When planned development process was initiated in India after gaining political independence, a close relationship between the budget of the government and its development plans was sought painstakingly to be established. This relationship has been disrupted and overturned by the entrenched vested interests in the so-called market driven economic grow process initiated in 1991.

The five-year development plans are still being formulated. But these plans have ceased to be guidelines for policy making, especially in respect of resource mobilisation and development of available resources in accordance with an order of economic and social priorities. The implementation of plans has tended to be a game of influence peddling guided by lobbies of vested interests. This is palpable in the case of drawing up of the 11th Plan and is more so for the on-going exercises in forming 12th Plan. The glittering economic growth and social targets set are being wantonly ignored and policies and priorities of the government are conceived entirely for the satisfaction of the claims and demands of the so-called “viable segment of the population - hardly 10 to 15 per cent of the total. The top rich and upper middle class are being given fiscal stimulus to ease pressures of global economic crisis in capitalist order as the priority in budget working.

The planners favour big business corporations which have started to raise money by exploiting labour and natural wealth of the nation for production of goods and services of the market catering to consumption demand of the rich. But they have been side tracked for making a fair share of their incomes and wealth for meeting the essential mass consumption needs, and even administrative, development and security expenditure of the State in India. A large part of the population, nearly 40 per cent even according to official statistics ekes out existence in utter poverty and deprivation. The rest of the population too lives barely above subsistence level and is unable to save much after meeting essential consumption requirements of goods and services at affordable prices at their modest level of income.

A steeply progressive structure of direct taxes as well as indirect taxes is, therefore, the only rational fiscal policy, which is in tune with the present social and economic conditions at least at the existing income level of mass of the people and consumption pattern in India. This alone can give enough revenue for public investment and essential subsidies, which is imperative for steady and sustainable economic growth with some semblance of social equity. There has to be exemption for the vast majority from direct tax on incomes. There also has to be exemption from taxes on the consumption of essential goods and services.

But the rich and the upper segment of middle class must be subjected to a steep progressive income and wealth tax as well as estate duty. There must be hefty taxes, in particular, on luxury consumption as well. This is necessary not only for raising revenue for the government but also to induce changes in the relative prices of different goods and services that influence the pattern of investment, production and consumption based on principles of economic growth with equity.

The idea that cuts in direct taxes help resource mobilisation by other means such as price adjustments and have the merit of being non-inflationary, is wrong. The fact is that the only way of resources mobilisation for investment in the public or even the private sector business, which can be non-inflationary, is to mop up disposable incomes and wealth where they generate by, first of all, direct taxes on incomes and wealth. Disposable incomes must be prevented from swelling demand for current consumption especially of such goods as have to be imported. This helps savings for investment and development without upsetting supply-demand balance and external payments position of the economy. Mobilisation of a part of incomes and wealth directly and specifically to finance government expenditure, development and non-development, is indeed the only authentic and effective instrument of mobilisation resources by non-inflationary means.

The Exim (export-import) policy of the union government too must not, in particular boost extravagant consumption of the upper crust of the affluent in India. It discards the very notion of self-sustainable and self-reliant economic development by opening the market in India for liberal import of capital goods and raw materials as the preferred inputs for industry in India to develop.

Capital goods, including supporting components and parts and raw materials - even if they may be second hand - are now being imported freely and increasingly for manufacturing all kinds of goods and for developing services by local as well as foreign business corporations. Manufacturing facilities based on imported second hand capital goods - that is machinery, parts and components and semi-processed raw materials have become overwhelming in India.

The capital goods industry in India which had been developed as part of the overall economic development plan after India gained political independence has suffered. It is facing demand recession. It is not attracting investment, public or private for development and revamping to face competition in the domestic let alone the global market. Heavy engineering, in particular, has been finding hard times. The shift of focus from manufacturing to development of services, in official policy too is being relied upon necessarily to earn foreign exchange directly or as deemed exports. Tourism and entertainment which can titillate the affluent, Indians and foreigners, technical software and business outsourcing projects, which can serve the requirements of the multinational corporations are, therefore, given special attention and incentives.

The services sector has grown to generate more than 50 per cent of the gross domestic product. This has resulted in structural imbalance in the economy. Software companies depend on import of capital goods and equipment for their captive use in their business. The same facility has been extended to cover entertainment and tourist business as well as engineering, technical, medical and educational activity in India.

The trade in services, so-called, offers more benefits to the industrialized countries than to the developing countries. The USA is leading the global trade in transportation, travel and commercial services of a wide variety. The developing countries like India, which are labour surplus with an advantageous position with regard to the “mobility of labour” have not gained as much as is claimed. Labour mobility is restricted in various ways while total and unchecked “mobility of capital” is being demanded and secured by the developed countries. (IPA Service)