The Middle Class in India and the Burden of the Union Budget

The Middle Class in India and the Burden of the Union Budget
Arun Kumar
CESP, SSS, JNU, N. Delhi 110067.

The middle class in India is not the middle of the population distribution. In a population of about 118 crore it is not the 40 crore who fall in the middle of the nation’s income ladder. In fact, most of this middle is poor if not extremely poor (below poverty line). So, who constitute the Indian middle class?
They are the families with purchasing power to buy conveniences of life. In the Indian context such people are the well off, say, the top 10% in the income ladder. They are not the well off by international standards but those of a very poor country with a per capita income of around Rs.45,000, one of the lowest in the world. Hence our middle class is also one of the poorest by world standards.
According to the NSS data for 2004-05, 96% of Indians spent less than Rs.48 per person per day or for a family of five they spent less than Rs.7,200 per month. Only 1 % of the families spent more than Rs.12,500 per month that year. Add to these numbers the black incomes of the rich families which are not declared to the authorities. Further, assume that due to inflation, these figures have doubled since 2004-05. Accounting for all this, the middle class would be not more than 10% of the population.
The middle class is largely out of the income tax net. There are about 35 million individuals (3% of the population) who file income tax returns but only about 10 million (1% of population) pay effective taxes while the remaining 25 million declare very little income and pay negligible income taxes. Thus, income tax is relevant for 25 million middle class individuals (2% of the population) and mostly affects the rich (1% of the population).
There are several reasons for this low tax base. First, there is a large black economy so businessmen and professionals only declare a small part of their actual income. Secondly, taxation begins at about 500% of the per capita income. Thirdly, there are a large number of deductions and concessions which take incomes out of the income tax net. Finally, agricultural incomes are exempt from income taxation. However, even if agricultural incomes were formally taxed, little would have been collected from it since these incomes are mostly below the tax exemption limit and the share of this sector in GDP is declining.
The direct tax net has been narrow since most of the property/wealth taxation has been reduced over the decades. For instance, more wealth tax was collected in 1976 than now even though property and share prices have shot through the roof – the reason is that they have been mostly exempted from taxation. Capital gains, gift taxes and estate duties have been largely diluted or eliminated. These taxes help in collection of income tax so their reduction has weakened the base of income tax.
Consequently, our income tax structure is regressive even though formally it is progressive. The richer one is more is the share of property income and since most of that is exempt, they pay on an average a lower tax rate than the middle class does. The rich shoot from the shoulders of the middle class when they demand lowering of the income tax rates – they are its real beneficiaries and not the middle classes. No wonder India has one of the most moderate income tax rates in the world.
The middle class pays more tax through indirect taxes on their consumption (customs and excise duties and sales tax) than the income taxes. Indirect tax raises prices of goods and services and lightens the pockets of the consumers. The entire consumption is taxed through the indirect taxes. Thus a middle class family that may be paying 5% of its income as income tax may end up paying 15% through indirect taxes because it consumes most of its income. A rich family in contrast consumes a tiny fraction of its declared income, say, 5%. Thus, even if it consumes luxury goods where the indirect tax rate maybe 50%, it only pays 2.5% of its income as indirect tax.
Thus, the rich families pay little direct taxes because of the black incomes and the low income tax rates and they pay little indirect taxes since they consume little of their incomes. The middle class gets fooled into demanding reduction in direct taxes because it sees direct tax being deducted from income but does not think of inflation due to indirect taxes as a tax on its income.
The rich get a large part of their incomes from the ownership of the corporate sector which is concentrated in the hands of 0.1% of the population. They are getting more than 20% of the national income whereas the 55% working in agriculture are getting only 15%. This is partly because the corporate sector gets Rs.5 lakh crores of tax expenditures (indirect subsidies) which boost its incomes. In effect, massive income disparities are being generated in the economy both because of the black and the white incomes. No wonder India has one of the largest number of billionaires in spite of massive poverty and has one of the lowest Direct Tax/GDP ratio in the world, even compared to the developing countries.
In brief, the combined effect of direct and indirect taxes falls on the middle and the poor classes rather than on the rich who are increasingly cornering the nation’s income. If the black economy, about 50% of GDP, could be brought into the tax net, the nation could collect an additional Rs.14 lakh crores of taxes. Then, indirect taxes could be mostly eliminated, benefiting the poor and the middle classes. But, that is like asking for the moon since the black economy is controlled by the elite in society – the businessmen, the politicians, the professionals and the executive – who have little interest in checking its growth.
arunkumar1000@hotmail.com

 

           

 

How not to tackle the Black Economy in India

How not to tackle the Black Economy in India

Arun Kumar

CESP,SSS,JNU

The Hindu, February 27, 2011

 

Another JPC has been announced. The government has been trying to create an impression of being proactive with regard to tackling the black economy. The President’s address and the speech by Sonia Gandhi in January mentioned the need to curb it.  The Prime Minister at various for a while expressing helplessness, has emphasised action. The Supreme Court has been applying pressure to tackle black savings spirited out of the country and for unearthing wrongdoings in cases of corruption like the 2G spectrum allocation case. Home Minister Chidambaram admitted in Davos that in road construction 50 per cent of the funds are misappropriated. He has stated that there is deficit in governance and ethical functioning of government and the Prime Minister has endorsed this. Finance Minister Pranab Mukherjee has announced studies into different aspects of the black economy and a Group of Ministers has been set up to tackle the problem. Talks are on for Double Taxation Avoidance Agreements (DTAA) with various countries – supposedly to unearth wealth kept abroad by Indians.

Is the government finally serious about bringing back the black funds stashed abroad, variously estimated to be between $ 462 billion and several trillions of dollars? These figures seem credible when one considers the scale of the current scams (tens of billions of dollars) and the case of Hasan Ali where the tax demand runs into billions of dollars. The CD containing names of Indians with bank accounts in the LTG bank which the Indian government accepted in March 2009, a year-and-a-half after it was offered by the German government, has added to the pressure on the government. There are 77 tax havens where illegal funds are stashed away; Switzerland is only the biggest and best known.

The government’s actions seem to be in direct proportion to the public pressure on it as exposes come in thick and fast. The problem is not new, so what explains the earlier inaction? Consider Bofors or the 2G spectrum case. Initially there has been denial and then minimal action, allowing the culprits time to escape (as in Hasan Ali’s case where the money has disappeared). Rs.35 lakh crore in black income is generated annually and about 10 per cent of it goes abroad. The capital lost through this route is greater than annual net foreign investment, yet action is minimal for so long.

The government pleads that tax havens do not reveal names unless criminality is established and that the Swiss government does not treat tax evasion as a crime. The moot point is why did the Swiss government announce the immediate freezing of Husni Mubarak’s assets without the Egyptian government giving any evidence of criminality? Further, why did UBS agree first to give the names of 250 U.S. citizens and then another 4,500 names to the U.S. tax authorities in 2007-08 without any criminality being individually established?  In the Hasan Ali case, the Swiss government has said that it has not been given the information required. Similarly, in Ottavio Quattrocchi’s case, the Indian government has twice lost in foreign courts because the case has not been properly established. In 1992, Madhavsinh Solanki, then Minister of External Affairs, passed on a chit to a Swiss Minister apparently to slow down the Bofors case but the Narasimha Rao government quietly buried the embarrassment by accepting his resignation. The few cases of corruption initiated against the high and mighty are apparently spoilt or not pursued.

Given this history, will there be seriousness this time or will the government wait out the storm? In the last 60 years, dozens of committees have studied various aspects of the black economy and given thousands of suggestions. Hundreds of these suggestions have been implemented but the size of the black economy has grown exponentially. The Wanchoo Committee report bulges with suggestions. Since 1971, when the highest tax rate was 97.5 per cent, tax rates have fallen but the black economy has grown from 7 per cent to 50 per cent of GDP. Controls and regulations have been drastically eliminated after 1991 but the size of black economy continues to rise. The causes of black income generation lie elsewhere. The recent rise in corporate tax collection is a reflection of rising disparity and not better compliance.

Plugging loopholes has only made the laws more complex, as in the case of taxation. The ingenuity of the corrupt thwarts the enforcement agencies by either devising newer ways of circumventing the law or simply bribing the officials. In India, laws on paper and in practice differ because of the `Triad’ of the corrupt business class, the political class, and the executive (see the article “Honesty is indivisible,” The Hindu, January 29, 2011) who bend rules to their advantage. The philosophy is: if I am in power, I can bend rules for the favoured.

In brief, technically we know what needs to be done to check the black economy – but the problem is political. The top echelons of the leadership are the prime drivers of the black economy. They do not wish to forgo the massive illegal profits they generate. So how can the political will be generated?

A voluntary disclosure scheme to bring back black savings stashed abroad for `development’ is being considered. Wasn’t the Mauritius route created to allow round tripping of funds? It has accelerated black income generation by facilitating it. A National Security Adviser alerted the nation to terror funds entering the stock markets to destabilise the financial markets. The Wanchoo Committee argued that this kind of scheme makes honest people dishonest. A report of the Comptroller and Auditor General of India on the 1997 voluntary disclosure scheme pointed out that the same people who declared their black incomes earlier took advantage of the 1997 scheme – becoming habitual tax offenders.

Some argue that elections underlie black income generation and corruption. Presently, when a Lok Sabha constituency sees the expenditure of crores of rupees per serious candidate, state funding will make little difference. At best, it can be to the tune of the allowed election expenditure of Rs.25 lakh – just a few per cent of the actual expenditure by most candidates. Further, what is spent on the national elections officially and unofficially is not even 1 per cent of GDP for that year; so that this cannot be the cause of black incomes. It is the black economy that works to subvert the elections. Our present day legislators are largely the representatives of the monied and the powerful and not of the people; so they need to keep the public confused to win elections. They resort to vote bank politics and bribing voters and that is what makes elections costly. Genuine democracy would not be expensive. Today, we have formal democracy with weak content.

In this background, it is clear that the government’s actions against corruption will be in proportion to the public outrage and that too the minimum necessary. It is likely that there will be pretence while the real culprits go scot-free. Setting up a committee is to buy time and to stall questions on the subject since the government can claim it is waiting for the report. Later, it can buy time by pretending to look into the recommendations or bury an inconvenient report (like the Vora Committee report).

The Supreme Court is going after the names of those spiriting away money abroad but not after the generation of the funds. The black incomes generated in the country are ten times the size of what is siphoned out. In the liberalised environment, those with black money stashed abroad can turn into non-residents overnight and escape prosecution in India. This is perhaps the reason the Indian government is unable to proceed against the eight entities named in the Liechtenstein disc. For the rest, little money may be left in their accounts, given the inordinate delays. Taxation treaties being entered into by the government with other governments are all about legal incomes traceable to known individuals. But black incomes are typically parked via shell companies and in benami accounts.

What is needed is serious investigation and prosecution in the country that will also expose the money siphoned abroad. The government functionaries generating black incomes personally indulge in various illegalities such as using havala. So, in principle, there is private knowledge but not public information to stop these activities. The help of foreign governments is hardly needed in this matter. Intelligence agencies provide the leadership with information through tapping and so on, which can be mined instead of being used for political blackmail. The prosecution agencies deliberately spoil cases for political reasons. If prosecution is not possible in India, how can the case be made in foreign lands for booking the culprits?

In brief, the policy pronouncements are delaying and diversionary tactics to allow those generating black incomes to escape via shell companies and benami accounts. There were limited gains from earlier JPCs but will this time be different? It will be only if there is political will and action – and not more studies or treaties with foreign governments.

arunkumar1000@hotmail.com

                                                             

Honesty Is Indivisible

Honesty Is Indivisible

Arun Kumar

CESP, SSS, JNU.

The Hindu, January 29, 2011.

The Indian ruling class has faced its severest crisis of credibility in 2010. Its past has caught up with it and skeletons/scams are spilling out of its closets. The scams have a symbiotic relationship with the black economy. The number of scams is growing and so is the size of the black economy which has now reached a mind boggling 50% of the GDP, that is, it annually generates Rs.33 lakh crores of black incomes. While the Eighties saw 8 major scams, in the period 1991 - 96 there were 26 and in 2005-08, there were around 150.

There has been an exponential growth in the average amount of money involved in each scam. Bofors was the biggest scam of the Eighties and at an estimated Rs.64 crores it was dwarfed by the Harshad Mehta scam in 1992 involving a loss of about Rs.3,000 crores (Jankiraman Committee Report). Many felt this was a gross underestimate. In the period between 1991 and 1999, about 2,500 new companies floated in the stock markets disappeared with public money much like the robber barons of the USA in 1870-90. The loss to the public ran into thousands of crores but the governments of the day did not prosecute the promoters of the companies that disappeared. This emboldened the corporates to indulge in even greater manipulations in the just concluded decade. In 1991, when Harshad Mehta was fixing the market and the issue was raised in the Parliament, the then FM said he would not lose sleep over it. This signaled to the speculators that they could manipulate without impunity and one of the biggest scams followed which impacted the RBI and the entire financial system. UTI crashed in late Nineties due to such manipulations by sharp operators.

The Satyam scam in 2009 is estimated to be upwards of Rs.7,500 crores. The losses due to the mining operations in Bellary and elsewhere are reported to run into thousands of crores. Finally, the mother of all scams, the allotment of 2G spectrum in 2008, is estimated by the CAG to involve a loss of Rs.1,76,000 crores. Even if notional, in 2008 itself, various analysts had estimated the loss to be upwards of Rs.50,000 crores. Cases of irregularities in land allotment and diversion of food from PDS are pouring in and involve the loss of  thousands of crores.

Clearly, not only the number of scams is growing but the money lost by the public per scam is increasing exponentially. Minor scams hardly draw public attention even though they affect the citizen’s daily life, like, exam paper leak, rotting food grain, police recruitment and so on.

The other major recent scams pertain to, Adarsh Society, Commonwealth Games, Madhu Koda, Citi Bank fraud, charges against former Chief Justices of India, impeachment proceedings against two High Court judges, the PF scam investigations against HC judges in UP, Medical Council of India fraud, Deemed Universities imbroglio, IPL manipulations, Sukna Land scam involving some of the senior most Army officers and so on. The list is endless.

Bofors and the Quattrochi affair were on the verge of closure for obvious reasons but have erupted in a big way with the ITAT order implying that bribes were paid. The cases against Lalu, Mulayam, Mayawati and other former CMs and Ministers are on the back burner leading to charges of political misuse of the CBI. There is hardly an agency of the government that retains its credibility in the public eye. So, eight agencies are investigating the 2G scam but there is demand for a JPC not that the earlier 4 JPCs achieved much but the hope is that a determined opposition could ferret out the truth under public pressure.

Reports that the Emergency papers are not traceable, the Home Minister’s admission that the Bhopal papers in the Anderson fiasco are missing, the indictment of Vedanta by the Saxena committee report investigating illegal mining in Niyamagiri hills all point to a system that has been so manipulated by the crooked businessmen and the pliant politicians and the executive that it is collapsing under its own weight.

Today, policy failure is writ large and governance is failing all around. This due to the growth of the black economy from about 4% of GDP in 1955-56 to the present 50%. The implication is that illegality in the country has grown and touches almost every economic activity. This is only possible if it is both systemic and systematic. The public and the private sectors, encompassing every section of society is now suspect that they have their hands in the till - Prime Ministers, Chief Ministers, Ministers, top industrialists, military personnel, judges, bureaucrats, police men, professionals and so on.

For illegality to flourish on such a vast scale, those involved in overseeing the functioning of society have to be systematically complicit. It cannot be that one day rules are broken but not the next. Systems have been set in place to routinely commit illegality and make pay offs to the functionaries of the state. For instance, police collect hafta and posts of SHO are sold. Industry plans evasion of output much in advance of the production. Thus, tax rates and controls are immaterial.

Underlying this vast illegality is a `Triad’ between the corrupt business class, the political class and the executive. Since the mid eighties, the criminal has entered this Triad leading to growing criminalization. Businessmen, legislators and so on have criminal cases against them. Policemen commit criminality in a routine way and so on. For such a system a Binayak Sen who points fingers at them becomes an anti-national; what a shame?

The growing rot over the last six decades has been exposed by the Radia tapes. They reveal how illegality has become a routine matter for the ruling elite. Glib talk of “15% man” or fixing cabinet appointments is not just idle gossip. Those manipulating the system have known this and much more but the value of Radia tapes is that there is confirmation of what the public could only guess till now. The tapes confirm the functioning of the Triad.

The lack of independence of media biggies who are now like businessmen stood exposed with the expose of paid news but is out in the open more clearly. Their link with the manipulative system and cosy relations with favourite businessmen and politicians are in the open. Those not yet exposed feign surprise and try to cover up for their colleagues by suggesting that media is not powerful enough to fix things - another fix.

Rivalries amongst politicians, businessmen and media groups have helped lift the veil just a bit and even that is hugely damaging to the state. Those exposed shamelessly deny wrong doing hoping that they would be eventually bailed out since those in glass houses cannot afford to throw stones. They feel that they can cover up and can deny wrongdoing till the last as in the case of the Commonwealth scam or the 2G scam. Legal delays, threats and political and money power come into play to keep truth under the wraps (the Bofors case remains shrouded in mystery since 1987).  

The ruling class knows how to manipulate the system (as in the Rathore case). This is feasible since most of the investigation mechanism and wings of judiciary are pliable. Cases can be spoiled deliberately as the Courts have often lamented. Further, the Radia tapes reveal that our intelligence and investigative agencies know a lot about the wheelings and dealings of the Triad but this information is not made public.

The moot point is whether these agencies have been reporting what they dig out to the higher authorities who should keep the PM briefed? If not, there is a failure of the systems. Alternatively, if the PM knew but did not act is he also complicit? Either way one can infer that scams are allowed to take place. It is also known that information is politically used viz.-a-viz. the opponents and friends. Further, how many more scams are currently taking place about which the PM may know but about which he maybe keeping his own counsel.

Is honesty divisible between financial, social and political matters? Can one be financially honest but not in the other spheres? Is it honesty that scams are allowed to take place but one personally does not take any money? Honesty is not just individual but systemic and if the number of scams grow in size and numbers can the head of government escape responsibility given the huge social and political consequences. The scams do not just lead to financial losses but to policy failure (like, the current high food inflation) whose cost is a multiple of the direct financial loss. Honesty has to be indivisible!

arunkumar1000@hotmail.com.

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The Black Economy and the Nation’s Ills: Would Churchill feel Justified?

The Black Economy and the Nation’s Ills: Would Churchill feel Justified?

Arun Kumar

CESP, SSS, JNU

Mainstream, Vol. XLVIII No. 36. August 28, 2010.

Another Independence day has come and gone with the usual reflections on the nations achievements and its ills. With the shadow of another round of ferocious protest/violence in Kashmir, the continuing Maoist movement (`the biggest internal security threat’ according to the PM) and inflation troubling the common man and leading to a united opposition onslaught in Parliament, the mood of the nation and the rulers was somber. These are the biggest worries but the smaller ones are no less troublesome – Manipur, Telengana, Bellary, Aligarh and so on. The difficulties in the nation’s path of development seem to be growing and it appears to be tottering from crisis to crisis. The euphoria of the UPA II coming to power last summer and the promise of stability with the Congress (I) gaining seats in Parliament has dissipated quickly. The PM seems to be in a limbo, perhaps as he has hinted he is waiting for the prince to ascend the throne. Would future generations say that `Man twiddled while Delhi burnt’?

Major scams routinely grab the nation’s attention. Minor scams hardly draw public attention even though they affect the citizens daily, like, exam paper leak, food grain rotting, police recruitment and so on. The major recent scams are, Commonwealth Games, illegal mining at Bellary, Satyam, Madhu Koda, charges against a former Chief Justice of India, ongoing impeachment proceedings against two High Court judges, the PF scam investigations against HC judges in UP, a Governor resigning due to charges of inappropriate sexual behaviour in Raj Bhavan, Medical Council of India fraud, Deemed Universities imbroglio, IPL manipulations, Sukna Land scam involving some of the senior most Army officers and the allotment of 2G spectrum. The list is endless. Bofors and the Quattrochi affair are on the verge of being closed for obvious reasons and will make big headlines some time soon. Amit Shah case in Gujarat and the Madani case in Karnataka and Kerala are festering and can blow up any time. The cases against Lalu, Mulayam, Mayawati and other former Chief Ministers and Ministers are on the back burner leading to charges of political misuse of the CBI. There is hardly an agency of the government that retains its credibility in the public eye.

Reports that papers pertaining to the Emergency are not traceable, the Home Minister’s admission that the Bhopal papers in the Anderson fiasco are missing, the severe indictment of Vedanta by the NC Saxena committee report investigating the illegal mining in the Niyamagiri hills all point to a system that has been so manipulated by the politicians and the conniving crooked businessmen that it is collapsing under its own weight. Bhopal is a classic case of malicious (not benign) neglect of the suffering of the lakhs affected by the poisonous gas more than 25 years back and now the parliamentarians admit that they have been (criminally) remiss and must do something. The PM set up a GOM that is acting in haste to show the government is finally serious – for how long, till the next big issue blows up.

The sustainability of the path that the nation is on is increasingly in doubt. The corporate sector has increased its share in national income so rapidly that less than 0.1% of the population now earns more than the 50% who depend on agriculture. India boasts of the largest number of the poor and also some of the richest people in the world. Such growing disparities between the rich and the poor are promoted by the system which has put in place `growth at any cost’. This is also leading to large scale displacement of the poor due to the mega projects being set up indiscriminately – roads, airports, mines, steel factories, SEZs and so on. People’s experience is that when they are displaced the vast majority of them only get menial jobs in these projects or migrate to the slums of the nearby cities to live in miserable conditions.

Some lucky ones near big cities who get large compensation for their land mostly blow it up and lose the only security they had known. The result is increasing social tensions like, in Aligarh and POSCO area. Rapid environmental degradation is another cost of the `growth at any cost’. This is resulting in rising health costs neutralizing any increase in incomes of the poor people. Take the example of the train daily running from Bhatinda to the cancer hospitals 200 km away and called by the locals the cancer special. Promises to the people remain unkept because of growing policy failure and poor governance. Bihar seems to be suddenly in the news because of its rapid growth but the opposition doubts the statistics which clever governments are able to manipulate. The growing black economy has a lot to do with all this.

Problems in J&K, North East, tribal areas and rural India are linked to growing corruption. In the case of J&K and the North East, the common impression amongst the citizens is that the local leadership has been coopted through corruption and promise of power. The massive resources poured into some of these states are siphoned out leading to huge inequity while development remains weak and there is disenchantment with government. In the case of the Maoist affected rural and tribal areas, development has been seen to fail while the local businessmen, the politicians and executive has been seen to fatten (Madhu Koda is the latest example of this). The Centre is seen to be insincere over long periods of time and has failed the local people repeatedly so that the issue has transcended from the economic to the political and the social. In J&K, the various lulls in protest are not utilized to improve matters because the leadership is incapable of a different vision. By the time the administration has caught its breath, the next round of strife starts, triggered by the next perceived attack on the dignity of the people and this is not difficult because so many things go wrong all the time. The idea of India is dented, 8% rate of growth not withstanding.

In India, everything that can go wrong does so and the leadership only fire fights. Eighty children die in a school building fire in Nungambakkam in Tamil Nadu and there is little to reform so children die in Delhi and then elsewhere. Women parade naked in Manipur in front of the Raj Bhavan to protest atrocities against them and we forget it. So, in a court in Maharashtra women get together and kill their tormentor not believing that they would get justice. Correctives are not put into place because we refuse to learn from our mistakes – there is resignation, so everything is `chalta hai’ and a `jugaad’. Innovation is defined in terms of how many rules can be bent, short cuts taken and the system manipulated. With many fires burning simultaneously, the state is in a state of siege. It does not know whether to take care of J&K or corruption in CWG or inflation or Manipur or Amit Shah case or the oil spill off Mumbai and now the NC Saxena report which would put a spoke in the `growth at any cost’ strategy. Without a long term view it reacts only when the issue threatens to go out of hand.

The black economy is now about 50% of GDP or roughly Rs.30 lakh crores annually. 3% of Indians, the elites, get most of it and the rest are its victims either paying directly or indirectly for the greed of the rulers. While having to pay bribe for work or not receiving (or rotten) grains in PDS maybe counted as direct costs, the indirect costs are due to policy failure. Schools and dispensaries not functioning as they should, projects poorly executed and delayed lead to indirect costs through slower development. The black economy leads to both shortage of resources for development and ineffectiveness of the expenditures.

The black economy leads to waste. Many activities are like `digging holes and filling them’, that is, `activity without productivity’. Roads are repeatedly repaired because funds are siphoned out and quality of construction is poor so that money for new roads is inadequate. As a result of unproductive investments and the impact on the nation’s meager savings that are wasted, the country has been losing 5% rate of growth since the seventies. It could have grown at 8% in the seventies, 10% in the eighties and 13% now if the black economy had not been so big. Thus, India could have been at more than $ 6,000 per capita instead of the current $ 1000 and would have been a middle income country and not one of the poorest. We would not have had 77% of the Indians (according to the 2003-04 NSS round) spending less than Rs.20 per person per day – an abysmal figure.

People in India face some of the most uncivilized conditions of living anywhere in the world. Lack of drainage, filth all around their houses and colonies, polluted drinking water even in taps, lack of toilets and routine power breakdowns are common. This is not due to shortage of resources. Resources are siphoned out on a huge scale by the elite rulers and businessmen through flight of capital to tax havens (77 of them) of which Switzerland is the best known. No firm estimates exist for how much capital has been lost in the last sixty years but it could be several trillion dollars including the interest it would have earned – more than ten times the nation’s foreign debt. A nation that is supposedly short of capital exports it on a large scale. Not unlike what has happened in Latin America and Africa.

The massive scale of the black economy is feasible only if laws are systematically violated. We have got used to violating every single law - traffic lights, industrial regulation, environmental protection or forest acts. The black economy is the joint product of the public and the private sectors, involving a `Triad’ consisting of the businessmen, politicians and the executive (the bureaucrats the police and the judiciary). Criminals have entered the Triad as either the businessman or the politician, resulting in growing criminalization in society. Legislatures are increasingly being filled by people with criminal cases against them. Our legislators now flaunt their ill gotten wealth with designer clothes, fancy cars, expensive watches and so on. They seem to compete to outdo each other. There are exceptions but these are getting difficult to find because party tickets are not going to the honest but to those who can manipulate – the fixers are all over the corridors of power and no party is an exception.

The policy makers who should control the black economy are not interested since they and their parties are its beneficiaries. Those in power who are personally financially honest have to look the other way to survive. Their honesty is only relative and in a systemic sense they too are dishonest. For a time, they lend credibility to a dishonest system. However, this does not last and the public becomes disenchanted and cynical over time. Their appeal to cleanse the system falls on deaf ears and people who are suffering stop responding to their calls believing them to be insincere.

The German government bought a disc containing the names of people holding illegal bank accounts in Liechtenstein in 2007. They offered to share the disc for free with all the governments whose nationals’ names were in the disc. The governments of US, UK, France immediately took the data and started prosecution but the Indian government refused to accept it for two years – perhaps to enable the corrupt to escape. The US government managed to force UBS, the biggest Swiss bank to pay a fine of $750 million and reveal the names of about 5000 individuals having accounts with it. The French government bought a disc containing names of its nationals in another foreign bank and has initiated prosecution.

In India, more than forty committees and commissions have gone into the different aspects of the black economy and made thousands of recommendations. Hundreds of them have been implemented over time but the black economy continues its march. Controls like, FERA, MRTP, small scale reservations and licensing have been diluted or eliminated. Direct Tax rates have been reduced drastically. Voluntary disclosure schemes tried repeatedly. But there is little dent on the black economy. The reason is that the black economy involves illegality and incomes from such activities cannot be declared however low the tax rates. It takes several years to set up the systems to make black incomes and once they are in place with the connivance of the Triad then there is little threat so making the extra buck becomes easy and there is no reason to dismantle it. The black economy becomes systematic and systemic and drives the nation towards ungovernability and dents the idea of India. Colonialists like, Churchill said India cannot govern itself; our elite is bent on proving them correct.

arunkumar1000@hotmail.com.

 

Union Budget 2010-11: Too Many Gambles

Union Budget 2010-11: Too Many Gambles

Arun Kumar

CESP, SSS, JNU

Mainstream, March 5, 2010

Union Budget 2010-11 was expected to be an innovative exercise given the difficult circumstances in which it was being framed and that the most experienced politician of the present government was at the helm. There have been uncertainties about growth, high rate of inflation (especially in food items) and pressures for withdrawal of the stimulus. The Indian economy is recovering but the global situation remains uncertain given that the major world economies are plagued by persistent high rates of unemployment and even higher under- employment. Even the IMF is forecasting anemic recovery in 2010. Other experts are worried that the premature withdrawal of the stimulus in the advanced countries (and for this there is considerable right wing pressure) could lead to a double dip recession. Just as in 2008, this would immediately jeopardize Indian economy’s growth as well. This would certainly transpire if the stimulus is withdrawn in India also. After all, the FM has himself agreed in the budget speech that the stimulus helped India to maintain growth when in the rest of the world most economies were in decline.

Growth and Inflation: Background to the Budget

There appears to be an attempt at talking the economic sentiment up by constantly presenting a bright picture of the economy. This works some of the time but not all of the time. In 2007-08, it was argued that India would not be affected by the impending global crisis because it is de-coupled and that India would provide the stimulus to the rest of the world. As it turned out, Indian economic growth declined along with that of the rest of the world and the Indian policy makers were proved to be wrong. Could the policy makers again prove to be wrong in their belief that the economic growth will keep rising? Would the dream of 10% plus growth and that India would be the fastest growing economy in the world remain pipe dreams?

There are reasons to doubt the official growth rates being put out. It is stated that the rate of growth of manufacturing was 18.5% in December 2009 and that exports have started rising in the last few months so that the rate of growth is likely to have accelerated to 7.2% for the year 2009-10. If this is so, then for the previous year when industry as a whole was stagnant for more than 10 months, agriculture was showing zero or negative growth and large parts of the services sector were experiencing nil or negative growth (like, hotels, finance, real estate, air travel and commercial transport) then how could the economy have been growing at 5.1%? Be that as it may, only time will tell what the real story of growth for this period was.

The likelihood of lower growth (than official rate) in 2008-09 is corroborated by the tax data in the budget. The gross tax revenue for 2008-09 was projected at Rs.6,87,715 crores, in revised estimates but it turned out to be Rs.6,27,949 crores, about Rs.70,000/- crores less and in the actuals now released, it is Rs.6,05,298 crores, that is about Rs.82,000 crores less. Customs duties were less by about Rs.19,000 crores because of decline in imports, excise collections declined by about Rs.30,000 crores due to both the decline in output and tax cut and direct taxes were down by about Rs.44,000 crores.

This picture suggests that many parts of the organized sector, which pays the bulk of the taxes was in a state of decline in 2008-09. Reports suggest that the spill over effects of this decline on the unorganized sectors were strong. Consequently, employment in urban areas was impacted adversely due to these trends. The rural areas were spared due to the implementation of the NREGS. The corporation tax collections which were rising in the previous years at 25-35% hardly rose 10% (less than the GDP growth rate). This suggests that the additional purchasing power in the rural areas due to NREGS and loan waiver was not enough to stem the decline in the profits of industry. In other words, while these rural schemes only prevented the demand from falling rapidly but could not keep up the demand in the economy. Some use the argument that the share of consumption in the economy has risen to support their contention that consumption rose. This is not quite true since the share of consumption rose because the share of capital formation fell sharply and the two have to add up to one (if one falls the other has to rise). So the 5.1% growth remains a mystery.

Data from the Economic Survey 2009-10 indicates that in 2008-09, there was strong growth in three components of the economy belonging to the services sector – firstly, Transport, Storage & Communication (11.6%), secondly, Financing, Insurance, Real Estate & Business Services (10.1%) and finally, Community, Social and Personal Services (13.9%). How there could have been such strong growth in these sectors when Transport was down as indicated by automobile and especially commercial vehicle sales showing a down trend, finance sector was in a crisis globally and also in India and real estate, advertising and other business services were in a crisis and on the decline. Yes, communication and government services continued to grow as earlier but that could not have compensated for the general decline in all major sectors, like tourism, hotels, private education services and so on.

Since early 2008, inflation in food prices has plagued the economy even though the general rate of inflation based on the WPI was showing a declining trend since mid 2008 due to the global price trends. The severe drought in 2009 accelerated food inflation. However, the situation is puzzling given that the country had ample foodgrain stocks of 52.5 million tons of rice and wheat in July 2009 when according to buffer stock norms the requirement was 26.9 million tons. To begin with, the anticipated shortage of food grains during Kharif was about 16 million tons but now the shortage is anticipated to be only about 9 million tons. Even if the shortage was the higher figure, the buffer stocks were adequate to control the prices of cereals if not pulses. But the rice prices shot through the roof.

The government was slow in admitting that the drought was severe and that production would be short. Consequently, it was slow to intervene and the situation got aggravated due to inflationary expectations building up. In the past when the foodgrain output declined but stocks situation was good, prices rose but moderately unlike in 2009. The situation also deteriorated because now in the foodgrain markets, there are those with deep pockets who can hold stocks. Unfortunately, there is no data on private stocks so one can only guess how the speculators made a bad situation worse. Even then timely action by the government with its huge stocks could have kept the situation in check and prevented the private players from hoarding. In the case of pulses and oilseeds the situation is different since there is hardly a buffer stock for these and import of pulses is not easy.

It is not that per capita consumption of food has risen which could have raised demand and prices. The per capita availability (proxy for consumption) after peaking in 1991 at 510 grams per day has been down (by up to 20% in 2001). It has risen thrice to come close to the peak figure - in 1995 (495.4 grams), in 1997 (503.1 grams) and 2002 (494.1 grams). Each of these years corresponded to a good harvest. The lows were in the years of poor harvest. In 2008, the crop was good and NREGS and loan waiver had pumped in purchasing power but the net availability in 2008 remained low at 436 grams. In 2009, with a drought and lower production, less work on farms and lower incomes of the workers, the demand for foodgrains cannot have risen. NREGS may at best compensate for the loss of purchasing power of rural labour. The ruling high prices are likely to ensure that per capita consumption this year will be low.

The middle category of farmers do not go for NREGS so their demand could not have risen for this reason. They would have benefited from the farm loan waiver schemes and this could help them to retain their stocks and wait for a higher price rather than sell them immediately in the market. However, foodgrain procurement in 2008 was a record 54 million tons and even in 2009 Rabi season, it was good enough to leave 52.5 million tons of stocks in July 2009. So, loan waiver did not make a difference to the amount of foodgrain marketed by the farmers and this could not be a reason for the higher foodgrain prices. The situation could indeed have been different in the case of pulses and oil seeds.

Key Aspects of the Union Budget

The Union Budget projects expenditures of about Rs.11 lakh crores. It amounts to 18% of GDP and about Rs.10,000 per person. This is large enough to give something to every section of the population. No wonder, the FM announced, as is the case every year, allocation to every section of society – women, SC/ST, unorganized sectors, middle classes, corporate sector, farmers, small scale and so on. However, as the FM notes in the beginning of the speech, “The Union Budget cannot be a mere statement of Government accounts. It has to reflect the Government’s vision and signal the policies to come in future.”

The vision is incorporated primarily in the macroeconomic framework underlying the budget. It is also expressed in statements like, “ … the focus of economic activity has shifted towards the non-governmental actors, bringing into sharper focus the role of Government as an enabler”. It is this last statement that is crucial to understand the overall focus in the budget and the reason why the budget complicates the situation regarding the twin problems of sustained growth and inflation.

The stimulus provided by the high fiscal deficit and lowering of indirect taxes (in 2008-2009) are sought to be reversed. Services tax is being extended to more services. All this would jeopardize the possibility of sustained high growth as well as raise the already high rates of inflation. More than anything else, they would further fuel inflationary expectations and also lower demand resulting in slow down. Indeed excise duties could have been raised selectively on a few luxury products but an across the board rise would be inflationary. Further, the increase could have been postponed to when the economy was on a more firm footing.

Additional taxes could have been raised through increases in direct taxes rather cutting them. The loss of revenue due to this is about Rs.26,000 crores. This is being partially made up through increased indirect taxes. It was possible to raise more taxes through curtailing of tax expenditures of which a large part goes to the corporate sector. According to the Receipts Budget, the total concessions to all sections amounted to Rs.5 lack crores in 2009-10. While the FM is keen to lower the subsidies offered to the common man but he is not willing to touch the tax expenditures for the corporate sector and the well off sections.

The changes in the slabs of Personal Income Tax benefit only about 3% of the population and effectively about 1 % of those who pay significant amounts of income taxes. In contrast, the increases in indirect taxes adversely affect the entire population. The rise in the inflation rate consequent to raising indirect taxes is like a tax on the common man. For the poor, a 20% rise in the food prices is like a 13% tax on them. This is more than any benefit the budget could provide to the poor. The tax changes suggested in the budget reflect the government’s bias in favour of the well-off sections who are not really in need of any concessions given their high living standards compared to the poor and the lower classes.

Issues Related to Petroleum Product Prices and Taxes

Why the increase in the indirect taxes on petroleum products? It is being stated that this is to only reverse the tax cuts that were offered earlier and that too only a part of the tax cut is being restored. It is argued that earlier in 2008 the price of crude was high and that is why the customs duties were lowered in 2007-08. It is also being argued that the petroleum companies are running up losses at current prices and they need to be tackled. What is so sacrosanct about restoring earlier tax rates? Why can’t the indirect tax rates be permanently brought down? Finally, are the losses of the oil companies related to the excise and customs duties?

It is true that the lowering of the excise and customs duties resulted in less revenue for the government but that can always be made up from different sources. The direct taxes which are non-inflationary could be tapped and as suggested above, tax expenditures could be reduced for this purpose. This is also suggested in the Direct Tax code which is to be implemented from next year. Thus, there is nothing sacrosanct about raising the indirect taxes to get additional revenue that was earlier sacrificed by the government.

Some argue that GST requires a uniform rate of tax so that tax rates have to be brought in line with each other. However, in this budget the various tax rate changes suggested do not seem to have a pattern which would harmonize the rates. Further, why should they be harmonized to a higher rate and not a lower rate? Again, the loss in revenue, if the tax rates are lowered, can be more than made up through higher direct tax collections, say, by tackling the very large black economy. Hence there is no necessity that the FM has to move towards higher indirect tax rates.

Regarding the losses being suffered by the petro companies, these are not just due to the final price of the petro goods. The government treats these goods as a tax cow and levies high excise and customs duties so that higher prices are required to make a profit. If these duties are lowered, at lower prices also the petro companies can make a profit. In general it is desirable to keep petro goods prices high so that their consumption can be moderated and not only this precious good but the environment can be saved. However, in an inflationary period, these prices should not be raised since their inflationary potential is high.

An alternative would have been to raise taxes on all automobiles so that their prices could be higher and consumption moderated. Simultaneously, the prices of public transport could be subsidized to shift traffic to this mode. This way both travel of people and transport of goods could be cheap without an inflationary impact and the budget could have collected more revenue. But the elite and the automobile lobby oppose these steps. Thus, vested interests come in the way of a more rational policy. This also explains the macro vision of the budget.

Other Aspects of the Budget

Prior to the presentation of the budget the government had announced the move to curtail the fertilizer subsidies by moving to a Nutrient Based Subsidy (NBS) system. The real intent of the change is to cut the rising subsidy bill rather than any rationalization of fertilizer use. A play with words is being used to make this change sound reasonable and acceptable. However, in a difficult year for agriculture the time is not right to shift to a new system. In India, given poor governance and how businesses take advantage of deregulation to make a fast buck, the possibility is that fertilizer prices would rise and their consumption could decline leading to lower agricultural production. The opposite of what needs to be done.

This year’s Economic Survey suggests that food subsidy be managed through a voucher based system. Without a proper distribution system for vouchers, is this feasible? The potential for corruption could go up so that the scheme may work to the detriment of the poor. Have we forgotten how easily Telgi printed fake stamp papers and in educational institutions how easily fake income and caste certificates and degrees are presented to take advantage of concessions. The genuine people, the poor and the illiterate are then left out and the corrupt make a killing.

The problems in the country are basic and sophisticated solutions come a cropper. Putting a lot of money into new fangled high sounding schemes in the end has only complicated matters as has been seen in the case of issue of election cards. In spite of this exercise going on for the last 15 years, it is still facing difficulties. Usually the procedures in new schemes are so complex that even the literate are left floundering. Take the introduction of the simple tax forms; most people involved were literate but they found the procedures put in place difficult to follow.

The government is placing great faith in computer and IT based solutions like, UID, computerization of income tax returns, etc. One only need remember that if the spirit is not willing then machines cannot do much and their operation can be circumvented. A law is as much in letter as in spirit. The experience with PAN cards suggests that the crooked got multiple cards and the income department stopped issuing them. Similarly, in case of demat accounts people have been found to have up to 10,000 accounts. Banks in spite of the KYC requirements help the rich clients in various illegalities. In the ongoing Koda case, a bank branch enabled Rs.600 crores of rupees to be moved.

If those at the top are corrupt, how can it be stopped at the lower levels? In the US and Europe, there is far more computerization than in India, but tax evasion is taking place through various devices, like, use of tax havens, etc. It has been found that in spite of various regulations and computer controls, banks have been helping their rich clients to spirit money to tax havens.

Central Plan outlays are short by Rs.22,000 crores. Thus, the much trumpeted increase by 18 % has finally turned out to be an increase by about 12%, not too far ahead of inflation. This reduced the impact of the stimulus last year. Such shortfalls are an annual occurrence; expenditures are announced and then not spent to control the deficit. What reliability can be placed on the roughly 25% increase (on revised estimates) announced this year.

The chances of the budgetary calculus going wrong are much more because the revenue account estimates of expenditures are under estimated. Last year they increased by 15% over the previous year’s expenditures and Rs.22,000 crores more than estimated in the budget. This year they are slated to go up by only Rs.1,500 crores or about 0.02 % in spite of the interest burden rising by Rs.29,000 crores. In other words, all other items are likely to fall by Rs.27,500 crores. Partly, this can be attributed to the fact that in the previous two years the Sixth Pay Commission award related arrears were paid out to government servants and these were one shot payments.

The arrear increase was already captured by the budget for 2008-09 so why the increase of 15% in 2009-10? This was not just in the case of interest payments but in all the categories like, police, Defence services, social services, etc. This year none of them are to rise. Defence allocation is static but police are slated to fall by Rs.2,000 crores when major expansion is going on due to internal security problems and social services are allotted Rs.6,000 crores less even though major increases in expenditures are going on in education and health. There is no inflation indexing. Finally, subsidies are slated to fall by Rs.15,000 crores and this may turn out to be in error given the high inflation that confronts us today. This has the potential of upsetting the deficit figures as happened in 2008-09 and 2009-10.

Increase of Rs.5,000 crores for school education is welcome but is wholly inadequate if the nation is to seriously move towards the implementation of the Right to Education. Best school education for all children all over the country is a crying need so that all children have equal opportunity. Children of the poor drop out or do not go to the schools or even if they do go, the chances are that they get such poor education so that they have little chance of competing with the children of the well-off sections who get good education right through. The budget manifests a lack of will for moving in the right direction but then this is true not just of this budget but of all the previous budgets. There is a lack of political will in the nation.

Increase in NREGS is by Rs.1,000 crores when the poor are adversely affected by the food inflation and need higher incomes. There is demand to raise the wages paid to workers. Further, as is universally acknowledged, giving 100 days employment to one family member of a family is wholly inadequate so that the amounts need to be raised further. In contrast, the amount is not even inflation indexed so that next year the expenditures are likely to be higher.

All indications are that the deficit figures are likely to turn out to be higher than anticipated. It is fortuitous for the government that the deficit figures for 2009-10 are lower as a per cent of the GDP because of a rise in the GDP figure for the economy due to a revision of the base year. This statistical device would not be available in the next year and the deficit would turn out to be higher than anticipated.

Conclusion

Many of the assumptions in the budget exercise for 2010-11 seem to be problematic. It is taking a high risk in assuming a continued high growth in spite of the global uncertainties and in prematurely reducing the stimulus by raising indirect taxes across the board which would kick off inflation rather than moderate it. Even if the rate of inflation declines, food prices are already at a high level and unlikely to fall to last year’s levels so that the family budget is likely to remain under stress.

Due to the incorrect assumptions, the revenue deficit is likely to turn out to be higher and this will lead to larger borrowing and interest payments which would cause the fiscal deficit also to turn out to be higher and this could be a vicious trap. The budgetary arithmetic needed to be more transparent.

It is the retreat of the state that underlies the budget formulations and this is what has led to the complications in the budget process, like, the premature withdrawal of the stimulus. It is a pity that in this time of difficulties faced by the citizens the government is thinking of a retreat by cutting subsidies, disinvestment and so on.

The current FM is the most astute politician in this government and also the most experienced one (with no exceptions) and yet he has committed mistakes and is now facing a rising political opposition, including from the allies. It is a surprise that the Left and the Right have come together to oppose the budgetary provisions. The BSP, SP and RJD are seen on the same platform against the UPA. Why did he not anticipate this? Has he become so much a prisoner of the philosophy of retreat of the state (and its corollary, the promotion of the private sector) that he could not see the obvious and presented a flawed vision?

arunkumar1000@hotmail.com

 

Copenhagen and beyond: Environmental imperative for India

Copenhagen and beyond: Environmental imperative for India
by Arun Kumar

CESP,SSS,JNU
The Tribune December 16, 2009

The Copenhagen summit has brought the issue of rapid environmental degradation and climate change onto the centre-stage. Sceptics abound but evidence is growing of mounting environmental distress and weather patterns becoming highly variable and uncertain, leading to droughts, floods, melting of polar ice-caps and glaciers, growing intensity of cyclones and so on.
Of course, fluctuations in weather are normal both in the long and the short run, but experts opine that the current changes go beyond the observed historical patterns and are directly linked to the unprecedented scale of human activity. This last fact and that it is having visible effects on the environment is undisputed. The climate sceptics only contest that this is leading to a tipping point, which may cause a global disaster. They have faith in technology providing solutions, as in the past.
Scientists are working hard on ways to deal with the green house gases (GHGs) through sequestering. However, the environmentalists argue that the weather system and the earth itself are complex systems, which we only partly understand so that the visible deterioration can suddenly accelerate, giving us little time to react.
The world is confronted with growing damage to the environment (there is unanimity on this) because human kind equates its well-being with growing consumption. So, every nation, rich or poor, is in a race to increase production. Even the rich nations with historically unprecedented levels of consumption remain unsatiated and desire to consume more. In Europe, in spite of the Green movements, consumption per capita has increased. It is not just that their poor aspire to consume more but even their rich want to consume more.
The developing world ruling elite, brought up on the notion of modernisation being Western modernity, has blindly copied this model, including its consumerism. The elite in the developing world wish to quickly join the global elite, so they have embarked on a path of rapid increase in their consumption. Thus, consumerism, both in the advanced and the developing countries, is resulting in growing pollution.
The advanced countries, to reduce their own pollution, have increasingly encouraged the poorer countries to undertake the production of dirty goods - metals, chemicals, etc. Thus, the developing countries are polluting on behalf of the richer nations. They are competing with each other to increase exports and under-cut each other by overlooking environmental concerns. If all the people of the world were to consume like the average US citizen, several earths would be needed to support this consumption.
Pollution is taking a heavy toll on the poorest since they are at the edge of survival and depend most directly on nature itself. Food stocks started dwindling after 1999 and for some time food prices have been climbing steeply. While droughts have played a role, development- related factors like crops used to produce fuel and land being used for urbanisation or for providing services are no less important.
While the accumulated GHGs are mostly due to the past consumption by the rich countries, the current additions are substantial not only by the rich but also by the poor countries. This has come in handy for the rich countries (trying to maintain their own life-styles) to shift blame on to the large poor countries. They are demanding cuts by India where the largest number of the poor in the world reside. The Indian ruling elite argues that cuts will mean a slowdown of development and check elimination of poverty. Actually, the Indian ruling elite wishes to preserve its consumption, just as the rich nations wish to. The poor are only a bargaining chip.
There was a time when India used to give the lead to the rest of the world by taking morally correct and just stands as it did on the nuclear or trade issues. This position has now been given up in favour of narrow stands to protect our short-term interests. So, on the issue of environment we want to retain the right to increase pollution and, therefore, appear to be no different from others and are unable to assert strongly enough that the rich must consume less and pollute less to save the planet and help the poor.
Our elite has hardly shown concern for the poor in its mad rush for `growth at any cost, and to catch up with the West, with all costs to be borne by the poor and the environment. If we cut our emissions, we can set an example, especially to the rich nations to also drastically reduce their own consumption. It is possible that the rich nations will only use that extra space to increase their consumption further. Given that the environment is global, the problem would not go away. What would be the consequence of our emissions cut? Would we lag behind?
Indeed not. Our rapid growth (if the figures can be believed) is based on the growth of services, which has major components that have low-energy intensity compared to industry and modern agriculture. Further, if we focus on human development in ways other than growing consumption, like on education, health and culture, the output of material goods need not rise fast. The preservation of the environment itself leads to improved health and welfare.
For instance, we are using energy very wastefully and if we check this, we can have a given level of output at much less energy consumption. For instance, transportation needs much energy. In the pattern of development we have chosen, this need is being increasingly fulfilled by private motorised vehicles - cars and motor cycles. However, efficient public transportation can handle this at a fraction of the cost and less pollution, but the auto lobby comes in the way. We could also plan differently so that people could live close to their places of work and either walk or use bicycles and minimise motorised transport, wide roads, flyovers, etc, and save energy.
Our buildings could be environment-friendly, requiring less of cooling and heating. A large amount of energy is wasted due to non-standardisation of gadgets with consequent leakage, sparking and heating of the equipment and eventual burnout. If this is minimsed energy intensity would fall. Corruption leads to the theft of power from the lines in inefficient ways. Modern agriculture is energy intensive and polluting so that there is need for alternatives. Goods can be optimally moved through the railways, leaving only the short haul to the roads. We can promote collective consumption rather than private individual consumption.
In brief, even without sacrificing consumption, we can improve welfare and yet consume less energy. All this and much more was suggested in the Alternative Budget in 1994 but the elite has no place for it since it desires to have the Western life-style. If we can make people believe in their environment we may also convince them to consume less with even greater gains. As a nation, let us do what we can for our poor and our environment and for that we do not even need money or technology from the rich nations. This would show the rich nations up for what they are. Unfortunately, our elite lacks the imagination, has become more and more greedy and wants the easy wayout.

arunkumar1000@hotmail.com

Producing 10 civil servants every year: Can it be the goal of a VC?

Producing 10 civil servants every year: Can it be the goal of a VC?

Arun Kumar.

CESP,SSS,JNU

The Tribune, September 25, 2009.

A recently appointed VC of a prestigious University stated in an interview that one of his important goals is that the civil services coaching centre of this University should enable at least 10 students to make it each year. According to the story, he is enamoured of the idea because he along with 19 others made it to the bureaucracy in 1972 thanks to the Rau’s study circle - a creditable achievement for a coaching centre. However, can this be one of the important goals of a prestigious University? Alternatively, what does it convey about the leadership of a premier Indian University?

Should a University at all have a coaching centre for examinations of any kind, civil or uncivil? What does this indicate about both University teaching and our centralized testing for various jobs/careers? Why is it that the training at even the good Universities does not prepare students for passing entrance examinations? Equivalently, why is it that the competitive examinations do not test the students on the skills that they acquire during their routine studies in a good institution of higher learning?

The problem pervades the entire education system from the schools to the Universities. For entrance to the IITs or Medical colleges, etc., school students attend coaching classes during their 11^th and 12^th classes. The regular studies whether in private or government schools seems inadequate for preparing the child for the competitive examinations and thereby unduly burdens them. This has led to the phenomenon of Kota schools that prepare students for the competitions. Soon schools would come up in `Otak’ to prepare the children for entry into Kota schools. Where will the process end? Bright young children lose much of their childhood in this mad race and for what? Anything but learning.

Coaching institutions prepare their students to cram material to answer questions in competitive examinations – learning and understanding are incidental. When IIT and Medical students make it to the IAS and go to the training Academy in Mussoorie they feel lost because they have little exposure to the social sciences - a key ingredient into training good bureaucrats. These highly talented students with their enormous capacity to mug up pass the civil services examinations but this hardly implies an understanding of what they had mugged up. Skills needed to be a good doctor or a bureaucrat are at variance with each other. The training at the stand alone professional schools is narrow and it remains so because of lack of interaction with students of other disciplines.

Our Universities are unable to promote much learning amongst its students partly because the training in schools is indifferent and out of the pool of talent available, the best are siphoned away by the stand alone professional courses. Further, students who enroll in colleges and universities instead of attending classes spend most of the time preparing for something else. Why do students who work hard at coaching schools do not do so for the degree they enroll for?  Degrees hardly represent skills but are passports to getting jobs where the needed training is imparted on the job. Most teaching is insipid so that many students lose interest and exams are soul destroying. Many teachers are demoralized and go through the motions of teaching but have little interest in knowledge generation or the students.

The competitive examinations largely test the skill to mug up and reproduce. Mug books try to anticipate the likely questions and the successful candidates are those that can sort of predict the pattern of questions and provide standardized answers to them. Why do these examinations not test the logical abilities of the students and their capacity to grapple with difficult problems that have no ready solutions? That would be the real test of capabilities. This is tough and our students do not get this training in the institutions of higher learning. Our faculties who set the question papers have themselves never acquired such skills so they can neither teach this way nor set questions to test such skills.

The real task of the institutions of higher learning, like, the Universities or the IITs ought to be knowledge generation. While doing so they would also build capabilities amongst those who plan to go into other jobs, like, the bureaucracy or industry. Talent has to be filtered up so that the best go into knowledge creation. Unfortunately, at each stage there has been a reverse filteration of talent. The best minds (produced in spite of the system) are systematically siphoned out into jobs requiring lesser capabilities since they either pay more or have associated power.

This is a throw back to the days of the Raj which needed to produce clerks and not thinkers amongst the natives. In spite of sixty years of independence, we have not thrown away this yoke and restored the preeminence of thinkers in society. Civil servants have dominated over everyone else. So, society thinks nothing wrong in fixing salaries of University teachers in relation to the bureaucrat’s salary scales. The top dog has to be the Secretary to the government of India (the top of the pack of glorified clerks) and the salary of a teacher has to be several scales below that. In fact, the Chairmen and the members of pay commissions of University and College teachers have been Professors but none of them have protested at this preposterous idea and fixed the salaries of teachers in the lower scales. Indoctrination has been such that they have accepted the superior status of the clerks.

Many academics having failed to get into the bureaucracy or the corporate sector have come for teaching so that in their hearts they believe they are doing a lesser job and often lack motivation. Good teaching requires commitment. One inspired lecture is worth more than hundreds of insipid or often incompetent lectures that kill the interest of the students. That is why one cannot measure the productivity of a teacher as of a factory worker whose task is to perform routine and repeated tasks. One cannot measure output by how many students pass indifferent exams where little learning is required.

Few academics and even fewer bureaucrats and policy makers understand this overall picture and at times identify the problem as one of indiscipline – say, lectures and examinations not being held - but what of the content? Dissent is the basis of knowledge generation and ought to be cultivated systematically in the institutions of higher learning. However, this would be anathema to a bureaucrat and unthinkable to an Army General - their training militates against the spirit of a University.

Yet, our ruling elite readily appoints either these worthies as the VCs or those academics who have these tendencies either because of political convenience or as a reward for their subservience. The search committee members are compliant worthies willing to do the bidding of the political masters in the hope of getting plum postings – a patronage system all the way. Clearly, the role of institutions of higher learning is incidental for the elite class. No wonder the priorities of the VCs are typically things that are incidental (like, producing civil servants) to the main task of a University. If the future of the nation was not at stake one could laugh it off and today that is all we are able to do because the rot is deep.

arunkumar1000@hotmail.com