A criminal breach of trust
This column is an examination of the neglected or forgotten issues surrounding Indian budgets. It is not entirely specific to this budget. First, the 2018-19 budget has ensured that India has arrived on the global scene. It was confirmed on 2 February. During Asian trading hours, the Indian Sensex fell 2.3% or so. Later, in US trading hours, the Dow Jones Industrial Average dropped 2.54%. So, Indian stocks have been the trendsetter for America!
Second, the Indian budget scores reasonably well on transparency. Having spent the last three days combing through its documents, I can vouch for it. The Open Budget Index for 2017 gives India a decent score of 48, with China scoring an abysmal 13 and Pakistan, 44. But Indonesia (64) and Philippines (67) in Asia score far better than India. I suggest that all receipts or expenditure variations above a chosen percentage threshold (10% or 20%) and those above an absolute value of Rs3,000 crore should be explained in a separate document with cross-reference to the parent documents and pages, etc. More can and should be done. Some specific instances follow.
The revenue deficit ratio overshoot of 0.7 percentage point in the revised estimate (2.6%) compared to the budget estimate (1.9%) means that one has to account for Rs1.18 trillion in revenue shortfall and/or expenditure overshoot. Tax revenue is estimated lower by about Rs19,000 crore. Most of it is due to the shortfall in indirect taxes, which more than offsets the better corporate tax collection estimated. This is also despite the government “saving” Rs6,300 crore by not transferring cess collected for addressing calamities to the Disaster Relief Fund. More on such fudges later. With respect to non-tax receipts, the way in which the interest payments made by Indian Railways to the government is shown is not transparent. The Railways have incurred almost twice the budgeted interest expenditure. This was despite the Railways spending less than the budgeted capital expenditure. It should not be shown on a net basis. Interest paid by the Railways should be added to the overall interest payments. It may not make for pleasant viewing but that is the right way to show it.
A report of the Comptroller and Auditor General (CAG) of India (No.44 of 2017) pointed out that the government of India owed more than Rs2 trillion in subsidies to the Food Corporation of India (FCI). That is slightly less than 1.25% of gross domestic product (GDP). The CAG estimate appears to be wrong by a wide margin. Upon cross-verification, I found that the cumulative unpaid subsidies at the end of 2016-17 could be placed at Rs53,880 crore. When the National Democratic Alliance (NDA) came to office, it was around Rs38,000 crore. When United Progressive Alliance-2 (UPA-2) was voted into office, it was only Rs4,670 crore. Unpaid subsidies rose 52% CAGR (compound annual growth rate) between March 2009 and March 2014—about 8.2 times.
This illustrates the scorched earth that the NDA inherited. India continues to pay a heavy price for the UPA’s 10 years in office. It is a classic example of the asymmetric impact of government policies on the economy. It is far easier for governments to hurt than to help the economy. The latter requires political will that transcends short-term considerations. This government has not displayed the will or the capacity to undo the UPA era. In some areas, it has even compounded matters.
While the subsidy arrears to the FCI appear massively overstated, other findings of CAG (Report No.44 for the year 2016-17, published last December) are more damning. Of the Rs7,900 crore that the government has collected since 1996 as research and development (R&D) cess, only Rs600 crore has been utilized. Even more damning is the education cess. In the 10 years up to March 2017, Rs83,500 crore has been collected as secondary and higher education cess. Not a single rupee had been transferred to an earmarked fund in the public account as no scheme was identified or designated fund opened in the public accounts of India. This needs to sink in.
The government raises the tax incidence through such levies but does not bother to take the minimum steps to utilize them. The cess merges into the general tax pool. It is a criminal breach of taxpayers’ trust. It robs the government of the moral authority to demand compliance, resulting in distrust and mistrust. Then, the government engages in appeasement of vocal constituencies to hide its gross negligence. The tax base grows too slowly. It is a downward spiral.
In the end, all the cloak and mirrors that governments over time have engaged in, and continue to do, can be traced to the total lack of accountability for outcomes. Over the years, if governments had provided essential services—safety, security, health and education—well, then the economy would have done better and the government would have benefited too in the form of higher tax take, obviating the need to steal from the taxpayer.
In his “State of the Union” address, the American president requested the US congress to empower cabinet members with the authority to reward good workers and remove federal employees who undermined public trust. Will an Indian prime minister dare to make a similar request to Parliament? Every member of Parliament must turn the gaze inward and ask whether the state of affairs mentioned above is sustainable for the nation, and whether they are leading it to doomsday. India is losing time and all of us, engaged in an elaborate charade of analysing numbers, are wasting our time.
V. Anantha Nageswaran is an independent consultant based in Singapore. He blogs regularly at Thegoldstandardsite.wordpress.com. Read Anantha’s Mint columns at www.livemint.com/baretalk
Comments are welcome at email@example.com