BUDGET 2005–2006

Towards a Pro-People & Pro-Student Perspective

Following is the text of the discussion paper tabled by the Students Federation of India (SFI) before a gathering of students, professors and trade unionists on the coming union budget 2005-2006. Professors Prabhat Patnaik and Jayati Ghosh who participated in the discussion cautioned against the IMF-World Bank machinations and the destruction of thought through a pliable media. They called upon bodies like SFI to rise and build the capacity to see through these machinations and expose them. They also touched upon the very serious crises of imperialism and the fact of five Left wing governments existing in Latin America and providing different alternatives.

The exemption of a variety of taxes for the rich was part of the appeasement of finance capital, they said. About the IMF conditionalities Professor Ghosh said at times the aid first comes on soft terms and then the harmful conditionalities begin. She lambasted the central government for lacking political will and acting at the behest of blue-eyed boys of international finance capital.

THE UPA government had come to power as a result of the overwhelming popular mandate against the NDA government and the anti-people neo-liberal policies that it had pursued. This mandate was reflected to an extent in the Common Minimum Programme adopted by the government. However, in the past one year of its rule the government has repeatedly fallen short of the commitments it had made to the people and has refused to deviate from the neo-liberal path being pursued by successive governments in the past years. Now that it is time again for the Union Budget to be presented, we demand that the government make a departure from the neo-liberal economic policies in order to address the pressing needs of the people. In particular we demand that:

SCRAP THE FRBM ACT

Among the first actions taken by the UPA government was the passing of the retrograde Fiscal Responsibility and Budgetary Management (FRBM) Act. This Act seeks to give legislative force to the IMF-World Bank dogma of cutting fiscal deficits at the cost of socially necessary investment and welfare expenditure. It makes it legally binding on the government to reduce the fiscal deficit and eliminate the revenue deficit of the central government by March 31, 2008 (the deadline is to be extended by a year). Moreover, the Act requires the central government to reduce the fiscal deficit by 0.3 per cent of GDP each year, and the revenue deficit by 0.5 per cent each year ­ a process that has already started with last year’s budget. What is worse is that the Act lays down that in case of a shortfall in revenue collection the government would have to cut expenditure in order to meet the deficit requirements.

This Act is a completely illogical piece of legislation. Its premise that fiscal deficits are inflationary by themselves or that higher fiscal deficits squeeze private investment has no justification in economic theory. In the present state of our economy where a large proportion of people are unemployed and there is no shortage of foodgrains, foreign exchange or other inputs what is required is more higher government expenditure which can generate more demand rather than the reverse. Behind all the mumbo-jumbo, this Act actually amounts to curtailing the autonomy of the legislature so that the neo-liberal project of the withdrawal of the State can be carried out without any regard to democratic accountability.

The forthcoming Budget should not be subject the provisions of this anti-people Act.

REVERSE THE DECLINE IN THE TAX-GDP RATIO

While the UPA government has once again declared its intention of cutting down the meager subsidies that are at present available to the poor, it has remained silent on the massive subsidies that are being given to the rich in the form of tax waivers. As shown in the table below, the tax-to-GDP ratio has continuously declined during the years of liberalisation.

Table 1

Tax/GDP Ratio

(Source: Calculated from the RBI Handbook of statistics on the Indian economy)

Indeed, if the tax-GDP ratio had been maintained in 2003–04 at the same level as in 1988–89, the government would have been able to mobilise an additional 34 thousand crore rupees in revenue. Moreover, the tax-GDP ratio in our country is among the lowest in the world. Even developing countries like Malaysia and Sri Lanka had tax-GDP ratios as high as 19.5 per cent and 16.0 per cent respectively in the later half of the 1990s (Source: IMF India Country Report 2002). If the tax-GDP ratio were to be raised to the level prevailing in Sri Lanka, the additional revenue would be to the tune of about Rs 100 thousand crores. Tax breaks are not the only form in which transfers have been taking place to the rich. In the year 2002–03 the gross non-performing assets of public sector banks were of the order of Rs 54,000 crore ­ most of it because of non-repayment by large corporate borrowers.

We demand that these huge transfers be stopped forthwith by increasing corporate taxes, customs duties and wealth tax and by making the personal tax system more progressive. Taxes should be imposed on speculative financial transactions and on short-term international financial flows.

IMPLEMENT UNIVERSAL EGS AND PDS; INCREASE EXPENDITURE ON THE SOCIAL SECTOR

The Common Minimum Programme states: “The UPA government will immediately enact a National Employment Guarantee Act. This will provide a legal guarantee for at least 100 days of employment to begin with on asset-creating public works programmes every year at minimum wages for at least one able-bodied person in every rural, urban poor and lower middle class household.” However the Employment Guarantee Bill placed in parliament substantially dilutes this promise. We demand that the anomalies in this Bill be rectified and that provision be made in the Budget for an Employment Guarantee Scheme which would be applicable throughout the country within a timeframe, be fully funded by the centre, cover all households and not just those officially recognised as poor and pay the statutory minimum wages.

We also demand that the Budget make provision for universalising the Public Distribution System by removing the distinction between Above Poverty Line and Below Poverty Line households and reducing prices to ensure food security for the poor.

Public spending on the social sector has been grossly neglected in the era of liberalisation. The plan expenditure on health in the UPA’s first budget was exactly the same as that in the interim budget presented by the NDA. The Union government’s allocation for the welfare of SC/ST and OBC in real terms has actually gone down in the past few years.

We demand that the present Budget reverse this trend and at least meet the commitment in the CMP of spending 3 per cent of the GDP on health and increase the outlay for poverty alleviation and the welfare of deprived section.

INCREASE EXPENDITURE ON EDUCATION

Public expenditure on education continues to remain far less than the 6 per cent of GDP, which has been promised by successive governments.

Table 2

% Share of Expenditure on Education in the GDP

Table 3

Union Govt’s per capita Allocation to Defence and Education

at Constant (1993–94) prices (where the unit is Rs, presumably)

Source: Centre for Budget and Governance Accountability

In this context we demand:

1. Substantial increase in the allocation on education in keeping with the CMP promise of phased increase to 6 per cent of the GDP in five years.

2. Adequate allocation for the universalisation of primary education in accordance with the recommendations of the Tapas Majumdar Committee’s report and for the mid-day meal scheme as mandated by the Supreme Court.

3. Reversal of the trend of decreasing proportional allocation to the higher education sector. Rejection of the policy of mobilising an increasing proportion of funds for higher education from the student community.

4. Special emphasis on technical education to provide accessible public alternatives to profit-minded private professional institutions.