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  The Pro-Poor UPA Government?  


By: Raghbendra Jha
March 28, 2005
iews expressed here are author’s own and not of this website. Full disclaimer is at the bottom.


When the UPA government came into power in May 2004 the chattering classes in India and abroad went overboard in claiming that the NDA had (unexpectedly) lost the elections because their policies were pro-rich and that the then government had ignored the poor so they had voted against the NDA in droves. The Common Minimum Program of the new government laid down specific pro-poor recommendations, an advisory committee was constituted to oversee the progress towards the CMP and, of course, the Leftist Parties were always around to act as moral guardians of the coalition government.

Almost a year after the event it is time for a reality check. Is the UPA government pro-poor? To be sure it made considerable promises about activities such as the Employment Guarantee Programs but actions always speak louder than words. Two recent major policy initiatives indicate that the UPA government is not as pro-poor as one would have hoped. The first policy measure I refer to is the 2005-06 Union budget and the second is the passage of the Patent Amendment Bill.

The Union Budget of 2005-06

By popular consensus the 2005-06 Union budget is the first to set the policy agenda of the UPA government. In the words of the FM the strategy was to sustain a process of “more inclusive” growth whereby sections of society that had hitherto apparently been sidelined by the reforms process would be benefited. In the actual presentation of the budget the FM has gone further and laid down a policy agenda for the next four years in respect of one of the central rural initiatives in the budget: the Bharat Nirman Yojana - a rural infrastructure program encompassing six areas: irrigation, road development, water supply, housing, rural electrification and rural telecom connectivity. Thus the present budget deserves even more attention than is typically accorded to Union budgets.

On the expenditure side in addition to the Bharat Nirman Yojana the budget announced a number of anti-poverty measures including increased allocation for the National Food for Work program, a national rural health mission, increased coverage of the Antyodaya Anna Yojana and expansion of the mid-day meal scheme along with additional grants to backward states as well as educational and other sops to minorities and SC/ST. Of course, an important ingredient in the effectiveness of these policy initiatives is the quality of the delivery mechanisms. In the FM’s own words expenditure does not guarantee outcomes. Little seems to have changed in the efficacy of the delivery mechanisms of anti-poverty programs to indicate that these expenditures will have the desired impact. The budget also made generous allotments to the textiles and sugar industries although no serious restructuring or reduction of subsides was attempted. That most of these subsidies are highly distortionary did not matter to the policymakers.

A closer read of the budget documents and comparison with earlier years reveals some shortcomings in these allocations. Last year, the Budget gave irrigation and flood control Rs 443 crore, this year’s proposed central plan outlay for the sector is only Rs 15 crore more. Similarly, there are insufficient funds to launch the National Rural Health Mission (NRHM). The total allocation of Health and Family Welfare Ministry has been raised from Rs 8420 crore to Rs 10280 crore but much of it is for the Department of Family Welfare. The allocation for much needed personal and community health care services will not be enhanced substantially. Despite HIV-AIDS assuming almost epidemic like proportions the combating of this malaise does not get prominence in the budget. Despite it being in existence since the last budget it is still not clear whether the FM has committed the entire receipt of education cess for Sarva Shiksha Abhiyan.

Whereas public expenditure on anti-poverty programs enhance the productive capacity of the poor the most important anti-poverty measure must involve a sustainable rise in the demand for the principal asset of the poor –their labour. However this government has not taken the real hard decisions to increase the demand for semi-skilled and unskilled labour in a sustainable manner through policies such as dereserving large segments of the small-scale sector to generate economies of scale, widespread reduction in effective rates of protection to manufacturing and steps to encourage labour and, more importantly, product market competition. The Rural Employment Guarantee Scheme is no substitute for these policy measures since, although it may guarantee employment it does not guarantee productive employment and thus only add to the consumption expenditure of the government. Even so allocations for the EGS are small.

My final comment on the budget is on the budget deficit. The primary deficit was almost zero in 2003-04 but has now been budgeted to grow to 0.5 percent of GDP with the revenue deficit at 2.7 percent of GDP. There is a sharp increase in spending in budget 2005-06 but the consequent increase in the central deficit is masked by the way the funding has been structured, by burdening the already debt-laden states with still more debt to the tune of Rs 29,000 crore. Thus if we do a “like-to-like” comparison the deficit has not contracted to 4.3 per cent of GDP for next year but has expanded by about 0.8 per cent of GDP to over 5 per cent. In addition, there is the contingent liability of Rs 10,000 crore that the government has undertaken, by setting up a special purpose vehicle to finance infrastructure investment and the risk that tax revenues may again fall short as they did in 2004-05. Also, by running large deficits in years with high GDP growth the government is conducting a pro-cyclical fiscal policy – so if growth were to slacken off in the future there will be little room to stimulate the economy through higher public expenditure. What hope for the poor then?

The Patent Amendment Bill 2005

The Passage of the Patent Amendment Bill sent a wave of dismay not just over India but also all over the developing world – particularly Africa.

The new bill gives far more rights to drug manufacturers than generic producers so the vast majority of poor consumers in India would be very adversely affected.
The new patent regime means that Indian pharma companies will not be allowed to use cheaper or different methods to produce the same drugs, irrespective of the process, which was allowed earlier.

Indian companies will not be able to make copies of over-priced western drugs, which will adversely affect the poor all over the world. As a representative of Lawyers Collective HIV/AIDS unit argued that the WTO obligations do not require India to grant patents on new uses of known drugs, or combinations of known drugs. However the Patent Bill has included double usage patents in the bill. Hence a drug like AZT, which was used against cancer in the mid 1970s and now used for HIV, could be patented simply on the grounds of new usage. This will then raise the cost of this drug to millions of patients all over the world or put a huge burden on state exchequers of poor countries, including India, as they try to subsidise the supply of these drugs.

India has more than 5.1 million people living with HIV/AIDS, the second largest number after South Africa. Around 25.4 million people live with the deadly virus in the whole of Africa and just about 3 percent have access to ARV drugs. Indian drug firms export large quantities of ARV drugs to Africa. India has been turning a Nelson’s eye to the HIV/AIDS crisis in the country and the 2005-06 is no exception to this rule. The prospects for the poor after this Patents Bill are truly worrisome.

Trade Minister Kamal Nath has argued that the effect will be largely on patents issued after 1995. However, as diseases mutate and become more complex most people will need new drugs and many of the old drugs will start becoming irrelevant. So the new bill condemns the poor of India to higher drug prices for the foreseeable future with the problem only becoming worse with the passage of time.

The passage of this bill has attracted widespread attention. On 23 March The New York Times carried the passage of this bill as a lead international story. Several leading health related NGOS including Oxfam and Medicins Sans Frontieres have registered their dismay. India is already the world`s fourth-largest maker of medicines by volume but ranks 13th in value, reflecting the low prices of medicines in the local market. Thus this bill will have severe knock-on effects on many developing countries, which depend on imported generic drugs from India.

What worries health groups most is the fact that the new bill does not set a limit for royalty amounts to be paid by Indian firms to patent owners, mainly multinational drug corporations. Thus multinational pharmaceutical firms, which hold patents, could delay issuance of a licence to make a new drug by dragging their feet over the magnitude of the royalty amount. In the meantime, of course, the people will be denied this drug. The multinational drug companies will be laughing all the way to their banks.

These two policy initiatives – the Union budget of 2005-06 and the Patents Bill 2005 - call into question the pro-poor credentials of the UPA government – notwithstanding all their pronouncements. For the poor in India roti, kapda, makan, rozgar and aushadi are all becoming elusive.

Raghbendra Jha

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