DOCUMENT
- Need for a Progressive Fiscal Policy in India: Need to increase Tax-GDP Ratio
- Stop favouring the Corporates at the cost of the Toiling Masses
- Decentralisation and Self-Reliance through Resource Allocation
- Unorganised Workers: Contribution—65 per cent of GDP, Allocation—0.01 per cent
- Budget-making with a Bottom-up Approach.
These demands resonated at a Press Conference organised jointly by National Alliance of People's Movements and People's Budget Initiative at Bhopal on February 12, 2013. Medha Patkar, Subrat Das, Jawed Alam Kahn, Soumya Dutta, Sachin Jain and Roshanlal Agarwal addressed the media.
India, facing unprecedented inequity in violation of Article 39 (c) of the Directive Principles in the Indian Constitution, needs a radical transformation in its Budget preparation process as well as content and fiscal policy and fiscal governance. While the intervention into fiscal policy by the non-governmental, non-corporate organisations and, through those or otherwise, by the common people and their representatives has been shrinking in the neo-liberal era; on the other hand, the corporate alliances such as the FICCI and CII, as also the IFIs have become much more influential than ever before. In this context, therefore, we must produce and present an alternative framework, challenging even the basics of the budgeting including allocation of resources and taxation proposals towards directing and monitoring the role of the state as a capital collector and investor with equity and justice as the goals.
Here are some basic changes and challenges with regard to the upcoming Budget put together by the National Alliance of People's Movements (a coalition of about 200 people's organisations across the country) and People's Budget Initiative, which is a civil society initiative on budget accountability, through a consultative process across five regions of India. In order that there is no ‘Exclusive Growth' furthered and the ‘Sovereign India' indeed makes its economy self-reliant at all levels—local to national—a transformation towards a truly ‘national' Budget is a must. With the politicians eyeing on 2014, let the common citizens judge the UPA and all in the Opposition with their approach to resource mobilisation and resource allocation through budgeting as a major exercise for the same.
Need for a Progressive Fiscal Policy in India: Need to increase Tax-GDP Ratio
The extent of government intervention for socio-economic development is much less in India than that in most developed countries and a number of developing countries, primarily because of
India's low level of tax-GDP ratio.
With a Tax-GDP ratio at 16.6 per cent, India makes a peculiar case, as even lower middle income countries (LMIC) are found to have tax-GDP ratio as high as 17.7 per cent, the country's tax-GDP ratio needs to be stepped up significantly in the coming years.
India's tax system lacks progressivity also
as it relies heavily on indirect taxes and much less on direct taxes. With a direct tax share of 37.7 per cent in total taxes, India's tax structure is not progressive at all. Hence, the government should focus on improving the country's tax revenue collection from proper implementation of the existing direct taxes and progressive reforms in the direct tax regime instead of increasing its reliance on indirect taxes.
The Human Development Report, 2011 by the Planning Commission indicates a scewed distri-bution of assets, with five per cent of the house-holds possessing 38 per cent, while 60 per cent of the households at the buttom own 13 per cent of the assets. The number of Dollar billionaires and millionaires in India goes upto 1.5 lakh.
In addition to untapped potential of Wealth, Inheritance, and Municipal Property Tax, low tax compliance at the individual level is another problem plaguing the Indian tax system. According to a very conservative estimate, around 44 per cent people in the highest income slab don't pay any tax, tapping which can help raise around Rs 87,282 crores, that is, approximately one per cent of GDP. Also increasing the peak tax rates, from the present 30 per cent to 40 per cent (for annual income above Rs 20 lakhs), can increase government revenue by approximately Rs 31,076 crores in one go.
Increasing Direct Taxes has an enormous scope. What we need is Amiri Rekha, not Garibi Rekha! Even if we consider Rs 50 lakh per capita as the valuation cut-off of property to be taxed, it will be not more than a few lakh persons in the country who will be directly taxed and the receipts to make GDP will be multiplied. This can on the other hand, help the state waive a number of taxes to a large population of common people in this country. It may be noted that there are not more than 55 billionaires and 1.5 lakhs millionaires in this country and a large number of Ministers and MPs are crorepatis; why not tax them making the majority of toilers tax-free?
There is an urgent need to plug loopholes in the India-Mauritius Double Tax Avoidance Agreement (DTAA) and other similar DTAAs, which are used for ‘treaty shopping' by MNCs and evading taxes.
Stop Favouring the Corporates at the Cost of the Toiling Masses
How much does revenue foregone under corporate income tax, excise and customs duty add up to across the years? The total magnitude of tax revenue forgone due to exemptions/ deduc-tions/incentives in the Central Government's tax system is estimated (by the Union Ministry of Finance) to be Rs 5,29,432 crores in 2011-12, which is a staggering six per cent of GDP. Add up the figures since 2005-06, and the grand total till date is about Rs 30 lakh crores. Another disturbing fact is that the revenue forgone as percentage of total tax collection has been increasing over the years. Even if half of the tax revenue forgone presently because of the plethora of exemptions in the Central Govern-ment's tax system get collected, it would generate additional tax revenue worth three per cent of GDP.
Considering this against the required additional spending of around 2.5 per cent of GDP on Education, two per cent on Health, one per cent on Food Security, two per cent on Universal Old Age Pension and around one per cent for Water and Sanitation, the government needs to restructure its revenue allocation parameters as also revenue mobilisation policy to raise additional revenues amounting to around 8.5 per cent of GDP. It should, therefore, be stressed that additional revenue needs to be mobilised through progressive Direct Taxes rather than charging the poor heavily on Indirect Taxes.
Decentralisation and Self-Reliance through Resource Allocation
Fiscal policy in the country should
promote substantive decentralisation,
from the Union Government to State governments and from State to Local governments. In this regard, the institutions and processes of planning and budgeting at the sub-national levels need to be strengthened, and the system of budgeting in the country should provide adequate scope for addressing locally felt needs in different regions.
If the 73rd and 74th Amendments of the Constitution, that is, Articles 243 and 244 are to be implemented, the following budgetary measures are a must:
• Devolution of financial powers to PRIs must be made on the basis of the Principle of Subsidiarity and financial powers should be devolved with requisite activity mapping.
• It is recommended that 10 per cent of Plan funds in Union Budget 2013-14 be transferred in the form of Central Assistance to Gram Panchayats with accountability to Gram Sabhas. The rest 20 per cent at least should go to the other strata of PRIs, as untied funds, with a strict condition of social audit once in six months or a year.
• With regard to making the implementation of schemes and programmes more effective, it is essential to provide for greater flexibility in the financial norms and guidelines of rural develop-ment programmes (on the basis of regions/local specificities).
• Capacity building of elected and non-elected representatives of PRIs and the communities is another critical area towards ensuring effective implementation of schemes and programmes.
Unorganised Workers: Contribution—65 per cent of GDP, Allocation—0.01 per cent
• It is estimated by the Parliamentary Standing Committee that the workers in the unorganised sector constitute more than ninetyfour per cent of the total employment in the country. There are a number of social security schemes as also a weak enactment providing some security measures. However, the National Social Security Fund for the unorganised sector workers was proposed to be set up with an initial allocation of Rs 1000 crores in 2012-13 (which is 0.01 per cent of the GDP) is nothing given the fact that they contribute nearly 65 per cent to the total GDP. As per the Arjun Sengupta Report, it needs to be at least 0.05 per cent, which too is denied. What an injustice!
• We demand that a minimum two per cent of GDP must be allocated for the Unorganised Sector. Minimum Wage for any and every type of worker should be fair and fixed as per the guidelines of the Sixth Pay Commission. There should be parity in social security measures among all categories of workers. All scheme-based workers such as Anganwadi, ASHA, Contract teachers etc. should be regularised and given discent wages and emoluments.
Agriculture
• Minimum Support Price for agricultural commodities should be based on the formula suggested by the National Commission on Farmers (NCF) and should be the total cost of production plus 50 per cent of the total cost. To encourage consumption-oriented farming and organic Farming, MSP for those products should be higher by at least 10 per cent.
• Agricultural crops including food crops should be given full insurance cover and 100 per cent premium must be paid by the government at least till a level playing field is established between Agriculture and Industry. In this regard, the Gram Panchayats should be made the unit for insurance coverage.
Education
• Union Budget 2013-14 must increase spending on education to reach the long-pending commitment of six per cent of GDP (Kothari Commission's recommendation, 1966) to ensure that there is universal quality education for all up to 18 years of age. (The financial norms for setting up these schools must be based on the Kendriya Vidyalaya standards.)
• There is urgent need to check unregulated private sector participation and all Statutory Educational Institutions must be improved in quality, quantity and adequate material inputs.
Health
• Enactment of an effective legislation to ensure right to universal quality healthcare.
• A long-pending recommendation that has remained unaddressed is the need for stepping up total public spending on health (Union and State governments combined) to three per cent of GDP.
Water
• A total paradigm shift from large centralised water storages to small decentralised water storage and management. Community and micro watershed, land-water conservation should get the priority and maximum resource allocation in this sector.
• AIBP funds are not serving the purpose but leading to distortion in priorities and violation of laws and policies, especially social and environmental. The AIBP should be scrapped.
Food Security
• There is a need to universalise the Public Distribution System (PDS) and do away with the Above Poverty Line/Below Poverty Line or other such categorisations. This necessitates an increase in the Budget allocation by two per cent of GDP from 0.7 per cent of GDP. Is that too much to ensure food for all? The PDS should be expanded to cover foodgrains such as millets, pulses, and edible oils with Social Audit at the Community Level.
Energy
• Out of about Rs 1,55,500 crore energy Budget (2012-13), less than now two per cent (-Rs 2200 crores) goes to all forms of Renewable energies, which constitutes about 10 per cent of installed electricity capacity, while about seven per cent of Budget goes to nuclear, which constitutes two per cent of installed power, and less than 0.7 per cent of total commercial energy consumption of India. Looking at the non-destructive nature of Renewable Energy sources, at least 20 per cent of Budget must go into this.
• Focus on Big Hydro and Big Coal should be stopped with a moratorium and climate friendly renewable energy development should get 30 per cent of budgetary support.
• The target till 2032 should not be unrealistic to give nine lakh MW particularly for the poor.
• Emphasise universal energy access and distri-butive justice.
Dalits and Adivasis
• The allocation of SC/ST Sub-Plan should be based on their number as well as the need of the region and sub-region.
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The dearth of allocation for Minorities and Children as well as for gender based budgeting in each sector and those should be non-lapsable.
• It is a must that the governments, both State and Central, conduct annual pre-Budget consul-tation with peoples' movements and civil society groups before it starts its process of Budget formulation. It is also necessary that there is a bottom-up approach in the Budget-making process.