(Weekly Organ of the Communist Party of India (Marxist)
July 19, 2009
YECHURY SPEECH IN RAJYA SABHA
“Budget Fails To Generate
A Stimulus For Our Economy”
AFTER listening rather patiently about the philosophy and the vision of this budget for the last 45 minutes or so from my friend Dr Abhishek Manu Singhvi, I am more confused as to what exactly is the objective of the government. Because this budget was expected, and I think it was a universally-shared expectation, to meet the needs of a stimulus in the wake of the global recession. And it would help generate employment in the wake of growing unemployment because of the recession. And that it will increase the purchasing power of the people which will be actual stimulus for future growth.
Now this is what was expected of this budget which will also then take into account the stated objective of inclusive growth for the aam aadmi. However, this basic need of this budget has remained largely unfulfilled. And why it has remained unfulfilled is because this budget reflects a new contradiction that was born with the UPA-II government. That contradiction is, on the one hand, a recognition of the fact that the concerns of the aam aadmi are what actually brought them back to power and, therefore, those have to be addressed. And, on the other hand, the intrinsic philosophy of this government has been that of pushing the neo-liberal economic reforms further.
And, now that they are no longer constrained to seek our support, they seem to be more excited to proceed on going ahead with these reforms in an unbridled fashion, which, in my opinion, would be extremely dangerous for the country and its people at the present juncture. I am saying this because how this contradiction will unfold and from which end it will unfold, that will determine whether we are able to meet the challenges of the present times, requirements of our people, and build sound economic fundamentals. Unfortunately, I think this contradiction is sought to be resolved by pushing forward these neo-liberal economic reforms more than the actual 'concern' for the aam aadmi. The 'concern' expressed, I would substantiate, and my colleagues subsequently will substantiate that further, has not been matched by the allocations that were actually given in the budget. This in itself will tend to put these concerns as only a rhetorical expression and not really substantive in terms of meeting the needs of the people today.
Therefore, I think the philosophy of the budget has been putting profits before people. While what the country requires today is putting people before profits. But before I substantiate why I am saying this, I would like to quote Kautilya. The finance minister spent a lot of labour in quoting Kautilya. But I think the essence of Kautilya’s system of taxation has not been quoted. I quote, “Just as a calf sucks milk from the cow and the cow parts with the milk happily so should taxation be. The tax-payer should not feel the burden of the tax he pays. The calf can take milk but cannot suck the cow’s blood.”
It is this blood sucking and how this is happening is what I would like to substantiate. This is something which I think, at the present juncture, is entirely against aam admi. Why do I say this? The abolition of surcharge and increased exemption limit for income-tax has given a bonanza of Rs 10,000 crore to the rich. It is not the middle class who has gained. What is the meaning of these tax proposals that have been made? Those earning more than Rs 1,00,000 a month will now pay nearly Rs 30,000 less tax annually. Those earning more than Rs 20,00,000 a year will now pay over Rs 53,000 less as tax. To that extent, the governmental revenues will be lesser by Rs 10,000 crore. So, Rs 10,000 crores of governmental revenue which would have come, has now been forgone. In addition, the budget papers themselves tell us that as a result of various concessions, as much as Rs 4.18 lakh crore was forgone as tax last year. So, add Rs 10,000 crores to this. That means, Rs 4.28 lakh crore amount has been forgone by the government’s own admission and these tax concessions will continue for another one year. This comes on top of what? In the last four years of UPA-I government, the number of Indian billionaires in dollar terms has increased from nine to 53 in 2008. The assets of top ten corporate houses trebled from Rs 3,54,000 crore to Rs 10,34,000 crore. That is more than three times. May the tribe increase! May such prosperity be there for everybody! But, what I am going to argue is this.
My colleague, Arjun Sengupta, is not here. He (NCEUS report) told us that 77 per cent of our population lives on less than Rs 20 per day. Now, this is the contrast between a shining India and a suffering India that we have always been pointing out. And I am afraid, this budget will only extend this sort of suffering of the common people. In addition, it is already being talked of, you have given tax holidays and you have created the Infrastructure Corporation for giving finances along with the commercial banks up to the tune of Rs 1,00,000 crore. Sixty per cent of this will be re-financed by this Infrastructure Corporation. So, what are you doing? You are making resources available to the private sector to borrow on easy and soft terms and to collaborate with the government to invest in the joint infrastructure programmes. Good. We want the infrastructure to be built. But, the point is that the government should do it directly. Through this process, the facilitation that you are going to do for the private sector, the resource diversion could have been put to better use and that is the crux of my argument. If Rs 4.28 lakh crores of forgone taxation were put as stimulus into economy, it would have been more than 10 per cent of our GDP. This Rs 4.28 lakh crore is more than 43 per cent of the entire budget, which the finance minister very proudly said -- it is a good landmark that we have crossed the ten lakh crore rupees mark. But, this 43 per cent of the budget could have been used to properly develop or build our infrastructure, generate jobs, give purchasing power to our people, which, in turn, would generate further demand for output and, therefore, create more jobs. That would have been the cycle of stimulus. Somehow, we have not done that. The total extra expenditure in this budget is less than two per cent of our GDP when we had the opportunity to increase it by more than 10 per cent. It is this which has not been done. That is why, I think, this budget is too inadequate to generate a stimulus.
This is too inadequate to actually take the concerns of the aam admi into account. Much has been said about the availability of credit to our rural sector, that it has been increased from Rs 2.87 lakh crore to Rs 3.25 lakh crore, i.e. less than Rs 50,000 crore. But anybody with an elementary economic sense will tell you that making credit available does not increase the capacity of the people to borrow. The people need the capacity to borrow. On the one hand, the borrowing capacity of the farmers is declining; on the other hand, even with this Rs 3.25 lakh crore, nearly two-thirds of the farmers will be outside the ambit of ‘institutional credit’. If you, really, want to take care of the issue of credit to the farmers so that they do not slide into greater poverty, you would have to, on the one hand, expand massively your rural banking sector, which is being curtailed today. You are curtailing the network of rural banking and, then, talking of increased amounts of rural credit! The capacity of the farmers to use that credit is also declining. Unless you act as the Swaminathan Commission Report suggests, and reduce the interest rate to four per cent from the existing seven per cent, it cannot help Indian agriculture or the farmers. That is not being done. You have heard that a one per cent concession has been given for those who can pay back on time. But, those who can pay back on time are not the ones who require concessions. Concessions are required by those who cannot pay back.
And, then, you got, on the top of that, the Food Security Act, on which I had the occasion, the other day, to call it “the Food Insecurity Act” because of the fact that you are reducing the quantum and increasing the price by one rupee. In this, I think, is a gross neglect of agriculture, and this gross neglect comes at a time when there is a serious concern about an impending drought in the country because of a weakened monsoon. So far, the delayed monsoon has led to a reduction in paddy transplantation in 13.66 lakh hectares. There is a shortfall of nearly 25 per cent. But the problem is not because of delayed rainfall alone. In states like Punjab and Haryana, which have, virtually, assured irrigation, the shortfall has been to the tune of 8.17 lakh hectares in paddy transplantation. As far as the cereals are concerned, there is, nearly, a 53 per cent reduction in production where there has been a shortfall in terms of planting. That has happened this year. I can give you all these figures. In case of bajra, the sowing has taken place only in 6.56 lakh hectares, which is not even eight per cent of the 2008 figures. Similar things happened with jawar, with maize. On all these matters, we are on the precipice of a very, very deep and disturbing agrarian crisis, and this agrarian crisis comes on the top of the distress that already exists. That is leading to suicides of your farmers. Then, I think, we are actually creating a new crisis for ourselves, and unless this is remedied immediately, we are going to move into a very, very deep agrarian distress and crisis.
The finance minister talked of various subsidies, and, particularly, the fertiliser subsidy saying that it will reach the farmers directly. Now, how that will happen is not given in detail. And this is not expected in the budget. That will be worked out! But, what has been the allocation? The allocation, when you compare it to the Revised Estimates of 2008-09, is Rs 25,000 crore less! In a situation where you have this impending agrarian crisis which is going to worsen, you have allocation that is less. You have not accepted the recommendations of either the Swaminathan Commission or the Y K Alagh Commission, and this is the manner in which this budget has dealt with our agriculture sector, which, as all of us know, houses the bulk of our population.
Agriculture is the key sector for the future of our country and its people and this is the degree of neglect of the sector in this budget. I would urge upon the government that, in the name of the aam admi, by whom they swear, they should immediately — there is still time — revise many of these positions that they have taken, give greater allocation for agriculture and infrastructural investment in agriculture and make course corrections in order to meet the delayed and weakened monsoon that is going to impact very severely.
This is also happening in the background of greater burden that is being put on the people. We have heard about the mismatch between Wholesale Price Index (WPI) and Consumer Price Index (CPI). We have heard that the rates of essential commodities are going up. With minus 1.25 fall in WPI and nearly nine per cent rise in Consumer Price Index, there is a mismatch. We have heard our colleague here trying to explain that this mismatch is happening because of hoarding, and the people are buying at a lower price and selling at a higher price making super profits. That may be part of the problem. What is the range at which the prices have jumped? Compared to last year, there is 30-40 per cent jump in most of the items. Now, why is this happening? This is not happening only because of hoarding. I think a deeper structural problem is involved here. The government has, far from recognising it, done exactly the opposite. This budget abolishes the Commodity Transaction Tax. It encourages speculation in futures trading and commodities trading. That is the cause for the rise in the prices of these essential commodities. What has been the volume of trade in these commodity exchanges? Since it is the month of June-July we are talking about, let us take the period between June 1 and June 30. In 2007, the total value of trade in the commodity forward markets — I am quoting from the Forward Markets Commission of India’s fortnightly report — in the commodity exchanges, during June 1-30, was Rs 2,21,888 crore. In 2008, this jumped to Rs 11,15,327 crore. There is an increase of five times. In 2009, when the last month ended, it was Rs 15,64,166.96 crore. This is the gigantic volume traded in these commodity exchanges. This is future trading. You are bidding for a product at a future date at a future price and bulk of this trading outstrips the capacity of production in this country. If you are trading, outstripping the capacity of production in this country, at a future date at a future price, there is no way but to make the prices go up. Otherwise, there is no profit in this trading. Instead of putting curbs on speculation in commodity transactions, you have today — you see the budget — abolished this tax. That is giving further room to all these speculators to actually speculate on the price and then fleece the people through higher prices. So, I urge upon the government to reconsider this proposal, particularly, at a time when the Obama administration in the USA is now considering and discussing the conditions to be put to regulate speculative trading in commodity exchanges. They are thinking of new laws. Tax on it, of course, is one of the deterrents, particularly, in respect of oil. When the US administration is thinking in terms of taxing, we are abolishing that particular tax. I think it is a very unwise move and it is going to really impose a greater burden on the people.
FISCAL PRUDENCE &
We have heard a lot of discussion that took place on fiscal prudence and the question of disinvestment. I am glad the finance minister has not been a victim of fiscal fundamentalism this year. But then he has explained his concerns for fiscal prudence. I would only like to add here that in a period of recession, the talk about fiscal conditionalities or about fiscal discipline, etc., is neither prudent economics nor commonsense. The prime minister in this very House stood up and said virtually the same thing, “This is not the time to be preoccupied with your fiscal prudence”. Very correct. Because the only way in which the recession can be overcome is through providing stimulus through greater spending and later, we will have to look in terms of how that greater spending could be financed. Whether it will be done partly by deficit financing and partly by printing money, those options can be exercised later. But no recession can be overcome without greater public spending. That is the essence for all. Forget the communists saying this because we believe in it. But that is the philosophy even of the most ultra capitalists. That is the only way in which the USA got out of the 1930s depression. That was what Roosevelt’s New Deal was all about. In fact, Keynes had once suggested that you make one set of people dig holes, make another set of people fill the holes and when both of them get their salaries, they will spend and that is the way to get out of the recession. So, today, do not start worrying about fiscal deficit.
But my concern is the manner in which this fiscal deficit is going to be met, and that is where the needle of suspicion moves towards the question of disinvestment. Now it makes neither economic sense nor commonsense to sell your property to pay back your debts. If a farmer does that, then he is ruined after two years when he will have no more land to cultivate. Now this is a strategy, which, I don’t think, anybody, in the right mind, would actually accept. This disinvestment is coming with a great new philosophy. We want people’s ownership of the public sector! Seventy-seven per cent of the people live on less than Rs 20/- a day. They are going to own your public sector! They are going to buy shares! Remember, the public sector is the property of the people of India. Governments come and governments go. They are the managers. No manager can sell the property without the acceptance of the owner; otherwise, the owner will change the manager whenever the chance comes. Please remember that and keep that in mind.
The finance minister also invoked the name of Indira Gandhi in regard to nationalisation of banks and said that it was a very wise move. Indeed, it was a very wise move. But remember, that was also done under the Left’s pressure. In 1969, Mrs Gandhi required the support of the Left in that whole fight against the ‘Indicates’ and ‘Syndicates’, in that election to the president of India between V V Giri and Sanjeeva Reddy. All of us know that history. The condition that the Left put for extending that support was nationalisation of banks, nationalisation of coal and abolition of Privy Purses.
I am saying this not as a complaint. Why are my colleagues not able to understand? They have always gained by taking the Left’s advice. Very inadvertently, my colleague has said, “Even, this time, we have come back because of the Left.” He has admitted it, and that is a fact. All these aam admi programmes, we played our role in getting them. Anyway, let me not digress. Now, my colleague Venkaiah Naidu is also wondering as to why I am saying, “You do what the US is doing now.” They are a little surprised when I said it. Paul Krugman, a Nobel Laureate, has recently called Alan Greenspan, who was the former chairman of the US Federal Reserve Board, and the high priest of the entire financial liberalisation, a comrade, why is it so? It is because he has suggested the need to nationalise the banks in the US. And Krugman proceeds to argue in the same way saying, “What is required today is nationalisation”. They want nationalisation, not your privatisation, or, what you call, disinvestment, or, people holding the public sector. Why does he say so? Krugman argues that the road to economic recovery is only through nationalisation. And, he answers a question which many of you have asked: “Still isn’t nationalisation un-American?” He himself replies, “No; it is as American as the apple-pie.” So, when they say good things, we say, “Follow them.” When they say bad things, we say, “Do not follow them.” And we will discuss that separately sometime else as to what happened in the G-8 regarding the nuclear deal and transfer of technology. Anyway, that is not the issue. We were warning you earlier, but you didn’t hear our warning. Now you are paying the price for it. Anyway, that is not the issue as far as the budget is concerned. But the point is correct that here is the World Bank study which says, “Using data on the share of banking sector assets held by foreign banks in over 100 developing countries during 1995 and 2002, the result shows that countries that experienced the banking crisis tended to have higher levels of foreign bank participation than those who did not.” So, what we were earlier saying is now being confirmed by all these things. Now, on this entire question of either the PPP route or disinvestments, and you want people to buy shares, we know who these people are. How much would be the people, who actually operate in the stock market? Just 2 or 2.5 per cent of the Indians operating the stock market, out of a population of 110 crores, will be the potential buyers. So, let us not create a myth that people own it. We know where it will go, into whose hands it will go. That is why we are saying, be careful in this entire thing. And, that will find our opposition because we do not want our assets ruined. Also, in what climate are we today? The finance minister spent the last two days in trying to placate and assuage the private sector saying, “No; the government borrowings will not crowd out the private sector.” But what was the state of your financial markets last year? Last year, through all methods of fund raising, that is, the Rights Issue, IPOs, FPOs, QIPs, through all of it, the total amount that was raised was Rs 36,915.71 crore. What is it from January to June, 2009? From Rs 36,915 crore, it has dropped to Rs 10,072 crore. This is the state of your market. And, in this state of the market, you want to sell your public sector! What does that mean? That means you are selling it for a song. And that is not in the interest of our country. You want private capital to take over our rich assets for a song!
There are certain other issues. We have heard about one-rank-one-pension and the anomalies that Venkaiah Naidu also pointed out. But I would urge the government to consider this fact also that the problems of non-defence forces, the paramilitary forces, who are also being honoured for their bravery and various other services that they render, should also be treated on par and should be taken into account and that also need to be resolved.
The other issue is that of the National Identity Card Scheme. I am very frightened about it. I have to express this concern to the House. We have heard reports that global tenders are going to be issued for the issuance of those cards. Everybody knows that this is the information that many people would want; many agencies who do not have the interests of our country in mind want this information about our people and this information, therefore, was to be provided and catalogued in the cards only by public sector companies which they are already doing in our coastal areas. Now, media reports have come out saying that an Israeli company is wishing to bid for these cards. This is a very serious matter and, I think, the government should seriously reconsider it. Yes, the project is good. It should be implemented. But it should be done by the public sector because we cannot allow this information to be leaked out to those who do not have our security in mind. The question of internal security is involved. So, be very careful about this.
The other issue is that there is an increase of ten lakh crore rupees in the budget, but Rs 35,000 crore increase comes from the sale of Spectrum 3G auction. But it only confirms our suspicions that, in the 2G Spectrum sale, there has been a lot of give-and-take that has been involved, and that needs to be investigated. If you are taking this Rs 35,000 crore this year as your revenue from 3G, then, please look into the 2G and why that has happened; inquire into that scam which actually runs into something to the tune of Rs 60,000 crore; that must be inquired into and corrected.
Finally, there is a proposal in this budget which talks about tax exemption on donations by corporates to political parties. Now, there has also been — and friends from the opposition have raised that you have not talked about it — the issue of Swiss bank accounts and the money and how that has to be brought back. I have only one thing to say. I hope that this tax exemption has not been given as one of the conduits to bring that illegal money; is it an ingenious way of allowing such a money laundering to happen. I would urge this government to reconsider this proposal. If the corporates want to donate for strengthening our democracy in the country, it is very good. We would appreciate it. We would want them to be a part and parcel of this entire democratic process; and they should be. But, please, let them donate to a separate corpus, a separate fund. Let it be managed by the Election Commission, or, let it be managed by any other agency of the government and, then, use that corpus for State funding of elections, instead of allowing individual parties to take this money from individual corporates; corporates give money to individual parties with the consideration of treating it as an investment. And, if that is an investment, every corporate would want a return on that investment, and the return on the investment is the fountainhead of political corruption. If you want to cleanse our system, please rethink about this issue and let the corporates donate to a separate fund; let a corpus of fund be used for State funding of elections, and, this I hope that the government will consider.
Finally, in conclusion, I think the budget, unfortunately, fails despite the opportunities that are available in meeting the objective of inclusive growth and taking into account the concerns of the aam aadmi. Therefore, what we are urging the government is to reconsider this issue that the tax foregone Rs 4.18 lakh crore and the concessions given additionally of Rs 10,000 crore, you collect them back, use that as the stimulus and that is what will kickstart the Indian economy. For the sake of the aam aadmi, please make this correction.