Pre-Budget Analysis: Modi Govt. Prepares to Help Industrialists

Surajit Mazumdar

The Modi government’s second Union budget will be presented on 28th February 2015.The first one, in June 2014, was almost identical to the interim budget of the UPA government presented a few months earlier, which was a reflection of two things. Firstly, that the commitment to progressively reduce the fiscal deficit was going to continue despite the change in government. Secondly, that the Modi government was not really able to find ways of doing more in that direction than had already been done by the previous UPA government!All indications are that the commitment to ‘fiscal consolidation’, an euphemism for a policy that seeks to convince capitalists – global as well as Indian – that the government will be supportive of their profit making activities rather than encroaching on them, remains firmly in place. It is a grim reminder of the hollowness of Indian democracy that government policy remains unmindful of the needs of the people and also blind to the reality staring it in the face – that the economic slowdown is on the one hand having an adverse effect on revenues and on the other being worsened by the limits to public expenditure being set by lagging revenues.

In the first nine months of the year till December 2014, the revenue generation – specifically tax revenue – relative to the estimates in the budget has been lower than at the same stage in the previous two years. In both of those years, the eventual revenue figures were less than budgeted and expenditures were cut from already low budgeted levels in an attempt to keep the fiscal deficit down. In 2014-15, expenditure levels too have been below target till December 2014 and yet the fiscal deficit target for the year has already been crossed. Meeting the year end fiscal deficit target would therefore require expenditures in the remaining three months (January-March) to be below revenue receipts over the same period.

The government’s desperationto shore up sagging revenues can be seen in several measures taken by it in recent months. The first is that oil excise duties have been hiked four consecutive times in a few months – depriving consumers of the full benefits of the fortuitous fall in international oil prices, something for which the Modi government can claim no credit. Excise Duty concessions to manufacturing industries hit by the industrial slowdown, which had been initially extended for six months from 1 July, were withdrawn despite the clamour for further extension coming from industry associations. To make the largest ever disinvestment, that of the shares of Coal India, a success so that the Government could show higher non-tax receipts in its accounts theGovernment owned LIC was made to subscribe to more than 50 per cent of the issue.

Despite all these efforts revenue realizations in the current financial year are likely to be poor and more importantly they constitute further proof of the fact that the tight revenue situation will continue unless some significant policy changes happen. Instead of such changes, the drive to reduce the deficit further is likely to see greater measures to generate more non-tax receipts through disinvestment and bleeding of public sector enterprises and further measures to further curtail expenditure. This was also the preferred approach of the UPA in whose second term expenditures on agriculture and rural development, education and health, food and fuel subsidies, etc. bore the brunt of the burden of expenditure control.

In addition, while the corporate sector does not want to pay more taxes and is asking for more concessions it does want the government to spend more on infrastructure which is not profitable for them to build but on which their profits depend. Any increase in such spending would of course further squeeze out expenditures of more direct concern to the common working people. In this contestation between different claimants to its attention which side the Modi government will lean towards is not in doubt. All that the nation waits to see is how far further the Modi government is willing to go after nine months in office in demanding belt tightening from the Indian people in order to shore up the profits and wealth that are created by their labour but appropriated by a minority.