Devinder Sharma writes: In the 12-year period between 2004-05 and 2015-16, total tax concessions given by the Indian government to industry almost equals a whopping Rs 50-lakh crore. If these tax concessions were eliminated and the additional revenue generated was instead used effectively for social betterment programmes, India could have made hunger and poverty history.
Prime Minister’s Economic Advisory Council chairman Bibek Debroy has stirred a hornet’s nest. Admitting that revenue worth 5 per cent of GDP is lost to corporate tax exemptions, he said unless these exemptions are eliminated, the tax-to-GDP ratio is not going to go up.
And what kind of tax exemptions are we talking about? As per a reply given in Parliament, Rs 6.11-lakh crore of tax concessions were given in 2015-16 alone. In the 12-year period, between 2004-05 and 2015-16, the total tax concessions given to the industry, earlier clubbed under the category of ‘Revenue Foregone’ in the Budget documents, is almost equal to a whopping Rs 50-lakh crore.
Yes, you heard it right. Rs 50-lakh crore.
I am not adding the revenue foregone figures for 2016-17 fiscal, simply because the sub-head Revenue Foregone has now been erased from the budget documents. This came after extensive lobbying by some well-known economists who wanted the Revenue Foregone category to go as it brought bad name to the industry. The Finance Ministry complied but it certainly does not mean that tax exemptions have been removed. This is clearly evident from what Debroy further states: “If these tax exemptions were eliminated, the tax-to-GDP ratio will be 22 per cent.”
For several years now, I have emphasised on the urgent need to eliminate tax exemptions being doled out year after year to India Inc. Some economists had argued that these tax exemptions were necessary to provide an impetus to revive industrial growth, increase manufacturing, boost exports and create jobs. But the industry continues to slog, manufacturing is down and exports are being provided with more subsidies, only 15 million jobs were created in the ten year period 2004-05 to 2013-14, and another 6.5 lakh jobs added in the three year period between 2014 and 2017, India continues to be faced with jobless growth.
If these tax concessions were eliminated and the additional revenue generated was instead used effectively for social betterment programmes aimed at removing hunger, malnutrition and poverty, India could have made poverty history. If the removal of the entire annual subsidy on LPG cylinders, adding to Rs 48,000-crore, is being calculated as a massive financial saving good enough to remove poverty from the country for one year; using the same yardstick my analysis shows that Rs 50-lakh crore given as tax exemption was good enough to wipe out poverty for 100 years.
If even a fraction of the huge revenue foregone had been invested in agriculture; much of the grave agrarian distress that prevails could have been addressed. Agriculture continues to be starved of financial resources, and with each passing year, the public sector investment has been on the decline. Of the 3.30 lakh farmer suicides across the country in past 21 years, Punjab alone has recorded 16,000 farmer suicides since the year 2000. While 98 per cent of the rural households in Punjab continue to live under debt, as many as 94 per cent of indebted households have more expenditure than income.
As a result, with incomes declining farm credit keeps on piling. With mounting indebtedness killing farmers, the demand for waiving outstanding loans is met with stiff resistance. Recall, a few months back the Bank of America’s Merrill Lynch had worked out that Rs 2.57-lakh crore of farmers’ loans expected to be waived off in the run-up to the 2019 general elections, will amount to 2 per cent of India’s GDP. What Merrill Lynch computed was based on a hypothetical estimate, which in reality is not going to happen. So far only about Rs 80,000-crore of farm loan waiver have been promised in UP, Maharashtra, Punjab, Karnataka and Tamil Nadu, only a fraction of it has been actually delivered.
This year alone, Rs 55,356-crore of bad debt of India Inc was written off in the first six months of the financial year. While Merrill Lynch never told us how much will the corporate tax exemptions add up to in terms of tax-to-GDP ratio, nor did the media hold prime-time shows seeking waiver of the debt write-offs, the total corporate bad debts written off by the state-owned banks in 10 years, between 2007 and 2017 swelled to Rs 3.60-lakh crore. This works out 2.8 per cent of the GDP.
In addition, an estimated Rs 10-lakh crore, and that includes what is being written off by banks, has been classified as stressed loan. These are being restructured and an appropriate ‘haircut’ is being allowed to settle the amount. A recent news report says that the Stressed Asset Stabilisation Fund, created in 2004, to recover IDBI bank’s bad loans, for instance, has settled certain cases with ‘haircuts’ of more than 90 per cent. Haircut basically means the stressed amount that the bank will not be able to recover. I don’t know why a similar haircut is not being allowed to small farmers in Punjab (with land less than 5 acres) who have been denied a loan waiver of Rs 2 lakh if their outstanding loan amount exceeds this limit by even Rs 100.
To remove the inherent anomalies, a beginning has to be made to restructure the economy. Removal of tax exemptions is the first step.
The author is an agricultural policy analyst. Views expressed are personal.
PSU banks writing off Rs 55,356 crore of corporate debt in six months is unacceptable
A disquieting report on the state of the public sector banks in India acting to further what can only be looked at as “crony capitalism” has come to fore. The Indian Express has reported that PSU banks have written off loans worth Rs 55,356 crore in the last six months alone, a 54 per cent jump in the amount written off around this time last year, which stood at Rs 35,985 crore. The loan write-off is being posited as banks trying to balance their books and clean them up by indulging in a bit of “harmless” financial jugglery.
Corporate debt crackdown: Is it what pushed Raghuram Rajan out?
Piyush Pandey, The Hindu
Is ‘crony capitalism’ behind Rajan’s impending exit? RBI has been cracking the whip on major banks, collectively saddled with Rs 5,00,000 crore of bad loans. The banks in turn started forcing big debtors–including Reliance, Essar and Adani-to sell prized assets to repay debts. The numbers in this May 8 report in The Hindu speak volumes.
Neoliberalism: Its reality exposed
S.G. Vombatkere, Countercurrents.org
Dr. Manmohan Singh was a World Bank employee before he became finance minister and later prime minister. As PM, he nominated Montek Ahluwalia from the IMF as Deputy Chairman of the Planning Commission. The present RBI Governor, Raghuram Rajan, was Chief Economist in IMF. This is how the neoliberal agenda has been imposed on India.