Budget 2006 - Critical review of Budgeting process and
some issues in Public Administration in India


By
Prof. R.K. Gupta
Director
Sobhagya consultancy & Marketing services-India {SCMS-India}
Hony. President
Forum for Enforcement of Civil Liberties-India {India FORCE}
Professor of Management and Senior Business consultant
 


1. This budget as usual was prepared under limited space available to Finance Minister and his team the current political equation with Left- parties sharing the policy platform with congress. In some way it has kept check on runaway liberalization euphoria, which has till date proved to be anti- poor, if we go by various indices of socio-economic welfare and growth.

2. The same old beaten practice of cut and paste technique and lowering  taxes on a few things and then increase on some other things has been adopted. Nowhere concept of zero-base budgeting, setting growth targets and addressing distortion in economic and social administration systems is evident. This way you can always favor 2-3 industries by turn every year and collect moneybags for party funds and favors to politicians and their cronies.

Taking past budget as a base and then trying to mobilize more taxes is an idiotic approach. It is not 'budgeting' as a policy instrument. It is merely routine accounting of {Munims}.

3. There is hardly anything radically different in 2006 budget. I don't understand what government wants to achieve by varying taxes on umbrella and lipsticks? Is this the job of Union government? How it affects economy and productivity of country? Does it really matter if excise duty is 4% or8% on lipsticks or writing chalks?

What government should do is have simple three slabs 4 % 8% and 10% in all kinds of indirect taxes and duties and straight two slabs of 10% and 20% in Income tax with dividing income line of Rs 1 million per annum. All incentives and rebates should be withdrawn except for Provident funds and pension plans for social security and interest paid on housing purchase.

We are not addressing viability of a product industry by building its fundamental strengths and removing structural weaknesses, but merely  through tax regulation of government by giving tax relief and grants. This is old and outdated model of economics management and has no relevance left. Politicians are still functioning in 1956 mode.

In fact all tax manuals should be 4-5 page booklets with simple procedures and automated formats so that corrupt tax officials are taken out from scene and put on monitoring and recovery process in cases of tax evaders. They should be given tough targets and thrown out if not successful.

4. Middle class is again under attack this time through different route. Service taxes have been hiked which is bad decision.12% is too high a rate. You can't tax everything. Tomorrow you will tax housemaids and tutorial services and public toilets. It is absurd and stupid. It will result in now more tax evasion .It is unjustified too.{now 95 services will be under service tax-existing 81+15 new proposed including ATM withdrawal}.The argument to tax ATM use is bizarre and reflects old mindset of bureaucrats to try to regulate systems through taxation route. It is odd that you have to pay for taking out your own cash put in banks at virtual no returns on savings bank. Banks can charge overheads but how government can tax this?

5. An average Indian pays out almost 60% of his expenditure amount on account of various taxes only. So he gets merely 40% component as real value i.e. labor, material, design and benefits of products required in his average life routine. India is one of the most unproductive, mismanaged  and highly taxed country. Still the funds collected by government annually in  range of just Rs 4 lac-crores{INR 4000 Billions or US $ 82 Billion} is just peanuts.

This works out to only INR 3800/- per year per citizen.  What any Government can do by this meager amount and plan for citizens? And imagine almost 50% out of this being siphoned off or spent on government officials and clerks themselves, their salaries, perquisites and pensions etc.

All welfare schemes are meant for public servants only and not for people whom they are to serve.

Average Per capita income of a government (public servant in India currently )is 10 times that of per capita income of India. This is ridiculous. Is this country working to  feed corrupt, unproductive public servants? 98% of Indian people are feeding a package of luxury to just 2% civil servants at cost of their two time meals. There is need to contain the rot of corruption, slim down government machinery and freeze their salaries and perks which are umpteen numbers. The productivity of public servants is very poor and they are generally corrupt and misbehaved because of job security and lack of accountability. This is anti thesis in model of democracy.

6. Why government has so small collection? Reason is simple-Mass scale rampant tax evasion and parallel economy running in country. Actually India's GDP is at least double of official figures {may be close to three times}. This has direct impact on inflation, hidden currency circulation, havala transactions and pressure on resources. People who consume most services actually pay least as percent of their real income. Widespread theft of basic services and energy is causing havoc in economic and social welfare planning. Only middle class is squeezed out every year more and more.

Politicians are party to this game. Income gap is increasing between rich and poor. Prostitution, illegal affairs and now organized crimes are increasing in bigger cities and also small too, just because cost of living has gone up tremendously and there are virtually no jobs. Police force is totally criminalized and ineffective reduced to brokerage centers. Over last 15 years of so-called reforms and competition being encouraged, the prices of general use household items and even simple OTC medicines have gone up by in at least 3-5 times range excepting for auto and electronic goods, meaning average 20% annual escalation in Consumer prices. And every year government data lie about actual inflation rate.

7. Against this double-digit inflation rate we have fixed 6% FDR rate and are reducing Provident fund interest thereby impoverishing old citizens who will die of deprivation and penury. There is no social security net in India. Government is virtually forcing people to divert to stock markets whose operations are highly shady at the moment and illogically elevated prices are ruling in stock markets. These prices defy all theories and concepts. Greed and manipulation is behind this.

Mutual Funds are dumping common men's money there. Who is going to loose? Warning signals are clear.

8. The budget is not at all a long term or even mid-term planning document. It is based on very poor intellectual and expertise inputs. Problems like employment generation, increasing of productivity in economy, investment in long overdue judicial reforms and expansion, social security schemes like old age homes, effective logistics for commodities and goods distribution and storage facilities and a good infrastructure have not been addressed. India badly needs large number of decentralized new townships that are self contained with housing, hospitals, utilities, business centers and industries to release pressure on real estate and bring down soaring prices of land. Where black money is dumped too. Housing loans should be provided at low interest rates of 7-8% to encourage people to invest in housing and bring down prices of houses and commercial property. Stamp duties are too high in States forcing people to convert property into black assets. But knowingly politicians continue this.

9. Higher education is unnecessarily under control of State governments whereas most universities should now be privatized with well-defined UGC aid criteria, tighter quality control by setting up autonomous college councils and fixing of fair fees by an empowered panel in Ministry of HRD for private sector to meet expenses of quality education and seriously enter here. Same way allocation of funds in absolute terms for the schooling sector is peanuts despite charging of education cess. The biggest drain is government salaries and perquisites on unproductive, corrupt and unfit employees recruited by bribes, political connections and caste and reservations basis. This is of immense concern. Coupled with corruption in bureaucracy and siphoning off of almost 50% of public expenditures to the coffers of politicians, bureaucrats, engineers and contractors, hardly anything is left for actual public investment and  welfare.

10. Some new approach to public administration system coupled with fast automation and slimming down of civil services with moderate salaries  to them should be implemented. There is need to tame corruption in civil services and defense services too. Defense outlay should be reduced by India and Pakistan sitting together and resolving issues.

11. Education, healthcare, social security and basic services are lacking seriously in the country. We are moving towards chaos and crisis after about a decade's time. India is going to be largest polluting nation including local colony level pollution. There is going to be acute shortage of housing, land, water and electricity.

Selling cheap cars is not priority of this nation, nor to sell mobile phones and boast about highest growth rate of this sector in world. This is idiotic. These sectors are a liability and expenditure of resources with shortage of petroleum. In a country Where 1.5 crores people are added every year and you go and fight in WTO for Agriculture Market Access for exports of agro-goods, you should be talking about agriculture growth rate and not auto-sector and electronic equipment growth rate. Condition of agriculture in India is pathetic. The growth rate is too low. Farm productivity is poor. Basic commodities are not available to poor citizens and not at all affordable. What you will export?

India has no petroleum. So expansion of auto sector is foolish. Instead we should focus on mass rapid transport and decentralization of self-contained townships in massive drive to reduce land scarcity, which is causing meteoric, rises in property.

12. Basic and radical reforms are required to make country a healthy society to live where people feel safe, get two times square meals, have opportunities for employment and where honest can work productively Nothing of this sort has been addressed in the mere accounting jugglery of figures called Union budget. This certainly is not budgeting. I fail to understand why so many rebates and clauses are there in all tax manuals. Why can't they have simply a 4-5-page manual with simple procedures and all types of taxes pegged below 10% cap?

 No one wants to pay taxes in two digit rates? It is psychological barrier and there is no need for high taxes. But then how black money will be generated, how politicians and corrupt bureaucrats will thrive.

13. From 1991 to 2005,economic planning and public administration in India are more or less failure. Current budget is on beaten track and will lead to more misery to people in coming times. It is mediocre exercise without application of brain and not with good intents and future focus.

14 Conclusions:

The budget document should first list budgeting premises, the indicators used and the targets of growth and reforms set for next 5 and 10 years period, shortcomings identified in economy and the methods of budgeting adopted so people can critically evaluate proposals after approving the budgeting premises of government. Economic survey is not adequate document for this purpose and why it is put only one day in advance? It should come out at least 30 days in advance for people and experts to digest and comment and send budgetary proposals. Finance minister and his team should not think that they have got a unilateral license to impose whatever they think good or right just because they have been elected and empowered to do this. They are answerable to people and should consult in major issues before bringing out laws and budgets. This is how democracy should function.

Indian politicians and bureaucrats are still living in British colonial era just mentally replacing British and acting like them instead.

That is how an IPS or IAS behaves when you visit him or her. Arrogant, superior, elite and unaccountable with little indications of humility and realization that s/he is public servants and paid by visitors to work for their welfare and for general service of humanity. Their only qualification is that they have slogged and passed one UPSC examination with little proven background.

It is imperative to reduce Government establishment expenses of union and state governments to less than 10% of their annual budget or 2% of India's GDP. It is much more directly and indirectly. In fact corrupt nexus of Businessmen- politicians and bureaucrats drains off 50% of India's official GDP.

Citizens' satisfaction and feedback survey on an ongoing basis through Internet portals:

In the end I would suggest FM to come out next year with Draft budget after economic survey of India and circulate it. Ministry of Finance or Planning Commission should setup a portal where public suggestions and opinion about draft budget should be invited. These information and objections should be compiled and then incorporated in Final Budget document.

Citizen's satisfaction survey should be started in India for all major government services including police and judiciary as is done in several countries like US, Canada, Australia, Singapore to get broad public feedback about required reforms rather than from only a handful of psuedo-experts and opinion makers in power corridors.
 


Prof. R.K. Gupta
Director
Sobhagya consultancy & Marketing services-India {SCMS-India}
Hony. President
Forum for Enforcement of Civil Liberties-India {India FORCE}
Professor of Management and Senior Business consultant
 

Source : E-mail March 1, 2006

 

    

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