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The rural rich should pay taxes: Nilotpal Basu


Priti Patnaik & Monica Gupta  |  New Delhi 

Nilotpal Basu
Veteran CPI(M) leader Nilotpal Basu is in a defensive mood these days. He points out emphatically that the Left is not dictating terms to the government and that the Common Minimum Programme (CMP) reflects the aspirations of all allies.

Basu says rich farmers and corporates must be taxed. Those with the ability to pay must pay. He also says that the should be debureaucratised. Business Standard spoke to him on the Left's role in the coming as well as other issues. Excerpts:

What will be your areas of focus in the coming How is the Left looking at

The priority areas in the coming will be employment, agriculture, social and physical infrastructure. are not an end in themselves. The reform process must yield tangible benefits to a majority of the population.

In countries like China and Brazil, have been a success because of the Left there. It is important to have a reorientation. It is important to understand the meaning of the mandate. The have voted for change.

West Bengal, for instance, where the CPI(M) has been ruling, has witnessed the second highest growth rate according to reports. There was a large amount of private investment that was registered there. In fact, the state is the biggest destination for Japanese investment in the country.

It is important that policy dictates the trajectory and direction of reform.

The has emphasised greater public investment. How do you think it will affect What impact will it have on the

The obsession of controlling expenditure to curtail the does not fit into the Indian context. It is important to refashion the expenditure pattern. There should a more judicious way to handle expenditure.

For instance, the government's policies on external and internal security are lopsided. There has to be judicious defence expenditure.

While certain areas must have increased investment "" agriculture, for instance "" there can be a decrease in investment in some areas.

As far as the food subsidy is concerned, external dictates have been prescribing the food subsidy in a lopsided manner. Under the NDA regime, the price of wheat in the public distribution system (PDS) increased by 64 per cent and the price of rice by 46 per cent.

There has been a demand compression. PDS prices increased even as both agricultural and food production decreased. When there was reduced offtake, the piling stocks at the Food Corporation of India should have been liquidated, through schemes like the food-for-work programme.

The prices of both diesel and fertiliser have fallen, but what effect did it have on productivity?

Ninety-two per cent of our is in the unorganised sector. We have to increase public investment in those areas that have an ability to generate employment at a higher rate "" sectors like handicrafts and agro-processing, which are employment-intensive areas.

In the 1950s, the contribution of agriculture to GDP was 56 per cent, and 77 per cent of the population was dependent on agriculture. Today, agriculture contributes 25 per cent to GDP, but there has not been a proportionate decrease in the percentage of dependent on agriculture. That stands at 69 per cent.

Investment in physical infrastructure also needs to be increased.

In West Bengal, in the years of Left rule, the percentage of irrigated area increased from 32 per cent to 65 per cent. But, in Andhra Pradesh, the areas have been barren.

Therefore, even if there are no high capital-intensive irrigation projects, we are focusing on issues like rational use of ground water and minor irrigation projects.

The agricultural subsidy in India is among the lowest, at only 3 per cent compared to 72 per cent in Japan, 50 per cent in Europe and 45 per cent in North America.

The interest rates for agricultural holdings should be decreased. There is blatant disparity in the interest rates given to urban borrowers vis-à-vis farmers. You can buy a Mercedes at an interest rate of 6.5 per cent, but a farmer can get a loan only at 14 per cent. It is for the Reserve Bank of India and institutions like Nabard to formulate a more balanced policy to address this disparity.

Which are the sensitive areas in foreign direct investment (FDI)?

FDI should augment technology capacity and plug the gaps in investments. FDI will be encouraged for export-oriented activities.

The pattern of FDI in India reflects that most of the investment has taken place in equities and share markets. Over 95 per cent of all investment has been in mergers and acquisitions.

FDI in sensitive areas like telecom needs to be reconsidered. The global telecom market is saturated in terms of capacity and technology. Countries like India have the capacity to absorb the investible surplus of FDI.

In India there has been a duplication of networks. This hurts the urban-rural teledensity ratio. For example, in the power sector in China, services are offered through two huge joint sector companies. We may not want it duplicated in India, but we must examine such effective models.

While we will not advocate a rollback, the issue has to be handled through government intervention and policy. We want the benefits of investment to be widely dispersed.

What kind of tax reforms would you suggest?

Corporate balance sheets indicate that the cost of money has decreased, they have been enjoying huge tax concessions, despite which they have not been contributing as much.

Reformers would have us believe that decreasing tax rates will increase compliance. When the Vajpayee government took over, the unrecovered tax figure was to the tune of Rs 42,000 crore, which has now increased to Rs 83,000 crore. Decreasing tax rates did not help in augmenting the tax-GDP ratio of 8 to 9 per cent, which is one of the lowest in the world.

It is, therefore, important to widen the tax base and bring in more with the ability to pay. Since the number of tax payers in India is abysmally low, a creative exercise is needed to enhancing the capacity of paying to the public kitty.

A greater burden should put on those sections that can pay. We emphasise that the rich rural farmer should be brought into the tax net.

How do you address the issue of reforms?

is supposed to be our greatest comparative advantage, but is being treated as an impediment.

"For greater private investments labour is the biggest impediment" "" this is a misplaced theoretical postulate. We understand that there needs to be flexibility in the reforms process given the technology infusion making sectors labour-exclusive.

Over the past six years, the Incremental Capital Output Ratio (ICOR) has been consistently lower than the Incremental Labour Output Ratio (ILOR). This reflects on the competitiveness of Indian labour, which is among the cheapest in the world.

We accept there are changes taking place due to scientific and technological advances. But this change needs to be supplemented with a strong element of social security.

With the emphasis on employment generation, how do you propose to exploit the small-scale industries' (SSI) sector?

The National Council of Small Scale Industries submitted a detailed memorandum to the previous government, which says that in the past six years over 40 per cent of the units were closed.

While the profile of our exports show that contributes to more than half of our exports. So SSIs will be encouraged to generate large-scale employment.

First Published: Fri, June 04 2004. 00:00 IST