Indian Budget'08: When is "sop" Not a "sop"?

Sop (n.): A piece of food soaked or dipped in a liquid; something yielded to placate or soothe; a concession given to mollify or placate, etc.

The highlight of the India's Annual Budget yesterday was the waiver of Rs.60,000crore ($15bn approx) debt to the small and marginal farmers.

Some hailed this as "revolutionary", while others criticised this as a "populist stunt" - a "sop" given with the next year's elections in mind. In either case, both sides agree that this is "whopping" amount.

[Though this is not the focus of this posting, my own understanding is that this debt relief package will not be able to solve the farmers' debt problems - for two reasons:


• According to the pre-budget Economic Survey, non-institutional sources (e.g., local moneylender, traders, relatives, etc.) account for more than 40% (or Rs.48,000crores) of farmers' debt, which is taken at exhorbitant interest rates, and
  
  
• The debt relief touches only the symptom, and not the root-cause. Farmers take debt because the production costs have gone up, remuneration for produce has gone down, and state investments in building farm-related infrastructure. Quoting from an earlier post in 2005:
  
  "...So why are Indian Farmers indebted?
  
  The decline in agriculture started during 1980's, with the decline of public investment in the sector — in irrigation, marketing infrastructure like warehousing, mandis, etc, and seeds and extension services. From 16.4 per cent in 1979-80, plan outlay in agriculture and allied activities slumped to 4.9 per cent in the Ninth Plan (1997-2002), making farming, always the most privatised, independent business, a totally support-less venture in these liberalised, globalised times (the fact that this coincided with the IMF loan is a different story)
  
  Meanwhile, the global prices have dropped: from $216/ton in 1995 to $133/ton in 2001 for wheat, $98.2/ton in 1995 to $49.1/ton in 2001 for cotton, $273/ton in 1995 to $178/ton for soyabean, etc.
  
  The drop in global prices is not because of increased productivity, efficiency and competitiveness of other developed economies, but due to the agricultural subsidies doled out by the rich nations to their agribusiness corporations (e.g., Monsanto, Cargill, Syngenta, etc.).
  
  For instance, the U.S government pays $193/ton to US Soya farmers; 25000 cotton producers in the U.S are given a subsidy of $4bn annually, etc., leading to a subsidy of $ 230 per acre in the USA. In the process, the Indian peasants are loosing $ 26 billion or Rs.1.2 trillion annually. This is a burden their poverty does not allow them to bear. Hence the epidemic of farmer suicides."
  
  This debt relief does not address these basic issues...]

But coming back to the issue of how "whopping" is this "sop"?...

One concern often mentioned in the mainstream media (and that includes the metropolitan conversations in blogosphere) is about where will this money come from - and that why should the taxes paid by individuals and corporate be used for bestowing this dubious largesse of Rs.60,000crores...

Here are some benchmarks:

Where did the honest - even if ignorant - taxpayers' money go during last financial year?:

Export related subsidies and exemptions (when given to industry, these are called "incentives") accounted for Rs.58,416cr

Individual tax-payers saved Rs.38,107cr on income-tax by investing in tax-exempted options under 80C of IT Act (in case, you want to exercise this option, here is an advice on how to save 88% of your income tax in the coming financial year.

The India Inc. got tax concessions worth approximately Rs.58,655cr, based on the analysis of over 3.28 lakh tax returns filed by the corporate bodies, representing over 90% of corporate tax returns... "these companies earned Rs 5,56,190 crore as profits before taxes, but declared taxable income of Rs 3,41,606 crore only during the financial year 2006-07.... Taking advantage of various exemptions and rebates, these companies paid taxes at the rate of 20.60%, substantially lower than the statutory tax rate of 33.66%."

Excise duty exemptions accounted for a revenue loss - or loss of taxpayer's money - of Rs 87,992cr

There are various mechanics and modalities for exploiting the "legal leaks in the corporate tax systems" which is how the tax-consultants earn their living... If interested, check How Much Income Tax Did You Pay This Year?

In any case, the issue is between:

Rs. 58,416 + 38,107 + 58,655 +87,992 crores vs. Rs. 60,000 crores

Needless to say, the marginal and small farmer has neither such tax-saving options - and for that matter, a taxable income!!!