The gravy train

Published : Jul 04, 2008 00:00 IST

Finance Minister P. Chidambaram speaks at CII - The Partnership Summit 2008, in Gurgaon on January 17.-MANVENDER V LOVE/PTI

Finance Minister P. Chidambaram speaks at CII - The Partnership Summit 2008, in Gurgaon on January 17.-MANVENDER V LOVE/PTI

Despite the claims of the Congress leadership about giving priority to the poor, it is big corporate players who get liberal waivers.

ON June 12, a little over a week after imposing an unprecedented fuel price hike, the Manmohan Singh-led United Progressive Alliance (UPA) government came up with a slew of announcements that sought to address certain economic demands of some sections of the population. These included raising the minimum support price (MSP) for paddy and the unveiling of a new nutrient-based pricing policy for subsidised fertilizers. While the increasing of the MSP to Rs.850 a quintal did not exactly follow the recommendations of the Commission for Agricultural Costs and Prices to raise it to Rs.1,000, it was certainly expected to bring some relief to paddy farmers across the country.

Similarly, the new pricing policy was expected to bring down the prices of some varieties of subsidised fertilizers. The pricing policy had come with the approval for a uniform freight subsidy for all fertilizers. This was supposed to ensure adequate availability of fertilizers across the country at uniform prices. Along with these measures, the UPA Cabinet sanctioned a Rs.29.81-crore package for the relief and rehabilitation of the victims of the Bhagalpur (Bihar) communal riots of 1989. It also approved a Rs.678-crore scheme for preparing the Indian team for the 2010 Delhi Commonwealth Games.

Political observers analysed the latest announcements as evidence of the governments resolve to expend some additional energy to minimise the negative effects of the fuel price hike on its popularity. Congress spokesperson Shakeel Ahmed went on to add that the measures were an indication of the fact that the Congress leadership and the UPA government were as committed as ever to the welfare of the people. Decisions such as the fuel price hike were the product of extraordinary situations, but the Congress leadership has never lost its prime focus, which was protecting the interests of the common people in every possible way, he explained.

According to Ahmed, the June 12 decisions were in step with other such measures already in place to enhance public expenditure, namely, the massive Rs.60,000-crore farm loan waiver and the proposal to implement the Rs.16,000-crore National Rural Employment Guarantee Scheme. Obviously, the Congress spokesperson needs to reassert the oldest partys dedication to the uplift of the poor and the deprived.

But in the context of the fuel price hike this assertion was not greeted with much approval. Communist Party of India (CPI) leader Atul Kumar Anjans comment that all these ad hoc, half-hearted measures did not make a fundamental difference to the plight of the people more or less summed up the general perspective on the announcements. Anjan told Frontline that the UPAs half-hearted welfarism was essentially an attempt to cover up for the huge concessions it had given to Oil Marketing Companies (OMC) through the fuel price hike. The four-year track record of the Sonia Gandhi-Manmohan Singh government is replete with such instances where they give huge benefits to the big corporate players and try to conceal [them] by announcing some welfare programme.

Anjan argued that the fuel price hike was undertaken on the basis of the so-called loss of Rs.245,000 crore suffered by the OMCs, without objectively considering whether these estimates were correct. At no point was there a thought whether some compensation can be given to the OMCs without burdening the people. The corporates ask for a huge waiver even at the cost of punishing the people and the Manmohan Singh government jumps up and carries out their call. This has happened in the past too. This would be evident to anybody who takes a close look at the Budget papers, Anjan said.

The CPI leaders reference is to the 2008-09 Budget, which shows that in 2007-08 alone the UPA government had written off taxes and duties so as to bring huge benefits for the corporate sector, especially big-time corporate players.

The amount mentioned in the Budget papers is a whopping Rs.2.79 lakh crore. A break-up of this write-off is as follows: Rs.1.48 lakh crore in customs duty exemptions, Rs.58,655 crore in corporate tax concessions, Rs.88,000 crore in excise duty concessions, and over Rs.38,000 crore in individual income tax exemptions. These exemptions were not a phenomenon of 2007-08 alone.

There were exemptions to the tune of Rs.2.067 lakh crore and Rs.2.352 lakh crore in 2004-05 and 2005-06 respectively. As is evident, the figure has been steady at around Rs.2.5 lakh crore and each year has registered an increase in real terms.

This is not all. The section on Receipt Budget shows that 3.5 lakh companies get such huge tax exemptions that they pay only 20 per cent or less of tax on profits instead of the stipulated 33.99 per cent. In earlier years, the effective figure was even lower. According to Finance Minister P. Chidambarams own assertions before members of the corporate community, the effective tax was 19.26 per cent in 2006-07. Companies that are engaged in business-industrial activity related to information technology have further concessions in the tax structure. The net result is that these companies pay only an effective tax of 6.5 to 7 per cent.

The annual report of Reliance Industries Limited, one of the biggest corporate players in the country, shows how tax exemptions operate in the oil and refining business, whose losses the UPA government sought to overcome through the fuel price hike.

The annual report states that the company made a profit of Rs.10,372 crore in 2007-08 from the refining business but has not paid any tax on this profit. Significantly, Reliances profit was only Rs.5,915 crore as recently as 2005-06 and on this too taxes have not been paid. The waiver in entertainment tax amounting to several crores that was accorded to the Indian Premier League (IPL) cricket is an extension of the other concessions given to corporate players. As is well known, the IPL had the participation of a clutch of corporate players, including Reliance, as franchisees of various teams.

In spite of such obvious statistics, Chidambaram has repeatedly claimed that the UPAs tax collection record is admirable. Talking to the media two days after the fuel price hike was announced, he contended that in the six-year period of the National Democratic Alliance (NDA) government, the tax to gross domestic product (GDP) ratio had crawled from 9.1 to 9.2 per cent while the UPA had increased it to 9.2 per cent at the end of 2003-04 and it was 12.5 per cent in 2007-08. He also said that the Finance Ministry expected that the ratio would reach 13 per cent this financial year.

Professor Arun Kumar, one of the contributors to the Alternate Economic Survey brought out by a group of economic and social analysts, questions this assertion by the Finance Minister. According to him, the principal reason for the rise in tax collections is not the increased efficiency of the Finance Departments tax collection mechanisms, but the rise in corporate profits. The UPAs years in power have been, by and large, marked by increasing corporate investment as well as profits.

According to the estimates of trade and industry bodies, including the Confederation of Indian Industry (CII), the proposed investment in new projects went up from Rs.696,366 crore in 2006-07 to Rs.963,839 crore during the first 11 months of 2007-08. In 2005-06 too, a CII assessment showed that corporate profits and investments were on the rise.

The analysis showed that net sales in 2006-07 had recorded a growth rate of 19.35 per cent in the fourth quarter (Q4) as compared to the growth rate of 17.86 per cent achieved during the same quarter in the financial year 2005-06. Profit after tax also registered a significant increase, from 13.68 per cent in Q4 of 2005-06 to 19.12 per cent in Q4 of 2006-07.

Clearly, the liberal fiscal concessions given to corporate beneficiaries have mainly benefited them notwithstanding the claims of the Congress leadership about giving greater priority to empowering and uplifting the poor and downtrodden through enhanced public expenditure. The social and political analyst Hariraj Singh Tyagi points out that the corporate beneficiaries of the fiscal concessions, perched at the top of the countrys socio-economic pyramid, do not form even 1 per cent of the population.

Tyagi points out that the lack of focus on public expenditure has been a phenomenon that has got more and more intense during the entire liberalisation period, which includes also the term of the Bharatiya Janata Party (BJP)-led NDA government.

Our public expenditure patterns are not at all proportionate with the number of potential beneficiaries or the intensity of social and economic helplessness. In fact, Tyagi points out, the reverse is true. Those who are better off are shown greater consideration. According to Tyagi, not a single Budget of the UPA has so far made any radical, pattern-changing effect in terms of public expenditure.

He adds that even a Minister like Mani Shankar Aiyar has pointed out that the UPA government is a government based on the vote of the common person but its policies are for the higher echelons of society. The last Budgets outlays on various sectors underscore Tyagis observation. The National Rural Health Mission had a 30 per cent decrease in its allocation while the Defence Budget crossed the Rs.100,000-crore mark at Rs.105,600 crore for the first time.

According to Anjan, the fallout of all these concessions to corporate players and the virtual facilitation of tax evasion by them includes the strengthening of a parallel economy that thrives on black money. Arun Kumar also observed that the governments deficiencies in terms of tax collection had virtually strengthened the black income machinery or black economy in a significant manner. Arun Kumar, whose research publication on the black economy in India and its reach and impact is internationally recognised, said that his current informal estimation would be that black income accounted for nearly 50 per cent of the countrys GDP.

When his research was concluded in 1999, Arun Kumar had estimated that the size of the black money in the country was around 40 per cent of the GDP. According to estimates of a number of researchers and organisations, black economy constituted about 35 per cent of the national economy in 1990-91, the period that witnessed the beginning of the process of liberalisation. Clearly, the figure has systematically increased over the past decade and a half.

Arun Kumars current estimation on the scale of black income in the GDP is based on the observation that black incomes are normally prevalent in the tertiary sector as opposed to primary or secondary sectors. The government itself admits that the service industry has grown significantly during the past four years and hence the estimation. Black income generation has increased not only through legal transactions such as real estate and the stock market but also through illegal dealings in hawala money through systematic and systemic corruption.

Arun Kumar adds that instruments such as the Right to Information Act could play a role in limiting the generation of black income, especially through the route of corruption in government, but this can be possible only if there is greater awareness and utilisation of such legal instruments.

It has been observed by other analysts such as Raymond Baker, author of Capitalisms Achilles Heel: Dirty Money and How to Renew the Free Market System, that the strengthening of the Black Economy leads to shifting of wealth from poorer countries through various means. The estimate in his book is that at least $5 trillion has been shifted out of poorer countries to the West since the mid-1970s. A recent expose by a television channel quoted a 2006 report of the Swiss Banking Association (SBA) to stress that Indians contributed the largest quantum of deposits in Swiss banks.

Quoting an SBA report, it said Indian nationals accounted for $1,456 billion of deposits. At the second spot were Russians with a deposit of $470 billion. It is a moot question, in this context, as to how much of the $5 trillion cited by Baker is from India. Perhaps it may be worth probing how far the policies and action plans of successive governments have contributed to the flight of wealth from the country.

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