People's Democracy

FROM P Chidambaram’s "Dream Budget" of 1997-98 to Yashwant Sinha’s "Feel Good Budget" of the current year, the slide in the economy has been quite precipitous. The dream of 1997-98 took some time to get dispelled, but the feel good aroma of Sinha took no time at all to disperse into thin air. Both the budgets constituted a fraud on the people. By people, we mean the common people and not the miniscule minority whom Chidambaram and Sinha kept in mind while preparing their budgets.

The budget 2001-2002 is a veritable spider web of figures and statistics. Yet, what one has to note is the direction of its ideological thrust --- whom it seeks to benefit and whom to deprive.

Theoretically, a budget is a device to rectify the imbalances in the economy and initiate new measures for ensuring balanced development by garnering resources and allocating the same appropriately. In other words, it is a short term instrument of social engineering. Yet, the budget exercises have lost relevance in recent times because the governments kept on resorting to administrative price hikes, levy of surcharges, introduction of some concessions and withdrawal of others, etc, all through the year. In recent times, budget exercises have, in a more dubious way, smuggled in such measures as are not even remotely connected with the normal ingredients of a budget. This year’s budget shows this tendency in a more pronounced way than ever before. The exercise elicited good response from the industry and commerce because of the brazen concessions extended to them at the expense of the ordinary people.

Instead of rectifying the imbalances in social structure and distribution of the benefits of development equitably, this year’s budget has taken such measures as would only aggravate these imbalances manifold. It hits hard the already declining living standards of the people.

This was the reason the bourgeois media hailed the budget, as did the CII, FICCI and their ilk. Even as the budget presentation was on, TV channels focussed on the movement of the BSE index as it rose minute by minute. The "feel good" image was being whipped up in this very manner.

This soap bubble of course has been pricked. During the last one month alone, the BSE index has fallen by as many as 600 points. After a brief respite, the index has registered a steep fall day after day. Thus the small investors’ fond expectations and precious savings vanished in an instant due to this precipitous fall of the index. The reason is that most of the time the rise in share prices are artificially whipped up and by no means reflect the actual health of the economy or of the specific industry in question.

In any economy, broadly speaking, trade, taxation and domestic savings are the sources of resource mobilisation for development. Public sector income could be another source but here the extent of social subsidisation involved might diminish the availability of resources in terms of money. In most economies, as all these have proved inadequate, deficit financing is resorted to frequently in order to fulfil the government’s agenda of public investment and not just for meeting its ways and means requirements.

But the "dream budget" of P Chidambaram relied on giving enormous concessions to the richer sections and compensated the loss in revenue by levying indirect taxes on the common man. The underlying philosophy was that putting resources in the hands of those who have propensity to save, rather than in the hands of those who have propensity to consume, would help in capital formation. Chidambaram even asserted that it was not the business of the state to invest even in social and physical infrastructure and that private investments would take care of it.

This of course did not materialise. Investment came down and the national income declined to 4.5 per cent. The economy continued to slide in the subsequent years too, with no worthwhile improvement in investments. Another glaring consequence was the drastic decline in the real income of ordinary people, diminishing further their already fragile purchasing power. The ordinary people’s capacity to consume as well as to save thus declined. Crucial sectors suffered from both inadequate investment and lack of demand. Lately, of all the maladies the economy suffered from, demand constraint has been the most glaring. In such a background, no wonder, domestic savings, which stagnated at around 23 per cent of the GDP, came down sharply to 21 per cent last year. This clearly indicated that the purchasing power as well as the economy’s saving potential had been severely damaged.

Common sense should have dictated that what was required was remedying precisely this situation of dangerous fall in demand and savings. But the government and the finance minister, it appears, think that ‘expertise’ is antithetical to common sense. Hence, instead of providing solutions to the maladies afflicting the economy, Sinha’s budget aggravates them further. Instead of addressing the problem of demand constraint that had become too glaring to ignore, the finance minister chose to tinker with the supply management of the economy. When the doctor fails to diagnose the ailment, the treatment inevitably leads to disaster. This precisely is this budget’s fate.

In sum, instead of removing the imbalances, Sinha has aggravated them further by giving more concessions to the rich and imposing more burdens on the poor. The spread of direct and indirect taxes is only one aspect of his inexorable transfer of resources from the common people to the rich. As is known, indirect taxes are iniquitous as they are paid also by the common people who do not have much at their disposal. In the budget, indirect levies have been increased by Rs 4,700 crore and direct tax concessions totalled Rs 5,500 crore. This is nothing but transferring resources from the poor to the rich.

Let us see some details of the lopsided taxation measures which illustrate the class-orientation of the present government.

• Cars will become cheaper. The more sophisticated the car, the more the concession it will fetch.
• Similar are the concessions to two wheelers, colour television sets, refrigerators, washing machines, air conditioners and the like.
• Surcharge on corporate tax has been reduced from 39.55 to 35 per cent, benefiting 3,500 companies to the extent of Rs 1,611 crore per year.
• Dividend tax has come down from 20 to 10 per cent, giving a concession of Rs 1,950 crore to 3,400 companies. For example, Hindustan Lever would get a relief of Rs 64 crore, Reliance Rs 39 crore, Tata Steel Rs 15 crore and Tata Chem Rs 18 crore.
• Soft drinks like Pepsi and Coca-Cola would be cheaper. But the postal rates have been hiked by 25 per cent, including the cost of the postcard which is increased by 100 per cent. Telegrams would become costlier.
• Other items in the common man’s list like coffee, matchbox, toothbrush, biscuits, electric bulb, candles, footwear, washing soap, etc, would cost more.
• Price of gold would come down but of jewelry would go up.
• Prices of foodgrains, sugar, pulses have been pushed up.

The finance minister has dramatised the abolition of surcharge on income tax levied due to the "Kargil War" which, at any rate, should not have continued even last year. He tried to create an imagery of reducing the burden whereas even this benefits the richer sections more than the salaried workers. Before it came to power, the BJP had been persistently demanding that the income tax exemption limit should be increased to Rs one lakh. The demand was being raised at that time in order to secure the support of the salaried groups. Having got it and after coming to power, the exemption limit remains the same Rs 50,000. Even if adjusted to inflation, the limit should have gone up.

Further, there is a levy of tax on interest income, but tax on dividend income is reduced by 50 per cent; so also on the long term capital gains. This is nothing but an attempt to nudge the small investors into putting their money in the stock market --- a clumsy attempt at creating an artificial stock market boom.

The diabolical nature of this exercise is further revealed by the fact that interests on deposits have been further drastically reduced, with a possibility of further reduction in the coming days. Through the budget, the interest on provident/pension funds and small savings is reduced by as much as 1.5 per cent. The rate of inflation is at around 5.5 per cent. The nominal interest rate too being almost the same, the real rate of interest earning is reduced to zero --- in tune with the finance minister’s philosophy that interest earning is unearned income. But if interest is unearned income, what else dividend income is? The reduction in interest rate on provident fund, pension funds and small savings deprives vast sections of the salaried and other ordinary people who saved for a rainy day at considerable strain, in already difficult conditions. All this comes in a situation where there is absence of any worthwhile social security measure for post-retirement old age. The measure would lead to a further reduction in domestic savings. With corporate savings stagnating, it is household savings that contribute the bulk of domestic savings. This too would get jeopardised to the detriment of the economy itself.

Over the years, the government’s policy has been to increase portfolio investments in a big way. It led to speculative investment and tremendous fluctuations in the stock market, leading to serious losses to small investors. Foreign institutional investors (FIIs) can now invest up to 49 per cent in Indian companies.

Direct taxes are the lowest in India as compared to the rest of the world ---hardly 3.3 per cent of the GDP. The overall central imposts amount to 10 per cent of GDP. In contrast, it is around 40 per cent of GDP in the USA and OECD countries. In East Asia, it is 20 to 30 per cent of the GDP.

Some time back, the finance minister informed the parliament that as much as Rs 62,000 crore of tax arrears remained unrealised. Of this, Rs 24,000 crore constituted income tax dues. There is no attempt at collecting them.

For the top 5 to 10 per cent of the population, consumption levels have enormously increased. In the last decade, the number of cars sold doubled even as public conveyance facilities diminished. The sale of televisions, air conditioners, refrigerators and washing machines similarly increased. In contrast, food prices increased by around three times. The cost of common man’s requirements like shelter, education, health care, etc, has increased beyond manageable limits. What are these exercises but shifting of resources from the poor to the rich? This comes at a time when, a UNDP survey revealed that 53 per cent of Indians do not have basic necessities of life and are not in a position to develop their human potential.

Over the years, the income differential between the richer and the poorest sections has got aggravated. The budget exercise seeks to aggravate the hiatus still further.

While slashing the interest rates on pensions, deposits, etc, the government seems to have forgotten that only a small number of the households invest in shares. Bulk of them put their money in bank deposits, small savings and the like. Out of the total bank deposit of Rs 9,41,000 crore, advances given amount to Rs 5,10,000 crore. Nearly 90 per cent of the deposits are from the household sector while 85 per cent of the advances go to the corporate sector and the rich. In other words, by an artificial reduction of interest rates on bank deposits, ordinary savers are being deprived while benefits thereof are passed on to the corporate and other richer sections. This is another instance of glaring transfer of resources from the common people to the rich.

The impact of the budget on agriculture is the worst imaginable. It is as if the government is determined to throw to the winds the Indian people’s food security. So far, public investments in agricultural sector and rural infrastructure have been woefully inadequate. So much so that foodgrains production decreased by 9.9 million tonnes in 2000-2001. In the current budget, instead of remedying this situation, allocation to rural infrastructure has been increased by a mere Rs 500 crore. Last year, even out of the poor allocation, only 30 per cent was actually utilised! This reflects the government’s lack of commitment to the rural people’s welfare and food security.

Food stocks are around 50 million tonnes. But this is not available to the poor. Foodgrains production, which is already declining, would be quite inadequate if the food requirements of the entire population are to be met in the normative sense. Thus the so-called surplus stock of 50 million tonnes is built on the poverty and hunger of vast sections of the people. Even this is allowed to rot and is consumed by rats. Cannot the government introduce food for work programme and thus manage the food stocks and also provide food to the people engaging their fruitful labour for building viable rural infrastructure? The callousness of the government is most glaring in its dealing with the agricultural sector.

The regime also considers public distribution as a burden on the exchequer. It is being progressively shrunk. The union finance secretary indicated that it would be totally dismantled. The finance minister declared in the budget that procurement and storage responsibility would be shifted to the states which have comparatively less resources. Would the NDA parties who rule some of the states accept this burden? They are opportunistically silent on this question. They too would not assume the responsibility. Ultimately, procurement and storage job would be handed over to the private sector, which would play havoc in the market, create artificial scarcity, push up prices and accumulate profits out of the misery of the people. According to the budget, the FCI would store only 10 million tonnes of foodgrains.

Allocations for such other crucial sectors as education, health care and the like have also been reduced. There is no inclination on part of the government to invest in human resource development.

In the name of managing the fiscal deficit, the government is out to privatise the lucrative public sector units. In the last year’s budget, the disinvestment target was set at Rs 2,500 crore but hardly Rs 788 crore could be mobilised. Out of this, BALCO alone contributed Rs 551 crore. It is common knowledge now that BALCO, with an asset worth of over Rs 6,000 crore, was sold for a paltry sum. In the current budget, the budgeted receipts by way of disinvestment are set at a high of Rs 12,000 crore. To realise this, again, profitable PSUs would be sold to so called strategic partners again at rock bottom prices. Who gave the right to the finance minister or the government to sell away the country’s assets? These are indeed the people’s assets, which no government has the power to alienate. But the finance minister proceeds merrily on this degenerate path at the behest of the world imperialism. By selling public assets, he wants to manage the government’s ways and means position. In spite of all this, the fiscal deficit is set at 5.5 per cent.

This obsession with fiscal deficit is meaningless. A country like India with scarcity of resources for development (most countries are in the same situation) would be compelled to resort to borrowing, which will reflect in the fiscal deficit. What matters is how this is utilised? Whether it is utilised to create new productive facilities, to create new wealth and employment or whether it is utilised for giving concessions to the rich and for meeting the ways and means position of the government, is the question. It is economic fundamentalism to claim that fiscal deficit is to be totally eschewed. It is the US and the agencies controlled by it, like the IMF, which are dictating that fiscal deficit should be drastically reduced or altogether dispensed with. Countries like India cannot afford to follow this course.

With 50 million tonnes of foodgrains in surplus stock, as already said, we can create enormous rural infrastructure by harnessing the creative energies of the people. Similarly, the 41 billion dollars foreign currency assets could be invested for essential infrastructure including power, road building, railways, irrigation and the like. By collecting Rs 62,000 crore of the outstanding taxes, the government can still further expand these activities. It is said that non-performing assets of the banks, i e, unpaid loans and interest thereon, amount to Rs 68,000 crore. The bulk of these are due from the richest sections and those in power. If this is collected, much of the development requirements could be taken care of. By providing higher return on the ordinary people’s savings, savings could be further stimulated. From the present level of 21 per cent of GDP, it must be increased to anything around 30 per cent, if not more. All these measures would help in generation of additional resources. But the government is doing everything to damage the already precarious situation.

The nominal growth rate assured in the budget for the next year is at 12.5 per cent. Adjusted to 6 per cent inflation rate which it expects, the real growth would be 6.5 per cent. Currently, inflation is at 5.5 per cent. Much depends on oil prices and various other imponderable factors. There is no alternative but to stimulate savings rate. The consumption spree, which the government itself is encouraging, would further aggravate the situation. By all accounts, the growth assured is a mirage. The 6 per cent growth that the government is presently talking about is a decline, and this too is manipulated because of buoyancy shown by the services sector.

The most controversial aspect of the budget is perhaps the inclusion of issues totally unrelated to the budget exercise. Section 5(B) of the Industrial Disputes Act 1947 is sought to be amended to the workers’ detriment. As per this provision, industrial units employing less than 1000 workers need not seek the government’s permission to lay-off or retrench their workers. In over 90 per cent of the industries, employees number less than 1000. Even big industries, by division and by sub-contracting, have reduced their workforce to the level of less than 1000 workers.

Apart from this, the Indian Contract Labour Act is sought to be amended in a way to provide that even jobs of a regular nature may be done on contract basis. This is against the present law that provides that contract labour doing jobs of regular nature would have to be made permanent.

Such measures are totally unrelated to the budgetary exercise and infringe on other ministerial responsibilities. The philosophy of ‘hire and fire’ will thus permeate the entire industrial atmosphere. If such measures are implemented, job security will be a thing of the past.

The budget also provides for reduction of 2 per cent of the workforce in the government every year --- for five years. Nowhere in the budget there is a mention of employment generation. In other words, the government is planning for retrenchments, lay-offs and more unemployment. It is a naked attack on the working class and ordinary people. What is despicable is that the government is doing all this even as it has appointed a National Commission on Labour (NLC) in controversial circumstances and even before the NLC recommendations are available. It is clear that it has surrendered itself to the employers’ pressure and is in a great hurry to please its imperialist masters.

All these aspects taken together, the budget exercise is a laboriously skewed attempt. It is everything except setting the economic imbalances right. It is a blatant attempt to speed up the process of further depriving the poor and enriching the rich. This assault on the people must be stopped at all costs. The people must be organised in a big way. It is imperative for safeguarding the interests of the people and the country.