Lower tax is great but do we need ‘minimum govt’?

AS A TAXPAYER, I am, of course, delighted with the Budget presented yesterday. Regardless of the income I earn, unless it is below ~5 lakh, I will now pay less taxes. This will increase my post-tax, or disposable, income and I will most likely end up spending more. I will feel less angst at spending in ways that I desired but did not. And, so as an aspiring spender, I will be more satisfied in the next fiscal than I am now. This is, of course, assuming that my income will not come down or I will not become unemployed.

If everything goes well, such increased spending, by me and others like me, will boost overall demand and the tax multiplier will set in, increasing GDP and thereby arresting the recent slow-down in GDP growth. However, everything else staying the same, this will increase the deficit. If the objective of the government is to improve GDP by boosting demand, an increase in government expenditure by the same amount as the reduction in taxes, would have had a bigger bang on the GDP figures. Unless, of course, the government sees itself as a highly inefficient spender of money.

This is the thing that amazes me in everything that we do. While “minimum government, maximum governance” is a good slogan and delights a large portion of the middle and upper middle classes in India, our government is well below what can be considered as the minimum threshold of government.

If we are to compare, for example, the number of people employed by our government, it is between 3-4 per cent of the population depending on the data one uses. And many of these government employees are in activities best left to the private sector like airlines, tourism, steel, etc. Notice I did not say railways, the largest government employer, because I do not want a debate on how nationally important railways are. We do not have enough teachers in government schools, enough doctors and nurses in government hospitals, enough police and judges, enough agricultural extension workers, the list can go on and on covering other areas where government is supposed to play a role. In the US, our role model, about 17 per cent of the population gets a salary cheque from the government. Imagine how we could address the lack of job creation, boost demand and all the things we are trying to do get our GDP figures up.

The other thing that amazes me about our thinking is the way we hitch ourselves on to an idea and then stay obsessed with it. This is independent of the ruling dispensation. The obsession with Public Private Participation (PPP) started in the mid-nineties continues till date. The finance minister mentioned PPP six times in the first 16 pages. India is not a shining example of how PPPS work and, yet, whenever we want to do something that is the first thing we think about. We have been talking about warehouses for three decades. If a problem exists that long, it requires new thinking.

Apparently, 52 per cent of our population is engaged in farming and 70 per cent of our rural households depend primarily on agriculture. Add to this the fact that 82 per cent of our farmers are small and marginal farmers. And yet, there is no interest among the private sector to set up warehouses. Could it be that the way agricultural trade and marketing is organised in this country makes it infeasible for the private sector to set up warehouses? Are policies hampering the use of land? Are block administrators so backward in their thinking or are local vested interests so strong that agricultural marketing continues to be fraught with policies that prevent warehouses from coming up? Is PPP the magic bullet for everything the government wants to do?

I recall in the nineties, when we wanted to build infrastructure through PPP, we talked about how China had invested in infrastructure. We forgot to mention that 80 per cent of the Chinese infrastructure was with public funding. And the infrastructure was planned and built by local governments. Is PPP by the central government the right approach where the third tier of government is toothless?