To
Smt Nirmala Sitharaman
Union Finance Minister
NDA government, critically dependent for stability on two important regional political parties, should respect federalism, move away from pro-corporate to pro-welfare commitment, as mandated by the Directive Principles
Dear Smt Sitharaman,
The NDA government now being critically dependent for its stability on two important regional political parties, the Budget for 2024-25 should reflect respect for federalism and move away from a hitherto pro-corporate approach to a pro-welfare commitment, important for the States and enjoined upon the government by the Directive Principles of the Constitution.
Here are some suggestions for your Ministry to move in that direction.
Raise additional fiscal resources, not by diverting tax-payer’s money to profiteering private companies, but by imposing additional taxes on them
It is ironic that big private businesses in India pay an abysmally low effective tax (Annexure 7 of the 2023-24 Receipts Budget showed that corporates, each earning more than Rs 500 Crores of annual profits paid an average effective tax at only 19.14%, compared to 24.82% paid by smaller businesses earning less than Rs 1 crore). This is highly regressive, as it widens income inequities and increases concentration of wealth, violating the spirit of Article 38(2) [reduce income inequities] and Article 39(c) [reduce concentration of wealth].
Simultaneously, to benefit big businesses, the government’s policies have encouraged a few corporate oligarchs choking competition and controlling the market in crucial sectors such as telecom, oil, textiles, consumer goods and so on, which in turn have fleeced the already distressed lower-income families.
The ugly display of wealth by some oligarchs these days is the symptom of the malaise of extreme concentration of wealth in the economy, consciously facilitated by a government that is in cosy relationship with them and is captive to a range of corporate largesses.
The Budget should move towards an inverted tax slab with higher taxes levied on high-income individuals and corporates.
Why divert tax-payer’s money to subsidise profiteering private companies?
It is not just outright tax incentives that have thus enriched big businesses in India.
Your government has introduced an open-ended PLI scheme (and other PLI-like schemes), granting them Rs 2,00,000 Crores of project cost subsidies over a 5-year time-frame. Those schemes neither guarantee employment, nor domestic value addition.
It is ironic that a US company agreeing to set up shop in Gujarat should get more than Rs 11,000 crores of tax-payer’s money as subsidy, a matter that has caused discomfort to other States.
Even Chinese companies seem to be becoming indirect beneficiaries of such PLI subsidies in strategic sectors such as solar, telecom and steel!
Should Indian tax-payer’s money subsidise private companies, that too foreign companies?
Giving project cost subsidies are not a prudent way to attract socially beneficial investments. Good investments will come if the government shows investors that it will provide a corruption-free ecosystem, a rule-based stable policy and strict enforcement of environment norms that provide pollution-free land, water and air.
The Budget should therefore announce dropping the counter-productive PLI & PLI-like schemes forthwith.
Many Centrally Sponsored Schemes (CSSs) give away tax-payer’s money to private companies, without commensurate benefits:
To cite one example of this, in the PM Fasal Bhima Yojana (PMFBY), during the last 5 years, the Centre and the States subsidised premium to a staggering extent of Rs 70,13,127 Crores during Khariff and Rs 43,24,333 crores during Rabi, the subsidies going to a number of private insurers, apart from very few PSU insurers.
The insurers profited from those subsidies, giving little to farmers by way of claim settlement.
For example, during Rabi of 2022-23 alone, the premium subsidy paid to insurers was a mind boggling amount of Rs 9,03,150 Crores, whereas the insurers in turn paid only Rs. 3,878 crore to farmers (https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1984068). In other words, 96% of the premium subsidy was appropriated by insurers, mostly private insurers and only 4% returned to farmers towards risk coverage! The scheme thus benefits private insurers more than farmers!
Many States are opting out of PMFBY because it diverts their own scarce resources to insurers, with little benefit to farmers. They find the scheme counter-productive (https://www.pib.gov.in/PressReleseDetailm.aspx?PRID=1906871)
Such schemes which have become vehicles for transfering tax-payer’s money to private businesses, should be discontinued. The Budget should make an upfront announcement on it.
Disinvestment of CPSEs- A failed adventure:
Your government seems to have failed to learn from the two near-scams in disinvestment, one in the case of Central Electoronics Ltd (CEL) and the other in the case of Pawan Hans, which would have caused much greater embarassment to the government but for a public outcry from the CPSEs’ employees and civil society representatives that aborted both the exercises at a final stage.
To justify disinvestment on the ground that it will bring additional fiscal resources is fallacious, as those private companies that bid for them raise resources from the same pool of savings in the economy from which the government can readily borrow on much better terms. Since DIPAM has deliberately precluded other capable CPSEs to bid, it has consciously limited competition, leading to selling CPSEs for a pittance.
Considering the fact that it was the States that invoked their eminent domain power in the past to acquire lands for CPSEs under the erstwhile land acquisition legislation which restricted such land acquisition exclusively to a “public purpose”, a term defined to imply lands required for a 100% public sector company, it will be prima facie illegal for the Centre to privatise any CPSE along with its land assets.
CPSEs, if nurtured and supported, can build self reliance in strategic sectors, at the same time, subserving the Constitutional mandate of empowering SCs/STs/OBCs through reservations. Article 39(b) [the ownership and control of the material resources of the community are so distributed as best to subserve the common good] mandates public control of material resources for promoting the common good of the society.
In principle, therefore, the unilateral decision taken by the Centre to disinvest CPSEs without consulting the States, has defied the spirit of federalism and hurt the national interest, without yielding any tangible benefit.
Taking note of these considerations, your government should announce in the Budget, immediate discontinuance of disinvestment and, in particular, drop proposals to privatise RINL (Visakhapatnam Steel Plant ), BEML, Shipping Corporation of India (SCI) and the strategic assets of railways and other CPSEs.
Constitutional entitlements to food and livelihood:
Right to nutritious food and right to livelihood are Constitutional rights of citizens. Budget allocations for fulfilling those rights have declined over the years.
The allocation for food subsidy over the last 3 years has declined by 25%, forcing many States to take on the consequential financial burden from their meagre resources, to provide nutritious food to vulnerable households, including adivasis, especially PVTG groups.
Similarly, Budget allocations for MGNREGA (rural employment) have come down steeply, bringing down the number of active rural workers from 11.2 crores 5 years ago to 4.55 crores now (https://nreganarep.nic.in/netnrega/all_lvl_details_dashboard_new.aspx?Fin_Year=2023-2024&Digest=WJEEpOm1k0Ptz2KJJGSoqA).
Such a drastic reduction of Budget allocations for fulfilling two important Constitutional guarantees violates the spirit of Article 38(1).
Budget 2024-25 should restore alllocations for food security, MGNREGA and other social security schemes.
Distress in agriculture:
The NDA government had in the past assured farmers that it would increase their incomes two-fold, without putting in place a well-designed plan of action. As a result of an increase in the cost of inputs, especially, oil and fertilisers, there has been an erosion in the incomes of farmers, leadiing to a crisis situation.
It is the State power utilities that have taken on the burden to subsidise electricity for irrigation in agriculture to maintain the nation’s food security. The Centre is neither willing to share their financial burden nor willing to grant subsidy for MSP for foodgrains based on the Swaminathan Committee’s recommendation, which would have provided relief to the farming community.
Considering that agriculture continues to form the backbone of Indian economy, the Centre has the obligation to announce 100% adoption of the Swaminathan-recommended MSP for foodgrains and provide adequate budgetary allocation to sustain it.
Allocations for education and health:
Unbridled privatisation of education has either precluded many disadvantaged households from enabling their children to access good educational institutions or impoverished them in their effort to pay for their admission in highly expensive private educational institutions. The recent NEET scandal is symptomatic of that crisis.
Similarly, unfettered privatisation of medical facilities in the country, without strengthening their public sector counterparts, has driven disadvantaged families to highly expensive, often unethical medical care institutions, crippling their finances.
The Budgetr should bring a paradigm change in both education and healthcare, by increasing allocations for strengthening public sector facilities in the States.
R&D- Technology Development:
Public sector allocations for R&D can alone enable India to be ahead in technological development to be self-reliant. Past budgetary allocations do not reflect the government’s commitment in that direction.
The Budget should increase allocation for R&D in the public sector.
Conclusion:
The Budget should not be a statement of hollow promises, without sector-specific allocations to reflect the government’s commitment to those promises. It cannot continue to transfer tax-payer’s money to fill the coffers of big businesses. A “big-business-as-usual” approach to the Budget will erode people’s welfare further.
The Budget cannot and should not be a one-year indication of outlays for different sectors. It should refelect a direction in state policy.
I hope that your Ministry has consulted the States in formulating the basic contours of the Budget in consonance with the idea of cooperative federalism.
I am circulating this letter widely to the States, different political parties and the public at large, to generate a wide discussion and debate.
Regards,
Yours sincerely,
E A S Sarma
Former Secretary to the Government of India
Visakhaspatnam
