Budget 2019: How Modi 2.0 can tweak taxes, raise public spending on crucial sectors and raise employment
There are glaring gaps in India's economy. Women, SCs and STs are slipping through these. It is crucial, and doable, that the Modi govt fills these gaps via Budget 2019.
My dream budget for 2019-20 will arrange taxes and expenditures in such a way as to reverse the situation that has gotten worse since 1991, when the so-called economic reforms mandated by the International Monetary Fund (IMF) started and was assiduously followed by successive Congress, UPA-1, NDA, UPA-2 and BJP governments.
All spheres of human activity, economic and social, including education and healthcare, were opened thus to private enterprise. The state withdrew from economic activities and provision of healthcare and education by the state became increasingly meagre, food security was endangered by enormous increases in joblessness and an increasingly attenuated public distribution system.
The impact of all this on particularly the most vulnerable sections of the population, SCs and STs, was particularly severe as the following table clearly shows:
The situation has hardly improved since then.
In 2018, India ranked 103rd among 119 countries, below many of the much poorer Sub-Saharan countries.
India’s average IMR in 2016 was 34.0 more than five times those of countries like Cuba, Canada and France — it can be expected that the IMRs of SCs would be even higher than that of the general population. India also has the largest mass of illiterate persons in the world — with one-quarter of the people still being illiterate. India also has one of the worst sex ratios in the world. It was 943 in 2011 for India as a whole, 818 in Chandigarh, 879 for Haryana, 919 in Gujarat, and except in Kerala and one or two states in the South and North-East, it was never near parity.
India has also witnessed the suicide of several lakhs of farmers all across the country, but especially in Maharashtra, Andhra Pradesh and Gujarat. One contributory factor has been the farmers’ indebtedness to money lenders and micro finance institutions, new players in a situation where many branches of public sector banks have been closed and they have been encouraged to renege on priority sector lending in the name of bringing down the NPAs of PSBs.
Let us see why it happened this way in a country that started with so much promise at independence.
Let us take the last item first — although there has been an ICDS programme for giving nutrition to expectant mothers and their children below six, the coverage has never been universal, remote areas being especially neglected, and Anganwadi workers very often not being paid for months in some states. As a result, when food was scarce in an India with patriarchal values, girl children often went without proper nutrition — and they died earlier than boys.
In some states, upper-caste girls and women suffered even greater relative deprivation than SCs and STs.
Let us now look at the percentages of GDP spent by India compared with other countries. India spends 3.8% of its GDP on education, compared with, say, taking some countries at random, 3.9% by Afghanistan, 4.0% by Albania, 5.3% by Australia, 5.5% by Austria, 4.2% by Burkina Faso, 12.8% by Cuba, 7.6% by Denmark and 5.5% by France. Most of India’s expenditure on education is incurred by private persons, the government spending just about 1.3% on education. With increasing neglect of public educational institutions, there has been a mushrooming of private institutions, increasing the burden on poorer people.
The Tapas Majumdar Committee’s recommendation for spending 6% of GDP on education has never been realised.
According to WHO figures, around 2016, India spent 3.66% of its GDP on health as against 5.27% by South Africa, 8.11% by Russian Federation — two other members of BRICS — and taking other coutries at random, 10.20% by Afghanistan, 6.70% by Albania, 7.55% by Argentina, 9.25% by Australia, 10.44% by Austria, 11.77% by Brazil, 6.75% by Burkina Faso, 8.53% by Chile, 10.35% by Denmark, 11.54% by France and 11.14% by Germany.
It is no wonder that the Indian expectation of life is lower than that of East and South-East Asian countries — and lower than even that of Bangladesh. Most of the expenditure on health comes out of private pockets, the percentage rising to 90% in some northern states. In states such as Kerala and Tamil Nadu, where the public health sector is more active, longevity is much higher than the all-India average.
Let us now turn to the area of environmental protection — including minimising the ravages of climate change. Before the advent of British rule, India had extensive forest cover except some desert in Rajasthan and Sind. Even there, the kings and nawabs had created special forest reserves, for hunting purposes. The British began commercial exploitation of forests, throwing out millions of forest dwellers from their habitat and tremendously increasing the erosion of soils without forest cover — leading also to the silting of rivers.
Unfortunately, the very same policies were continued by successive Indian governments, giving only nominal protection to STs, main victims of the government’s forest and mining policies.
But India is also the country of Rabindranath Tagore, who initiated the custom of the ceremonial planting of trees (Vana Mahotsav), a tradition continued by Jawaharlal Nehru. India is also the country of the Chipko movement started by Sundarlal Bahuguna. It is a proven fact that forest cover increases humidity in the atmosphere, retains soil fertility, gives shelter to flora and fauna, increases biodiversity and arrests desertification.
Despite that, and not fazed even by the rapid melting of Himalayan glaciers and the enormous sliding of rocks in Himachal Pradesh precipitated by construction of four-lane highways to facilitate tourism, the government has continued to follow the disastrous policy of taking the environment for granted. Its attitude is clear from the derisory amounts allotted in Budget 2018-19, under budget heads 223 to 234, which are concerned with the environment. On environmental impact assessment head and international cooperation head, the allotment was precisely zero — and the total allotment came to Rs 828 crore.
My dream budget would begin remedying these deficits in education, health care, women’s welfare, by doubling public expenditure on education, health, special educational and health schemes for Adivasis and Dalits, on ICDS and other schemes like girls’ hostels, not only under the Central government but also under state governments, which are responsible for most of the expenditure on social sector heads.
First, the public distribution system should be made universal, as in Kerala. In education, the public sector contribution should be raised to 3% of GDP., which will take the total to about 5%.
In health care, the public expenditure should be raised to 3% of GDP, which will take the total to somewhere around 5% of GDP (these are very rough and ready calculations).
In every case, the part specifically meant for women, Adivasis and Dalits should be tripled.
The money meant for environmental protection should be quadrupled, the policy of attaining low carbon emissions should be monitored, wherever possible, the use of non-renewable energy should be replaced by renewable energy (India has abundant solar power and tidal power), the felling of trees should be strictly monitored and all companies felling trees should be made to plant an equal number of trees. The Vana Mahotsav plan should be revived and the government should set up a target of, say, planting of 20 crore saplings all over India every year.
Where will the money come from for all these ambitious schemes?
Thomas Piketty, the author of Capital In the Twentieth Century has recommended 80% of income for the top 1% of earners, which he thinks will not infringe incentive for work or investment. In India, the highest marginal income tax rate is 30% for everybody, from Mukesh Ambani to a mere college professor.
I would increase the marginal income tax rate in two steps — 35% for incomes up to Rs 20 lakhs and 45% for all incomes above Rs 50 lakhs.
That is the top marginal tax rate in the UK and Germany. In countries like Denmark, Sweden and France, highest marginal tax rates are much higher ranging from 60% to 75%. I would also abolish special treatment for Hindu undivided families, which is invidious because families following the Dayabhaga law or families belonging to other religions than Hinduism cannot take advantage of it, and because a major portion of high incomes escapes taxation using that route.
I would raise the tax rate for domestic companies with turnover up to Rs 250 crore from the current rate of 25% to 30%, for domestic companies with turnover above Rs 250 crore from 30% to 35% and for foreign companies from 40% to 45%.
These changes should be enough to finance the increased public expenditure suggested above.
What will be the implications of all these changes?
The increases in public expenditures will at once lead to enormous increases in employment (India has been witnessing growth with zero employment growth) in educational institutions, public hospitals and health centres, ICDS schemes, schemes for women, Adivasis and Dalits and schemes of afforestation, renewable energy generation and schemes for the abatement of carbon emissions.
Special schemes will have to be devised for aiding farmers and workers in medium and small enterprises in trade and manufacturing, which are the primary sources of employment in the non-farm sector.