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BW Businessworld

Dear Finance Minister

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You and your predecessors have generated such enormous increases in prices that you have run out of names for the figures. Call 100 si, its square 10,000 hi, its cube mi, and name higher powers ki, ji, bi, li, fi, ti and pi. Ti is a trillion. Even if you are followed as finance minister by bigger spendthrifts, they will take decades to run out of names again. Throw away the silly symbol recently introduced for the rupee. Call it paisa, and introduce a new rupee equal to the present Rs 100. To count in rupees, just add an r to the above figures — hir, kir, jir, etc.

You have run up enormous deficits: you have spent far beyond your revenue, financing the difference by issuing some currency, but mainly by borrowing. You have borrowed from banks, which the first prime minister you served conveniently nationalised. You are depriving productive enterprises of whatever you borrow from banks. If you were not running such a spendthrift, vote-obsessed government, the economy would grow at least a couple of per cent faster. So, stop borrowing and balance your budget.

Abolish the educational cess, which you have never used for education. Abolish capital gains tax, which is really a subsidy to rich realtors and speculators. Income is purchasing power whether it comes from wages, profits or capital gains. Abolish dividend distribution tax. Dividends are taxed in receivers' hands anyway. Abolish wealth tax, which yields little. Abolish customs duties. Impose instead the same excise duties on imports as on domestically produced goods. Your revenue will be little affected, because the average excise rate is about the same as the average customs rate. Then you can close down your customs department. Give businesses credit against your excise for taxes they paid to the states, and deduct the amount from what you are giving the states. That will end the rampant double taxation.

Last year, your revenue was 7.8989 bir. This year it will be 10 bir. Your expenditure last year was 12.5773 bir. To cut it down to 10 bir, you must cut your total expenditure by 2.5 bir. You can find 1.5 bir of this in subsidies.

Fertiliser subsidies can be abolished immediately. Food subsidies are really subsidies to farmers as high prices and to politicians and bureaucrats in the form of bribes. The sooner they are stopped, the better. You may continue a buffer stock scheme. It would require investment and disinvestment in foodgrain, but it should involve no subsidy to anyone. Foodgrain prices will be much lower without your food distribution scheme. And if intelligently run, a buffer stock scheme will stabilise prices. If states want to give subsidies, let them find their own money. But don't let them obstruct movement of grains across state boundaries.

Abolish the distinction between Plan and non-Plan expenditure. That will save you expenditure on the Planning Commission, a parking place for economists and sleepwalkers. Instead of giving the budget for the coming year, start giving a projection for the next five years. That will enable you to spread out expensive investments. It will also force you to ask yourself why your projections went awry, where you went wrong and why. That way you will learn to look forward and prepare for the future.

You have found so many ways of disguising useless expenditure that the distinction between revenue and capital expenditure has lost all utility. Distinguish instead between static expenditure, such as salaries and pensions, which changes nothing, and dynamic expenditure, which increases the capacity of the economy to grow and cope with the future.

If you cut subsidies by 1.5 bir, that leaves you to cut 1 bir out of capital expenditure. You can find it by abolishing central assistance to state plans. Abolish the central plan altogether. If the states want to go on planning, let them find their own money for it.

You will still have 2.5 bir of your own money, which would normally have gone to the central plan. If you stop borrowing altogether, your banks will have no great trouble in lending. They will have to find new borrowers for 4-5 bir, including rollover of maturing debt. Being government banks, they do not mind giving bad loans. They need to be restrained in a friendly manner. Offer them 2.5 bir for joint financing: let them find borrowers. If you find them creditworthy, you can join the banks in financing them. That way you will also force banks into infrastructure financing. That is the way to remove chronic bottlenecks and set the course for rapid growth.
                                                                                                                                                                   Your unlikely well-wisher
 
The author is Consultant Editor of Businessworld.
ashok dot desai at gmail dot com

(This story was published in Businessworld Issue Dated 19-03-2012)