The annual ritual in which
the Finance Minister meets representatives of different sections of
society to elicit their views on the direction the annual budget of the
Centre should take has begun. So have the pre- and off-budget manoeuvres
through which the government seeks to garner "revenues", so as to window
dress the budget. The aim of that exercise is two-fold. First, to
accelerate revenue generation during the last few months of the financial
year, so as to ensure that the deficit on the budget for the current
financial year is not far too high relative to the target set in the
budget presented the previous February. Second, to ensure additional
revenue inflows through off-budget measures in the coming year so that the
budget, which receives much attention, can be shown to be les severe.
The need to resort to such
measures this year is even greater. Figures relating to the first nine
months of fiscal 2001-02 (April-December) indicate that tax revenue
collections at, Rs. 126,390 crore are 2.5 per cent below that recorded in
the corresponding period of the previous year. That is, instead of rising
overtime to meet growing expenditures tax collections are falling in
nominal terms, though GDP has been rising, even if less than expected. The
fall would have been larger but for the fact that personal income taxes
and excise duty collections have grown relative to the previous year,
because corporate tax collections have fallen by an estimated 4.2 per cent
during the April-December period.
This differential in
performance across different kinds of taxes has a story to tell. It is no
doubt true that sluggish revenues are in substantial part due to the
recessionary trends being experienced in the industrial sector. But if
recession alone were responsible, then the trend in excise duty
collections should have also been more adverse. The fact that they have
risen while corporate tax collections have fallen, points to the fact that
the government’s penchant for offering more concessions to the corporate
sector, especially in the form of exemptions and deductions, and only
partly neutralising it with enhanced excise duty imposts, has also played
a role.
In the event, unless the
government resorts to alternative measures, the revised revenue and fiscal
deficit figures for 2001-02 would be far higher than what was budgeted
for. Some of these measures, such as treating the "profits" of the Reserve
Bank of India as revenues are now past practice, so that unless these
figures are inflated to levels well above what was budgeted for, they
cannot resolve the problem. To deal with the special difficulties being
faced this financial year, the government has opted for three
alternatives, two of which are being implemented and the third being
prepared for. First, the government has accelerated the pace of
privatisation, which is being pursued in large measure as a revenue
generating mechanism, though it has been couched in the rhetoric of
reform. Over the last few months the process of strategic sale or
divestment of control of public sector units for a small price has been
sought to be pushed through, with much success in some cases such as a set
of ITDC properties and great disappointment in other cases such as the
airlines industry. However, with the programme of accelerated
privatisation still on the agenda it is likely that the government would
garner a significant sum through this route, even if at the cost of
underpricing public assets in distress sales aimed at garnering revenues.
The second initiative being
adopted is to transfer to the government’s budget the cash reserves being
held by successful and profitable public sector companies, by paying out
astronomical dividends. This is being adopted wherever the process of
privatisation has been delayed despite the government’s effort. A few
thousand crores have been transferred from VSNL alone this financial year.
The government’s claim is that such transfers are necessary prior to
privatisation, since these reserves are a reflection of revenues foregone
for the government as shareholder of the enterprise concerned. But since,
many of these companies have a sizable private shareholding because of
partial and piecemeal divestment in the past, the beneficiaries of the
high payouts would include those private parties who acquired a share in
equity in the recent past. There is no reason why these shareholders
should be paid out a sizable chunk of reserves, because they were the
first off the block, especially when the justification for high dividend
pay outs is that those acquiring equity through the imminent privatisation
have no rightful claim on these reserves. Moreover, if these companies
have accumulated these reserves over time because of their profitability,
and if private buyers where willing to buy their equity despite the
tendency to retain a substantial part of profits, there is no reason why
they should not continue to operate under public management, with
provision for higher dividend payments to the government in the future.
There is little doubt that if the companies concerned are allowed to use
their reserves for modernisation and expansion, they would be able to
sustain their favourable track record. It is only the desperation to
garner additional revenues that seems to be driving the government along
the route of "reserve-farming", which has as its consequence the wilful
destruction of even the viable segment of the public sector.
