In an interview to the Wall Street Journal on the occasion of his government finishing two years in office, Narendra Modi boasted that his government had done more reforms in two years than the UPA had in the previous ten. What were these reforms he was referring to? As he himself spelt out, these were things like making the insurance and defence manufacturing sectors more open to foreign investment. In short, Modi was telling one of the world’s leading financial dailies that he has done more for business, particularly foreign business than the UPA had. He also boasted that no other government would have had the courage to do as much in this direction as his had. Despite Modi’s known penchant for empty boasts, this one rings true. The Modi government is indeed more brazenly pro-corporate than most governments in India have been.
The taxation proposals in the two full year Budgets presented by this government, in 2015 and 2016, are by themselves quite revealing. In 2016, the budget proposals were estimated by the Finance Minister to result in a net loss to the government of Rs 1,060 crores in direct taxes and a net gain of Rs 20,670 crore in indirect taxes. In 2015, the direct tax changes were estimated to lead to a revenue loss of Rs 8,315 crore in direct taxes and a gain of Rs 23,383 crore in indirect taxes. Put together, over the two years, that amounts to a net loss of Rs 9,375 crore on direct taxes and a gain of Rs 44,053 crore. Consider what that means. Direct taxes are primarily taxes on incomes of corporate or individuals. Obviously, only the relatively rich individuals pay and the richer you are the more you pay. Tax proposals that lead to cuts in them are, therefore, a clear concession to corporates and the rich. Indirect taxes, on the other hand, are paid by everyone who buys any goods or services and obviously the bulk of those are the poor in a country like India. Thus cutting direct taxes while raising indirect taxes amounts to a transfer of incomes from the poor to the rich and to corporates.
The 2016-17 budget documents also reveal that the amount of money lost by the government in direct tax concessions for corporates (including concessions carried over from the past) amounted to Rs 68,711 crore in 2015-16. To put that in perspective, that money would be enough to fund the MNREGS for nearly two years at its current levels or the National Health Mission for more than three years. Apart from these direct tax concessions, a look at the indirect tax concessions also shows that the largest chunk of customs duty concessions (about one-fifth of the total, or Rs 61,126 crore) is cornered by the gems and jewellery sector. Now, an excise concession on a good widely consumed by the poor, like say salt, would be understandable. But gems and jewellery? Once again a sum that could fund MNREGS for two years or the health mission for three has been merrily handed away to the corporates that supply jewellery to the foreign rich, because that’s where most of India’s gems and jewellery sector’s products land up.
This year’s budget speech also revealed a plan to dispose of assets of public sector undertakings including land, in addition to disinvestment of their shares. Huge concessions were proposed for prospective private oil corporate, opening the doors wider for them. On the anvil for 100 percent FDI was also the marketing of food products. It also proposed an amendment to the APMC Act to create an e-platform for marketing of agro produces, a move intended to facilitate the domination of monopoly trade and agri-business interests in the name of better serving consumers. The same vision is evident in the proposed “decentralisation” of procurement, which basically means that over large tracts of the country the FCI would withdraw from procurement, leaving state governments or private entities authorised by them to corner the market. With few states having the capacity to undertake large scale procurement operations, it is quite clear who will gain.
The aggressive drive to appease the reform lobby and business was most evident on November 15 last year when the government announced what it called ‘Big Bang’ FDI reforms across 15 sectors. These included crucial areas like defence, banking, construction, single brand retail, broadcasting and civil aviation. It also announced that approval from the Foreign Investment Promotion Board (FIPB) would suffice for investments under Rs 5,000 crore compared to the earlier Rs 3,000 crore. Cabinet approval would be needed only above this threshold.
In defence, foreign investment up to 49% was allowed under the automatic route, while proposals for foreign investment of over 49% would be considered by the FIPB. Also portfolio investment and foreign venture capital investment, which were restricted to 24%, were hiked to 49% and that too through the automatic route.
In private sector banking, the government removed sub-limits for FDI and FII (foreign institutional investor) investment, thereby allowing FIIs to invest upto the sectoral limit of 74 per cent. This move was to benefit private sector banks such as Yes Bank, Kotak Mahindra Bank and Axis Bank.
Coffee, rubber, cardamom, palm oil tree and olive oil tree plantations were also opened up for 100% foreign investment under the automatic route.
That in a nutshell is sabka saath, sabka vikas – carrots for businessmen and sticks for the toiling masses.