Corporate-friendly Tax Reforms
Probably, the most striking move in the budget has been the biggest-ever pro- corporate tax deregulation. The Modi government has totally eliminated the "wealth tax," its justification being the fact that the wealthy and the rich systematically "avoid it" and that only a paltry sum of around Rs 1000 crore is collected through it. Now let us see the facts: According to internationally recognized data, India is home to eleventh largest population of "ultra high net worth" (UHNW) individuals, and figures among countries with "very high wealth inequality" with a large number of its population being in absolute poverty. While 95 percent of the population has wealth below $10,000, as a result of the rapidly swelling ranks of the upper middle class and wealthy, the Indian millionaire segment, i.e., "members in the top wealth echelons," is projected to rise by 61 percent in 2019.
As of now, in India, inequality is so large and glaring that the proportion of population having "net worth" or wealth above $100,000 ( Rs. 60,00,000) is just 0.3 percent of the population and in terms of the number of UHNW India's position is 11th largest in the world. This is an effective source of tax revenue for the government. According to a recent (2014) estimate by the Forbes magazine, within the past one year alone, wealth of the leading 100 billionaires in India has gone up from $259 billion to $ 346 billion.
A corollary of the extreme concentration of wealth with the corporate financial elite has been India topping the worldwide list for black money with around $ 2 trillion, more than the country's GDP, being stashed abroad illegally. High-net-worth individuals and corporate chieftains are the primary drivers of illicit flows and according to a 2013 report by Global Financial Integrity, India ranked third in the world for money illegally moved overseas. Rather than taxing these affluent and corporate sections by imposing reasonable tax rates instead of the nominal rate of one percent based on the principles of ability-to-pay and equity, Modi regime has further enriched the very same class of elites with fabulous tax exemptions. While abolishing the wealth tax, the government has instead raised the surcharge on taxable income exceeding one crore rupees which forms only a tiny minority of the taxpayers. The BJP government has also brought about an across the board cut in general corporate taxes under a five-year plan from 30 to 25 percent.
At a time when the number of Indian billionaires is increasing at an alarming rate, with the proposed corporate tax exemptions, taxation as a percentage of national income in India is becoming one of the lowest in the world. Even with the existing 30 percent corporate tax, on account of a number of exemptions and loopholes the effective corporate tax rate in India is around 16 percent. However, on an average, corporate tax rates in Europe are now around 38 percent, while the same is above 40 percent in Scandinavian countries where remnants of welfare state still prevail; it is 30 percent in Russia and 27 percent in the US.
The declining trend of tax-GDP ratio in India has been a continuous process under neoliberal policies which declined from around 14 percent in 1991 to almost 11 percent in 2004. After ten years of Manmohanomics and following two Modi budgets, the tax-GDP ratio is now reduced to around 9 percent. As per Statement of Revenue Foregone (see, Annexure 12 to the Receipts Budget) appended to every budget, during 2004-2014 under the UPA government, the corporate sections had got tax exemptions worth Rs. 35 lakh crores! But the Modi government, true to its ultra-rightist character, has altogether stopped the practice of adding such an annexure as part of the budget document. Meanwhile, BJP government's corporate tax exemptions in the 2014-15 budget amounted to Rs. 5.5 lakh crores which rose to Rs. 5.9 lakh crore in the 2015-16 budget. Along with this, it has also decided to write off the huge tax arrears worth lakhs of crores of rupees due from MNCs like IBM, Microsoft, Vodafone and so on. And the government is taking a pro-corporate approach to several tax evasion litigations now running in various courts. A best example pertains to government decision to freeze the more than 10000 crore tax evasion case against Vodafone. To further, appease the corporate tax evaders, the Modi government has also decided to postpone the implementation of the much trumpeted General Anti Avoidance Rule (GAAR) passed by parliament under public pressure.
While thus reducing the taxes on the wealthy and corporate elites on the one hand, the budget has taken keen interest to raise the tax burden on the poor and marginalized common people by proposing an indirect tax collection worth Rs. 23000 crores during the financial year 2015-16, on the other. Apart from increasing several excise duties, most important being that on petrol and diesel, sales taxes and other duties, the strategic decision to implement the Goods and Services Tax (GST) is in response to the longstanding corporate demand for a pan-Indian integrated commodity market which, according to the budget, will perform "a transformative role in the way our economy functions."
Unprecedented Cut in Subsidies
Under instructions from the Fund-Bank combine and as per the Fiscal Responsibility and Budget management (FRBM) Act passed by the UPA regime that requires the government to maintain the fiscal deficit-to-GDP ratio at pre-determined levels, the BJP government has slashed social spending and welfare spending in many areas. Through a series of Direct Transfer Payments Schemes (DTPS) and under the catchword Jandhan-Aadhar-Mobile (JAM) by which subsidies will be handed over to the recipients' bank accounts in cash rather than in kind, Jaitely has succeeded in achieving an across-the-board 20 percent reduction in the budget allocations for food, health care, rural development, education, women's development, etc. For instance, the BJP leadership which was claiming that its government would bring 60 percent of the Indian people under the food security system has now reduced that target to 40 percent in the guise of implementing the so called Targeted Public Distribution System (TPDS), a euphemism for pushing crores of the poor and the marginalized out of the subsidy scheme altogether. Compared to the previous budget, this budget has brought about a cut in food subsidies by 13.7 percent.
This ruthless cutting of public expenditures in social sectors in the guise of achieving a fiscal deficit target of 3.9 percent in 2015-16 compared to 4.1 percent in 2014-15 and finally to 3 percent in 2017-18, is as per the renewed undertaking with the Fund-bank combine. As a result, along with the slashing of food subsidies, allocation to health which was Rs. 35000 crore in 2014-15 is being reduced to Rs. 30000 crore in this budget. In particular, expenditures on the weaker and marginalized sections that need special protection are mercilessly cut. Modi government has thrown to the winds the accepted norms that budget outlays on weaker sections should be in accordance with their proportion in total population.
For example, tribal allocation is being reduced from Rs. 82904 crore in 2014-15 to Rs. 50829 crore in 2015-16. For Child Development Scheme, the same has been reduced from Rs. 16000 crore to Rs. 8000 crore. Obviously, these massive cuts in social spending is the direct result of the absolute reduction in plan allocation from 5.8 lakh crore in 2014-15 to Rs. 4.6 lakh crore in 2015-16. Underlying these moves is a class attack on the toiling masses as subsidies though not sufficient enough are still a vital lifeline for the vast majority of the pauperized Indians. At the same time, the basic orientation of the budget is to shore up the support of growing middle classes by pampering to their consumer interests through repeated talks on high growth rates.
Red Carpet to Corporate "Investors"
As can be judged from post-budget discussions by neoliberal pundits, this much ruthless cut in social expenditures by Modi government is to appease the corporate big businesses and to boost their "animal spirit" of accumulation and some among them have even characterized Modi regime's full budget as a path-breaking one comparable to Manmohan's 1991 budget which completely repudiated the so called Nehruvian state-led development and ushered in the neoliberal regime in India. Thus, as a corollary of the pro-corporate tax policies, and in tune with the high profile "Make In India" initiative aimed at transforming India into a cheap-labour sweat-shop being announced on the eve of Modi's US visit, the budget has envisaged a whole set of so called "pro-growth" and "investor friendly" measures as demanded by both Indian and international corporate businesses.
This is well exemplified in the budget through a new-found definition of the state as a corporate facilitator with the announcement of a public spending worth around Rs. 42000 crore on infrastructures in the 2015-16 fiscal year. The corporate media has wholeheartedly welcomed this government investment which is almost 25 percent higher than that in 2014-15. As is obvious, this fund directly flows into corporate coffers as this money shall form government's contribution to the PPP (Public-Private Partnership) projects proposed for the development of infrastructure and social overheads.
Along with the abolition/amendment of all existing labour and environmental regulations already taken up as integral part of the Make in India campaign facilitating unhindered plunder of workers and nature, the 2015-16 budget has offered tax-free infrastructure bonds for road, rail, port and irrigation projects. Further, the rules governing PPPs are being changed so that investors will be relieved of much of the financial risk. As part of this, the budget has proposed the setting up of a new National Investment and Infrastructure Fund with an investment of Rs.12000 crore per year to kick-start PPPs, thereby ensuring that most of the initial investment and risk are assumed by the state and not by corporate partners. An inalienable component of this unprecedented corporatization/privatization drive in the budget is the highest-ever 'strategic disinvestment' of public sector units (PSUs) for mobilizing Rs. 69500 crore, and the disinvestment target is likely to go up in the coming years. This is in addition to the already announced and not completed selling off PSUs in the previous budgets. As government's tax revenue is rapidly declining due to liberalization of the tax regime, though disinvestment is justified in the name of reducing fiscal deficit, its political objective is dismantling public sector through transfer of ownership to corporate businesses.
The BJP government's big-brotherly attitude to neighbouring countries including its strategic alliance with the US as its junior partner is fully reflected in the budget through almost 8 percent hike in military spending over the previous budget. In the guise of expansion and modernization of the armed forces, a major part of this outlay goes to arms dealers and armaments, especially US, companies and often has been a source of corruption and scandals. While Modi regime is drastically cutting social expenditures for 'lack of funds', it has no hesitation to raise military spending to Rs. 246727 crore from previous year's allocation of Rs. 229000. Compared with 2010-11 budget estimates, military expenditures in 2015-16 fiscal depict more than 65 percent increase.
Another notable aspect of the Jaitely budget is its announcement on removing the line of demarcation between FII (Foreign Institutional Investors) and FDI (Foreign Direct investment), the latter often being assumed as industrial in character. Some clarification is needed here. The large scale inflows of speculative finance capital in to Afro-Asian-Latin American neocolonial countries has been an ever-growing phenomenon since the onset of global stagflation in the seventies and beginning of neo-liberalism in the eighties.
Irrespective of whether FDI or FII, these financial capital inflows have been directed to buy up precious land, natural and mineral resources, scarce raw materials, factories, infrastructure overheads, stocks, disinvested PSUs, at throwaway prices. That is whether FDI or FII, this predatory plunder by finance capital has led to unprecedented deindustrialization, de-peasantization, displacement, unemployment, corruption and sky-rocketing prices of essentials in neocolonial countries. Except a brief interval associated with the "sub-prime crisis" and global meltdown that witnessed a temporary withdrawal of speculative funds from global capital markets, financial capital flows have displayed an increasing trend. But the characterization of FDI as productive or industrial and FII as speculative was far from true. Several empirical investigations including those done by UNCTAD in recent years have amply proved the futility of putting FDI and FII in watertight compartments as both are inherently speculative and are in search of short term capital gains.
Therefore elimination of the distinction between FII and FDI is not at all a new thing. But in doing so, the ingenious agenda behind such a move in the budget by Jaitely is important. Till now a number of tax exemptions and special privileges granted to FDI which is projected as industrial or productive are denied to FII which forms the lion's share of financial flows to India today. Now the Modi regime under pressure from imperialist centres, and for laying red carpet to international corporate capitalist of all hues has decided to extend the same privileges and "pro-investor" concessions applicable for FDI to FII also. Such sweeping investor-friendly tax holidays and other exemptions announced in the budget for foreign speculators will unleash unhindered corporatization and financialisation with little positive contribution to production and employment.