Weekend Ruminations
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Come Budget time and it is surprising how much of the discussion is on tax rates and revenues — though these account for only 60 per cent of the Union Budget, up from about 52 per cent of the Manmohan Singh government’s last Budget. Non-tax revenues, including borrowings to fund the deficit, account for the remaining 40 per cent, or close to Rs 11 lakh crore, but there is little focus on how to boost non-tax revenues or reduce the level of borrowings by saving on expenditure. This is surprising, given how it is non-tax revenues that have fallen short even as tax revenues have grown faster than gross domestic product (GDP).

If tax revenues have done well, thank the oil windfall of 2014-16. Arun Jaitley used the opportunity afforded by the sharp drop in oil prices to soak up tax revenue, though some of it has had to be given back to the consumer. There is also work to be done on individual taxation as well as on goods and services tax (GST). But while the airwaves are full of noise on these issues, not nearly enough attention gets paid to non-tax revenues — where there are repeated shortfalls in disinvestment receipts and mismanagement of revenues from sectors like telecom. A government hungry for revenue has simply fallen back on the companies it owns, asking them to up their dividend payments or borrow on its behalf. This year North Block’s long arm also reached Mumbai to extract surpluses from the Reserve Bank of India.


Also read: Slowdown not recession says Nirmala Sitharaman: Is Modi govt still in denial on economy?


The flip side of this is the story of where the money goes. Lakhs of crores have been used to shore up the balance sheets of government banks, while the money invested in highways and railways has not yielded the returns it should have. More highways could have been monetised through maintenance and operations contracts that yield the government net revenue. The railways in turn is into the final phase of building high-speed, high-capacity freight corridors, but it is not yet certain what kind of traffic such lines will attract, given that the existing rail traffic is only partially containerised and new growth centres along the corridors are not yet up and running.

Meanwhile, another Rs 20,000 crore is being used this year to keep the postal department going, mostly because the pay and pension bill is much bigger than the revenue. This spares the blushes of perennial loss-makers like Air India and Bharat Sanchar Nigam Ltd, though their losses too run into thousands of crores. Talk of converting the postal network into a bank has remained just that: Talk. If the government were to demand performance from the companies and ministries concerned, the non-tax component of the Budget would get a booster shot, and there would be less infructuous outlay to support non-performing companies.

The irony is that the government thinks it has all the money in the world to give these companies, when the truth is that it is more strapped for cash now than at any other time in the last decade. Can the management of food stocks be made more efficient? Can shortfalls in payment to electricity generators get a prior claim on states’ share of central taxes? Can private shipyards be given business to see if they can deliver within cost and stipulated timelines, because today the public shipyards don’t do either? Can politics be taken out of pricing decisions so that the subsidy bill gets curtailed?

In short, there are many ways to make the government’s money go further — if the government were to bring to the task the same determination it has shown in persisting with the amended citizenship law? The key question is how much political capital the government is willing to spend on economic reform measures that will be unpopular with one or other section of the population. If Air India is not sold, will it be shut down? After all, private airlines have been shut, so why not Air India? To take such decisions, the economy has to become the government’s No. 1 priority, which it self-evidently is not at the moment.


Also read: Cutting income tax and raising GST makes no sense. Both need to fall together


 

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14 Comments Share Your Views

14 COMMENTS

  1. If Ambedkar ,was not a a PhD, imagine what a mess of a constitution we would have had. It is politically correct to say a leader must represent his group. A tribal leader must represent his tribe. a social science graduate becomes Finance Minister, a fifth pass tries to fit in several ministry and fails in all. It is because of lack of proper education. Nice to disregard this but is it practical in a parliament? A chaiwala becomes a PM, a stockbroker becomes a union minister, , a MA History becomes a RBI governor, a mutt head becomes a head of a State government……….. Prioritization is not taught. It is learned holistically by an educated man. Otherwise give him time to learn by on the job training.. Until then wait and do not fret.

  2. This is exactly the problem with quickfixes. They are lopsided. I have a problem with analyses that are making it out to look as though fixing the economy will fix everything else. It would merely be another way to camouflage all the horror that’s unleashed on those who are not the govt’s yesmen (or ‘yeswomen’). Merely emphasizing the economy would mean letting loose the socially unacceptable activities all around us.

  3. The economy is not going bad because the Modi government is focusing on ideological issues.

    It’s the reverse.

    It’s focusing on these issues because it doesn’t know what to do with the economy.

    It’s tried everything. Make in India. Skill India. Demonetisation. GST. Indian Railways reorganization. You name it.

    Nothing seems to work.

    The basic problem remains: India doesn’t make enough goods that neither Indians nor the world want(s) to buy.

    And who will buy Air India with their smelly aircraft?

    Most of these problems pre-date the Modi government.

    • The GFC – the closest the world came to Depression since the 1930s – predated Candidate Obama. He did not spend much time criticising George Bush. Rolled up his sleeves, got down to work. Two colours of business suit, so he didn’t have to obsess each morning over sartorial choices. Put the US on its longest economic expansion, something the follies of his successor have been unable to derail.

      • Not related but I was reminded. Fidelity investment, America’s biggest mutual fund. Since hundreds of fund managers work under them, a biggest and long study and the result shocked them and made them seem redundant. They found a fund manager who buys and locks it up, does nothing for years and years was always the best fund manager. No trading……….. it was doing nothing until you sell..A PM who does demonetization start CAA joke etc is doomed to sink, as was the case, the US. President have been proved since then in many cases. Investors hate this conclusion and try to be dismissive of it.

    • Quixotic way of doing demonetisation and ill conceived GST frittered away the benefits of low oil prices and gave big blow to economy. Doing nothing would have been much better.

  4. Cannot agree more. The author has succinctly put forward the shortcomings of the present dispensation. Unwarranted focus on non-economic issues have aggravated the current economic crisis. Sadly, after the death of Jaitely, there is no one in the government who has the authority, stature and capabilities to handle the scenario. The PM now seems to be taking keen interest in economic matters. This is a ray of hope. It seems that after somewhat unexpected electoral success in May 2019, the ruling party was carried away by the good fortune of securing absolute majority on its own. It seems to have interpreted this as a free licence to initiate in great haste. extreme ideological moves without understanding the long term consequences of such measures. Unfortunately this has coincided with growing economic crisis and subsequent setbacks in elections in various states. Thus a peculiar scenario has emerged wherein the ruling party at the centre, which had secured an unprecedented historical mandate in May 2019, , has to face steep decline in popularity and electoral reverses within just 7 to 8 months of securing the mandate. Ironically, the survival and future prospects for the ruling party depend not so much on its ideological ventures but on economic performance of the government. As such, 370 or no 370, CAA or no CAA, it doesn’t matter. What matters is GDP growth, employment, Agricultural distress, et all. If the government fails in this litmus test, it cannot hope survive in 2024.

  5. While there could be many actions that could be initiated to tackle current economic downturn, there is no doubt that this is the time for a fundamental review of our economic architecture at the political level by Modi and initiating set of reforms using his political capital and proper communication. If he sincerely sticks to ‘minimum government, maximum governance’ and Sabka Saath, Saab ka vishwas and Saab ka vikas ‘ axioms and follows it through, many cobwebs of the past socialist hangover days of Nehru-Indira days will vanish. Modi has a good opportunity to unleash new set of reforms and change the economic administration and policies fundamentally. He should not wait for Budget day for this!

    • The bhakt is still hoping that Modi will still be able to do something? Dream on.

      It must be nice to wake up every morning thinking how Modi will soo do great things and change everything.

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