Invest in people first
The UPA’s call for austerity is a gigantic fraud. The government should recover the money that is lost to tax concessions and use it for building infrastructure. Sitaram Yechury writes.columns Updated: May 29, 2012 21:36 IST
The call for austerity has finally arrived in India; it comes after nine governments in Europe were defeated at the hustings. Summing up the discussions on the budget and moving the Finance Bill for adoption in Parliament, finance minister Pranab Mukherjee gave a stirring call for austerity since India’s facing huge economic challenges. Hence the recipe: the hungry should starve while obnoxious conspicuous consumption continues to rise.
The recent public spat between the deputy chairman of the Planning Commission and journalist P Sainath sharply brought out the true face of this ‘austerity of the affluent’. While the Commission continues to obdurately maintain its inhuman definition of poverty (ie, spending less than Rs 29 a day in urban India or R23 in rural India), the gap between the rich and the poor continues to widen. The developed countries, especially those in the European Union (EU), have imposed severe ‘austerity’ measures on the people because they have to pay off the heavy debt that was incurred thanks to the humongous bailout packages to those very financial corporates, who, in the first place, triggered the current recession.
Corporate insolvencies have been converted into sovereign insolvencies. Austerity drives were foisted even as bankers received billions as bonuses due to the State-funded bailout packages. Naturally, the people protested and today, the current crisis is threatening the disintegration of the EU.
A similar scenario haunts India. The country is being told that its high fiscal deficit is scaring away foreign investors and so it needs to be reduced quickly. Consider this: India’s fiscal deficit stands at Rs 5,21,980 crore or 5.9% of the GDP. The budget documents show that the total tax revenue foregone amounts to Rs 5,29,432 crore, ie, nearly Rs 8,000 crore more.
These tax concessions, like the bailout packages, are justified on the grounds of providing stimulus for economic growth. The reduction of the fiscal deficit, thus, has to be borne by the poor through the austerity measures. “Tighten the belt,” the prime minister has said. This process has begun with the massive hike in petrol prices. There seems to be little concern over the fact that this could increase the inflationary pressure.
The oil companies, we are told, are reeling under huge under recovery of Rs 1,71,140 crore in 2011-12. So what is these under recovery? It is the difference between the retail price of petroleum products and its import price. It is notional in nature because the import prices include duties, insurance, freight and other levies. These are not paid by the Indian companies since what we import is crude oil, which is then processed to produce petrol, diesel, kerosene etc. Further, the under recovery figures are not audited by the statutory auditors. Instead of linking the price of the petroleum product to the cost of imported crude plus the domestic refining cost, the international price is taken as a benchmark. This is the gigantic fraud. This fraud was reflected in an answer to a question in the Lok Sabha. The petroleum minister gave details of profit after the paying tax of public sector oil companies. In 2010-11, the Oil and Natural Gas Corporation of India made a profit of Rs 18,924 crore; the Indian Oil Corporation Rs 7,445 crore, the Bharat Petroleum Corporation Rs 1,547 crore and the Hindustan Petroleum Corporation Limited Rs 1,539 crore. Where is the loss the government is talking about? Let us now take the question of subsidies. A Parliamentary Standing Committee report shows that the Centre earned Rs 1,36,497 crore in 2010-11 from the taxes and duties it levies on petroleum products. The state governments earned Rs 88,997 crore, the total: Rs 2,25,494 crore. The total subsidies paid to the oil companies, including the issuance of oil bonds, amounted to Rs 43,926 crore. So even after the subsidies, the Centre is still left with Rs 92,571 crore. Who is subsidising whom, Mr Prime Minister? And, who needs to tighten the belt?
As against the international price of Rs 23.17 per litre of petrol in 2009-10, we, in India, paid Rs 47.93. Likewise, against Rs 22.7 for diesel, we paid Rs 38.1, against Rs 177.14 for a gas cylinder, we paid Rs 310.35. It is only because of the taxes on petroleum products that the people pay a high price and, therefore, subsidise the government. That is why, in 2008 for instance, the price of a litre of petrol in the US was Rs 17.57, while in India it was Rs 50.65. This is the gigantic fraud that is being committed on our people by calling for austerity. The call for “tightening the belt”, thus, means greater burden, greater agony and misery for the people.
A sustainable growth trajectory can be achieved if the money given as tax concessions are collected and used partly for reducing the fiscal deficit and partly for financing public investments. Such investments will help us to build infrastructure while generating additional employment. The rise in aggregate domestic demand, as people will spend their wages, will set in motion a healthy growth cycle.
Invest in the people, not just the rich. This UPA, surviving in the name of the aam admi, cannot betray the people’s mandate by appeasing international finance capital and India Inc. at the expense of the country.
Sitaram Yechury is CPI(M) Politburo member and Rajya Sabha MP
The views expressed by the author are personal