The finance minister reduced the income tax in the bottom bracket. It was a good, populist move; no one will mind him the popularity. But his chief economic advisor showed how lucky Indians are: a very small proportion of them pay income tax, and they pay very little. There is a case for taxing individuals more – not for higher tax rates, but for making a considerably higher proportion of individual evaders pay income tax. The finance minister has no idea about how to identify and tax them. Demonetization was a hit-and-run tax on them; it may have hit some, but it hit a much larger number of perfectly innocent Indians. In general, India’s 11 per cent ratio of tax revenue to GDP is low, but the government has done no thinking about why and what to do about it.
The government got almost 10 per cent of its revenue from dividends and profits of the enterprises it owns. We have forgotten that India was socialist once. After the 1991 reforms, it officially ceased to be; but the government sold little of the stake it had in enterprises. It continues to own a considerable chunk of industry. Almost two-thirds of its capital expenditure is incurred by its enterprises. The finance minister promised to sell its stakes as soon as he came to power, and has sold bits and pieces. The stock market has had its booms; it has one just now. Why is he sitting on all this equity? Why does he not sell it in the market? My argument is not ideological; I am not saying that the government should not own productive assets. But it must hold them through a sovereign wealth fund, and not directly; and the fund must be managed as a good mutual fund, and must aim to maximize return on the investment. If state enterprises had had entrepreneurial freedom, they would have done much better. Oil and Natural Gas Commission tried to invest in oil mineral assets abroad, but with little success; Coal India too tried, but failed. With greater freedom and initiative, they would have matched Reliance and Airtel.
I do not know if the Indian government holds a record for the number, but it has 100 ministries. They spend Rs 20 trillion – an average of Rs 200 billion. On a rough estimate, three-quarters of them spend less than the average; that is, they cost less than 1 per cent of the expenditure. That includes institutions that belong only in name to the central government, such as the Supreme Court; but even if we exclude them, there are at least 50 ministries which do little beyond housing a minister, his staff and his hangers-on. And because there are so many ministers, the chances of a ruling-party member of parliament becoming a minister are extremely high – something like one in three. Parliaments were meant to be talking shops – places where people’s representatives met, discussed, and worked out solutions. In our Parliament, hardly anyone wants to talk, few want even to attend; for many, the government is a machine for gaining money and patronage. Should the finance minister not think of restricting the number of ministries to 20 or 30? Ayurveda, Yoga, Naturopathy, Unani, Siddha and Homoeopathy were doing perfectly well before a ministry was set up for them. The department of post is a death kiss for the post office; if it had been an enterprise, it would long ago have diversified and grown far more.
The budget emerged in British parliament as a means for its members to control and direct the government.Our budget gives a good deal of detail about expenditure (rather, it has so many heads of expenditure that just listing them takes hundreds of pages); but it says nothing about what that expenditure achieved.Namami Gange – what did it achieve except doing obeisance to a sick river? Integrated development of tourist circuits around specific themes – why? What matters is tourists, not where they go. The eight plans carrying the name of prime minister – was there no irrigation or housing before our prime minister came along? There are four “umbrella schemes” for the development of scheduled castes, scheduled tribes, minorities and all remaining victims. Why? Does misfortune ask the religion or ethnicity of a person before striking her down?
I have said enough to show that our government is wrongly organized to get things done. Whether it is cleaning the Ganga or building a metro railway, the work requires a specialist, dedicated, skilled team; it must be put together when the job comes up and dissolved when the job comes to an end. The work that a government must do day in and day out is well known: it is justice, law and order, defence and external relations. The rest is not necessarily a waste of money, but it should not be done by permanent ministries. India has a government gone crazy; it needs a finance minister who would not find money for every government servant, but work out what needs to be done and who would do it most efficiently.
It would seem that I have wandered far from the budget; but I have related everything I said to some budget document. I have talked about precisely what the finance minister and his army of financial wizards talk about in the budget, but I have also asked questions they studiously avoid. It does not have to be that way. P Chidambaram asked the same question years ago, and came up with the outcome budget; it died with his defeat. But the question must be asked; otherwise it will never be answered.