The UPA government released the Union Budget last month. One must grant it to the Finance Minister. For the first time the revenue deficit has been cut by nearly a percentage GDP point. Revenue receipts have risen by a whopping 50,000 crores. But what about the developmental aspects? Has the spirit of the Common Minimum Programme been incorporated? Do reforms with a ‘human face’ find a place or have they been given the go by? Let us examine the figures. Before that, it must be acknowledged that this budget was developed in very short time and it is only for a part of the year.

Table 1 below shows the expenditure during the previous year (03-04 revised estimates) by the NDA government and the allocations made this year by the UPA government on major heads of development in the Central Plan. All figures are in crores of rupees (1 crore = 10 million). The heads are shown in descending order of expenditure.

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Table 1: Central Defence Expenditure (CRORES)

                        03-04     04-05  % VARIATION

1. Rural Development    19200     15998    - 16.5%
2. Education            7450       8225    + 10.5%
3. Health               6283       7481    + 19%
4. Poverty Alleviation  4064       4570    + 12.5%
5. Agriculture          3170       4192    + 32.5%
6. Urban Development    2913       2176    - 25%                    
7. Women/Child Dev      2150       2400    + 11.5%
8. Social Justice       1250       1492    + 19.5%
9. Water Resources       350        580    + 65.5%
10. Planning              17       6100*   NA
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TOTAL                 46,847     53,214    + 13.5%
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* Allocated to the Planning Commission for central projects. (Source www.indiabudget.nic.in)

Taking inflation into account, there is hardly any change in the funding allotted for development this year (+6367 crores) except for the 6100 crores allotted to the planning commission. A few heads like Health, Agriculture and Water Resources show a healthy increase, however federal spending on them has been abysmal so far. For instance, the share of central government expenditure on health is a mere 8% of the overall expenditure. That of the states being about 16%, the balance being spent in the private sector. This is one of the lowest in the world.

Little wonder that we have retained our 127th position in the Human Development Index formulated by the UNDP. The wisdom of allocating a large chunk to the planning commission which has recently been constituted is questionable. Projects are yet to be formulated and there is no mechanism which will ensure that spending trickles down to the desired extent in the available time frame.

Though there are only eight months in the year to spend the money, there is another reason why the FM has disappointed developmental economists like Jean Dreze and Amartya Sen. There has been an unprecedented hike in defence spending. This has been justified as a provision for purchase of equipment contracted earlier. Defence being a non negotiable issue, governments tend to accept projections of service headquarters with strategists contributing their bit. How otherwise can you justify a year on year hike of 15% to 20% for the past five years? Our defence expenditure is touching the 100,000 crore mark. This is nearly double the amount spent by the central government on all heads of development in Table 1 above.

There is an urgent need to review the efficacy of our defence expenditure. At 3% of the GDP, we are spending more than four times what Pakistan spends on a force level which is double in size. Simply stated, we are spending twice the amount per soldier. And this is the cost of conventional defence only. The cost of productionisation and maintenance of the nuclear arsenal with various command facilities is not included in the defence budget. Neither is the cost of the para military forces which man the border (BSF) and are fighting insurgency in Kashmir (CRPF) and the North East (Assam Rifles) under the Army.

Table 2 below shows the figures for budgeted defence expenditure for 03-04 and 04-05 as well as the cost of pensionary benefits paid to retired defence personnel. This cost is not included in the defence budget but is shown separately as non plan revenue expenditure.

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Table 2: DEFENCE EXPENDITURE (CRORES)

                         03 - 04     04 - 05     % VARIATION 

1. Revenue Expenditure    44347       43517       - 2%
2. Capital Expenditure    20953*      33483       + 60%
3. Defence Pensions       11000       11500       + 4.5%

4. Total                 76,300#      88,500      + 16% 
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* Actual expenditure was restricted to 16906 crores so the variation is actually more pronounced.
# This represents an increase of 15% from 02 – 03.

This year the development directions alluded to by the Prime Minister have not really been adhered to. There is a need for aggressive spending in health, water resources and education. This is not really in evidence primarily because of the hike for defence outlay. Given that we are already at a very high and unaffordable level of defence expenditure, the development to defence expenditure ratio will be lowered.

The relationship between this ratio and the Human Development Index has been explored in an earlier article (Defence and Development). An increase in defence expenditure without a corresponding increase in developmental expenditure will result in a drop in the Human Index. Unfortunately this is exactly what has happened in this budget. ( The exception to this relationship is that if fresh resources become available -- perhaps from increased tax revenues -- more funds may be allocated to human development which can independently improve the situation. But this is an optimistic assumption.)

It will be seen from Table 2 that there is an unprecedented increase in the proposed capital expenditure. This is primarily due to the contract for the purchase of the aircraft carrier ‘Admiral Gorshokov’ at a cost of 7000 crores and the Advance Jet Trainer (AJT) deal with the UK. Do we really need an aircraft carrier at such a price? It does not take a defence expert to realize that besides capital and running costs, we will need to equip it with two squadrons of aircraft and protect it during war with a few submarines and frigates unless we want it sunk by a small midget submarine with a single Exocet missile. And then it will need a dry dock of its own. Do we really need to project our combat power beyond the littoral? Do we have plans to capture Singapore or Hong Kong or Mauritius? These are the questions the people in the newly constituted NAC will hopefully ask.

There is also a need to review the expenditure on the space programme which has been hiked by nearly 25%. Do we really need a satellite to orbit the Moon when our scientists are unable to predict the monsoon. The honourable Minister for science and technology Mr Kapil Sibal has let the cat out of the bag by admitting that the Met Department does not have the equipment to do their job. Unprecedented, in a country which is emerging as an economic superpower. But then our position in the UNDP index is also unusual.

Coming back to the question of whether the hopes of the common man have been included, I think we will have to wait for the next budget. This one has been commonly minimal in that direction.