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In India, govt is no solution

July 13, 2004

For all democratic societies, Budget Day is blessed with an overarching sanctity. If the general election determines who will speak for the people in the state, the Budget is the occasion for the state to negotiate the financial arrangements of its contract with the people.

Yet, despite the loftiness of the occasion, the Budget has become the occasion for institutionalised perversity. In India, it is the grand ceremony, the great media event, where failure is generously applauded and success punished. It is the day when the art of politics is subordinated to what Edmund Burke decried as the rule of sophists, economists and calculators.

From Indira Gandhi's vicious and vindictive socialism to India's belated discovery of the markets, the fundamentals of the Budget has not changed. Nor has the sound of applause for the mantra of the day become less voluble.

Yesterday, it was the refined, 'bush shirt' aristocracy (Sagarika Ghose's telling description of the genteel souls who, by the way, also ruined India) who gave the ammunition for pro-poor redistributive exercises that taxed the rich more than they earned.

Today, it is the equally genteel cluster of fellow-travellers and NGO promoters, the new claque around Sonia Gandhi, who cheer the reversal of the low tax regime that elevated India from Third World to second division status.

When it comes to twaddling with budgetary statistics and their rationale, Indian gullibility is astonishing. We have routinely genuflected before the slogan-shouters and their pet economists. At the pinnacle of the Nehru-Indira consensus, we were told by those who went on to win Nobel Prizes that it was socially useful for public sector units to incur losses.

We were told that poverty would be banished if control of banks, insurance and trade in foodgrains were nationalised, the markets insulated from free trade and luxury goods (which at one time included refrigerators and talcum powder) taxed out of reach. We were told that imports were bad because it was better to reinvent the wheel rather than buy the cheapest tyres available in the global markets. We were gripped by what America's neo-conservative guru Irving Kristol once described as the 'egalitarian animus against any programme which threatened to benefit the non-poor.'

There were few who raised their voices against the madness of the socialists. One of the few who year after year warned this drift to disaster was Nani Palkhivala. Year after year, at his post-Budget lecture in Mumbai's Brabourne Stadium, Palkhivala spoke out against punitive taxation, against over-regulation and against government sloth. The editorial classes treated him as another Parsi eccentric, the faculty of Delhi School of Economics ridiculed him as a corporate charlatan, and he was sneered for his 'rightist' views by the leaders in khadi and their red cheerleaders.

Today, few can deny that Palkhivala and the Forum of Free Enterprise were right. For all their bush-shirted brilliance, economists like Sukhomoy Chakravarti, K N Raj, Amartya Sen, et al, were guilty of quackery which cost India dearly. They led us up the garden path even as we all applauded their brilliance. As Jagdish Bhagwati, one of the intellectual refugees from Indian socialism, once wrote in despair: 'India suffered the tyranny of anticipated consequences from the wrong premises.'

The moral of the story is simple: Economics is too serious a subject to be left to economists. Unencumbered by an understanding of human nature and politics, they invariably make a mess of trying to control people's lives.

Let us take the example of what I call the UPA Government's Red Tax, the two percent cess on all taxes that will be earmarked exclusively for education. This is a measure that has been applauded by everyone, from the Communists to the Swadeshi Jagran Manch. In theory, everyone seeks an improvement in the quality of India's human capital. In theory, no one begrudges the HRD ministry another Rs 5,000 crore to spend on schools and meals for children.

In practice, however, there is very little faith that the HRD ministry's total Budget of Rs 16,000 crore or so will be used judiciously and effectively. The vexed issue of 'implementation' that the prime minister and finance minister referred to is a euphemism for the conviction that this large sum is a government grant for misuse by bureaucracies, Communists and NGOs. In these days of focused research, it would be instructive for a scholar to compile the data of exactly how much the government has spent on education since 1947 and whether or not the expenditure justified the results. Do we, for example, know that subsidies in one form or another add up to nearly 13 percent of GDP?

If it is an open secret that the government's 'delivery' systems are flawed, why is the state pouring more money into a bottomless pit? Is the Red Tax going to end up as productive India's seed capital for a new political network centred on NGOs and Communists to eventually rival the Sangh Parivar? If that is the case, the two percent rate is only a beginning. In time to come, the jholawala aristocracy will be insisting that we pay more by way of the Red Tax.

The central point is that there is precious little in the functioning of the government to justify either a high inflation rate or the diversion of resources into taxes. These are the two pillars on which this year's Budget rests. There is no effective system of audit and accountability in the government to justify competent use of additional resources.

Rajiv Gandhi's honest confession in 1988 that less than 15 paisa out of every rupee disbursed by the government reaches the actual beneficiaries still remains uncontested. Where the demand should be for less government, because the state sector is corrupt and decrepit, the new Budget has asked us to pay more taxes. Even those who may be celebrating their departure from the income tax net (because their taxable income is less than Rs one lakh) may find they are paying more by way of indirect taxes.

It is an affront that has to be meekly stomached because some people have to recoup losses from being in opposition for the past six years. In the process, India has begun the regression to mediocrity. We have become, as my friend Chandan Mitra wrote recently, a nation without ambition. This has happened not merely because we pay too much tax, directly or indirectly, but because there are not enough people in the political class to stand up and say No to this expropriation.

In India, the government is no solution; it is the problem. This is why I think that it makes sense to view India's ingenuous tax evaders, not as criminals, but as persecuted political dissidents.

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