Reserving The Cess: Confusing End With Means

Updated: Jun 28 2004, 05:30am hrs
The Common Minimum Programme (CMP) is a binding document, although if the statements are vague and lack timeframes, there are degrees of freedom. Consider some elements of the CMP. First, a National Employment Guarantee Act, providing at least 100 days of employment every year at minimum wages for at least one able-bodied person in every rural, urban poor and lower middle class household. There is no timeframe, and one doesnt know what lower middle class means. Nor does one know how this can be implemented. There are states with delivery mechanisms and there are states where the administrative machinery is non-existent. Unfortunately, poverty and backwardness typically characterise states where the administrative machinery is non-existent.

Second, again without a timeframe, public expenditure on education will increase to 6% of GDP and at least half will be on primary and secondary education. There will be a cess on all central taxes to finance basic education. Notice that this is a cess on all central, not just corporate, taxes. Notice also that the cess is to finance basic education. Third, again without a timeframe, public expenditure on health will increase to 2-3% of GDP. No cess is proposed. Fourth, after a national dialogue, reservations in the private sector. And fifth, a special programme for social and physical infrastructure development in the poorest and most backward districts.

One shouldnt confuse the end with the means. The end is access to education, health, drinking water, sewage, sanitation, rural road connectivity, electricity etc to the poor. But the poor are primarily in rural areas and in backward states. An even better way to target the poor is to focus on backward districts. In targeting social sector programmes not unlike hypothesis testing there are two types of errors one can commit: Include the non-poor as beneficiaries and exclude the poor from the net. There are fairly objective criteria through which one can identify backward districts, even though district-level data are more difficult to obtain than state-level data. If one targets backward districts, the probability of including the non-poor as beneficiaries will be low. Inevi-tably, some poor who live elsewhere will be excluded from the net. Nevertheless, given the paucity of resources, this is sup-erior to spreading ones resou-rces thinly over almost 600 districts. And most important, the fifth point from the CMP sanctions such identification.

Here is one possible list of backward districts. In Assam one would pick Dhubri. In Bihar, one would pick Araria, Deoghar, Kishangunj, Palamu, Purnia, Sahibganj and Sitamarhi. In Madhya Pradesh, one would pick Bastar, Betul, Chhattarpur, Damoh, Datia, East Nimar, Guna, Jhabua, Mandla, Panna, Raisen, Rajgarh, Rajandgaor, Ratlam, Rewa, Sagar, Satna, Sehore, Shahdol, Shajapur, Shivpuri, Sidhi, Surguja, Tikamgarh and West Nimar. In Orissa, one would pick Ganjam, Kalaha-ndi, Koraput and Phulbani. In Rajasthan, one would pick Banswara, Barmer, Bhilwara, Dholpur, Dungarpur, Jaisal-mer, Jalor, Jhalawar, Nagaur, Pali, Sirohi and Tonk. In Uttar Pradesh, one would pick Bahraich, Banda, Basti, Buda-un, Gonda, Hardoi, Lalitpur, Shahjahanpur, Siddrathnagar and Sitapur. And so on. If necessary, lets debate the identification. But sooner or later, we will zero in on around 100 districts, not 600.

One shouldnt confuse the end with the means. The end is access to education, health, drinking water, sewage, sanitation, rural road connectivity, electricity etc to the poor
We now come to the fourth point from the CMP mentioned above: The reservation issue. Reservations are not a solution to the Dalit problem. While this is true, it is also true there is a Dalit problem. They are being bypassed by the growth process and we cannot afford this. The Dalit issue is partly a scheduled caste (SC) problem and partly a scheduled tribe (ST) one. To the extent that it is a ST problem, there is significant correlation between ST populations and the 100 backward districts. If one specifically targets the 100 backward districts, one will automatically improve standards of living for ST populations. Because SC populations are geographically spread out, that remains a more difficult problem.

We now come to the second issue in the CMP: The idea of a cess on all central taxes to finance education. This is a cess on all central taxes and is meant to finance basic education. As things stand, what is likely The cess will materialise in the Budget and generate resources channelled to the HRD ministry. Is the HRD ministry the right vehicle to implement improved basic education, as opposed to secondary or higher education Expenditure will indeed occur, but on higher education. And, more importantly, that expenditure will have doubtful efficacy, since it will not be linked to a tangible improvement in outcomes. We know that government expenditure is not terribly efficient and there are leakages and high administrative costs. This is what I mean by confusion between the end and means. The end is an improvement in education attainments and there is a better way and means of bringing this about. We dont know the magnitude of the cess yet. But suppose it is 5% of taxable corporate income. Suppose one were to, instead, insist that the corporate sector would have to spend this amount on improving basic education in the 100 identified backward districts. Better still, lets give the corporate sector an option. Either opt for the cess or opt for the expenditure on basic education route. If I opt for the latter, I dont pay the cess. Otherwise, the cess becomes applicable. Since corporate sector management is likely to be better than public sector management, tangible im-provement in outcomes is likely to be better if this route is adopted. Delivery of expenditure doesnt necessarily have to be by the company concerned. It can be outsourced as long as the requisite expenditure takes place with transparent accoun-ting. Even if the cess is on personal income tax, the idea can be modified through permissible deductions on donations. And it can also incorporate a cess on indirect taxes.

To factor in other elements from the CMP why just education Lets have a permissible menu of options: Basic education, healthcare, rural roads, drinking water, sewage treatment, sanitation, power. For that matter, even employment guarantees. How about also channelling all MPLAD funds into these 100 backward districts It seems to me that this kind of idea is far more efficient than a cess or reservations. Lets try it out for the six months that remain in the current financial year. If it doesnt work, six months down the line, we can always revert to the cess and reservations.