It needs to be recollected the many finance ministers in the advanced capitalist countries have lost their job when they inadvertently hinted at a budget proposal. One such finance minister was confronted by a cigarette smoking journalist who was asking him as to what the forthcoming budget is likely to contain. This particular finance minister retorted that what the reporter is doing (indicating the cigarette in his mouth) would, henceforth, cost him more! And, that was it. The next day he was sacked.

It is a matter of principle that fairness in a democracy requires that all players -- the consumers, the producers and the traders -- are treated equally with the budget proposals coming before them at the same time. The finance minister has chosen to break such a tradition invoking the authority of the not-so-able prime minister's call "to de-mystify the budget-making process." The obvious concern of the prime minister was to avoid the repetition of the unprecedented embarrassment his government faced during last year's budget, when the finance minister was forced to roll back most of his major budget proposals.

In one of such a series of meetings the finance minister has been having with the representatives of the industry, at a meeting organised by the FICCI (January 18), he has made two major suggestions. The first is to increase import duties and the second of not lowering income tax rates any further.

Before we consider the implications of such deliberate leaks, let us have a look at the fundamentals of the Indian economy since the BJP-led government took over office. The table (below) gives an idea of the overall imbalance in the revenue of the present government and its expenditure. This and other data quoted here are from the RBI's latest Report on Currency and Finance released in January 1999.

MORTGAGING THE COUNTRY

As can be seen from the table, the near doubling of the government's expenditure has been due to various factors, most important being the government decision to go in for nuclear tests and the consequent rise in expenditure. In addition, the anarchic functioning of the government and its knee-jerk economic decision making has led to this unprecedented growth of expenditure. Compared to this, its receipts have seen a drastic fall mainly due to the concessions given in the last budget to the rich which, as we had pointed out in these columns then, amounted to close to Rs 9,000 crore. In addition, the continuing recession of the economy has led to a decline in tax revenues by nearly 10 per cent points. The net result has been that, according to the Reserve Bank of India's latest Report on Currency and Finance, the government has been borrowing Rs 319 crore every day from April 1 to December 8, 1998. As a result of this, the outstanding debt stock of the government stood at at a mammoth 53.9 per cent of the GDP the end of 1998. In the last budget, the government had anticipated interest payments on previous debt alone to the tune of Rs 75,000 crore. This has obviously jumped to a much higher figure.

What is worse, since this government took over office, the country's exports recorded a miserable 5.1 per cent negative growth rate. This is despite the virtual devaluation of the Indian rupee by more than 15 per cent. It was wrongly hoped that with Indian goods now being cheaper, exports would grow. On the contrary, imports became more expensive. On the other hand, the non-oil imports increased by 18.7 per cent widening the trade deficit to a whopping 5.8 billion dollars. This, in turn, would put further pressure on the government to borrow, further mortgaging the Indian economy.

At the time of the last budget, we, in these columns, had stated that the present finance minister, who in his first innings, had mortgaged India's gold, is bracing himself in the second innings to mortgage India itself. Unfortunately, this warning seems to be coming true.

VIDESHI BIAS IN NAME OF SWADESHI

The finance minister's current confessions on what the budget is likely to contain are, thus, to be seen in the background of such a grim economic scenario. His sudden suggestion to increase the import duties is being projected by the BJP as a reflection of its commitment to support the domestic industry and as a revival of its long forgotten slogan of "Swadeshi." The simple truth is that the finance minister needs more revenue which he hopes to garner through import duties. Their so-called commitment to "protect" the domestic industry was reflected in the spate of import liberalisation that this government pushed through in great hurry, gravely affecting the interests of the domestic industry. Apart from allowing free import of 334 items, the opening up of all vital sectors of Indian economy to multinational corporations, the unprecedented privatisation plans of the public sector, opening them up to foreign equity, and the urgency being shown to push through the privatisation of the insurance sector and to amend the Patents Act -- all reveal the growing "Videshi" or pro-MNC bias of the present government which is completely inimical to India's economic sovereignty, leave alone interests of the domestic industry.

Thus, having already ruined the Indian economy with adhoc policies lacking any vision, the finance minister is now making a scramble to garner as much revenue as possible for a window dressing exercise in the forthcoming budget to contain his fiscal deficit. In order to bridge this massive gap between revenue and expenditure that is pushing up the fiscal deficit widely beyond the target set by his imperialist masters, the IMF/World Bank, the finance minister has embarked on a course that will be much more disastrous for the Indian economy.

BAD ECONOMIC MANAGEMENT

The finance minister's first measure concerns the privatisation of the public sector. Having failed to raise the targetted Rs 5,000 crore in the last budget (only Rs 225 crore have been realised), the finance minister has gone through various options. First came the proposal of the "special purpose vehicles." In this scheme, the PSUs were to heavily borrow from the market and pay this new institution atleast 40 per cent of its equity which would then be sold to the public. This did not take off. Then came the suggestion that the profit making public sector units should buy back their own shares. This meant that the public sector should give its surplus funds to the government in return for a paper transaction of government shares in the public sector. Due to procedural compulsion, however, this task would not have been completed before March 31. So now, finally, has come the proposal of public sector units buying shares from other public sector units and, thus, releasing to the government a targetted sum of Rs 7,500 crore. What this means, in effect, is that the public sector units have to virtually hand over to the government Rs 7,500 crore, so that the fiscal deficit can be reduced.

This is nothing but selling the family silver to meet the current expenditures. This is bad economics. In one stroke, the government will cripple the profit making public sector units from modernising and bracing themselves to face international competition. The immediate consequences of this can be seen by the latest admission by the petroleum secretary that quality of fuel supplied by the public sector refineries cannot be improved for a long time to come. May be even ten to fifteen years, because there is no money for it! However, the Indian Oil Corporation will have enough money to participate in share swaps in the petroleum sector with other public sector oil companies so as to release funds to the government. Thus, the agenda of decimating the public sector would be sealed.

GROSS LOOT OF PEOPLE

The other major step being taken to reduce the fiscal deficit is to siphon the huge surpluses that have accrued to the oil pool account due to the fall in the international prices of oil. This money belongs to the Indian people. After a big struggle during the United Front government, the decision was taken that any surplus that accrues to the oil pool account due to fall in the international prices will be passed on to the Indian consumer through a reduction in the prices of oil and petroleum products. This has now been blatantly violated by the present BJP-led government. According to estimates quoted in these columns earlier, the government is likely to have a windfall saving of Rs 20,000 crore on this count (Economic Times, December 12). Even after the nominal reduction announced in the price of diesel and other costs, the savings would be to the tune of nearly Rs 15,000 crore or one per cent of the GDP. Through these two measures alone, the government is seeking to siphon off anywhere beyond Rs 20,000 crore of money belonging to the people to meet its deficit. Such a gross loot of the Indian people should, in no way, be allowed.

Of the two proposals made by the finance minister at the FICCI gathering, the second of not wanting to further reduce the income tax rates is actually diabolic. He has virtually stated that he will not increase the tax rates despite such a massive gap between revenue and expenditure. In other words, what he is committing is that the concessions already being given to the rich will be maintained and the exercise of reducing the fiscal deficit will be done either through a reduction in expenditure or by transfering public resources from other heads as noted above. Such a strategy can only impose greater burdens on the people. This is so because nearly 75 per cent of the government's expenditure goes for previous commitments like re-payment of loans, debt servicing, payment of salaries and wages, etc.

Any reduction of expenditure, therefore, can be done only in the remaining 25 per cent which has to take care of both the social and economic infrastructure of the country. Any reduction here would mean the meagre expenditure of the government, already woefully inadequate to meet the people's needs for food, subsidy, health, education, civic amenities, etc, would be further reduced. This would adversely affect the livelihood of millions of Indians already groaning under the onslaughts of price rise.

Further, any reduction in the government's capital expenditure to develop the economic infrastructure, which again is woefully inadequate, would lead to further pressures, intensifying the recession in Indian industry. For, the capital expenditure by the government on the one hand creates the necessary infrastructure for industrial activity; on the other it generates domestic demand by employing a large number of people which, in turn, invigorates industrial growth. Thus, a reduction of government expenditure on both these counts will only lead to deepening domestic industrial recession and mounting greater miseries on the people.

THERE IS ONLY ONE OPTION BUT...

If the government wishes to avoid this disastrous course, the only option it has is to increase its revenue. This can and must be done by increasing the rates of direct taxation as well as extending the tax base by taxing the rural rich. This is all the more necessary if we were to consider that India today has one of the lowest ratios of central tax revenue to GDP in the world. While it is less than 10 per cent in India, it is 32 per cent in Britain, 38 per cent in France, 27 per cent in Germany, nearly 50 per cent in Scandinavian countries; in the erstwhile Asian tigers, before the current crisis, it was 20 per cent or more. The economy of a country of India's size, dimension and complexity cannot be sustained by such a narrow tax base.

But then, this is the moot point. The present government, being the representative of the Indian ruling classes and succumbing to imperialist pressures, cannot take such measures which the country and its people need but which go against the very interests of the Indian ruling classes. Hence, to protect the interests of the Indian ruling classes, this government is engaged in an exercise that will lead to further mortgaging of Indian economy and its economic sovereignty on the one hand and further burdening of the common people on the other.

It is this trajectory that needs to be firmly opposed by the majority of Indians whose interests and livelihood are being mortgaged to serve the interests of the ruling classes.

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for 1998-99 Performance

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Revenue expenditure 15 28.5

Revenue receipts 17 11.7

Total expenditure 13.9 29

Tax revenues 17.8 8.6

Industrial production 10-11 3.6

Fiscal deficit 5.6 just under 7

GDP growth 6.5-7 just under 6

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Note: Growth in per cent terms.