An Endless Budget Session, Even Before it Begins: Shambhu Ghatak

Guest post by SHAMBHU GHATAK

“You can fool some people some times but you can’t fool all the people all the time”

So goes one of the famous lines of Bob Marley’s song that draws upon statement by Lincoln. Perhaps the same can be said about the new BJP government because it seems that this time there will be nothing new left to be presented during the upcoming Union Budget. Most of the things to be presented by the Finance Minister have gradually been placed even before the actual budget could see the light of the day (on 10 July). In fact, the entire stretch since the Government took power can be termed as a long, extended budget session – a session in slow motion.

Just think about the policy decisions announced or showcased by the new Government so far—allowing 100% foreign direct investment (FDI) in defence sector (to boost technology transfer and employment growth, so to speak); reforming environmental clearance (to avoid discrepancies, end red-tapism and ensure transparency) by making the process online; raising import duties on sugar by more than double and extension of existing sugar export subsidy of Rs 3,300 per tonne (to help the sugar mills) till September besides raising the mandatory level for blending cane-based ethanol in petrol from 5% to 10%; allowing hike in price of non-subsidized cooking gas (LPG) by Rs 16.50 per cylinder (which is partly attributed to the crisis situation in Iraq); and raising train fares by 14.2% & freight rates by 6.5% in the month of June prior to the just-presented Rail Budget, among other things.

Certainly, there are economic and social implications of the policies showcased/ announced so far. For example, environmental clearance reforms are being carried on so as to minimize regulations for making extraction and mining feasible. Such a step is expected to reduce the cost of inputs in minerals and metal dependent industries, and fuel economic growth besides reducing India’s dependence on import of ores.

Experts opine that Government’s move to promote ethanol blending could help the nation in reducing its import of crude (in the wake of crisis in Iraq), which can curtail current account deficit (i.e. difference between value of imports and exports in goods & services). However, such a decision is also likely to improve sugar mills’ earnings because of rise in demand of molasses, a by-product of sugar production. That is why one could notice that the share prices of many sugar making companies bounced more than 10% following the Government’s sugar-related announcement on 23 June.

As new policies are being discussed and framed, entry of foreign institutional investment (FII) is happening at full swing, which is a facesaver for the National Democratice Alliance (NDA) Government in arresting depreciation of Indian rupee vis-a-vis dollar in the wake of rising international crude prices at certain junctures recently. The Securities and Exchange Board of India (SEBI) website shows that net FII went up from US $ 75.89 million in April to a record US $ 5701.03 million in May this year. Some newspapers had attributed this to the victory of Modi-led coalition in the Lok Sabha elections.

The more things change, the more they stay the same

A farsighted person can understand that, in this resapect, the present Centre has just been following in the footsteps of the previous regime. What the United Progressive Alliance (UPA) could not perform thanks to the presence of the socially conscious National Advisory Council (NAC), NDA might be able to achieve. However, it would be unfair to say that what is happening under the BJP Government is entirely new. Budget and policy making, even during the UPA regime and much before, had been happening outside of the formal parliamentary process. One can remember that it has become almost a routine affair for our FMs to meet industry leaders and business bodies just before presenting budgets in the Parliament. There is no justification presented to the Parliament on the concessions given to the big industries. (Despite allegations of conflict of interest in the past, many of our elected Members of Parliament (MPs) get key decision-making posts in the Cabinet).

Certain examples can serve us in understanding how the UPA on several occassions went over the top, sidelining the Parliament. For example, attacked by the Opposition on Coalgate scam, the 15th Lok Sabha approved the Finance Bill 2013-14, the Railway Budget, the Appropriation Bills and demands-for-grants to various ministries without discussion on 30 April, 2013. This happened despite the Opposition walking out.

Though the Congress consistently maintained that the Opposition did not allow the Lok Sabha to function and pass important bills, it has been refuted by the latter and also civil society organizations (CSOs) that the UPA acted undemocratically. 28 Ordinances were promulgated during the term of the 15th Lok Sabha. As per experts, Ordinance making power is an executive act and not a legislative one. Activists argue that in order to bypass the debate on provisions under the Food Security Bill, the National Food Security Ordinance was notified on 5 July, 2013. It was passed by the Lok Sabha on 26 August, 2013 and got the Presidential assent on 10 September, 2013. Perhaps the UPA, stuck in the quagmire of governance failure, corruption and trust deficit, was making a desperate attempt to keep itself afloat till the end of its term.

Under the UPA rule, various concessions were provided and tax rates were effectively brought down for assisting the corporate sector to see a turnaround in the wake of global financial crisis. By one estimate, concessions and exemptions to the tune of Rs 5,73,627 crore was provided to the corporate sector in the year 2012-13, Rs 5,33,582 crore in 2011-12 and Rs 4,59,705 crore in 2010-11, bulk of which are in excise and custom duties under indirect taxes.

On the basis of the corporate returns electronically filed up to 30th November 2012 for the financial year 2011-12 by 4,94,545 number of companies, it was found by the Ministry of Finance’s Statement of Revenue Foregone (part of Budget Documents)that companies engaged in production of mineral oil and natural gas received around Rs 7,999 crore of tax benefits (deduction of profits under section 80-IB) in 2011-12. Providers of telecom services received Rs 1,218.4 crore of direct tax concessions (deduction of profits under section 80-IA) during the same year. Units located at Special Economic Zones (SEZs) altogether received Rs 10916.2 crore of concession (deduction of export profits under section 10A and 10AA). The effective tax rate* of the entire sample of 4,94,545 companies was 22.85% ** (as against the rate of 24.10% reported in 2010-11) while the statutory tax rate was 32.445%.

(Thanks to the Tax Expenditure or Revenue Foregone Statement, which is annually laid before the Parliament since the Budget 2006-07, one gets an idea of the concessions / benefits offered to the industry by our Government. In this context, one is reminded of the scholarly work done by Manorama Savur (1987) that shows how investments in rural development by Mafatlal Business House were given a tax expenditure status under the Income Tax Act section 35cc during the 1970s. Savur’s study entitled Involvement of Business Houses in Rural Development—A Case Study (published in Economic and Political Weekly) has found that adivasis and other rural communities seldom gained from investments by Mafatlals’ Rural Development (RD) Programmes, which was carried out via Sadguru Seva Sangh Trust (SSST) in Bansda taluk of Gujarat. Mafatal’s agro business interests were encouraged due to market expansion. The company channelized its own products under the guise of rural development and modernization of agriculture. Moreover, it enjoyed the tax expenditure benefit. Mafatlal used “state resources for RD and benefited by showing it as corporate cost”, argues Savur in her article).

The Reserve Bank of India’s (RBI) Financial Stability Report, Issue No. 8 (December, 2013) has noted that “the ‘medium and large’ sized industries contributed more towards stressed advances than ‘micro & small’ sized industries”. The same report has warned that the “failure of a major corporate or a major corporate group could also trigger a contagion in the banking system due to the exposures of a large number of banks to the corporate”. The RBI report shows how much our financial system is tilted towards the large corporates instead of the micro, small and medium enterprises (MSMEs), operating in both the organized and unorganized sectors that employs over 10 crore people.

The Standing Committee report on The National Identification Authority of India Bill, 2010 (42nd report) has clearly mentioned that the UPA went ahead implementing the Unique Identity project (UID) by circumventing Constitutional protocol. Yet we could see that between 2009-10 and 2013-14, approximately Rs. 4181.51 crore was spent on the Unique Identification Authority of India’s (UIDAI) aadhaar project, under which outsourcing of work to private IT players took place. The UIDAI was provided an office by the Planning Commission.

Keep the ball rolling, brother!

The CAG Report No.1 of 2013 – Union Government (Financial Audit) has observed that the total expenditure on the UPA’s 7 major flagship schemes increased from Rs.93,143 crore in 2009-10 to Rs.118,649 crore in 2010-11, but then decreased to Rs.109,379 crore in 2011-12. These schemes are the Sarva Siksha Abhiyan (SSA), the Mid Day Meal Scheme (MDMS), the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the Rajiv Gandhi Gramin Vidyutikaran Yojana (RGGVY), the Indira Awas Yojana (IAY), the Pradhan Mantri Gram Sadak Yojana (PMGSY) and finally, the National Rural Health Mission (NRHM) (see table below).

Table 1: Major flagship programmes of the UPA Government in the last 6 years-actual expenditure versus budget estimates (BE) (in Rs. crore)

 Table Budget Expenditure and Actual Expenditure

Sources: From 2009-10 to 2011-12, data for the 7 schemes shown in the table has been taken from Chapter 1: An overview of Union Finances 2011-2012, Report no.-1 of 2013-Union Government (Financial Audit), http://saiindia.gov.in/english/home/Our_Products/Audit_Report/Government_Wise/union_audit/recent_reports/union_financial1/2013/Civil/Report_1/chap_1.pdf.

From 2012-13 onwards, data for the 7 schemes shown in the table has been taken from Budget Documents of the Ministry of Finance namely, Notes on Demands for Grants—2014-2015 and 2013-2014 plus Budget Speech of the Finance Minister during 2013-14 and 2012-13 (calculated by the author).

Note: From 2012-13 onwards, the terms NRHM and National Health Mission (NHM) have been interchangeably used. The BE of 2014-15 is the Interim Budget presented by the UPA.

From table 1, it can be deciphered that the actual spending on MGNREGS was Rs. 29,213 crore in 2011-12 as compared to Rs. 35,841 crore in 2010-11. In 2011-12, Rs. 40,000 crore was allocated under the Union Budget for MGNREGS but actual spending on the same was almost 27 per cent less i.e. Rs.29,213 crore. A similar trend could be noticed in the case of RGGVY, IAY and PMGSY.

For all the major flagship schemes shown in the table, one could observe that actual spending was lower than what was allocated in the year 2012-13.

It is presumed that the upcoming budget to be presented by Arun Jaitley will allocate less resources on so-called ‘wasteful’ social sector expenditure. The NDA Government has already shown its eagerness for massive investments in infrastructure via public-private partnership. If the Government is planning to provide income tax benefits to the middle-class, and continue with the corporate-friendly policies of the previous regime, then it might trim expenditure on social welfare schemes. This way the Government may be able to contain the burgeoning fiscal deficit—a standard neoliberal prescription to keep inflation low and boost investors’ confidence. Pro-BJP economist Prof. Arvind Panagariya from Columbia University (USA) has asked the Government to increase capital expenditure from 1.76% of Gross Domestic Product (GDP) in the Interim Budget to 2% of GDP, and keep the fiscal deficit at 4.5% of GDP.

The Rural Development minister Nitin Gadkari has spoken his mind on dilution of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act so as to make it more industry-friendly. The NREGA might be amended and linked to building up of productive asset in the countryside. There are lot many economists who have advocated for such a change.

The Government has already asked the state governments to control inflation, and an atmosphere is being created for reforming the Agricultural Produce Marketing Committee (APMC) Act in various states. The Centre is now asking for adoption of the model Agricultural Marketing legislation. This way private, cooperative and corporate-led mandis can be created for wholesale trading in agricutural commodities, and farmers can directly sell to consumers by avoiding the APMC-led mandis.

The NDA Government has expressed its willingness for high-speed bullet trains, FDI in railways and creation of smart cities. There is a clear indication that reforms in labour laws started by the Rajasthan Government might be soon be carried forward by the Centre in the rest of the country. The BJP-led NDA has given clear signals on what kind of economic development it wants to usher in. Yet many of us are expecting that ‘good days are ahead’ despite the warning of ‘bitter pills’ by PM Modi. But the following line from a Hindi song (film Anaadi)should caution us:

 

“…Samajhne waale samajh gaye hain

Na samjhe, na samjhe woh anaadi hain….”

 

[…Those who had to understand, they have

Those who did not, are simply amateurs…]

——————————————————–

[Note: * Effective tax rate in case of companies is the ratio of total taxes paid (including surcharge and education cess but excluding Dividend Distribution Tax) to the total profits before taxes (PBT) and expressed as a percentage. ** Effective tax rate including dividend distribution tax was 24.75 percent]

References:

Union Budget documents (various years), www.indiabudget.nic.in

– Securities and Exchange Board of India (SEBI) website on FII,

http://www.sebi.gov.in/cms/sebi_data/statistics/FIIArchives.html

– Financial Stability Report, Issue No. 8, 2013, Reserve Bank of India,

http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/FSRDEC301213_FL.pdf

– Revenue foregone under the Central Tax System: Financial Years 2011-12 and 2012-13,

http://indiabudget.nic.in/budget2013-2014/ub2013-14/statrevfor/annex12.pdf

– National Food Security Ordinance 2013,

http://dfpd.nic.in/fcamin/homepage/NationalFoodSecurityOrdinance2013.pdf

– Standing Committee report on Finance (2011-12), The National Identification Authority of India Bill, 2010, 42nd report, Ministry of Planning, http://164.100.47.134/lsscommittee/Finance/42%20Report.pdf

– ‘Involvement of Business Houses in Rural Development-A Case Study’ by Manorama Savur, Economic and Political Weekly, Vol-XXII, No. 22, May 30, 1987

– Expenditure of UIDAI for the year 2009-10, 2010-11, 2011-12 , 2012-13 and 2013-14 (Up to Feb-2014), http://uidai.gov.in/images/exp_upto_feb_2014.xlsx

– ‘India may raise FDI limit in defence sector to 49%’ Deepshikha Sikarwar, July 3, 2014, The Economic Times, http://articles.economictimes.indiatimes.com/2014-07-03/news/51057412_1_defence-sector-fdi-cap-defence-production

– ‘LPG price hiked by Rs 16.50 per cylinder’, PTI, The Hindu, 1 July, 2014, http://www.thehindu.com/business/Economy/lpg-price-hiked-by-rs-1650-per-cylinder/article6166383.ece

– ‘Is India on cusp of a major labour-law reform?’, MoneyControl.com, 30 June, 2014, http://www.moneycontrol.com/news/economy/is-indiacuspa-major-labour-law-reform_1115528.html

– ‘A flexible deficit target’ -Arvind Panagariya, The Business Standard, 24 June, 2014, http://wap.business-standard.com/article/opinion/arvind-panagariya-a-flexible-deficit-target-114062401223_1.html

– ‘Sugar prices jump as govt moves to raise import duty’ -Mayank Bhardwaj & Ratnajyoti Dutta, Live Mint, 23 June, 2014, http://www.livemint.com/Politics/xxhk8J44PG7tEwcIKcY6pI/Government-agrees-to-raise-import-duty-on-sugar-with-rider.html

– ‘Govt hikes railway fares by 14.2 pc, freight charges increased by 6.5 pc’ by Avishek G Dastidar, The Indian Express, 21 June, 2014, http://indianexpress.com/article/business/economy/govt-hikes-railway-fares-14-2-pc-freight-charges-increased-by-6-5-pc/

– ‘Why some people fear that 100 percent FDI in defence sector will compromise national security’, Aarefa Johari, Scroll.in, June 2014, http://scroll.in/article/666232/Why-some-people-fear-that-100-percent-FDI-in-defence-sector-will-compromise-national-security/

– ‘Aiming transparency, now green clearance online’: Javadekar, Press Trust of India, The Indian Express, June 5, 2014, http://indianexpress.com/article/india/politics/aiming-transparency-now-green-clearance-online-javadekar/

– ‘A Temporary Respite from Ordinance Raj’: Apurv Mishra, Kafila, 15 March, 2014, http://kafila.org/2014/03/15/a-temporary-respite-from-ordinance-raj-apurv-mishra/

– ‘MSME Sector is of Vital Importance to Our National Economy says the Prime Minister’, Press Information Bureau, 1 March, 2014, http://pib.nic.in/newsite/PrintRelease.aspx?relid=104426

– ‘Has the 15th Lok Sabha been the WORST performing ever?’ -Shreya Singh, Rediff.com, 4 February, 2014, http://www.rediff.com/news/report/has-the-15th-lok-sabha-been-the-worst-performing-ever/20140204.htm

– ‘National Interest: Current accountability deficit’ -Shekhar Gupta, The Indian Express, 30 October, 2013, http://archive.indianexpress.com/news/national-interest-current-accountability-deficit/1159250/0

– ‘Govt heaves sigh of relief as money Bills are passed without discussion’ -J Balaji, The Hindu, 30 April, 2013, http://www.thehindu.com/news/national/govt-heaves-sigh-of-relief-as-money-bills-are-passed-without-discussion/article4669991.ece

– ‘The freebie nation’ -Sreelatha Menon, The Business Standard, 2 March, 2013, http://www.business-standard.com/article/opinion/sreelatha-menon-the-freebie-nation-113030200293_1.html

 

Shambhu Ghatak is a researcher on development issues like food security, employment, livelihood security etc. He works with the Inclusive Media for Change Project, www.im4change.org He can be reached at: shambhughatak@yahoo.com

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