Cut Taxes on the Rich, Cut Spending for the Poor, Declares Govt in Election Year Budget

India’s mainstream or wealthiest political parties disagree only minimally, it seems, about where to allocate public spending. Even the limited increase in spending promised in the interim budget 2019-20 presented in Parliament last week found yesteryear’s hawkish home and finance minister P.Chidambaram grumbling that the NDA’s budget proposals “throw the Fiscal Responsibility and Budget Management Act out the window”.

Are we condemned to this crossparty consensus, of ever shrinking and lopsided public expenditure, and ever more regressive taxes and subsidies for the rich?

We look at three aspects of the outgoing NDA government’s budget proposals below.

Still No Public Money for Health, Education or Research

As a proportion of GDP, “social sector expenditure, primarily constituting health and education, in India continues to remain woefully below peers’,” the Reserve Bank of India said in an assessment of the government’s budget for the 2018-19 fiscal year.

Even after a year, the situation remains the same. Spending on areas as crucial as health and education - commercial providers are not affordable for the majority of Indians - remains static, whether looked at as a proportion of GDP, or as a proportion of total government expenditure.

The 2019-20 interim budget promises spending on social welfare to the tune of Rs 49,337 crores, which amounts to just 1.7% of the union government’s total estimated expenditure.

Education has been promised a mere 3.3% of government expenditure, at Rs 93,838 crore.

Health gets Rs 63,538 crore, or 2.2%. This is not to mention that with insurance schemes like Ayushman Bharat, the government will move to using public money to subsidise the profits of private insurers, rather than providing quality, affordable healthcare.

Expenditure on scientic research will be a dismal 0.9% of the total, at Rs 26,237 crore.

In his budget speech Finance Minister Piyush Goyal said, “This interim budget is to be viewed as a medium for progressive path for the country. All the transformation that we are witnessing, is because of the passion of the people of our nation. The credit goes to them only. Development has become a mass-movement during the period of our government.”

FM Goyal also bragged that the country’s defence expenditure “had crossed Rs 3 lakh crore for the first time”.

It is not known if the finance minister was adjusting for inflation. But at a time when crucial public services that the state is bound to provide are being dried up and commercialised - the market, where the more you can pay the more you matter - Goyal’s slogan of development as mass movement is at best a cruel joke.

Rs 60,000 Crore Promised for NREGA

Two-thirds of Indians live in rural areas, or about 894 million people. If all of them were to demand 100 days of work under the National Rural Employment Guarantee, the interim budget presented in Parliament today would provide them Rs 671 for the entire year, or Rs 6.71 per working day.

In its first budget the BJP-led government allocated Rs 34,000 crore to NREGA, then revised the allocation down to Rs 31,000 crore. At 5% inflation per year, in today’s rupees that would amount to Rs 39,500 crore.

So in its five years in power the NDA government has increased the allocation promised to NREGA by about 50 percent in real terms.

But actual expenditure on the scheme - which is supposed to follow people’s demand for work, and guarantee them work at decent wages - typically outstrips budget allocations.

Last year the actual expenditure on NREGA was reported to be Rs 65,442 crore.

Even so, the proportion of wages pending for work already done rose from 39 to 56 percent. So over half the labour performed under NREGA last year remains unpaid for. And studies show that in many states people’s demand for work is simply not recorded by public officials.

A 2015 study by the National Council of Applied Economic Research estimated that in its first decade of operation NREGA helped lower the poverty rate by 32 percentage points, and helped prevent 14 million people from falling below the poverty line.

Moreover, India has seen 17 drought years since independence, 7 of them since 2000.

Finally, compared to the Rs 60,000 crore promised for NREGA, the central government wrote off Rs 5,51,000 crore in subsidies on corporate tax and excise and customs duties. That was in 2016. Since then the budget no longer includes a ‘statement of revenue foregone’, making it harder to track these subsidies for the rich.

Don’t Tax the Rich, Don’t Spend for the Poor

Only 76 lakh Indians who filed tax returns showed an annual income higher than Rs 5 lakh, Finance Minister Arun Jaitley told Parliament a year ago. Going by the interim budget Finance Minister Piyush Goyal presented in Parliament on February 1, these 76 lakh Indians will now be the only ones required to pay income tax.

They amount to 0.56% of India’s population.

But everyone pays indirect or consumption taxes - state and central duties, cesses and excises, on oil for instance which producers may pass on to consumers as inflation, and most recently GST, which on average increased the tax on essential items, and reduced it on luxury items, according to the economist Prabhat Patnaik.

In fact only about 38 percent of the government’s tax revenues come through direct taxes, according to a recent estimate.

Last year FM Jaitley was aware of this, when he told Parliament that the ratio of direct tax to indirect tax was “not optimal from the point of view of social justice”. (Of course, FM Jaitley also abolished the wealth tax in 2015.)

Last Friday FM Goyal seems to have other things than social justice on his mind. Perhaps the votes of the 1.95 crore people who declared an annual income between Rs 2.5 lakh and 5 lakh, and will now be exempt from paying income tax, if the NDA’s income tax freebies are also approved by the next Lok Sabha.