IIPM Prof Arindam Chaudhuri On A Budget For Rahul Gandhi

Online, March 7, 2012 (Newswire.com) - Alternative Budget

February 28, 1958: "While we should always be prepared to reconsider the methods we adopt, should this become necessary, we have to strive with all our strength for our planned development by conserving all our resources, increasing production and trying to ensure progressively a more equitable distribution and to thus raise the standards of the great mass of our people,"
- Jawaharlal Nehru as Union Finance Minister

February 28, 1970: "It is generally accepted that social, economic and political stability is not possible without the growth of productive forces and the augmentation of national wealth. Also, that such growth and increase in wealth cannot be sustained without due regard to the welfare of the weaker sections of the community,"
- Indira Gandhi as Union Finance Minister

February 28, 1987: "Twenty nine years ago, presenting the country's Budget, Jawaharlal Nehru told this house [that...] we have to strive with all our strength for our planned development by conserving all our resources, increasing production and trying to ensure progressively a more equitable distribution and to thus raise the standards of the great mass of our people...Our principal objectives are the elimination of poverty and the building of a strong, modern, self reliant independent economy,"
- Rajiv Gandhi as Union Finance Minister

Some of you would be aware of how and why these three former prime ministers also had to don the hat of a Union Finance Minister. For those who haven't found time to check out this bit of deliciously ironical history, here is a brief recap. In 1958, the son-in-law of Nehru and Indira Gandhi's husband raised uncomfortable questions about the role of the then Finance Minister T.T Krishnamachari in what became the "Mundhra scam". TTK, as he was popularly known, was forced to resign in February 1958 and Nehru had to temporarily take over as the Finance Minister. In 1969, the Congress party split and the then Union Finance Minister Morarji Desai quit the government. Desai was strongly opposed to the "socialist" vision being gradually adopted by the then Prime Minister Indira Gandhi. She preferred to take over the Finance portfolio after the exit of Desai. Her titanic tussle with Desai and its consequences resulted in the 'license permit' and 'inspector raj' era, issues that continue to haunt India till date. In 1987, V.P Singh, a loyal and trusted aide of Indira Gandhi and Rajiv Gandhi, was ready to present his third successive budget to the nation. Prime Minister Rajiv Gandhi, for reasons future historians will be better able to explain, shifted Singh and chose to present the budget. Within a few weeks, the Bofors scam started tormenting him.

Many of you who have been waiting for my 12th successive Alternative Budget this time must be wondering why I have taken a historical detour even before talking about the proposals I have in mind this year. Many of you might even be wondering about the headline for this year's Alternative Budget: "A Budget for Rahul Gandhi". I'll address the second issue first. One fine day in August 2010, out of nowhere, I got a call from the office of Rahul Gandhi informing me that he wanted to meet me. I was taken aback as I had made no such request to meet him. Despite my initial surprise, I decided to go and meet Rahul to see what he had in his mind. In the brief meeting we had, he kept asking me what I wanted from him and since I had gone with no expectations, I spoke to him about the Alternative Budgets that IIPM Think Tank comes out with every year. I didn't expect him to give it much of a thought but I was pleasantly surprised to see him quite interested in it and asking me several questions around it. The meeting ended with him requesting me to send a copy of my next Alternative Budget in time for his perusal. Come February 2011, I did that. However, there was no response from his office and the real budget hardly took note of my suggestions, which were all to do with changing the plight of the farmers in our country (http://www.thesundayindian.com/en/story/do-dooni-chaar-budget/12869/). So this time, keeping in mind that in any case, there is a very high probability of Rahul Gandhi becoming Prime Minister in 2014 (and since history repeats itself endlessly in India, I wouldn't be shocked to see Rahul Gandhi like his great grandfather, his grandmother and his father present a Union Budget in the future), I thought of addressing the budget directly to him; Rahul being young, I believe he has a higher probability of taking a note of it than Pranabda! Moreover, I am certain even Pranabda will be presenting this year's budget with Rahul Gandhi's future Prime Ministerial prospect in mind!

But it is my historical detour quoted at the start that I think holds more relevance for the future of India. The reasons I have quoted Nehru, Indira and Rajiv in their avatars as finance ministers are twofold. The first: there is no doubt that all three were passionate about India and did try their best in their own ways to at least minimize, if not eliminate poverty from India. No objective analyst can doubt their intentions. The second: the primary reason why all three largely failed in their efforts is because of corruption that started as a harmful disease in the Nehru era and now is a malignant cancer that is corroding the insides of India, even as Rahul Gandhi makes a pitch for his personal tryst with destiny. As Dr Pranab Mukherjee makes the final preparations to read his speech as Finance Minister on March 16, 2012, and as Rahul Gandhi gets ready to absorb the import of the verdict delivered by the voters of Uttar Pradesh, both surely must be aware of two things. Corruption and good governance will most definitely play a big role in the 2014 Lok Sabha elections. And that it could well be a kind of a last chance for Dr Mukhrejee and the Gandhi scion to use the two remaining budgets before 2014 to send a loud and clear message to voters that the two (and Congress per se) actually walk the talk when it comes to curing India of corruption. On this hinges the political future of Rahul Gandhi. More importantly, on this hinges the future of India. Quite simply, India can no longer afford tall promises and noble intentions even as we march towards hell for the poor.

In 2009, when the UPA surprise, surprise stormed back to power and the Congress an even bigger surprise won more than 200 Lok Sabha seats for the first time since 1991, I presented my Alternative Budget with a headline that raised quite a few eyebrows. The headline was "Khao aur Khilao Budget". My premise was simple: it is impossible to change a rotten system overnight in an electoral democracy and yet Dr Mukherjee should be able to implement many proposals that would make a huge difference to poverty, inequality, education, healthcare and governance "even if corruption continued, albeit on a lower scale". That Alternative Budget surprise, surprise again was a huge 'hit'; and many economists, analysts and bureaucrats, and even politicians, appreciated some of my 'realistic' proposals. One such proposal went with the following headline: "A census, a national database and biometric cards for the Poor." I further wrote, "The FM must allocate another Rs 2000 crore and rope in the Election Commission to provide the poor with biometric photo identity cards. Smart card technology is easily available... I estimate that at least 250 million Indians will get these smart cards and claim welfare scheme funds and resources. Knowing Indians, many undeserving people will sneak into this database while many deserving ones will get left out. But we are not talking about achieving perfection in this budget." (For more details, log on to http://www.thesundayindian.com/en/story/arindam-chaudhuri-presents-the-khao-aur-khilao-budget/19/7719/)

I doubt if Dr Mukherjee and the former Infosys CEO Nandan Nilekani found time to read my Alternative Budget in 2009 in this magazine and our sister publication Business and Economy. And yet, I was delighted a few months later when UPA-2 actually announced the UIAD project that was all about biometric cards. I feel a little sad when I read newspaper reports about how vested interests are trying to stall, or even kill the UIAD project. And yet, it made me think that there are people in policy making who are genuinely thinking about tackling 'leakages', which is a polite word for blatant, shameless and parasitic corruption. As with everything else in India, when it comes to corruption, there is a lot of despair; and a lot of hope. The very fact that biometric cards are now a reality for the poor in many districts of India makes me concentrate more on hope than despair.

But to give the devil her due, I have no choice but to highlight some statistics and studies that reveal how corruption must be a cause of despair for all well-meaning citizens of this country. The primary reason for a country being ranked very low on 'the quality of life indicators' is not poverty or lack of resources but corruption and poor governance. Despite tall promises and about 65 Union budgets some presented by charismatic prime ministers India's ranking continues to be pathetic at just about 125. Not surprising because 400 million Indians are still illiterate, 750 million Indians lack access to basic sanitation and 1,000 million Indians spend their own family money on healthcare because the State has failed to act in that area. Look at the Transparency Index, or the Competitiveness Index or any other damn index and you will realize that India has a pathetic record of taking care of its poor and underprivileged. And it continues to do so despite so many social welfare programmes launched by this UPA government since 2004 when it came to power. The astonishing thing is that Indians still appear to be largely optimistic when we see results of global surveys. And then I realize those survey guys probably never went to slums or villages where farmers were committing suicide.

There is another way to look at how corruption is corroding our innards. Back in the 1980s, Rajiv Gandhi said that about 85% of the money meant for social welfare schemes was eaten away by corruption. If anything, despite RTI and the rise of social activism, media activism and judicial activism, corruption has only gotten worse. One interesting data here. Together, the Centre and all the states have spent close to Rs 20 lakh crore on education since the UPA came to power. This includes plan and non plan expenditures. Assume that Rajiv Gandhi was exaggerating and only 50% of the funds get 'diverted', you still have a figure of close to Rs 10 lakh crores siphoned away in the name of education. Add health, irrigation, rural electrification, roadways et al and you can well imagine the extent of corruption in India. And almost all of it could have been used to lift the desperately poor above the poverty line. Forget Swiss Banks and black money. I honestly think we in the media should start an audit of expenditures on these schemes meant for the poor and prove how much was actually 'diverted'. I know activists and the media are already doing it. But no positive outcome seems to come out despite judicial intervention. That brings me close to my proposals this year in my Alternative Budget.

But before I start presenting my proposals, let me share something that we all know. Corruption is flourishing in India because the corrupt are more likely get away with it. I have nothing personal against the former Telecom Minister Sukh Ram who has been convicted again and again on charges of corruption. But the case has dragged on for so long that he is now in his late eighties. I felt troubled about the future of India when I read in a paper that the 96 year old Sheila Kaul a former Congress minister who faces corruption charges was summoned to appear in court despite her lawyer arguing about her age and health. I think Indians are so fed up with corruption and the system that encourages it that they might think that people in their late eighties and nineties are getting just desserts. The simple reason why corruption flourishes in India is that our judicial system is completely broken down and paralysed. We get occasional glimpses of what the judiciary can do like in the cases of Priyadarshani Matto, Jessica Lal, the 2G scam and many others. But they are not even a drop in the ocean.

So what can Pranabda do if he presents a budget for Rahul Gandhi?

Well, he should tackle the key issue of corruption that has rattled the government this year, in particular during the Anna Hazare movement and the Ramdev fiasco! Yes, as of now, both the issues have been managed, but the truth is that it won't be long before more agitations rock the country if it is not tackled properly. Thus, this budget keeps tackling corruption as its top priority! The biggest sufferers of corruption are the poor as the high and mighty use corruption to their benefit.

Here are my suggestions for this year's Alternative Budget.

Key resource allocations:
Transform the judiciary

The Lokpal has been given its silent burial with a completely manipulative and flawed bill. Though the Lokpal bill in its ideal best had the power to make a big impact to deter corruption, I never believed that this was the first priority when it came to tackling corruption. The first priority as I also told Arvind Kejrival during one of our interactions has to be necessarily a massive focus on judicial reforms. Unfortunately, most people don't understand its real relevance and those who do are sitting in power and thus keeping it dysfunctional so that the corrupt can make merry! If Rahul Gandhi is really keen to change this country and make an impact in the field of reducing corruption, he has to awaken the sleeping and completely dysfunctional judiciary of this country!

I was truly shocked when a colleague pointed out that less than 1% is allocated by the Central and State budgets every year for the judiciary. In the Ninth Five Year Plan, the government set aside Rs 385 crore for the judiciary. That works out to 0.078% of total plan expenditure. In the tenth Five year Plan, the allocation was increased to Rs 700 crores; about 0.071% of total plan expenditure. In the Eleventh Five Year Plan which is in progress, the allocation was 'generously' raised to Rs 1470 crore. As a percentage of total plan expenditure, things haven't improved at all. These figures are so laughably small that I marvel at how the judiciary functions at all!

All this, while new laws, amendments to existing laws, a massive increase in corruption and the rise of activism have led to more and more cases piling up even as old cases continue to languish. As I stated earlier, and have often stated in the past, the only way to reduce corruption in India is to make the judiciary more effective. Till the corrupt remain convinced that they can either escape punishment or delay it indefinitely, corruption will continue to increase. The one and only solution for corruption is a functional judicial system. Corruption and greed are globally prevalent, yet it touches far less lives in the USA than in India simply because the American judicial system is functional and ours is dysfunctional. In America, they have ten times more judges per million people than in India. If we are to try and achieve such standards we need to have about 100,000 more judges. It sounds huge but is surely achievable in a span of five years. And to have 20,000 additional judges per year, we have to budget for an additional amount of approximately Rs.6,000 crores per year, assuming that the expenses around a judge and his office assistants put together is definitely not more than Rs.30,00,000 per year.

So if I were Pranabda, I would use the 2012 Budget to announce that Rs 6,000 crores have been allocated for the judiciary in the coming fiscal, with a commitment to increase it to Rs 10,000 crores in the next fiscal. India desperately needs such a big ticket and transformational move. The budget must unveil a concrete plan whereby the Law Ministry works with Supreme Court and High Court judges to draw up firstly a concrete blueprint to "quadruple" the number of judges and courts before the general elections in 2014; and secondly, to draw up a blueprint that will compel litigants, lawyers and judges to commit to a time frame to settle cases. First, this will send a huge message to voters that the government actually means business. Second, it will actually transform governance in India. If those facing corruption charges know that they could be convicted in less than a year and their property confiscated and auctioned as it has started happening in some isolated cases the incentives for corruption will vastly diminish, if not disappear altogether. This is far more important than making noise about a Lokpal. This is very doable. No progress was made for almost two decades in Bihar when it came to tackling corruption cases. Then Chief Minister Nitish Kumar set up fast track courts and lo and behold, the corrupt actually started getting convicted quickly.

These massive allocations for the judiciary will ensure that 'fast track' courts do not remain exceptions but become the norm in Indian judiciary.

Focus on education and healthcare
For close to a decade, I have been repeating the simple fact that without education and healthcare, there is just no way that India can ever hope or dream of catching up with China. It is a disgrace that public expenditure on health and education at less than 2% of GDP is less than the share taken away by myriad subsidies and exemptions. The only way out is a massive increase in allocations for schemes like Sarva Shiksha Abhiyaan and National Rural health Mission. But as I have often pointed out, merely allotting more money without improving governance and reducing corruption will not help. For a more detailed perusal of my proposals, do read my 2010 Alternative Budget that went with the headline "A Budget for Three Idiots" (http://www.thesundayindian.com/article.php?category_id=28&article_id=637). The recommendations I have made in that proposal are even more relevant today.

Focus on employment generation schemes and slum removal schemes to give people dignified existence
As I had suggested last year, If I were in the place of Pranabda, I would increase the allocation for the rural Indian mainly farmers by a straightforward Rs.100,000 crore a year. The obvious question is why? Well, everything has to be in some context. And the context here is that rural India needs 150 million jobs to be created. As a committed government, our aim should be to do this in a span of 5 years and not 65 years. Thus, we have to create 30 million jobs a year. In rural India, a job can still be created by investing about Rs.33,750 per job. This would justify the necessity for an additional I,00,000 crore per year. Half of the money would be invested every year towards improving physical infrastructure in rural India including effective irrigation facilities, better and functional roads, a vast network of cold storages and regular supply of electricity. The other half would be every year invested towards improving social infrastructure in rural India including providing much better access to education, health and sanitation. The first would lead to a dramatic improvement in productivity in rural India and result into vastly superior income levels for farmers. The second would lead to a dramatic improvement in human development indicators in rural India. And both will create jobs, removing the massive rural unemployment from India.

I would also suggest another Rs.120,000 crores be allocated for 25 million jobs to be created for the urban unemployed. In urban India, the cost of creating a job dramatically multiplies to about Rs.240,000 per head. Thus, to create 5 million jobs per year, we would require the amount I mention above. The urban poor also need another thing apart from employment. They need dignity of existence so that another Slumdog Millionaire is not made on India by Western imperialists. For that, we need to budget another additional Rs.24,000 crore per year for five years to create 15 million urban flats of minimum 250 sq. feet each.

Key resource mobilizers:
The question one might ask is where do we get all the money from? From my book, The Great Indian Dream which I co-authored with my father to each of the past 11 Alternative Budgets, I have highlighted various innovative ways to generate revenues. The irony is that over the years the governments have picked up all those ideas but unfortunately used the resources generated to make more black money. So all of you can turn back to my past budgets for more ideas as this time, I just give three simple ideas mainly using the crores of black money stashed abroad to go with our anti corruption theme of the budget!!

Legalize black money
I suggest that we legalize all the black money stashed abroad by giving a simple 10% tax payable in five equal installments of a mere 2% each! But with two key riders. First, that the government will take genuine steps to recover the money stashed abroad and all black money recovered after one year will be nationalized. And second, that there will be measures in place to ensure that future generations of black money becomes almost impossible. And of course, with a functional judiciary, no one will go unpunished. With estimates of overseas black money as high as Rs.75,00,000 crores, legalizing black money will lead us to a huge new revenue stream of a minimum of Rs.7,50,000 crore in five years or Rs.1,50,000 crore per year, making up for a huge portion of the money required to put my previous allocation proposals to action.

Eliminate exemptions
Let me start with something like the biometric cards that I had suggested back in 2009. I am not a finance whiz but many of my colleagues and associates talk about how the Direct Tax Code (DTC) and the General Sales Tax (GST) regimes that were supposed to be launched this year will make life simpler for taxpayers. If only things were that simple. If I were Pranabda who was looking to help Rahul Gandhi inherit the mantle, I would do something dramatic. Let me put the word dramatic in context. When V. P. Singh presented the budget in 1985, as did Dr Manmohan Singh in 1991 and Chidambaram in 1997, Indians citizens couldn't believe that such changes were possible. So why can't Pranabda do something that will make the middle class taxpayer happy? Please introduce a simpler tax form to replace the 'saral'; 'saral' clearly is a torture for the honest taxpaying citizens who fume because it is they who pay the taxes. For all incomes up to Rs 5 lakh, Pranabda should make it clear that Income Tax guys will not question such returns at all. Anyway, what money can our Khao aur Khilao manadarins earn from middle class Indians whose tax is anyway deducted at source?

The second big thing I would do is to withdraw all exemptions. Yes, I mean it. I mean, fix a limit for capital gains, fix one for other incomes; do anything, but stop exemptions and the complicated way of calculating them. Corruption happens when rules are complicated and when your tax code deliberately encourages tax payers to evade taxes. I am quite shocked by the recommendations of the Economic Advisory Committee to raise taxes. Come on: just let go of the exemptions so that individuals and companies and organizations don't have to spend weeks talking strategy with tax accountants

It is because of a bewildering plethora of exemptions that just about 2% of Indians pay income tax while common sense and actual numbers dictate that at least 10% of Indians should be paying income tax. An important part of this elimination of exemptions would be to bring agricultural income under the tax net. Many years ago, when there were charges against former Bihar Chief Minister and Lalu Prasad Yadav's wife Rabri Devi on disproportionate assets and income, she had actually tongue firmly in cheek informed tax authorities that she earned a few crore rupees by selling milk and other dairy products! Almost every multi-millionaire in India owns a sprawling farmhouse and acquires the status of a farmer. This is just one example of how such exemptions have completely perverted the system. This sorry tale of exemptions is not confined just to direct taxes. There are numerous exemptions and complications even in the case of excise and customs duties. Interestingly, it is this bewilderingly complicated tax system that is responsible for almost 70% of disputes and cases pending in Indian courts. Just imagine the impact on the effectiveness of Indian judiciary if the need for such needless litigation was eliminated at the source!

This one simple move by Pranabda can act as a revolutionary trigger that will go a long way in reducing corruption, making voters happy, helping Rahul Gandhi win in 2014 and much more. My colleagues have been doing back of the envelope calculations and they estimate that this simple proposal will result in extra tax revenues of at least Rs 3 lakh crore a year. The annual budget for all social welfare schemes is less than Rs 1 lakh crore.

Abolish most subsidies
Needless subsidies and the distortions and havoc they are creating in the Indian economy are yet another classic example of the road to hell being often paved with noble intentions. A majority of farmers in India are so poor that they can barely afford to buy the food they produce, forget hi tech seeds and fertilisers. And yet, the fertilizer subsidy bill is crossing Rs 1 lakh crore a year. Have you ever seen a poor man own and drive a diesel car or own and operate a diesel generator or a pump set? And yet, subsidizing diesel is costing upwards of Rs 50,000 crores a year. How many Below the Poverty Line citizens have you seen using LPG cylinders to cook food? And yet, subsidies on LPG cylinders cost upwards of Rs 20,000 crore a year. There are dozens of similar examples.

These subsidies not only distort the economy, they also lead to massive corruption. Kerosene subsidy is just a case in point. It has created malignant mafia empires across India that siphon off the subsidized kerosene meant for the poor and happily adulterate petrol and diesel with it. This mafia has no compunction in killing people who cross their paths. If I were Pranabda, I would take the 'bold' step of abolishing all such subsidies and using the biometric photo identity cards to directly subsidise goods and services meant for the truly poor.

As I mentioned earlier, history has an uncanny ability of repeating itself in India. In 1982, Rajiv Gandhi was anointed the inheritor. Thirty years down the road, his son, Rahul Gandhi is the inheritor. In 1982, Dr Pranab Mukjerjee presented the Union Budget. In 2012, he is again presenting the Union Budget. Back then, the 'system' ensured that Rajiv Gandhi largely failed in his efforts to mobilize India's youth and energy to transform India. A few years from now, will we be compelled to say the same things about Rahul Gandhi?