The trend of tax and spend

Two weeks ago, I wrote in this column that more than reforms, it was the reformers who were the problem because, by their shrillness, they were giving reform a bad name. I also said there were many legitimate questions about reform that economists were not answering satisfactorily and listed some of them.

Thirteen persons were sufficiently provoked to respond. Eleven said I was completely wrong. Another called me a "jerk" and said that the article was "retarded". And one asked if I had taken leave of my mind. While being called names did not surprise me, I was taken aback by the response to criticising reforms -- which is not actually what I had done.

The misreading of the article apart, which is common enough, it would seem there is a fairly large constituency for reform even if people don't fully understand them. (I can hear another criticism, that 13 is hardly representative. But the number of persons who read edit page articles isn't all that large, either.)

Be that as it may, I want to pose another question. Is it possible that the Congress is wrong in its assessment of the extent to which people want the government to "help" them?

The party has always been statist. At first it genuinely believed, perhaps rightly, that only the government could help.

But from the early 1970s, it has used statism only for garnering votes, calling it socialism. In the process, it has re-distributed incomes, or tried to, but not assets, especially in the rural areas. The result is that we have Naxalites seeking the latter in as many as 170 districts of the country.

Its finance ministers, by and large, have been the tax-and-spend type. Mr Chidambaram, when he introduced lower tax rates in 1997, was not in the Congress. Now that he is, he has adopted the party line - which is to spend public money to get votes and increase taxes to meet the resulting, largely useless, expenditure. He is also very good at introducing new taxes.

The contrast with the BJP-led NDA government, the only non-Congress government to last for any length of time (six years) is stark. That government also spent a lot of money but, unlike the Congress, not with the sole objective of winning votes.

The next longest government was the Morarji Desai government. If you look at the Budgets for 1977 and 1978, you will find the same thing. There were huge increases in relation to the so-called anti-poverty programmes in expenditure on infrastructure, health, and education.

But from 1980, when the Congress returned to power, till 1998, when the NDA formed the government, there was no let-up either in the declining trend in spending on social and physical infrastructure or in the increasing trend in spending on vote-gathering schemes.

Meanwhile, Tamil Nadu, which is doing pretty well, has not had a Congress government for almost four decades. Likewise, Andhra did well under the TDP (and is now doing poorly under the Congress) and Gujarat is doing well under the BJP. Karnataka, by the way, was not an exception: IT was beyond the politicians.

It is also no coincidence that when the Fifth Pay Commission's award was implemented just before the 1998 election, an old Congressman, Inder Gujral, was the Prime Minister. Congressmen, even when they leave the party and form new outfits, don't give up the old habits. Morarji was not an exception because he was never a statist.

Thanks to Congress policies, India never developed its manufacturing potential, which it could have from the mid-1970s onwards, something the Janata government recognised. The spurt during the Narasimha Rao government was short-lived, in part because Mr Rao got cold feet over the reforms and his reforming finance minister did little to light a fire for him.

So, surprise, surprise, services now account for more than half of GDP. And what does this government want to do? Increase the tax revenue from this sector to pay for its vote-gathering expenditure. Nothing is safe, it would appear, from a government bent on wasting public funds, especially if it thinks it can increase its vote share that way.

This expenditure policy would have been somewhat acceptable if the government had made an honest attempt to introduce administrative reforms because, in the final analysis, a large part of the waste is because of the incompetence and corruption of the lower bureaucracy which is totally out of control.

The Prime Minister started off saying he would. Instead, he has announced a new pay commission for civil servants.

But 95 per cent of these government employees (excluding the armed forces, postmen and railwaymen) are in an obsolete category. Who needs peons and clerks? Three per cent are in the next higher, Class II, category. Only 2 per cent are properly equipped officers.

These latter deserve an increase because, by every standard, they are grossly underpaid in relation to the responsibilities they discharge. But what about the other 95 per cent, the corrupt incompetent predators? Why give them more money merely for being government employees?

Can the new pay commission not be restricted only to the officers? The answer is no, of course.

So brace yourself, you are about to lose some more of your income. We can expect the trend - of tax and spend, and hope to win - to continue for the next three years.