Are Outlays On Subsidies, Health And MGNREGS Too Small? Why Critics Should Chill

Some proposals in the 2022-23 Union budget have drawn criticism from various quarters over weak allocations to some sectors, especially in covid-related areas like health, the rural jobs scheme and food and fertiliser subsidies.

While outlays for the Mahatma Gandhi Rural Employment Guarantee Scheme (MGNREGS) have fallen from the revised 2021-22 estimate of Rs 98,000 crore to Rs 73,000 crore, the health budget is flat around Rs 86,000 crore. The subsidy bill (on food, fertiliser and petroleum products) has come down from Rs 433,108 crore in the revised estimate for 2021-22 to Rs 317,866 crore in 2022-23, a fall of 27 per cent.

What, the critics are asking, is the point of reducing subsidies and job guarantees and keeping the health budget flat when the pandemic may not be over and economic distress even less so? One severe critic, Yogendra Yadav of the Swaraj India party, alleged rather melodramatically that this budget was the Modi government’s “revenge” against farmers who forced the government to repeal three farm reform laws late last year after a prolonged agitation.

Whoa! Easy, Yadavji.

Quite clearly, the Modi government’s political and media critics do not know the difference between outlays and reality. Nothing that the budget provides for today is cast in stone, and if events require higher or lower allocations under some heads, or to address distress situations, allocations can always be increased.

This was the case in both fertiliser and food, where the initial subsidy outlays of Rs 79,530 crore and Rs 140,122 crore were raised to a whopping Rs 140,122 crore in the case of the former and Rs 286,469 crore in food. In the case of MGNREGS, too, the budgetary outlay in 2021-22 was Rs 73,000 crore, but as the year saw higher demand for jobs under the scheme, the actual outlay went up to Rs 98,000 crore in the revised estimate.

What critics fail to see is that budgetary outlays are never inflexible. As the Economic Survey 2021-22 presented on 31 January pointed out, the aim is to adjust outlays and policies dynamically by using real-time analysis of actual outcomes, feedback loops, and appropriate safety-nets for the vulnerable. This approach has been summed up under the word “agile” policy-making.

So, what Budget 2022-23 does is take this idea in a logical direction. Initial outlays are nothing more than the finance ministry’s best guesses about the kind of funding required under various heads. It will actually keep making changes to outlays on the fly, depending on how 2022-23 actually pans out.

At this point of time, when we don’t know whether another covid wave is going to happen next year, how the global economy will fare, and how fast depressed sectors like hospitality will revive, we cannot make precise projections of what will be required as the year progresses.

For example, the decision to keep the MGNREGS outlay at the same level as 2021-22’s budget estimate can be justified if one assumes that the economy will revive next year and those seeking MGNREGS jobs as a fallback option today move back to urban areas for higher paying jobs.

The decision to retain food subsidies at a lower level could prove partially right if food inflation rises. In December 2021, the retail food inflation doubled from 1.87 per cent in November to 4.05 per cent. If market prices of food products, especially cereals, stay strong, farmers will offer less product for purchase by the procurement agencies at minimum support prices. This could dent food subsidies.

As for health, the decision to maintain outlays at around Rs 86,000 crore (which is similar to the revised estimate for 2021-22) could mean two things: one, the government expects the pandemic to abate, and hence the need for massive health spends may also reduce; two, once almost all the adult population is vaccinated with double-doses by March, and sero-positivity remains high among the general population, the need for substantial investments in booster doses may be minimal.

If only health, frontline and senior citizens need booster (or “precautionary”) doses, and simultaneously the approved vaccines can be sold in the open market for those who still want boosters, the demands on the government exchequer may not be very different from this year.

Of course, these assumptions may change as schools and workplaces reopen, and infections start rising again, or if yet another strain of covid emerges, but as the experience with the west over the last few months shows, covid cannot be contained merely by endlessly vaccinating the public. There may be downsides to that kind of policy too.

The critics, especially who have no particular animosity to this government, should chill. If the need arises, no budgetary outlay is going to remain static. We saw that in 2020-21 and 2021-22. Why should we believe that 2022-23 will find the government flat-footed if the need for higher outlays materialises?