Since the corporate tax rate on foreign companies has been reduced from 48 to 40 per cent, all of the increase here is due to the hike in surcharge and the expected buoyancy. The gains in income taxation are expected to come from a combination of buoyancy, changes in the dividend tax, the effects of the surcharge and a reduction in tax exemptions for savings by middle class households. And the increase in excise duties, which would now apply at higher rates on goods that were taxed at a lower 4 per cent, would be a burden on all consumers, rich and poor alike. This change in the structure of taxation is clearly regressive. The Revenue Secretary is wrong to say the burden would be borne by the middle class. It would fall heavily on the poor as well.
 
The problem is that this burden is unlikely to resolve the problem of revenue shortfall that the government confronted in 2001-02. The budget presumes that nominal incomes in 2002-03 would grow at the rate of 10.7 per cent in 2002-03 as compared with 10.9 per cent in 2001-02. The government expected to mobilise an additional Rs.38,000 crore by way of tax revenues in 2001-02 but actually garnered only an additional Rs.8,000 crore. Yet this time around, with nominal GDP growth expected to be even lower, it has budgeted for an increase in revenues of Rs.39,107 crore. It clearly expects the new taxes to do the job.
 
However, the slump in revenues last year was not just the effect of accumulated giveaways, it was also the result of the slump in demand and growth. The government spent an additional Rs.38825 crore last year, but could not correct for that slump. Even with its heroic assumptions regarding non-tax revenues it expects to spend an additional Rs. 45873 crore in 2002-03. After allowing for inflation, this is a small increase. Clearly that cannot achieve what last year’s effort did not. It is no surprise therefore that the Revenue Secretary is exhorting the private sector to “deliver”, ignoring the fact that the latter is waiting for the government to stimulate growth.
 
It is here that the fact that the government has missed an opportunity in 2001-02, and threatens to do so in 2002-03 as well, is of relevance. Budget 2002-03 exposes the complete paralysis in economic policy-making that characterises the BJP-led government. That paralysis stems from two sources, which together have trapped the government in a crisis of its own making. The first of these is the collapse in the revenue-generating capacity of the Central government discussed above. The second, is the persistence of a high interest burden resulting from the decision taken as part of economic reform to borrow from the open market at higher rates of interest than charged by the Reserve Bank of India. When combined with the goal of limiting the fiscal deficit, these trends have resulted in a loss in its room for manoeuvre. This has meant that despite the steep recession in the industrial sector, evidence of the persistence of a high incidence of poverty and the rising levels of unemployment and under-employment, the government has not been able to provide any thrust in the budget for restoration of growth and improvement in the welfare of the common people.
 
This paralysis is indeed shocking because economic circumstances are such that they provide the government with a major opportunity. Food stocks touched record levels of more than 60 million tonnes, foreign exchange reserves are comfortable and inflation rules at an all time low. These circumstances demand that the government should use the food stocks it has at hand to launch a massive food-for-work programme aimed at strengthening rural and urban infrastructure, with the complementary rupee resources required financed with an expanded deficit. This, given the easy supply situation would not result in inflation, but in an expansion of output and employment and a concomitant reduction in rural and urban poverty. Further, in as much as the recession is partly responsible for the collapse in revenue generation, as the Finance Minister himself admits, the recovery in growth would lead to an increase in revenues that would help sustain the investment thrust.
 
Despite protestations to the contrary, effort along the food-for-work front has been meagre. As Chart 7 shows, the expenditure on rural employment was raised by Rs.1300 crore in 2001-02, by introducing a food component of just Rs.800 crore. And the budget figures for 2002-03 expect to raise these expenditures by just Rs. 371 crore, though the food component is raised by Rs. 421 crore. That this is a minimal use of the foodstock should be clear from the fact that stocks with the government are valued in excess of Rs.50,000 crore.
Chart 7 >>