#NotesForMrJaitley 5: Don't listen to everything the babus say
The rituals of the annual Indian budget seem more important than its actual substance.
Most budgets in recent years have not really benefitted the economy. The new aspect for the Indian budget is that thanks to the oil bonanza, the Finance Minister is under no stress. He has a huge surplus (lower subsidies) to use.
The rest of the world is under recessionary trends. Even the United States, which till recently enjoyed immunity from the prevailing recessionary trend is now worried about worldwide slowdown and the untimely and hasty increases in interest rates by the US Federal Reserve.
When the rest of the world is on the verge of such a trend, it is puerile to think that India will evade it. It will suffer the prevailing headwinds blowing across the world.
When there is recession everywhere else, India will suffer loss of overseas jobs, overseas remittances and exports. Commodity and oil prices might be low. But in a depressed worldwide market, India cannot export finished goods.
The unfortunate obsessions of Indian Finance ministers in recent years is revenue collection. There is less emphasis on economy management and more emphasis on revenue collection.
This has been the situation for the last 10 years at least. It does not matter who the Finance Minister is, as only the wisdom of officials will prevail.
Ministers actually win or lose elections for their government. Notice how most of the conversation of even the currnt Finance Minister is only about taxes and PAN cards.
Revenues are only a part of economy management. For a country the size of India, there has to be constant growth. India cannot suffer a recessionary trend.
The new popular term in economics is "secular stagnation", brought to the fore by noted contemporary economist Prof Larry Summers. "Secular stagnation" simply means high savings, some inflation and low growth.
It is something to be avoided since once it enters the system, it refuses to leave. Japan is a good example, which is unable to come out of "secular stagnation".
What I hope for in the coming budget:
- Reduce service tax significantly: Currently Rs 3 lakh crore is mopped up every year in service tax. If half of that is not collected from the people, they will spend tha Rs 1.5 lakh. When people spend, there is greater velocity of money than when the government spends the same money. There will be great economic stimulus and relief for the poor and middle classes.
- Watch carefully the allotments for infra-structure. Indians should not get addicted to the Chinese madness of over-investing in infrastructure. Over investment in infrastructure also lets loose recessionary trends. Every economist thinks China over-invested in infrastructure and hence it has serious problems.
For every Indian, the great worry is serious medical expenses. Instead of announcing all kinds of meaningless concessions, the government should fashion a policy whereby dialysis, treatment of brain diseases, paralytic strokes and some serious cardiac ailments must be nearly free.
- Let there be no income disqualifications. Everyone should get the benefits of cheap health care for those ailments. That itself will boost other spending and bring happiness. Surveys have shown that the middle class and the poor are crippled economically for life when their families suffer such health afflictions. This move will stimulate the economy.
The government should announce scholarships and fellowships for all castes to some extent in universities. Right now, the exclusion of poorer upper castes from educational aid, compared with some favoured castes has created a great social chasm. If something is done for all sections, resentment between communities will decline.
- The government should also consider introducing savings schemes that are inflation-proof. The BJP talked about such things when they were not in office. Nothing inhibits it from doing that now, except perhaps the officials in the Finance ministry.
I do not give much importance to raising the income tax limit. It is very childish to think that by raising the limit, people gain something. It is the worst kind of cheap cosmetics.
- This sounds unorthodox, but reduce the importance of the PAN card for every transaction. This is again an idea of the officials in Finance Ministry. Nothing clever about it. The new rules about having a PAN card for most transactions will stop more hidden money from coming into the economy.
When you say you need a PAN for every gold transaction, even if it fairly small, it only means hidden money does not enter the mainstream. When you create conditions for hidden money to enter the system, automatically the economy gains and taxes increase. The finance minister should wake up and not listen to everything his officials say.
- The problem is that our Finance Ministers need not be economists. If they are not economists, it is okay. But they must have abundant common sense. A Kamaraj Nadar or a Lal Bahadur Shastri would make a great Finance Minister, since they had abundant common sense.
The trimmings in the budget are unimportant. If the Finance Minister reduces the service and other indirect taxes, then this government gains. Otherwise, Indian public has to suffer the consequences of highly educated finance ministers with little common sense. And finally, the Modi government will suffer just as the last UPA government did.
Edited by Joyjeet Das