Mera ho balidaan
Posted on: September 11, 2018
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| Blog Day : | 3707 | Post No. : | 14633 |
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Discussion on economics-2
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Any Government, no matter what kind it is (Democratic, autocratic, Kingdom etc) needs money to function.
Government incurrs two kinds of expenditures:
1. Mandatory expenditures- on salaries of government staff, pensions of retired staff, debt servicing on loan taken etc.
2. Public administration, law and order, welfare activities, infrastructure development.
Money for all these comes from taxes, and if taxes are not enough, from borrowings (loans). It is desirable that most amount required for government is collected through taxes and not through borrowings.
Government collects money mainly though taxes. If country makes good progress (typically measured as GDP) then the government benefits through tax. But then how much tax gets collected depends on tax structure of a country as well as on the tax compliance of the country.
In general, higher the GDP, one would expect higher amount of tax collection for a country. But two countries with similar GDP can have collection of different amount of taxes. For instance, France and India have similar GDP. But their tax collections and accordingly their national budgets are different.
CIA factbook figures- from 2017 shows that
| Comparison parameter | India | France |
|---|---|---|
| GDP (nominal) $ billions | 2611 | 2584 |
| Percentage of Tax collection to GDP | 9.4% | 56.2 % |
| Budget- Revenue $ billions | 229.3 | 1446 |
| Budget- Expenditures $ billions | 330.3 | 1515 |
| Budget deficit in % of GDP | 4.1 | 2.7 |
Thus we see that India and France have similar GDP, but the revenue collected through taxation etc in France is more than 50 % of GDP whereas India was not able to collect even 10 % of GDP as revenue. So the advantage of such a large GDP could not be made use of by Indian Government. This is food for thought for those in India who do not pay taxes or underpay taxes and then blame government for not doing anything/ enough for them. Government can work to fulfill public aspirations only from the money that they receive as revenue. If Indian Government received as much in revenue as France receives then India would develop at an enormous rate and many public “grievances” would get addressed promptly and effectively.
Indians are used to receiving subsidies instead of paying for the goods/ services. While it may make them feel good on short term basis, these subsidies do not come for free. They are far more costly for the national economy that if we simply paid for the service without availing subsidy.
Let me illustrate my point by the example of petroleum prices which is a “burning” issue in India at present. Opposition parties are telling that the government is harrassing public by not reducing oil prices and so the government is anti people.
Let us examine the issue in some detail.
India imports crude oil and then refines it in refineries of oil companies of India. These refined products are then offered at retail outlets for sale. Though GST regime had come in existence in India but petroleum products are so far kept out of its ambit. So Petroleum products have the same old taxes as before namely excise duty which is levied by Central Government on oil companies and VAT which is levied by state governments at sales outlets.
So, the prices of petroleum products in India are determined mostly by taxes namely excise duty and VAT.
We have seen above that the tax collection in India is abysmal. Direct tax (viz Income tax and corporate tax) is paid by just one percent of population whereas indirect taxes (earlier there were so many of them, now just GST is there) traditionally yielded very little because most of indirect taxes were evaded and they never reached the coffers of the government.
Keeping all this in mind, Governments (Central as well as states) have deliberately kept Petroleum products out of GST and the same old taxes have been kept on them. This is one source of revenue, which unlike Income tax and other indirect taxes cannot be evaded and so it forms a very good chunk of revenues for Central as well as states.
If crude price goes up, then domestic prices are raised. If on the other hand, crude prices drop then domestic prices are not lowered. The additional revenue that accrues to governments when prices are low are plowed back into all these infrastructure and welfare works that are taking place all over the country. As long as this tax money is going for nation building and other essential activities then one should not mind it too much.
Let us examine what happens when Government decides to keep the prices of petroleum prices down artificially despite crude price skyrocketing. It basically means giving subsidy of that amount. Money for subsidy has to be raised from somewhere.
Let us examine the populist actions and their repercussions.
Government decides to lower the price by say Rs 10 and so gives a subsidy of Rs 10 per litre namely it reduced excise duty by Rs 10.
From where this Rs 10 will get compensated ? As discussed above, from tax collected, failing which borrowing. We have already seen what poor tax collection we get in India, so that leaves borrowing as the only option.
| Steps | Government Action | Action for compensation | Economic/ Market reaction |
|---|---|---|---|
| ONE | Give subsidy | Take loan to compensate for the loss | Current Account Deficit goes up |
| TWO | Borrow money from market | Money borrowed from market by Government | Fiscal deficit goes up |
| THREE | Revenue earned in future to be used for repaying debt | Money that should have been used for infrastructure/ public works going instead towards loan repayment | Interest rate goes up |
| FOUR | External trade gets affected adversely | Import increases and export falls | Trade deficit goes up |
| FIVE | Rupee weakens | Import becomes costly | Rupee gets devalued |
| SIX | Foreign currency gets stronger | Foreign currency becomes costly and scarce | Foreign currency reserve falls affecting imports |
| SEVEN | High Fiscal deficit sends adverse signal to FII (Foreign institutional investors) | FII withdraw their money | Share market falls and market sentiment becomes negative |
| EIGHT | Foreign capital exits the market | Foreign capital becomes scarce | Growth of economy slows down |
I have stopped at step eight. There are other steps as well that becomes more and more catastrophic. Providing subsidy is akin to taking loan and that too a hefty loan and we keep repaying this loan back for many years and even decades. A good part of revenue earned by the government goes into loan repayment instead of going into useful infrastructure/ welfare work.
Giving subsidy instead of charging for it has cost the nation heavily and the public (who themselves demand these subsidies) themselves have to bear the burden in future.
One question that gets asked it, how did the previous government keep petroleum price in check despite high crude price. Answer- by taking the easy way out viz by providing subsidy. The nation and the public paid heavily for it for years.
Here is how it worked out.
One barrel of crude oil was $130. The government became hell bent on keeping the domestic price low. They gave heavy subsidy and compensated by borrowing money in the form of Oil bond. It caused Fiscal Deficit to rise.
That oil subsidy caused fiscal deficit and that led to interest rise, causing slump of business activities, this in turn led to inflation. The credit rating agency Moody threatened to downgrade India’s credit rating which shows that Foreign investors had lost faith in Indian market.
And all that just because of this populist decision of trying to keep the oil price down through subsidy.
One of the present day oil price rise protester, who was on the PM chair at that time, addressed the nation at that time on 4 june 2008 and he had this to say while providing oil subsidy-
“I would like the nation to remember that issuing bonds and loading deficits on oil companies is not a permanent solution to this problem. We are only passing on our burden to our children , who will have to repay this debt.”
So, those who had no guts to stand up in national interest ten years ago are today demanding that the present government show the same spinelessness that they showed during their time in power.
The Oil bond (viz the loan that they took to pay for oil subsidy) was not for a small amount. It was a hefty amount of Rs 2 lakh crore ($26 billions) and it had to be repaid in future. The present Government repaid it out of the foreign exchange reserve. Just imagine ! That previous government left the burden of this $26 billions loan on future governments and future generation of Indians. This amount, which could have financed lots and lots of infrastructure/ welfare works just went away as repayment of unnecessary loan. To put things in perspective, $26 billions is a bigger amount than what a neighboring country, which is in financial dire strait, is desperately looking for from IMF.
So in summary, I would say that the decision not to reduce oil price is in national interest. It is what is Fiscal discipline is all about. I would like all governments to show the same guts in standing firm in national interest. Fiscal discipline has had a salutary effect on Indian economy. Today inflation is down at around 5 % mark from the usual 10 % mark during oil subsidy days. Current Account deficit is 2.4% from a high of around 5 % in the past. Fiscal deficit, which is an indicator of financial health of the nation, is now 3.2 % of GDP (from past figures of 4.5 % of GDP) which is unprecedented for Indian economy. Foreign exchange, despite weakening rupee is at nearly at an all time high. There was a time when India had to approach IMF and had to pledge their gold to them to borrow a sum of $ 2 billions. Today, with a foreign reserve in excess of $400 billions, $2 billions is small change for India.
Squandering public money on populist activities is an act of gross fiscal indiscipline and its consequances can be devastating. There are examples of countries that were destroyed because of populist policies. Argentina, which used to be an advanced economy till 1950 came under the rule of a populist regime and then military dictatorship which destroyed its economy and that economy lies destroyed even today, with that country looking for an IMF bailout package repeatedly, including at present. Then there are other examples as well, viz Greece, Portugal, Ireland, Cyprus etc. Why look at foreign examples. Even Indian economy lay in ruins in 1990 as a result of fiscal indiscipline for three decades, that forced India to approach IMF for bailout in 1991. A nation that felt stung and humiliated before IMF took up the path of liberalization of economy. Some tough and brave decisions by that government and subsequent governments set India on the path of economical recovery and prosperity.
Instead of being misled on trivial issues by people with selfish motives, we should find out real facts about important issues on our own, instead of blindly believing whatsapp forwards that often originate from people with malicious motives. I have seen whatsapp forwards that “informed” us that oil price in India was the highest while is was very low in Pakistan, Nepal etc. The question to be asked is- do you know the condition of public services in Pakistan and Nepal? Pakistan does not have electricity half the time and their electricity tariff is the highest in the world. Their electricity changes are Rs 16 to 20 per unit. In India it is Rs 4 per unit. Are Indians prepared to pay electricity charges that Pakistanis pay ? In India 10000 pairs of trains run daily and a population equal to that of Australia is travelling on IR at any time. In comparison only about 300 trains run in Pakistan and only a population of 1.8 lakh (equal to population of a small town like Khandwa or Ganj Basoda) is travelling in Pakistan Railway in one day. In India, 3.3 lakh people fly by air daily ! In Pakistan only 6600 passengers fly by air in one day. India have the cheapest internet service in the world which is reasonably fast for the price. Many useful services like Railway and airlines reservations, banking services etc are already accessible on internet. Would Indians be ready to have the kind of internet that Pakistanis “enjoy” ? What about law and order ? Providing all these services takes money, and that money comes from taxes. If you provide petrol at subsidised prices that Pakistan and Nepal apparently do then you end up starving your public services with the result that your public services are of poor quality and/ or non existent.
India should compare themselves with China and there we find that the Chinese petroleum prices are similar to Indian prices.
I, as someone who has as much a stake as anyone else in the country, including politicians, would like all my governments to stand firm and gradually dismantle all subsidies. I would also want the tax collections in the country to come at par with advanced countries. All advanced countries collect atleast 25 to 30 % of their GDP as taxes and that is how they are able to finance their government spendings through taxes without needing to take loans. People not paying their taxes and expecting government to give them freebies/ subsidies, that can only be counterproductive. People who do not perform their duties should not expect any free favours. Nothing is free in this world. Someone has to pay for the services that some people may be availing for free or at subsidised rates. It is better if everyone pays for the services he /she is availing.
In brief, one has to make “sacrifices” if one wants to have a better and more prosperous future. If one looks around, one can see infrastructure works going on all around in areas like roadways, railways, ports, waterways, metros, Airports. Then there are welfare works like Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana, Ujjawala, Ujaala, Jan Dhan Yojna, Pradhan Mantri M Jan Aushadhi Kendra etc. If taxes paid by us in various forms (including taxes on petroleum) are going for building infrastructure as well as for helping the poor sections of society, then where is the problem. I in fact would feel happy that my taxes are helping the nation grow visibly. What is there to feel aggrieved about ?
Instead of feeling aggrieved about petroleum prices that are not within our control because they are imported, we should on our own try to reduce our dependence on fossil fuel and look for alternative sources of energy that would be within our own control. Government is making long term plans to reduce our dependence on fossil fuel. We may not have notice it, but solar energy is being aggressively promoted. India is rich is sunlight and so we will be self sufficient in solar energy. Today it may only be supplying 2 % of our energy needs, but before we blink our eyes, we will find as much as 50 % of our energy needs being met by solar energy by 2030. That will reduce our dependence on fossil fuel a great deal and oil prices will become a non issue.
“Durga Pooja”(1954) produced by Dhirubhai Desai and his son Sharad Desai and directed by Dhirubhai Desai for Sharad productions, Bombay. The film had Trilok Kapoor, Shahu Modak, Nirupa Roy, S N Tripathi, Kamal, Indira Bansal, Prabha Shanker, Yashodhara Katju etc in it.
The movie had ten songs in it. Two songs have been covered in the past. Here is the third song from “Durga Pooja”(1954) to appear in the blog. The song is sung by Asha Bhonsle. Bharat Vyas is the lyricist. Music is composed by S N Tripathi.
Only the audio of the song is available. I request our knowledgeable readers to throw light on the picturisation of the song.
I have not been able to get a few words correct in the lyrics. I request our readers with keener ears to help fill in the blanks/ suggest corrections as applicable.
Audio
Song-Mera ho balidaan (Durga Pooja)(1954) Singer-Asha Bhonsle, Lyrics-Bharat Vyas, MD-S N Tripathi
Lyrics
mera ho balidaan
mera ho balidaan
mera ho balidaan
mera ho balidaan
mere jeewan ke badle mein
miley kisi ko praan
mera ho balidaan
mera ho balidaan
uthho sakhi mere aansu
ro ro kar tumhen uthhaayen
aaj tumhaare charnon par
ye apne praan chadhaayen
sakhi ko miley suhaag amar
aur mera ho balidaan
mera ho balidaan
mera ho balidaan
mera ho balidaan
pati ke dukh mein dukhi rahe
wo bharat ki sannaari
swaami ko jeewan de wo
ji uthhe raajkumari
iski maut mujhe
mera jeewan ho is ko daan
mera ho balidaan
mera ho balidaan
mera ho balidaan
sachhi meri prem saadhna
sachhi pati Vrat??
sachha mera prem(??) agar hai
sachhi pati sang preet
sachhi hai yadi durga maiyya
to mujhko ye var de
pati sewa ke badle
meri ?? ko kar de
hey jagdambey hey ambey
do yahi mujhe vardaan
mera ho balidaaan
mera ho balidaaan
mera ho balidaaan
6 Responses to "Mera ho balidaan"
September 11, 2018 at 4:59 pm
Thanks a lot for your appreciation. Money matters (personal as well as that of Government) concerns us all and so we should be as well versed in them as possible instead of relying on TV/ radio/ newspapers etc who most often than not do not have much clue what they discuss.
I personally feel that we should take more interest in such matters rather than on mindless stuff that gets presented on TV. Money matters pertaining to the nation are far more important than the useless tantrums that we witness on TV. If people are more aware on such matters then that will augur well for the nation.
But this topic is not easy to understand, and these facts are not readily available because the writers who write on these matters themselves do not bother to go into such details. I have become interested in the matter of economy for the last few months and I have gained some insight on this topic which I find quite interesting as well as revealing. I have enough material to discuss it for many more posts. Hopefully I will be able to discuss some more on such topics, which are of real importance to us.
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3 | Bharat Upadhyay
September 13, 2018 at 12:10 pm
Wonderfully explained dear Atulji. I am unable to express my thanks enough for this article. I have distributed it to all my known intelligent people. Btw, When the ‘Discussion on Economics 1’ came? Somehow I missed it.
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September 13, 2018 at 7:00 pm
Thanks for your encouragement. This has motivated me to come up with some more writeups that should be quite eye opening ones for people, who wonder where we stand economically as a country.
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September 13, 2018 at 6:13 pm
I am also curious about No.1 article.
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Atul’s Song A Day- A choice collection of Hindi Film & Non-Film Songs 
September 11, 2018 at 4:38 pm
Atul ji,
Thanks a million for your eye opening article.
I am amazed seeing your expertise in Economics ! Moreover you made it so simple to understand too.
Anyone reading the above article is much wiser about the inevitability of the present situation, due to reckless handling of finances of the country for populist achievements. That too when an economist was at the helm. However, the idiom ” No wisdom works in front of Power” was true in his case.
Imagining what would have happened to country’s finances if the earlier Government had continued for 2014-2019, sends shivers down the
spine !
-AD
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