Volume 1, No. 1, March 2000

Budget (2000-2001) :

A War Budget

— Arvind

This budget amounts to a declaration of war. A war directed not only at the neighbouring countries, but more particularly, on the people of our own country. A government, which is totally bankrupt, living on borrowed money, has in this budget planned a massive hike in expenditure not only on the armed forces, but also on all the other instruments of repression. Never before, not even during the Emergency, has a budget been so blatantly militarist.

In this budget analysis, we shall first see the extent of increased expenditure on the ruler’s fire-power; we shall then see how these huge sums have been extracted from the masses; further we shall observe the fat sums gifted to the elite, particularly to foreign capital; and finally, we shall look into the extent to which the bankruptcy of the economy has reached, due to the policies of ‘economic reforms’ pursued by successive governments.

The War Chest

Never before has defence expenditure been hiked so drastically. Never before has the war-cry been so shrill as during the presentation of this budget. This budget is a charter for Indian expansionism abroad, and fascist repression at home. This 2000/01 budget is a twin-edged sword of the comprador big bourgeoisie-TNC combine — that strikes at both the entire South Asian market, and at the people of this country, to make it safe for their CAPITAL. A huge increase is to be seen not only in the increased expenditure on the military, but also on the para-military and on other counter-insurgency measures. The Indian ruling classes plans not only to suppress the people of India, but also to assist the crushing of people’s movements in neighbouring countries, like in Nepal.

Defence expenditure has been raised by a gigantic Rs. 13,000 crores over the previous year’s budget — a rise of 28.2%. At Rs. 58,587 crores it comprises now nearly 3% of India’s GDP — a rise of 0.7% (of GDP) in just one year. This has been a continuous demand of the military establishment. But, not even the military big-wigs expected this rise to take place in just one year. It only shows the greater fusion between the military top-brass and the top echelons of the BJP-led government. The reason for this rise is given as the increased threat perception from Pakistan. But, the joke is that Pakistan’s entire defence budget is barely equivalent to India’s increased expenditure in the current year !!

The fact is that this huge increase, is in order that the Indian rulers can flex their muscle in South Asia and also increase the scale of their counter-insurgency operations in which over one-third of the army is already involved.

So, besides this increase, the budgeted expenditure on the para-military forces have also been hiked by 16% over the previous year; raising it from Rs. 7000 crores to Rs. 8000 crores. In addition, the centre has doubled its allocation to the state police forces, for its modernisation — to Rs. 200 crore. Besides, as part of its increased counter-insurgency operations in Jammu and Kashmir and in the North-East, a "special assistance" of Rs. 500 crores has been allocated to these states. Further, a Rs. 500 crores is planned to beef up security at all airports (which is not in the budgeted figures).

But this is not all. There is a specific plan for increasing the efficiency of counter-insurgency operations. This budget has a special allocation of Rs. 5,000 crores for so-called ‘rural development’. But, in this ‘Pradhan Mantri Gramodaya Yojana’, 50% of the fund, or a massive Rs. 2,500 crores, is only for building rural roads. No doubt, it is the lack of roads in the backward regions which acts as a major obstacle in its fight against the revolutionary and nationality armed struggles. Now, this is sought to be corrected — not schools, not hospitals, not irrigation schemes, not cheap public transport ... but roads are to be built !! And for this there is also an additional allocation of Rs. 1,000 crores for the building of state roads.

And in addition to all this openly allocated expenditures there are vast sums hidden under different heads .... like pensions to retired military/para-military personnel, space and atomic research programmes, intelligence, etc. If one totals the entire amount, it will reach an unbelievable Rs. 85,000 crores. In other words, on an average every family in the country will pay Rs. 350 per month to prop up this monstrous force. Given that 59% of our population — 53 crore people — live on a household income of less than Rs. 1000 per month (NCAER Survey); it amounts to a crushing burden on the backs of our people.

Let us now see how this added burden is to be extracted from the masses, leaving the rich untouched.

Loot of the Masses

Dacoits rob the rich of lakhs; the government, through these budgets, rob the masses of crores. While the ‘experts’ cry themselves hoarse about cutting subsidies to the poor they are silent about the fact, that tax concessions to the IT (Information Technology) sector defacto results in an annual subsidy of Rs. 55,000 to every software employee. This budget has specifically targeted the poor and agriculturist.

First, it has targeted the poorest of the poor by raising the price of rationed foodgrains, to those below the poverty line (BPL), by as much as 70%. The BPL wheat prices are to rise from Rs. 2.5 per kg to Rs. 4.2/kg; rice from Rs. 3.5 per kg to Rs. 5.9 per kg and sugar from Rs. 11.9 per kg to Rs. 13 per kg. Though it has doubled the quota from 10 kg to 20 kg, this is meaningless when the people do not have the money to pay for it.

Second, it has virtually removed those Above the Poverty Line (APL) from getting any food subsidy, as now they will receive grains at the ‘economic cost’. An added factor in their scheme to deprive the poor of food, is that : who is to decide whether a family comes under BPL or APL ? While the NCAER puts the BPL figure at 59% of the population; the government says it is 35% while the Planning Commission gives as low a figure as 25%. In other words lakhs of families are now going to be denied any food subsidy whatsoever by merely categorising them as being APL and not BPL.

In addition to this, the budget has proposed a massive hike in fertiliser prices, entailing a reduction of the subsidy by 15%, plus a removal of a number of concessional charges, like freight etc. This will entail an added burden on the agriculturist of a massive Rs. 6,000 crore. As it is, farmers from all over the country are being pushed to suicide, overburdened by massive debts due to high cost of inputs coupled with crop/market failures. In fact in the past 15 years while the cost of inputs has gone up three-fold, the income of the farmer has only increased 1.5 times. This hike, together with the proposal to remove the subsidy on electricity charges will break the back of the Indian farmer.

Added to this, the cabinet, has planned a massive hike in diesel, kerosene and LPG charges. This was planned a month earlier but was postponed, in order to facilitate the TDP win the municipal elections in AP. What has been proposed by the ministry of petroleum is scandalous : the PDS rate of kerosene is suggested to be hiked by 285% from Rs. 2 per litre to Rs. 7.7 per litre, while the LPG (cooking gas) rates are to rise 53% from Rs. 124 per cylinder to Rs. 191.5 per cylinder. The massive amount that will be extracted through this hike can well be imagined from the fact that the business community wailed that this one-month delay would result in a loss of revenue of Rs. 1,200 crores. In other words, a phenomenal Rs. 14,000 crores is to be extracted from the poor and middle classes through this hike. Even assuming there is a partial roll-back in this hike, the poor will now find that even cooking a meal has become prohibitive.

Next, excise duties have been hiked, in the name of rationalisation, to net an additional revenue of Rs. 3,252 crores. The actual burden though, on the masses, is much larger as this is the net increase, after taking into account various cuts in excise to big business. For example, while excise duty on bulk drugs (ayurvedic and synthetic) has been doubled from 8% to 16%; that on Pepsi, Coca Cola and other aerated waters has been reduced from 24% to 16%!!

These gangsters, have not even spared the aged and elderly. By reducing the interest on Provident Funds by as much as 1% (from 12% to 11%) they have extracted Rs. 300 crores yearly from the pensioners’ savings.

And finally, with a 5% hike in railway freight rates, another Rs. 600 crore burden will be pushed on to the masses.

If one considers this entire loot, it totals a massive booty of Rs. 20,000 crores extracted from the masses. But this is not all. Many other spheres that effect the lives of the people are also being attacked. For example, state governments have raised sales tax; the outlay for agricultural development has been cut by 16%; and expenditure on health and education is stagnant at the existing low levels. Together the expenditure on health and human resource development, is less than the money kept aside to buy new weapons. What is worse, even of the low amounts allocated to health and education, Rs. 400 crores was not even spent in the year 1999-2000. Both together amount to a mere 4.5% of the current budget, with expenditure on health dropping to a mere 0.06% of GDP.

Such a cruel attack on people’s living standards has been camouflaged in the budget speech, by empty rhetorical statements like : insurance cover for the poor; rural housing schemes; kisan credit cards; observing 2001 as ‘women’s empowerment’ year; liberating 6 lakh scavengers; etc, etc. — which is nothing but a big joke, seeking to diffuse the anger of the masses.

In addition to all this, the government has outlined a plan for a systematic attack on its employees. In the name of cutting expenditure it plans a massive reduction in the staff by so-called Zero-Based Budgeting. (ZBB entails subjecting every programme to scrutiny, to see whether it can be done more cost-effectively) Through this zero-budgeting it plans to stop new recruitment, disband departments and institutions by getting the work done through contractors, introduce cost based user charges, etc. Though it plans a big voluntary retirement scheme, it has abolished the National Renewal Fund, and says it will meet workers/employees liabilities, through the sale of assets. In fact in this budget alone there is to be an expected drop in salary payments of 21% — a gigantic Rs. 5,586 crores (from Rs. 20,842 crore in 1999-2000 to Rs. 20,256 crores in 2000-01).

Such then is the all-out attack, through this budget, on the lives of the poor and middle classes of our country. On the other hand it has given major benefits to the elite and the business community — particularly to the powerful foreign transnational corporations. While crying about a lack of funds, they did not even consider to touch the massive Rs. 60,000 crores owed to the financial institutions. While the banks and government confiscate property on non-payment of even small loans of the peasantry, it ignores default on such huge sums by the big comprador houses and even some TNCs.

Booty for TNCs & Compradors

Ironically the most booming and profitable businesses — the so-called ICE sector — has been given the biggest concessions and tax benefits. The Information Technology, (tele) communications and Entertainment industries, all of which are closely tied to the powerful TNCs and the global (imperialist) markets, have gained the maximum from this budget. This is not surprising, as the Clinton administration has been the most vociferous in demanding free access to international markets for its IT and telecommunication companies. And our servile rulers plan their policies according to their dictates. So, in their neo-colonial vocabulary subsidies to the poor are ‘wasteful expenditure’ while those to the rich are ‘necessary’ to create the right climate for industrial growth. It is the logic of the vulture that preys on the oppressed.

Besides an overall cut in the maximum customs duty by 5% (bringing it down further from 40% to 35%), there have been additional cuts in customs duties on most items of the IT, telecommunications and entertainment sectors. Through these cuts in customs duties the importers and their foreign sponsors stand to gain a big gift of Rs. 1,428 crores. Not surprisingly, while it has reduced custom duties on items like diamonds (from 40% to 15%), crude petroleum (from 20% to 15%) etc., on a basic necessity like kerosene the customs duty has been raised by 5% (from 30% to 35%). The business lobbies have made a hue and cry against the 5-year phase-out of tax exemption on exports (that too at the instructions of the WTO that considers this an illegitimate export subsidy). But even here most IT industries will not be effected as they are located in Free Trade Zones which have a 10-year tax holiday.

In the sphere of trade, as per the agreement (instructions!) struck with the US on QRs (quantitative restrictions) the budget has freed 715 items for import into the country. As most of these are consumer items and agricultural products, this will particularly effect the small scale sector and agriculture. The flood of imports has been further facilitated by reducing the customs duties on these items from the maximum allowed (35%) to 25%.

In the sphere of investments, in a series of policy changes, foreign capital has been allowed greater penetration into the Indian economy :

In addition to these specific measures that benefit foreign capital’s penetration into the country, big business has gained other concessions as well :

While the government keeps crying that it has no money and so must cut subsidies, reduce staff etc., it has given away thousands of crores through these tax-reliefs to the TNCs and the comprador big bourgeois houses.

Bankruptcy and Country’s Betrayal

In the ‘free market’ when a company goes bankrupt it is swallowed up by another. In the ‘globalised market’, when countries go bankrupt they fall easy prey to foreign finance capital. This is precisely the state of the Indian economy as outlined in the government’s own Economic Survey, 1999-2000, released a day before the presentation of the budget.

This state of atrophy is to be seen both in the general economy as well as in the government’s fiscal condition. Nearly a decade of economic reforms, has ruined agriculture, brought local industry to a state of perpetual stagnation and the government to a condition of bankruptcy.

First, let us look at the general economy. The media seeks to portray a booming stock market as a sign of healthy growth. This is far from the truth. The present boom in the secondary market (i.e., the stock exchange where shares are bought and sold) is nothing but a speculative bubble — that too, bloated by foreign capital. With the withdrawal of these funds (as happened in South East Asia) the bubble will burst.

If we look at actual capital formation (rather than the current fad of presenting market capitalisation) which generates real assets (and not notional wealth) the situation is utterly pathetic : First, in the primary market (i.e., new capital issues introduced onto the stock market) there has been a steep decline from Rs. 26,417 crores in 1994/95 to a mere Rs. 4,180 crores in 1999-2000. Second, the gross domestic savings (i.e., savings of individuals and corporations) which is a major source of capital, dropped drastically by 2.4% of GDP in just the one year, 1997/98 to 1998/99 from 24.7% of GDP to 22.3% of GDP. Third, of the government’s total expenditure, the share of capital expenditure has dropped from 40% in 1985/86 to a mere 16.7% today. Such a massive drop in capital formation is indicative of a deep stagnation in the economy. As for the foreign capital entering the country the bulk of it goes towards, either purchasing existing companies (FDIs) of buying equity in other companies (FIIs). Besides, in the long run, they siphon out of the country ten times more than what they invest here. It is then not surprising that the government’s ‘Economic Review’ has shown an industrial growth of a mere 6.2% for 1999-2000 (after 3 years of stagnation .. and still less than the average growth rate in the pre-reform years) and an actual decline of 2.2% in agricultural production.

Now let us turn to the government’s financial situation. The tragic situation can well be understood form the fact that in 1991/92 when the same Yeshwant Sinha mortgaged the country’s gold to prevent bankruptcy, the fiscal deficit (of both centre and states) was 9.1% of GDP ..... in 2000-2001 it is expected to reach 10%. What does this mean ? It means that the government’s expenditure exceeds its receipts by a gigantic Rs. 1,85,000 crores. If we consider just the central government’s present budget (2000-01) the proposed deficit is Rs. 1,11,275 crores or 5.6% of GDP.

Now, where does the government get this extra money to meet its burgeoning expenditure ? Quite naturally by borrowing it. But these market borrowings require the payment of interest. And if this cycle (spiral) keeps repeating, the borrowing and interest payments begin to push the economy into a debt trap and this is exactly what has happened today.

The situation has got so bad, that in the current budget even the revenue (day to day) expenditure far exceeds the receipts by a massive Rs. 77,425 crores. In other words the government has to borrow not only to meet its capital expenditure needs (which would be OK as this generates new income) but merely to meet its daily needs. Worse still, due to the ballooning public debt (both internal and external), which has now reached Rs. 13 lakh crores, the interest charges have become unmanageable. Today interest charges are, infact, the single largest item of government expenditure amounting to nearly half its receipts. In fact, in the current budget interest payments have been put of Rs. 1,17,000 crores — an increase of 40% over the previous year. It is a vicious circle .... a quicksand, that is sucking the government into an irrecoverable state of bankruptcy. Already it has sunk neck-deep into the muck.

While such is the fragile fiscal condition of the economy, the Balance of Payments (BoP) (i.e., the balance on foreign exchange earnings and expenditures) situation is even more deplorable. The trade deficit (i.e., difference between exports and imports) has been continuously widening each year. In the current year, due to a big leap in oil import prices, the trade deficit is expected to cross the $20 billion mark. What does this mean ? It means we have to pay the imperialists $20 bn more (in foreign exchange) than we earn from exports. Where then can this gigantic sum come from ? Fortunately $10 bn comes from Indians working abroad, who send back part of their savings to this country. Another couple of billion dollars comes from other ‘invisible’ earnings. This still leaves a huge deficit of roughly $7 to $8 billion. This current account deficit has nearly doubled from that of the previous year — from 1% of GDP in 1998/99 to 1.8% of GDP in 1999-2000. Finally, this $7 to 8 billion is met by the inflow of foreign investments (i.e., FDIs, FIIs and NRI deposits). So here again the government has to meet day to day trade expenses through capital investments from abroad. Tomorrow, if these foreign sharks were to turn off the tap, it would precipitate a BoP crisis ... there would be a run on the dollar, the foreign exchange reserves would evaporate and the government would have to default on its interest payments on its massive foreign debt. That is exactly what happened in South East Asia. With such a large current account deficit, the Indian government is at the mercy of the imperialists, who can precipitate such a BoP crisis whenever they wish.

So, whichever way one looks at the economy, it is crisis-ridden. A crisis willfully created through ‘economic reforms’, by India’s comprador rulers, at the behest of imperialism. A crisis, through which the Indian ruling classes, for a few crumbs, pushes the Indian people deeper into the arms of the imperialist octopus. In this budget, we clearly see how a crisis-ridden economy, is being dictated to by the imperialists. The direction of this budget is to heavily tax the masses, give major benefits to the imperialist-dominated sector of the economy, and to prepare the state machinery for the inevitable class-conflicts that will arise from the creation of these extremes of poverty and wealth.

The budget clearly brings out not only the traitorous, anti-people character of the BJP-led government, it also displays its fascist fangs. On the one hand, through this budget, the government is pushing the already destitute masses even deeper into poverty. On the other hand, it is arming itself to the teeth, in order to brutally crush any opposition to these policies.

How then are the people to fight back ? How can they reverse these traitorous policies, as well as fend off the fascist blows. Not certainly through peaceful, parliamentary means. All the parliamentary parties have in fact, been party to these economic policies. It is only a revolutionary force that can beat back this offensive.

7-3-2000

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