Corporate Euphoria Again?

Instead of pampering the bloated rich of big business, the budget should follow the spirit of UPA's common minimum programme

Kamal Nayan Kabra Delhi

Excessive euphoria before and after the Union budget hides the long-term, persistent traits of our fiscal policy from public view. For instance, the share of public expenditure on rural development by the Union and state governments in the Net National Product (NNP) that used to be just 3.6 per cent for a population that is over 70 per cent has come down after liberalisation and the period of fiscal consolidation is just 2.7 per cent of the NNP. However, the much advertised figure of expenditure on this head in absolute terms is impressive: at about Rs 55,000 crore. In current prices, this much of spending on rural development is almost double the level seen during the entire sixth Five Year Plan period.

Similarly, the share of total public expenditure on agriculture and allied activities, including irrigation and flood control, that used to be 37 per cent of the First Plan total expenditure, has steadily declined to 16.5 per cent for the Tenth Plan period. These facts can be contrasted to the fiscal policy treatment given to the organised sector, mainly the corporate sector.

Public expenditure is equivalent to the policy-decision based foregoing of public revenue. On account of various tax concessions, exemptions and incentives, the total excise, customs, personal income tax and corporate income tax revenue foregone during 2004-05 was Rs 2.067 lakh crore. It increased to nearly Rs.2.352 lakh crore in 2005-06. Of this amount, the exemptions from corporate income tax alone amounted to about Rs 34,620 crore. This amount increased to over Rs 50,000 crore next year. Indeed, the corporate income tax foregone by the Union government is trivially less than the total amount spent by both the Union government and the 28 state governments on all rural development schemes.

The corporate beneficiaries of the liberal fiscal concessions (paying effective tax rate a little above half the nominal rate) perched at the top of our socio-economic pyramid are numerically not even one per cent of the population. Compare this to the over 70 per cent of the rural population for whose benefit — from the heavily leaky, top-down schemes — the allocation is no more than a quarter. The bonanza is given to the top echelons without any reciprocal pay-off from these bounties. Even the other revenue foregone from the other taxes, such as excise and customs duties — the benefit goes mostly to corporate coffers.

These are some long-term features of the fiscal policy of India. No single budget of any year has so far made any dramatic, trend-reversing change in these proportions. It would be naïve to expect any departure from these unjust and undemocratic trends this fiscal. These factors lend credence to the assertion by a minister of the UPA government that it is a government based on the vote of the common person but its policies are for the top classes.

Public expenditure in India neither bears any relation of proportionality with the number of likely beneficiaries nor a degree of vulnerability — hence the need for public revenue-based support for the people. The reverse is true. The greater the share of any section in the GDP, the greater the positive consideration shown to it in the form of direct and indirect transfers.