Happy days are not in sight

Print edition : August 08, 2014

THE first Budget of the Narendra Modi sarkar has largely been treated with kid gloves by media commentators, even by some who have drawn attention to its many weaknesses. This is understandable since the honeymoon period that a new government enjoys with the media is perhaps not yet over. It would, however, be a serious error to see the Union Budget for 2014-15 presented in Parliament by Finance Minister Arun Jaitley as being significantly different from the Budgets we have had for nearly two decades now. The Budget is firmly anchored in the policies of liberalisation, privatisation and globalisation.

It has become established practice now that the greater part of the Budget speech of the Union Finance Minister is devoted to a large number of announcements, many of which have either no connection or at best a tenuous and remote connection with the Budget as such, the latter being understood as a statement of estimated annual receipts and expenditures of the Union government for the financial year based on specific proposals of the government in respect of current and capital receipts and current and capital expenditures. Thus, the expression of hope that the banking system will provide a given amount of credit to agriculture or the constitution of a committee to look into expenditure management can hardly be considered a part of the Budget proper. Then, there are a number of token allocations intended to evoke applause from the ruling benches, and catering to this or that “interest” segment. A very large part of Arun Jaitley’s speech was of this kind, even more so than that of his predecessor, who was himself quite an exponent of this art.

An analysis of the Union Budget must begin by recognising that it is merely one of several instruments at the disposal of the Union government to impart a sense of direction to the economy. The government can use, in addition, several other instruments, if it has the political will to do so. Further, insofar as the Budget presented relates to an economy characterised by enormous inequality in the ownership and distribution of productive assets, which confers inordinate political influence upon the economically powerful sections to shape budgetary policies, there are fairly strict limits within which it has to be located. These limits, though rarely part of the public discourse on the Budget, are far more significant than the proclaimed limits of fiscal space that are invariably invoked by Finance Ministers in a neoliberal regime to limit pro-poor allocations. Thirdly, the Budget is being presented, and must be evaluated, in the context of both the state of the national economy that is presumed to be conveyed by the Economic Survey and the state of the global economy, this last point being particularly important when the Indian economy after more than two decades of neoliberal policies is integrated to a far greater extent with the global capitalist economy than was the case before the 1990s. How does Union Budget 2014-15 look in the light of these considerations?

There is little by way of new proposals in respect of taxation. Personal income tax rates have been kept unchanged, but some concessions have been given, relating to the exemption limit, small savings and deduction of interest paid on housing loans. There are no changes in the rates of taxation either in respect of personal income or in respect of corporate profits. The net loss to the exchequer on account of these proposals have been estimated, on the basis of certain assumptions, to amount to Rs.22,000 crore. With regard to indirect taxes, a number of relatively small changes have been proposed, with the net impact being an increase in tax revenue of Rs.7,525 crore. The loss of revenue from direct taxes and the gain from indirect taxes together constitute a regressive direction of change. The numbers, when examined against the size of the total Budget estimate of expenditure—nearly Rs.18 lakh crore—do not appear terribly significant. However, the very smallness of the changes in direct tax revenue is in fact extremely significant in that it shows that no attempt has been made to tax massive personal incomes exceeding Rs.1 crore or Rs.10 crore or Rs.100 crore at a rate even marginally higher than what applies to the ordinary salaried employee earning Rs.10 lakh a year or less. The trend of reliance on indirect taxes and very light taxation of very high incomes, mostly derived from huge personal wealth, continues in the name of not hurting the incentive to invest. The Direct Taxes Code Bill has lapsed, and when it comes in a new avatar, it is not unlikely that low rates will be proclaimed as necessary to incentivise investments while numerous exemptions will continue despite the ritual call to eliminate them.

If the rich are let off lightly in terms of taxation proposals, despite a reference in the Budget speech to the need to mobilise resources and raise the tax to GDP ratio, what do the proposals in respect of expenditures look like? First of all, in an economic environment which badly needs a boost from the government to stimulate aggregate demand, the Budget Estimate (B.E.) of Plan Expenditure for 2014-15 at Rs.5.750 lakh crore is not even 4 per cent more than the B.E. for 2013-14 at Rs.5.553 lakh crore in nominal terms, and, given the inflation rate, lower in real terms. The total proposed expenditure (B.E.) is Rs.17,94,892 crore in 2014-15 as against (B.E.) Rs.16,65,297 crore in 2013-14, again a nominal increase that implies a decrease in real terms. Thus the government does not provide any stimulus to an economy experiencing relative stagnation at a time when the global economy is hardly likely to be an alternative source of increased demand.

The Finance Minister declared in his speech that the fiscal deficit (the principle of reduction of which is the holiest of all holy cows in neoliberal economics) shall be kept at the target set by his predecessor, an instance of the identity of views on economic policies between the Bharatiya Janata Party/National Democratic Alliance dispensation and the erstwhile Congress/United Progressive Alliance regime. The limiting of government expenditure is seen by him as the primary way to achieve the fiscal deficit target. Since the fiscal deficit is defined to exclude all government borrowing from the category of receipts, and since additions to tax revenue from the budget proposals are very modest, the deficit target is sought to be achieved by increased non-tax revenue receipts and by “capital receipts other than borrowings”, a euphemism for disinvestment. In fact, the target for the item in quotes is mentioned in the Budget speech as Rs.73,952 crore. In this respect the Budget reflects continuity not only with the UPA regime but also with the earlier NDA regime which created history by appointing a Minister for Disinvestment. The other instruments for achieving the fiscal deficit target are slashing of subsidies on food, fertilizers and energy and cutting down allocations to welfare and social sector programmes in real terms.

The taxation and expenditure proposals apart, the proposals in the Budget speech to raise the FDI cap in Defence and in Insurance as well as the proposal to recapitalise public sector banks by issuing new shares rather than by providing funds from the Budget are seriously flawed, with no economic or political rationale. There are also several other measures in the Budget which essentially seek to appease the financial sector in general and foreign finance capital in particular. These may prove extremely dangerous to the country’s economic and political sovereignty in the context of a turbulent global economy frequently rocked by financial crises.

In sum, Union Budget 2014-15 does not even attempt to address the key questions of inflation, poverty and unemployment.

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