February 7, 2008

 

Left Parties’ Proposals for Budget 2008-09

 

 

The UPA Government is going to present its fourth budget in February 2008. Budget 2008-09 presents the opportunity to fulfill the commitments made in the National Common Minimum Programme. The crucial areas in which specific commitments have been made in the NCMP include: (i) significantly increasing public investment in agriculture, (ii) spending 6% of GDP on education, (iii) spending 2-3% of GDP on health, (iv) providing a legal guarantee for at least 100 days of employment for at least one able-bodied person in every rural, urban poor and lower-middle class household (v) ensuring a comprehensive social security scheme for workers in the unorganized sector, (vi) universalisation of the ICDS and (vii) moving towards universal food security. These commitments have not been adequately met so far. In order to tackle the persisting problems faced by the people — the agrarian crisis, unemployment and price rise — Budget 2008-09 should make a wholehearted attempt to meet the crucial NCMP commitments by allocating adequate resources. Resources have to be mobilized by taxing profits and capital gains, which are increasing at rates many times faster than the overall growth of national income. Myriad tax concessions to corporates and affluent sections, which are nothing but subsidies to the rich, should be progressively eliminated in the backdrop of growing income inequalities. Rather than being obsessed with the growth rate, Budget 2008-09 should concentrate on redistributing the benefits of growth to all sections of the people, particularly the socio-economically weaker sections.

 

Expenditure Priorities

 

  1. Budget 2008-09 should concretely address the problems faced by the farmers, which the UPA Government has not done so far. The National Crime Records Bureau reports that over 17000 farmers committed suicide across the country in 2006. Besides making adequate provisions for the Food Security Mission and the Rashtriya Krishi Vikas Yojana envisaged under the Eleventh Plan, a comprehensive debt relief package for farmers need to be devised in Budget 2008-09, in view of the pervasive farm indebtedness. The half-hearted measures to provide region-specific relief packages and token interest subvention need to be replaced by constituting a Farmer’s Debt Relief Commission, which will write-off the debts for small and marginal farmers across the country. The interest rate on farm loans has to be brought down to a simple interest rate of 4% as recommended by the National Commission on Farmers. There should be complete interest rate waiver for farmers in areas affected by natural calamities like drought or floods. Adequate outlays to strengthen agricultural marketing and completing pending irrigation projects should be made.

 

  1. Food Subsidy should be raised in Budget 2008-09 in order to expand procurement operations and strengthening the Public Distribution System. The price rise of essential commodities witnessed in the recent past has underlined the need for revitalizing the PDS, which has weakened considerably following the introduction of targeting. The outdated poverty estimates and complexities in BPL identification are in effect depriving large sections of the poor from their right to food, in a context where food prices are rising in the open market. Therefore, there is an urgent need to revert to a universal PDS in order to ensure food security.

 

  1. While some increases in the allocations for education and health were made in Budget 2007-08, the expenditure on these social sectors continue to remain far below the targets set in the NCMP. Therefore, the allocation for education and health have to be further stepped up in Budget 2008-09, for Sarva Shiksha Abhiyan, Mid-day Meals, National Rural Health Mission and expanding capacities in higher educational institutions and setting up new universities, as envisaged in the Eleventh Plan. It is essential to increase the central allocation for both elementary and secondary school education to levels sufficient to meet the Right to Education.

 

  1. Progress on all Bharat Nirman programmes is extremely slow, particularly with respect to rural electrification, and the expenditure in this area has been far below requirement. Since Bharat Nirman is time-bound, expenditure on all its component schemes needs to be stepped up sufficiently for their completion as per the original plans. Budget 2008-09 should specifically indicate the progress achieved so far and the steps to be taken to achieve the targets by 2009.

 

  1. It is clear that the main impediment towards having a comprehensive social security scheme as suggested by the National Commission for Enterprises in the Unorganised Sector, is the unwillingness on the part of the Government to commit resources. This is a breach of a crucial commitment made in the NCMP. Budget 2008-09 should allocate the necessary resources for a comprehensive social security scheme for the workers in the unorganised sector.

 

  1. The NREGA must be extended to all the districts of the country and its proper implementation ensured. Besides providing adequate funds for the purpose, Budget 2008-09 should also make a beginning by allocating resources for extending the employment guarantee to the urban areas, as promised in the NCMP.

 

  1. A threefold increase in the budget allocation for ICDS is required in Budget 2008-09 to meet the commitment towards its universalisation made in the NCMP. Out of this enhanced allocation, a specific amount should be earmarked for increasing the remuneration of anganwadi workers. In view of the pathetic nutritional status of women as revealed by the latest National Family Health Survey, the National Nutrition Mission needs to be revived in Budget 2008-09 with adequate allocations. Greater fund allocations have to be made for women specific schemes.

 

  1. Budget 2008-09 should take decisive steps towards implementation of the recommendations of the Sachar Committee. The allocations for focussed literacy campaign and building primary schools in all villages in the Minority Concentration Districts (MCDs), building one residential girls’ school in each of the Minority Concentrated Blocks and the modernization scheme for madarsas need to be enhanced substantially.

 

  1. Higher allocations have to made for schemes with 100% provision for SCs and STs. Commitments made in the NCMP regarding a comprehensive national programme for minor irrigation of all lands owned by dalits and adivasis and endowing land to landless families through implementation of land ceiling and land redistribution legislation have not been addressed so far. Budget 2008-09 needs to initiate steps in that direction. More outlays on renewable energy are required to undertake speedy and subsidised electrification of tribal households in remote villages through solar energy systems.

 

  1. Central allocation for housing for the urban poor has remained paltry over the years. Budget 2008-09 should substantially increase the allocation for the urban housing schemes for the socio-economically weaker sections. The Housing and Urban Development Corporation (HUDCO), whose expenditure is far below what is required to meet the housing demand of the urban poor, should be strengthened with budgetary outlays.

 

  1.  Small-scale industries, which provide a big proportion of industrial employment does not receive appropriate support from the Centre. Despite the proliferation of schemes under the Ministry of Small Scale Industries, the budgetary support remains very low. Budget 2008-09 should substantially enhance the allocation for small-scale industries, especially in credit support, technology support and cluster development programmes.

 

  1.  Central Assistance for State Plans should be substantially increased. In keeping with the commitment made in the NCMP, Budget 2008-09 should address the debt problem of the States and provide some relief. The interest rate on Small Savings loan to the State governments should be reduced. Centrally Sponsored Schemes in sectors, which are State subjects, should be transferred to the States with funds.

 

  1.  Lending rates of banks and financial institutions should be brought down. Inter-state balance in credit disbursement by banks and financial institutions should be ensured, with an emphasis on priority sector lending. Budget 2008-09 should take concrete steps to provide subsidized credit for the Self-Help Groups.

 

Budgetary Resources and Taxation

 

  1. The Gross Budgetary Support (GBS) for the Central Plan was increased from Rs. 172728 crore in Budget 2006-07 to Rs. 205100 crore in Budget 2007-08, which meant a 18.7% increase over the GBS in 2006-07. This 18.7% increase over the GBS of the previous year, came in the backdrop of a 15.8% growth of GDP at market prices in 2006-07. This implies that the GBS has grown at a rate, which is merely a few percentage points more than the rate of growth of nominal GDP. In terms of increasing the role of the state in the economy, the increase in GBS is grossly inadequate. Fulfilling the commitments made in the National Common Minimum Programme of the UPA Government would require much higher levels of expenditure. Budget 2009-09 should increase the GBS by at least Rs 60000 crore over last year.

 

  1. The Rules framed under the FRBM Act sets a target for zero revenue deficit to be attained by the end of the fiscal year, 2008-09. The Eleventh Plan document has already warned about the problems that will arise while trying to meet this irrational target and pointed out that development expenditure in crucial areas like health and education can be seriously affected. The Plan document notes: “The resources estimates now prepared make it very clear that the constraint of maintaining the revenue deficit at ‘zero’ from 2008-09 onwards will have the inevitable consequence of very substantially limiting the overall GBS for the Plan.  The overall pattern of revenue and capital expenditure in the GBS is the result of the core strategy of the Plan which seeks to substantially improve the supply of social services in the relatively backward States through increased Central Funding…Given this strategy, and the consequent high revenue expenditure to GBS percentage, one option would be to insist on the binding nature of only the GFD to GDP constraint while accepting the inevitability of high revenue expenditure in view of the Plan strategy.” The Left parties have always opposed the unjustified and anti-development provisions of the FRBM Act. Under no circumstances should the FRBM deficit targets be allowed to constrain Plan expenditure in Budget 2008-09.

 

  1. The growth in tax revenues being experienced currently should not undercut the case for mobilizing greater tax revenues in order to meet the expenditure commitments of the NCMP, which are yet to be fulfilled. The initial efforts undertaken to do away with the myriad tax concessions, especially those enjoyed by corporates have not gone anywhere. The Statement on Revenue Foregone, presented during Budget 2007-08 contained a study of corporate tax, which showed that the effective tax rate for the companies in 2006-07 was 19.2% against the scheduled tax rate of 33.6%. Tax concessions to corporate taxpayers increased from Rs. 34618 crore in 2005-06 to Rs. 50075 crore in 2006-07. Budget 2008-09 should take concrete steps to bring down these tax expenditures, which are subsidies to the corporates. The UPA Government is yet to amend the SEZ Act, as per the recommendations of the Standing Committee on Commerce, doing away with the exorbitant tax concessions in Special Economic Zones. This should be done without further delay. The corporate tax concessions which needs to be urgently curbed include: (i) export profits of STPI units (excluding small and medium enterprises) and EOUs (ii) donations and contributions to political parties and charitable trusts  (iii) “profits of certain industrial undertakings or a ship or a hotel business” (iv) profits of undertakings engaged in development of infrastructure facilities, SEZs and Industrial Parks, generation of power, and providing telecommunication services and (v) profits of industrial undertakings derived from projects in backward areas.

 

  1. The developments in the capital markets in the recent past have confirmed that a significant amount of speculative capital has made forays into India. The periodic entry and withdrawal of funds in large amounts by the FIIs is leading to wide swings in the equity markets. Moreover, the burgeoning foreign exchange reserves built up primarily on the basis of such FII inflows are turning into a liability. Rupee appreciation is hurting the export sectors, especially in the context of a slowdown in global growth following the subprime lending crisis in the U.S. Efforts to intervene in the forex market to buy up foreign exchange followed by sterilization are also leading to additional fiscal costs. Therefore there is an urgent need to restrict the inflow of speculative capital and curb the volatility in equity markets. The reintroduction of the long-term capital gains tax and an increase in the rate of the short-term capital gains tax will correct the anomaly in the taxation structure, which has led to such speculative inflows. The rate of the Securities Transaction Tax should also be increased. These measures must be implemented in Budget 2008-09, not only because of the additional resources they would raise but also to ensure financial stability.

 

  1. International oil prices have increased sharply in recent times. Rather than increasing the retail prices of petro products, which will burden common people and add to inflationary pressures, the Government should initiate the long pending restructuring of the indirect tax structure on petroleum. The bottomlines of the oil companies can also be improved if Budget 2008-09 does away with the ad valorem duty structure and replaces it with specific duties. A price stabilisation fund for petro products should also be set up with the resources generated through the oil cess.

Click here for a summary of the budget proposals