Budget 2012: Subsidies for the rich twice that for the poor
Prasenjit Bose, a Ph D in Economics from Jawaharlal Nehru University, New Delhi, is Convenor of the Research Unit, Communist Party of India (Marxist).
The Economic Survey presented a day earlier (on March 15th) portrayed a grim picture of the economy. Slowdown in growth, particularly in industry and agriculture; persisting inflation and a volatile external environment reflected in a widening current account deficit and fluctuating rupee. Coming in this backdrop, Budget 2012 is complacent and regressive.
Subsidy on fuel has been cut by almost Rs 25,000 crore and fertiliser subsidy by Rs 6,000 crore over what was spent in the last fiscal year (revised estimates). This would inevitably lead to steep hikes in fuel and fertiliser prices in the days to come.
Pilot projects announced in the budget regarding direct cash transfers to fertiliser retailers, consumers of LPG and kerosene and for the PDS are a smokescreen for the impending price hikes, which will fuel another round of inflationary spiral.
The finance minister’s concerns about restraining fuel and fertiliser subsidies to less than 2 per cent of GDP appear hypocritical in the backdrop of over Rs 5.3 lakh crore tax giveaways in 2011-12, according to the statement of revenue foregone. Out of this, over Rs 50,000 crore were tax concessions on corporate profits. These subsidies to the rich have now crossed 5 per cent of GDP.
There has been a whopping shortfall of over Rs 30,000 crore in gross tax revenue in 2011-12 vis-à-vis the budget estimates, mainly on account of the slack in corporate tax collections. Rather than making up for resource mobilisation through direct taxes on big corporates and the richer sections, Budget 2012 has increased the rates of services tax and general excise duties by 2 per cent, whose burden inevitably will be passed on to the people.
While corporate taxes as a proportion to GDP are projected to come down, indirect taxes to GDP ratio will grow. Moreover, direct taxes have fallen as a proportion of total taxes from 38 per cent in 2010-11 to 35 per cent in 2012-13 (budget estimates). These reflect the regressive character of the government’s taxation regime.
There have been no concrete steps announced in the budget to recover black money within the country or retrieve the illicit funds stashed in offshore tax havens. Neither have taxes on the wealthy persons and speculators been enhanced. Rather, the STT (security transaction tax) rate has been slashed by 25 per cent and a new tax exemption announced for stock market investors under “Rajiv Gandhi equity savings scheme”.
Such incentives for investments in the stock market are being doled out at a time when the interest rate on Employees Provident Fund has been drastically slashed from 9.5 per cent to 8.25 per cent.
A divestment target of Rs 30,000 crore has also been set for the next year, in continuation of the discredited policy of selling revenue-earning assets in order to meet current expenditures. Foreign institutional investors and foreign investors are also being allowed greater access to speculate in the Indian stock and bond markets, oblivious of the risks associated with such hot money inflows.
At a time countries like Brazil, South Korea, Indonesia and others are going for taxes on capital inflows or outflows in order to discourage the surge of fluid finance into emerging economies (even the IMF hails capital account regulations nowadays), the Indian government is moving in an opposite direction.
Appeasing the richer sections and the stock market players while burdening the poor has become a hallmark of the UPA-II government.
Failure in resource mobilisation has severely affected the plan outlays of the government. Out of the Rs 3.35 lakh crore gross budgetary support for the central plan in 2011-12 (budget estimate), only Rs 3.21 lakh crore was spent, implying a shortfall of Rs 14,000 crore in plan expenditure. This has led to mid-year cuts in the funds allocated to crucial ministries from what was budgeted last year.
The rural development ministry, for instance, was finally allocated Rs 7,000 crore less than what was allocated to it last year. As a result, only Rs 31,000 crore was spent on MGNREGA in 2011-12, against Rs 40,000 crore allotted in last year’s budget. Several welfare schemes spread across crucial ministries have met the same fate. In this context, the Plan outlays made in Budget 2012-13 are also suspect vis-à-vis their actualisation over the financial year.
Budget 2012 will not be able to address the problems being faced by the people and is likely to fail to put the economy back on track.