ECONOMY-INDIA: Neoliberal Gov’t Tries Budget Populism

By IPS Correspondents Reprint | | Print |

Analysis by Praful Bidwai

NEW DELHI, Mar 7 2008 (IPS) - When Indian Finance Minister Palaniappan Chidambaram presented his fifth and last full budget last week, it was widely expected that he would attempt to correct policy course and seriously address issues of equity -specifically, growing income inequalities, sectoral imbalances and regional disparities.

It was also hoped that Chidambaram would begin the process of tackling the root-causes of the prevalent agrarian distress in India, which has driven 150,000 farmers to commit suicide in a decade. This suicide rate is considered unprecedented in world history.

What Chidambaram succeeded in producing is a great deal of media hype about his decision to write off farmers’ loans to the extent of 15 billion US dollars as a one-off measure.

The taxation and other measures in the budget continue for the most part with the neoliberal policy orientation, which was inaugurated in 1991 by the then finance minister Manhohan Singh, now India’s Prime Minister, and strengthened especially since 2000.

Chidambaram’s “populist” budget is seen as a prelude to a mid-term parliamentary election, in which the ruling United Progressive Alliance (UPA) hopes to improve its performance.

“His budget does not address the huge imbalances in India’s recent growth pattern,” says Arun Kumar, professor of economics at Jawaharlal Nehru University here. “Chidambaram has also failed to anticipate and prepare for the impending problems related to the current global financial crisis, whose impact is already being felt in India,’’ Kumar told IPS.

The writing off of farmers’ loans is a belated acknowledgement of the gravity of the agrarian crisis and the need to provide short-term emergency aid to farmers. Though welcome it does not give enough aid, nor does it set agriculture on the road to viability and sustainable development.

At stake are millions of livelihoods. Although agriculture accounts for 22 percent of India’s gross national product (GNP), more than 60 percent of the people are dependent on it.

The much-touted debt write-off has disarmed and confused much of the political opposition. This is the largest such write-off ever and represents 1.5 percent of India’s one-trillion-dollar GDP.

But it pales into insignificance beside the various exemptions, rebates, incentives and concessions provided to corporate taxpayers and rich individuals.

Last year, for example, the government wrote off taxes and duties worth a colossal 70 billion dollars in this manner. This mind-boggling amount is more than four times the one-time relief for farmers, and equals one-half of all taxes collected. It includes over 35 billion dollars in customs duty exemptions, over 14.5 billion dollars in corporate-tax concessions, and nearly 10 billion dollars in individual income-tax exemptions.

Such tax write-offs for the privileged classes and corporations have become routine. Yet, there has been no furore, angry parliamentary debate or accusation of scandal over them.

This is considered a terrible comment on India’s elitist and lopsided economic discourse, and the way it is shaped by the mainstream corporate-dominated media.

However, the farm loan write-off is far less generous than appears at first sight. Full waiver only applies to loans from the organised sector, comprising the commercial banks, regional rural banks and cooperatives, borrowed by farmers owning 2 hectares (5 acres) or less of land.

But one-half of such farmers borrow from local moneylenders, who usually charge usurious rates of interest at between 24 and 48 percent. The average landholding size in India is less than a hectare, but smaller farmers tend to be excluded by the organised sector.

For instance, an official study finds that 77 percent of marginal farmers depend primarily on moneylenders-cum-traders, who typically also control the supply of seeds and fertiliser, and can hold the farmer hostage.

So a majority of Indian farmers will be excluded from Chidambaram’s waiver.

Second, only the loans of farmers owning 2 ha or less are written off. There is only 25 percent debt relief to bigger landholders provided they repay the remaining 75 percent. But it is unrealistic, if not mean, to expect already highly indebted farmers to repay that 75 percent. They would not have borrowed the money unless they were desperate in the first place.

Third, a large proportion of India’s heavily indebted farmers cultivate unirrigated, low-quality land with small yields, whose size often exceeds 2 ha.

This is especially true of the “suicide belt” of Vidarbha in western Maharashtra state, and other dryland farming areas. A farmer owning 5 ha there is often extremely distressed and stands to get virtually no relief.

A far better alternative would have been to write off loans or make outright grants to farmers in inverse proportion to their holdings and yields-say, 1,000 dollars for the poorest, 500 dollars for the less poor, and a smaller sum for others.

“This would have taken some of the burden off the nationalised banks, which are unlikely to be fully compensated for the write-off,” argues a member of the government’s National Commission on Enterprises in the Unorganised Sector, who insisted on anonymity for fear of repercussions. “It is in nobody’s interest to weaken the public banks-unless the hidden agenda is to set them up for privatisation by inflicting losses on them. Chidambaram might want to do just that!”

In contrast to his miserly approach to farmers stands Chidambaram’s generosity to rich income tax-payers, who comprise only 25 to 30 million people among 1,020 million Indians.

Their income-tax rates have been slashed to a point where they have hit the rock bottom in Independent India and are among the lowest in the world.

A person belonging to the top two percent of the income pyramid-need pay no tax at all if exemptions are availed. India sorely needs to raise resources by progressively taxing the top 20 percent of the population to provide public services.

The budget has made the tax regime even more regressive than before. To match this, Chidambaram has reduced taxes on cars, two-wheelers, air-conditioners, refrigerators, etc. “This will encourage profligate consumption, and bloat GDP-thus creating a growth bubble, while adding to greenhouse gas emissions,” says Arun Kumar.

Chidambaram’s failure is glaring in six areas to which the UPA coalition’s Common Minimum Programme gives priority: the public distribution system (PDS) for food, the recently implemented National Rural Employment Guarantee Act, health, education, social security, and reduction of regional disparities.

Instead of substantially expanding the creaking PDS, he has raised its allocation by a paltry 3.5 percent. Forgotten is the goal of universalising it. The NREGA’s geographical coverage has been doubled, but its allocation raised by just 14 percent.

The budget’s health outlay is 17 percent higher than last year. But an annual increase of 35 percent is needed over several years to raise public health-spending from the present miserable 0.9 percent of GDP to the three percent target.

The 20 percent increase in the education budget might seem impressive, but the bulk of it goes to higher education, up 90 percent, and by a new proposed stream of 6,000 “high-quality” model schools.

What India needs most of all is primary education and universalisation of school access for all children under a recent Constitutional amendment guaranteeing the Right to Education. The budget does not provide for this.

As for social security, Chidambaram has ignored thoughtful recommendations to give rights to unorganised sector workers, not flimsy schemes to which they contribute a premium. He has merely repackaged existing schemes for health insurance and passed them off as new.

The UPA had promised to invest substantially in backward areas and states, and take urgent measures to reduce regional disparities in infrastructure, agriculture, industry and social development, which are acquiring explosive dimensions. The budget betrays this promise.

However, the budget has raised military spending by 10 percent at a time when the defence ministry is returning about one billion dollars unspent year after year. Including pensions, the defence allocation now stands at over 30 billion dollars -almost four times higher than the federal education budget.