Commentary/Mani Shankar Aiyar
For every Rs 7 the finance minister has left with
the rich, he has given but one rupee to the poor
The single most important component of central government expenditure
targeted at the poor is provided for in the ministry of rural affairs
and employment's budget.
As between the revised estimates for last year and the budget estimates for the next, the allocation
to poverty alleviation and employment assurance programmes
have been increased by about Rs 12 billion. However, if the two budget estimates are compared,
you find that the increase in allocation is a mere Rs 70 million. Please note that this is between
one-fifth and one-seventh of the amount saved by the rich on their
taxes. That is, for every Rs 7 the finance minister has left with
the rich, he has given but one rupee to the poor.
Also note that while only 10 million Indians benefit
from the new tax cuts, there are at least 30 crore
of the poorest of poor, helplessly dependent on
the ministry of rural affairs and employment. The per capita increase
in allocation to them comes to Rs 45 as against Rs 4,500 for
the rich. The rich have been benefited a thousand times
more than the poor -- and the richest, a hundred
thousand times more!
This is what makes this the most iniquitous Budget ever.
All the calculations in the Budget are based on the assumption
that the economy will continue to grow at seven per cent per annum.
If there is any faltering in the growth, all the projections will fall flat.
Prices will rise.
Further, the Budget assumes that the main
constraint on growth is inadequate resources in the hands of the
investing class. And, therefore, if tax rates are cut,
investment will rise and all will be well.
There is nothing to indicate that growth rates in the manufacturing sector
have been held back on account of high tax rates. If that were
so, the sector would not have recorded such high growth rates as it did through
most of Manmohan Singh's finance ministership.
The collapse in manufacturing sector that has characterised
the nine months of the United Front rule was brought about
by three primary factors: the perceived instability of the
government which has made the corporate sector, both Indian and foreign,
investment-shy, and the stock market teeter; the collapse in power generation and
other essential infrastructure; and the high interest rates that
have drastically increased the cost of borrowing and, thus,
the availability of industrial credit. The Budget does nothing
to remove any of these.
Moreover, though the fall in domestic crude oil production has been averaging nearly one million tonnes a month for the last nine
months, there is nothing in the Budget to reverse it. The same is true of coal and other
mining activities. It is, therefore, fanciful
to imagine that a mere cut in tax rates is going to promote an
industrial revival.
The other major danger in the present economic performance is
in respect of exports. Export growth rates had been hiked to 20
per cent and more. During 1996-97 it had sunk to under 6 per cent. The Budget does nothing to indicate
how exports might be increased. Also, the import growth
rate, which was averaging a healthy 25 per cent or more earlier,
collapsed last year to about the same as the export
rate.
Indeed, if oil imports (which account for some 41 per cent
of our import bill) are excluded, imports in the current year
are running at some 4 per cent less than in the previous
year. This may have saved the balance of payments -- but at the
cost of growth.
Meanwhile, the deficit in the oil pool account, which was a mere
Rs 500 million when the UF government took office, has crossed
Rs 150 billion and might even breach the Rs 200 billion-mark before
the financial year is out. It will have to be raised from the
government resources or gouged out of the people. Either
way, it is the long-suffering and much-ignored poor who will bail Chidambaram out.
And whichever way you look at it, it will dampen growth.
The seven per cent growth target is a dangerous illusion. And, therefore,
all of Chidambaram's sums are illusionary. Revenues will not demonstrate
the buoyancy he has assumed, nor will the tax-to-GDP ratio reach
the level projected. The last hope is the Voluntary Disclosure Scheme.
It is only by winking at deceit and combining it with parsimony
towards the poor that there is a remote possibility of the finance
minister not bankrupting the country.
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