India needs a Modi budget, not another ‘babu budget’ (Sunday Guardian)
By M.D. Nalapat | 13 February, 2016
Prime Minister Modi must step in to ensure that the budget that will get presented on 29 February is of a post-colonial mould with lower taxes.
A few feeble efforts were made in the early years of Independence to ensure that Union Budgets reflected the economic imperatives of a free society rather than the colonial objective of squeezing out as much revenue as possible from the people within a matrix of control that made citizen advancement difficult if not impossible. Genuine experts in the unlocking of synergies within the fiscal system (so as to ensure high levels of per capita income growth) were appointed: Shanmukham Chetty, John Mathai and Chintaman D. Deshmukh among them. However, such men soon proved the exceptions, as in serial mode, Prime Ministers ensured that standard-issue politicians were placed in that role who were subservient in the formulation of policy towards officials. Because there is no separate Indian Finance Service, officials in the Ministry of Finance continue to view the budgetary exercise as a means of raising revenue rather than as an instrument of rapid progress in industry, agriculture and services. While preparing the budget, attention gets overwhelmingly focused on estimates of expenditure on schemes and personnel. Thereafter, a pairing takes place of such expenditure segments with possible revenue sources, which get taxed at the level needed to meet the budgeted expenses. Such an approach does away with the considerations of efficiency and productivity, which ought to have been uppermost in their calculation and approach. While the actual budget proposals are unknown, it is easy to predict the contours of any budget where the colonial officer cadre will be in the driver’s cabin so far as preparation in concerned.
They would, for example, oppose significant relief in income tax rates to Indian nationals, even in the instances when they themselves graduate to become Finance Ministers, as Manmohan Singh did in 1992. They would even seek an increase (perhaps from 14% to 16%) in Service Tax, another of the monstrosities introduced into the tax system by Palaniappan Chidambaram during the UPA days. Why an individual, who already pays Income Tax and the many other imposts levied on the productive in this country, should pay an additional burden of a third or more of his total direct tax burden simply for doing a paid service is a mystery, except if we posit that colonial-minded officials dislike citizens who perform services for others. Had there been no service tax, the sector would have continued to grow as exponentially as it did before Chidambaram stepped in, thereby creating tens of millions more jobs and a similar number of Income Tax payers. However, Services, a sector vital to the fulfilment of the generation of a million and more extra jobs a month has lost its momentum after being hit by an irrational tax. And after the recent imprisonment of the CFO of an online travel agency and the likely incarceration of his CEO as well, the number of those courageous enough to invest in creating growth in India will plummet further. In matters of finance, getting back the moneys lost — with interest — is more important than sending people to jail. Had North Block the good sense to design a scheme with lower penalties for money returning from foreign havens, it would not have got back a paltry amount less than a thousandth of the estimated funds parked abroad by Indian nationals since the 1990s.
North Block babus will oppose extra investment in growth creators such as the Railways, although they will look kindly on the recommendations of the 7th Pay Commission and schemes such as NREGA, which keep people poor and dependent on handouts rather than endow them with the skills needed to generate income rather than absorb it, of course even collectively not on the scale of those robber baron favourites of officials and politicians who get their bank loans written off in the thousands of crores each year. And to help fund such expenditures, they may even press for raising imposts such as a long term capital gains tax, ignoring the fact that the “gains” caused by inflation are not, in reality, benefits at all. Of course, the babus will fight equally hard to affix within the budget such freebies as a zero income tax on dividends, whatever the amount disbursed to individuals fortunate enough to get tens and even hundreds of crores of rupees in such a form even as their cooks and gardeners pay taxes on the paltry salaries they earn.
And rather than ensure that public sector enterprises such as Coal India, NTPC or NMDC use the cash reserves accumulated by them to expand product and employment, the colonial mind will gravitate towards taking away such surpluses through forcing them to buy back their own shares from the government. What little appetite has remained within the managements of these public enterprises to ensure a level of efficiency enough to generate surpluses would vanish under such a regressive policy, but officials who know they will soon be moving on to higher charges in other departments or agencies will not care. In the colonial mind, the people do not count. Which is why it is imperative that Prime Minister Narendra Modi step in to ensure that the budget that will get presented on 29 February be of a post-colonial mould, with lower taxes and more incentives for innovation rather than Chidambaram’s growth-deadening focus on raising of revenue to pay for inflated costs and salaries that reversed the direction of growth in India, a malaise that is now visible in full view, and which only the intervention of Narendra Modi can ensure.