Surjit S Bhalla: A Kill Bill Budget

Budget 2004-05 is about revenge.

First, the revenge of the "human faced" socialists. Their ideas had been rejected by the world at large for the last several decades, and by India in 1991-92. Two finance ministers rank high on anybody's wish-list of reformers "" Manmohan Singh, the present prime minister and P Chidambaram, the FM of dream-budget fame and now possibly of "dreaming a nightmare Budget" infamy. How sweet the revenge must be for the socialists to choose these respected reformers for deconstructing the Indian economy?

Revenge of Bofors: Why should this Budget not be viewed as a traditional pre-1990s tax-and-spend Budget? Look left, and look left again, and there are increases in spending. And such increases are in areas where no patriot can openly object. All indications are that India is increasingly at peace with its neighbours; there is prospect of peace with Pakistan, Kashmir is not burning and China is too busy trying to become an economic superpower.

But the revenge of the reactionary elements within the just defeated nationalist BJP is that it should be the liberal Congress human faces who should launch an attack on increased defence spending "" slated to rise by 18.5 per cent, or Rs 12,000 crore. Is this Bofors redux?

Revenge of the jholawalas: Plan expenditure is slated to increase by an identical amount to defence or 18.9 percent "" from Rs 1,22,000 crore to Rs1,45,000 crore. The two expenditures together account for Rs 35,000 crore.

Now very few people will publicly object to increases in defence or education for the poor or mid-day meals. This is the ultimate Kill Bill revenge "" people you want to kill (that is, those that disagree) agree with your objectives.

In a speech inaugurating IGIDR in Mumbai in the late 1980s, Manmohan Singh had lamented about India's poor economic performance and concluded, "The fault has not been with our planning "" it has been with the implementation".

As the good doctor knows better than all of us, that is always the case. Around the world, including in economies run by in name only socialists like Brazil, the move is to improve the delivery of social services, to drastically improve public expenditures, and to improve accountability in expenditures.

Will we ever know how, and for what, is the extra Rs 23,000 crore being spent? Do mid-day meals cost that much? And how do we, along with a few honest NGOs, know that the money will even be broadly spent on the poor?

Does India really need upwards of Rs 50,000 crore (food subsidy, fertiliser subsidy and cess on education) to remove people from poverty? A simple calculation suggests that the budgeted in-the-name-of-the-poor money is at least twice that which is needed.

The NSS survey for 1999-2000 indicates that the poverty gap that is, the expenditure needed to bring the poor above the poverty line, was Rs 75 per person per month. In that year there were 260 million poor. The annual allocation needed to bring all the poor above the poverty line then: about Rs 23,000 crore.

The trend decline in poverty is about 1.5 per cent a year; the official poverty level today is likely to be around 20 per cent, or 210 million people. Or a maximum amount of Rs 18,000 crore. Or about one-third the half-way, indirect, and not for the poor expenditure dreams of the new face socialists.

Revenge of the politicians/bureaucrats: What is the moral and practical alternative to the implementers "" the market. So here is how a sensible idea gets executed.

In the pre-Budget meeting with the FM, and in a background note, I had stated that it was highly desirable to move to an internationally competitive capital market. Hence, "At a small tax of 0.05 per cent on the value of all delivery transactions (and one-fifth that rate for futures transactions) the government stands to gain Rs 1,000 crore per annum. At such reasonable rates of taxation, there is very little likelihood of transaction volumes going down, though it should be emphasised that with high rates of taxation, volumes, and therefore taxes, will dry up. This was observed in Sweden and they removed all such taxes after imposing a 50-basis point and a 100-basis point tax in the late 1980s." (italics added to original).

The Kill market reformers have imposed a taxation rate three times my suggestion for deliveries, and the unkindest cut of all, at 15 times the recommended rate for futures transactions.

Note that 0.01 per cent on futures is presently being paid to Sebi and nobody even questions it (presumably it is for mid-day meals!). Worse, the know not, see not, learn not, market-knowledge proof reformers have put the same tax on stock and bond transactions!

Revenge of the system: Finally, let me mention that I find the almost universal reaction of industrialists (interviewed on TV) to be very positive on the Budget. But they are positive about every Budget. And that is the problem. There must be tremendous distortions in the economy, and tremendous power of the politician/bureaucrat, that makes such learned people cringe in sycophancy. Why are they afraid of telling it like it is? Instead of providing an arrogant human face, maybe the reformers should be concerned about their police state like power and influence.

That is the real objective of reforms "" when subjects do not bow to a majestic presence. That day will be the real revenge of all peoples "" the poor farmer and the rich industrialist.