The missing links

The economic survey has little connect with the budget – or the economy. The budget in turn has little connect with the masses. Here’s how to make the process more meaningful

DS Saksena | July 11, 2017


#parliament   #Arvind Subramanian   #tax collection   #union budget   #Arun Jaitley   #economic survey  
Finance minister Arun Jaitley in a group photograph with the economic survey team led by chief economic adviser Arvind Subramanian, on January 30, a day before its presentation in parliament.
Finance minister Arun Jaitley in a group photograph with the economic survey team led by chief economic adviser Arvind Subramanian, on January 30, a day before its presentation in parliament.

At its most basic level the union budget is a laundry list of the government’s projected receipts and expenditure – just like a typical household budget. But it is a document which all Indians eagerly wait for because everyone expects a discount, an exemption or a freebie. If you are slightly more curious and want to know the rationale behind the budget you would refer to the economic survey (which is released a day or two prior to the budget) and which is supposed to give an overview of the economy’s performance in the current financial year and predictions of the economy’s performance in the coming year(s). 

The union budget is read out in speech form by the finance minister and the operative portions are enacted by the Finance Act, while the economic survey is carefully prepared by a team of economists headed by the chief economic adviser to the government of India, who is generally a reputed economist, the like Dr Manmohan Singh (1972-76), Dr IG Patel (1961-67) and Dr Raghuram Rajan (2012-13). The economic survey is taken as an authoritative pronouncement on government policies, and justifies and explains the provisions of the union budget. In short, the economic survey is a SWOT (strengths, weaknesses, opportunities, and threats) analysis of the entire economy. Economists continue referring to the economic survey long after the union budget is passed. 
 
The latest economic survey is different. It begins with the fond hope that the economic survey may be consigned to the ranks of popular fiction. Many critics gleefully agree; pointing out that this economic survey is more of a literary document and less of a survey. According to the naysayers, had the economic survey been a survey as generally understood; its learned authors would not have relied on “anecdotal evidence” for at least three conclusions (more below) because the very objective of a survey is to frame a hypothesis and see if it is validated by the data collected through the survey. 
 
In fact, the three economic surveys, from 2014-15 to 2016-17, are probably unique because most of the concerns expressed in these surveys have been left unattended by the union budget. To recall, the principal advice of the economic survey of 2014-15 was that the government should not go in for Big Bang reforms but adopt “persistent, creative and encompassing incrementalism” as the guide for prospective action. For good measure this advice was repeated at the very beginning of the economic survey of 2015-16, which went on to add that: 
 
“1.2 This year’s Survey comes against the background of an unusually volatile external environment with significant risks of weaker global activity and non-trivial risks of extreme events. Fortifying the Indian economy against possible spillovers is consequently one obvious necessity. Another necessity is a recalibration of expectations.” 
 
However, the credo of the present government is quantum change and soaring expectations; which is manifested in game-changing steps like demonetisation and the resolve to double farm incomes in the next five years. The inherent divergence in the basic approach between the union budget and the economic survey is intriguing because the same set of people authors both the union budget and the economic survey.

The economic survey 2015-16 listed the following priorities for the government:
 
a) Exit policy for business
b) Revamp of health and education sector
c) Sprucing up of the delivery of essential services
d) Modernisation of agriculture
e) Pruning of incentives, subsidies and increasing consumption
f) Taking effective measures for climate control
 
Except for passing the bankruptcy law not much has been done to address these priorities – either in the union budget 2016 or the latest budget or even otherwise. The latest economic survey is also wanting on this count, in so far as it does not spell out as to how the various concerns expressed in last year’s economic survey were addressed by the government. For example, last year’s economic survey had stated that implementation of government schemes was generally faulty. The current economic survey reinforces this sentiment. Interestingly, instead of trying to correct the flaws in implementation, both the earlier and latest union budgets have added to the plethora of government schemes.   
 
The question then arises as to why we should have an economic survey when the government shows no inclination to address the issues raised in it.
   
Going deeper into the contents of the latest economic survey, one finds that though demonetisation is referred to at many places and an entire chapter is devoted to it, but crucial questions like how many of the demonetised notes were initially held by banks and how many were finally tendered by the public have been left unanswered. The economic survey expects good collection from the new amnesty scheme called Pradhan Mantri Garib Kalyan Yojana (PMGKY) but does not hazard any guess about the amount of expected collection forgetting that a survey without numbers is not much better than an unsubstantiated opinion. (Note: The collection of PMGKY, despite a number of extensions, was abysmally low.) An interesting development, post the economic survey, is the statement of NITI Aayog vice-chairman Arvind Panagariya (who contributed in a large way to the economic survey) laying the blame for failure of demonetisation on some unnamed bank officials: this can be said to be a thinly disguised attempt to justify the conclusions drawn about demonetisation in the economic survey. Such obvious anomalies lead one to conclude that the latest economic survey is more of a political document than an honest assessment of the state of the Indian economy. 
 
It is also a matter of concern that the current year’s economic survey does not factor in the Trump effect on the services sector and confidently goes on to predict a growth of 8.9% in it. Also, the economic survey for 2015-16 had a chapter on preferential trade agreements which should have been rewritten in the current survey in light of Brexit and the US pull-out from various free trade agreements and its aversion to multilateralism.  
 
Ignoring widespread corruption and lethargy in the bureaucracy, the economic survey focuses on a new clause in the Prevention of Corruption Act (PCA) holding it responsible for inaction by government servants. It would have been better had the survey suggested well-thought-out policies to cultivate initiative in government servants leading a proactive rather than a reactive approach. It is indeed unfortunate that over a period of time government servants have become time servers and think it best not to do anything at all; PCA or no PCA. I am sure that if we can devise a policy by which Class 3 and Class 2 government servants start performing then India would join the comity of advanced nations in no time. 
 
A significant omission in the latest economic survey is a chapter on taxation. The survey grandiosely divides itself into three parts – The Perspective, The Proximate and The Persistent, aiming to cover short-term, medium-term and long-term developments in important sectors – but it contains no study of the impact of GST on the economy. With GST round the corner, it is felt that the government should have spelt out its vision on the proposed taxation regime. 
 
Another significant omission in the economic survey is the study of the phenomenon of indirect tax (excise duty, customs and service tax) collections exceeding direct tax (income-tax) collections for the first time since financial year 2006-07. In an economy like ours, where the share of manufacturing is hardly 15% of the GDP, if indirect tax collections exceed direct tax collections then one can safely surmise that indirect tax rates are too high. It is also not difficult to conclude that the trend of abnormal increase in indirect taxes, despite a fall in production (as evidenced by falling or stagnant PMI), shows that unconscionably high taxes are levied on production; which would negate the various welfare measures meant for the poor. This phenomenon heralds the reversal of the post-liberalisation trend where direct tax collections were surging ahead of indirect taxes and the share of direct taxes in the GDP was on the rise. It is a pity that such significant economic developments have not found mention in the economic survey.
 
The last year’s economic survey had made a detailed study of the labour market but paucity of jobs, which is the main issue for Indian society, is mentioned only in passing in the current year’s survey. No measures have been suggested to kickstart the job market. Probably, steps like recruiting primary teachers and filling up the vacancies in the government to tackle unemployment were too simplistic to find mention in the economic survey. No concrete steps are suggested to capitalise on the eight interesting facts about India which are the subject matter of the first chapter.
 
Even the budget which is ostensibly based on the economic survey does not portray the situation on the ground correctly but presents misleading statistics. For example, figures of foreign investment are given only up to October 2016; the outflow of capital in November and December do not find mention anywhere. A claim was made in the budget that during the demonetisation period the economy grew by 7.3%, which is contrary to what was perceived by one and all. Mark Twain famously classified untruths as “lies, damn lies and statistics.” I think that we have been fed statistics for far too long. 
 
A very simple step is required to restore the importance of the economic survey and simultaneously make the budget process transparent and participative.
 
We have to discard the obsessive security associated with budget-making. Budget-makers are afraid that if the budget provisions are known in advance people would make unconscionable gains by hoarding or selling commodities in respect of which tax rates are changed in the budget. This argument does not hold water now because the excise rate on commodities move in a very narrow band and income-tax rates have not changed since 1991. However, probably to honour tradition, ten days before budget day, around 100 lower level officials of the finance ministry who are tasked with the printing of the budget are fed halwa and locked up in the printing press. Significantly, higher officials are left free. 
 
Such quaint rituals as also the idea behind them have to be discarded. The government should publicly announce the outline of budget proposals under its consideration so that the public can provide their inputs for the government’s consideration. As of now, only industrialists and tradesmen can make their concerns known to budget-makers because they have a fair idea of the way the wind is blowing and have various associations to lobby on their behalf. However, there is no way in which the general public can make its views known to the budget-makers. Persons who are not part of any pressure group get no chance to articulate their concerns. This category includes people living in villages, the farmers and the labourers; who have to rely on the babus to somehow divine their concerns and place them in the budget document. 
 
A formal consultative process has to be devised so that the concerns of all classes of people find place in the budget. To achieve this, as pointed out earlier, budget secrecy, a British parliamentary practice vestige needs to be discarded. Significantly, countries like Canada have already discarded this concept. As the second step, the economic survey needs to be published at least a month ahead of the union budget so that concerned citizens can give their comments on the various problems faced by the economy. Mind it, the survey has to be in a language easily understandable by all – not in highfalutin literary English or in technical gobbledygook.
 
In conclusion, it may be a good idea if the union budget is framed by popular consensus. This would (a) take care of the growing disconnect between the economic survey and the union budget, (b) make the budget more meaningful for the common man and (c) take care of the oft-repeated allegation that the budget is meant only for the rich. 
 
 
Saksena, IRS, retired as principal chief commissioner of income-tax.

(The article appears in the July 1-15, 2017 issue of Governance Now)
 
 

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