ECONOMY-INDIA: ‘Please-All’ Budget With a Human Face

By Ranjit Devraj Reprint | | Print |

Ranjit Devraj

NEW DELHI, Mar 1 2005 (IPS) - Nine months after being voted into power on a wave of public anger against pro-rich polices, the Congress Party-led United Progressive Alliance (UPA) – backed by the communists – has proposed a budget that may actually give a human face to economic reforms.

The communist parties had only asked for an outlay of at least of 12 billion dollars to be spent on education, health care, mid-day meals in schools and farm development. But Finance Minister Palaniappan Chidambaram has proposed a social package worth 16 billion U.S. dollars in his proposals made in Parliament on Monday.

”The discussions and debates between the UPA government and the Left parties on the direction of economic polices seem to have had some impact,” conceded Prakash Karat, politburo member in the powerful Communist Party of India -Marxist (CPI-M) which leads the Left Front.

Karat, however, expressed apprehension that if tax revenue as estimated by Chidambaram is not fulfilled, the actual provisions for the long-neglected social sectors may suffer.

The communist parties, in pre-budget meetings with the finance minister and at public rallies had demanded that the government, to which it provides critical outside support, take steps to recover tax arrears from the well-off and also the vast amounts of money they owe public sector banks.

Indeed the communist parties, which had joined hands with the ideologically dissimilar Congress party with the single purpose of defeating the right-wing Hindu fundamentalist Bharatiya Janata Party (BJP), have been giving fierce warnings that their support for the UPA coalition should not be taken for granted.

As a result the budget, which Chidambaram himself described as a ‘New Deal’, shows a 33 percent hike in the allocation for rural development to 4.5 billion dollars.

Commented the ‘Times of India’ newspaper in an editorial on Tuesday: ”Till only recently, rural uplift was seen as the fluffy part of the budget with the real stuff centering around industry, markets, taxation and finance.”

An important, pro-active feature of the budget is the national food for work programme that started three months ago and which now has allocations worth three billion dollars. The programme aims to alleviate poverty and pays the poor, for work done, partly in cash and food grains.

The government plans to convert the programme into a full-fledged national rural employment guarantee scheme that has the potential of creating livelihoods for millions of poor people across India. This programme is also supported by a group of well-known social activists who have for the first time enjoyed clout with the government.

Grouped as together as the National Adivsory Council (NAC), these social activists include the Belgian-born Jean Dreze who teaches economics at Delhi University but spends much of his time and energy in rural villages. Also with Dreze is the Magsaysay Award winner Aruna Roy who pioneered the right-to-information movement in India.

The NAC is not a part of the government but enjoys enormous clout from the fact that Congress party president Sonia Gandhi, regarded as the country’s most powerful politician, heads it.

Indeed the budget bowed most of all to what has become known as the ‘wish-list’ of Gandhi, who demanded major concessions in specific areas such as child nutrition, mid-day meals and a 600 million dollar package to build up road networks in the neglected north-eastern part of the country.

While economic reforms that were started almost 13 years ago have benefited the urban rich, two-thirds of India’s billion plus population living in poverty and in areas lacking decent infrastructure have been largely bypassed.

Chidambaram also took a stab at curbing India’s ‘parallel’ cash economy that is estimated to be as big as the formal one but works completely outside the budgetary system. He announced a nominal 0.1 percent tax on all cash withdrawals from banks above 10,000 rupees (about 260 dollars). But this has drawn protests across the board.

The finance minister, however, defended this move.

”I don’t think they are protesting about the tax but the complaint is about the tax trail left by the withdrawal – this is an anti-tax evasion measure,” said the Harvard-educated Chidambaram.

Chidambaram said large cash withdrawals sometimes amounting to millions of dollars were common in India and he wanted to encourage people to make transfers through legitimate means like cheques and other bank instruments.

Yashwant Sinha, who served as finance minister in the last government called the move ”silly if one takes note of the fact that that black money (parallel economy) transactions rarely take place through banking channels.”

Sinha was critical of ”disinvestment (sale of public sector enterprises) clearly being given the go-by” and wondered where the money for many of the ambitious social sector schemes would come from.

On the other hand Karat praised Chidambaram for not relying on the proceeds of disinvestment – from the sale of former Soviet-styled government-run corporations – to fund social spending, as compared to what the BJP had done previously.

But Karat and other left intellectuals like Prabhat Patnaik, who teaches economics at Jawaharlal Nehru University, are unhappy that the budget – like others before it – has been reluctant in taxing the rich.

India’s tax-GDP ratio is 1.5 percent and this is considered low even by developing country standards. Less than two percent of India’s population pay income tax while less than one percent pay any significant tax at all.

Instead, Chidambaram has lowered corporate and income tax prompting many to term this as a ”please-all” budget.