Wednesday, March 05, 2008

Some rambling thoughts on the budget and the middle class media

After Lalu Yadav’s friendly Rail budget, Finance Minister P.Chidambaram has beaten him in the game. Or so it appears. Small cars and motor cycles will cost less and the salaried classes will pay less as taxes come April 1, 2008. Those buying the big car, however, will pay a little more than they would have to until March 31, 2008. And investors in the share market will have to cough up a small amount as tax.

The media has presented the budget as election eve and is gone ballistic over the Rs. 60,000 Crores loan waiver for the farmers. There is an element of disappointment among the media pundits that Chiambaram has resorted to populism; the complaint is that he has sided with the farmers. The media is not critical that the Income Tax rates have been slashed. Nor is the media worried over the loss of revenue due to the reduction in taxes for small cars and motor cycles.

There are a few things that must bother those reading this column. And in a way, this has to do with the two different worlds that has come to constitute the India that we live in today. One world that is catered to by the English language press and the other world that reads this column. And before going further, let me clarify that I am engaged in both these worlds. And I do not have anything against the loan waiver as such. I am, of course, angry with the lowering of the taxes for small cars and motor cycles.

The reason for this is very simple. When the farmer is freed from the bondage of repaying his loans and that too because the farm sector is in a crisis, it is an incentive to him to return to his field and when he does that, he will end up producing food and other grains for the next year. This is not the case with the lowering of taxes on cars and motorcycles. The middle class man will now buy a car, drive it around, stop concerning himself about public transport and end up spending more money on his day to day life than he was until now. And he will also contribute to the country spending more of its foreign exchange reserves because petroleum crude will have to be imported.

The point is that when the farmer’s concerns are taken care, he contributes to production and when the middle class is indulged by the state, it contributes to increased consumption. This is why I will call the lowering of taxes for small cars as populist and not agree with those who frown at the waiver of farm loans.

The other quarrel I have with our ballistic media is the contempt with which the farm-loan-waiver is described as an election eve maneuvre. This is based on a premise that the farmers are un-intelligent and with such loan waivers, the manipulative politician will be able to get their votes in exchange for the loan waiver.

The point is that this will apply and certainly does in case of the urban middle classes to whom the lower IT rates and the cheaper car will be good enough reasons to vote Chidambaram’s party. But the farmer, in history, has proved his superior intelligence by punishing anyone and everyone who cheated him or those who took him for a ride. The farmer is capable of doing this only because he has a lot of time to think and reflect over a variety of issues than fall for the words and the antics of a demagogue. This attribute – of falling prey to demagogy – is true of the urban middle classes and we have a lot of evidence of this in our own history as well as across the world.

The third point about the discussion on the budget is the great invention by the media pundits that this is clearly meant at the next election. Well. This budget in any case had to be the last one for this Government because there is no way that another budget could have been presented before April-May 2009, when elections are due in any case. One does not have to be a rocket scientist to realize this and wait until Lalu and Chidambaram presented their budgets to write that this was the last budget before the next election!


Blogger Sam J said...

sir, i am a regular reader of your blog and want to thank you for presenting a new side to every issue that you take up for discussion.
As for the budget, don't you think it to be unpardonable that the finance minister is silent on the accounting of the revenues collected by the govt via the various cesses imposed on goods? wouldn't this threaten to encourage ad-hocism in govt accounts?

9:44 AM  
Blogger V. Krishna Ananth said...

Dear sam,
Am sorry I do not get your question right. The collection of cesses, incidentally, is accounted for by the various other departments that receive them in their own way and by the CAG. The Budget is only a sanction, by Parliament, to the Executive to collect the cess/taxes and spend the money in the manner it is specified in the proposals. The departmental standing committees, then, go into the details of the various departments and report their findings; the standing committees, in fact, have all the powers of Parliament and is a mini-Parliament.

Hope, I have explained your concerns...


9:01 PM  
Blogger Sam J said...

i probably did not put that right...i understood how the revenues from cess are accounted for, but i have a problem with the idea of a cess continuing for a long time. Shouldn't a cess be a temporary measure? If the govt. thinks that more revenues have to be raised for public welfare schemes, then why not raise the taxes?

10:39 PM  
Anonymous Cheri said...

A quick comment on the 650 billion rupees farm loan waiver: Chidambaram has played too smart by half, dressing up a sop to banks as a boon to farmers.

The true beneficiaries of the waiver are the state-run banks, who're getting bad loans wiped off their books and will now now cleaner balance sheets.

What of the farmers? The crisis of agriculture in India is that the state has withdrawn from the sector, and since 1990/91 has been making no investments, creating little infrastructure and eliminating state support. To get a farm loan, especially if you are a marginal farmer, is no easy matter.

A manager of a state-run bank told me sometime ago just 85 percent of the loan sanctioned is actually disbursed to the farmer. Then there are the cuts as well. "It's much easier to get money from a moneylender," he said.

The anecdote is supplemented by the R. Radhakrishnan committee's report on agricultural indebtedness, which quotes NSSO data to conclude: "... one-half of the debt of small and marginal farmers was from non-institutional sources. The marginal farmers received a relatively smaller share even from cooperatives and had to depend more on private moneylenders."

As a statistic, 80 percent of the farmers in India have small and marginal

Chidambaram has admitted his gesture would not help the farmers who have borrowed from non-institutional sources. But he was being very charitable with the truth when he said no one had suggested anything that could be done for them. The Radhakrishan committee report has recommended the setting up of a fund to pay off moneylenders.

On Friday evening, Chidambaram detailed the loan waiver plan. The government would pay 250 billion rupees to the banks in cash in July, and in three years time, would be fully financed in cash.

It would of course bump up the fiscal deficit. But it also gives the banks that much more money to lend -- and defenitely not all to farmers!

A loan for that second car, or maybe for a holiday in Pattaya, anybody?

10:53 AM  

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