See, No New Taxes

-- By Dasu Krishnamoorty

Budgets attract more barbs than bouquets. The Andhra Pradesh budget this year does not point out to any drastic departure from the previous beaten-track documents, thus explaining why the bouquets and barbs are also the same as in previous years. All the trumpeting about transparency and consulting all sections of society that heralded the budget presentation seems in hindsight a poorly directed and enacted drama. The finance minister claimed that the government had made modifications in allocations in response to the feedback it had received from the public. These, somehow, were marginal changes compared to the size of the budget and the needs of the various sectors of the community and are in no way a homage to public opinion. The finance minister assured the house that even this additional outlay of Rs 250 crores, made in response to public clamour, will be funded by non-tax revenues. This no-new-taxes obsession is a travesty of healthy principles of budgeting, especially after the government had failed to plug holes in the tax collection process.

Now, it looks as though dependence on loans is not only healthy and, therefore, desirable but also inevitable. Borrowing is justifiable if the state is capable of generating revenues to outlive the debt status. One of the ways to generate extra incomes is through the levy of new taxes or an increase in old taxes. If we look at the track record, it is evident that the government has set up a tradition to service all development programmes with the help of loans. The finance minister did not balk from asserting that borrowing was imperative to manage a fiscal deficit of Rs 499.31 crores. This soft option, perhaps, is irresistible when creditors are breathing down your neck with offers of loans. Both the chief minister and the finance minister declared that they would not shy away from borrowing for the cause of development. A fresh loan of Rs 1,200 crores from the World Bank is in the pipeline. But there is no word in the budget about the Rs 1,500-crore structural loan which was shown in the last year's budget. What happened to it?

To talk about indebtedness now may be passé, but to overlook it is to stop trying to overcome the problem and start treating it as something natural to all 21st century governments. According to the economic survey for 2001-2002, the state government would be paying an annual interest of Rs 5,406 crores, which is an increase of 24% over the previous year's figures. This year's budget has marked Rs 6,365.30 crores towards interest payments. The total outstanding debt at the end of the year is estimated to be Rs 42,556 crores, which is 28.6% of the GSDP (gross state domestic product). This is not inclusive of the loans taken by the state electricity board, the Road Transport Corporation and other corporations and guaranteed by the government. This debt burden, however, can easily be neutralised if the government can explore ways of collecting tax arrears worth nearly Rs 40,000 crores. The right to collect tax arrears could be sold to a private agency at a discount instead of writing them off for political reasons.

As usual and as declared by the government, all plan expenditure will continue to be met from borrowings. It has to be so because there would be very little left in the treasury after salaries are paid to the bloated government staff. The usual excuses of dwindling central funds and grants, pay commission obligations come in as handy alibis. Each year witnesses a consistent increase in non-plan expenditure over plan expenditure, indicating a skewed sense of priorities and an unabashed admission of helplessness in reining in unproductive expenditure. The huge increase of nearly Rs 8,000 crores estimated for 2002-03 for non-plan programmes is proof of government's failure to achieve the aim of gradually reducing non-plan spending. Yet the finance minister dreams of a future when plan expenditure will outstrip non-plan expenditure. See what happened last year. The plan expenditure for 2001-2002 was Rs 600 crores less than what was sanctioned. This year, non-plan expenditure will be more than double that of plan spending.

No linguistic or statistical fig leaf can hide the financial mismanagement manifest in the constantly increasing gap between revenue and expenditure. Fresh taxes can help but that is an option that the government is not willing to exercise for political reasons. A marginal addition to the revenue is from the proposed user charges. Even if this non-tax revenue from such charges is used for operational improvements in the departments collecting them, user charges are politically more indiscreet than direct taxes. The finance minister cited the untenable example of hospitals, which are the first and last resort of the impecunious sections of the society.

No state government has embarked so seriously on a path of unthinking privatisation as the Chandrababu Naidu government. According to Telugu daily Vaartha, the one "great victory" the government had registered last year was the planned destruction of the public sector. According to a design, 11 out of 12 public sector units were either privatised or restructured (by increasing private sector stake in the equity) or closed down. The finance minister said that this drive would continue, thus ruling out any attempt to rehabilitate 'sick' PSUs. Vaartha says that the bureaucrats are deliberately weakening the PSUs so that they may be declared sick and sold to the private sector for a song.

The opposition benches branded the budget as bankrupt, both in terms of money and ideas. They saw nothing in it to make the rural economy buoyant. The World Bank loans did not lead to any increase in capital expenditure and the government was silent on its claim of asset creation. The budget reflected the hand of the Bank in drafting the proposals, said CPI(M) leader N. Narsimhiah. While the government claims to have increased the budget for irrigation in response to feedback, in reality, there is a huge reduction of Rs 1,200 crores. The budget is silent on the impending hike in power tariff.

The finance minister claimed that the state had emerged as a major destination for foreign direct investments and that it had received 18 FDI proposals with an outlay of Rs 4,228.50 crores. Experience shows that only a small percentage of the promises become a reality. Two months before the last budget, memorandums of understanding for nearly hundred thousand crore rupees were signed. The silence of the finance minister about the total inflow of investment is more than proof of the illusory nature of such offers. True, the software sector is a silver lining in this bleak scenario.

The legislators, who accuse the government of squander mania, themselves are no specimens of frugality. MLAs in the state take home a pay packet of Rs 42,000, the highest in the country. In the last three years, their allowances have gone up three-fold. They include their salary, constituency allowance, conveyance allowance, contingency allowance, clerical assistance, telephone allowance, accommodation allowance, furniture allowance and now a new allowance called security car allowance. There are several other subsidies in the purchase of computers, for bus travel and of course, a pension. Many of the MLAs are said to bid for government tenders through proxies and run benami businesses. Ruling party MLAs spend their time not in their constituencies but in the party office lobbying for sinecures.

In short, the budget for 2002-03 is just a ritual listing of revenue and expenditure failures because on neither front has the government succeeded in reaching its targets. There is no mention in the budget of government's plans to get out of the debt trap except a vague promise to create more assets from the borrowings. The increase in non-plan expenditure is three times that of the increase in plan expenditure. The zero-based budgeting hardly yielded any results. The mere appointment of a cabinet sub-committee to oversee unproductive expenditure is no answer to the perennially growing administrative extravagance and ostentation. There will not be any substance to budgeting unless government agencies spend the funds made available to them for development work and stop diverting them to unauthorised avenues.