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View: Govt needs to reduce nonessential expenses


For a minuscule minority whose jobs or salaries remained safe, the Covid-19 lockdown has been a blessing. Some rediscovered old talents, others developed new skills. Images of gourmet meals flooded social media.It was disconcerting to see them interspersed with images of exhausted, badgered, hungry workers. That fleeting moment, when media allowed TV audiences a glimpse of the condition of ‘the 80%’, has passed —even as their hardship continues.The lockdown has wrecked the economy. There is widespread consensus that GoI must increase its spending — enhancing MGNREGA’s budget, universalising the PDS, raising the amount given to social security pensioners, an urban employment guarantee scheme, etc — even if that means a bigger fiscal deficit.GoI’s refrain is that there is no money, revenues are down and there is no scope for raising revenues due to the slowdown. GST refunds from the Centre have given state governments a convenient excuse to do little. What GoI needs to do is to reduce nonessential expenditures and raise revenues.One way of doing this is by compressing pay ratios — narrowing the salary gap between the median and highest-paid workers. This is a good time to demand a compression in the private sector and by central and state governments too. It has already been invoked, if only symbolically. Last month, the Rajasthan government announced that the chief minister and ministers would forgo a week’s salary, and senior bureaucrats two days’ pay every month.In the private sector, too, managements are resorting to salary cuts at the senior level (up to 25%, in some cases). In 2019-20, the pay ratio for median remuneration to the highest pay (CEO) was 1:752 at Hero MotoCorp, 1:600 at Bajaj Auto and 1:502 at Infosys. The list goes on. Pay ratios for government salaries are not available. But it would be safe to say they are very high.Wage costs can be contained by cutting jobs or compressing pay ratios. The advantage of the latter is that it can protect some jobs, and contain the recessionary cycle by putting money into the hands of those more likely to spend (the rich are more likely to save). It also works as a redistributive measure.Next, GoI abolished the estate duty and wealth tax in 2015-16. The scope for raising revenues through a wealth tax is significant. Many Indians make it to the world’s richest lists. According to the IIFL Wealth Hurun India Rich List 2019 (bit.ly/34bNd4D), the average net worth of the 953 richest Indians is more than Rs 5,000 crore — their combined net worth being over a quarter of India’s GDP. Levying a one-time 4% wealth tax on them can yield about 1% of GDP.Property taxes don’t get enough attention in India. So much so that data on property tax revenues is hard to come by. Earlier estimates suggest that India raised only 0.2% of GDP through property taxes, when the developing country average was 0.6%, and it was 2% in OECD countries.Using simple computerised records for assessing and collecting property taxes can help expand the base, reduce default rates and, thereby, raise revenues. What prevents state governments from directing their urban local bodies to take this up? Yet another option is the now-forgotten tax revenue forgone. According to GoI estimates, in 2019-20, tax revenues forgone were Rs 3 lakh crore, 14% of gross tax revenues.As far as austerity measures go, so far GoI has only announced token measures to reduce non-essential spending — avoiding bags and mementos at celebrations, no printing on imported paper, etc. Taking a cue from the Centre, poorer states like Chhattisgarh have also started spending lavishly on meaningless ads. GoI can set an example by reducing such wasteful expenditures. Vanity projects such as the building of statues and redeveloping the central vista in New Delhi can be suspended immediately.The super-rich must ‘give back’ and contribute to mitigating the fallout of the Covid-induced economic crisis. To the extent that corporations, philanthropists and the salaried class have given already, it has been to charity and the PM-CARES fund. Many have rightly argued that philanthropy and charity allow the super-rich to look good by giving a fraction of what they would have to if they were fairly taxed.For instance, in 2019-20, the total remuneration of the highest-paid person at Hero Motors was Rs 84.6 crore. It pledged Rs 100 crore for Covid-19 relief. Of course, taxpayers need assurance that resources will be used productively and transparently — for relief measures, GST refunds to state governments, to boost aggregate demand, etc. Keeping all such options in mind, GoI’s current inaction is unwarranted.

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