This union budget is supposed to be middle class friendly, but it is anything but that. All tax exemptions have been withdrawn, including those on housing purchases. Under the new income tax regime, somebody who does not avail of the existing exemptions such as medical insurance or investment in the stock market or in house purchase are supposed to be taxed at lower rates.
But it can be worked out that in many cases if somebody availed of the earlier exemptions, he would receive a higher after-tax income than under the new regime. The withdrawal of the exemption on house purchase under the new regime also badly affects the real estate sector, which has been in doldrums for the last two years.
It is loan default that made the IF&LS bankrupt. The real estate sector is the biggest employer of unskilled labour after agriculture. So what affects the real estate sector also affects a large percentage of the poorer working class in India. The real estate companies were looking forward to relief from the union budget. Instead of that the budget has dealt them and their employees a severe blow.
The Finance Minister has been willing to relax the self-imposed FRBM constraints. But she has done that by further lessening the tax burden of the corporate sector. That it does not work has been evident from the continual sliding of the rate of economic growth since 2017, now reaching a level about as low as it was about thirty years back.
That the effective demand in India has been on a downward slide from as far back as 2016-17 is evident from the continued fall in not only sales of cars, motor bikes and bicycles but also from the decline in sales of ordinary household goods such as soaps, biscuits and atta. Factories of Suzuki, Hyundai and Parle biscuits suspended production. Any sensible economist would recommend giving more purchasing power to ordinary consumers.
Moreover, India ranks even lower than many Sub-Saharan countries and malnourishment of women and children makes for a feeble workforce. Tamil Nadu has shown the way by universalizing mid-day meals, and Kerala has gone further by universalizing rationing. The Union budget shows no indication that it is aware of the severe problem of food insecurity for probably 60 per cent of the population.
It has in fact reduced the allocation in real terms for the MNREGA scheme and rural development in general. Again a healthy working class, members of which are also citizens of the country, requires a public health care system. Again, Kerala and Tamil Nadu have shown how a public health care system can greatly reduce infant mortality and raise the expectation of life.And these two states have better health indicators than practically all the BJP-ruled states, including Gujarat.
Instead the central government is bent on privatizing the whole health care system, which means that the poorer section of the population will continue to suffer from unnecessary morbidity and mortality, with a supposedly nationalist government callously looking on. The same stricture applies to its expenditure on public education. The Central government now spends much less than even poorer developing countries.
India spends 3.8 per cent of its GDP on education, compared with – taking some countries at random – 3.9 per cent by Afghanistan, 4.0 per cent by Albania, 5.3 per cent by Australia, 5.5 per cent by Austria, 4.2 per cent by Burkina Faso, 12.8 per cent by Cuba, 7.6 per cent by Denmark and 5.5 per cent by France. Most of India’s expenditure on education is incurred by private persons, the government spending just about 1.3 per cent on education.
With increasing neglect of public educational institutions, there has been a mushrooming of private institutions, increasing the burden on the poorer people. The Tapas Majumdar Committee’s recommendation for spending 6 per cent of GDP on education has never been realised. With a few honourable exceptions, private sector education is not only much more expensive than public education, it is also of a low quality.
The burgeoning number of engineering and medical colleges, not to speak of colleges teaching arts, sciences and commerce are producing unemployable engineers and doctors who do not know the basics of their subjects and their hapless employers or patients are short-changed by them. Similarly, many arts graduates cannot write a correct paragraph correctly in any language. The government is also keen on privatising all public services, on the ground that the organizations running them have been inefficient.
The prime example of that is Air India, whose efficiency was measured by its profitability. But its losses were mainly caused by political factors. It ran flights to the remotest parts of India, where private airlines would not operate, and it made losses there. Its planes were often commandeered by political bigwigs, leaving its ordinary customers in the lurch, who then deserted it for other airlines. Let us take LIC, which nobody can accuse of being inefficient.
It has served several hundreds of millions of Indians successfully and profitably throughout its existence. Why is the government selling 10 per cent of its shares – just to put money into the pockets of fat cats? If it is, this is the thin end of the edge; the public, if not the government should be warned by the fact that the US-based AIG, the biggest insurance company in the world went bankrupt in the financial crisis of 2007-08 and had to be bailed out by the government.
There are parallel examples in the world. Let us now turn to the Indian Railways, which have been always profitable and has successfully served millions of ordinary Indians, day in and day out. The government has already partly privatized and probably aims to eventually fully privatize it. Let me record my personal experience of privatization of railways in Britain, which had pioneered rail travel in the world.
When I was a student or teacher in Cambridge over the decade 1959- 1969, railways were our preferred mode of transport – they were cheap and efficient and were owned and run by the government. Then Margaret Thatcher became prime minister and privatized the railways along with gas and electricity. The private companies raised their fares.
The more they raised their fares, the more people deserted them for cars and buses. And the companies had to raise their fares in order to cover costs, and it became a vicious spiral. In the 1990s, I was travelling to Paris and meant to cross the English Channel by boat from Folkestone. When I arrived at Victoria and went to the scheduled platform, I found the train standing there, but no passengers.
When I asked a porter, whether the train would go to Folkestone, he said, ‘Yes, guvnor’. When I arrived at Folkestone, I found only a couple with a child as the other passengers. If this sort of thing happens here, what will happen to the vast majority of Indians who cannot afford a car?
(The writer is a distinguished economist, former Professor of Economics, Presidency College, Kolkata, and Emeritus Professor, Institute of Development Studies Kolkata)