Demonetising the Economy Against the Working Class
New Delhi 1 February 2017: In the three hours between the time the Finance Minister completed his budget speech in parliament and the closing of stock markets, the two major stock market indices rose by two percentage points leaving little doubt who the Union Budget Statement 2017-18 (BS) was aimed at. In what many would have hoped would be a budget that would jump start the economy after extraordinary shock caused by the uncalled for and unprecedented ban on Rs. 500 and Rs. 1000 currency notes then that was simply not on the table. The currency ban brought on untold misery to the entire working class and in particular to migrant workers and the vast majority in irregular jobs. Either responding to their crisis or keeping its 2014 election promise of creating jobs is not something the BJP government is about to address. This is despite the fact that the state of the economy is perilous and unsustainable.
The BS provided a slew of reliefs to both the financial and real estate markets. The BJP government relaxed the rules for long term capital gains tax on financial investments. It also eliminated capital gains tax on foreign investments held through offshore fronts. And it increased banks allowable limit off for bad loans bad loans by one percentage point up to 8.5 per cent. Correspondingly the BJP government has reduced the time limit for paying capital gains tax on property from three years to two years benefiting real estate speculators and the super rich owners of more than one property. Further, providing tax relief to joint development agreements between land owners and property developers the BS has in effect reduced their individual tax liabilities.
Recognising that the largest amounts of black money are held in cash by medium and small enterprise owners the BJP government provided relief by reducing corporation tax from 30 per cent to 25 per cent for companies with an annual turnover of Rs. 50 crores and less. The BS has effectively violated an important principle of uniform taxation and has opened the field for multiple companies being set up by the same owner and other such tax evasion practices. In addition the BS has raised the limit for presumptive tax to enterprises with a turnover of Rs. 2 crores from Rs. 1 crore further lowering the effective rate of tax for such enterprises. The BS has also raised the requirement of maintaining books of accounts for enterprises with a turnover of Rs. 25 lakhs from Rs. 10 lakhs. These measures effectively reduce the tax paid or simply take out from the tax net an incalculable number of enterprises.
Alongside this, the BJP government lowered the lowest band (for annual incomes between Rs. 250,000 to Rs. 5000,000) of income tax by half from 10 per cent to 5 per cent. While this would bring relief to those at the bottom of the tax bracket this benefit will be passed on to those in the higher income tax brackets too. Although the BS imposes a 10 per cent surcharge on those with incomes between Rs. 50 lakhs and Rs. 1 crore the impact on this section of the rich will be marginal. Most importantly the maximum tax relief will be enjoyed by those with incomes of above Rs. 1 crore a year since no additional tax has been imposed on them.
Despite all the BJP Finance Minister’s grandstanding in the BS on the country’s narrow tax base and drawing attention to the fact that there are only 77 lakh taxpayers in the country or less than 1 out of 10 of the country’s adult population the BJP government dramatically narrowed the tax base. The solution the BJP government has for expanding the tax base is a simplified one page form.
The BJP government is very proud of the fact that in the current financial year they have already spent nearly Rs. 9,000 crores more than the budgeted amount of Rs. 38,500 crores under the provisions of the Mahatma Gandhi Rural Employment Guarantee Act. They have committed to make good this increase in the next financial year too raising the budgeted amount to Rs. 48,000 crores for the year 2017-18. The increased expenditure on the MNREGA brings out two issues of critical concern. First the increased demand for work under the MNREGA is a reflection of both the rural economic crisis and the lack of urban jobs. Second the increase (Rs. 9,500 crores) in the spending on the MNREGA is still lower than the total income tax relief of Rs, 12,500 crores passed on to the middle class and the super rich in through the lowering in the income tax rate. This merely reinforces the pattern that whenever there is an increase in the spend on the MNREGA, that benefits the poorest section of the working class, government always ensures that the rich are more than adequately benefited.
Apart from the expenditure on the MNREGA, the BS makes no significant increase in the expenditure on both social security and social protection. The increase under the provisions of the National Food Security Act is only in line with food price inflation while in the case of Anganwadi services, Sarva Siksha Abiyan and the Schools’ Mid-Day Meal Programme the increases are lower than the rate of inflation. While the increase under the National Health Mission is 25 per cent the total expenditure on social security and social protection has increased by under 9 per cent. In comparison increase in the expenditure on defence, excluding pensions, is upwards of 10 per cent.
The BS marks a very clear ideological commitment of the BJP government towards the rich and the middle class and against the working class. The BS also maintains the BJP government’s emphasis on indirect taxes and despite its various references to increase in personal and corporation tax collections the ratio between direct to indirect taxes remains lower than when they came to government. This only sharpens the BJP governments attack on the working class that is taxed disproportionately more through indirect taxes.
What’s worse is that the BS lacks a sense of direction and purpose to lift the economy towards a sustainable growth path. The BJP government’s Economic Survey 2016-17 released yesterday admits that the expansion in demand remains slack, barely in line with inflation, while investment has actually declined in the entire economy and is down 0.2 per cent as compared to the previous year. When the full data for the period after the note ban are available the complete extent of the investment decline and slack consumption will be before us. And yet the BS barely maintains the budgeted amount for government investment, including railways now combined with the BS, at the same level as the previous year and retains its emphasis on building infrastructure through public private partnerships.
The BJP government had the extraordinary opportunity with historically low oil prices to build that have allowed for relative stability on the external front and keep down inflation which they have failed to take advantage of. There has been an excessive emphasis on reducing the budget deficit with the corresponding effort to raise tax collections.
The only substantive promise in the BS for job creation is to extend the textile policy announced earlier in the year to for the manufacture of leather and foot ware. The textile policy apart from subsidy to textile manufactures and creates employment through fixed term contracts rather regular jobs. So any new jobs that will come through the BS will now be legally of an irregular nature. After three years of claiming that the BJP will turn this country into the manufacturing centre of the world through ‘Make in India’ all the BJP government has to offer the world is low technology, low skill, low value added textile, leather and foot ware and low paying unprotected jobs to its citizens.
Further, going beyond its brief the BS promises amendments to labour laws despite the fact that not a single trade union, whether part of the government’s tripartite process or not, has agreed to. This new codification of labour laws will for the BJP government result in higher labour productivity. The BJP government remains committed to perusing the agenda of capital failing to admit that labour productivity in the country has been rising while real wages have been declining. It is this crisis that has increased profits while maintaining slack consumer demand that has resulted in low investment and therefore a low and unstable economic environment.
Just as the BJP has in its manifesto for the elections, to the four state assemblies starting three days from now, reasserted its core commitment to its majoritarian Hindutva, it has through this BS reaffirmed its promise to the rich and, to its traditional support base, the medium and small enterprise owner at the cost of undermining the very economy itself. The objective of the note ban was to move capital from the working class and the informal section of the economy towards centralisation and concentration. Rather than impose punitive taxes on the so called black money hoarders the BJP government claims to have brought to book, through the note ban, the BJP government has sought to give them more than they may have possibly lost through the note ban.