People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)

Vol. XXX

No. 13

March 26, 2006



Growth At The Expense Of Equity Not Desirable


The following is the text of the speech made by CPI(M) Polit Bureau member Sitaram Yechury while participating in the discussion on union budget in Rajya Sabha on March 13, 2006.


MUCH of the discussion on the budget has been conducted. I have two general points to make before I come to the concrete proposals and the various areas that I would like to discuss. Firstly, normally, when a budget is presented, we have the opportunity to discuss the direction of the economic policy in the country, the health of the economy etc. Also, normally, budgets used to be associated with what type of additional resource mobilisation would be required to meet the targets and meet the priorities, which, for this government, have been defined in the National Common Minimum Programme.


What I would like to begin with in the general points is that unfortunately, in this budget, given the overall health of the economy and the positive nature of the statistics and indices that are available to us, the potential for implementing much of the programmes for the welfare of the country and the people have not been fully utilised. I think this is a shortcoming, which is unfortunate because we could have really gone about sincerely implementing much of the promises. I say this because the gross additional tax mobilisation envisaged in the budget is only a meagre Rs 6000 crores.


The second point, which I think is important to note, is that though the additional resource mobilisation is only Rs 6000 crores, it is expected that the gross tax revenues for the government would grow by a whopping, Rs 72,000 odd crores, in other words, a 19.5 per cent increase.


Now, this whopping increase in gross tax revenues in itself is not a flash in the pan, which suddenly happened this year. If you look at it from 2002-03, the gross tax revenues increased by 15.6 per cent, in the next year, by 17.6 per cent, the year after that, by 19.9 per cent, last year, by 21.4 per cent and this year, is estimated to increase by 19.5 per cent. Now, why is this happening? Is this happening because we are collecting our past tax arrears, which we have been urging the government to do? Of the Rs 72,000 odd crores this year, the arrear collection is only Rs 10,000 crores.




Where is the rest of this money coming from? And, that is where my second general point is, and it is a matter of serious concern. This amount of money that is coming is not really coming through any increased additional tax mobilisations; it is not coming through arrears being collected from the past, but much of it is coming through, what I would call, a squeeze that is taking place on the vast masses of the Indian people. Between 1993-94 and 2003-04, if you look at the bottom 80 per cent of your rural population, their per capita expenditures have declined according to the NSS Surveys. On the other hand, you have a per capita income growth of around 4 per cent annually. For 80 per cent of your rural population, if their per capita expenditures are declining and there is an overall increase on the average of 4 per cent for the rest of the people or the economy, that shows you the extent to which income inequalities have widened, which, in other words, means that the pre-tax surpluses for the rich have increased dramatically, and that is why, you have this windfall of increasing tax revenues.


So, the important point to understand here is, and I quote what the finance minister has said in Lok Sabha while replying to the discussion. He said, “Growth will be our mount; equity will be our companion. With growth, there is a chance for equity, and without growth, I am afraid, there is no chance for equity.” I will be fair. I will not misquote or pick up quotes out of the context. I have quoted in full what the finance minister said. My point is that growth is taking place at the expense of equity. This is worrying because these windfall tax collections that we are finding is because of the squeezing of the people at the bottom, and the net surpluses in the hands of the rich have increased. That is why, there is this windfall in the collections and that is where it is necessary for you to intervene in order to ensure that this squeezing does not increase in the days to come. In fact, it should be reversed. Now, if that is the objective, which, I think, is the objective also in the Common Minimum Programme, then, the massive outlay increases in the areas of employment generation, in the areas of rural sector will have to be explored.




Now, regarding the flagship programmes, what the finance minister announced at the outset sounds very impressive. He said that the additional allocations for the flagship programmes have been increased by 43.2 per cent, i.e., Rs 15,000 odd crores taking the total to Rs 50,000 odd crores. But, of this, what is the net growth? You have the National Rural Employment Guarantee Scheme that is coming into place. But as that is being introduced, the Food-for-Work Programme has been abolished. For the Sampoorna Grameen Rozgar Yojana, the allocation has been drastically reduced. So, the net increase from our calculations in rural employment comes to only to the tune of Rs 3388 crores. Now, I want to link this with the overall situation that I have talked of earlier. With a tremendous increase in the pre-tax surpluses, the opportunity for you to raise greater resources was there, and is still there. And, one of the things to which I want to draw the attention of the House, and the finance minister through the House, is a fact that we have a very anomalous situation in our country where the poor and middle-class salaried section is bearing the burden of paying the taxes and one can earn hundreds of crores of rupees in the stock market through dividends and not pay a single paisa of tax. This is something we cannot afford.


When we talk of a long-term capital gains tax, yes, the finance minister has also explained otherwise outside the House also, that there is a concrete problem involved. That is the Double Taxation Avoidance Treaty that you have with Mauritius. Now, I want to raise this in the House. I want the government to seriously consider reviewing that particular treaty. Because, what is happening – hundreds and thousands of crores of rupees are flowing through the Mauritius route coming into India, and they do not pay a single tax because of that treaty. Now, double taxation avoidance is a treaty between two friendly countries. In order to avoid paying the same tax in both the countries, there is an agreement to avoid double taxation. Now, Mauritius does not have a capital gains tax. So, how is it double taxation avoidance? It is actually a double permission being given to avoid taxes. And, if Mauritius does not have a long-term capital gains tax, the same entity must be asked to pay the tax in one of these two countries, and that is, in India. So, we think that this is a very anomalous agreement that has to be reconsidered by the government. I thing, they have now extended it also to Singapore in which case you will have the situation where people can make crores and crores of rupees, hundreds and thousands of crores of rupees without paying a single paisa of tax, and, that is not permissible or admissible. So, we would warn this government to seriously reconsider the treaty with them.


With all these flagship programmes, we think, a tremendous amount of potential was there to increase the allocations to actually meet the aspirations of the people and to meet the commitments that we have made in the National Common Minimum Programme, and, that opportunity, unfortunately, has been lost. And, if the process of correction is still there, we want that to be taken up at this stage.




The National Rural Employment Guarantee Scheme was brought into being after tremendous discussions and pressures, where all of us were also involved, and, the primary objective was to give employment and, thereby, generate greater demand in the economy through giving purchasing power to the people through his programme. Now, what would this mean? If there is more money flowing in the hands of the people, which is a good phenomenon, which is what has to be done, i.e. increasing their purchasing power, then, the demand for food will increase. If the demand for food ought to increase, then, what should be the concomitant next step that has to be taken? It is to strengthen your public distribution system. Instead of that, what we find in the budget is a cut in the food subsidy. It is now Rs 24,200 crores, down from Rs 26,200 crores in the last budget. And, what was actually spent was only Rs 23,200 crores. So, in other words, the food subsidy has not been increased or even attempted to be increased in line with the NREG scheme which will increase the purchasing power in the hands of people in the rural areas and that purchasing power cannot be translated into purchase of foodgrains. Now, if this is not increased, what does it mean? There can be two things. Either, the Food Corporation of India and its procurement will remain at the level where it is, in which case it is inadequate to meet even the existing demand --- and, you are importing wheat today. Or, the other course of action would be to raise the prices of foodgrains. And, that is precisely what this government attempted to do, and, we, apart from everybody else also, take the credit for forcing the government not to go ahead with that attempt.


So, the net result of all this means that if you are sincere about implementing your NREG Scheme, then the concomitant step has to follow that you will have to expand your public distribution system and the consequent rise in the purchasing power in the hands of the people will reflect in an increased demand for foodgrains. And, if that is not met, then the foodgrains prices will have to be raised, defeating the entire purpose of giving employment and through that greater purchasing power.


So, the whole purpose of going into this entire exercise is actually not only halting but, I am afraid, will also lead to a reversal of this conceived situation and that is something which will go contrary to what the National Common Minimum Programme had promised. Now, if that is the case with regard to rural employment and food, what is there in the sectors of health and education? That has been discussed here. I do not want to labour on that issue. But the increases that have been promised here have also not been very substantial. In fact, in the health sector, as a percentage of GDP, it goes up from 0.25 per cent to 0.30 per cent. In education, it goes up from 0.33 per cent to 0.52 per cent. Now, if this is the state of your social sector – rural employment, public distribution system, food subsidies and education and health – what about the most important concern for all of us and for our country, the agricultural sector.




Today, when you have these distressed suicides continuing, when you have starvation death reports still alarmingly coming through, we see a welcome thrust that has been there in the budget to reduce the interest rates and expand the credit facilities for the agricultural sector. But reduction of interest rates to seven per cent is far, far short of what was recommended by Dr M S Swaminathan Commission that was appointed by this very government. The recommendation was that the interest rate should be brought down to four per cent but that has not happened. There is a very important issue that has been brought out and that is the question of import duty on raw cotton. Many of the suicides that have been committed are by our cotton farmers, and, there have been demands including from the Congress chief ministers –– I can see Jairam Ramesh smiling from there, because he is from Andhra, and the Andhra chief minister is on record saying that import duty must be there in order to protect your domestic farmers.


But that has not been done. Then, the Swaminathan Commission has also suggested the extension of crop insurance to all areas and all crops. That has not been done. The Swaminathan Commission talks of a price stabilisation fund. That has not been done. The question of expanding credit in rural areas is also there. The expansion of credit in the rural areas is possible only when your financial institutions and banks expand their branches in the rural areas. Now, there is a curtailment of that expansion. And this is accompanied by claims of taking agricultural credit up to Rs 1,75,000 crores. Unless you have the conduits to reach that to the farmers, it does not and will not reach them. The finance minister himself is on record to say that only 27 per cent of our farmers today have access to institutional credit. And, many of your distress suicides are because of the stranglehold of your moneylenders and mahajans. Unless that is broken, we cannot proceed further. I would urge this government to immediately start moving in the direction of expanding credit in the rural areas. These are the areas which I want this government to seriously consider because you cannot have a budget and its provisions which ostensibly talk in terms of the National Common Minimum Programme and its objectives, but in effect and reality, actually undermine the realisation of the same goals.


The framework of financial liberalisation in which this budget has been done is also a matter of concern. A decision has been taken to allow foreign institutional investors to buy government securities at much higher level than it was before. That amounts to bringing in international speculative trends into our governmental finances. Mutual funds have been allowed to invest abroad. The reduction of peak customs duty from 15 per cent to 12.5 per cent across the board is a matter of concern to me. This will have a very, very negative consequence on all producers, and, therefore, also on the employment that these producers provide in the country. You have now further added 180 items to the list, which will hit the small producers very hard. Another important aspect, which is worrisome, is the dwindling finances of the states. Though the finance minister has said that the finances of the states in the union have been much better than ever before, the centre is reducing the assistance. Under the normal Central assistance under Plan grants and loans, it is very interesting to see that the last year's budget gave Rs 13,541 crores. The Revised Estimates gives you Rs 12,044 crores. And now, that has been reduced to Rs 10,916 crores. If your assistance to the states under this head is reduced, you will be leaving the state government with no option but to become prey to the various conditionalities that the international agencies like the World Bank and the ADB will pressurise on them. And, they will have to go there out of sheer lack of any other alternative, which will be disastrous for our country and its economic sovereignty. Although states are borrowing money, the important issue is of the accompanying conditionalties. Today, the centre is making the states vulnerable to such pressures. However, the Bengal government today is in a position to resist the pressures of the World Bank and the ADB and it accepts only those loans which are free of conditions and strings attached. Therefore do not make, not only Bengal, but your government or all other governments also vulnerable by creating a situation where they will have no other option but to accept the strings attached. And, that is not in the interests of my country or its economic sovereignty.


Therefore, I would like the finance minister, who is here, to actually pay attention to all these areas. Probably this finance minister has been fortunate to have an economic environment, which, I think, is very enviable for any finance minister. An eight per cent growth rate; Sensex crossing 10,000 points; a 29 per cent savings rate and a 31 per cent investment rate. But 31 per cent investment rate, and particularly this 29 per cent savings rate is all happening because of the squeezing of the people at the bottom and not really because of an overall economic growth or that there is greater prosperity in the country.


Finally, I come back to my original point that the growth that has taken place in the last 4-5 years, which have seen a tremendous windfall in terms of gross tax revenues increasing by the percentages that I have pointed out, has been the growth that has taken place at the expense of equity, not growth which will lead to greater equity. And unless this is reversed through active State intervention, I think the objective of achieving what we ourselves have declared – when I mean "we ourselves," it is the government itself that has declared – as the National Common Minimum Programme priorities, those would be undermined. Therefore, we would urge the government, even at this stage when we come to the question of the Finance bill, to reconsider the possibilities of expanding further your tax relief to the people at the lower level. And it is that corrective which, I hope, the finance minister will undertake when he replies.