Budget: Secret subsidy to the rich
It is not budgetary support for the poor that is draining the nation’s economic resources but ‘incentives’ for industry
Devinder Sharma Chandigarh
Coal is black gold, which until now was being given away for peanuts to big business in the name of development, the ongoing auctions show.
If the going rate is any indication, the phased auction of 204 coal blocks ordered by the Supreme Court will bring in some `15 lakh crore. That’s enough to wipe out poverty in India for the next 30 years.
If we can do that, it means poverty as we know it will disappear practically for all time to come.
For too long, policymakers have presented the transfer of resources meant for the poor to industry as a choice between populism and reform. Even now, whenever the Union Finance Minister starts to prepare for the annual budget, a crescendo builds over whether he will present populist “sops” or big bang reforms.
This year, with the newly-elected Aam Admi Party (AAP) government in Delhi delivering on its promise to provide subsidised electricity and free water, there is hardly a day when the media does not drum up this issue. Switch on any TV channel and chances are that the same set of economists and politicians will be telling you how disastrous the subsidies are for the economy.
If you support the cheaper food or lower petrol prices or tax breaks granted to the poor, you are called a “leftist” and if you question the massive freebies that the corporate sector walks away with every year, you are
At the heart of this contentious issue lies the clever craft with which direct government spending on behalf of the people has been demonised over the years. What the poor get as financial support ( by way of cheap food, housing and energy) is called a “subsidy”, but what the affluent get, and that is several times more, is termed “incentive”. In reality, the tax breaks and other concessions that industry and business get are also subsidies.
The total subsidy that the poor get—and that includes the funding for food, fertilisers and MGNREGA —stands at `2.52 lakh crore. This is a huge amount, and there can be no denying that we must reduce corruption and leakage to make sure this money is used efficiently. But while mainline economists are constantly telling us that fiscal prudence requires cutting spending on these social programmes, no mainline economist ever points to the massive waste of the country’s economic resources in the name of tax concessions (clubbed under ‘revenue foregone’ in the Budget documents) that are doled out to India Inc every year.
Consider one such subsidy as an example. The current conventional wisdom is that the subsidy on LPG cylinders totals `48,000 crore, enough to wipe out poverty from India for a year. It sounds a criminal waste of resources. But, using the same yardstick, the
`36 lakh crore tax concession (actually subsidy) given to India Inc since 2004-05, if recovered, could wipe out poverty from India for 72 years!
Supporters of these subsidies for industry argue that this `36 lakh crore in tax concessions spurs pays-offs for everybody by stimulating the economy. But this massive incentive has failed to create jobs or boost industrial and manufacturing sector growth. On top of that, many of those who received these tax concessions also defaulted on bank loans—adding to the `10 lakh crore in non-performing assets (NPAs) held by public sector banks.
The mainline economists are worried that the `2.52 lakh crore subsidy directed at the poor spoils India’s growth story. But let’s look at the loss from just one infrastructure project: the modernisation of Delhi’s Indira Gandhi International Airport. Built on 4,800 acres of prime land given at a highly subsidised price to the private partner, Delhi International Airport Ltd (DIAL), the project resulted in a loss of `1.63 lakh crore to the exchequer, according to the Comptroller and Auditor-General (CAG). In other words, the subsidy received by the GMR Group and its partners for a single airport project was equal to more than half the amount given
to millions of poor people as life-saving support.
Coming to freebies, I have never understood the economic rationale behind giving land almost free of cost to businesses and corporations. Apollo Hospital was given 15 acres of prime land in the heart of Delhi for Re 1 an acre, and a host of private hospitals, schools and colleges have received similar bonanzas. Yet when the time comes to deliver on promises—such as a commitment to treat 25 percent of their outpatients and 10 percent of their inpatients for free—beneficiaries openly flout the rules, even in the face of a directive from the Supreme Court.
It would be interesting to find out how many acres have been doled out to businesses across India at a rupee per acre or square metre across India, in addition to the 110,000-odd acres given away for Special Economic Zones (SEZ). That in itself would tell us about the massive freebies being doled out to the rich in the name of development.
But cheap land for building projects is only the tip of the iceberg. The government also gives away water, minerals and other natural resources at throwaway prices, or rewards industry for exploiting them with fat tax concessions or financing with practically no annual interest.
Tata received land for its Nano factory at a price that seeks only 0.1 percent interest. Punjab gave steel tycoon Lakshmi Mittal a `1,250-crore loan to invest in the Bathinda refinery for the same interest rate of 0.1 percent.
In contrast, microfinance projects offer loans to the poorest of the poor for a minimum interest rate of 24 percent, which comes to about 36 percent on weekly recovery.
I can go on listing such cases of what is popularly called crony capitalism. I am not against the industrial sector or the corporates. We need industry for economic growth. It is just that, if freebies and subsidies are bad for the poor, they are also bad for the rich. What needs to be understood and appreciated is that it is not the poor who are a drain on the nation’s economic resources. They are being targetted simply to divert public attention from the more heinous crony capitalism that continues to bleed the nation’s economy.