Incongruous as it may sound, in these tumultuous times in Libya, wisdom contained in an ancient Libyan fable is very appropriate for our discussion on the economic policy trajectory being followed by the present UPA 2 government as reflected in the latest budget. The fable informs us that an eagle, when struck by a dart said upon seeing the fashion of the shaft: “Not by others’ hands but by our own feathers/We are now smitten.”
Notwithstanding the rhetoric of the aam aadmi and inclusive growth, the current budget, nestled in the overall economic policy framework, will only further widen the divide between India and Bharat. Over the past two years, the number of US dollar billionaires doubled to 52, holding a combined asset value that equals to a fourth of our GDP. This year, we are informed that the number has risen to 69 (may their tribe increase!). Yet, we are far away from either allocating 3% of our GDP to public health or 6% of our GDP to education. This economic policy direction not only denies the realisation of our potential as a country and people but also, in the process, weakens our economic fundamentals.
There has been a singular failure in the budget: of not addressing the basic issues, like price rise and corruption, that confront the aam aadmi. Far from providing any relief, the budgetary proposals will increase the burden on the people. Major subsidies on fuel, fertiliser and food have been cut by over R20,000 crore compared to the 2010-11 Revised Estimates (RE). The budgetary support for the central plan has increased by only 12% when the nominal GDP has grown by 14%. This squeeze in real expenditures is reflected in decreased allocations for agriculture and rural development compared to last year’s RE. The total non-plan expenditure is also lower than the RE with major reduction in economic services, which includes agriculture, industry, power, transport etc (from R32,216 to R25,391 crore) and social services, which includes education, health etc (from R35,085 to R20,862 crore).
The hype over India’s ‘growth story’ masks not only the growing economic inequalities but also the weakening of our economic fundamentals. This column (Health of the nation, February 22) had pointed out the massive tax concessions of R414,099 crore given in 2008-09 and R502,299 crore in 2009-10. In 2010-11, these concessions have risen to R511,630 crore. In this, the tax concessions given to the corporate and high-end income tax-payers was R104,471 crore in 2008-09 and R120,483 crore in 2009-10. In 2010-11, this rose to R138,921 crore. A reduction in subsidies for the poor and an increase in concessions for the rich — indeed, a government for the aam aadmi!
It is an illusion to presume that these concessions to the rich would have generated greater domestic demand in the economy and propelled growth. The Economic Survey informs us that the growth rate of private final consumption expenditure fell from 8.6% in 2005-06 to 7.3% in 2010-11. It will be yet another illusion to presume that these concessions have gone into increased investments in the economy. Any economist will tell that the health of the economic fundamentals depends crucially upon the rate of growth in gross fixed capital formation. It fell from 16.2% in 2005-06 to 8.4% in 2010-11. The overall investment growth rate fell from 17% in 2005-06 to minus 3.9 in 2008-09 and rose to 12.2% in 2009-10. Worse is the fact that the growth rate of investment in agriculture fell from 13.9% to 3.4%.
So where have all these concessions gone? Partly, they have been laundered in tax havens abroad. Partly, they have found their way into speculation including forward/futures trading. Partly, they have gone towards the accumulation of valuables and obnoxious ‘conspicuous consumption’. The Economic Survey informs us that the growth rate of valuables has risen from minus 1.4% in 2005-06 to a whopping 54.2% in 2009-10 and further to 19.5% in 2010-11.
To propitiate international finance capital and enlarge the avenues to further siphon off huge amounts of our resources, the budget announced seven new legislations to carry forward financial liberalisation. It is precisely because UPA 1 was prevented from undertaking such measures by the Left that India withstood the devastating impact of the global recession. With the now-declared desire to further appease international finance capital, India is being rendered dangerously vulnerable to international speculative shocks. Further, with India’s current account deficit widening, such greater inflows of speculative finance do not augur well.
During the last three years, corporate and personal income tax concessions according to the budgetary Statement of Revenue Foregone amounted to a whopping R361,415 crore. If this legitimate revenue were instead collected and utilised for public investments, we would have been able to build our much-needed infrastructure and generate significant employment. This, in turn, would have substantially enlarged domestic demand laying the basis for a healthy-sustainable growth trajectory.
Such a trajectory would have substantially increased our investment in our youth. Given our demographic advantage today, if our youth is provided with proper health, education and employment, it will not only build a better and equitable India but will also turn India into a true global leader. This is the potential that we have. This is the potential that we are being denied from realising. There is no one else to blame but ourselves.
Rather than bemoaning like the eagle in the Libyan fable, it is time to stop being smitten and, instead, bring about a radical shift in our policy trajectory.
(Sitaram Yechury is CPI(M) Politburo member and Rajya Sabha MP)
*The views expressed by the author are personal