Supply their demand

It is only natural that following the successful State visit of French President Jacques Chirac and the hype surrounding the visit of US President George W. Bush, India?s standing in the world should dominate the attention of the country.

It is only natural that following the successful State visit of French President Jacques Chirac and the hype surrounding the visit of US President George W. Bush, India’s standing in the world should dominate the attention of the country. Notwithstanding this, the real test for the UPA government to consolidate itself will come with Budget 2006-07. Before we focus our attention on this, it is necessary to restate that in the midst of the euphoria of important heads of States visiting India, we have to relentlessly ensure that India’s foreign policy strictly adheres to an independent course based on our national interest.

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Having said this, the importance of this year’s Budget rests on the UPA government’s commitment to implement many of the promises made in the common minimum programme (CMP) to improve the welfare of the vast majority of the Indian people. The CMP evolved in the background of the 2004 people’s mandate. While the overriding expression of this mandate related to keeping communal forces away from wielding State power, there was another important element. This relates to the resounding rejection of the campaigns centred around slogans like ‘India Shining’ and ‘feel-good’ factor. The humongous disconnect between these slogans and the real-life conditions of the vast majority of the people resulted in the character of the electoral verdict. The UPA government came into existence as a result of both these factors. It is, therefore, imperative that the pro-people content of the CMP must be implemented in right earnest.

The National Rural Employment Guarantee Scheme (NREGS) has finally come into existence. In the first 15 days itself, a massive 77 lakh men and women registered themselves for work. In areas where agrarian distress has been the most acute, the registrations have been naturally very high. Andhra Pradesh has emerged on top with 27 lakh registrations in its 13 poor districts. Reports suggest that over 40 per cent of the households had already registered themselves in the first 15 days. At one level, this vindicates the justification for such an Act and the consequent scheme. However, it also reflects the gravity of rural distress, which is often underestimated. It also suggests the urgent need to extend the scheme beyond the current 200 selected districts to the whole of rural India, before extending it to the urban poor as well. Needless to add, this implies a handsome allocation in the forthcoming Budget of at least an additional Rs 15,000 crore under this head.

The priority in this year’s Budget must necessarily be the improvement of our agriculture. The grave agrarian distress continues to claim lives through suicides and starvation deaths. Noting this, the CMP had made a commitment to sharply increase investment in agriculture. An important element of this must be to make available much larger institutional credit to farmers, the absence of which has been recognised as the main cause for distress suicides.

Today, 54 per cent of India’s population is below the age of 25 years. This youth is our country’s asset and not a liability as some myopically see. The provision of proper education and skilled training along with adequate health facilities is absolutely essential if this asset has to be developed to shoulder India’s march as an advanced country in the 21st century. In its first Budget, the UPA government had imposed an across-the-board education cess. This, however, falls far short of the CMP commitment to raise expenditure on education to 6 per cent of the GDP. To achieve this, the Centre would have to increase its allocation by over Rs 42,000 crore, i.e., from the current 0.58 per cent of the GDP to 1.7 per cent, while state governments will shoulder the rest. This, however, may not be possible in a single year. Keeping this in mind, at least an additional allocation of Rs 10,000 crore will have to be made.

Currently, the total expenditure on public health, both state and private sector put together, is a dismal 0.9 per cent of our GDP. Clearly, if the health of the people is in such a sorry state, then surely the health of the economy cannot be better for the vast majority of the people. The CMP had promised to spend at least 2 per cent of the GDP on health. Keeping this in mind, a beginning should be made by allocating at least an additional Rs 10,000 crore for this sector.

Leaving aside all other eminently needed requirements, on these four sectors alone, the additional allocations required would be to the tune of Rs 50,000 crore. The natural question that is always posed is: from where does the government raise such resources? What appears to be an over-ambitious objective at first instance is really not so difficult to achieve.

First, the legitimate tax arrears amount to Rs 115,000 crore. Of this, nearly Rs 100,000 crore is income tax arrears. A bulk of this must be urgently recovered. Second, 50 central public sector units have, according to the government’s own statistics, reserves and surpluses of Rs 221,157 crore. Of this, the government can surely tap at least Rs 25,000 crore as dividends. Third, there is a need to restore the capital gains tax that was abolished some years ago. This may have led to a stock market boom but has sharply reduced governmental revenues. It is noteworthy that most investors in the US pay a capital gains tax of 15 per cent while some categories pay 25 to 28 per cent. Restoring capital gains tax of at least 15 per cent will realise handsome revenues for the government.

A major impediment in levying this tax comes from the double taxation treaty agreements that India has had with Mauritius in the past and the recently concluded similar agreement with Singapore. Huge sums of money are being invested in the Indian financial markets through the Mauritius route, which ensures that even if India levies a capital gains tax, the money flowing through such a route need not pay this under the agreement. Though the former NDA government had legitimised, amidst much controversy, this agreement with Mauritius, it merits a serious reconsideration. Double taxation is avoided between two countries when the concerned party has already paid a similar tax in one country. Now, Mauritius does not have a capital gains tax. The question of double taxation, therefore, simply does not arise!

These three measures alone, apart from many other avenues for rationalisation of the tax structure that could yield greater revenues, would generate much more than the investment proposals we discussed above.

Clearly, therefore, resources can be mobilised, and must be mobilised, to sharply increase public investment. This is the surest way for improving people’s welfare and the living conditions of the vast majority of the Indian people. The UPA government cannot remain content with the current 8 per cent plus growth rate or the Sensex having crossed the 10,000 mark. If the UPA government is sincere to its own CMP, it must display the required political will and this year’s Budget must reflect such content. This, in effect, means that the current neo-liberal reform process itself needs to be reformed.

The writer is Rajya Sabha MP and Member, CPI(M) Politburo