The Interim Budget 2024 offers a neat milestone to compare economic, taxation, and expenditure philosophies of Manmohan Singh and Narendra Modi’s ten-year tenures.
Praveen Chakravarty
February 02, 2024
Prime Minister Narendra Modi and former prime minister Manmohan Singh | File photo: Vijay Verma /PTI
Rs 11,11,111 crore. This is the exact amount budgeted for capital expenditure next year by Union Finance Minister Nirmala Sitharaman. This can be interpreted to either imply that Sitharaman has such precise control over the nation’s finances to be able to come up with a ‘Ramanujanesque’ number for what the next government would spend on building roads, bridges and other infrastructure; or that it was some numerological prayer for divine blessings for the upcoming national election. Even the most devout supporter of the Narendra Modi government would be hard-pressed to admit that it is the former. This symbolises the frivolous charade of the vote-on-account budget presented on Thursday by the finance minister.
In general, a government’s budget should be as dour and boring as a chartered accountant preparing taxes for you or your company at the end of the year. An interim budget a few months before an election should matter even less. Yet, the Interim Budget 2024 is different in the sense that it offers a neat milestone to compare economic, taxation, and expenditure philosophies of Manmohan Singh and Narendra Modi’s ten-year tenures.
At its core, a budget is a reflection of the government’s priorities of who it taxes and where it spends its money. In Singh’s tenure, tax revenues nearly quadrupled from Rs.3 lakh crore to Rs.11.5 lakh crore—with 40 per cent of this increase coming from corporates and 25 per cent through regressive indirect taxes of the common people. In Modi’s tenure, tax revenues nearly tripled to Rs 35 lakh crore. But three-fourths of this increase came from middle class people paying income taxes or common people paying GST, while corporates contributed less than a quarter. Not only did the Manmohan Singh government collect overall taxes at a higher rate than the Modi government, but it was also fairer in taking a larger share from richer corporates.
This was the fundamental shift in taxation approaches between the two governments. To the disappointment of supply-siders, who mistakenly believe reducing corporate taxes invariably yields greater investment, private sector investment in Manmohan Singh’s tenure was higher at 26 per cent of GDP versus 22 per cent during Modi’s tenure, despite lower taxes (even before Covid-19).
Duplicitous, misplaced priorities
The other big difference between the two governments in taxation is the philosophical approaches to fiscal federalism. When the Union government levies cesses and surcharges, it appropriates taxes for itself without having to share them with the states. The greater the surcharges and cesses, the lower the share of overall taxes for states. Cesses and surcharges (excluding GST cess) nearly doubled during Modi’s tenure to 10 per cent of overall tax revenues. In other words, the Modi government resorted to duplicitous means to garner greater taxes for itself without having to share it with states. If there is a fundamental distrust and discord between state governments of all hues and the Union today, it is due to the Modi government’s “cessy” behaviour, which doesn’t bode well for the nation’s future of federalism.
On the other side is the difference in expenditure priorities between the two governments. The Manmohan Singh government prioritised welfare and defence expenditure while the Modi government laid all its eggs in the capital expenditure basket. Again, at the big picture level, Singh taxed corporates more and spent more on welfare, arguably as any fair-minded democratically elected government would. The Modi government taxed the common person and the middle class more and spent that money largely on big ticket infrastructure projects. To be clear, effective capital expenditure on infrastructure is a common public good and very important for the nation’s future. But during the Modi tenure, the government did all the heavy lifting of infrastructure spending vis-à-vis the private sector, as most economists would have preferred.
At its core, a budget is a reflection of the government’s priorities of who it taxes and where it spends its money. In Singh’s tenure, tax revenues nearly quadrupled from Rs.3 lakh crore to Rs.11.5 lakh crore—with 40 per cent of this increase coming from corporates and 25 per cent through regressive indirect taxes of the common people. In Modi’s tenure, tax revenues nearly tripled to Rs 35 lakh crore. But three-fourths of this increase came from middle class people paying income taxes or common people paying GST, while corporates contributed less than a quarter. Not only did the Manmohan Singh government collect overall taxes at a higher rate than the Modi government, but it was also fairer in taking a larger share from richer corporates.
This was the fundamental shift in taxation approaches between the two governments. To the disappointment of supply-siders, who mistakenly believe reducing corporate taxes invariably yields greater investment, private sector investment in Manmohan Singh’s tenure was higher at 26 per cent of GDP versus 22 per cent during Modi’s tenure, despite lower taxes (even before Covid-19).
Duplicitous, misplaced priorities
The other big difference between the two governments in taxation is the philosophical approaches to fiscal federalism. When the Union government levies cesses and surcharges, it appropriates taxes for itself without having to share them with the states. The greater the surcharges and cesses, the lower the share of overall taxes for states. Cesses and surcharges (excluding GST cess) nearly doubled during Modi’s tenure to 10 per cent of overall tax revenues. In other words, the Modi government resorted to duplicitous means to garner greater taxes for itself without having to share it with states. If there is a fundamental distrust and discord between state governments of all hues and the Union today, it is due to the Modi government’s “cessy” behaviour, which doesn’t bode well for the nation’s future of federalism.
On the other side is the difference in expenditure priorities between the two governments. The Manmohan Singh government prioritised welfare and defence expenditure while the Modi government laid all its eggs in the capital expenditure basket. Again, at the big picture level, Singh taxed corporates more and spent more on welfare, arguably as any fair-minded democratically elected government would. The Modi government taxed the common person and the middle class more and spent that money largely on big ticket infrastructure projects. To be clear, effective capital expenditure on infrastructure is a common public good and very important for the nation’s future. But during the Modi tenure, the government did all the heavy lifting of infrastructure spending vis-à-vis the private sector, as most economists would have preferred.
Finally, the big bugbear
Beyond all, the real elephant in North Block is one of jobs and incomes. It is a puzzle that despite the enormous government expenditure on infrastructure, youth unemployment continues to be a bugbear. The most ironic picture of helplessness with jobs comes from what is happening in Haryana, Uttar Pradesh, and Rajasthan—where thousands of young people are being shipped to war-torn Israel through state-sponsored programmes to replace Palestinian workers.
It is tantamount to the government of India acknowledging that it cannot provide good jobs and incomes for its youth here in India and therefore it is shipping them off to a violence-ridden zone for jobs. The fact that there is utter clamour for this is further evidence of the haplessness of India’s youth. It is perhaps unprecedented in any democracy that a government will use its unemployed youth as foreign policy tools to send them off for jobs in conflict zones, if even with protection and assurance. This is a sad and shameful reflection of economic, foreign, and geo-economic policies gone awry.
Nothing sums up the Modi government’s decade long economic management than the number Rs 86,000 crore. This is the amount that the finance minister budgeted for the scheme under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) for next year. Modi took charge as prime minister in 2014 and mocked MGNREGA as a monument to the UPA government’s economic failure.
The embarrassment must have been even more acute for Sitharaman when she budgeted only Rs 60,000 crores for MGNREGA last year and pronounced that India’s robust economic growth would ensure that demand for MGNREGA work will subside. She ended up spending nearly 45% more than she budgeted, indicating that regardless of inane certificates such as “the fastest growing economy in the world” handed out by Washington institutions, hundreds of millions in India are desperate for minimum wage work. To be clear, minimising MGNREGA demand should be the most important economic objective of any government because that would mean plentiful jobs for people. Until then, you decide what is the real monument to economic failure – mocking MGNREGA and having to triple-down on it or introducing MGNREGA as a safety net.
Praveen Chakravarty is Chairman, All India Professionals’ Congress. He tweets @pravchak. Views are personal.
(Edited by Prashant)