Tuesday, March 16, 2010

Indian Budget:...of "Economic Incentives" and "Populist Subsidies"

I had some inkling that the the Annual Budget of the Govt of India must be quite a blancing act. After all it involves the complex task of allocating resources to so many different set of competing socio-economic objectives.

However, only this year, I realised that the Annual Budget exercise also involves another delicate act of balancing - of obfuscating facts by putting them under intersting nomenclatures.

I discovered, for instance, the Annual Economic Survey 2009-10 describes Rs 5 lac crores (actually, Rs 499,340 crores - to be exact) as "Tax Revenue Foregone" - an amount consisting of exemptions of:

  • Corporate Income-Tax: Rs. 79,554 crores,
  • Excise Duty": Rs 170,765 crores, and
  • Customs Duty: Rs 249,021 crores

    While these maybe seen as "incentives to stimulate economic growth" - as the media, politicians and captains of the industry love to describe these - the Survey also informs that in the year 08-09, India Inc. had a combined declared taxable income of Rs 449,085crores - on which it paid Rs. 153,280 crores as taxes...

    i.e., the tax incentives are:
  • almost equal to the India Inc's combined taxable income, and
  • more than 3 times the total taxes paid!!!

    On the other hand, if one compares this amount to the budget allocations for some of the GOI's high-decibel "flagship" social services programs, the confusion compounds:

  • National Rural Employment Guarantee Scheme (NREGS): Rs 40,100 crores
  • Sarva Shiksha Abhiyan (SSA): Rs 15,000 crores
  • National Rural Health Mission (NHRM): Rs 15,440 crores
  • Integrated Child Development Services (ICDS): Rs 8,700 crores

    (that 1/10th of this amount qualifies as "Food Subsidy" or "Fertliser Subsidy" etc. - and that removal of Rs 12,000 crore "petroleum subsidy" created so much headlines -adds to surrealism)

    And just to put things in perspective the "Tax Revenues Foregone" is slightly more than the entire Planned Expenditure of government for 2009-10, as given in the table below:

    er.. if only someone can explain to me the difference between the "economic incentives to increase market efficiencies" and the "wasteful subsidies which are doled out as populist measures" (^_*?)\