Pre-Budget Analysis: Where to Get Resources From

Pre-Budget Analysis: Where to Get Resources From

Savera

It is Budget time and the government is as usual lamenting that there are no resources. This is what all finance ministers claim, accompanied by hand-wringing and calls for tightening the belts. This becomes the foundation stone for building their dream castles out of some well-known policies: cutting govt. spending on existing welfare schemes, rejecting suggestions of more investment in crucial sectors like agriculture or education or health, inviting domestic and global private capital to do anything from setting up industries to building toilets in villages, selling public property – from shares of PSUs to natural resources – to raise money.

Bourgeois economists and apologists in the media heartily support this logic. Many in the middle class are also seduced by the argument that if govt. does not have the money why not let the private sector run things. And, of course, NarendraModi has been thundering from the dais endlessly that he wants minimum government maximum governance.

But, does the govt. really have no resources? And, has it exhausted all ways of raising them? Let’s have a look.

First, look at the single biggest source of govt. income – taxes. Indian tax rates are some of the lowest in the world. The total tax collection is about 17-18% of GDP. The European Union average is about 36%, US 27%, UK 39%, Russia 30%, South Africa 27%, Mexico 30%, China 17% and Brazil 34%. Remember that China provides its citizens many economic benefits like education, health, transport etc. free or at subsidized rates unlike India.

This is mainly because of low effective tax rates on the rich, propertied class. While the statutory tax rate (tax rate required by law) is 32.445%, the actual or effective rate at which they paid taxes was 22.45% in 2012-13, slightly down from the previous year. Between 2004-05 and 2013-14, the govt. gave concessions and tax breaks worth a whopping Rs.41.43 lakh crore mainly to companies. On an average, these concessions make up nearly two thirds of the total tax revenue each year and over 6% of the GDP.

All this is of course legal and above board because the govt. itself is providing a number of loopholes to escape the tax net. But there is another aspect of tax evasion. How much is evaded through illegal means nobody knows, but a measure of this can be got from two things: the size of the black economy and the amount of illicit financial outflows from the country.

Experts have different opinions about the scale of black money in the country but the most logical estimates put it at as much as 50% of the GDP. As regards illicit outflow from the country is concerned, international watchdog Global Financial Integrity has estimated that nearly Rs.6 lakh crorewere illegally taken out of India in 2012, bringing the total illicit outflow of capital from the country to a whopping Rs28 lakh cr in the preceding decade. Notable is the fact that over 80% of the illicit outflow from India was done by companies through various financial tricks like transfer mispricing.

The govt. is aware of these shenanigans. It was settled policy that any such high tax dispute was taken to court if the companies refused to pay up. A host of top multinationals involved in tax evasion in India were facing litigation including Vodafone, IBM, Shell, Nokia Oyj, Microsoft Corp and others. The total money involved was huge – about $65 billion or nearly Rs.4 lakh crore.

But the new BJP led govt. immediately reversed the policy in the name of assuaging these foreign behemoths. So, not only will India lose these Rs.4 lakh crore, foreign companies will get a free hand to continue their loot with impunity.

Add up all these numbers and you will find that it is the policies of successive governments over the years that limit resources or rather create the illusion that there are limited resources. The truth is that the governments use resources to favour and assist the big capitalists. They don’t want to waste these resources in MGNREGS or paying ASHAs under the National Health Mission or providing irrigation water to millions of rain dependent small farmers.