People of India were hugely disappointed with lackluster performance of Man Mohan Singh. Narendra Modi rode to power with absolute majority for the sole reason that promises were made by him and on his behalf that he will fix the economy and deliver prosperity to Indians expeditiously. Propaganda included specifics like India, under Modi, will beat Singapore in 10 years! Expectations are absolutely high.
From this background, the maiden budget from Arun Jaitley was anti-climax. Forget this background, purge the great expectations and one finds nothing wrong with this budget. Even Chidambaram and Mukherjee were not likely to present anything better at all. Yet the question is whether this budget reflected anything that BJP supposedly had in mind while promising a great recovery for our economy? Whether this budget presented even a glimpse of the fixing plan, call it reforms or anything, which could prove to be a game changer? Regardless of personal bias for or against Jaitely or Narendra Modi, the honest answer has to be a FIRM NO.
Explanation that he need time is alright. Nobody is expecting any results in 1½ months (that the same people expected overnight results from Arvind Kejriwal is another matter) but surely, people who saw everything wrong with the previous government, cursed it day and night, promised great days if returned to power, must have had concrete ideas on what is to be done to set things right because without such plans or ideas, there is no way any responsible promise should have been made to over a billion people!
Surely, it is easy to criticize and difficult to suggest. Try asking these critics asto what he could have done in this budget, and then there is confusion. Hereinafter, I am attempting to answer this question honestly and to the best of my diligence. So, what could I have done if I were in Arun Jaitely’s shoes on 10-7-2014?
My budget speech would have been something like this:-
Madam Speaker & Hon’ble members of Parliament,
While I am overwhelmed with this opportunity to attempt to make some contribution to the economic success of this great nation, I request the hon’ble members to kindly bear me out with some tolerance while this speech lasts because I am proposing to break the status-quo and in the process, may sound little outlandish to the extremely conservative. Of course, it is upto the house to accept these proposals or to reject them, but kindly consider them on merit. This is the only favour I ask of you.
From time immemorial, our budget proposals have been basically outlay of money without concrete targets of what that expenditure would achieve. We have been spending nearly Rs 18 lac crore a year through the Central Government, and another Rs 12 to 13 lac crore through state governments without telling the tax payers about what exactly we will get out of this huge expenditure. Collectively, governments are spending over Rs 30 lac crore a year which is over 26% of GDP of Rs 113.55 lac crore at current prices, and yet, successive finance ministers are aggrieved of low tax to GDP ratio! Considering that agriculture is not supposed to be paying any taxes and rather receiving subsidies, this expenditure of Rs 30 lac crore over non-agriculture GDP of say Rs 94 lacs crore, comes to 32%!
People cannot be expected to cough up anything more. Therefore, revenue chasing must stop and innovative methods are required for better management of the economy.
There has been frequent talk about inclusive growth which has been attempted through distribution of alms to the poor, and in the process made them more lethargic and reluctant to want to work hard. Old wisdom says that if you want to help a hungry man, don’t give him a fish but teach him how to catch one. We have completely escaped this wisdom so far and the result is massive unemployment with paradoxical shortage of labour everywhere with high cost of wages. This is truly tragic.
Inclusive growth in fact, requires employment for everyone so that everybody gets to share part of prosperity that this great nation is attempting to achieve, albeit after more than 3/4th of the world population is past doing it already. There is no other way to include these poor people and improve quality of their life. Equally true is the fact that government cannot provide employment which must come from private sector, the entrepreneurs who must be encouraged to indulge in more business activities, expand their existing activities and so on.
Agriculture is the most primitive form of economic activity which provides about 1/6th of our GDP employing about 2/3rd of our manpower. This is a proof of poor productivity in this sector. An average agriculturist is far more inefficient than an average Indian. Then comes manufacturing which, as a share of national GDP, is shrinking. It is good to see services sector growing but India is a stage-I economy driven by factors unlike developed economies which are in stage-III and driven by innovation. For us lower manufacturing and higher services sectors is precarious. Our manufacturing must be dominant part of our economy. If it is not so, it simply means we are not competitive and our business environment is not healthy. This is why we rank poorly at 60 in global competitiveness index while Switzerland and Singapore rank at 1 and 2 respectively. China ranks at 29. This also shows that cheap labour in India is a misnomer. It is actually costlier in terms of cost of labour per unit of production. No wonder our exports don’t grow enough despite repeated calls by government.
Are we are improving? You will be disappointed to know that we are deteriorating. We ranked 50 in 2007-08! It simply means either the world is improving faster than us or we are being more unfriendly to business by the day. This scenario calls for urgent attention of the government, and the success of this government must be reflected in continuous improvement of India on this index every year. I will encourage people of India to gauge our performance on this index from now on.
Therefore, I propose to define inclusive growth as employment for all, and nothing else, and the only way to achieve that it is make this country business friendly, investor friendly or entrepreneur friendly which does not mean it is anti-worker or anti-government. In fact, there is no conflict between being business friendly and being poor friendly. Poor will gain only when they get employment, and when their government gets more revenue for spending on their welfare. All this can only come from entrepreneurs. Therefore, business friendly is in fact, poor friendly. Government is a partner in every business. Even where a business is losing money from day one, government will have gained some revenue already. Worker only benefit from every business even when it is losing. In fact, all stake holders in a business stand to gain regardless of whether it is successful or not except the entrepreneur himself. He will gain only if the business is successful and will lose otherwise, and will lose more than anybody else in the society. His success is in the interest of everybody else. We must provide congenial conditions to make him successful so that everybody benefits. The sooner our bureaucracy realizes this, the better it will be for this country.
On PPP basis, our per capita income is $5410 whereas the same in China is $11,904 and Singapore $78,744. I will like to rank our status and performance as well as expectations alongside these two countries. India was placed much favourably in 1947 against these countries. And today, they are miles ahead of us, despite Singapore getting its freedom 20 years later than us, and despite China suffering from communism till 1979 when it started reforms. Our Swarajya has not delivered results. 20 years longer British rule in Singapore or 48 years longer British rule in Hongkong made them a great deal more successful, prosperous and happier than us! It is for the historians to go back to their research to reconfirm whether we could really blame the British for any of our ills.
If we achieve 10% growth in GDP, we will be deemed to be the fasted growing economy in the world, yet our per capita income will only grow by 8.5% (1.5% being population growth) which will take us nearly 33 years to reach the current prosperity levels of Singapore, and 10 yrs to reach current prosperity levels of China. During this period, they will have moved further ahead and hence, there is no chance of India catching up with them at all in our lifetime.
No, this will not work. We must catch up with the world ourselves and not leave it to our kids to do the job. Therefore, I propose to set up a new tradition of laying down targets of per capita income as a result of budget exercise, at least for 5 years by every new government. I propose to set an ambitious target of achieving $10,000 per capita income on PPP basis in five years from now! This will require an annual average growth of 13%. This will require GDP to grow @ 14.5%, and for that to happen, we will need additional investment at least 5 times as much, that is 72.5% of our present GDP size, or Rs 82 lac crore ($490 billlion) annually. Our investment during 2012-13 was 34.8%. Yes, this is ambitious but achievable.
In order to attract this kind of investment, we need India to be business friendly, in letter and spirit. In worldbank Ease-Of-Doing-Business surveys, India ranks at 134 out of 189 countries while our neighbours rank much better (Sri Lanka ranks at 85, Nepal at 105, Pakistan at 110 and Bangladesh ranks at 130).
It is shame for the world’s largest democracy blessed with individuals whose caliber is next to none in the world, to fall behind even a war-terror torn country like Pakistan. It is high time people of this country take note and get ready for action. The rankings show that stability of government, propounded so sacred in India doesn’t count for much. If a government is not good, it better be instable. Only good government needs to be stable. Stability per se is irrelevant.
There are 10 criterions subsumed into these rankings. On contract enforceability which reflects on our legal system, we rank at 186 (out of 189 countries), on dealing with construction permits, we rank at 182 and on paying taxes, we rank at 158. This is a dismal picture but presents us with great opportunity of knowing where to start with our repair work. If we can address these three criterions as our first priority, I am confident we will move to within first 75 in these overall rankings which will be a lot more respectable position to be in, from the view point of investors who have the whole world inviting them and we need to be more attractive to them else they will set up their shop elsewhere. As simple as that.
Then, there is a crucial area that craves for urgent attention of hon’ble members as well. It is poor productivity in India, whether in farm yields, or dairy yields or labour productivity in factories. Our farm yields or dairy yields are about half of the world average. Our labour productivity in factories is dismal even in comparison with high cost countries of America or Europe. There is no way India can become prosperous without being competitive. This issue needs to be addressed on high priority as well.
The power of productivity can be gauged from the simple fact that when mere 4% growth in agriculture brings lot of feel good factor into our rural economy, what would be the impact of 100% growth in agriculture (by only achieving world average in farm yields) or nearly 200% growth (when our yields become comparable with the best in the world). The amount of wealth and economic activity this can generate is simply mind boggling, hence, must be attempted no matter what the hurdles or costs.
Therefore, I propose the following action plan for achieving the above:-
1) Legal reforms with a view to clear all pendency in courts and ensure delivery of justice in maximum 6 months time
2) Tax reforms with a view to cut down the time and procedures involved as well as cost of collection of taxes, and leave higher time with the entrepreneurs to concentrate on what they do best, make money
3) Reforms relating to construction in order to cut the red tape, corruption and inefficiency,
4) Concentration on all government resources to achieve at least world average productivity in agriculture and dairy sectors in 5 years, and finally
5) Business friendly investment policies both with regard to both, domestic as well as foreign investors.
Now, I will elaborate on the above.
First, Legal Reforms - our courts are flooded with pendency which will take over 300 years to clear. Justice delayed is justice denied. No wonder, delinquents are not afraid of law which shows in ever rising crime and corruption in India. I propose major reforms in our legal system with a view to clear all the pendency in 5 years, and to ensure justice delivery in 6 months anywhere in India. For this purpose, I propose the following measures:-
a) Triple the number of courts in India - I estimate that there must be around 20,000 courts in India which I propose to triple by setting up 40,000 additional courts costing about Rs. 2000 cr for building, furniture and other infrastructure which I propose to allocate in this budget so as to relieve the states from any part of this cost at all. The operating cost of these courts will be Rs. 15,000 cr per year which should be covered from revenue realization. Still, as a measure of initial support, I propose to allocate another Rs 7,500 cr for the purpose of this operating cost which will not lapse by end of this year and will remain available to these courts on actual basis for a period of 5 years, and any unutilized budget at the end of 5 years only will lapse.
It can be estimated that triple capacity of the courts will help clearing the pendency very fast.
b) Pruning of unwanted or obsolete laws - a task force is being set up to identify the obsolete laws/provisions in laws within 3 months. Once this is done, the government will introduce amendments in order to repeal or abolish these obsolete laws.
c) Reforms in bail administration – there is massive pendency and corruption due to bail related cases which are practically decided on discretion of the court basis, leading to uncertainty and delays causing corruption and injustice. I propose to change the system to provide that bail will not be a matter of discretion anymore. Unless courts find that the accused is likely to (i) repeat the crime or (ii) temper with evidence or (iii) runaway and not be available to face trial and receive sentence if granted, bail must be granted no matter what is the crime he is accused of. If law does not want accused of a particular crime not be let off on bail, it will provide for that. These findings will be recorded and be open to challenge by either party.
d) Mandatory punishment for falsehood in courts – despite there being a law for punishing false evidence in court (sec 195 of Indian Penal Code), there is virtual freedom for anybody to come to court with lies. And this freedom is amply exercised by all and sundry almost in every case which causes huge delays and frustration to those seeking justice. Courts have been extremely reluctant to invoke this law to punish false evidence. I propose to make it mandatory for a court to invoke sec 195 of IPC if it finds any false statement or evidence suo moto or if any is alleged by any party during the proceedings at any stage. Failure of the court to invoke this law to be appealable while there would be no appeal against invocation of this law because the accused can always be acquitted during trial if not guilty anyway. This must discourage falsehood in court proceedings and expedite delivery of justice.
e) Mandatory execution of decree by the same court – currently execution of decree needs initiation of similar litigation proceedings in a different court which amounts to avoidable harassment and encourages defiance to court order or decree, besides putting avoidable pressure on justice delivery system. It is proposed to amend the law to ensure that decree must provide for compulsory payment within the time allowed for appeal unless stayed by appellate court, failing which the same court will proceed with enforcement/execution proceedings suo moto.
f) Mandatory compound interest at bank lending rate upto date of order, and penal interest thereafter – currently courts provide simple interest at 6 to 9% which is lot less than bank lending rate. This encourages further disobedience to decree and causes injustice with further delays in judicial system for required enforcement, besides being unfair. It is proposed to provide that courts shall grant interest at least at bank lending rate on monthly compound basis upto the date of decree, and at least 50% higher penal interest thereafter till date of actual payment. This will encourage judgment debtor to comply with decree expeditiously.
g) Compulsory deposit of consideration with court in property related cases and presumption asto time being essence of contract – in property related cases under Specific Relief Act, a huge number of them are pending and go on for decades, one party seeks injunction on other party’s property without having to part with consideration himself. Thus, it is not balanced between parties to the dispute and is hugely incentivized in favour of purchaser. Also, law presumes time being of no essence of contract in immovable property cases. These two situations are causing huge pendency and injustice. It is therefore proposed to take away the legal presumption of time being of no essence of contract, and to provide for mandatorily securing payment either through actual deposit with court or bank guarantee before institution of any suit under specific relief act. This will bring balance between both the parties and discourage fake cases brought only to abuse the legal procedure for putting pressure on the seller. No doubt, this will cut huge pendency in courts.
h) Departmental appeals to be replaced with Tribunal Appeals - Both in direct and indirect taxes, first appeal against an adjudication order lies within the department before authorities who are quasi judicial and required to be impartial and independent. In practice, it is tough task because administratively they are subordinate to same authorities who raise and adjudicate the demands. There are frequent complaints of bias at this level leading to near compulsory forwarding of the appeals to higher level, Tribunals where tax payers are assured of first impartial hearing. The next is judiciary. No wonder most of the cases end up in courts which only add to the pendency. This is avoidable wastage of time and money. I therefore, propose to dismantle the system of departmental appeals under all taxes, and transfer them to Tribunal which will open branches at each Commissionerate level. In fact, the appellate officers can be transferred to these tribunals to ensure complete independence and impartiality. I expect this step to go a long way in bridging the confidence gap between the government and the tax payer.
i) Lastly, huge number of cases are pending with regard to landlord-tenancy under rent control laws. This is highly controversial and sensitive. Law has protected tenants for so long by being unfair to the landlords, to the brazen extent that government properties have been outside the purview of these laws meaning that government is not practicing what it is preaching. Forced charity at somebody else’s cost is plain corruption, and not our culture. Considering controversy, I am not proposing any legal amendments to this effect but only making an appeal to hon’ble members of Parliament to consider abolishing rent control laws as soon as possible so that landlord-tenant relationship is left to be governed by the law of contract, and landlord gets to evict a tenant with reasonable notice, and to seek market rate of rent to be negotiated between the parties themselves without any role of the government. This reform will open floodgates of boom in real estate sector and solve the shortage of houses, currently estimated over 1 crore. Making up of this shortage alone will cause an investment of Rs 10 lac crore!
Second, Tax reforms – India has a dubious distinction in the world of being one of the highest taxed nations. Incidence of tax on goods and services in China is only about 17% as against over 40% in India. No wonder we are out of the race of competition. Not just that, our tax administration is defined by many, in India and abroad, as tax terrorism. On this criterion, our 158 rank out of 189 countries is an incontrovertible proof. Rationalization & simplification in taxation have been routinely promised in this Parliament but only to create further confusion and harassment to the tax payer. This must stop if we want India to be business friendly to attract huge investment resulting into huge employment and prosperity. To deal with this, I propose the followings :-
a) Revenue interest is NOT public interest – officials have misconstrued revenue interest as public interest and adopted it as dominant theme in the working. Apart from being unfair and causing hardship to the tax payer, it has not yielded anything because unfair and improper demands routinely get set aside at higher tribunal or judicial level. Vodafone is a live example.
Over Rs 4 lac cr tax demands are said to be stuck in litigation. Government is feeling aggrieved, but the question is, will this demand really stand legal scrutiny? Would it have been created had there been a fair application of law by authorities ab initio? Probably not, if recent strictures passed by Bombay High Court against departmental appeal without any merit is any indication. These over-zealous officials are not only putting pressure on our judicial system but also costing the government needlessly in such hopeless and avoidable litigation. After all, government lawyers also need to be paid!
I wish to put it on record that Revenue Interest is NOT public interest. Public interest does and will always mean collection of fair taxes in accordance with law, not unmindful of the interests of the tax payer at all. To recall the Niti Gyan from Vidur in Mahabhartha, king should collect taxes from people in the same manner in which a gardener plucks flowers from his plants, without adversely affecting health of the plants in the process. This should be the guiding principle of revenue collection.
b) Repeal of retrospective amendments – the retrospective amendments have dented our credibility universally. The issue is far too well-known to all and sundry to require any elaboration. I simply propose to repeal the retrospective amendment brought in by Finance Act, 2012, and promise not to bring any retrospective amendment during my holding office ever in future. Legislature today cannot overrule the judgment of legislature of past, and clarity and certainty in tax system is far more valuable than any potential loss of revenue.
c) Abolition of unfair taxes being MAT and AMT – when tax is being paid on income computed as per income tax law, there is no justification for any additional demand through Minimum Alternative Tax or Alternative Minimum Tax. This is unfair ab initio. Our hunger for revenue is insatiable. We better control it and not allow it to overpower our character and fairness, else Indian culture that was a matter of proud in our literature and religion will only sound like a fiction. We cannot afford to be penny wise and pound foolish forever. Entrepreneurs should not be and will not be subjected to unfair taxes anymore, and hence, MAT and AMT are proposed to be abolished.
d) Abolition of Dividend Distribution Tax – this is a tax on distribution of post-tax income and hence, unfair. Besides, it makes company entity unfavourable in comparison with partnership firm. This is surely not a recipe for world class economy. I therefore, propose to abolish the dividend distribution tax as well.
e) Nominal long term capital gains tax at 1% - currently, lot of cash goes into property deals in order to evade capital gains tax. In the process, ill-gotten black-money gets a profitable investment avenue into such deals as well. I believe that tax-evasion may not be a big deal (considering indexation, ever rising circle-rates etc), but investment avenue for black-money is definitely a cause of concern. I therefore, propose to reduce this long term capital gains tax to a nominal 1%, and urge the states to ensure that there is no surcharge or up-kar on stamp duty on such transfers, fixed at a maximum of 5%. I am confident that this will discourage sellers to accept any cash for their property and long pending problem of parallel economy will stand mitigated substantially. Loss of revenue will eventually be made up with all cheque transactions, and hence, I consider this proposal to be revenue neutral.
f) Multiplicity of taxes is hallmark of our economy - Successive governments have imposed new taxes in the guise of cess, sur-charge, levy and what not when they could have raised revenue by simply raising the basic rate of tax, and in the process, avoided duplication of efforts, computations, assessments and administration which all cost time and money. Probably, they wanted to hide the impact of tax by keeping basic rate lower than actual. This was unfair for a government of world’s largest democracy. I propose to abolish Education Cess, Secondary & Higher Education Cess, Surcharge, Cess on power, both supplied and self generated etc and adjust the basic rates in order to make it revenue neutral both to the tax payer as well as the government.
g) Goods and Services Tax – currently there are too many taxes on production and sale of goods and services for which GST has been proposed. Unfortunately, the GST in consideration currently, is not a reform at all because it is not a SINGLE GST but THREE GSTs. Excise and Service tax are sought to be replaced by GST (Centre), Central Sales Tax by GST (Inter State), and Value added Tax by GST (State). Basically three major taxes are being replaced with three GSTs. This is deceit, and will not achieve anything except causing avoidable loss of time and energy in change-ver. We need a single GST to replace VAT, CST & Excise (and Service tax), apart from some other minor taxes like entry tax, octroi electricity duty etc. The real benefit of this transition must be savings in cost of collection for the government, and easier compliance by the tax-payer.
The difficulty in bringing a single GST is sharing of the revenue between Centre and the States which better be solved among 30 odd people to avoid burdening millions of tax payers. Keeping this year for reaching consensus, I propose to replace VAT, CST, Excise, Service Tax, Entry Tax, Electricity Duty, Octroi etc with a single GST with effect from 1-4-2015 with following features :-
(i) Commercial taxes departments in all states to be abolished, and GST will be administered by Central Board of Excise and Customs. The existing staff of the Commercial Taxes Departments will be transferred to CBEC to the extent required, and the surplus could be retrained for deployment in other state government departments and still remaining in surplus, could be laid off. Adequate compensation will be given to them as per law. Better still, they will be encouraged to be self employed by enterprising with which they have dealt throughout their career. Government will be happy to provide any assistance required for such encouragement.
(ii) Since every tax payer would be an assessee of the CBEC, they would be able to cross check any information on their own without needing any C form, way-bills, border checks etc. Thus, all border checks will be abolished and transport delays over there will be history. This should be soothing to the trade and industry in India.
(iii) The tax collection will be shared between the Centre and State in the ratio of tax to state GDP (minus the exempt agriculture part), keeping the existing tax to national GDP in mind. This will be revenue neutral to Centre while it could result in gain to some states and loss to some other states. Considering that states will be saving cost of collection through abolition of commercial taxes department, if there are still any losses, Centre will actively considering compensating them for it. In the long run, each state will be encouraged to raise its GDP for getting higher revenue. This is what we all want.
(iv) No system of annual assessments. It will be like Excise where taxes are paid monthly, returns are submitted monthly, and then, there are random audits/surveys/visits of prevention of evasion teams etc. This will save huge time for tax payers and curb corruption as well.
I am aware that many states do not want to be convinced for political reasons, and in the process are holding back the entire nation from such a major tax reform. While I will keep building consensus for nationwide implementation of GST, I refuse to be held back, and propose implement this scheme in states that want it, keeping the existing system intact for those states which do not want it. I am pretty confident that these states will soon realize the benefits of single GST through the experience of others and will come aboard sooner than later.
h) Stop wastage of tax payers’ money – Many government schemes are big losers of money and breeding corruption. For achieving minimum government and maximum governance, these schemes need to be pruned to save wastage while curbing corruption is far too big a malaise for me to attempt in this budget presentation. Government is setting up a task force to study these schemes and ways and means of making them leak proof and effective. Until then, I am suspending, and not cancelling, implementation of schemes like MNREGS, Huj subsidy, Theerth Yatra schemes etc, and propose to utilize the money so saved, for aggressively building infrastructure for irrigation and hydro power projects for getting far better returns to the society.
Third, reforms relating to construction activities. Government realizes that construction activities are employment and revenue generating activities and need to be encouraged. We rank 182 out of 189 countries on this criterion which proves that all is not well in this sector. There is massive inefficiency and corruption in this area which needs to be addressed. I apologize for not being ready with my proposals for this sector right now, but I promise to have a comprehensive plans for reforms in this sector not later than my next year’s budget, dealing with FSI, approval of building plans, contractual relationship between builder and purchaser, timely possession of property, property taxes, protection of title etc.
Fourth, improvement in productivity at farms and dairies is a vital area. Agriculture contributing just about 1/6th of GDP and employing about 2/3rd of people itself is a proof of poor productivity even by Indian standards. No wonder, this sector not only does not contribute to exchequer at all, but also is a drain on our resources in terms of subsidies, support prices, compensation, subsidized loans and loan waivers regularly. Tragedy is that this huge cost on exchequer does not benefit consumers or processing industries at all. It only helps individual farmers to survive when free competition forces would have long made to either improve productivity and be competitive (and thereby rich like any other sector) or exit from agriculture and switch his occupation. Both scenarios are desirable.
If agriculture contributes only 1/6th of GDP, there is no reason for it to employ 4/6th of the people. It must become at least as efficient as any other sector in India and be able to release 3/6th or half the people of India for more productive work which will be an additional contribution to GDP and thereby, per capita income.
If this sector becomes competitive, government will be able to save all these subsidies and costs while the consumers and processing industries will get their agricultural inputs much cheaper. Eventually, this sector may also become strong enough to share the contribution to exchequer like others. That will be the ideal situation we must all work for.
Unfortunately, people are not even aware that our farm and dairy yields are just about half of the world average. But it provides us with great opportunity for growth. We can double agricultural output only by being just as efficient as any average citizen of the world which should be no big deal if we have any pride in our intelligence and commitment. If the whole world can do it, we can do it as well. In order to achieve this, I propose the followings:-
a) Government will create awareness of the people about our productivity levels vis-à-vis the world in all its websites, offices and through media reports. This will highlight the productivity gap and scope for immediate improvement. Currently such data are conspicuously missing. Data on our websites and reports mention production, per capita availability but not productivity and global competitiveness. We must make everybody know where he stands in comparison with the world so that he wants to improve productivity levels which is job half done already.
b) Government agencies involved will be given a task to suggest concrete plans for achieving global productivity levels down to each district level in the country within a period of 1 year. Basically, farm yields productivity will require:-
(i) world class technology and skills that only professionals and corporate can bring. Government can help provide that to individuals as well.
(ii) high quality farm inputs like seeds, fertilizers, pesticides etc which the above can easily manage.
(iii) irrigation throughout the year. This is where government needs to do something.
c) Open the agriculture sector for all and sundry, including corporate both Indian and Foreign - This will automatically bring resources into this sector together with access to technology, skills and latest high quality farm inputs. If Israelis set up dairies here, obviously they will do their best to achieve the same yields (13,000 kg/cow/year) in India while average Indian yields aer just about 900 ltrs/cow/year. In no time, success can spread to the entire sector. The existing small farmers may either join these investors as local partners or sell their lands and start some other occupation/business. There will be no need for him to keep suffering and committing suicides. There will be no need for government to keep subsidizing this sector leaving all others starved. I assure the hon’ble members that this will not be against our national interest because even if the corporate owning land is controlled by a foreigner, the land remains in India and its produce remains here. In the unforeseen scenario of a foreign investor cornering major chunk of our land, like East India Company, and found to be against our interests, we always have the option of nationalizing it anytime.
d) Irrigation – is required to ensure three crops a year as also to reduce dependence on rains. Private sector cannot do much about it, and government needs to take concrete steps immediately. This can be easily coupled with hydro power projects to achieve twin objectives and reduce costs. Since users will pay for the power generated or water drawn for irrigation, it is simply an investment which can pay itself back, and therefore, will not be difficult to finance through international agencies to the extent required. I promise this august house that monetary resources will not be allowed to be a limitation for implementing these projects. Money will be found through disinvestment, FDI and loans from international agencies.
e) Freedom to sell farm produce anywhere – Farmers have long been complaining of exploitation in mandis, and rightly so. There is really no justification to force them to sell all their produce in government controlled mandis. I propose to dismantle the legal system immediately. The revenue coming from Mandis was not great anyway, and considering the cost of managing it, it must have been negative to the state governments who should be happy to let it. Still, Centre is prepared and willing to compensate states for any loss on this account on net basis. This proposal requires support and cooperation from state government, and will be immediately implemented in states which are ready leaving others to learn from this experience and come aboard later.
f) Decontrol sugar - Sugar industry has been a major sufferer from government controls together with cane growers. I personally would have liked to abolish all controls on this industry with immediate effect making cane growers free to sell to whoever they want, and mills to buy from whoever wants to sell to them and without any obligations of levy sugar such that sugar be dropped from public distribution system completely, and there being no state control on sugar cane pricing at all. But this is a controversial issue. Therefore, I only present before this house an issue and request hon’ble members to discuss it threadbare in the national interest and formulate a policy of freedom for this sector. Until then, unfortunately the status quo continues.
g) Food grain procurement is another such area causing massive wastages and market distortions. On one hand, market prices are high and on the other, grain is left to rot in warehouses, covered or open. Lot of tax payers’ money is being wasted. History is proof of the fact that dismantling of government control has only benefited the sector. Agriculture will benefit from such decontrols as well. After centuries of experience, there is really no justification for continued protection to this sector anymore. We must have faith in our people who will stand up tall and emerge stronger through open market forces just like our trade and industry post ’91 reforms. Therefore, I propose to discontinue support prices. Procurement will be made to the extent required for PDS at market prices through open tenders.
h) Decontrol import and export - Food prices have always faced wild fluctuations due to domestic shortage or surplus. This is due to inability of people to import food items when there is domestic shortage and vice versa. It is not helping anyone. If farmers are benefiting from high prices at the cost of consumers, he is over-growing it in the next season and complaining of loss through un-remunerative prices. The solution is very simple, freedom to import and export. This will allow people to import when there is a shortage in domestic market preventing any extra ordinary price hike, and to export when there is surplus in domestic market leading to crash. I am confident that Indian agriculture needs exposure to international competition and will only benefit from it.
Finally, business friendly policies and environment are required to attract and retain investment, both domestic and foreign. We need to create an environment where people find it easy to do business and are encouraged to expand. Unfriendly approach to business has been very costly for India. This has hurt the poor section of the society most because they are left unemployed and lesser revenue in the hands of government has prevented government from doing more for their welfare. Thus, pro-business environment is in the interest of poor more than the rich. Besides, rich are as much citizens of this country as the poor, and need not necessarily made to feel that they are only a resource for India which is meant only for the poor. This realization is the cause of brain drain which we need to try to reverse.
I therefore, propose the following policies to promote investment in the country :-
a) 100% FDI in all sectors across the board except those in a negative list which will be dynamic and reviewed from time to time. I request hon’ble members to kindly appreciate the implications of this proposal fully before feeling agitated. When we can buy weapons, the most sensitive item for us, from foreigners, why can’t we allow them to set up factory in India and buy from them locally? This will only bring value addition to us, employment to our people, taxes to our government and strength to our currency due to exports. This will also allow us to become a supplier of nuclear technology and be a member of the Nuclear Supplier Group which will secure our status permanently.
Besides, the recent examples of Hero Honda, Maruti Suzuki etc show that foreigners do not want to dilute their holding. They want to exit the JVs as soon as they have a chance to set up 100% of their own. That being the case, there is really no gain forcing these foreigners to use Indian capital which could be better employed by one who really wants it. With caps on FDI, we have only reduced investment in India.
Of course, people of this country are not ready for a blanket opening of all sectors like retail. Ruling party is committed to prevent FDI in retail but time will come when there will be no such inhibitions at all. Until then, I propose to introduce a negative list containing sectors where 100% FDI is not allowed. This list will start with Retail and will be dynamic.
b) Disinvestment in PSUs – government should not be in business at all. It should concentrate on areas which private sector would not enter, like law and order, defense, health and education etc. There may still be a necessity to continue PSU in a few sectors like banking, post & telegrams, tele-communications, ordnance, atomic power, hydro power etc for strategic reasons, but there is absolutely no reason for government to be in airline or coal mining business at all. Fact is that a PSU competing with private sector, is invariably losing money. Bureaucrats cannot compete with professionals, and government cannot compete with entrepreneurs. PSUs are simply eroding wealth which needs to be protected. I therefore, propose massive disinvestment in most of these PSUs including Air India, Coal India, nationalized banks, companies like HMT, BHEL, petroleum refineries not in exploration business, etc for which a detailed proposal will be submitted separately.
c) Labour laws are obsolete and need urgent reforms – It is these labour laws which have divided the workers into those who are inside the protected ring and enjoying high wages and job security, and those outside who are either unemployed or employed but paid a lot less as contract labour. In order to expand the labour market and improve labour productivity, we need comprehensive review of labour laws. My government has set up a task force to study this issue and will come up with comprehensive proposal within this year for consideration of this house. Meanwhile, in order to accelerate the industrial growth, I propose to
(i) exempt all new establishments from Industrial Disputes Act, Payment of Bonus Act, Minimum Wages Act and Contract Labour (Regulation & Abolition) Act for a period of 10 years. This will allow entrepreneurs to concentrate on business and offer competitive wages to all workers without discrimination as regular or contract workers. If people do not see the benefit of expanded labour market and do not want to work without protection of the obsolete laws, they still have a choice of not joining these new establishments and are not worse off at all.
(ii) suspend right to strike for all existing establishments, public or private, for a period of 5 years. This is required to accelerate the pace of growth. Courts have already held that right to strike is not a fundamental right. I am confident workers will not mind making this small sacrifice for the nation having enjoyed forceful rights all along at the cost of entrepreneurs as well as consumers.
d) Abolition of minimum charges in electricity bills – Monopolistic power supply companies have been imposing minimum charges obligations on consumers despite recovering all capital costs of providing connections and yet being unable to meet all the demand. They really do not stand to lose if a consumer is drawing no or less power. When business is doing well, it will invariably draw more than minimum power and hence, not bother about minimum charges, but when it is in trouble, the minimum charges start hurting it badly. Sometimes, they create so much of pressure that entrepreneurs are compelled to hasten decision to close down to avoid these charges. This is contrary to what nation wants, and hence, counter-productive. Business in trouble needs support. I therefore, propose to amend the electricity act to abolish any imposition of any minimum charges and also to provide that all pending demands for minimum charges at any stage of recovery will become null and void.
e) Educational reforms – while this is a comprehensive subject which is under study and a comprehensive proposal will be submitted to the house for consideration, two aspects are far too glaring viz., un-employability of 82% of our engineering graduates AND massive shortage of medical seats in India. Yet, PMT scams show that all of these few doctors may not be competent and could endanger patients’ life and health. Education though liberalized a lot, is still dominated by government directly and indirectly. Current policy allows private educational institutions only for charitable purposes and not for profit. This has criminalized the sector needlessly because any profit will come out of manipulations only. PMT scam has roots in this problem. This is avoidable. Capital intensive professional educational institutions cannot be set up for charity anymore. Besides, countries like USA are earning billions of dollars from foreign students coming to them for education. Indians are one of the largest groups going to USA. We need to reverse this trend by setting up world class institutions even if with 100%FDI. This will provide high quality education to Indians to enable them to contribute to India’s growth. It will also allow us to export such services through admission to foreign students. In order to achieve this, I propose the followings :-
(i) Repeal of Right to Education Act with immediate effect.
(ii) Allowing private educational institutions “for profit” meaning that they no longer need to be set up through charitable trusts or societies or sec 25 companies.
(iii) 100% FDI for setting up such institutions, and
(iv) Income tax deductions to grants to educational institutions for research purposes.
(f) Growth of most backward districts and decongestion of metro cities – these are twin purposes which can be achieved by encouraging industries in metro cities to shift to most backward districts for which special incentives like conversion of their industrial land into residential, enhanced deduction for expenditure incurred on housing and education of their employees etc can be offered. This policy needs support of many state governments and is under working. A comprehensive policy will be submitted to this house not later than the next budget in order to ease the pressure on metro cities both in terms of population as well as slums, while helping growth of most backward districts in the country.
I am reminded of Pandit Nehru’s words of wisdom “woods are dark and deep but I have promises to keep, and miles to go before I sleep and miles to go before I sleep.”. The woods may be dark and deep but I promise my fellow countrymen that journey through these woods on path of prosperity will be a pleasant experience and will not bring hardship to anyone at all. It does not require any hard decisions. Even workers who are losing right to strike will gain with much higher income, and farmers who are losing protection at unviable level will get much higher prosperity levels and so on. When size of the cake is enlarged, everybody will get a bigger slice, and that’s a promise.
To borrow from the great Subhash Chand Bose’s words, “you give me your faith and I will give you prosperity (tum mujhe bharosa do, mein tumhen smiriddhi doonga)”. With this, I complete Part I of my budget speech, and come to the tax proposals.