Saturday’s Indian Express had an editorial page article by its editor, Shekhar Gupta, which captured the mix of politics and economics that we are seeing in India today. A disappointing, tax-everything budget is the backdrop for Shekhar Gupta as he writes:
The 1997 budget, he says, was about another dream, of unleashing Indian enterprise and that has more or less been achieved. This one was about distributing the spoils of that success. What [Finance Minster P. Chidambaram] wouldnt say is, every time industry complains of new and complicated taxes, the white collar worker protests about the tax on stock options, or some get their cheap thrills that the really rich will now have to pay a sizeable tax on planes they import (they may do no such thing, and register their planes in Dubai instead), he is vindicated in terms of his partys current twisted politics. While on the one hand it celebrates the fact of 9 per cent growth, on the other its not sure if it makes a large enough section of its voters happy. So it has chosen a novel way of conducting its politics: celebrate the growth, but punish its beneficiaries or at least be seen to be doing so.
In Indias politics, to be anti-rich is usually considered safely synonymous for being pro-poor. It is tough to do something that will make a real difference to the lives so many poor persons that can swing an election your way. But compensating them with cheap thrills by seemingly hurting the rich is an easier alternative.
Confused politics produces confused economics as well. So while on the one hand it goes after inflation with a sledge-hammer, it is actually, mostly, hurting the very aam aadmi it swears by. In this mad dash to moderate inflation, it has allowed interest rates to go up nearly 400 basis points for ordinary aam aadmi home loan borrowers. Because of the way banks structure these things, they will only now realise the implications of this when their annual loan statements come…When people realise whats been done to them, they will react more sharply than they react to increases in arhar dal and onion prices. For the common man, rising interest rates, taxes, all mean inflation. This government may have done a fine job of keeping its deficit under control. But if its tax collections have risen so massively, if there is service tax on all kinds of things including tuition, tents and commercial rents, if all of Indias usually bankrupt states are cash-surplus now because of VAT, it is all going out of somebodys pocket. And these additional taxes are being passed on to somebody.
By all accounts, today nearly three crore Indian families carry the burden of EMIs that is, nearly 10 crore voters. Most of them are ordinary folk, aam aadmi. Billionaires do not have to borrow to buy their toys. The same aam aadmi is today reeling under the weight of new taxes levied in the name of the poor who, in turn, have no idea where that money is going. The Congress, therefore, is setting itself up for slaughter, earning the wrath of the rapidly growing urban and semi-urban populations while at the same time earning no gratitude from the really poor.
Living in India, I can definitely see some of the shine wearing off. There are hard challenges for us if we have to maintain the momentum and grow incomes. It seems to me that, not for the first time, we are not going to be let down by the people we have put in power. India needs a bold vision coupled with precision execution. Right now, we are getting neither.
Tomorrow: Business Week