Economy: Welfare, the poor and where is the money going?

Published: February 8, 2016 - 14:47 Updated: February 8, 2016 - 14:49

It’s time again for the Budget session and the government needs to put across a vision for India that matches the expectations it has raised

MR Sivaraman Chennai 

It is time Union Finance Minister Arun Jaitley leaves behind economic jargon and freewheeling with terminology, which the economists surrounding him teach day in day out, and sets to work on a people-oriented Budget. Finance Ministers learn quickly such jargon as igniting the animal spirits, respecting investor sentiments, encouraging FDI by creating an investor-friendly climate, taking care of supply side economics and so on. Then, every year the pilgrimage to Davos, where a gathering of the world’s capitalist honchos have one-to-one  talks with decision-makers of the government to get what they want,  makes them even more friendly towards capitalists than the people at large of their country. The electronic media that shouts itself hoarse over any MLA or MP going abroad, unashamedly interviews Indian honchos in the snow-laden gardens of Davos as if the Indian capitalists’ minds are ignited afresh in the snow rather than in India.

Where do the poor of India figure in all these big shows? The middle class and the poor get ready for another dose of accommodation of these animal spirits who, after quenching their thirst in the five-star hotels of Davos, wait with bated breath for the concessions that the Finance Minister will announce in India. The Non-Performing Assets (NPAs) that these honchos have created get provisioned by banks lowering the returns on the investments made by the millions of middle class and lower middle class savers. It is euthanasia for the latter and a free party for the former.

It is almost two years since the Narendra Modi government took charge and what is the scorecard? The value of stalled projects has increased from `8.7 trillion in September 2013 to `10.7 trillion at the end of December 2015 (Mint, January 23, 2016). Still, the bank credit to the commercial sector has shown an increase of `519 billion over one year and the net NPA growing to 4.6% as per Reserve Bank of India (RBI) figures. So, from where has the growth of 7.2% come? It remains a mystery. 

The estimated illegal capital outflows from India were $94 billion in 2012 and a cumulative $439.58 billion over 2003-12, according to the Global Financial Integrity Report 2014.The report on black money by the National Institute of Public Finance and Policy that is said to estimate the black money generation in India to be around 75% of GDP has been suppressed by the NDA government. 

Schemes are aplenty, like Jan-Dhan, MUDRA bank, Atal Pension Yojana et al but their impact on the poor in terms of secure income from employment and tension-free availability of daily necessities is yet to be discernible. The poor run from pillar to post to get treatment in case of major illness. There is a perceptible increase in the number of destitutes on the streets. 

In Chennai the post-flood expenditure of hundreds of crores of rupees is a Godsend for the rent-seeking class. When questioned about the shoddy repair work on damaged roads, the contractors retort, “Do you expect us to lay the road with gold after paying a hefty commission to get the contracts?” 

The central government has washed its hands of many poor-oriented schemes by saying it has transferred all resources to the states in the spirit of cooperative federalism – whether for good or bad, only time can tell.There is no going back now until a new Finance Commission is constituted with different terms of reference.

So what can the Finance Minister do now in the next Budget? His commitment to keep the deficit low requires a re-thinking. In a country with a huge undisclosed income, a higher fiscal deficit exclusively devoted to only helping the urban and rural poor to come out of poverty would not at all injure the economy excepting that it will not whet the appetite of the capitalist-thinking economists brought up in Chicago schools of thought. It has become fashionable with everyone, from financial and industrial honchos to government officers, to clamour for lower and lower fiscal deficit. The Finance Minister should do some independent thinking as he is responsible to a nation struggling to tackle poverty rather than trying to prove himself a champion who reduced fiscal deficit, which he may do, if at all, by increasing tax revenue. 

Second, he should ensure that the billionaires are forced to part with some of their money to fund welfare programmes exclusively for the poor. There is already talk of reducing capital gains tax even further. Does not the Finance Minister know that with his predecessor allowing buy-back of shares many companies and their promoters hold a majority of the shares and it is that selected few who will benefit and it is not going to induce them to make any enhanced investment in India? Thomas Piketty, the eminent economist, has already warned India against growing inequality in incomes. Is the Finance Minister also not aware of the statistics about growing investment outflows from India? 

Has he not made any attempt to find out who owns the hundreds of private aircraft in India, which might have cost about $10-15 billion of foreign exchange outflow, and how many of the owners are in the NPA list? The thousands of imported super luxury cars that are being bought year after year seem not to be attracting his attention excepting when they kill on the roads. There appears no need for reducing capital gains tax and if at all there is a case to increase the dividend distribution tax even more to bring it on a par with the normal rates so that dividends are also fully taxed. 

 Third, it is time for him to reorganise the Central Board of Direct Taxes (CBDT) and its formations in such a manner that they become responsible for certain deliverables like ensuring tax payments as per law, preventing the growing menace of black money generation in the National Institute of Public Finance and Policy (NIPFP)-identified sectors and increasing the number of taxpayers who are outside the net, instead of pandering to their demand of creating more posts at the higher levels without asking for any returns. To boot, economist reformer Parthasarathy Shome has advised abolishing the post of Revenue Secretary, which Manmohan Singh said would be done over his dead body when such a demand was once made in my presence. To his credit, Dr Singh, being an economist himself, would brush aside any opinion given by economists if other Secretaries gave him suggestions which were more practical, but in the best interests of the country. 

Fourth, the Finance Minister must investigate the increasing number of arrests of very senior officers of the CBDT for corruption.

Fifth, it is time for the Finance Minister to implement Goods and Services Tax (GST) principles in the Central Value Added Tax or Cenvat rather than wait endlessly for the states to agree to a Constitutional amendment and a national law. He will go a long way in simplifying tax laws at the centre by making suitable amendments in the service tax and central excise laws, making them seamless so that in effect the service tax and the central excise duty for all practical purposes become a central GST. Whenever the dream of having a national GST with the states on board is realised, it can lead to a smooth integration with only minor adjustments. 

Sixth, it is necessary for the Finance Minister to constitute a committee under the Revenue Secretary of the Chairmen of CBDT, Central Board of Excise and Customs (CBEC), and Member Investigation of CBDT, Member Prevention from CBEC, Director of the Enforcement Directorate, Director of the Financial Intelligence Unit, DG of the Central Economic Intelligence Bureau, and the Narcotics Commissioner. It should meet compulsorily every month to discuss issues concerning economic crimes and the agencies should share intelligence at this level so that they function effectively. The same committee should also monitor the progress of investigation, prosecution and the safety of documents and properties seized by the officers during raids by these agencies where the amount involved is over `1 crore. This committee should be given a copy of the report of the NIPFP on black money and asked to find ways and means of tackling the menace systematically in the identified sectors. A summary of the report on the progress of cases must as a matter of rule be presented to the Finance Minister. 

The Finance Minister should now concentrate his energies on giving a thrust to raise the standard of living of the poorest in the villages, take stock of the effect of all the 23 schemes of the Prime Minister and put them into mission mode and provide specific amounts for sector-specific schemes that benefit only the people below the poverty line. The implementation of the schemes should be monitored by the departments of economics and sociology in universities in the area so that an independent assessment is possible for which also the Minister should allot adequate funds to the universities chosen for this task.   

The writer is a retired IAS officer, former Executive Director, IMF, and Revenue Secretary, Government of India

It’s time again for the Budget session and the government needs to put across a vision for India that matches the expectations it has raised
MR Sivaraman Chennai 

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This story is from print issue of HardNews