The pace at which Government spending is increasing ought to be a cause of concern for all of us. The size of the Union Budget which was Rs.336 crore in 1950 has gone up to Rs.21.5 lakh crore. Even five years ago, in 2012, the total budget expenditure was Rs.14.9 lakh crore.
Tax revenues, which were Rs.10.77 crore in 2012, are now pegged at Rs.19.12 crore. Thus it would appear that the expenditure of the Government is escalating at a frenetic pace with increasing taxation fuelling the galloping expenditure. It is we the taxpayers who are financing the Government’s profligacy. Another cause of concern is that the increase in taxes has been asymmetrical.
Last year, indirect tax (Excise duty, Customs and Service tax) collections exceeded direct tax (Income-tax) collections for the first time since the 2006-07 financial year; which reverses the post-liberalisation trend that saw direct tax collections surging ahead of indirect taxes and the share of direct taxes in the GDP rising every year. In an economy like ours, where the share of manufacturing is hardly 15 per cent of the GDP, if indirect tax collections exceed direct tax collections then one can safely surmise that indirect tax rates are too high.
A classic case is of petrol which is sold at Rs 80 per litre though the landed cost is Rs 31 per litre. It is also not difficult to conclude that the trend of abnormal increase in indirect taxes, despite a fall in production (as evidenced by falling or stagnant PMI) shows that unconscionably high taxes are levied on production. This negates the various welfare measures meant for the poor. The high rate of taxation is hastening our evolution into a high-cost economy.
One reason for the surge in Government expenditure is the burgeoning funds at its disposal. Each department has increased its budget requirements simply because more funds are available. Money is often wasted because allocated funds cannot be gainfully utilised at the pace they are disbursed. A classic example is the UP National Rural Health Mission scam; thousands of crores were disbursed by the Centre to the UP Government, which had no idea how to use the funds. Ambulances and expensive equipment were bought. These lay idle and the rest of the money was simply defalcated.
The Government has justifiably expressed concern over the falling private investment in the economy but with higher taxes, disposable income with individuals and businesses has decreased sharply. Falling investment in the economy has resulted in a slowdown in our growth rate with almost zero creation of new jobs. Foreign capital is not attracted to India to any significant extent because of many reasons but mainly because of our inconsistent policies. For example, our Government has cancelled approved defence contracts worth Rs1.60 lakh crore in the last three years.
A recent survey found India almost at the bottom of the countries preferred by expatriates. With such disheartening vitals, we have to search for a home grown solution to our woes. A simple solution would be to cut down taxes with a concomitant decrease in government expenditure. This would leave businesses with surpluses which could be used for expansion of existing businesses and investment in new businesses. Also, the existing regime of high taxes has resulted in the flight of indigenous capital to foreign shores.
On many occasions, capital that has been stashed abroad is brought back to India as foreign investment in various fictitious names. This is a very inefficient way of using our own capital. Looking at Government expenditure, the current Budget is funding about 100 major schemes with a sum of Rs 6.75 lakh crore. Regretfully, except for some flagship schemes the outcome of the remaining schemes is seldom even mentioned.
Schemes are merrily renamed, recast, terminated, and abandoned till it becomes difficult to assess their success or failure. Despite humongous amounts being spent on social sector schemes, through the years we are far short of the Millennium Development Goals for 2015. Despite spending a bomb on the National Health Mission every year, we frequently have tragedies of the Gorakhpur kind. Contrast this with what happened prior to Independence.
The iconic Victoria Terminus (now Chhatrapati Shivaji Maharaj Terminus), was constructed in Bombay at a cost of Rs.13 lakh in 1887. Assuming price escalation at 1500 times, the current cost would be less than Rs.200 crore and that too for an architectural marvel which is a functional railway station even after 130 years. This is true of most of the initiatives undertaken in the past. Obviously, our ancestors were savvy enough to get bang for every buck they spent.
Then what has gone wrong? First, most of our schemes are conceived by armchair experts sitting in the myriad mantralayas in Delhi. Something that the bureaucrat has read about or seen in some foreign country is transplanted into Indian soil without any trial or survey. One has to examine the recent deliberations of Niti Aayog to realise the truth of this observation. Then comes the role of junior bureaucrats and accountants who draft the scheme in a way which requires mounds of paperwork from each beneficiary and rules out most of the deserving cases.
The result is that most of the money allocated for any scheme is either re-tuned or eaten away or spent on some peripheral object. Often the money allocated for a particular project does not bear any relation to the urgency of the project or its funding requirements at a particular stage or time. Sometimes projects are delayed to the point that fund requirements escalate manifold. In consequence, very few projects succeed and unqualified successes are few and far between. Many approaches have been tried to improve planning but none has been a roaring success. The Planning Commission, which was brought into existence in 1955 to draw up fiveyear plans, gradually became redundant. In 2015, the Planning Commission was replaced by Niti Ayog which is mandated to work as a think-tank. Zero-based budgeting has also been tried out.
An outcome budget accompanies every Union budget but the details provided are sketchy at best. Despite the limited success of the planning process, a change in the focus or direction of planning has never been attempted. Ideally, planning should flow from bottom to top and not top to bottom. A decidedly better alternative to formulating all schemes in Delhi would be to send bureaucrats directly to the field to find out the problems and possible solutions from the affected persons. A plan with identifiable outputs and a working blueprint would be prepared for each village or block with inputs from the affected people. Such plans would be aggregated to the district level, the state level and then the national level with each level taking responsibility for implementation. Instead of schemes, funds would be allocated sector-wise.
The outcome would be monitored at the village and block level to identify the shortcomings, if any. Also State budgets, which have similar objectives, should dovetail with the Union Budget so that expenditure is more focussed. Presently, money for Centrally Sponsored Schemes is provided by the Centre but implementation is left to the State bureaucracy over which the Centre has little direct control. Dovetailing of Central and State budgets would obviate this problem which has derailed many Centrally Sponsored Schemes. Decentralised planning would reduce expenditure because spending would only be on identified needs and only to the extent that money could be used productively.
Since we would have small-size plans at the village and block levels, the outcome would be easy to monitor and failures would be pinpointed. Finally, our planners and leaders need to remember Mahatma Gandhi’s advice ~ “Recall the face of the poorest and the weakest man whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him.
Will he gain anything by it?” Grand statues and bullet trains will not be of much use to the large number of the poor in our country. Another doubt arises; how long can our ridiculously low percentage of taxpayers sustain the increasing pace of Government expenditure?
(The writer is a retired Chief Commissioner of Income-Tax)