Sunday Pioneer, March 4, 2012
Thursday, March 08, 2012
To pamper NAC, tax the people
By Swapan Dasgupta
There is a curious ritual that is faithfully enacted each Budget day. The Finance Minister makes a rambling speech, concluding with a verse from the Greats, which leaves most MPs (and, for that matter, TV audiences) completely weary. However, a ripple of excitement is felt in the Treasury benches the moment the FM announces that the allotment for a welfare scheme, invariably named after one or the other member of the Nehru-Gandhi family, has been increased by a few hundred crores. The message is received by an enthusiastic thumping of desks and much happiness.
There is little doubt that later this month, when Pranab Mukherjee presents his Budget, the scene is certain to be replayed. The worry beads won’t be out when it is realised that the GDP figures for the past four quarters show a sharp and worrying dip, that manufacturing is growing at less than one per cent and that the fiscal deficit, projected by last year’s Budget to be some 4.6 per cent of the GDP, is set to touch six per cent. But come the announcement of some grandiose mega-scheme, the MPs (cutting across party lines) will be joyous.
It is politically incorrect to contest the unstated consensus that each Budget should see more and more money being pumped into welfare schemes. Since Sonia Gandhi institutionalised the participation of unelected representatives of NGOs into the decision-making process, the belief that India’s first priority is to craft a socialist-style welfare state has taken deep roots. It has become the new common sense to insist that the burgeoning revenues from economic activity must be channelled into a new regime of doles and subsidies. At every opportunity, the brigade of articulate, middle-class do-gooders guilt trip successive FMs into apportioning more and more money into more and more schemes designed by the poverty brokers.
This year, when India is witnessing a discernible economic slowdown, economic activity is being hit by exorbitant interest rates caused by an inflation that itself was the result of the government’s fiscal profligacy, and inflation has made a dent in the middle class standards of living, there is a new demand that is echoing through the corridors of power: tax more. The tax rates in India, it is being argued, is too low and is needlessly generous to the fat cats who must be squeezed till the pips squeak. In the 1950s, the socialists in the Congress and their Communist friends used to rail against the monopolists; today, they declaim at the obscenity of Indians who enrich themselves in India but make fresh investments overseas.
As is to be expected, the new demand reflects the emerging anti-business attitudes of the liberal elites on both sides of the Atlantic. President Barak Obama has made class conflict the basis of his re-election plank against Republicans who seem too preoccupied with faith and morality. In Britain, the coalition government is having a tough time contesting the emerging wisdom high earners must be taxed over and above the 50 per cent rate of income tax. In France, the socialist challenger to President Sarkozy wants a 75 per cent tax on millionaires.
This growing anti-business and anti-entrepreneurial mood isn’t visible in China, Singapore, Indonesia and other Asian countries that have witnessed rapid growth. However, since the West dictates intellectual fashions of the Indian elite and supplies a translated version of the ‘eat the rich’ dogma, the assumptions of defensive societies have become the mantra in some circles of India. It is so reminiscent of the ease with which the systematic suppression of the private sector under Jawaharlal Nehru and Indira Gandhi was backed by volumes of economists’ wisdom.
This time too there is the backing of the same tribe of quack doctors for raising all taxes. The logic is simple: if the economy as a whole is on a downturn, squeeze those who have nurtured growth since 1991.
This self-destructive bloody-mindedness that draws sustenance from a culture of envy is the inevitable result of not wanting to address the root of the problem: the quality of the ever-growing government expenditure. When, some five years ago, I had described the then fledgling Employment Guarantee Scheme as the Corruption Guarantee Scheme, I was dubbed a despicable, right-wing cretin. Today, as was evident during the UP election, political parties now compete with each other to allege the embezzlement of state funds.
As The Pioneer reported last Thursday, the Rs 1,00,452 crore spent on the MNREG programme in the past six years has yielded diminishing returns. The days of work provided for households, far from reaching the stipulated 100 days, actually fell from 54 in 2009-10 to 47 in 2010-11 and 32 in the nine months of 2011. Even economists who are naturally inclined to endorse mega schemes have begun to issue warning signals. In an article to Hindustan Times, Abhijit Banerjee, Pranab Bardhan and others wrote: “how these progressive policies have actually worked in practice has left this claim (of being a pro-poor government) in tatters.”
Sunday Pioneer, March 4, 2012