Column: Budget 2014-15no more excuses

Written by Surjit S Bhalla | Updated: Jun 10 2014, 06:28am hrs
As the Narendra Modi government prepares its initial budget offering, I offer herewith a compilation of some essentials the Budget has to contain. Individual recommendations will be discussed in detail over the next three weeksfor a discussion of how corporate tax rate should and must be reduced see FE, No more band-aid tax policy, goo.gl/ce4aB3. Incidentally, that article forgot to include, in the high 30 % effective tax rate paid by Indian corporates, the 2% tax via the misguided Corporate Social Responsibility levy.

Vision

The Budget vision document should clearly emphasise the following. First, that there is a structural change implied in the mandate of the people. The mandate does not involve a shift from tweedledum to tweedledee. The mandate is not what happens in George Orwells Animal Farm: The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which. In short, the Budget should be different from the Congress Budgets.

It is also nobodys case, least of all mine, that Budget 2014/15 will suddenly make everything right; will magically make the economy grow, and provide jobs to the jobless, and toilets to those who dont have them today. But the Budget will be misguided, and the voters wrath shall descend on it, if it does not contain a vision, and a roadmap, of what will be done in the next three years. The Budget must also outline the economic philosophy of this new government and how is it different than what the people have just recently, and overwhelmingly, rejected.

Some key policy concerns and initiatives expected in Budget 2014/15.

Retrospective taxes: The latest defence of the most retrogressive (Neanderthal) policy ever initiated by the Indian government is that the GoI cannot reject, reverse, and remove this legislation becausethe CAG will ask for explanation of the potential, litigation-dependent revenue loss! I am not a lawyer, but let me see if I get the argument right. Before the former finance minister, Pranab Mukherjee, introduced this legislation in his reverse path-breaking 2012 budget, there were no retrospective taxes. Indeed, the government had to introduce new laws in order to invoke this stupidity. The CAG is just an arm of the government that attempts to ensure that government expenditures and revenue collections are properly accounted for. It is just an auditing agency, definitely no more and may even be far less. Just as the retrospective law was introduced, it can be removed too. What does CAG have to do with it The government must not, cannot, use the CAG fig-leaf for its refusal to actespecially not the Modi government.

Welfare expenditures: Does the government believe in the philosophy and economics behind the several bad subsidies that it has inherited The bad subsidies together account for more than 2% of the GDP, and belong to the following three broad categoriesfood, fuel and employment. Not only should these subsidies be eliminated, but there should also be expenditure accountability. For example, will the states be responsible for administration of the schemes or will it be bureaucrats in various central ministries If the latter, what is the rationale for continuing with a failed policy That good things can happen is indicated by the reformist state-led labour policy just announced by the CM of

Rajasthan, Vasundhara Raje.

* Fuel policy: No reason to modify the steady reduction in diesel subsidies to make them zero by the end of calendar year 2014.

*Jobs programme (MGNREGA): Both the CAG, and Jairam Ramesh, the Congress cabinet minister in charge of the programme, have endorsed the claims of many (including myself) that a lot of oddities and corruption are present in the administration of the MGNREGA. If there is any scheme that most aggressively represents the world according to Sonia Gandhi, it is the MGNREGA jobs programme. Why cant the Budget announce that this is the last year of the program, that it will operate in only the 100 poorest districts this year, and that expenditures will be reduced to R20,000 crore this year (a saving of R15,000 crores) and zero rupees next year. What better policy to signal that the Indian economic policy is beginning to change

* Food subsidy and Sonia Gandhi's dream, the Food Security Act (FSA): When the FSA was passed last year, Congressmen jumped out of their seats and into the streets to proclaim that the Bill had been passed, not because it was good, but because it was Madam Sonias dream. Well, the election results suggest that it was BJP's dream that the FSA was passed, and the Congress's worst nightmare. Surely, the BJP must recognise that the people of India see centrally-administered schemes like FSA and MGNREGA and diesel subsidies as retrogressive and immensely corrupt; that continuation of business-as-is with these policies will be seen as not only rejection, but also contempt for the people's mandate; that the people do not expect that all these programme will have been repealed by July 16, but do expect that they will be phased out over the next three yearsfuel and MGNREGA by March 2015, and the public distribution system (PDS) of redistributing food to the poor by 2017.

Oops, we cant do this is most likely the refrain of the politicians and the bureaucrats in charge of the ministries with expenditure cutsbut that is so very much the Congress thinking. Instead, a policy that reduces welfare expenditures, reduces give-aways to the middle man, and the politicians, and increases income transfers to the poor can also be politically popular. Consider the following set of policies. Eliminate all central government policies which have the prefix Nehru or Gandhi. Elimination of the above bad subsidies, and Nehru-Gandhi schemes, will release more than R3 lakh crore each year. If the government uses the post office banking system and Aadhaar to effectively and comprehensively target and deliver to the 200 million Tendulkar poor, then these R3 lakh crore will more than double the income of every poor person in India, eliminate poverty, and provide generous education and health care benefits to the poor.

In India, the strange story is that bureaucratic and vigilante power (and corruption) are also involved in the ministries with tax cuts. While politically popular, even tax cuts policies are opposed in India by the bureaucrats. Why Because both expenditure and tax cuts involve a reduction in bureaucratic power and influence. Part of empowering bureaucrats is also to make them act to eliminate their own jobs.

The very fortunate reality for the people of India is that prime minister Narendra Modi and finance minister Arun Jaitley have no place to hide. They have, and will have, no excuses for not presenting the most forward, and the most progressive, vision and budget in Indian history. I am more than confident that they realise the importance of this Budget and that they are up to the taskand that they will handsomely deliver. If not, it will be the shortest honeymoon in Indian political history.

The author is chairman, Oxus Investments, an emerging market advisory firm, and a senior advisor to Zyfin, a leading financial information company. Twitter: @surjitbhalla