Parthasarathi Shome: Reflections on the FY18 Union Budget

Has the age of 'post-truth' and 'alternative facts' arrived in India?

Much has been written, including by myself, on the technical aspects of this Budget. Here I discuss some conceptual and perhaps philosophical, ramifications. A new literature on post-truth and alternative facts – an extremity of post-modernism – is emerging. Does India now fit into it?  

Traversing the Budget, to begin, the date was brought forward from 28 to 1 February. If this is brought forward to 1 January next year, India could arguably move its financial year to the calendar year, easier for accounting purposes. The government should declare its intentions. 

The Budget speech was short and clear, avoiding a laundry list. But it failed to reflect the economic environment reflected in the Economic Survey. In this, the government’s proposals for 2017-18 diverged from its own experience and conclusions for 2016-17. Further, the practice of presenting to the country all the government’s policies as an annual one-shot action rather than taking up issue by issue through various sessions of Parliament – a practice prevalent in the United States that enables more in-depth consideration of each matter before the legislature actually votes on it – has led, and leads, to unachieved targets. 

What remains to be critically considered is the increasing lack of conviction over the policy usefulness of the Budget that so far has eschewed a framework for “outcome” from Budget allocations. One developed by the previous administration seems to have been shelved. This is folly since, without an assessment of the outcome, simply meeting expenditure disbursements merely helps to move it towards an “output” goal which may actually veil underlying deficient performance. This is because it associates the success or failure of that expenditure with its impact on only output or gross domestic product (GDP), as opposed to its ramifications on a more comprehensive measure that is the outcome. Thus outcome budgeting is urgently needed. 

Another underlying phenomenon running through Budget indicators is a too-high underlying assumption for GDP. Several articles in this newspaper have pointed out the GDP overestimates in their immediate post-Budget analyses. The government needs to be more open about its GDP series. To the extent GDP remains over-estimated, achieving fiscal responsibility and Budget management (FRBM) objectives becomes easier. Expenditure in terms of GDP also looks more comfortable while the tax to GDP ratio will be achieved mainly through an expansion of the “taxpayer” base as implied by the giveaways in the “tax” base. Thus tax revenue is likely to be linked more to discretionary efforts to bring in additional taxpayers than revenue being determined heavily by the movement of GDP.    

      

Hence the government’s presentation in the 2017-18 Budget is over-optimistic as was the 2016-17 Budget (Chapter 9 in my Development and Taxation — 60 Critical Commentaries, Academic Foundation, 2017). Once again, why did the government not accept the very low prevailing indices of production, a condition from which it has been unable to extricate itself? This is not surprising since India languishes at the same spot in the World Bank’s “ease of doing business” index, at 130-131 out of 190 countries. The rhetorical question is, why a potential investor – domestic or international – would invest in India if there are 129-130 other countries where it is easier to conduct business. Does the sum total of policy proposals in the Budget offer a solution to this unwelcome reality? 

Illustration by Binay Sinha

Further, shockingly, the “ease of paying taxes” index has remained at 172 out of the same 190 countries (Chapter 60 of the above-mentioned volume) even two years after the Tax Administration Reform Commission (TARC) submitted its recommendations to the government for crucial structural tax administration reform. Unless an investor who would pay tax in India is desperate to invest in the country for some reason unrelated to tax, it is difficult to imagine why they would do so. An explanation at hand is India’s large market but even here conditions are straining if business discussions and concerns are overheard. An increasingly prevailing view in the large and small, domestic and external, business sector is that the tax and non-tax environment has worsened at the field level. Are policymakers aware? No mention was made of this. 

Indeed, any increase in granting additional discretionary powers to bureaucrats affects the robustness of policy implementation adversely. Rather, those powers should be rationalised. The government has to go back to TARC’s last volume that lists all its recommendations. It should not pick and choose; it should implement the entire structural reforms recommended. Speed is of the essence if the prime minister’s investment goals are to be neared. For that to occur, structural tax administration reform has to complement demonetisation. 

To reflect, there is an ongoing distancing of action from truth. Democritus, the ancient Greek from the earliest democracy, had shown the path to truth almost three millennia back. His idea of the universe was one made of atoms with no colour, weight or taste, without limits, without a centre or a boundary, with no above or below. His far-sighted, correct ideas of naturalism were brutally expunged through the edicts of Emperor Theodosius I that established Christianity as the only, compulsory religion as ideas of democracy disappeared and monarchy replaced it. Aristotle and Plato were tolerated since they accepted a supreme power and soul. Thus their writings survived; all of Democritus’ were destroyed and can only be accessed through other philosophers who referred to his voluminous writings. It has taken almost three millennia to re-recognise Democritus’ fundamental truths (Carlo Rovelli, Reality is Not What It Seems, Allen Lane, 2016).

Are modern democracies – the US, the UK, India, some others – on a “post-truth” trajectory as emerging international literature is claiming? Set aside the truth, shout out claims from rooftops, force-feed the populace — as the “alternative facts” premise suggests. Reassuringly, there are many voices raising their concerns though those voices are being heard less in India. In our immediate context, correct numerical presentations, policy actions, frank deliberations with the public who have voted in trust, willingness to embrace the truth even to move away as outcome goals are set but not achieved, comprise truth. Our heritage of Bhisma, Karna, Bhima, Arjuna, and innumerable others through later ions gives us that strength. This is the moment to seize it.