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LATEST NEWS UPDATES | Pretending to be pro-poor, little change over UPA -Arun Kumar

Pretending to be pro-poor, little change over UPA -Arun Kumar

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published Published on Mar 1, 2016   modified Modified on Mar 1, 2016
-The Tribune

While giving concessions worth Rs.1,000 crore in the direct taxes paid by the rich, the government plans to net an extra Rs. 19,000 crore in indirect taxes, which are contributed by all. This reveals a regressive intent.

Like all Union budgets, this one also is long on promises but hides the real dynamics, namely, how the resources are to be raised for the promised very substantial expenditures. The budget is targeting more than Rs 19 lakh crore of expenditures. This is enough to give small amounts to almost every section of Indian society. Based on this increase the Finance Minister has claimed a budget that is pro-farmer and pro other marginalised sections of society. But, what is also clear is that these schemes often do not require budgetary allocations and can be financed through bank loans. Also some are mere policy announcements with little budgetary implications.

In this respect, the budget indicates that the government is more or less continuing with the policies of the UPA regime. That is what it had done last year as well. The one important lesson that the NDA government learnt last year was that its political losses were due to its image of being anti-poor and pro-business – Rahul Gandhi’s ‘suit boot ki sarkar’. The budget attempts to correct that image. The UPA had also tried the same in its last few budgets. No wonder, the government has made many pro-poor announcements. Arun Jaitley likes the number 9, since he has listed nine points of ‘transformative agenda’ and as many of ‘tax reform’.

The government has given direct tax concessions and will forego almost Rs 1,000 crore in direct taxes while hoping to collect Rs 19,000 crore additional from indirect taxes. This reveals the real intent of the government. Direct taxes are paid by the well-off (only 4 per cent of Indians pay direct taxes, and these are the well-off) while indirect taxes are paid by everyone and tend to cascade into increased prices via consumption for the poor. Thus, a decline in the share of direct taxes is an indication of a regressive scheme of things.

The Economic Survey had indicated that India has one of the lowest tax/GDP and direct tax/GDP ratios. The Survey hinted that taxes on the rich may be raised and their subsidies cut. However, apart from some tinkering, the overall reduction in direct taxes indicates that the rich are not likely to bear any major increase in taxation. This author has been proposing since the late 1980s an increase in wealth taxation and estate duty to reduce inequities but this is nowhere in sight. Mr. Picketty has also argued for these measures and the Economic Survey raised expectations that these policies may be finally introduced.

The black money schemes if effectively implemented could have increased direct taxes’ collection substantially. However, the NDA government has not been successful in tackling the black economy in spite of the various schemes it has introduced since it came to power. For instance, little has been declared out of the hoards of black wealth held abroad. The gold monetisation scheme has also not been successful. The new schemes in this budget which give concessions from penalties and prosecution amount to an amnesty to those who have not declared their incomes in the past. However, the government cannot call it that since it gave an undertaking to the Supreme Court in 1997 that in the future it will not introduce any voluntary disclosure schemes. These schemes cannot succeed unless the government is willing to be tough but that would send an anti-business signal and the NDA regime does not wish to do that.

The Finance Minister announced proudly that in 2015-16 the Plan expenditures have not been cut to attain the fiscal deficit target and he is correct in this. In the preceding five years there have been massive cuts in this. This year’s good performance has been possible because the tax collections have been on target. This is due to the decline in the petroleum goods prices and the non-passing of that decrease to the public by raising excise duties. Excise duty collection has gone up by approximately Rs 50,000 crore over the budget estimates. This has compensated for the decrease in direct taxes by around Rs 50,000 crore. Non-tax revenue has gone up by Rs 37,000 crore over the budget estimates with the net result that the total revenue collection has gone up. States’ share has gone down by about Rs 17,000 crore, thus leading to an increase in the Centre’s share of revenue.

The implication is that the revenue buoyancy of direct taxes has been less than that assumed last year. What it also suggests is that the economy is not growing at around 7 per cent, as assumed in the budget. This is also apparent from the repeated attempts of the Ministry of Finance to improve demand in the economy. Businesses are also repeatedly asking for interest rate cuts to boost demand.

Assuming a 7 per cent rate of growth for the coming year may also lead to miscalculations. This year’s budget has been drafted in an uncertain environment emanating from both the internal and external situations. The Finance Minister has flagged this. The implication is that there is need to be cautious rather than ambitious. The external sector can short-circuit the growth of the Indian economy and make the budgetary calculations go wrong. Unless the correct figures are used for growth and the rate of inflation, errors can get multiplied in case of any exogenous shock.

Finally, the Union Budget is first an instrument of macro-economic policy and then of micro-economic policies. If the calculus of the former is incorrect then the latter are likely to fail. Given the international situation of declining commodity prices and likely shortfall in growth, the package for farmers and for the marginalised sections — the highlight of the budget — is likely to also yield partial results.

The writer is retired Professor, JNU.

The Tribune, 1 March, 2016, http://www.tribuneindia.com/news/comment/pretending-to-be-pro-poor-little-change-over-upa/202843.html


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