May-June 1999

With each budget the media — newspapers, magazines, TV — is flooded with comments, expert and otherwise. They fall basically into two categories. The bulk comprise the new-liberal hacks of the West, who in their ‘criticisms’ or support use the imperialist pushed ‘economic reforms’ as their framework. The majority of views reflected in the numerous economic papers and magazines and also the varied TV commentators come within this first category. The second comprise bourgeois critiques of the Keynesian mould and the revisionists; who basically find answers in going back to a state capitalist system.... or merely reducing the pace of ‘reforms.’ They too find a minor slot in the mass media, and also particularly propagate their ‘alternatives’ through magazines like Frontline, Mainstream, etc.....

Both act to hide the reality of the existing budgetary mechanism. Every budget (and pre-budgetary/post-budgetary exercise) is merely a mechanism on how to rob the masses (poor and middle classes) in order to facilitate the growth of the ruling classes, their business and economic activity, and to strengthen the state apparatus. And in periods of crisis, like the present, it seeks to develop a crisis control mechanism.

The purpose of any such study should be only to understand its impact on the people, so as to mobilise them better against the enemy. Also, to better understand the methods of the rulers, in order to more effectively hit them. Besides, that hundreds of crores of people’s hard earned money find their way into the personal pockets of politicians, top bureaucrats and their thousands of hangers-on, is itself sufficient grounds as to raise the question as to why should the oppressed masses pay these taxes at all !

In fact, in this period of ‘liberalisation’ this loot has increased enormously, with per capita cost of governance going up from Rs. 1302 in 1991 to Rs. 2937 today. In the last three years the government’s expenditure (central and state) has increased at an average rate of Rs. 45,000 per year.

Let us then view this budget (and related policy decisions) from a people’s angle.

The Colossal Loot

First it was the rise in price of rationed foodgrains, fertilisers and LPG gas; then it was the rise in railway freight rates and passenger fares; then it was the massive taxes imposed in the budget; and then the rise in telephone rates and rental charges. A specific characteristic of the BJP money extracting machine, (later adopted by all parties) is that they target not only the poor (from whom there is now little to extract) but also the middle classes. Added to the central taxes, is also the additional burden through state government budgets which follow the central budget.

In the January ’99 round of extra tax burden, which was aimed at the poorer sections who alone use ration foodgrains, the amount extracted was a huge Rs., 4,000 crores. Ration wheat prices were raised by as much as 44% and rice by 29%. Urea prices were raised by about 10% and sugar by 5%. In the Railway budget another Rs. 900 crores has been extracted, Rs. 700 crores of which comes from a rise in freight rates which effects the poorest as it contributes to the rise in prices of essentials. Then, in the budget a massive burden of Rs. 12,000 crores (according to the CII chief) has been pushed onto the people. Of this, a Rs. 1 increase in diesel rates itself will give Rs. 5,000 crores..... this too will lead to a rise in freight charges and so hit the poorest. What is more in mid-April it further hiked the price of diesel by over 35 paise on the pretext that international prices have gone up. This will give the government an additional Rs. 2000 crores. A 10% surcharge on income tax will effect the middle classes. The increase in telephone rates will effect 1 crore of the urban middle class subscribers. The total loot here itself amounts to roughly Rs. 20, 000 crores.

To this must be added the extra burden of the state government budgets. The already deficit and bankrupt conditions of the state exchequers were worsened by the fact that all new central taxes were in the form of surcharges, and therefore not shared with the states (adding to fiscal centralisation). Besides, the centre is arm-twisting the RBI to prevent liberal lending to the states cutting overdraft facilities. All this has resulted in state governments increasing the burden on the people in order to meet its rising expenditure. If one considers all the state budgets, at a conservative estimate, the increase in tax burden would be at least Rs. 10,000 crores.

Therefore in just this one round of taxes linked to the budgets a total of Rs. 30,000 crores approximately has been extracted from the people — That is, roughly Rs. 1,500 from each family in the country. Why should the people pay this, as they derive no benefit from the governments’s increased revenues. The bulk of this amount goes as : sops to big business; increase in profligate spending of the government machinery and greater corruption; and sharpening the state machinery to more ruthlessly suppress the rising discontent of the people.

But inspite of such vast sums being continuously extracted from the people in these eight years of ‘liberalisation’ and inspite of massive sops to business the economy has never been in a worse mess. The present budget will also not pull it out of its present crisis. Let us see the state of the economy and the government’s fiscal condition.

The Economic Crisis

The government’s own Economic survey released in February, ’99, says that : the fiscal and revenue deficits are unsustainable, that industrial recession is unabated, that investment rates are down, that agricultural performance has become a major source of concern, that the external trade situation is worsening and that the Balance of Payments looks increasingly fragile.

The downturn in the economy since mid-1996, has infact, become more acute last year. In the first nine months industrial growth was a mere 3.2%, the worst ever, in this period of liberalisation. This fell even further in the last quarter (from January to March ’99) to a mere 2.1%. Growth in mining and quarrying was just 0.1% while coal output was minus 0.9%, crude oil production minus 3.6% and steel production minus 2.6%. The growth in GDP was put at 5.8% (1998-99), basically because of a high growth rate in agriculture of 5.3%. A normal crop has been classified as a big growth mainly due to a disastrous crop in the previous years. But here too, the major growth was in wheat and commercial crops, with a decline in rice and coarse grains.

Exports showed an actual decline of 2.9%, and the trade deficit in 1998-99 reached a gigantic figure of $16 billion. This inspite of the fact that roughly $2 billion was saved by the drop in international prices of crude oil. In addition, the FIIs have temporarily pulled out their money from the country while foreign direct investments (FDI) virtually halved to $1.6 billion. NRI deposits have been stagnant at about $1.4 billion (compared to $3.4 bn in 1996-97). The government temporarily saved itself from a Balance of Payments Crisis (BOP) by the high interest $4 bn borrowing from NRIs (the Resurgent India Bonds). In spite of this huge borrowing (on which hefty interest payment will now commence) the BOP at end December ’98 showed a surplus of just $1 bn. This shows the precarious state of the economy.

The budgetary scenario of 1998-99 will give a picture of the government’s pathetic fiscal condition. The Budget basically comprises the government’s receipts and its expenditure. Receipts are basically of two types: earnings through tax and non-tax sources (revenue receipts) and the capital receipts, which comprise basically market borrowings and sale of PSUs. Expenditure is also basically of two types : non-plan expenditure, which comprises basically day-to-day expenditures; and plan expenditure which is geared to developmental activity.

In 1998-99, we find the government virtually bankrupt, surviving on borrowings, which increased astronomically in the first year of BJP rule — i. e. by 17% to a figure of Rs. 1,03,737 crores. Even this, not being sufficient, it further sold Rs. 9000 crores value of PSUs (Public Sector Units) to meet its expenditure. In fact in 1988-89 such capital receipts comprised 44% of the government’s total earnings. What is even worse, roughly half of these capital receipts went to meet the day-to-day expenditure of the government. To meet the total non-plan expenditure of Rs. 2,13,541 crores the government raised only Rs. 1,57,665 crores in actual earnings (revenue receipts through tax and non-tax sources). In other words roughly Rs. 56,000 crores was met through borrowings.

The borrowings have risen so dramatically that now the government’s single largest expenditure is paying interest charges. The public debt (i.e. government’s borrowings from the public) has increased four-fold in these eight years of liberalisation, from Rs. 2,06,711 crores in 1991 to Rs. 8,75,623 crores today. Just interest charges on this huge debt last year was Rs. 77,000 crores. In fact in 1998-99, of the total expenditure of Rs. 2,81, 912 crores — besides interest, defence/police took about Rs. 48,000 crores, salaries and its own luxurious spending another Rs. 50,000 crores while subsidies were Rs. 22,000 crores. Besides subsidies, (which the government has cut this year) such wasteful expenditure leave little for development purposes. In fact, budgeted plan expenditure was a mere Rs. 68,000 crores. Ofcourse of the plan expenditure, according to the government’s own estimate barely 20% reach the people, the bulk (80%) is swallowed up by officials, politicians and the thousands of intermediaries.

And inspite of such conditions of bankruptcy, the government, in its current budget, has granted enormous benefits to itself, to favouring the arms lobby and strengthening state apparatus, and to big-business and finance. This, despite the fact that its tax collections in 1998-99 was Rs. 16,000 crores less than its own budget estimates. In order to continue its wasteful expenditure, in the 1999-2000 budget it has cut development expenditure, plans an even bigger sale of PSU assets, has resorted to a massive increase in taxation on the people and has indulged in even larger borrowings.

Government’s Profligacy

On March 10 the Lok Sabha unanimously passed a Bill to enhance pensions to ex-MPs ( who have served two terms) to Rs. 2,500 from Rs. 1,500. In addition they will be allowed free travel (with a companion) to any part of the country in air-conditioned 2-tier class trains. Also MPs and their spouses have been granted unlimited travel to any place in India, by executive class air-conditioned trains. In addition MPs will be entitled to 32 single air travels per year. Also, in order to promote the RSS/VHP fanatics it plans to exempt religious activity from all tax.

Bowing to the demands of the arms lobby and also building up the state machinery for increased repression the defence budget has been hiked by 11% to Rs. 45,694 crores. This increase of Rs. 4,500 crores has come with a promise to give another Rs. 2,000 crores during the year to meet the huge purchases planned. Of this, arms purchases and defence research expenditures have been hiked by 20%.

And finally when we turn to the gifts to big-business, Yeshwant Sinha openly bragged that he has given them Rs. 8000 crores — through withdrawal of the special customs duty of Rs. 4000 crores; restoration of full Modvat credit to industry of Rs. 2,000 crores; and another Rs. 2,000 crores to the mutual funds by removing tax on dividend income. But what Sinha admitted is the mere tip of the iceberg. His concessions, outright gifts and advantages to big business, TNCs have been enormous .... some are listed below:

And of these gifts granted, some, like Reliance, ITC, etc, have gained more than others. Mohan Guruswamy’s revelations show a strong nexus between top BJP ministers (including the PM’s nephew) and certain industrial houses. M. Guruswamy, earlier advisor to the Finance minister, one of the drafters of the BJP manifesto, a one-time Advani stooge, and himself a close associate of business lobbies.....would know the inner-workings of the ministries.

So, the vast resources extracted from the people will be frittered away in the above concessions to big business, in extra defence expenditure and in the massive spending of the government on itself.

Why then should People Pay Taxes ?

As the government reduces the subsidies, extracts more and more from the masses through taxation, inflation etc. and utilises these vast sums to merely promote the big-business /TNC-politician-state machinery combine, why then should the people pay taxes at all ? While big business and the elite avoid thousands of crores tax payments through the Black economy, the poor and middle classes are primarily taxed indirectly — through taxation on commodities. While allowing the very rich to go free with excessively low taxes, the last two budgets have sought to extract more also from the middle classes (the one of six scheme) by raising the number of income tax payers and introducing stringent regulations.

No amount of tinkering with the existing economic structures will induce growth. Such budgetary policies only enhance the poverty of the masses. As long as the people’s purchasing power is restricted by poverty the very basis for growth does not exist. It is only by expanding the home market for goods that the growth process can begin. This cannot be done by ‘reforms’, it can only be achieved by smashing the existing semi-feudal, semi-colonial system, distributing land to the tiller, developing the rural economy and introducing industry to the countryside. It is only through this that people’s purchasing power can develop and the engine of growth started.

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