With the general election to be called at the end of the year, Father Christmas has come early with the government writing off loans, raising tax exemption, reducing excise duties, … the list goes on.
K Chew comment: This is why India will always be in perpetual mess. The politicians are self servicing and concerned about winning next election only without regards to long terms implications. This plus the fact that most Indian voters are barely educated and easily hoodwinked, means that India will always be a chaotic Third World nation. This kind of democracy has form but no substance. I am glad that China leaders are not easily duped into buying such system, and instead develop their own system step by step. The West and Indians may scorn at China for lack of ‘democracy’, but in years to come (by 2025 is my prediction) China shall have the last laugh.
BY COOMI KAPOOR (The Star Columnist)
IT IS the biggest giveaway in the history of free India. Though governments all over the world are known to have indulged in populist measures to woo voters on election eve, yet never before had an Indian finance minister written off loans totalling 600 billion rupees (RM49.5bil) with a single stroke.
Finance Minister P. Chidambaram did precisely that on the last working day of February, by tradition the Budget Day, while unveiling the annual budget of the Union of India for the financial year, April 1, 2008 to March 31, 2009.
Chidambaram’s waiver of farm sector loans was clearly aimed at pleasing 40,000,000 small and marginal farmers who had borrowed from institutional lenders, including scheduled commercial banks.
In a budget remarkable for its all-out attempt to woo dominant sections of the electorate, Chidambaram also went out of his way to please the middle income and salaried groups. Raising the tax exemption limit from the existing 110,000 rupees (RM9,075) to 150,000 rupees (RM12,375) for men and to 180,000 rupees (RM14,850) for women and 225,000 rupees (RM18,562) for senior citizens (65 year or above) was meant to win over the largely urban-based salaried classes. Under the new exemption limit, every taxpayer stands to gain at least 4,000 rupees (RM330) per annum.
Playing Santa Claus, the finance minister also reduced excise duty on small cars, two- and three-wheelers and buses. However the share markets registered their protest when he raised the short-term capital gains tax from 10% to 15%, with the Bombay Stock Exchange Sensitive Share Index dropping by nearly 300 points on the Budget Day.
Overall, the economy was on course to achieve a near-nine per cent growth this financial year, though there was a hint of a slowdown in the projections for the next financial year due to global factors. The finance minister could distribute goodies only because the tax collections have been buoyant. Indeed, for the first time ever the actual tax collections were higher than those projected in the budget last year.
Which means that the private sector has performed exceedingly well, filling the government coffers with handsome tax contributions. The economy has been on a roll these past four years, growing at 9% on a trot. That would explain why Chidambaram was able to raise outlays on education, health, infrastructure, even defence without levying fresh taxes.
Everyone heard the drumbeats of an early election in the budget. More than one commentator noted that “poll was written all over the budget”. However economists were unanimous in criticising Chidambaram for the 600-billion-rupee loan waiver. It would instigate further defaults by borrowers, ruin the bottom line of banks, and would pick a huge hole in the government’s finances, were some of the criticisms.
Experts found it hard to believe that a government headed by an economist should resort to such reckless financial profligacy. Instead, the money could have been better spent on improving agricultural infrastructure.
Both Manmohan Singh and Chidambaram had acted under pressure from the Congress Party boss, Sonia Gandhi, who was keen to bolster the electoral prospects of the party by indulging in such populist measures.
Yet, the 600-billion-rupee farm loan waiver would benefit, if at all, only 40,000,000 of the nearly 110,000,000 farm households.
Critics underlined the fact that institutional finance was not always available to small and marginal farmers who inevitably turn to village moneylenders for instant cash at very high interest rates. Such indebted farmers would get no relief from the loan waiver. Nor would the farm sector loan write-off result in mitigating the problem of farmers’ suicides.
The loan waiver does not address the root causes of the failure at the farm front.
In 1990, the then deputy prime minister Devi Lal had written off 100 billion rupees (RM8.25bil) in farmers’ loans but in the election that followed a few months later his party was routed.
For, not only Chidambaram but his ministerial colleague, Laloo Yadav, two days earlier unveiled the Railway Budget that too was a huge PR exercise. He reduced rail fares in all classes, including 1st A.C, and offered sops to industry and commerce to haul goods. Clearly, when elections are in the air, politicians distribute goodies – even if the tab has to be picked up by the next government.