For me, the Budget is Sahib ka saath, Sahib ka vikas: P Chidambaram
March 13, 2015
Former Finance Minister P. Chidambaram ripped apart the Union Budget while speaking on Headlines Today with Rajdeep Sardesai and on Aaj Tak. Excerpts:
A. I have never done that to any Budget. Please ask Mr. Yashwant Sinha, Mr. Jaswant Singh. This was a great opportunity for the BJP government to break new ground. They had 282 members on their side, add their allies 336. They had an economy that was mended - growing at 7.4 per cent this year, which the FM acknowledges in his speech. It was a great opportunity to leap forward. And what has he done. He has simply abandoned the poor. In the BJP's world view there are only classes of people - corporates, income tax payers and all the rest. From Aaj Tak: My complaint about this Budget is that it fails three critical tests... the fiscal test... because they have stretched the fiscal consolidation [target]; the test of equity... extremely important in a developing country where you have large number of poor... you have programmes but you have cut back on funding; and ultimately [it] failed the test of tackling rising inequality. This is a problem that every country faces.
A. Please understand that there are sharp cuts in many programmes in health, education and employment sectors. The Prime Minister's Gram Sadak Yojna, PM's employment programmes, ministries of culture, environment and forest, Project Tiger, integrated child service scheme...in every scheme there has been a cut.
Q. Let's look at the explanation that the government gives... the government says that the expenditure on social services may have been cut but isn't this what the Finance Commission report is all about... that before judging Mr. Modi and Mr. Jaitley should we not look at what the state allocations are... money has been transferred from the Centre to the states... you have jumped and said that it is anti poor...
A. The total devolution from the Centre to the state remains at the same level... 62 per cent according to Mr. Jaitley. The average over the past many years has been 63 per cent. And what does the Finance Commission say: we are giving 42 per cent out of the 62 per cent as untied but the central and state governments must get into an alternate institutional arrangement to fund health, education and other key sectors. Have you read Professor Abhijit Sen's dissent? He says that without an alternate institutional arrangement if you go with the 42 per cent this year, programmes will suffer. He has named three programmes - normal central assistance for plans, Rashtriya Krishi Vikas Yojna, backward region grants fund - will suffer. And that has been proved in the Budget numbers. .. all of them have been cut.
Q. Is it nitpicking... Surjit Bhalla says it's the best Budget since 1991... Swaminathan Aiyar too says it is a growth-driven Budget that provides a momentum to make it a truly competitive India...
A. Nobody is questioning that if the economy is growing at 6.9 per cent in 2013/14, 7.4 per cent in 2014/15 - and if they don't make serious mistakes, the economy will grow at 7.5 per cent or 8 per cent. Growth will happen. But the point is when growth happens, are we going to abandon a large number of people who are outside the market economy?
Q. The social security net does not impress you... the schemes designed for the poor do not impress you... that the government is not carrying forward your legacy of MNREGA does not impress you...
A. The others are promises... we will introduce this scheme... provide you with pension, social security - when they are rolled out and funded we will talk about them. No architecture on the schemes is being given. These are promises made. They have to be fleshed out. They have to go to the cabinet. Cabinet has to approve it. Maybe it will require some legislation. It will be rolled out in the year. Those are promises and if they are implemented, I will congratulate. But what happens of the existing schemes? Integrated child development services - sharp cuts. Rashtriya Krishi Vikas Yojna, Project Tiger, Ministry of Culture, Pradhan Mantri Gram Sadak Yojna - allocation has been cut.
From Aaj Tak: Why have they cut them? Either you say you don't want them and throw them out of the window. But if you keep the scheme and give them less money... how do I accept your argument that you want to help the poor.
Q. Let me pose the question in a different way... you say that the Budget is somehow pro-corporate India... if the corporate tax is to be reduced by five per cent over the next five years ... is it reason enough to call it pro-corporate?
A. You know the cost of this corporate bonanza. In the first year it is Rs 20,000 crore, second year it is Rs 40,000 crore, third year Rs 60,000 crore, fourth year Rs 80,000 crore, and similarly year after year. Corporates pay today 23 per cent, it is competitive. Why is the 23 per cent rate bad? Why is it necessary to compensate the corporate with Rs 2 lakh crore in four years?
Q. With top rates for corporates reduced to 25 or 23 per cent... is it not plausible that top rates for income tax payers will also be reduced?
A. I don't know. If he had brought the DTC [Direct Taxes Code] with personal income tax rates and DTC for corporate rates it would have been a different thing. But he has explicitly stated that he will not bring back the DTC. He has said that most of the DTC suggestions have been incorporated in the Income Tax Act. The Income Tax Act has a jurisprudential history and, therefore, I do not intend to bring the DTC.
A. I am not criticising that. A Budget must pass the test of equity. It must pass the test of rising inequality. This Budget accentuates inequality.
Q. How can it be tackled if there is no growth?
A. This is the old theory of trickle down. When growth happens, you will get your benefit. Nobody is against growth. Nobody can accuse the Congress government Budgets to be anti-growth. We were very pro-growth. Jobs were created in the first five-six years. Job creation declined after the international financial crisis. If the jobs are created, we welcome that. In the meanwhile, what happens of people who are dependent on these programmes? What happens to people who are dependent on Rashtriya Krishi Vikas Yojna?
Q. But what happens when the Centre transfers funds to the states for the schemes?
A. They have not transferred funds.
Q. Many of these schemes as you know have been inefficient?
A. Then abandon them. Don't say we will keep the scheme, but we will not provide money.
Q. The government is saying it is sabka Budget, sabka vikas...
A. You are not willing to face the truth. If the Rashtriya Krishi Vikas Yojna is a scheme you want to continue... why you have cut funds for that?
A. If you say that funds allocated for these programmes have not been delivered than why should I assume that funds allocated to the new programmes will be delivered? The same problem of delivery will be there. You have to assume that the government is equally efficient in implementing these schemes. You can't have it both ways.
A. There is nothing in this Budget on Make in India.
Q. You don't accept that the government says it will have a committee that will eventually result in a regulator...
A. I have heard this argument of single window echo from Gujarat to Assam for 20 years.
A. If it was working in Gujarat, then why is there unemployment and poverty in Gujarat? Why are people taking to MNREGA... which he castigated a few days ago? There is no debate between growth and equity. You must foster growth. At the same time it is the duty of any caring government to ensure that the test of equity should be satisfied. The Raghuram Rajan report places Gujarat in the middle among all the states in terms of recall of achievements. Gujarat is not at the top. In the argument of growth, don't forget that equity has to be served to a large number of people. Rising inequality is a cause of most social tensions, crimes and aberrations.
Q. If that's the case then why did you lose in 2014?
A. We lost control over the economy between 2009 and 2012.
A. Why should I find something violently offensive if I am given a bonanza of Rs 2 lakh crore in four years? This Rs 2 lakh crore will translate into incomes for them, salaries, dividends...
A. In 1997 we simply brought our tax rates to world levels - 10, 20, 30 per cent for the individual. And 30 per cent for the corporate, which has stood the test of time for 17 years. I am not saying that those rates should not be revisited. But revisiting the rates when you need resources... resources to fund programmes which you acknowledge, and you want to implement. You don't give up Rs 20,000 crore in the first year.
Q. The fundamental criticism that you have made is that the Finance minister has not kept his fiscal deficit down... the government's response is that there is trade-off...
A. By stretching the fiscal deficit from 3.6 per cent to 3.9 per cent, he gets 0.3 per cent additional borrowing, which works out to Rs 37,500 crore. Where is this money going? It is going entirely to non-plan expenditure. Total expenditure rises from Rs 16,81,000 crore to Rs 17,77,000 crore. If total expenditure is rising by Rs 1 lakh crore, correspondingly one would expect that planned expenditure will also rise. But plan expenditure is falling. Plan expenditure is declining from Rs 4,67,000 crore to Rs 4,65,000 crore. The entire additional borrowing and more is going into non-plan expenditure.
Q. Why not acknowledge that Modinomics marks a fundamental shift in mindset?
A. We appointed the 14th Finance Commission. The UPA drafted the terms of reference. Those terms of reference spoke about greater resource allocation to the states. The Finance Commission has come back by saying that 42 per cent of share of taxes and duties [should go to states] but the Finance Commission in my view ought to have either suggested an alternate mechanism or not left it to the government. Professor Abhijit Sen has a very powerful dissent. He points out that without the alternative arrangement if you simply transfer the share of taxes and duties at 42 per cent, keep the overall devolution at 62 per cent... these programmes will suffer.
Q. It was imperative to get growth... what Modi calls the Gujarat model...
A. I have always maintained that the Gujarat model is not the ideal model for India.
Q. It was embraced by India last year...
A. Will you turn around and say that Delhi has rejected the Gujarat model? They believe that a corporate sector driven growth model will eventually bring benefits to the poor. We are not against private sector driving growth, but the Congress party believes that while the corporate sector can drive growth, we need to ensure that the poor, their current needs are at least partially met.
Q. In your regime Rs 2 lakh crore worth investment projects... particularly infrastructure projects were stuck...
A. They are stuck today too.
Q. This government is saying that we are going to facilitate this... make sure that money comes in the economy...
A. I will give you a name and address. Anil Swarup - he headed the PMG of the CCI. Ask him how many projects that had been stuck had been unblocked and put on the track. Projects were stuck; we got many of them unstuck. Set the ball rolling, even today Mr. Modi's government has over a hundred projects which are stuck. If he is able to unblock them, I will be very happy.
Q. That is because in Parliament there is deadlock over the land acquisition bill...
A. There was a draft of the land acquisition bill with the ministry, several ministers have reservations. That's not the view of the government, that's the view of a minister or a ministry. The PM constitutes a group of ministers - the group of ministers trashes out a bill. That is the bill which eventually got approved by the Cabinet and passed in Parliament. I am defending that bill.
A. I am defending the bill that was approved by the UPA and passed by the UPA. It is the duty of every minister to defend that bill and I am defending that bill. If that bill is eroded by a muddleheaded ordinance, I am entitled to point out the flaws in the ordinance.
Q. If you were the FM what is the one thing that you would have or would have not done that Mr. Jaitley did or did not...
A. One thing I would not have done is give the corporates a bonanza of Rs 2 lakh crore in four years. If you need to revisit the tax rates, we will revisit it. But not a bonanza of this kind. We will bring back the DTC. The DTC was a code by itself, a self-contained code which had new rates minus exemptions. He is now saying that he will get rid of exemptions. He has not spelled what these exemptions are. This is something that I would not have done. If the corporates wanted to revisit the Income Tax Act, I would have brought back the DTC. That was my promise anyway. Secondly, we had restructured the centrally sponsored schemes into 66. I still feel that 66 is too many. I would have restructured it further, made it a much smaller number and fully funded them. Once I adopt a programme, once I say that this is a central government programme, I would have fully funded it. Given the programme money from my right hand and taken the money from my left hand. That is the kind of slate of hand...that is cruel to the poor.
Q. Do you believe that this Budget will put us on the high-growth trajectory?
A. There is a changing mindset... one which believes that the state knows the best... Who says that the state knows best?
A. 1991 onwards the Congress party was the first party to tell the people of India that the state does not know everything. We need the private sector to drive growth in this country.
A. If he follows the road or the direction of the road which we have laid, why should I criticise that? What I am questioning is that in walking down that path you have to pass the test of equity, which I think they have failed.
Q. Sabka saath, sabka vikas.... You will not accept that this Budget was about...
A. I will accept the slogan. But not in essence... not what after they have done to keep programmes which they acknowledge. The test of equity is one thing. What is happening in the country is - and this is developing in all developing countries and even in developed countries - the single-biggest challenge that all countries face is rising inequality. In a poor country if you don't arrest rising inequality... inequalities will become wider. This Budget accentuates the trend towards inequality. While they paid attention to investments, growth, private sector... they should have paused to say alright we have done all this... but let's ask ourselves is this Budget equitable? I am afraid they don't seem to have asked this question. I hope they can still ask the question and make the corrections.