To become a developed nation, India's implementation capacity must be as rapid and effective as its aspirations. The time for superficial or gradual reforms has passed. Now steps have to be taken towards decisive and fundamental change.
Bringing rich farmers under the income tax net
Effective monetization of government unused land
Development is possible only with active participation of states
Tarun Gupt. The budget that comes every year in February is seen as a national compass through which there is hope of solving the country's structural problems. However, the reality is that resources are limited, but the challenges are formidable. While the Union Finance Minister has an expenditure ledger of around Rs 50 lakh crore in his hands, the combined annual expenditure of the Center and the states reaches around Rs 100 lakh crore.
This huge amount is also less than 30 percent of our GDP. Whereas in developed countries this annual expenditure ranges from 40 to 50 percent of their GDP. Given our huge population, this gap of difference between developed countries and us in terms of per capita scale widens further.
Apart from the amount and quantity of expenditure, it is also important to understand its quality. About 25 percent of our total expenditure is spent on interest payments, whereas in most developed countries this level is less than 10 percent. In our context, the high interest payments are due more to expensive debt arising from relatively weak credit ratings than to the high level of debt to GDP ratio. Committed expenditure items like interest payments, salaries, pensions and subsidies alone absorb 60 per cent of our resources, leaving only 40 per cent to spend on infrastructure asset creation, social indicators like education and health and defence.
The budget process gets off to a bad start through inadequate expenditure allocation. Low per capita expenditure makes the situation worse. On top of this, weak implementation increases our problems manifold. As a result, several anomalies emerge on the development front, which the budgets of the Central and State governments have been unable to address. Since the central government collects and spends the maximum revenue, it naturally has to bear the burden of expectations. To spend more, the Finance Minister will have to arrange for more income. After relaxation in the level of direct taxes last year, reduction in GST rates in the middle of the financial year and contraction in customs duty due to coming into force of various trade agreements, now new ways will have to be looked for to increase the revenue.
Our tax-GDP ratio is around 12 percent, whereas in most developed countries it is in the range of 35 to 45 percent. The income tax paying population in India is between two to three percent, which ranges from 45 to 55 percent in developed countries. An important reason for this is the exemption of agricultural income from tax. About 40 per cent of our agricultural shareholders are out of the tax liability net. Therefore, rich farmers will have to be brought under the ambit of income tax. For this, either income above a certain level or agricultural land size can be used as the basis. This may seem politically suicidal today, but this is an idea whose time has now come to give shape.
Even with regard to disinvestment, we are not able to perform as per our capacity. The overall market capitalization of the giant PSUs is around Rs 40 lakh crore. Even if we do not talk about privatization, the government may be able to raise a lot of revenue by selling some equity while still retaining the majority stake. Monetization of land is also an opportunity full of immense possibilities. Since the government has the largest share of land, a large part of which is lying unutilized, its effective utilization can also open the way for huge revenue.
Rationalizing direct taxes should always be a priority. Taxing dividends at marginal rates in the hands of recipients is a clear example of double taxation, which is in dire need of reform. It would be appropriate to increase the standard deduction for salaried people and increase the limit of deduction on housing loan interest. Incentives to honest taxpayers must be at the center of our policies.
Under certain pressures, harassment by officials through surveys and raids is a residual trend of the socialist era. This should be ended. An effective system of speedy disposal of disputes, suits and refunds has become not only essential but imperative. Our intention should be to expand the scope of taxes instead of collecting taxes from a limited section.
It is natural that a society is more inclined towards tax compliance only when it has confidence that the resources of the state are being used in public service and not on the luxuries of the political-administrative elite. We also have to understand that the Union Budget can play the role of a catalyst and the Central Government can only show the way, but without the active participation of the State Governments, no radical change is possible.
Ease of living and human development index are essential conditions for ease of doing business. Anyway, the Union Budget has its limits and it alone cannot reach the target. At a time when the ruling dispensation is effective in almost two-thirds of the country, the ‘double-engine’ will have to go beyond an election slogan and be transformed into the reality of governance. To achieve the required paradigm shift as measured by human development indices and ease of living, states will have to keep pace with the Centre's fiscal intentions.
We have to strike a balance between making productive use of uncultivated land, bringing rich farmers under the income tax net, harnessing the potential of public sector enterprises, forging mutually beneficial trade agreements and implementing a well-considered and balanced trade policy. Only then can we hope to bridge our development deficit. To become a developed nation, India's implementation capacity must be as rapid and effective as its aspirations. The time for superficial or gradual reforms has passed. Now steps have to be taken towards decisive and fundamental change.
(The author is the managing editor of Dainik Jagran)
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