With one eye firmly on polls…
Finance Minister unveils the Budget.
“If you have nothing else to say about the Budget, then you can call it election-budget,” he said in a tone tinged with sarcasm at the customary post-budget briefing.
I picked up these couple of *interesting* items.
Interesting tidbit # 1:
Farm loan waiver revolutionary step: Sonia
“Today is a very happy occasion. The waiver of loans on farmers by the UPA government is a revolutionary step…I congratulate the UPA government and Finance Minister P Chidambaram for it”
The interesting bit is “a large gathering of farmers…descended at her 10, Janpath residence soon after the announcement of the relief in the Union Budget 2008-09” !!
I wonder where they were hiding until the budget was announced.
Interesting tidbit # 2:
FM doubles allocation for minority welfare
Finance Minister P Chidambaram announced that the allocation for the Ministry of Minority Affairs has been increased from Rs 500 crore in 2007-08 to Rs 1,000 crore in 2008-09….
A total of 256 branches of public sector banks have been opened this year until December 2007 in districts with substantial minority population. He also said that 288 more will be opened by March 2008*.
The bit that caught my eye: “Chidambaram further announced that more candidates belonging to the minority communities will be recruited in the Central Para-Military Forces.”
Hmmm…Do the paramilitary forces come under the control of Finance Ministry? Last I heard they were still under the MHA…Just curious.
If any of you noticed something else in the Budget that I may have missed, please share it here.
* In this context, some of you will find this post interesting: Specious Arguments and False Propoganda
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There is a Malayalam roughly translated as “Timber belongs to the forest; elephant belongs to the deity, then why bother, pull, oh, pull, pull!”
That why must one bother about 60,000 crores of Rupees.
After all it belongs to the mute givers of all kinds of taxes.
Of course, one has to forgive this govt for not thinking of an alternative to the writing off of the loan, as the govt itself has been written off by many.
Kartha
The excessive spending by this government is going to be felt later. The fiscal deficit is already large. Note that the reported budget does not include the subsidy for oil in the form of bonds. There is an excellent article on it here.
http://www.livemint.com/2008/02/26232943/India-needs-new-fiscal-pact.html
Added to that, the idea of a loan waiver to farmers is probably going to backfire. I am not comfortable with the idea of bailing out defaulters. Sends the wrong signal to the market.
this is minority vote bank politics of the worst king by Congress… i wonder why the media doesnt highlight these questions and grill the Congress spokespersons…
On how the govt’s borrowing binge and the overall debt-fuelled economic growth of the UPA years have left the banking system broken: Another dynastic legacy by V. Anantha Nageswaran.
Excerpts:
..When the NDA took office, the gross non-performing assets ratio in public sector banks was 16%. When they left office, it was 7.8%. In September, this ratio had climbed to 12.3% (including restructured loans), with one crucial difference. The absolute sum at stake is too large now.
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Why is India’s government-dominated banking system bankrupt? Why did bad debt rise rapidly in UPA years? An important reason is that the government destroyed the credit culture in the country with its farm loan waiver. In December 2007, the government announced a waiver of farm loans and included it in the budget for 2008-09 presented in February 2008, one year ahead of the elections.
A report in Mint published in February 2012 says that on the aftermath of the loan waiver: “… effects of the massive Rs.76,000 crore farm debt waiver announced by the government during the 2008 budget are now being felt in the countryside…At a banking conclave hosted by Mint on Tuesday, State Bank of India chairman Pratip Chaudhuri did not pull any punches when he said that the moral hazard created by the 2008 loan write-off has become a reality now
Excerpts from Please do your math Sainath By Ramanathan Subramanian:
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Sainath compares…farm-loan waivers and subsidies given to agriculturalists, with the tax-breaks given to corporate companies in India.
He asks: if we can afford to give tax breaks to the ‘rich’ companies, why not provide subsidies to the ‘poor’ farmers?
Tax breaks and subsidies are not the same
Let’s get one theory straightened out first. The most glaring manipulation in his diatribe is comparing subsidies and tax breaks and treating them as equivalents.
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….the tax I pay to the government is essentially MY money and does not really belong to the government.
…Tax is an imposition on citizens, not a state’s right in the strictest sense.
….a subsidy is taxpayers’ money which is being given to certain individuals or groups for their personal benefit. Loan-waivers are subsidies.
…Each one of us is morally within our rights to demand tax-breaks and legally evade taxes, and also question the government when it squanders our money away in the name of ‘subsidies’.
As Sainath rightly points it out, the loan waivers “never touched the most needy of them anywayâ€.
So I wonder why he takes an issue with us for calling these subsidies wasteful while he conveys the same in a different way. Ideally, all tax breaks should be encouraged and all subsidies shunned, irrespective of whether they are directed at the rich or the poor.
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if Sainath has a problem with those not paying enough taxes, then he should be directing his fury not at the corporates, but at the agriculture sector. We will get to that later.
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Since I suffer from acute number-crunchitis, allow me some number-frothing as I amjonesing for my fix.Sainath has used the 2013-2014 data as the centrepiece in his article, but that is just an estimate. As agricultural income data is also not available for the latest year 2013-14, I am going to use 2012-13 data provided in the same budget-document , which are revised figures. The tax-break for corporates in 2013-14 was Rs.5.72 lakh crore, and it was Rs. 5.66 lakh crore for the previous year, not much of a difference. So Sainath’s argument remains the same. A disclaimer here: I am no expert economist. So I welcome any shaming on account of wrong accounting.
Sainath’s main complaint is this: Why should the rich and mighty get an oh-my-god-5-lakh-crore rupee tax break? Fair question, no? No. Here is why.
Firstly, the elephant in the room: of the Rs. 5.6 lakh crore ‘forgone’, only Rs. 68,000 crore is direct-tax, rest of it which adds up to more than Rs.4.5lakh crore is indirect taxes, meaning those ‘tax breaks’ were not pocketed by the companies, but were concessions to the consumers as they are the ones who would have been charged eventually. Of course, this helps businesses by driving up demand, but is that a giveaway to the companies?
The fun does not stop here. A major chunk of the Rs.68,000 crore direct-tax ‘revenue forgone’ in 2012-13(Table 5), around Rs. 38,0000 crore is ‘accelerated depreciation’. That simply means that the company will pay the tax in the future. It is an incentive no doubt, but it certainly is not a giveaway like Sainath would have us believe.So looks to me, if you wade through all the numbers, the ‘giveaway’ for companies eventually falls down to around Rs.30,000 crore for 2012-13.
Now just for fun, let’s assume that Rs.5.6 lakh crore is a solid figure. For the year 2012-13, the total profit before taxes for the 6,18,806 companies accounted for in the report (link provided by Sainath) is Rs. 10.87 lakh crore. Further, at an average tax rate of 22.44%, these companies, put together, paidRs. 2.43 lakh crore as tax. What Sainath wants instead is this: Of the Rs. 10.87 lakh crore rupee profit-before-taxes, they should cough-upRs. 8.09 lakh crore as tax (that’s payable tax of Rs. 2.43 lakh crore plus tax forgone amounting to Rs. 5.66 lakh crore). If Sainath had his way, corporates would be paying nearly 80% of their profit-before-taxes as tax, making their business unviable, or pass this tax on to consumers, hiking prices severely.
These arguments will hold true for the 2013-14 numbers or the previous years’ numbers too. You can imagine what will happen to his sham Rs.36 trillion-estimate.
Look who pays no taxes
Now, let us get back to the agriculture sector which Sainath loves. As I mentioned earlier, if he has a problem with those who don’t pay taxes, he should look up how much agriculturalists pay as tax in India.
Barring some sectors like tea plantations which are partially taxed, agriculture is fully exempted from taxes in India. In 2012-13, the national income from agriculture was around Rs. 14 lakh crore. Tax paid: 0. Assuming farmers should be asked to pay a paltry 10% of their income as taxes, as opposed to the average 20-25% paid by evil corporates, the yearly ‘revenue forgone’ for agriculture is Rs.1.4 lakh crores rupees. At 22.44% tax rate, the same would mount to Rs. 3.18 lakh crore. So look at it this way, companies make Rs. 10 lakh crore a year and give away Rs. 2.5 lakh crore as tax, but the agriculture sector makes Rs. 14 lakh crore a year and pays nothing? Will Sainath ever tell us about this? Add to this, farmers get subsidy for seeds, fertilizers, water and electricity. Quite a party, eh?
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Sainath loves slinging mud at ‘corporate India’ as though they are all a bunch of thieves. We would fall into the same category if we dismiss farmers as freeloaders.
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In spite of zero-taxes and high subsidies, agriculture’s contribution to Indian economy is falling every year. Agriculture is the most regulated sector in the country. From pricing of raw materials to controlling the sale of the product, there is government intervention every step of the way. Should the likes of Sainath not be championing the cause of empowering poor farmers by taking control of the market rather than getting them hooked to farm-loans which only destroy their lives even further?