Economists, however, say that a revision of tax rates by the incumbent government is needed.
Amidst the emerging slugfest between “Modi’s Guarantee” and the Congress’ “Nyay Patra”, the battle of the manifestoes has intensified, with the Grand Old Party’s 46-page package of deliveries ahead of the Lok Sabha polls scheduled to begin on 19 April, attracting a mix of scepticism and scrutiny even as its proponents magnify the intent to “reverse the damage,” which the NDA government has heaped on the nation.
The problem, say economists who The Sunday Guardian spoke to, lies in the vagueness of the term “justice”, which is at the heart of the “Nyay Patra” and is aimed to be dispensed through a slew of promises across a large constituency of India’s youth, women, farmers, minorities and the marginalised. “We want justice in this and we want justice in that. They are not very clear on how their policies will achieve that justice and whether that justice is justice or something else. I was a bit disappointed,” economist Surjit Bhalla told The Sunday Guardian.
Take for instance the promise to give Rs 1 lakh to one woman in each of the poorest families under the Mahalaxmi Scheme as an unconditional cash transfer. “As far as possible, the money will be transferred to the account of a woman of the family who has a bank account or who will be urged to open a bank account,” the manifesto says. The Congress manifesto, however, does not spell out the overall financial implication of the promise or the estimated number of families which would be covered, says US-based economist Karan Bhasin, who along with Bhalla, authored a recent consumption expenditure report from Brookings Institution. It stated that India has achieved a significant milestone in its fight against poverty and real per capita consumption in India has been growing at a rate of 2.9% annually since 2011-12. Notably, rural areas have seen a higher growth rate of 3.1% compared to urban areas at 2.6%.
“Unfortunately, the true nature of the fiscal cost is not known given that the schemes have been left open-ended,” Bhasin told The Sunday Guardian. “For example, the Mahalakshmi scheme talks about the poor—there is little known about who is identified as poor. Based on the Tendulkar poverty line and as per the Brookings article, India has eliminated extreme poverty. However, if suppose Congress follows the same principle as outlined for Nyay in 2019—that is, bottom 20% of Indian population gets this, it comes at Rs 6 lakh crore,” says Bhasin. That, the economist argues, is more than India’s existing expenditures on PDS and farm subsidies. On the welfare front for the minimum support price, the Congress claims it will give legal guarantee to the MSP announced by the government every year, as recommended by the Swaminathan Commission. Incidentally, Praveen Chakravarty, the man who drafted the manifesto also had no clear answer when quizzed on the total outlay for all the freebies.
“It is very hard,” points out Bhalla. For whatever it is worth, “Congress manifesto in 2019 had promised agricultural reforms and within a year they had turned their back on it. So how much credibility do they have? For instance, the legal guarantee of MSP—how will it be financed, how will it be implemented? There are several questions one can ask. They want us to do their homework for them. The way to do it is state clearly that this is a policy, this is how we get the results, this is how we finance them and this is where we will get the money from. There is nothing,” Bhalla points out.
Bhasin agrees that the promise of MSP is “very vague” and the true cost can add another substantial Rs 2-3 lakh crore. “For context, India’s Budget for 2023-24 is Rs 45,03,097 crores. Therefore, these promises can cost anywhere between 17%-30% of India’s existing expenditures. It is highly unlikely that these programmes can be implemented given that their implementation will have disastrous consequences, which is perhaps why none of them have been attempted in their own states as a pilot programme,” adds Bhasin.
The manifesto also targets manufacturing—the growth engine of the Indian economy which has contributed significantly to driving up the GDP to 8% in Q3FY24—resolving to make India a manufacturing hub by raising the share of manufacturing from 14% to 20% of GDP in the next five years. This, the party intends to do with reform of the production-linked incentives (PLI) scheme to target specific sectors.
Facts speak otherwise. The share of manufacturing in India’s GDP has grown in the last few years from 16% to 17.8%. It has not stagnated at 14% as the manifesto claims to have happened in the Modi years. Moreover, says economist Nagesh Kumar, who is also the director of the Institute for Studies in Industrial Development (ISID), unless it is spelt out how this will be achieved, it makes no sense. “Taking manufacturing to 25% of GDP has been spoken of many times in the past. It cannot happen on its own. They are saying absolutely nothing on how this will be achieved,” says Kumar. “There is no roadmap, no indication of the select sectors that has been provided in the manifesto,” he observes.
Contrary to claims of manufacturing stagnating, Kumar notes that the Modi government has taken several measures like the PLI scheme which is already yielding results. Indeed, this is tangible in the export of electronics which have grown by leaps and bounds. “For the first time in 30 years, the current government is taking concrete steps to bring up manufacturing to its potential. They have done a lot in ease of doing business, taken out 3,500 outdated laws, reduced compliance burden on industry and reducing corporate tax to incentivise manufacturing and capacity building through PLI,” Kumar adds.
The Congress manifesto promise to ensure India’s rise to status of a developed country with an open economy in which economic growth will be driven by the private sector complemented by a strong and viable public sector has few takers among economists. Bhalla points to the economic policies of the Modi Government. “As far as growth rate is concerned, most noteworthy feature of the economic performance is the fact that investment rates are now back to 36% to 37% share of the GDP, back to the highest levels. And this I am talking about real investment, not nominal investment. We are the fastest growing economy and likely to remain for the next four-five years at least. So I think the economic performance of India in the last five years, especially given the shock that Covid was and which affected everybody. For us to come out the way we have is exceptional,” says Bhalla.
The economist however, calls for a revision of tax rates. The Congress promises to replace the GST laws enacted by the BJP/NDA government with GST 2.0 which will be based on the universally accepted principle that GST shall be a single, moderate rate (with a few exceptions) that will not burden the poor. Bhalla feels that on personal income tax and GST, rates should be reduced. “I am very much in agreement with what Mr Kelkar has outlined that our GST rates are too high. As far as personal income rates are concerned we have a huge gap between personal income tax rates and corporate tax rates. That gap is very unhealthy for the economy and for taxpayers. So urgent reform is needed on direct taxes and urgent deduction of the average GST tax rates is very much needed,” Bhalla suggests.
The economist also wants the direct tax code to be reformed. He recalls that the Congress government had suggested direct tax reform in 2009 but nothing happened. The BJP Government had also done a new direct tax reform study. Neither has been able to deliver. In terms of economic policies and in Bhalla’s own ranking, the reform of direct taxes should be number one and GST is the second priority.
However, Amitabh Kundu, economist and Professor Emeritus, LJ University, Ahmedabad, says that “Reduction in poverty in the NDA period is not necessarily higher than the UPA regime. In fact multidimensional poverty reduction is slightly higher in the UPA period. There is a slight edge. If you factor in electricity, drinking water and water supply you do find that in UPA coverage of poor was better. But if you take sanitation, LPG, then the coverage of poor is much better in the NDA rule. I cannot accept that NDA did much better in poverty reduction. Poverty has gone down more or less at the same rate as in the UPA period. On poverty reduction I give equal marks. In sanitation the NDA government did fantastic. On employment, unemployment and poverty reduction I don’t think the NDA can claim to have much of an advantage over UPA. In terms of corruption, governance there is a perception that NDA is doing better. My worry is about this social divide, the minority divide. That is an area of major concern. As far as economic development is concerned the NDA is not doing badly.”