The new buzz phrase in the newspapers is "hard decisions". Everyone wants to make hard decisions
these days. The Prime Minister wants to have a chat with other political parties and make sure that
the legislative process is not disturbed because of politics. It is a time for nation building, you see. A
time for "hard decisions". Of course, the present government was in the Opposition benches last
year and they derailed the then government's insurance bill. But that was not a time for "hard
decisions", only a time to prove the political vulnerability of a 13 party coalition. Now, this
20-something party coalition government wants the present Opposition to forget about politics and
keep quiet as "hard decisions" are being made.
And what will those "hard decisions" be? Well, let's see. Like every household, the government
spends money and earns money. On the spending side, the government spends too much money on
guns and interest. Any hard decision on the gun side will mean that this government has faith in the
goodness of our neighbours. Given the Hindu-ness of this government and the non-Hindu nature of
our neighbours, reducing expenditures on defence is unlikely. That brings us to the interest expense.
Interest is a cost you pay for borrowing money. And what is that borrowing caused by? Well, when
it costs you 50 paise to generate one unit of power that is given to rural India and when you charge
the farmer 25 paise for the power he uses; there is a problem. An expenditure has been incurred, but
no income has been generated. That leads to a deficit which, in turn, leads to a need to borrow and,
hence, the interest cost.
Then there is the issue of food and fertiliser subsidies. Here again, the government spends more than
it earns and that leads to a deficit, more borrowings, and more interest payments. In FY95, the gross
value of output of the agricultural sector was Rs. 294,414 crores of which the total cost to this sector
was Rs. 76,525 crores resulting in a value-add of Rs 223,954 crores. For every Rs 100 a farmer
earns, his cost of production is Rs 26 and his profit is Rs 74. The costs to the agricultural sector of
fertilizers, pesticides, insecticides, irrigation charges, electricity, and diesel was Rs. 16,194 crores -
5.5% of the total value of output of this sector. The subsidy to food and fertiliser is about Rs 15,000
crores. Think about that for a moment. Dwell on it. Would you like to be in such a business? I
would. And then, on top of it all there is no tax on your income. Forget software stocks; invest to
become a farmer!
Even if one factors in the poor people living on farms who cannot afford to pay for many of the costs
of production, I find it difficult to believe that the farmers do not make huge profits. They should be
charged more money for the costs of production. For fertilisers, for electricity, for irrigation. Just as
city people should be charged more for roads, water on taps, and parking spaces. And the farmers
should pay taxes just as city people pay taxes - or are supposed to. But do you think that this "hard
decision" will be made? Hmm, I wonder how the coalition partners of this government would feel
about raising the cost of inputs to the vote-giving farming sector.
And then we have the government employees. They just got their reward a few months ago. Do you
think that anyone will take that away? No, that "hard decision" to reverse the Pay Commission
awards won't be made by anyone up there in Delhi.
But many other "hard decisions" could be made. The government gets money from taxes. Mrs.
Indira Gandhi's government was stupid to have raised taxes to over 100% on the margin for the
wealthy. I remember the late Mr. D. M. Harish, the leading income tax lawyer, telling me many years
ago how his clients had to sell assets to pay all their income, estate, wealth, and god alone knows
how many other taxes. High tax rates, encourages black money and adds to corruption. Realising
this, the trio of Singh, Singh, and Chidambaram cut taxes in their budgets. Those were "hard
decisions". If in this budget, the taxes are raised, make no mistake about the fact that it was the
easiest decision of all to have been made, not a "hard decision".
If this government is honest in its own desire not to play politics with the nation's economic affairs, it
will leave Mr. Chidambaram's budgets largely untouched and begin doing what every Economic
Survey has spoken about for the past 5 years. The Rs 15,000 crore subsidy on food and fertilisers
should be eliminated and taxes should be collected from wealthy farmers. Those are the "hard
decisions" to be made or else we the voters will have the easiest decision to make when we vote
again in 1999.