Budget 2001 will shift the balance of power in favour of the propertied and share-holding elite and further marginalise the mass of the population. This will degrade and pervert Indian democracy while coarsening public discourse.
FOR long years, the "humble" postcard would figure in the Finance Minister's budget speech not as an item of taxation, but as a symbol of the government's concern for the so-called common man - that is, its professed determination to subsidise the cost o f the most basic form of long-distance communication, especially for the underprivileged rural Indian. The price of the postcard was doggedly maintained - in the face of inflation, and the growing temptation to raise levies in order to feed the widening revenue deficit - at 10 paise, for decades.
In the 1990s, after much deliberation, two categories of postcards were introduced: an instrument of personal communication, and a means of entering into competitions or other commercial transactions. The second article was made much dearer. The price of the first was also raised - first to 15 paise and then to 25 paise. The new tariffs became front-page stories and raised a debate even in newspapers devoted to running down all subsidies, however worthy, and worshipping the "free market".
In the latest Budget, Yashwant Sinha doubled the price of the postcard at one go. His listeners - or rather, viewers - were spared the routine burden of both forced humour and reiteration of concern for the "common man". The subject did not merit mention in Part A of the budget speech beyond a casual line: "Similarly, postal rates will be revised moderately to contain the rising postal deficit."
The postcard story never made it to the front pages of the national press, then preoccupied with the euphoric reactions of industry leaders and the stock market to another "dream budget". By contrast, aspects of the Budget of specific concern to the corp orate sector featured prominently on television screens, no matter of which channel. Indeed, they dominated all news programmes - the public spectacle from which the newspapers picked their clue.
At the heart of the spectacle were dark-suited men from the corporate world conducting a collusive dialogue with dark-suited men from the government. This was, of course, of a piece with the range of constituencies with which the Finance Ministry, and mo re important, the Prime Minister's Office (PMO), held the pre-Budget "dialogue". This time, there was not even a pretence of consulting interest-groups which would traditionally figure in such a "dialogue": for example, labour, consumers, farmers, women, political parties, independent economists, and so on.
The dialogue was strictly limited to business interests. So was the Budget's principal focus. Never before has the exercise in balancing the government's books and defining the broad direction of economic policy been so skewed or unbalanced. If Manmohan Singh's Budget exactly 10 years ago inaugurated "liberalisation" of the "Washington Consensus" variety, Yashwant Sinha's Budget signifies an even more radical policy change. It retracts the state even further from the public services, and transfers in comes from the poor to the rich in a big way. In his effort at social engineering, that is, in changing the distribution of power and the balance of class forces, Yashwant Sinha has embraced an extreme right-wing agenda comparable with the Reagan-Tha tcher programme of the early 1980s. No wonder a right-wing market analyst has termed his Budget India's "Second Tryst with Destiny".
Yashwant Sinha's first three budgets marked a slowdown in the growth of the economy and further aggravated imbalances in its structure. His fourth Budget not only strengthens that process, but will also go down as a Budget for sleaze. The entire exercise favours speculative investors on the stock market and discriminates systematically against the working people, especially industrial labour and the bulk of the farming community.
THE Budget's principal thrust as regards interest rates is to divert savings from banks, and pension and provident funds, to the stock market. The big 1.5 per cent interest rate cut on such savings, including small savings, will reduce returns from them to the same level as the current rate of inflation of about 8.5 per cent. Yashwant Sinha has also sharply raised taxes on interest incomes from savings. This will encourage a huge transfer of funds from low- and middle-income earners to fuel an artificia l stock market boom.
The Budget's biggest gainers will be holders of sleaze money and slush funds. Already, "portfolio" investment flows are about five times higher than productive foreign investment. Foreign "portfolio" investors can now buy a higher proportion (49 per cent ) of the equity of Indian companies. To boost such investment, including slush money looking for quick returns, Yashwant Sinha has abolished capital gains taxes in respect of new equity issues, and halved the tax on dividends. This will naturally pump in vestments into shares and boost their prices. No wonder the Confederation of Indian Industry (CII) has welcomed the Budget, giving it a rating of nine on a 1-to-10 scale. (It is another matter that a bear cartel has since manipulated the market. But the market's vulnerability only highlights the "casino capitalism" character of the economy.)
Yashwant Sinha's budget has given India's already spoilt rich a tax bonanza of Rs. 5,500 crores. This will further favour a tiny elite composed of less than 20 million people who pay the income tax regularly. (The number of tax-payers was 13 million in A pril 1998 and rose to 22 million last year, according to a November 2000 statement by Revenue Minister Gingee N. Ramachandran.)
The tax break will further distort the structure of an economy in which direct taxes add up to a minuscule 3.3 per cent of GDP. India is one of the most mis-taxed and least-taxed economies in the world. Central imposts as a proportion of GDP total less than a shamefully low 10 per cent. Contrast this with the 25 to 35 per cent for East Asia or 40 per cent-plus for the OECD (Organisation for Economic Cooperation and Development) countries.
There is a significant overlap between the class of income-tax payers and the 5 per cent or so of households which are significant shareholders. (By contrast, more than a third deposit money in banks or the post office, or have pension or provident fund savings, with low but guaranteed returns.) The Budget strategy will greatly strengthen this minority constituency of shareholders and its ties with, and dependence on, Big Business.
This will consolidate India's own perverse version of a "property-owning" or "share-holding" democracy, with the affluent minority enjoying enormous power. This minority has never had it so good. In the government sector, it has doubled its income through the Fourth and Fifth Pay Commissions. In the private sector, it has benefited from the corporate boom as well as removal of ceilings on managerial remuneration. Under "liberalisation", the hiatus between the minority and the vast majority has wi dened. For instance, the salary differential between middle-rank corporate executives and blue-collar workers has doubled to about 15:1.
The size of that segment of the population that comprised the top 5 to 10 per cent, wrongly called the "middle class", has burgeoned. So has its consumption. Thus, over the past decade, the number of cars sold has trebled and the output of colour TV sets, air-conditioners and refrigerators has seen an unprecedented boom. A major contributory factor here has been lower taxes. By contrast, owing to official policies, food prices have increased almost two-and-a-half times. Rising costs have p ut shelter, education and health care beyond the reach of the vast majority of the people. According to the United Nations Development Programme (UNDP), 53 per cent of Indians lack the basic necessities of life and cannot develop their human potential.
Under Yashwant Sinha's new Budget, prices of cars, two-wheelers, colour TVs, air-conditioners and refrigerators, as well as of soft drinks and so on, will fall further. But a range of mass-consumption items - including footwear, electric bulbs, toothbrus hes, cheap watches and clocks, furnishings, and many cloth varieties - will become dearer. So will the popular cooking medium of vanaspati - by 25 per cent.
EVEN worse is the Budget's likely impact on farmers and industrial workers. Agriculture - long starved of public investment and facing numerous structural hurdles - has suffered in recent years. Last year, food production decreased by 9.9 million tonnes. Such limited food security that Indians ever enjoyed has been undermined. The Budget will reduce the state's ability to make public investments, and hence further impoverish the agriculture-dependent rural sector, leading to growing unemployment and com pounding the hardship caused by a terrible drought in many States.
Yashwant Sinha has done little to mitigate these effects or strengthen the rural infrastructure. The token increase of Rs.500 crores in the already grossly under-utilised Rural Infrastructure Fund will help nobody. Last year, actual sanctions from this w ere under 30 per cent, disbursement even less. He has further weakened the public distribution system (PDS) by passing on the burden of food procurement to the States. Already, there has been a 50 to 70 per cent decrease in the offtake from the PDS in th ree years. This comes on top of a systematic assault on the PDS through issue price hikes and reduced coverage in the name of "targeting".
The transfer of responsibility for food procurement to the States is of a piece with the sinister plan to dismantle the PDS altogether - a plan to which Finance Secretary Ajit Kumar openly confessed on television. This will hit the poor hard. Mean while, the 50 million-tonne stocks with the government, and the pressure on agriculture from liberalised imports, underline new contradictions in the fragile farm economy.
However, the Budget has dealt an even bigger blow to industrial workers. They can be sacked at will from factories employing less than 1,000 people. This will affect 75 per cent of the workforce or 99 per cent of the factories. The Budget also undermines the Contract Labour Act, which prevents companies from using casual, unprotected workers for regular work of a perennial nature, and from farming out production to sweatshops.
This may be only the thin end of the wedge: the larger agenda seems to be to dismantle all protective legislation evolved over one hundred years to give the people elementary rights such as the freedom to organise, and a modicum of job security. This age nda is profoundly immoral in a situation of stagnation or decline in organised employment, and absence of an unemployment allowance or social security. The result can only be social destitution.
The Budget also further weakens the public sector at the expense of the private sector. Yashwant Sinha has milked public sector undertakings (PSUs) for dividends, but wreaked vengeance upon them. His decision to raise Rs.12,000 crores by privatising a nu mber of them will mean underselling them in shady deals, a la Balco.
At the same time, Yashwant Sinha's Budget represents the opposite of fiscal consolidation. It will further worsen already grave macro-economic imbalances and enhance the predatory and fiscally irresponsible character of the state. The government's finances are in a terrible mess. Interest payments account for nearly half its expenditure. The government is living way, way beyond its means. Its productive expenditure is being cut year after year - to a point where a huge surplus has emerged on the capital account.
This reflects a massive decline in investment in the infrastructure, as well as in the social services. Yashwant Sinha's "success" in maintaining this fiscal deficit at 5.1 per cent lies largely in capital spending cuts, and partly in accounting tricks. Reducing public investment will damage private investment too.
However, will Yashwant Sinha's fiscal gamble produce faster growth? This is unlikely. Next year's nominal growth is assumed at 12.5 per cent, including 6 per cent inflation, and 6.5 per cent real growth. Currently, inflation is riding at 8.5 per cent. If oil prices do not decrease substantially, revenue projections will go awry. Besides, low interest rates on pension funds and small savings will lead to a fall in the savings rate from the current 21 per cent. (The rate was 24 to 25 per cent a decade ago .) This is bound to depress GDP growth. The quality of growth will further decline. Ultimately, the Budget will promote sleaze, speculation and sweated labour.
The Indian ruling elite wants an East Asian rate of economic expansion. But this cannot materialise on a direct tax-base that is one-third that of South Korea's, and a savings rate that is 10 percentage points lower than China's or Malaysia's. The elite' s obsession - high growth which bypasses the people - is likely to remain a mirage.
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