Courtesy "The Hindu" of date"
Budget 2011: unjust, inequitable, morally wrong
S. Gurumurthy
How could the percentage of fiscal deficit have come down?
“I have spent more, yet, I have brought down the fiscal deficit for 2010-11
from 5.5 per cent to 5.1 per cent,” claims Finance Minister Pranab Mukherjee.
The amount of fiscal deficit has actually gone up by Rs.20,000 crore. How then
could the percentage of fiscal deficit have come down? It defies the logic of
numbers. Yet, none of the commentators in awe of his miracle have asked Mr.
Mukherjee how he achieved the miracle. It is not his feat. Runaway inflation
did the trick, not the Finance Minister. Surprised? Read on.
In his budget speech for 2010-11, the Finance Minister had fixed the fiscal
deficit of Rs.3.81 lakh crore at 5.5 per cent of the GDP of Rs.69.35 lakh
crore
estimated by the CSP at current prices for 2010-11. But thanks to
hyperinflation that hit the people of India, the GDP at current prices — also
called nominal GDP — rose from the estimated Rs.69.35 lakh crore to Rs.78.78
lakh crore in 2010-11. The rise of Rs.9.57 lakh crore is pure inflation. As a
percentage of the new, inflated nominal GDP figure of Rs.78.78 lakh crore, the
fiscal deficit of Rs.4 lakh crore came down to 5.1 per cent. Had inflation not
escalated, the estimated GDP of Rs.69.35 lakh crore, the fiscal deficit would
risen to 5.8 per cent, not fallen from 5.5 per cent. The Medium Term Fiscal
Policy Statement annexed to the budget obliquely admits this fact. It says
that
“higher nominal growth in GDP” — which is just inflation — has helped in
reducing the fiscal deficit
The gap between real and nominal GDP is inflation. Year after year, from
2005-6, this inflationary gap between the real and nominal GDP has been
incrementally enlarging. In 2005-06 the gap was 9.4 per cent; in 2006-07, it
rose to 16.9 per cent; in 2007-08, it enlarged to 21.8 per cent; in 2008-09 it
topped 31.3 per cent; and in 2010-11, the gap became an all time high at 38
per
cent, equal to Rs.30 lakh crore. Imagine, had the gap between the real and
nominal GDP for 2010-11 not risen over the percentage of the gap in 2005-06,
the fiscal deficit for 2010-11 would have been as high as 21 per cent! And had
it been the same as in 2009-10, the fiscal deficit for 2010-11 would have been
7.5 per cent. When inflation is high the GDP-fiscal deficit ratio becomes
almost meaningless. So much for the reduction in fiscal deficit acclaimed as
“fiscal consolidation,” “safe play,” “cutting spend.”
Curiously, inflation escalated the nominal GDP year after year from 2005-06,
but surprisingly, not particularly the indirect tax revenues proportionately.
This makes the comparison of nominal GDP with fiscal deficit misleading. It
also takes us to the confession of the Finance Minister that he has not
mobilised revenue in this budget. The media has eulogised him for sparing
corporates from a higher dose of tax, and still managing the deficit. The
truth
is that the United Progressive Alliance (UPA) has altogether stopped taxing
corporates and others who are tax worthy. The excise revenue as a percentage
of
the real GDP is now almost half of what it was in 2005-06; in terms of nominal
GDP it is even less. According to the Economic Survey 2010-11, the ratio of
excise revenue to GDP has come down from 3 per cent in 2005-06 to 1.7 per cent
in 2010-11 and customs from 1.8 per cent to 1.5 per cent. On the basis of the
excise-customs to GDP ratio of 2005-06, the government has under-levied excise
by Rs.1,00,000 crore and customs duty by Rs.43,000 crore in 2010-11, totalling
Rs.1,43,000 crore. The under levy of excise started in 2006-07 at Rs.13,000
crore, rose to Rs.63,000 crore in 2008-09 when stimulus was introduced, and to
Rs.81,000 crore in 2009-10. Even if the fiscal stimulus — calculated with
2007-08 as the base — of Rs.59,000 crore in excise and in customs of Rs.41,000
crore are deducted, the under levy is still Rs.43,000 crore. It means that the
UPA government has simply refused to levy the legitimate tax. But, despite
huge
tax cuts, inflation is hitting the roof. Yet on the fear and threat that
withdrawal of stimulus would intensify inflation, the stimulus continues. Is
it
justified? Read more.
It is not that corporates are in distress; in fact, they never were. An
analysis of the profits of corporates given in the statements of revenue
foregone attached to annual budgets shows that corporates have been making
huge
profits. The companies surveyed posted a profit before tax of Rs.4.08 lakh
crore in 2005-06; Rs.7.11 lakh crore in 2007-08; Rs.6.68 lakh crore in 2008-09
[global meltdown year] and Rs.8.24 lakh crore in 2009-10. Most of the super
profits in 2009-10 — a rise of 23.35 per cent in just one year — is clearly
the
stimulus cuts not passed on to the public. The super profits make the
continuance of stimulus unjust. The story doesn't end here. Thanks to
exemptions, corporates have paid far less than the statutory rates of excise,
customs and income taxes. Taxes thus foregone by the government have been
rising from year to year from 2005-06 – from 50 per cent of the tax collected
in that year to 72 per cent of the tax collected in 2010-11. For the year
2010-11, the tax giveaways, including excise-customs waivers of Rs.3.62 lakh
crore, totalled Rs.5.12 lakh crore. The stimulus cut of Rs.1 lakh crore, and
an
under-levy of Rs.43000 crore are on top of the tax foregone. Moreover, the big
corporates manage to pay less than the small ones. If they pay as much, the
extra tax realised for 2010-11 could have been Rs.14,470 crore.
Contrast the giveaways of several lakh of crores with the admission in the
Economic Survey that capital formation in the agricultural sector, which
employs 58 per cent of Indian people, has, from 2005-06, stagnated around 7.5
per cent of the total capital formed in the economy. The survey says that a
huge investment is needed to make agriculture viable and sustainable. A
fraction of the giveaways to corporates could save Indian agriculture from
stress. No seer is needed to say that the budget could not be more unjust,
inequitable, and morally wrong. And yet this budget is branded as an aam aadmi
budget.
The Finance Minister could not have trivialised the issue of black money
abroad
more. In his budget speech, he has just repeated what he told the media on
January 25, 2011. He has pontificated on corruption. His written brief on the
implementation of programmes he had announced in the previous budget shows
that
out of 66 programmes, only 25 have been completed, many of them paper work.
Yet
the media discourse has hardly noticed these critical issues.
There are positives, but the hidden vices in the budget make them cosmetic.
Anyway the positives have been highlighted so disproportionately that it is a
waste of media space to repeat them here. On a lighter note to end: the entry
of ‘onion' in the budget speech has raised its importance to that of
infrastructure!
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