While all political parties seek to represent him & profess to bleed for him, no one actually cares for him
It took quite some time for me to convince my young granddaughter who, after listening to the cacophony of the television channels, got confused that the aam aadmi is not just the mango man who sells the delicious fruit but someone special that every political party in the country is concerned about and seeks to represent. I had to also mention that, ironically, while all political parties seek to represent him and profess to bleed for him, no one actually cares for him. Although most often he himself does not know that he is the centre of their universe and is a subject of representation, he is too confused to know what he really wants. Perhaps, he would like to be left alone, but every political party knows what is good for him and he has no business to seek anything else.
In India, there is no moment without excitement. The second half of September was full of surprises. The much delayed decisions to raise the diesel price, liberalise FDI in multi-brand retail, aviation and power exchanges was sudden and unexpected. The opposition parties as well as the not-so-friendly allies were suddenly caught on the wrong foot when the government finally woke up from the slumber. Until then, the main opposition party was lamenting on policy paralysis and crying wolf on the ?coalgate?, but the ?policy profusion? stole the thunder and realigned the focus on reforms relegating everything else to the background, at least for the time being. Indeed, cleaning up the Augustan stables is important and hope that will be attended to, but the renewed focus on reforms is welcome.
I am yet to find a politician who would want to raise more money from taxes. It is also hard to find a politician who would want to reduce expenditures. While in our private lives we all would like to save huge sums to bequeath wealth to our progeny, we do not care if the government borrows large amounts of money year after year and leaves a huge debt burden to the future generation. We do not realise that today?s borrowing is tomorrow?s taxes. Perhaps, most Indians do not know that every Indian today carries a debt burden of R46,000, which will have to be paid back by way of higher taxes in the next few years.
The increase in the price of diesel was long overdue as the international price of crude oil has continued to be high and as much of the crude oil has to be imported, declining value of the rupee increased the cost further. The government had to either increase the price of diesel and recover the money from the consumers of diesel or pay higher subsidies and incur larger fiscal deficit, which would have increased the general price level. The impact on the poor from a general price level is much worse and the people who vouchsafe the welfare of the poor should prefer the latter than the former. Thus, the choice is between the devil and the deep sea and perhaps the government decided to bargain with the devil rather than falling into the deep sea.
Of course, the CPM has an argument that the fiscal concessions given to the corporates work out to a staggering amount and that could have been used to subsidise diesel. The ?tax expenditures? are also subsidies. In 2011-12, these amounted to R51,292 crore in the case of corporation tax, R35,698 crore in the case of individual income tax, R2,12,167 crore from excise duty and R2,76,093 crore from customs. Prima facie, these look staggering. However, a closer look at them shows that not all of these can be dispensed with. In the case of corporation tax, almost R36,468 crore was due to accelerated depreciation alone and withdrawal of this at a time when the manufacturing sector is facing difficulties could result in retrenchments and lower employment. In the case of individual income tax, almost R28,371 crore is on account of investments and payments under Section 80C (savings incentive) and there has been severe opposition to taking it out. There are serious errors in the estimation of revenue loss in both excises duties and customs as the loss is taken at the nominal tariff value and not the actual tariff value. Often, both excise duty as well as import duty rates are reduced to alleviate the hardship to consumers when the prices of essential items rise sharply and, surely, this is the revenue foregone to protect the interest of the poor consumers. This is not to mean that tax expenditures are desirable. There are area-based concessions and all sorts of tax preferences, which need to be reduced. The objective of the Direct Taxes Code is precisely to do this and hopefully unwanted concessions and preferences will be weeded out. But this is not the policy option available now.
The other major problem the government is faced with is unviable current account deficit and this has resulted in the sharp depreciation of the Indian rupee. The only way to shore it up is to undertake reforms that will bring in more foreign investment. In addition, in the case of retail trade, lack of competition has led the neighbourhood shopkeeper charging at least what is printed as MRP, which, unfortunately, has no relationship with the cost of production. The only way to minimise exploitation is to increase competition. Furthermore, the investor will be required to make 50% of his investment in back-end infrastructure. Apart from increasing the incomes of the farmers by avoiding the middlemen, it will also help to reduce the price to the consumer by augmenting the supply by reducing the wastages, which are estimated at about 35-40% at present.
There is no alternative for the country but to reform, and reform can be painful. The past sins of controls will catch up to increase the travails of the aam aadmi. We still have a number of prices determined by government fiat and, as and when they are decontrolled, the prices will rise to haunt him. If you don?t allow the markets to determine the prices, you will create more problems. The potential inflation in the country is much higher than the actual and this has serious adverse consequences on resources misallocation, growth and employment.
The author is director, NIPFP. Views are personal. Comments at mgovinda.rao@nipfp.org.in