Mainstream, VOL LV No 12 New Delhi March 11, 2017
Budget in the Era of Growing Protectionism
Sunday 12 March 2017, by
This is another article dissecting the Union Budget, written by the noted Marxist-Maoist thinker, Kobad Ghandy, and sent to Mainstream for publication from the Cherlapalli Central Jail, Cherlapalli, Medchal district, Hyderabad, where he is currently lodged. We have just received it and are publishing it immediately for the benefit of our readers. —Editor
By presenting the Budget one month in advance the government is conveniently spared the consideration of the GDP figures for the third quarter (October-December 2016). So the negative impact of demonetisation was totally ignored in all the data and plans. These figures are normally released by mid-February in time for the normal Budget.
Reports have bow begun to trickle in—both from the field as also official. Field reports indicate that wholesale trade is still down by 20-30 per cent a full three months after demo-netisation. The CSO (Central Statistical Organi-sation) data for December 2016 indicates that production of consumer non-durables dropped by five per cent, while durables dropped by a whopping 10.3 per cent. Manufacturing as a whole fell by two per cent, of which capital goods fell by three per cent. According to Prof Arun Kumar, “such a sharp decline in trade and other reports from the field from industry suggest that the economy is facing recessionary conditions”. The real plight post-demonetisation would, in fact, be much worse, as the worst hit was the informal sector a large part of which would not come into official records.
These factors should be considered in the light of a weak economy even prior to demoneti-sation. Industrial growth in the April-November 2016 period virtually stagnated at 0.4 per ent, as compared to a growth of 3.8 per cent in the same period of the previous year. So when we witness that this Budget speaks of a big boost to infrastructure, it ignores that this sector is already reeling under bad debts and several large infrastructural projects are in crisis. Outstanding loans to just the power sector stands at a gigantic Rs 5.3 lakh crores at the end of November 2016. As much of these loans are going bad, credit to corporates have declined by 60 per cent since 2011.
Together with a stagnant economy (notwith-standing the highly inflated GDP growth figures) the Budget ought to have also considered the recessionary-like international situation, as the Indian economy has been deeply tied to the West in the name of ‘reforms’. According to an UNCTAD report released in September 2016, the US economy grew at 1.6 per cent, Europe and Japan were stagnant, and Russia’s economy contracted by 3.7 per cent last year. Global trade has slowed down even more dramatically, dropping to just 1.5 per cent this year—a full percentage point below world output. In addition, the rise in the Fed’s interest rates is likely to impact foreign investment, and the rise in crude oil prices will sizeably increase the import bill.
In this gloomy scenario country after country is resorting to increased protectionism to safe-guard their own economy—jobs and markets. Brexit is likely to be a catalyst that can sweep Europe, facing elections in most countries. Trump has already served notice on H-1B visas and is planning higher tarrifs on Indian pharma-ceuticals which cover 30 per cent of the US medical market. With the drastic fall in crude oil demand and crashing prices, OPEC for the first time ever agreed to cut production to increase prices (already increased from $ 40 to $ 54 per barrel and likely to go up to $ 70 per barrel). This has a twin impact on India—it massively pushes up the import bill, as India is dependent on 80 per cent of its crude oil on imports; secondly, a cut in production has resulted in the lay-off of thousands of workers in the Middle East who were forced to return home.
In this scenario India’s policy-makers need to reconsider their fetishism for everything foreign wasting crores on a series of global investors’ meets. Rather than invite these parasites one needs to protect our country from them as other countries are doing. Facing a big drop in profits and market, these MNCs will aggressively push to expand their tentacles into countries like India. After all, these MNCs’ investments have declined to their lowest level in two decades and their profits dropped by 25 per cent in the past five years. They desperately need markets worldwide, and our rulers need backbone to not fall prey to their bribes and coercion, particularly in today’s context.
In fact budgetary policy should be geared to protect, nay expand, the home market to boost local manufacturing. Once there is a market for goods, instead of going with the begging bowl abroad one can also tap the huge reserves of potential investments available by tapping not only the huge stock of black money in India and abroad, but also its daily generation. Also vast funds can be generated by liquidating the assets of the corporate defaulters and raising the taxes of the wealthy.
But first, the primary task of any Budget is to increase the market for commodities. With 96 per cent of our population (according to a Credit Suisse report)—that is, a gigantic 120 crore people—at the base of the wealth pyramid, if their purchasing power is raised by just five-to-10 per cent, an unbelievably huge market can be generated. To do this the Budget should focus on: (i) increasing farm incomes; (ii) generating stable jobs; and (iii) increasing subsidies and expenditure on health and education to free family incomes for purchasing commodities. We will now analyse to what extent the Budget facilitated this and what is its main focus. Finally, we can see its intention of recovering black money and stopping its generation to increase local investment. Lastly, some basic points for true inclusive growth.
Raising Farm Incomes
While in both the last and current Budgets the Finance Minister (FM) said he plans to double farm incomes by 2022, he has never said how he plans to do this. Simple accounts would mean to achieve this the price of farm produce should rise while the cost of inputs should go down and they should be released from the debt burden. To what extent did the Budget move the economy in this direction?
According to the NSSO data (70th round), the average farm income was Rs 6423 per month (most farmers will be well below this as it is an average figure including rich farmers) with 50 per cent of the farm households neck-deep in debt.
First, let us look at the ground realities regarding the price of farm output. The MSP (minimum support price) for groundnuts was fixed at Rs 4100 per quintal when even a few years back farmers were getting Rs 6000 to Rs 7000 per quintal. In addition, output in some regions have halved. Chilli farmers in Telangana were protesting against traders giving a mere Rs 6000 per quintal when even one month back they were getting Rs 11,000 per quintal. The MSP for potatoes in Telangana is half that of last year and farmers have not even been able to recover their costs. Wheat farmers have been protesting against the government resorting to huge imports at less than the MSP by reducing the customs duty to zero. Though sugarcane growers have suffered huge crop losses this year (in Maharashtra, production came down from 8.5 million tonnes last year to five million tonnes this year), the sugar mills are paying them less and have not even cleared their huge backlog. And the final nail in the farmers’ coffin was demonetisation, when farm produce, parti-cularly vegetables, had to be thrown away as there were no purchasers. Tomatoes were being ploughed back into the field as farmers were being offered 5 paise per kilo.
According to Modi, a fair price for farm produce should be income costs plus 50 per cent. While the input cost continues to rise and government subsidies for fertilisers etc. continue to fall, and output prices fall, the farmers cannot even cover their costs and are being pushed deeper and deeper into the debt trap.
Particularly with two drought years debts have spiralled, with farmers’ debts to public sector banks (PSBs) amounting to Rs 69,355 crores. Everyone expected a debt-waiver scheme in this Budget, but not a word was mentioned. The government’s approach can be understood by the fact that it allowed the PSBs to write off Rs 86,000 crores of the big corporates’ bad debts in 2016, but was not willing to write off even Rs 1 of the farm debt. On the contrary, they drastically reduced the crop insurance allocation from Rs 13,000 crores to Rs 9000 crores in the current Budget. Also in spite of 33 crore rural people having been affected by drought last year, the Budget reduced the allocation to the National Adaptation Fund for Climate Change from Rs 350 crores last year to Rs 130 crores this year.
Also all social expenditure on welfare schemes has remained stagnant, like the MGNREGA, mid-day meal scheme, Sarva Shiksha Abhiyan, National Drinking Water Scheme. The only positive plan was to use the MGNREGA to build 20 million small water bodies replicating what the Naxalites have been doing since the past two decades in Dandakaranya, or what Anna Hazare did in the Ralegan Siddhi village in the 1980s.
In fact the only increase in allocation to agriculture was the 11 per cent increase in agricultural credit to Rs 10 lakh crores. But it is a known fact that the bulk of this is cornered by agri-business and not the farmers. Even the overall increase in allocation to the Agricultural Ministry has been a measely six per cent or Rs 3000 crores. This cannot even compensate for the massive damage/loss as a result of demonetisation.
Let alone double farm incomes, the NNMB (National Nutrition Monitoring Bureau) has stated that compared to 1975-79 (when the first survey was conducted), an average rural Indian now consumes 550 fewer calories than they used to; and that 35 per cent of the rural people were found to be undernourished and 42 per cent of the children underweight. The seriousness of the government to rectify these horrific conditions can be seen from the fact that instead of proposing remedial measures, they closed down the NNMB in 2015. Their approach: better to hide the truth rather than to remedy it.
So, as far as farm incomes are concerned, let alone doubling with budgetary policies, the decline is likely to continue whether good monsoon or bad. A good monsoon results in excess production and a drastic drop in farm output prices; a bad monsoon and drought devastates the peasantry!! Both ways the farmer is the loser, and this Budget did nothing to help him.
Job Creation or Destruction?
We have already witnessed the extent of job/manufacturing destruction due to demoneti-sation. So the question before us is not so much about job creation but whether one can even restore it to the pre-demonetisation levels through this Budget.
In fact nowhere was job generation mentioned as an aim in the Budget speech. Summarising his approach, the FM said: “Madam Speaker, the thrust of my tax proposals in this Budget is stimulation of growth, relief to middle classes, affordable housing, curbing black money, promoting digital economy, transparency of political funding and simplification of tax administration.” Anything but employment generation!!
Of course, there is the assumption that with high GDP growth there will automatically be greater employment. But this is a misnomer widely promoted to dupe the masses. The facts show that while it was claimed that India was the fastest growing economy in the world, job growth fell to a mere 1.35 lakhs in 2015 from over four lakhs in the previous two years. Such pathetic job growth is to be seen in the back-drop that one million new people enter the job market every month. The warped nature of India’s growth can be understood from the fact that between 2011-12 and 2015-16 about one-third of India’s GDP growth came from the FIRE (Finance, Insurance and Real Estate) sectors and another 13 per cent from public administration services. Thus, as much as 46 per cent of growth had not been real sustainable economic growh as it hardly generated any employment. Besides, when an Infosys CEO can raise his own salary overnight to Rs 49 crores annually, and the TCS CEO gets Rs 36 crores, one can understand where the actual growth comes from—not to mention that India has the fastest growing billionaire list in the world!
But now let us turn to the Budget. It is well known that it is the MSME (Medium, Small-scale and Micro Enterprises) sector that is the main generator of employment in the country. It was claimed that the six to seven lakh MSMEs were given a major boost with the maximum tax rates being reduced from 30 per cent to 25 per cent. But, according to the CMIE, the bulk of these industries are unable to even meet their interest payments, let alone reach the tax net. The fact that the FM set aside a mere Rs 7000 crores as tax foregone for these six to seven lakh enterprises through this tax reduction indicates that he realises that it was a token step, notwithstanding the media hype. The crisis in the MSME sector was brought out in the Economic Survey 2017, but not addressed in the Budget. Even before demonetisation (which hit this sector hardest), the Economic Survey stated that the lending growth to the MSMEs turned negative during the last two years, while debt recovery fell by over one-third.
Another scheme for the small scale sector is MUDRA (Micro Units Development and Refinance Agency) which provides easy loans of upto Rs 10 lakhs to small enterprises. Though the loan allocation to this sector has been doubed in this Budget from Rs 1.22 lakh crores to Rs 2.44 lakh crores, this scheme itself has been a non-starter. Loans being taken have dropped drastically in just one year after its initiation—in AP it fell by 41 per cent between 2015-16 and 2016-17; in Kerala it fell by 32 per cent; in UP by 29 per cent; in Karnataka by 28 per cent; in Tamil Nadu by 20 per cent...
Then much was made about the huge increase in infrastructural expenditure to a record Rs 3,96,135 crores (from Rs 3,58,534 crores last year). This was stated to give a major boost to industries that will service the projects. But the supposed growth is more in the nature of statistical manipulation as this year’s figure includes railways and affordable housing which were not part of the figure in the last Budget. So, overall the actual expenditure may be less than last year. In fact the lack of a separate Railway Budget hid a bleak picture: freight earnings for the first time since 1978 declined; the Indian Railways have a massive debt of Rs 7.5 lakh crores to the LIC which it is unable to repay; in spite of growing accidents 1,25,754 posts relating to safety are lying vacant; and last but not the least, for 70 years the Union Government has borne the capital expenditure for the Railways, and now the Indian Railways has set up 70 projects to be constructed in collaboration with State governments!!
Looking at the Budget comprehensively, there is little that will give a boost to manufacturing specifically when many of the MSMEs have been devastated by demonetisation. The massive job loss as a result is unlikely to recover soon, let alone new jobs getting generated.
The irony of the situation is such that more is likely to be spent abroad than in India by the government and Indian big business. So, for example, over Rs 1 lakh crore is likely to be spent on arms deals—Rs 59,000 crores to France for the Rafale fighter; Rs 20,000 crores in emergency small arms purchases from Russia, Israel and France; massive and undisclosed arms deals with US manufacturers Lockheed Martin, Boeing, Northop and Raythcon. Then there is the Rs 1.4 lakh crore purchase for the planned nuclear plant in AP from the US’ Westinghouse, and an equal amount for another from France. A major airline company is to purchase thousands of crores worth of Boeing jets. So all this and much more will generate a large number of jobs in the US, France etc. to the ecstasy of Trump and company. All the swadeshi rhetoric seems only on paper, as alternatives to all the above were available in India but rejected.
So this government is not likely to generate many jobs (at least in India), and whether it can ever recover the massive job loss from demoneti-sation is yet to be seen. Of course, one sector that will thrive, as we shall see later, is that connected with the digital companies—but job generation there is very limited and may not even be able to absorb the H-1B visa holders that may have to return from the US.
Now let us turn to the social sector and welfare expenditure of the Budget.
Decline in Welfare Expenditure
The less a family has to spend on health, education and other social services, the more they will have available for the purchase of commodities. The more they have in the way of social security, PF/Pensions, the less they have to save for old age and health concerns. Most in this country have no social security and even those that do face dwindling returns on EPF with the government reducing the interest rates on PF deposits.
Subsidies continue their decline from 2.53 per cent of the GDP in 2012-13 to 1.72 per cent in 2016-17 to 1.61 per cent in the current Budget. And if we turn to healthcare and education, the abysmally poor levels of government expendi-ture is pushing the public into the arms of treacherous private players that are prolife-rating throughout the country.
In this Budget the government has announced with much fanfare eradicating TB by 2025, measles by 2020 etc. (with no roadmap for these) but it is unable to provide a basic need like safe water to the population. So, for example, 6.6 crore people are at risk due to drinking water containing excessive arsenic, fluoride, iron, nitrate etc.; six million have already been crippled by high fluoride content. In addition bacterial contamination affects 3.8 crore annually with 1.5 million child fatalities due to diarrhoea.
Health expenditure continues to be a meagre 2.2 per cent of the total expenditure, one of the lowest in the world. With a powerful pharma-ceutical lobby, and sickness rampant due to poor hygiene and unchecked pollution, families are being fleeced not only of their incomes but even their savings by the vampire-like corporate hospitals, mafia-controlled medical colleges (witness the Vyapam scam) and ruthless pharma industries. No wonder the second richest man in the country is the head of Sun Pharma with a wealth of $ 18 billion. It is probably the only industry projected to grow at the rate of 13 per cent annually reaching a Rs 7 lakh crore turnover by 2020.
Due to poor public expenditure on health even in rural areas 72 per cent of the people have to take to private treatment (NSSO report). In cities it would be even worse.
If one turns to education, the situation is much the same with government expenditure declining from 4.57 per cent of the toral expen-diture in 2015-16 to 3.7 per cent in the current Budget. The government has been more pre-occupied with either privatising prime technical and management institutions or hiking their fees phenomenally which even middle-class people now cannot afford. Even foreign institu-tions are being invited to take over Indian education. While such privatisation is taking place at break-neck speed, in this Budget the government has allocated Rs 4000 crores for SANKALP to create a pool of semi-educated people to service the market economy. Throught it, the government plans 350 online courses and the training of five lakh masons, amongst others.
So we see the purchasing power of honest citizens in continuous decline, and what little may exist among the middle class is fast depleting due to rising expenditure on healthcare/medicines, education, safe drinking water, regular electricity etc. etc.—all of which are normally provided by governments in any civilised country but not here. No wonder manufacturing has been stagnating for decades now. The Budget did little to reverse this trend!
Now let us see the main focus of this Budget.
Budget’s Main Focus
The Budget merely sought to take the goals of demonetisation forward—that is, digitalisation of the economy and further measures to prop up the Public Sector Banks (PSBs).
Whatever sector of the economy is dealt with in the Budget, one observes the mysterious hand of digitalisation. It allocated a huge Rs 10,000 crores to link 1.5 lakh gram panchayats to the internet; while it allocates less than half of that for rural electrification. It imposes a blanket ban on spending above Rs 3 lakhs in cash, forcing larger amounts to be done digitally. There are a slew of measures to bring social expenditure under the digital purview. A sum of Rs 1900 crores will be spent on computeri-sation and integration of all 63,000 Primary AgriCredit Societies to facilitate flow of credit. Digigaon has been launched to provide tele-medicine, education and skills through digital technology. For online railway ticket booking, service charge has been waived costing the exchequer Rs 500 crores. Tax exemption has been provided for all imports of digital machines which include lakhs of PoS (mostly from China).
Over and above this, the e-commerce sector has been given a major push as the government has mandated that all purchases in every department have to be done digitally—the amount of such transactions is expected to be a massive Rs 2 lakh crores annually giving an income of Rs 400 crores to the digital companies. The e-commerce giants, like Amazon, will be euphoric by this decision as they were worried about the growth in this sector, which grew by 180 per cent in 2015, but fell to just 12 per cent in 2016.
So, while the digital companies can hope for a bonanza in the coming days, the consumer can be expected to bear the burden. As Dr Bharat Jhunjhunwala pointed out, a transaction of Rs 1 lakh done digitally would cost Rs 410, but done in cash it would be nil.
Now if we turn to the banks, we find demonetisation gave India’s largest PSB, the SBI, an unbelievable one crore new accounts—that is, at the rate of one lakh new accounts per day. That too this flowed into low-interest savings/current accounts. Such a windfall would be unimaginable under normal conditions. No wonder the SBI’s profits leapt by 134 per cent in the quarter October-December 2016.
So, the government managed huge cheap deposits forcibly through demonetisation; now through the Budget it is seeking to increase the credit-offtake of these PSBs via the loan schemes. Till January 17, 2017 the banks witnessed a massive Rs 11 crores in deposits but the bank credit increased by a mere Rs 1.7 lakh crores. The loan growth has slowed to its slowest pace in several decades; the Budget sought to reverse this.
While the Budget was totally silent on the rising bad debts owed by the big corporates, which is threatening the very financial stability of the country, it merely announced new loan schemes—Rs 10 lakh crores for agri-credit, Rs 2.44 lakh crores for MUDRA, Rs 15,000 crores for crop loans, together with the earlier announced loan schemes for housing etc.
Whether the forcible deposits and loan schemes will be able to bail out the banks crumbling under sky-rocketing NPAs by the big corporates, is yet to be seen. After all, the S&P says that the PSBs still urgently require Rs 2.5 lakh crores for recapitalisation. This amount is best achieved by liquidation of the assets of the biggest defaulters. The rating agency, ICRA, puts the bad debts due to NPAs at a gigantic Rs 7 lakh crores.
Fighting the Black Economy
The learned judge, Justice Amitava Roy, observed in the Jayalalithaa/Sasikala judgment that “corruption has spread its malignant hold over every strata of society” and called upon every citizen to stand up against it. This is a bit difficult given the fate of about 40 Vyapam scam whistleblowers, but still the statement of the second judge is to be appreciated for its intention.
The government has spoken much about fighting black money—both during demoneti-sation and also in the Budget. The intentions are no doubt good, but unless the targets are clear, the battle will, at best, be quixotic.
Here in Hyderabad jail I have been reading report after report about the corruption in the GHMC (Greater Hyderabad Municipal Council) with no action taken. First, when a building under construction collapsed taking 11 lives, it was reported that there were thousands of such illegal constructions. Then came a report that there were at least 6000 illegal mobile towers in the city with the GHMC not collecting rent. Thereafter came a report that of the Rs 5 crores given to build fish markets, not one paisa has been spent on any market. And now a report comes that from the Rs 80 lakhs given annually for soaps, gloves, face masks, shoes etc. for sanitation workers, not a single item is provided to the workers who work in hazardous conditions. It is estimated that corruption loss in the GHMC results in a loss of revenue of Rs 500 crores annually.
And Hyderabad is no exception, such is the situation throughout the country known to every citizen who has to deal with officials, whether at the Central level or that of the State. If the government is serious about curbing corruption, its first task would be to strengthen the laws and bodies fighting corruption and bring the corrupt officials to book—seize their loot, dismises them from their jobs and put the more incorrigible ones behind bars.
But what does the Budget do? It reduces by half the allocation for the Lokpal from Rs 8.58 crores last year to a mere Rs 4.29 crores in the Budget. It is another matter that the Lokpal Bill has not even been passed and the legislation diluted so badly as to make it ineffective. The allocation to the CVC (Central Vigilance Committee) has been stagnant at a mere Rs 27.7 crores and that to the CBI increased by 8.3 per cent. The CVC has a 13.2 per cent deficit of its sanctioned staff of 296, with 3000 cases pending for over five years. The CBI has 1530 vacant posts out of a sanctioned strength of 7200, and so has over 2555 cases pending for over a decade.
Then the Budget, instead of targeting the big fish, sets out a plan to target the middle-class taxpayer. The Budget states there are 1.1 crore bank accounts under suspicion and each of these has deposited an average of Rs 5 lakhs during demonetisation. What is Rs 5 lakhs today when thousands of crore of black money is floating around untouched—even a petty clark in a govrnment office would have more loot? And to make the witch-hunt against the middle classes more ruthless, the Budget introduced tougher PAN rules and penalties for filing returns late. All this will result in nothing but harassment to lakhs of citizens and huge bribes to the corrupt IT officials, notorious for their coercive methods for extortion of money.
Then the Budget introduces some cosmetic changes that give the illusion that the govern-ment is serious about fighting black money. So it says that the Rs 3 lakh limit on cash tran-sactions will help fight black money dealings. That is true; but then why include a clause which states there will be no penalty if a person proves “that there were good and sufficient reasons for such contravention”? Besides, it lays out no criteria to allow for “contravention”, throwing the ordinary citizen into the rapacious jaws of the tax collector who will be the sole authority to decide what is a “good reason” and what is not. Obviously the big and powerful will have “good reasons” while the ordinary citizen will be called on to pay the 100 per cent penalty or a bribe!!
The other cosmetic change was the decision to reduce the allowable donations in cash to political parties from Rs 20,000 to Rs 2000. Most ridiculed this as a joke. With all other exemptions, including exemption from RTI inquiries, in place, this will have zero impact. Besides, no action was announced against the 1500 fake registered parties which have never participated in a single election but are enjoying all the tax concessions.
This lack of will to counter corruption and black money can be seen from the role of the RBI and the bank’s top brass. The RBI continues to refuse replies to RTI inquiries of the number of Rs 500 and Rs 1000 notes deposited prior to November 8, 2016 and the total number of notes deposited after demonetisation. And while a few IDBI officials have been arrested for passing a Rs 250-crore loan to Vijay Mallya, no action is even considered for the lakhs of crores passed to big corporates that are now NPAs. These are clearly cases of high levels of corruption by bank officials as the bulk of these bad debts are of the PSBs while the private banks’ bad debts are nominal. According to the Minister of State for Finance, as in September 2016 the PSBs’ bad loans were Rs 5.9 lakh crores while those of the private banks was just Rs 48,380 crores. What is worse, the big corporates continued to be advanced loans even after defaulting on their earlier ones.
The blatancy of the corrupt nexus between the big corportes and top politicians can be seen when a year back a top Union Minister’s wife was appointed on the board of Infosys. In any other country this would clearly be seen as a case of conflict of interest, but not in India. This link, that was anyhow underhand, is now able to come out crudely into the open with not a single voice of protest.
One can say corruption, which was earlier under the table, is now being institutionalised. What is the fee of the Minister’s wife for being on the board?? Justice Amitava Roy’s three-page judgment against corruption in the country is likely to just stay on record with little effect and used only when there is a need to fight political opponents. Yet, seizing the black money and preventing its regeneration is an extremely important economic task as lakhs of crores are being siphoned off; these would be absolutely essential to retrieve if the country is to develop. Otherwise India is doomed to continued backwardness with all the human indicators matching those of sub-Saharan Africa.
Towards a People’s Budget
As our Vice-President, Hamid Ansari, said at a convention on February 11, 2017, “In India the richest one per cent have claim to 60 per cent of the country’s wealth and the bottom 50 per cent to two per cent...” As already seen, 96 per cent of our people are at the bottom of the wealth pyramid. Even a nominal five to 10 per cent in the purchasing power of this 120 crore mass will act as a gigantic motor for industrial growth.
But all economic and taxation policies of the government are only on enhancing the purchasing power of the top one per cent and sacrificing the rest. This is even visible from the latest taxation figures for the April 2016 to January 2017 period—where indirect taxation revenue (that is, tax on the poor and middle classes) rose by 24 per cent while corporate tax collection rose by a mere 2.9 per cent. India is one of the few countries that have no wealth tax and inheritance tax.
India has one of the lowest tax rates in the world—it is a mere 16.6 per cent of the GDP, while for other emerging market economies it is 21 per cent and for the OECD countries it is 34 per cent. In fact India being a backward country, it needs greater resource mobilisation to invest in inclusive growth—that is, in the four spheres mentioned in this article.
If this is to be realised, major resource mobilisation can be achieved by tapping the huge black money being generated, increasing the tax on the super rich (corporates and individuals), and reducing the tax on the poor and middle classes. Also tax subsidies and loan write-offs amounting to lakhs of crores to the big corporates should be immediately stopped, farmers’ debts should be waived off and those of the MSMEs eased. The government expen-diture on healthcare, hygiene, pollution control, and environment protection as also education needs to be substantially increased.
Also our officials and politicians need to discard their colonial mentality and drastically reduce their retinues of staff and police ‘protection’. Probably the government staff and police force could be reduced by 20 to 30 per cent. If this colonial relic and status symbol is discarded, the country would be saved lakhs of crores which could go into development activities.
This colonial mentality is also reflected in an obsession with everything foreign—foreign invest- ments, foreign markets, foreign goods etc. etc.—whereas the need is to focus more on swadeshi in the real sense. Today this is essential in the light of growing recession worldwide and greater protectionism. Today 70 per cent of our IT sector of $ 150 billion is dependant on exports, 80 per cent of our energy requirements is dependent on imports, and company after company is being taken over by the powerful international private equity firms and fund managers. Just one such, Warburg Pincus, has invested $ 3.8 billion in over 50 Indian companies including innocuous bodies like the PVR. Global investor giant TPG Capital is all set to become the biggest healthcare company by taking control of Fortis Healthcare and Manipal Health Enterprises. These foreign investors, facing restricted markets in their home country, come here to exploit our cheap labour and repatriate the huge profits abroad. This is disastrous for our country due to the capital flight involved. Swadeshi means protecting our country from such loot, not symbolic acts like shouting a few slogans.
The country faces two models of growth—first, the one that is dependent on one to five per cent of our population for a market; and the second, that is dependent on 96 per cent of our population for a market. The Budget promotes the first model. What I have proposed here is the alternative model which entails truly inclusive growth for the 96 per cent.
(February 17, 2017)