People's Democracy

EDITORIAL

Budget 2007-08: Rise To The Occasion

THERE is a general euphoria in “Shining India” that the international rating agency – Standard and Poor’s – has upgraded India’s sovereign rating from speculative to investment grade. Fifteen years ago, in 1991, when India faced a severe balance of payments crisis, which led to the mortgaging of our gold resources, this agency had downgraded India. All that has happened now is that this downgrading has been reversed. Nevertheless, for India’s liberalisation pundits, this has come as a shot in the arm, leading to wild justification of the ‘reform’ process as being beneficial to Indians and the Indian economy. 

On the contrary, if anything, this has only vindicated that there are two Indias currently existing --- the shining and the suffering. The boom in capital markets, which, in the first place, is the bedrock for such ratings, is mainly due to the fact that there is no tax on any form of capital gains made in the speculative capital market. Thus, the rating has very little to do with the strength of the economic fundamentals. 

It is precisely these economic fundamentals that need to be strengthened if the growing hiatus between the shining and the suffering Indias has to be bridged. Many commitments for strengthening these fundamentals have been listed in the National Common Minimum Programme of this UPA government. These include vastly increasing public investment in agriculture; spending 6 percent of the GDP on education and 3 percent on public health; social security for workers in the unorganised sector; provision of a legally guaranteed minimum hundred days employment for at least one member of the family of rural and urban poor etc. 

Many of these objectives have been incorporated in the approach paper of the Eleventh Five Year Plan, which has been recently approved by the National Development Council. The annual budget that shall be presented later this month will be the first budget of this Eleventh Plan. It is, therefore, only natural that expectations on this score remain high --- that this budget will make the necessary increases in allocations to achieve these objectives. This requires that the gross budgetary support for the plan must be increased by at least 1 percent of the GDP, over and above the expected 15 percent increase in plan expenditure from what was incurred in the last budget. In nominal terms, rough calculations suggest an increase in plan expenditure by over Rs 55,000 crore in the 2007-08 budget. 

The inevitable question that follows is: from where can one find such resources? In this context, it is revealing to note the contents of what the Ministry of Finance circulated at a meeting of its consultative committee in a `Note on Tax Expenditures’ in November 2006. This noted that in the year 2004-05, the total tax exemptions/concessions stood at a whopping Rs 1,76,073 crore. Corporate tax exemptions alone came to Rs 57,852 crore (more than the increase in plan expenditures we suggested above!). It was also shown that while the scheduled corporate tax rate, including surcharge and educational cess, stood at 33.66 percent, the effective tax rate in 2005-06 for the corporate sector worked out to be around 17 percent due to various such tax concessions. This is the bonanza that has been doled out to the corporate sector which, amongst others, also contributed to a ‘feel good’ factor resulting in the upgrading of India’s ratings. 

Such tax exemptions, paraded as incentives (!), are nothing but subsidies to the rich. While subsidies for the poor are being mercilessly slashed, such subsidies for the rich are multiplying even though they are neither economically or morally tenable. Doing away with such subsidies alone would be more than sufficient for the quantum of increases required in the plan expenditures that we spoke of above. In addition, if a long term capital gains tax is reintroduced and an upward revision of the securities transaction tax is considered, the governmental revenues can be additionally bolstered to finance the much-needed public investment. 

Such public investment needs to be sharply increased in view of the continuing agrarian distress in our country. By now there is unanimity on the fact that most farmers committed suicide due to their inability to return the loans that they had incurred. More than two-thirds of the farmers in the country continue to be at the mercy of private moneylenders and their usurious interest rates. Institutional credit needs to be vastly expanded, even after some recent increases in the last couple of years. The expansion of crop insurance to cover the entire country and all the crops must be urgently undertaken. The interest rate on the farm loans, in no case, should be more than 4 percent. The constitution of a fund to assist farmers affected by crop losses and the creation of a price stabilisation fund for agricultural commodities must be established. All these require substantial funds and, as we have argued above, it is perfectly feasible and possible to raise the required resources. 

All that is needed is to marshal the required political will to do so. The UPA government, standing as it is in its mid-term, must demonstrate such political will to honour its own commitments made in the CMP. More importantly, popular struggles must be strengthened to ensure that this UPA government honours these commitments, which arte so necessary for strengthening the Indian economy’s fundamentals and improving the living standards of our people.