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There are at least two ways to make up a deficit. One is to save, another is to earn more. The Government of India apparently prefers the feudal way, which was to tax the ryots! Now independent for 49 years, the Government has updated its list of victims. Today it is merit and achievement in industry and commerce it preys upon, in addition to the ubiquitous urban common man fixed in the popular imagination by the dhoti-clad and check-shirted Laxman character. Of course, the erstwhile ryot is now exempted from all tax as free India’s atonement for the yoke it has carried since Mughal times. Rich farmers are exempted too because the rural constituencies make up over 60 per cent of the substantial population. And which politician wants to look a voting horse in the mouth?

Foreign companies who flocked to India because of its potential are sitting here losing money because the thicket of different entry taxes is arcane and complicated despite steady reductions recently. Why can we not have a flat excise duty and a single customs slab? Would that not increase revenues from its great virtue of simplicity and do away with the arcane in import administration?

Waste and pilferage, on the other hand, is a constant in Go0vernment administration. Considering their track record, it is imperative they limit themselves to the true core provinces of the Government. Let us look at some examples. Electricity, already a rare commodity, is going up in price all the time to subsidise transmission and distribution losses which in some cases is as high as 50 per cent.

The sharp pre-budget petroleum products’ price hike was not just due to devaluation of our currency- which anyway is because of years of unbalanced budgets- but also due to tens of thousands of extra personnel that refine and distribute the stuff, working little and obstructing much. The pace of decision-making in the Government is so snail-like, that even a ruthless dictatorship of the Left, as in China, or the Right, as in Indonesia, with all their human-rights abuses, swarm ahead of us, at every turn becoming darlings of the international investor community in the process. Anything, it seems, is better than cobwebs growing on their files and mildew sprouting on their investment plans.

It comes down to this: No politician dares to address the issues on a holistic basis. Each one in turn makes his spot on the gaddi convenient and hurries away without a thought to tackling the problem root and branch. There is no denying that increasing taxes, provided compliance is enforced , is indeed a sure-fire methods to reduce Budget deficits, but reducing them to spur growth is a risk that could lead, after all to double jeopardy.

However, this cynical and short-sighted outlook has made a country the size and potential of India inferior to much smaller Asian countries like Indonesia, Malaysia and Thailand, not to mention tiny places like Singapore and Hong Kong. Before the first Budget proposals of the 11th Lok Sabha are finally canned, it is necessary for the rulers to commit themselves to the modern world. When the Prime Minister calls it a pro-poor Budget, and the reality is that the social sector spending allocations are the lowest in four years. I wonder who he is kidding? Can image ever substitute for reality?

The last Budget exercise was entirely defensive, with inadequate sops to various concerns of nation-building, akin to an attempt to feed a nation of Olivers with everyone holding up his bowl for more! How can the biggest and most productive industries be penalised for investing their profit into growth while the shamefully deficient public sector continues to squander the nation’s assets on lazy personnel and shoddy goods? Who is the Finance Minister actually putting on the mat? I would say it is the nation, because he is subsidising inefficiency and abetting sloth.

The sheer bulk of Government and its involvement in many things which are not its for province needs to be addressed. The CII (Confederation of Indian Industry) has already suggested how the number of ministers can be reduced but is anybody listening? Is a limit to hikes that can be applied to administered prices because it spurs inflation. There is actually no way out of the radical surgery to come if we go bankrupt- expect to make a beginning now. Otherwise, despite FII (Foreign Institutional Investor) interest and 12 per cent industrial growth, we are headed the USSR way.

The Government must show a sweeping will to privatise that puts pressure on the “lifer” government servants to perform or face the consequences. In other words, take away security of tenure and reward merit and achievement. This cannot be done without a catalyst and the agent of change is surely the private sector aided and abetted by foreign money. Large chunks of activity need to be taken away from government administration and the remaining core areas need to work with one eye on India’s place in the community of nations with emphasis on Asia in particular.

In industry, which has perked up considerably after the Rao administration loosened controls, the real growth will only come when the Government sheds its iron grip on monopolies and carefully structured bottlenecks from which vantage point it can reduce the private sector into a gibbering mess at will. The stock markets have long been waiting for some succour. The Government seems to take a sadistic delight in refusing to help. The Depository Act has taken its own sweet time and it is probable that the babus at SEBI (Securities and Exchange Board of India) will not lower their dignity by hurrying up to implement it. Still, it is very much welcome, even if it has taken too many years.

A fillip to investor sentiment could be given by removing double taxation on dividends. We should follow international practice in this regard and simply do away with this soft option of raising petty revenues. If this were done it would certainly attract a much bigger flow of funds into the bourses from domestic investors. The move to review MAT( Minimum Alternate Tax) is most timely as the reportage on 10 per cent of the PPF (Public Provident Fund) money being liberated from the clutches of Government approved securities for the bourses.

On the subject of exports our single biggest lacuna is a lack of quality. This is not necessarily a permanent indictment, but if we want to increase export earnings we have to offer quality goods and services. If the other much smaller “Asian Tigers” have done it, so can we. But we need the help of the Government to assist in a total modernisation programme. To paraphrase Professor Higgins, Oh! Why can’t the Indian Government be more like the Japanese Government?

Exporters are hampered by some of the highest indirect taxes and utility costs in the world. Imposition of MAT will not help them any more than the flat two per cent tax on all imports. Forty-nine years on, we remain an exporting nation of garment sweat-shops, diamond craftsmen, carpet sellers, software-supermarkets, commodity traders and handicraft vendors. The total hardly figures in the statistics of world trade. Nothing substantial is, as yet, exportable. Who on earth wants to buy Indian machinery?

So in the end, I have a conceptual formula to offer. One cut taxes to spur growth. Two, reduce the size of government and the public sector; and, three, emphasise quality in everything. Is anybody in the Government of India listening?

(1,260 words)

By Gautam Mukerji

First published in THE PIONEER www.dailypioneer.com on Friday, October 4th, 1996 in the main OPINION column on the Edit page

Postscript

Services now account for 56 per dent of the economy. Software turned into more than a “supermarket”. Manufacturing exports still suffer from quality issues but India Inc. armed with the Government’s over US $ 200 billion in reserves is addressing quality, technology and market share issues in developed countries by buying up companies all over the world.

The Government has, at last, substantially, if not in full measure, started assisting Business and Industry and is delivering consistent 8 to 9 per cent GDP growth.

Many of the Stock Market bottlenecks are gone and total FII investment in the decade gone by add up to over 52 billion dollars. If all goes well, this fiscal could see US $ 12 billion come in. FDI is expecting USD 38 billion in 2007. India has just crossed into the rarefied ranks of a trillion dollar economy…

Agriculture is languishing (2 per cent growth) and 60 per dent of India’s population dependent on agriculture have benefited only marginally from her inclusion as a fast-track BRIC (Brazil-Russia-India-China) economy and all the reams of newsprint devoted to exploring the ways and means of India and China being the greatest economic growth opportunities of the 21st century...

There is still no Provident Fund money in the Indian Stock Market.