Tuesday, June 15, 2010

Left-ruled Governments' Budgets as Policy Alternatives to the Union Government Budget

By Subhanil Chowdhury

The Left-ruled governments of West Bengal, Kerala and Tripura are the bulwark of the left movement in the country. These governments even while working within the overall policy framework of a bourgeois landlord state and a neo-liberal setting, have been the fountain head of alternative pro-people policies aimed at ameliorating the conditions of the poor and the common man. These policies are in sharp contrast to the policy formulation of the UPA Government. We provide below a detailed exposition of these differences on the basis of comparative study of the budgets presented by the UPA Government and the three Left-ruled governments this year.[1]

Economic Policy Orientation of the UPA Government[2]

One of the defining feature of the economic policy of the UPA Government is its pro-rich stance. As a part of this overall policy direction, the total tax concession provided by the Government (in 2009-10) has been Rs 502299 crore, out of which tax concessions provided to the corporate sector amounts to Rs 79554 crore and to income tax payers the total concession is Rs 40929 crore. Additionally, another Rs 26000 crore tax concession has been provided to income tax payers in this year's budget. As a result of this pro-rich neo-liberal orientation of the UPA Government, inequality has increased tremendously in the country. The Arjun Sengupta Committee report has shown that 77% of the population live under Rs 20 per day. At the same time, India has one of the highest number of billionaires in the world.

On the face of such huge tax concession provided to the rich, the question is how does the government mobilize revenue? The Government has taken recourse to two alternative roads for mobilizing revenue even while providing huge tax concession to the rich. Firstly, in the current budget the Finance Minister has increased the excise and customs duties on a large number of products including petrol and diesel. This decision was taken even when the country has witnessed rising food price inflation of around 20% in December 2009 and even now the inflation rate for food items is around 17%. It is indeed a matter of shame that the government instead of providing relief to the poor writhing under high inflation has imposed further burden on the people. As a result, the inflation rate continues to be extremely high. This is the biggest failure of the UPA government in its one year of existence. Secondly, the government has taken recourse to disinvestment of Public Sector Units to mobilize resources worth Rs 40000 crore, announced in this year's budget. This brazen move towards privatization of the national assets is actually a double bonanza for the rich and the corporates. On the one hand they have been granted huge tax concession and now public assets will be sold to them, again opening up more profit opportunities for the corporates.

Amidst this overall pro-rich policies of the central government, the common man is facing untold miseries. Firstly, there exists the problem of persistently high inflation rate. This inflation on the one hand is a result of the drought last year and on the other hand it is also a result of continuous neglect of the agrarian sector of the economy. This neglect of the agrarian sector has not only resulted in the suicide of more than 200000 farmers in the country but also has slowed down the agriculture and food crop production growth rate. The government has done very little to address the crisis. In fact, public investment in agriculture has consistently declined from around 20% in 2004-05 to 17.6% in 2008-09.[3] Additionally, the government has stubbornly refused to ban future trading on essential commodities which is again a cause of high inflation in the country. With a negative growth rate in agriculture and massive food price inflation, the logical action on the part of the government would have been to increase the allocation for agriculture and food security. But in a brazen anti-people move, the government has cut down food subsidy by Rs 400 crore and fertilizer subsidy by Rs 3000 crore in this year's budget. It is clear that the government is not interested in serving the interests of the poor people in the country.

This overall policy orientation, as enumerated above, is essentially rooted in a belief on the 'trickle down' theory. According to this theory, what is important is that the economy should grow at a very fast pace. Even though, inequality might arise in the initial phase of the growth process, eventually the benefit of growth will 'trickle down' to the poorest of the poor. Therefore, the role of the government should only be of an “enabler” without directly interfering in the market. In other words, the market will automatically take care of the poor. The fact of the matter is that the trickle down theory is false both in theory as well as in actuality. This is because of the following reason.

The trickle down theory, as propounded by the UPA says that tax concessions and other benefits provided to the rich will result in more investment on their part which again will result in employment of the people leading to more income and hence less poverty. This is wrong at least for three different reasons. Firstly, it is not obvious that with higher tax concessions the rich will engage in productive investment. It might just be the case that the rich use up the given tax concessions for consuming luxuries by importing from abroad. Secondly, even if there is productive investment, the consumption pattern of the rich in order to emulate the lifestyle of the West invariably increases the labour productivity in the economy, thereby reducing the employment generating potential. Thirdly, it can be argued that with a higher growth rate, the government can distribute the gains better through fiscal interventions. This is again wrong because in the era of neo-liberalism, such interventions by the state is resisted by international finance capital. Additionally, the growth process under neo-liberalism expropriates marginalized sections of the population. For example, there can be higher growth rate of industrial production along with large scale expropriation of farmers to make room for SEZs.

Therefore, it is clear that relying on the market or a variety of the 'trickle down' theory cannot ameliorate the conditions of the poor in the country. In order to ensure benefits for the poor, it is important that the economic policies have a bottoms up approach where the centrepiece of the strategy becomes uplifting of the conditions of the poor. This is the approach that the Left-ruled state governments of Kerala, West Bengal and Tripura have adopted. We look into these policies in details below.

Policies of the Left-ruled States

The Left parties being the most consistent opponents of neo-liberalism have to devise policies which are in contravention to the policy regime of neo-liberalism even while working under the overall policy set up of the central government. The essential constituents of this alternative policy must be essentially two fold. Firstly, instead of relying on the mythical 'trickle down' theory, the left policies must be aimed at directly benefiting the poor. Secondly, policies of the left should try and protect the poor from the vagaries of the market. It is in this light that we analyze the policy orientation of the Left-ruled governments.

Price Rise and Food Security

On the face of rising food prices, the Union Government has taken no concrete steps to address the problem as yet. However, the Governments of Kerala and West Bengal has ensured that people belonging to BPL are provided with rice at Rs 2 per Kg. In West Bengal it is proposed that this scheme be extended to cover the lowest 20% of the population living above the poverty line. In Kerala too, the government disregarding the difference between the APL and BLP population has decided to distribute rice at Rs 2 per Kg to entire unorganized labourers in the agriculture, coir, cashew, handloom, beedi, bamboo, reed, khadi, small plantations and similar sectors . This is an exemplary step which will not only provide relief to large sections of the population from rising prices but will also curb the inflationary trends in these states.

With regard to food security, West Bengal has again come first in the area of rice production. This has been one of the most outstanding achievements of the Left Front government given the fact that on the eve of the Left Front Government coming to power in West Bengal, the state was suffering from agrarian impasse with large scale food shortages and famine like situation. Kerala however witnessed a decline in paddy production from 2000-01 to 2006-07 from 7.5 lakh tonnes to 6.4 lakh tonnes. This was a result of continuous decline in area under paddy cultivation from 8.8 lakh hectares in 1974-75 to 2.28 lakh hectares in 2007-08. The state government has taken a number of measures to ensure increase in area under paddy cultivation. This includes spending Rs 500 crore on paddy cultivation and soil and water conservation. At the same time, it is also proposed to provide interest free loans to farmers, crop insurance, using NREGA to convert waste land into arable land etc. Tripura has also achieved self-sufficiency in paddy cultivation with the government adopting new technologies and providing cheap credit to the agriculture sector.

Agriculture Development

In the din regarding the growth rates achieved in India, it is conveniently forgotten that agriculture even now provides the largest employment opportunities for the people. Therefore, improving the performance of the agriculture sector is intrinsically linked with the upliftment of the conditions of the people. It is a well known fact that the Governments of West Bengal, Kerala and Tripura have been exemplary in carrying out extensive land reforms in the state which paved a long way for their agricultural development. In this year's budget too, there has been substantial thrust on the agriculture sector contrary to the Union Government.

In West Bengal, for the improvement of productivity and employment in agriculture, irrigation has been given a lot or priority. The allocation for irrigation has been increased from Rs 209 crore last year to Rs 459 crore this year. This will go a long way in improving the irrigation facilities and increase the total irrigated area as a proportion of total agricultural area to 75%. This figure for India is 45%, which is significantly less than that of West Bengal. In addition to this, the government has decided to set up 134 bio-villages and seed villages to ensure access to bio-technology for agriculture. As a result of continued effort of the government in the agriculture sector, the growth rate of agriculture in West Bengal in 2009-10 was 4.2% while that of India was -0.2%.

In Kerala too emphasis has been given to the agriculture sector. It must be remembered that Kerala was the first state in the country to constitute a debt relief commission, including for fishermen. For fishermen alone, debt worth Rs 142 crore has been written off. Additionally, the government has emphasized on irrigation to improve agricultural productivity. Kerala has a huge cash crop sector which has faced crisis because of the global fluctuation of the agricultural commodities prices. The government has decided to protect these sectors in order to ensure that employment generation is not adversely affected and the farmers do not suffer from the volatility in the international agricultural commodity market. Unprecedented amount of government money have been invested in the sectors like coir and cashew to ensure that productivity is improved and these sectors remain immune from price volatility.

Tripura too, in spite of being a remote state has improved its agricultural performance. As already mentioned, self-sufficiency in paddy production has been achieved while sectors like horticulture, forests, etc are being promoted by the government to generate employment and income.


It is now a well known fact that as a result of the global financial crisis, there has been a large number of job losses in India. UNCTAD has estimated that there has been job loss of 13 lakh people in the year 2009-10 alone. However, the central government has taken no concrete steps to ensure that further job losses in the economy do not take place. It has also not tried to create more job opportunities for the people by going in for large scale investment. On the contrary, the government increased the allotment for NREGA by only Rs 1000 crore, which is actually no net reduction at all given the inflationary situation in the country.

In sharp contrast to the union government's apathy towards generating employment, the Left-ruled governments have initiated exceptional policies aimed at employment generation. Tripura was the first state in the country to announce an Urban Employment Guarantee Scheme in its 2009-10 budget. The governments of West Bengal and Kerala have also announced such Employment schemes for the urban poor in this year's budget. Such employment guarantee schemes will go a long way in uplifting the conditions of the urban poor in these states.

Social Security
The growth process under the aegis of neo-liberal globalization in India has resulted in growing informalization of the work force. Currently, only 7% of the workers belong to the formal sector while 93% belong to the informal/unorganized sector. These workers belong to the poor sections of the population. However, the Union Government has been reluctant to provide social security to these workers. While under the pressure of the Left, the UPA-I enacted a Social Security Act, it was limited only to the BPL population and the Government provided no financial backing for implementing the Act thereby reducing the Act to mere lip service.

In sharp contrast to the apathy shown by UPA government, on the question of providing adequate social security benefits to the workers in the unorganized sector, the Left ruled states of Kerala, West Bengal and Tripura, have provided exemplary social security benefits to the workers.

The NCEUS report on Informal workers social security (2006) categorically states, “As regards statutory provisions [with regard to social security], Kerala leads all other states with the available figures indicating that the large number of Welfare Funds currently being implemented have covered 54 per cent of the informal workers in the State.”

Even in this year's budget the Kerala government has provided substantial social security to the unorganized workers. As has been already mentioned Rs 2 per Kg rice will be provided to the families of all unorganized workers. Moreover, pension and insurance benefits will be provided to the old, widow and unemployed. Moreover, for the first time in the country a fund has been created for the benefit of the migrant workers coming into the state. The government has provided a grant of Rs 10 crore for this purpose.

In West Bengal, the first provident fund scheme for unorganized workers was started in the year 2000-01. Now, it is planned to extend the scheme to 44 new categories of workers including rickshaw pullers, hawkers, cobblers, porters, auto-rickshaw drivers etc. This scheme has also been linked with the health insurance scheme of the central government. Financial assistance has been provided to the workers of closed tea gardens and factories the amount for which has been increased from Rs 750 per head per month to Rs 1500 per head per month.

In Tripura too, pension schemes have been announced for widows, blind persons, bidi workers, etc.

Restructuring of Public Sector Units

It has been a policy stance of the UPA Government that there will be disinvestment of Public Sector Units. This is nothing short of handing over national assets to private corporates for a song. The UPA has provided a distorted logic that the public will be allowed to own shares of these companies. It is a travesty of truth that public assets are being sold to the corporates in the name of the same public. This move on the part of the UPA will meet with resistance by the Left parties.

At the same time, the government of Kerala has shown a remarkable turn around with respect to the performance of the Public Sector Units. The Public Sector which was making a loss of Rs 70 crore in 2005-06 is expected to make a profit of Rs 200 crore in 2009-10. Moreover 8 Public Sector Units will be started with an investment of Rs 125 crore. This is indeed a remarkable achievement on the part of the Kerala government. The turn around of the Kerala Public Sector from being loss making to profit making is mainly a result of government policy whereby major restructuring of the management of these units were undertaken while settlement of dues of banks and financial institutions were undertaken. Additionally a strong budgetary support on the part of the LDF government to the tune of Rs 210 crore in 4 years[4] ensured that the PSUs were in a path towards recovery. This is the alternative model of revitalizing the PSUs as shown by the Left parties.

In West Bengal too, there have been initiatives on the part of the government to restructure and revitalize the PSUs. The process of revitalization has been completed for 4 PSU's, while for 7 more the process is under implementation. With central and state government assistance, out of 16 closed tea gardens, 8 have been re-opened.

Thus, the Left-ruled states far from selling off the PSUs have been actively engaged in terms of revitalizing them.


The bulk of the tax revenue in the country accrue to the Central Government. It has been a long standing demand of the state governments that 50% of the central tax revenue be given to the states. The 13th Finance Commission has rejected this demand and has granted only 32% of total central tax revenue to the state governments. Additionally, stringent conditions have been imposed on the state governments to implement FRBM Act to be eligible for various concessions from the Central Government. The Left has been opposed to such high-handedness in distributing central tax revenue and has consistently demanded more power to the states on these matters. On the face of these anti-state government measures of the centre, all the states including Kerala, West Bengal and Tripura are facing severe financial difficulties. Even then, the tax proposals of these states show their commitment for the poor and the common people.

It must be remembered that the state governments cannot collect direct taxes. This falls under the purview of the central government, where the centre is giving huge tax concessions. The state governments collect VAT and certain sales tax, which are indirect taxes. Even in collecting these taxes there is a pro-people orientation. For example, in West Bengal, Kerala or Tripura the items which are used mainly by the common people (like sugar) or those items which are employment intensive have been provided concessions in terms of full relief or partial relief from VAT. However, luxury items like expensive hotel rooms, restaurants, wines and other alcoholic beverages, expensive cars etc are taxed substantially to generate the requisite tax revenue.


From the foregoing it is amply clear that the economic policies adopted by the Left ruled states cater to the needs of the poor. These policies are in contravention to the policies of neo-liberal trickle down variety and take the improvement of the common people as the cornerstone. At the same time these policies provide relief to the people from the volatilities of the market forces. Undoubtedly, the state governments have to function within their limitations. However, the alternative policy stance of these three Left-ruled governments only show that alternatives to the policy dispensation is indeed possible and should be fought for.

[1] The Government of Tripura has not presented their budget yet. All references to the budget of Tripura is with regard to the Budget 2009-10
[2] All data for the central government and state governments are quoted from Budget Documents
[3] Economic Survey, 2009-10
[4] Kerala PSU's: Demonstrating the Alternative Path by K. Gopa Kumar, published at www.pragoti.org http://pragoti.org/node/3937#attachments

No comments: