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Cut Not Subsidies But Corruption

The Finance Minister presents his budget 2013-14 in the Lok Sabha on 28th February 2013. TV channels are abuzz with informed debates and discussions, intelligent guesses and political gossip as usual about what might be brought out of the portfolio tomorrow. There are usual entries about revenue and expenditure, deficit, GDP(Gross Domestic Product), GDC(Gross Domestic Consumption), imports and exports, global economic scenario and the governments innovations and initiatives. All an exercise in futility- a fictional account of people’s miseries, somewhat like religions that offer remedies in the name of God and a better life in the next world.

I ask: has deficit reduced in the past years, since every finance minister after 1947 has promised to achieve it? Is it difficult to achieve zero deficit? Yes, if there is a political will. The State Government of Bihar has presented a revenue surplus budget this year. Critics are justified in doubting any such claims, but it shows that efforts can certainly be made towards achieving that goal. The Finance Minister is also a politician, first & foremost, and thus should display a natural proclivity towards populism by presenting a populist budget. What constrains the FM from doing so? Advice- advice from his team of economists and financial professionals. The advice is so overwhelming that any finance minister would dabble in financial affairs of the union of India with utmost caution. So even when intuition tells him to do something honest to reduce the misery of the average citizen, he ends up heaping more miseries on him. He covers up his economic atrocities on the poor by resorting to poetry, which causes emotional atyachaar (excess) on the poor against the cold logic of his economic arguments in favour of enhanced taxes or reduced subsidies. Were it different, the deficit in India would have disappeared in these 6 decades. So the only conclusion one can draw is that deficit is going nowhere even if the FM were to double the taxes and abolish all forms of subsidies. Why does it look like that?

Primarily for corruption. An economy might,perhaps, tolerate erosion of 10% of its revenue without risking great meltdowns. But if the same reverses to 90% erosion and mere 10% realisation, sickness of the kind India is currently witnessing becomes common. What better proof of erosion of such huge revenues than the talk of  “black money” stashed away in tax havens or Swiss banks and the government’s unwillingness to seize it even after getting details as from Germany? Add to it the voluntary disclosure schemes(VDS) to net untaxed earnings. Income tax raids on tax evaders are common, but selective. A uniform approach to raid the tax evaders would yield surprising results. But only the political orphans(un-patronized) are found in possession of millions of rupees, the well connected keep only empty chests! If all such money is brought overground, India can do with zero deficit budgets for decades.

Same is true about bad expenditure, bogus expenditure and even non-existent expenditure shown in the books only. It is so common that the Commonwealth Games made it public when items costing 20 rupees were shown as priced 800 rupees, millions of rupees devoured and the government is half-heartedly trying to catch the culprits. The defence purchases are the best example of emotional blackmail of the common man, who is induced to close his eyes and ears in a reverie of patriotism. But can one go on swallowing scams of the kind of Bofors, HDW, Augusta Westland helicopter deal or several others and allow the Finance Minister to liberally provide for bad expenditure in defence purchases? Should the FM increase taxes for providing money to the forces whose budget is hijacked by such manufacturers or suppliers? These are only illustrations. Such cruelty to the government exchequer is normal in almost every social sector or infrastructure scheme of the Union of India. This revelation demolishes the myth of deficit. Every rupee saved from such loot is a rupee accruing to the revenue account of the government.An honest stock taking of the inventories of the government will reveal billions of rupees worth machinery, equipment and accessories lying in godowns unopened for decades and deliberately allowed to rot. The videos of rotting food grains lying in the open in rain soaked conditions are no secrets. These are no exceptions but fit into well run operations designed to loot the assets of the nation. Is the FM justified in increasing taxes to sustain the operations of the corrupt? The Finance Ministry and the Planning Commission, on the strength of reports of experts advocate cut in subsidies. Who is being subsidized? The citizen or the corrupt elements indulging in escaping with more than 90% of the money? Corruption is so rampant in India that even the highest in the land cannot successfully carry on his daily transactions without paying bribes overtly or covertly. Higher taxes are,thus, not at all justified. Much less so in the name of reduction in deficit and growth of the economy. Let it be noted that the deficit will remain the same even if the prices of petrol, diesel, kerosene, gas, fertilizers, food grains,education, health, power, water etc are doubled, because corruption will get away with the larger share of the growth in revenues, bleeding the economy to suffer poor growth rate. Politicians can resort to rhetoric, but they can never check, control or eradicate corruption.Democracy and corruption appear to be congenital twins! The world’s oldest and the latest democracies have recorded scams of historic proportion, leading to the late Indira Gandhi saying her famous words that corruption is a global phenomenon.

What adds sores to the injury are the imported economic views of the Indian leadership. The current taxation system is foreign to India. It was devised and implemented by the colonial powers, whose sole motto was to collect revenue, even if the masses went hungry. It is an instrument of revenue management in countries with a different family structure than that of India. The uniform rates of individual tax is tortuous in the Indian conditions. One size simply doesn’t fit all. Compare the plight of a joint family with that of a nuclear family. A nuclear family is economically well off, even rich, with not more than 4 mouths to feed. As against it, the Indian Joint Family structure is a minimum of 8 to 10 mouths which includes the bread earner, his wife, 2 or 3 children, aged parents, brother and father, who are all dependent on one person financially from food to education to health care. How can the personal income tax slabs be the same? Treating the two differently will prove cost effective to the government as compared to the expenditure on social security if it were to provide for the financially dependent members of the Joint family. Were the Finance Minister to think Indian, he will certainly reduce the misery of the common man or the aam aadmi, for whom the government claims to be always working. It is the same aam aadmi who is victimised through direct & indirect taxes and on top of it by corruption. Subsidies are supposedly given to the poor (the reality though is different) and hence proposed to be cut. But a healthier approach would be to first cut corruption. If the FM succeeds in doing that there may be no need for cutting down subsidies.India has no social security system in practice. Announcing superficial sops during elections works to the benefit of the ruling establishment  only because the citizen is financially so weak that he cannot refuse whatever comes his way. Those pushing for abolition of subsidy tend to simply ignore losses of billions rupees of bank money in bad debts or advances, euphemistically called NPAs(Non Performing Assets) or PPP(Public Private Partnership) like the Airport metro in Delhi or the Enron scam or privatization of power generation and distribution in Delhi and elsewhere. These and similar other cases of swindling of huge public funds are declared as growth engines of the economy while subsidy on fertilizers pinches these experts and economists. Sound economic ethics demands that the government pays an assured monthly amount to the farmer for continuing to remain engaged in agriculture and ensuring food security of the nation. Unfortunately political expediency makes it to announce such monthly payments to religious functionaries only but the thought has never even entered its mind to do the same for the farmer and other segments of the society engaged in either production of essential goods or services to the masses, on whose labour it boasts of the big Indian economy or big market but does nothing to strengthen them. On the contrary, it is embarking on a fatal course of  disengaging   them by allowing foreign direct investment in retail trade, opening up import of cheap products or services, which will cause economic disruption of such an order that it will add to the net numbers of the unemployed, unemployable and hungry.

Only a budget for the Indians, by the Indians and of the Indians can lead to zero deficit and sustained higher growth rate. We might not be technologically number one but our enterprising hardworking sincere characterstics make us vastly different from others and guarantee such progress.

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