Monday, March 7, 2016

Why do budgets always squeeze the middle class? Why should secrecy cover budget proposals?

Indian budgets are presented on the last day of February so that Parliament and Government will have all of March to discuss and finetune it before a new financial year begins on April 1. (Another British era tradition stipulated that budgets be presented in the evening so that stock markets would be closed and adventurous traders could do no mischief. Yashwant Sinha changed that practice by presenting his budgets at noon. The skies didn't fall).

There are three features that make an Indian budget Indian. The first is that reactions to it run along pre-determined political lines. When a Congress government presents a budget, the BJP dismisses it as unworthy. When a BJP government is the presenter, the Congress condemns it as meaningless. That tradition was scrupulously maintained this time, too. The Congress said the budget had "no vision" and "no big ideas", BJP leaders hailed it as "historic" and as "a budget that touched the lives of 1.25 billion Indians". Were they talking about the same budget?

The second speciality of Indian budgets is that all of them are essentially the same, no matter which party is in power. The Narasimha Rao-Manmohan Singh budget of 1991 was the only one that was substantively different because it changed the country's orientation from socialist controls to capitalist liberalism. For the rest, all finance ministers play with the same fundamental ideas, like Arun Jaitley has done this time with the rural employment idea.

The idea of the state providing direct employment to the poorer sections of the population is as old as the Republic itself. Some states had already pioneered it before the Centre took it up. The National Rural Employment Guarantee Act enacted in 2005, provided at least 100 days of wage employment a year to unskilled poor families in the villages. Corruption marred its handling, but it was a bold scheme, the World Bank describing it as a "stellar example of rural development". Nevertheless, the Indian tradition of the opposition opposing for the sake of opposing held firm. The BJP described it as "a living monument to poverty". But the Jaitley budget gave a fresh coat of paint to the same monument, allocating Rs 34,699 crores to it. Well done, too. The realities of India are the same but their visibility depends on the angle of vision.

Ditto with the third feature of Indian budgets -- the eagerness with which whoever is in power zeroes in on the middle class for fleecing. The business class has their organisations and lobbies. The working class has their unions and strikes. Caught in between, the middle class is leaderless and unorganised, making them an easy target for squeezing. With their fixed salaries, their visible savings and their transparent transactions, they are the easiest group in the country to milk.

Look at the way petrol prices were kept high even when world prices hit record lows. The middle class cried foul, but no one heard it. This budget confidently increased excise duty on aviation fuel, knowing that every self-respecting airline will pass the buck to passengers which means the middle class. (The business class travels on company account, the ministerial class just had their travel budget more than doubled, and the MP-MLA class has free travel among numerous other free things). This when aviation turbine fuel costs 60-70 percent more in India than global prices. The middle class already facing rising cost of living, now has to face a situation where there are no tax-saving devices and no increase in income tax exemption limits; the increase is in service tax.

Considering the furore over the provident fund tax (a cruel idea), it is time to ponder why tax proposals cannot be published in advance so that they can be debated before the budget is presented. In other words, why not end the present policy of secrecy over tax proposals? (With electronic sweeping devices and Intelligence Bureau sleuths watching the movements of officials, the present secrecy blanket can be scary). A serious school of thought in Canada favours openness. In the US, the President's budget presentation is only a signal to start public discussions leading to final decisions. The Indian style of secrecy has encouraged lobbying and selective leaks favouring cronies. Openness on the other hand will give the public also a chance to play a part before the budget is finalised. All we need is a forward-looking finance minister to start a new chapter. Like Yashwant Sinha did with timing.

The skies won't fall.