the last three years. Also, the government has promised 100% electrification by May 1, 2018.

The government is also trying to create jobs and plans to invest Rs 2,18,000 crore in roads and railways during the course of the year.

To conclude, while the government is trying to do the right things on many fronts, but by trying to run every business possible, it is just overextending itself.

And that is something that could have been easily corrected in this budget. Sadly, an opportunity has been lost.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at vivek.kaul@gmail.com)

The column originally appeared in the Khaleej Times on March 1, 2016, with a different headline.

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About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

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