Economy & Nation Exclusive
National Budgets: The US and India

 In the US, domestic political compulsions prevent hiking taxes on their super rich, despite people like Warren Buffet offering to pay higher taxes. On the other hand, our poverty-stricken rural poor, designated Below Poverty Liners, are driven to suicides

We, in India, are not the only nation to suffer the likes of finance minister Pranab Mukherjee’s seventh disappointing Union Budget. There is stringent criticism of the US Budget, too.

Today, both India and the USA stand at the cusp of economic downturn, but for varied reasons. The US, like all the major western economies, is trying to steady itself. But domestic political compulsions prevent hiking taxes on their super rich, despite people like Warren Buffet offering to pay higher taxes.  President Obama is digging his heels on health insurance reforms and stepping up on local job creation. 

Here, in India, we have a very wide income disparity—with the numbers of the super-rich also termed ultra-high networth individuals going up many times and also appearing in the international top rich listing, and on the other hand, our poverty-stricken essentially rural poor, designated  BPL (Below Poverty Liners) are driven to suicides. The Planning Commission estimates the poverty ratio at 29.8% in 2009-10 based on calorific consumption patterns linked to the Consumer Price Index. 

Taking the American budget first. Paul Krugman, writing for the New York Times News Service headline—Pink slime economics on the US Budget, levels a serious charges—“Republicans in the House of Representatives passed what was surely the most fraudulent budget in US history... isn’t just its cruel priorities, the way it slashes taxes for corporations and the rich while drastically cutting food and medical aid to the needy... (It) purports to reduce the deficit—but the alleged deficit reduction depends on completely unsupported assertion that trillions of dollars in revenue can be found in closing tax loopholes... Representative Paul Ryan the chairman of the House Budget Committee, however, has categorically ruled out any move to close the major loophole that benefit the rich, namely the ultra-low tax rates on income from capital, pay lower tax rate than that faced by many middle-class families... a kind of throwback to the 19th century, where unregulated corporations bulked out their bread with plaster of Paris and flavoured their beer with sulphuric acid... would actually make the deficit bigger even as it inflicted huge pain.

“We’ve had irresponsible and/or deceptive budgets in the past. Ronald Reagan’s budgets relied on voodoo, on the claim that cutting taxes on the rich would somehow lead to an explosion of economic growth. George W Bush’s budget officials liked to play bait-and-switch, low-balling the cost of tax cuts by pretending that they are temporary, then demanding that they be made permanent... The House Republican budget isn’t about to become a law as long as president Barack Obama is sitting in the White House.”  Krugman ends with a scatting indictment—“For a lasting budget deal can only work if both the parties can be counted on to be responsible and honest—and the House Republicans have just demonstrated, as clearly as anyone could wish, that they are neither.”  

Our Budget for 2012-13, too, has been an uninspiring exercise, inasmuch as it seeks to bring about meaningless cosmetic changes—the basic threshold hiked by just a trifling Rs20,000 to Rs2,00,000 when the Parliamentary Committee had suggested Rs3,00,000.  The proposed new deduction of Rs5,000 for preventive health check  is begging a lot of questions. The Rajiv Gandhi Equity Scheme has many conditionalities like restricting its availability only to first-time investors, maximum of Rs50,000, three-year lock-in. Restricting the non deduction of taxes at source only on savings bank accounts where the balances maintained by an average Indian are so very low; instead it should have been applicable to all bank deposits (the old Section 80L permitted this)—savings, term and recurring—to be really meaningful.

Adding to the miseries of the aam admi this budget further proposes a major shift in taxing services consequently affecting the poor more than the rich. It has pushed up prices of necessities across the board. Sushil Kumar Modi, the deputy chief minister of Bihar and chairman of the Empowered Committee of State Finance Ministers on GST (Goods and Services Tax) rightly points out that the Centre, by taxing activities listed in the State List, has kicked in constitutional impropriety that lies in the heart of Centre-state jurisdiction as it tantamounts to encroachment on the territory reserved for the states.  It transgresses the Lakshman Rekha laid out by the Constitution and also runs the risk of failing to meet judicial scrutiny. 

The concept of service taxation initially brought in by the Finance Act of 1994 began with taxing just three services, has today swelled to tax 119 under Entry 97 of List 1 to the Seventh Schedule of the Constitution. It was expected to yield Rs95,000 crore revenue during 2011-12. With the introduction of the Negative List approach, the expanded tax base is expected to bring in increased revenues of Rs1,24,000 crore in the current fiscal. 

Perhaps, it is for the first time this budget contains measures to tackle the menace of black money, anti-cross border tax avoidance, benami transactions, inclusion of more tax payers and a more transparent tax network between states, PAN-based GST-N network for facilitating subsidy deliveries, taxing gold purchases and sale of agricultural land, widening corporate taxation, re-opening I-T assessments, flat taxation for incomes generated out of deemed credit, investments and expenditure, tracing and taxing the flow of hot money, bringing transparency in market transactions.

While the direct taxes are reduced by Rs4,500 crore, the indirect taxes increased by Rs40,000 crore. The budgetary allocation for education is a measly 0.73% of the GDP (gross domestic product), an increase from 0.69% earlier, when the international norms for spend on education is 6% of the GDP. Allocation for rural development declined from Rs74,100 crore to Rs73,175 crore, with the actual expenditure last year only Rs 67,138 crore. The allocation for defence is 2% of national income. Both education and defence do not seem to be on the government’s high priority list.           

The Indian Union Budget has not brought about any substantive measures to reignite the slowing down Indian economy that is primarily a result policy paralysis arising of the government’s inability to address concerns on vital issues, bringing down GDP growth of 9% in the past two-and-half years to 6.1% in the quarter ending December 2012. Even a fall of 1% brings about almost 15 lakh jobs and a lot of pain.

Economist SS Tarapore, a former deputy governor of the RBI, writing on Inflation will hurt the common person presents a grim warning—macro-economic scenario is fraught with dangers. After two years of close to double digit inflation, it has come down to 7%...  created money will provide for growth and common person will suffer inconvenience of a little more inflation... This implies providing incentives to the upper income groups while inflation is to be borne by the lower income groups. The balance of payments Current Account Deficit (CAD) in 2011-12 is expected to be close to 4% of GDP which is even higher than that in 1990-91. The present levels of reserves of $294 billion now cover only five months of imports and one year debt repayment have been stagnant and are now declining. Earlier the reserve cover was as high as 12 months. An unsustainable exchange rate invites external shocks, which could degenerate into a crisis like 1990-91 with an inevitable upsurge in inflation. 

There is a crumbling of the rule of law with the neta-babus violating laws with impunity. They have given Raj Dharma, higher than the king, a go-bye.  We Indians always held a rule of law expressed as dharma that provided coherence to our lives, reduced uncertainty and assured self-restraint. Bharat Ratna PV Kane rightly called our Constitution a Dharma text. The amendment, in the Budget, going back 50 years to counteract the Supreme Court ruling in the Vodafone tax case is bad enough, though all right thinking people don’t necessarily condone the tax avoidance strategy resorted to by them. The predatory taxation of Cairn to pay $90 a tonne, as against $18 to others. The reopening of environmental clearance to Maharashtra Hybrid Seeds Company, which had carried out 25 environmental bio-safety studies by independent agencies, rigorous field trials by two agricultural universities and complied with all protocols to the government’s satisfaction for the Bt Brinjal. The cancellation of Norway’s Telenor licence initially given out corruptly. These are many of the UPA-2 government’s flip-flops of policy paralysis when it seems to be tying itself in knots because of Coalition Dharma compulsions and not the traditional Raj Dharma that has stood the test of time over the millennia. 

(Nagesh Kini is a Mumbai based chartered accountant turned activist).

 Credits for inputs

  1. Free Press Journal - Inflation will hurt common person and Service Tax: A commendable change but issues remain.
  2. Sunday Times of India – The Government is not above the rule of law. 
  3. Hindu Business Line – A relook at negative services list and Pink slimeeconomics.
  4. The Week – The Budget ushers in host of anti-graft policies and Pranab Mukherjee cheated us, says economist Vinod Vyasulu.



R Nandy

5 years ago

In India education is primarily a state subject and most states allocate between 15-20% of their budget
for education.The Centres grants to the states including directly sponsored expenses comprise its budgetary
allocation for education.So,the overall Gov(Central + State) budgetary allocation for education will probably
be more than 0.73% of GDP.(?)

Economy & Nation Exclusive
Will the government let PSUs be run professionally? - Part III

The Coal India case underlines the need for professional autonomy, creation of a reasonable distance between the Ministries and the PSUs and a clear definition of the obligations of the PSUs. This is the concluding part of the series on state-owned companies

Over the years, despite the inefficiencies and the diseconomies that arose from these controls, the public sector undertakings (PSUs) have become important drivers of the economy. During the four to five decades of their existence, no government has ever paid any serious thought to introducing major public sector reforms so as to ensure that they could function efficiently and deliver the outcomes expected of them in an effective manner.

An essential element of the government’s 1991 economic reform strategy was to reduce government’s ownership in PSUs so as to provide them greater commercial freedom. The policy statements that followed from the successive governments year after year have often been self contradictory, devoid of a clear focus and usually in conflict with the avowed intention of reform.

Initially, a distinction was sought to be made between ‘profitable’ and ‘non-profitable’ PSUs, though the profitability of a PSU would really depend on the pricing policies dictated to them by the government. In some cases, the government tried to disinvest PSUS in favour of strategic partners and, in other cases, it tried to follow the Thatcherite path of opting in favour of a wider pattern of ownership in the hands of a large number of small retail investors. Whenever the strategic-partner route was taken, the ownership of the concerned PSU slipped into the hands of an influential group for a consideration that fell short of the potential value of the PSUs assets. The second alternative, that is, wider retail ownership, met with a limited success, as the government’s intentions remained ambiguous.

The government tried to group the PSUs under the ‘strategic’ and the ‘non-strategic’ categories but the definitions of these terms underwent changes whenever the governments changed. In particular, there was no attempt to make any distinction between the PSUs like CIL, ONGC and others that managed the country’s scarce, non-renewable resources such as oil, gas, coal, iron ore, bauxite, etc, and the other PSUs.

In the absence of such differentiation and without any clarity in the objectives, PSU disinvestment became a bone of contention among the political parties. Whatever halting disinvestment that took place after 1991 was usually done by the then ruling political parties, more in stealth than as a part of a well thought out long term strategy. Instead of deploying the disinvestment proceeds in more viable long-term investment opportunities, successive governments used them to fill the widening budgetary gap between the revenue and the unproductive expenditure, thus frittering away the gains, if any, of disinvestment.

While, on the one side, the government tried to withdraw its presence from the PSUs in favour of a private enterprise, on the other side, it was occasionally forced to seek the help of PSUs to take over the failed private enterprises, as it happened when the PSU lender, Oriental Bank of Commerce (OBC), was asked to save the depositors and the customers of the much touted, later scam-ridden Global Trust Bank in 2004. The critics of the reforms are justified when they described the whole process of disinvestment as “nationalisation of the losses, privatisation of the profits”.

Against the above background, it is high time that the government realises that it cannot do without some PSUs like CIL, ONGC, IOC and others for quite sometime, as long as it believes that such PSUs have important social and national obligations to discharge in the vital sectors in which they function. In the case of such PSUs, disinvestment may prove counter-productive, as it has become evident in the case of CIL. Even in the case of CIL, from the foregoing analysis, it is evident that a laissez faire approach to exploitation of India’s depleting resources is neither desirable nor can it be sustained in the long run. Demand management in any economy is as important as supply management. When this is realised in practice, PSUs like CIL will be in a position to play the legitimate national roles they are expected to play.  

Excessive control over the PSUs is in itself counter-productive. PSU reform calls for professional autonomy, creation of a reasonable distance between the ministries and the PSUs and a clear definition of the obligations of the PSUs. The different government departments, including the PMO should also respect the professional autonomy of the PSUs and the sanctity of their board-managed structure, apart from respecting the law of the land. They should refrain from interfering with the day-to-day functioning of the PSUs. Those who have a conflict of interest should not be permitted to be a part of the PSU boards. Sooner these reforms are taken up, the better it is for the economy of the country.

Dr EAS Sarma, IAS, is a post-graduate in Nuclear Physics (Andhra University) and in Public Administration (Harvard University) and a Ph.D from IIT, Delhi. As a Union Secretary he has held the portfolios of Power, Economic Affairs and Expenditure. He quit the government in 2000 over differences regarding policy issues with the National Democratic Alliance government. He is the convener of Forum for Better Visakha (FBV), a civil society group set up in 2004.



Shibaji Dash

5 years ago

Dr. EAS Sarma needs no introduction for informed minds in the country.His competence, knowledge and comprehension and professionalism for sound public policy formulation was legendary for the insiders of civil service in the eighties and nineties. Having read his articles and agreeing with each word, I am reminded of Lee Wan Kew in a recent conclave at Singapore who said the difference between China and India is :" China does.India talks".

C Jyoti

5 years ago

There is just no scope for this. PSUs are the personal fiefdo of the IAS and the milch cow of the politicians. The duo will ruin the structure with trade union leaders of these unitsbeing stakeholders in the loot!

Nagesh Kini FCA

5 years ago

The threat of an UK based large investor to initiate legal action against Coal India ought to spur government to keep its hands off PSU and give them professional autonomy.

Gone are the days when PSUs were 100% government owned.Now that there are public and FII holdings, even when the Government still holds the majority, good corporate governance demands that it can longer call the shots whether in terms of pricing, prefering customers or forcing mergers of sick entities like banks.
Even the archaic practice of Government Nominees should give way to election of independent directors.
It is rightly said Government has no business to be in business. Better stick to governing the country better. The Union Cabinet should go about doing greater things than tearing their hairs on appointments of CMDs of PSUs. Despite this many PSUs remain headless still.

Economy & Nation Exclusive
India’s weakening maritime power

National Maritime Day has come and gone, but the potential of India’s maritime prowess and power is steadily being strangled and eroded. First it was our ships and shipping lines, now it is our ports. What is left after that?

Every year in the first week of April for the past six decades, the Indian shipping industry goes through this great annual event called “National Maritime Day”—now elongated to the “National Maritime Week”. Part of this ritual involves telling young people that entering life at sea is a strange story. In a way, it fits in with the way generations of students in India have been taught to feel inferior about what India was and can be, and instead to feel highly grateful as well as obliged and patronised for life in India courtesy fictional history rewritten for a purpose on how it was the colonial Europeans who brought everything including their so-called civilisation, while looting us of centuries of self-respect, evolution and wealth.

We are used to hearing this in context with most everything—railways, military, postal services, administration, clothes and more—even our philosophies. But when one looks at the history of the maritime skills of the economies of the Indian Ocean in the centuries before the Europeans landed up, then at least one hopes the records will be straightened out. The Indian Ocean economies had ports, shipyards, lighthouses and much more, along with navigational skills that recognised the fact that the earth was round, centuries before the Europeans could even begin to think of such matters.

For example, in the great relocation of Europeans to Australia a couple of hundred years ago, fact remains, the ships and navigators for the voyage from Asia towards the Antipodes were from India. Likewise, it was the navigators and shipping industries of the Indian Ocean economies which opened the sea-lanes for Europe to Asia trade well before anybody else came and ‘cooked’ up stories about ‘discovering’ that the earth was round and making passage around the Capes.

The biggest tribute to the maritime skills that the Europeans acquired from the Indian Ocean areas are even now held on public display at the Nautical Museum in Greenwich, and in not so much public display at the nearby Trinity House, where these truths are not hidden.

In India, however, the same old fiction is dredged up year after year, indoctrinating fresh generations of maritime cadets on how India’s maritime glories began with the sailing of the Indian flag Scindia steamship ‘Loyalty’, purchased second hand, in 1919, courtesy the immaculate benevolence of our then British rulers and the suddenly re-discovered nationalism of some of our domestic royalty.  

The reality playing out is something totally different, coastal shipping in India has almost sunk, international shipping under the Indian flag is being self-strangulated, and official attitudes are ranged between the “we can do nothing” and the “you do your worst we will not change” aspects.

Nothing shows it better than a review of the Enrica Lexie/St Antony episode, which had previously been covered by Moneylife, and the Prabhu Daya/Don2 episode.

The latest updates, briefly, are as follows—and the contrast between the two could not be more drastic.

Enrica Lexie/St. Antony—Still no trace of the Voice Data Recorder (VDR) and no access to the various other data recorders on the ship either. No clarity on who is the real beneficiary owner of the ship. Much fury and arrogance in Italy with reports of Indian origin people and restaurants being attacked, Italian soldiers coming out in protest on the streets in Italy and amazingly, demands that Italian warships/frigates be sent to Kerala to rescue the ship and soldiers, by force. Ship still under arrest at Cochin anchorage and two soldiers in jail with no clarity on who actually ordered the soldiers to shoot and why the ship was so close to the Indian coast, in the first case. Likewise, no clarity on why the ship altered course after the incident and changed destination from Persian Gulf to Suez/Red Sea. But hey, the maritime administration appears to be in a huge tearing hurry to let go the ship.

Prabhu Daya/Don2—Full disclosure by the owners on all aspects of ownership, vessel, cargo and destination, and crew onboard of all data recorders and full access provided. Admission of error, out-of-court settlement and due process for re-verifying certification of vessel and competencies of complement onboard to follow. Master and crew arrested and then released on bail while all possible co-operation is being extended and investigations are not being hampered or influenced. Vessel still under arrest at Chennai. The same maritime administration is not in a hurry to let go this ship.

So what has all this got to do with National Maritime Day, then?

Just this—that the maritime administration of India appears to be still very much rooted in the colonial past, not just in outward appearance where even vice-chancellors and directors of almost defunct maritime training establishments fight each other in court and squabble over issues like who gets which car with what sort of red beacon to be on parity with their counterparts in the directorate general of shipping and the mercantile marine department, but also in the way those offices which will decide the future of Indian maritime issues are run both online as well as in brick and mortar.

Take a look at the directorate general of shipping website, for example, and weep. This is our maritime window to the world. It appears that the sole purpose of this website is to confuse, and therefore to force anybody who has anything to do with the DG Shipping’s offices anywhere, to make personal visits. And we all know what that means.

Directorate General of Shipping

Add to that the simple fact that the Indian National Ship Owner’s Association (INSA) is now more a cosy club of people who have foreign flag ships—while also maintaining a few Indian flag ships. National interest takes a backseat on almost all aspects of maritime issues, and in a manner of speaking, can best be compared to the way the Italians are outraged at their maritime interests being subjected to the due process of law in India. The message is clear—maritime interests of a nation take heavy precedence in Italy and other countries.

The lesser said about the maritime unions, the better. Nobody knows when the last audits were held, how the membership is regulated and who these unions actually stand for. Oh yes, they have a lot of strongmen and heavies floating around.

And then we move on to the really important part—the commercial aspects of maritime trade. The movement of legitimate cargo into and out of the country. Anywhere else in the world, this is a priority sector, where all segments of entities involved work as one for something larger called “national interest”.

In India, it is the other way around, and again it is the reality of container movements in and out of the Kochi port system which provides the best example. Moneylife had written on this subject in the past:

Since this article was published, it appears as though the battle to sell India’s coastal shipping has gone into an even more dangerous downward spiral, and nothing brings this out more than the way the new Vallarpadam Container Terminal is functioning, where cabotage protection is now almost history. In addition, there appears to be open defiance of the Customs Act by the terminal operators, port authorities with the tacit support of the maritime administration support foreign flag vessels, and huge amounts of public money spent on infrastructure development are simply going to waste.

To provide only one example—container loads of banned commodities being smuggled out of the Vallarpadam Terminal (operated by Dubai Ports Worldwide) were sought to be re-examined by the Department of Revenue Intelligence (DRI) and Indian Customs, in October 2011. The port and terminal operators objected, the ministry of commerce backed them and instructed the CISF on duty at the gate not to permit the customs authorities to enter or do anything more than check the seals on the container, until the local police forced the issue in favour of the customs—who have every right to check anything entering or leaving the country—especially if it is totally illegal.

Why would a terminal operator object to customs re-examining a container, unless they had an interest in what is inside the container?

Please understand one more basic concept of shipping—terminal operators, shipping lines, shipping agents and all other intermediaries operate on what is known as a “said to contain” basis—which means, they do not take liability for what goes in or out of a shipment. Often they do not even know the weight on overloaded containers, or whether they contain dangerous cargo, and have to go by the declarations provided.

The provenance of what is inside a shipment is between the shipper and the consignee. Any mis-declaration or resultant issue is not the responsibility of anybody else and as a direct result, terminal operators, shipping lines and agents will bend over backwards to co-operate with the authorities.

Unless, of course, there is some element of connivance and conspiracy between the shipper, consignee and any of the go-betweens, like the terminal operator, shipping line or agents. This, too, is not unknown. So, in the case of containerised cargo, the typical ‘game’ is to point at the one-time lock being used as a container seal, and claim that, look, everything is OK.

But everything is not OK. Containers are sealed using one-time locks on the door handles. As is well known in the trade, as many one-time locks as you want with whatever markings required are available easily without any problems, and there are no reliable or cogent audits on this in the shipping business. Sealed or locked containers can furthermore be easily opened by disengaging the hinges on one side, thereby swinging the door open without disturbing the seals on the other hinges. This is the most open secret in the global container industry, and pilferage or substitution of what is inside a marine container after it has been ‘officially’ sealed is rampant.

A government-operated terminal will co-operate backwards with the authorities. Terminals which are careful about their reputations have a choice. But Vallarpadam? They are loyal, it seems, but to somebody else. Not India.

In this case, it appears that having motivated themselves into a monopoly position and having ensured that the local maritime administration in and around Kochi is eating out of their hands, the terminal operators at Vallarpadam with the support of the local and maritime authorities chose to try and prevent the customs from re-examining the containers.

Why would they do this unless they knew that something was wrong? Can we tolerate this in an independent India?

National Maritime Day has come and gone, but the potential of India’s maritime prowess and power is steadily being strangled and eroded, and that needs to be reversed. First it was our ships and shipping lines, now it is our ports. What is left after that?

(Veeresh Malik had a long career in the Merchant Navy, which he left in 1983. He has qualifications in ship-broking and chartering, loves to travel, and has been in print and electronic media for over two decades. After starting and selling a couple of companies, is now back to his first love—writing.)



Veeresh Malik

2 years ago

Latest update

Italian marines pressurised Captain to cover up

Rambabu Shastri

5 years ago

India should embrace Islamic law. The Italians are off due to the concept of blood money and that is the law in the Gulf.

Capt Bhatia PS

5 years ago

I have been reading the articles on a regular basis as they are informative and to the point. Wish that this information reaches the concerned authorities also, so that some action action is taken for the good concern of all.



In Reply to Capt Bhatia PS 5 years ago

Dear Capt. PS Bhatia, thank you for writing in.

The authorities, especially the maritime administration in India, are fully aware of the mess they are creating and the dangers this poses to the larger picture of India's economic independence. The time now is to be part of the solution and for that i will request that you please do your bit, too, by bringing these issues up at subsequent maritime functions.

Forcefully. Drive the point home to them that we know what they are doing and will not let them get away with things.

Humbly submitted/VM

S Mukherjee

5 years ago

A very informative and relevant article in these times when the Enrica Lexie and St. Antony killing incidents have been in the news. Also really expect and hope the shipping authorities will explain the difference in their reaction/treatment in the above 2 cases as clearly pointed out. As well as urgently rectify the other shortcomings mentioned to act in a more pro-Indian manner as befits our status of an independent sovereign nation with a glorious past maritime history.



In Reply to S Mukherjee 5 years ago

Dear S Mukherjee, thank you for writing in.

We can do our part, howsoever little, by bringing these issues up publicly. As forcefully and often as possible.

Humbly submitted.


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