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The Noble Ledger PDF Print
Monday, 12 March 2007 05:30
Budget 2007-08 is a result of an acceptance within the finance ministry that any radical shift from the usual would cause too much trouble. But people who play it safe rarely build great countries. Budget 2007-08 is a result of an acceptance within the finance ministry that any radical shift from the usual would cause too much trouble. But people who play it safe rarely build great countries. It is a moot point that general elections are a few years away and the only other major election—that in UP—is anyway out of the Left and Congress's reach. We are living through the greatest economic boom in this land, and the government is reaping dividends in the form of unexpectedly high tax revenues. A lot could have been achieved, but has not. What could the government have done? On the revenue side, it could have made the regime simpler and more inclusive. What if, instead of paying income tax, the taxpayer subsidises social development? To do so, it required reducing the number of taxes, reducing the rates of indirect taxes further, improving the reporting and inclusion procedures. On the expenditure side, it should have invested in completely computerising government's information systems so that it's able to improve internal efficiencies. And it should have invested in extensively improving its monitoring and evaluation mechanism to plug governance and administrative gaps. But it has not done so. Apart from some tweaking on the revenue side, the only substantive thing the budget promises is the allocation of large amounts in the social and agriculture sectors. The problem remains the same as in the past—huge leakages and low impact on the intended beneficiaries. A large part of revenues are going to go into the pockets of the intermediaries, like contractors, and spread through the ruling elite. Another large component would go into delivering education, health and social security services that few want. So let's do some back-of-the-envelope calculations. The expected revenues for '07-8 from income tax are in the vicinity of Rs 1,00,000 crore (Rs 98,774 to be precise). The social sector scheme plan outlays are about Rs 80,000 crore, and add another Rs 20,000 crore for rural development. So the amount the government proposes to spend on its social sector and rural development plans is similar to what it collects from individuals by way of income tax. But even by the most optimistic accounts, at least half of this is likely to be wasted. To push this further, out of every rupee of income tax, only 15-50 paisa will be spent rightly. The rest will either fill the pockets of other rich people or be thrown away. The taxpayer is unhappy; the intended beneficiary is dissatisfied; and the more honest in the babu-political sections are frustrated. Yes, there is universal agreement that the government has rightly identified education, primary healthcare and security for the poor as key long-term thrust areas; yes, all of us would want to do something about it; and yes, most of us want to allocate some part of our incomes for such worthwhile causes. What if instead of paying income tax and it being wasted, the taxpayer directly subsidises and funds such programs instead of necessitating government intermediation in social development? For instance, the government can have a roster of activities that taxpayers chose from and directly pay the service provider. If some believe they can provide the services themselves, why should they not? As I was wondering about it, my granduncle reminded me about a system that was prevalent a few decades back—dharamkhata. Can we renew it? When we talk of public-private partnerships in service delivery, can we not talk about the same in resource allocation? It's a system that's in line with our traditions, and ensures flexibility. We just need to appropriately modify it for current requirements. Dharamkhata (do not Google it, it's not there) was an entry in accounts that allocated revenue to charitable activities. Some of the payments under this head were also tax-exempted.It was not much in vogue among salary earners, but many commercial establishments utilised it. Would it not be a much better system? Each pays lower income tax but chooses among various charitable activities. The government gets to waste less and the taxpayer is happier. The beneficiary is also happier, by linking the payer with the receiver, we've created incentives for better delivery. But most of all, it's a new direction for progress, a strong and direct link between the underprivileged and the more privileged. All of this without wasteful government intermediation. (The writer heads Indicus Analytics.) Source: http://www.outlookindia.com/full.asp?fodname=20070312&fname=OCol+Laveesh+Bhandari+%28F%29&sid=1
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