Sailing in troubled waters

Speculation is rife that while presenting the Union Budget 2018-19 on February 1, 2018, the Finance Minister may announce Universal Basic Income (UBI) in some form or the other. UBI is a social security in which citizens receive regular unconditional sum of money from the government. It’s a noble concept and aims at reducing poverty, insecurity and inequality. The first to conceive this idea was Marquis de Condorcet (1743-1794), a French philosopher, mathematician and political scientist, who played a prominent role in French Revolution (1789). In 1920, Bertrand Russell (1872-1970), the British philosopher, advocated for basic income in the UK. He argued that means of subsistence was a moral right for everyone, and not conditional on work or willingness to work. In the sixties and seventies, the debate over basic income commenced in the United States and Canada. In 1971, President Richard Nixon introduced a negative income tax (NIT). NIT is a system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government. Ultimately guaranteed income accrued only to elderly and the disabled in the US. So, NIT proved to be a success partially in the USA.

NIT is a species of UBI. Negative income tax (NIT) has been implemented selectively in Israel. Finland and Scotland are following suit. Switzerland considered implementing it seriously, but rejected it in a national referendum. Recently (1963), even Martin Luther King (Jr), the famous American civil rights leader, and thereafter, American economist Milton Friedman, the Nobel Laureate (1976), advocated giving unconditional money to US citizens. Some other countries are considering how to tackle the menace of poverty, unemployment and economic disparity. Is the world moving towards socialism? Is Karl Marx (1818-1883) becoming relevant again? Was Friedrich Engels (1820-1895), the German philosopher, right? Does disparity of wealth in India, where 73 per cent wealth is owned by the top one per cent of the population, induce the government to replicate UBI or NIT? These questions have surfaced in India today.

India cannot surely cover UBI to its entire population of 1.3 billion. If at all, it has to be targeted to the poorest, say 25 per cent of the population, that is 32.5 crore. Even if Rs 18,250 is given annually (a paltry sum of Rs 50 per day) per head, it would cost the exchequer Rs 5.93 lakh crore annually, which is well above the fiscal deficit targeted Rs 5.46 lakh crore set for the Union Budget 2017-2018. So, even to think of introducing UBI in India is absurd. We have miles to go and get out of the economic morass first.

Our biggest concern is the generation of revenue. The introduction of Goods and Service Tax (GST) will have a salutary effect ultimately, but due to its amateurish implementation, immediate prospects look uncertain. And corporate tax collection will be dented if the government yields to corporate lobbyists to reduce corporate tax rates. The government has been treating the corporate sector with kid gloves. On the other hand, individual taxpayers are being coerced. Budget estimates of 2017-2018 reflect 24.9 per cent growth of personal income tax collection from Rs 3.53 lakh crore to Rs 4.41 lakh crore, and only 9.12 per cent growth of corporate tax from Rs 4.93 lakh crore to Rs 5.38 lakh crore. How unfair! 24.9 per cent individual versus 9.12 per cent corporate tax growth!  Corporates are thus gaining directly at the cost of individuals. Is this equity? It is the same corporates who are playing havoc with bank depositors’ money, and now we are being reminded that as a last resort, depositors may have to bail them out (their NPAs)! What a terribly bad time to conceive the ‘bail in’ clause!  Banks run on the trust of depositors, not on guarantees executed in their (depositors) favour. Has this trust been dented? Timing couldn’t have been worse, although questioning the intention of the government would be a tad unfair.

There is a strong case for enhancing corporate tax rate and drastically reducing personal income tax rate. This would be equitable. And this is a crying economic need! A fertile ground must be created in which 10 crore individual taxpayers would happily pay taxes to participate in India’s economic resurgence. There must be a policy to achieve this objective. Where is the policy? Beating individual taxpayers with a stick is proving to be hugely counterproductive! On the other hand, corporates have been crying hoarse: reduce interest/ tax rates, write off bad loans. And the government has been yielding. This is directly hitting the individual taxpayer and bank depositors. These, in turn, are impeding optimal revenue generation.

A far more worrisome situation is on the expenditure side. Total expenditure budgeted for 2017-2018 is Rs 21.46 lakh crore. Out of this, Rs 16.97 lakh crore constitutes unproductive expenditure, as mentioned hereinafter. That leaves barely Rs 4.49 lakh crore for developmental schemes. Ironically, fiscal deficit budgeted for 2017-2018 is Rs 5.46 lakh crore. So, the entire developmental activity has to be funded by borrowings. There is no scope, therefore, to deviate from the path of fiscal rectitude. There is little hope that on February 1, 2018, the Finance Minister would be able to budget for a substantially higher slice of revenue generation for developmental expenditure.

Interest payment of a whopping Rs 5.23 lakh crore budgeted for 2017-2018 has become the biggest source of government expenditure. Next is establishment expenditure of the Centre at an astronomical Rs 4.37 lakh crore. Then comes defence expenditure of Rs 2.62 lakh crore. Food, petroleum and fertiliser subsidy combined account for Rs 2.40 lakh crore, pension Rs 1.31 lakh crore and grants (to states) Rs 1.03 lakh crore. These figures add up to Rs 16.97 lakh crore of unproductive expenditure. I don’t see any of these expenditures going down in 2018-2019.

The author is a former Additional Solicitor General of India and is a Senior Advocate at the  Supreme Court. Views expressed are personal.