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In India, exactly who benefits from government 'dole'?

By Somasekhar Sundaresan
Last updated on: March 15, 2016 11:43 IST
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'According to the government's Economic Survey, the Indian state's generosity is not restricted to its poorest citizens. In fact, in many cases, the beneficiaries are disproportionately the well-off.'

It has been a raucous and noisy time since the announcement of the Union Budget. It is not the content of the Finance Bill, 2016, (the legislation containing tax proposals that is tabled with the Union Budget) that has dominated the noise content.

But the question of whether taxpayer money should be spent in funding institutions that are home to unpopular thought on matters of State has occupied the front pages of newspapers and prime-time television.

A patronising chant from many in the upper middle class, particularly in the financial and corporate sector, goes somewhat like this: the tax paid from my hard-earned income goes to underwrite government support to universities like Jawaharlal Nehru University (JNU); and if that means giving scholarships to students like Kanhaiya Kumar, who at 28 should be earning his keep instead of depending on government dole, he better not say things that I do not like to hear. If he and his university cannot fall in line, I have every right to demand that government support to the university be cut off.

The amorphous "I am a taxpayer" label can be claimed by just about anyone paying tax, regardless of what effective rate of tax is being paid by him. However, a more in-depth analysis of who is a "beneficiary" of state "dole" would show that that label too can be pasted on just about anyone.

Chapter 6 of the Economic Survey 2015-16 titled "Bounties for the Well-Off" makes for compelling reading. "Subsidies for the poor tends to attract policy attention," says the introduction to the chapter.

"But a number of policies provide benefits to the well-off. We estimate these benefits… making assumptions about the definition of 'well-off' and the nature of neutral policies. We find that together these schemes and policies provide a bounty to the well-off of about Rs 1 lakh crore. We highlight that policies that are based on providing tax incentives will, in India, benefit not the middle class but those at the very top end of the income distribution."

According to the government's Economic Survey, the Indian state's generosity is not restricted to its poorest citizens. "In fact, in many cases, the beneficiaries are disproportionately the well-off."

Some of the commentary is telling: gold is taxed at about 1-1.6 per cent (Centre and states combined), although 80 per cent of the consumption of gold is by the top 20 per cent of the population, while normal goods face a tax of about 26 per cent by the same metric. There is no excise duty on gold while there is 12.5 per cent excise on normal commodities.

States tax aviation turbine fuel, which is used for flying planes and therefore is consumed by the well-off, at an average of 20 per cent. In comparison, diesel and petrol, which are used by a wider range including the poor, are taxed at 55 per cent and 60 per cent. That even after higher taxation, the lower-priced diesel meant for the rural poor is actually abused by the well-off to fuel their vehicle engines is another story altogether.

"There are a fair amount of government interventions that help the relatively better off in society. In many cases, this help takes the form of explicit subsidisation, which is surprisingly substantial in magnitude," the report concludes.

Another dimension of the issue is that the ratio of direct taxes to indirect taxes in government revenues - out of every Rs 100 of tax revenues, indirect taxes, which indiscriminately taxes everyone on the same footing, still roughly account for Rs 65, while direct taxes, which is meant to equitably tax on the basis of earnings and capacity, account for just Rs 35.

In other words, this means the government is paid a lot more from the taxes that the poor pay on the same terms as the rich, than from the taxes that is meant to tax in proportion to earnings and wealth.

The slant in fiscal laws is only one symptom of what is at play. Take the laws governing expropriation of private property. It is easier to acquire a farmer's land used for her subsistence under the land acquisition laws than to acquire a financial investor's shares in a listed company under delisting regulations of securities laws and squeeze-out provisions of company law.

The consent of 70 per cent of land owners in an area demarcated for acquisition is necessary for public-private partnership projects while consent of 80 per cent is required for acquisition by private entities. On the other hand, to be squeezed out of one's shareholding in a company, shareholders holding 90 per cent of the share capital have to consent. The very requirement for a threshold of consent for land acquisition is now being sought to be removed.

To come back to students aged around 30 who are allegedly on "dole", it must be remembered that most beneficiaries of chairs, fellowships and endowments established in international universities and think tanks by Indian businesses are elder to Kanhaiya Kumar. It is completely common for European and American post-graduates to not enter the job scene until their early 30s.

Their topics of dissertation can be as abstruse as those studied in JNU. If you don't question the views of IIT graduates subsidised by your tax payment, particularly when he trades bonds on Wall Street rather than put his engineering to use for the Indian state, or the travel route taken by SUVs fuelled by cheap diesel, you can hardly question the funding of students on the basis of their personal views, no matter how disagreeable they may be.

Somasekhar Sundaresan is a partner of JSA, Advocates & Solicitors. Views expressed are his own

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