BUDGET- 2012
DOWNWARD
SLIDE IN THE SUMMER OF OUR DISCONTENT
An opportunity has been forsaken to
strengthen our economic fundamentals while improving the lives of the people,
increasing the divide between India Shining and India Suffering.
While the people were hoping for relief in the current
budget, the Finance Minister was faced with the task of reversing the slowing growth
rate and raging inflation. He had a choice in this budget. He, however, chose a
path that is going to worsen the situation both for the economy and for the
people. In the process, he also chose the wrong quotation for his speech from
“immortal Shakespeare's Hamlet.”
The appropriate quote for him in
this situation would have been the well-known “To be, or not to be –
that is the question;/ Whether ‘tis nobler in the mind to suffer/The slings and
arrows of outrageous fortune,/Or to take arms against a sea of troubles,/ And
by opposing end them?”
Illusory assumptions
He chose not to end the people's growing economic burdens
by continuing to embrace the neo-liberal philosophy that treats concessions to
India Inc. and the rich as being incentives for growth and subsidies for the
poor as a burden on the economy.
Apart from giving direct tax
concessions of Rs.4,500 crore, the Finance Minister, in his speech, said: “I
propose certain measures to allow corporates to access lower cost funds and to
promote higher level of investments in several sectors.” This neo-liberal
prescription is based on illusory assumptions: more availability of cheaper
funds will lead to higher levels of investment and therefore, to higher growth
rates. Missing in this logic is the vital link between higher investment and
higher growth — the capacity to consume what is produced by these higher
investments, i.e., the purchasing power of the people. It is precisely this
link that is seriously eroded further by these budget proposals. If the
purchasing power of the people does not grow, then the periodic “bubbles”
created by this trajectory will continue bursting at regular intervals. The
world is familiar with this continuing four-year long global recession.
However, in order to achieve the
former, the budget reduces the withholding tax on interest payments on external
commercial borrowings from 20 to five per cent for three years for several
important sectors. The security transaction tax has been reduced. Restrictions
on Venture Capital Funds have been removed, tax on Indian companies
repatriating dividends from foreign subsidiaries has been halved and the
cascading effect of the dividend distribution tax has been removed.
Likewise, many other measures like
enhancement of investment linked deduction of capital expenditure etc. have
been introduced. All this is being done with the urge to boost investor
confidence and attract higher foreign financial flows. This trajectory has been
adopted despite the World Bank's recent warning that the “rich countries had
little monetary or fiscal ammunition available to stem any vicious circle of
continuing recession”. The Finance Minister's strategy is thus bound to fail
and in the process, it is the people who will have to bear further burdens.
Social sector
The Finance Minister, however, has made many bombastic
claims of increasing expenditures in the social sector. Many of these sound
hollow given the fact that the revised estimates show a substantial reduction
in the spending of actual allocations made in last year's budget. Even flagship
programmes such as the Mahatma Gandhi Rural Employment Guarantee Act has seen a
huge shortfall in spending, of over Rs.9,000 crore. Similarly, the claims of
raising the allocations for SC/ST Sub-Plans conceal the actual fact that they
do not meet the required allocations of 16.5 and 8.2 per cent of the plan
expenditure respectively. The current amounts are only seven and four per cent
respectively.
Simultaneously, in an effort to
contain the burgeoning fiscal deficit, indirect taxes have been hiked across
the board by a whopping Rs.45,940 crore. Direct tax concessions benefit the
rich while indirect taxes burden the working people. The aam admi is
subjected to a double whammy as indirect taxes hikes also contribute to the
inflationary spiral directly. Thus, when people were looking for some relief,
they are now to be subjected to further burdens. There are also direct attacks
on the livelihoods of working people. The Employees Provident Fund interest
rate has been reduced from 9.5 to 8.25 per cent. For crores of employees, this
fund is their only fallback economic security option.
Along with reduction in subsidies
(nearly Rs.25,000 crore on fuel and Rs.6,000 crore on fertilizers) and massive
disinvestment of the public sector (Rs.30,000 crore), these are all being
justified in the name of fiscal consolidation. True, fiscal profligacy must be
checked. But how? Look at the numbers.
The total fiscal deficit now stands
at Rs.5,21,980 crore or 5.9 per cent of GDP. The budget documents show that in
the same year, the total tax revenue foregone (i.e., voluntarily not collected
by the government) amounts to Rs.5,29,432 crore. If these legitimate amounts
were, instead, collected, then there would be no fiscal deficit at all!
Internationally, a three per cent
fiscal deficit is considered healthy. This works out to over Rs.2.5 lakh crore,
given our current GDP. If legitimate taxes were collected instead of doling out
concessions to India Inc. and the rich, and this amount spent through public
investments for building our much needed infrastructure, we could have
generated huge additional employment and the consequent growth of domestic
demand would have put India on the course of a sustainable healthy inclusive
growth pattern.
This was the choice that the Finance
Minister had. He, however, could not escape Hamlet's dilemma. Not only has an
opportunity been forsaken for strengthening our economic fundamentals while
improving people's lives, the exact opposite has been done, which will only
increase the hiatus between the two India’s — shining and suffering. The
Finance Minister said India was on the “brink of resurgence.” In reality, it is
heading for a downward slide.
(Sitaram Yechury is CPI (M) Polit Bureau member
and Member, Rajya Sabha.)
The Hindu, Saturday 17th March, 2012
