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.
What is impertinent or against the well-established fiscal practices is that a polity that shuns any redistribution of assets and wealth owing to its ideological position, tries to go in for a partial corrective in the form of a progressive fiscal policy. That is, spend proportionally more for those at the lower end of the distribution pyramid and collect more taxes from those at the top. In India for quite some time now, no one seems to apply this time-honoured, classical test to the fiscal policy. The budgetary processes are mainly directed towards the organised and corporate sectors.
The growth acceleration seen during the last few years owes itself substantially to the big increases in the corporate sector's savings and investment levels. It is these investments that are at the root of most of the growth acceleration the economy has experienced in the current decade. Thus, those who are obsessed with growth are naturally satisfied at the success of their game plan. But the country sees little constitutive or intrinsic value in economic growth per se. ideally; it has to be at least associated with some positive popular spin-off for the general public, especially the poor and the unemployed.
Recent data of the corporate sector's performance shows that employment in the organised sector has come down in absolute terms, though the pay packets in the sector, including those granted by the CEOs to themselves, have shot up to dizzy heights. “The organised manufacturing sector is not only witnessing increasing capital-intensity, the output growth relative to the large volume of private investment in manufacturing is minimal; and not only that, as shown by a careful analysis of the performance of the corporates, this sector is producing extremely meager expansionary effect on the rest of the economy.” (S Majumdar, Alternative Economic Survey, Danish Books, 2006-07).
Some of our corporate heroes have been able to enter the list of the richest in the world and have been globally successful corporate raiders. But policy- makers refuse to ask themselves: Why should the country be made to pay for all this?
Budgetary policies can be a potent instrument as public expenditure is over 30 per cent of the GDP and the operations of the public sector (of both Union and state's governments and their public enterprises) contribute about a quarter of the country's GDP. The democratic State claims to be socially responsive, pitching for inclusive growth. However, it has been rare when the annual Union budget has been able to do more than marginal tinkering with the on-going processes and structures — and these structures and antecedents are not consistent with the public posture of the government.
These days, the Union budget presentation has been so expanded beyond fiscal measures that this has become the occasion to announce a number of major economic policy initiatives, irrespective of direct revenue and expenditure implications. It is for this reason, among several others, that there is a lot of interest and media build-up prior to and following the budget presentation.
Certain other factors add to the hype. The ritual of consultations with organised lobbies/interest groups undertaken by the Union finance minister (plus media/experts' speculations) about the shape of things following the budget, receive far greater attention than even the launching of a new five year plan. This great hullabaloo is obvious because the budget is a very critical factor for the corporate sector. This shows how government and corporate business have become intertwined.
One can safely venture to say that if a comparative study is made of various memoranda given to the finance ministry regarding the budget, the corporate memoranda would be the one from which the largest number of elements are accepted. If the logic of inclusive growth is not just an add-on to business with the focus on growth, it is time more elements are accepted from the memorandum of the farmers, trade unions, and various sections of the vast unorganised sector.
A few small steps should be taken to create an indelible impression that this budget won't, yet again, pander to the speculative urges of the stock market. Instead, it should send a positive message across the country that along with the promised universalisation of the employment guarantee scheme, the government will contain inflation, universalise access to minimum basic human needs and make the voters real time citizens. This will be in the true spirit of the UPA's own national common minimum programme.
The writer is a veteran economist and commentator