Budget Analysis is Important, But We Must Also Realize Its Limitations


Budget analysis is an important and increasingly frequent part of economic analysis. In the days preceding and following the presentation of the union budget in particular the discourse on economic issues is often dominated by the tax announcements, allocations for various sectors or schemes, the deficit , subsidies and related fiscal matters. All this is useful and fine. However problems arise if we become so preoccupied with such fiscal matters as to exaggerate their role while discounting, perhaps even negating other important factors. This should be avoided.

To give an obvious example, the discussion on nutrition often takes place in the context of the allocations of leading nutrition schemes. There is  good reason to announce an improvement in nutrition if there is increased allocation for nutrition schemes, and vice-versa. But if allocation for these schemes increases but at the same time there is overall deterioration in the economic condition of the poorest people, then overall nutrition levels may decline. Or else take the situation in which there are no special nutrition schemes at all but a very well-thought land redistribution program has been implemented and payment of a fair wage has been ensured to all workers. In such a situation it is also possible for nutrition to go up without even the existence of nutrition schemes.

If a huge program to implement agro-ecology with the involvement of small farmers is taken up, then again nutrition levels can improve even as nutrition program allocations decline. A tribal village which gets strong, well-protected land and forest rights may  well experience an improvement in nutrition even if the nutrition schemes are withdrawn or curtailed. An increase in allocation for nutrition schemes can lead to a highly visible increase of food quantity but if qualitative and safety aspects deteriorate then actual nutrition situation may even decline. So there are various   important factors linked to nutrition and improvement of nutrition cannot just be equated to increase in allocation for nutrition schemes.

Increase of health budget is very much needed, but will an increase in health budget necessarily lead to an improvement in health? Not necessarily, if a big part of the budget is being gobbled by the high profit orientation of the health sector.

Increase in agriculture budget is a big need, but if this is devoted mainly to schemes which increase corporate control over agriculture, then this increase in budget will not really help farmers and may even accentuate some problems of this sector. On the other hand, even without increase of budget, a movement for low-cost, self-reliant, organic farming can lead to sustainable, significant improvement in agriculture.

Similar is the situation in other important sectors. If ecologically harmful river projects dominate  a big part of an increase in water budget, then it is likely that such an increase in the allocation for water will lead to a longer-term harm to the water situation in the country.

So on the one hand we have to look at many more details of how increased allocation is likely to be spent, and on the other hand we have to look at several other factors impacting a sector . Only then we can have  a proper and balanced understanding of the changes in budget allocations.

This is not to say that the demands for increasing the allocation of budget for various socially important sectors are not justified. These are often justified, but it is also important to keep in consideration that many-sided factors are involved and oversimplified, one-dimensional analysis can also have its own problems.

Budget analysis is  very useful, but if this becomes isolated from the larger picture, not going beyond the budgetary figures to look at the larger picture, then sometimes there can be big problems also.

Bharat Dogra is a journalist and author. His recent books include Man Over Machine and Protecting Earth for Children.



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