Showing posts with label tax evasion. Show all posts
Showing posts with label tax evasion. Show all posts
Monday, 24 June 2024
Monday, 29 July 2019
On Shekar Gupta - An Indian supporter of Arthur Laffer
By Girish Menon
Arthur Laffer found his two minutes of fame first under Ronald Reagan and now under Donald Trump. He is famous for his statement that government revenues will be zero if the tax rate is either 0 or 100 %. He further prescribed that for government revenues to maximise it should be low enough to provide incentives for citizens to want to pay tax.
Sounds right doesn’t it?
I have some difficulties with Laffer’s proposition especially with the part that the tax regime should ‘provide incentives for citizens to want to pay tax’. Isn’t it the job of every citizen to pay the taxes levied by their elected government? And in the case of the rich isn’t this your preferred government? So why not pay your share of taxes to keep your side a winner?
Laffer, however, is pragmatic to realise that tax evaders (no matter their patriotic image) usually carry out a cost benefit analysis on the costs involved in avoiding taxes and the benefits that follow from it. If the benefits are higher than the costs then they make a rational choice to evade taxes either legally or even illegally.
Laffer, however, is pragmatic to realise that tax evaders (no matter their patriotic image) usually carry out a cost benefit analysis on the costs involved in avoiding taxes and the benefits that follow from it. If the benefits are higher than the costs then they make a rational choice to evade taxes either legally or even illegally.
And there is a big global economy involving tax havens, accountants and lawyers who have successfully convinced the rich that the benefits of tax evasion far exceed the costs.
Economists who support Laffer argue that money in the pockets of the wealthy is better off for the economy because they will re-invest in new businesses thus boosting the economy and will reduce unemployment and put the economy on the virtuous cycle of growth and prosperity for all.
However, historical data does not bother such economists and their followers. The period following World War II saw the highest rate of taxation. In the bastion of free markets viz. the USA it was as high as 80% or more. Tax rates in welfare state European economies was similarly high too. This coincided with the best economic growth and employment rates in these economies till it was shattered by the oil price shock.
After Reagan followed Laffer’s advice in the 1980s European economies also followed suit but at no time has economic growth nor investment rates exceeded the 1950-60s. Despite the evidence to the contrary, these economies continued to cut tax rates even further; yet growth and investment rates have failed to match post World War II levels.
Shekar Gupta is one Indian journalist who appears to be a fan of Laffer’s tax cuts. On the one hand he argues that the rich will not be affected by the tax rate hike in the latest Indian government budget. In the same breath he also argues that the tax hike will affect investment in the Indian economy.
The Indian economy’s growth rate has been stalling for some time even before the current budget. Unemployment has been high and rising. Investment levels were low pre-budget, with many firms filing for bankruptcy. So does India need more investment or more consumption to utilise the already existing production capacity?
Also, won’t the tax cuts if proffered by the Indian government find its way into tax havens and join the tranches of hot money circulating the global economy?
India in my opinion, needs a rise in consumption by the poorer and lower middle classes to boost demand within the economy. Now may be the time for PM Modi to redeem his promise made before the 2014 elections and give each countrymen the promised sum of Rs. 15 lacs in vouchers which they have to spend within a certain time period. This could help revive the economy.
What effect it will have on the environment is unimportant since climate change deniers seem to rule the world.
Tuesday, 10 February 2015
With penalties so weak, tax evasion is worth the risk
Polly Toynbee in The Guardian
At last night’s Black and White ball to raise funds for the Conservatives, more than 500 phenomenally rich donors gathered in London’s Grosvenor House hotel – last year’s guests were worth £22bn. Paying £15,000 for dinner was peanuts compared to sums this assembly of plutocrats will donate to the party – no wonder there’s been a news lockdown. Are these the people who really run the country, buying an election to ensure government by their people, for their people? That’s for voters to consider in May: Cameron’s government has certainly been kind to its funders.
But there could hardly be a worse day for the ball as the Guardian, Le Monde, BBC Panorama and the Washington-based International Consortium of Investigative Journalists revealed a whistleblower’s details of some of the wealthy account-holders – including tax dodgers – with HSBC in Switzerland.
It has taken our reporting team several months to sort the mountainous information revealed about these Swiss accounts. This investigation has proved in some ways more difficult and risky than taking on the secret world in our WikiLeaks revelations, or even than the Snowden files. The might of the US and UK state, the fury of governments and secret services, are nowhere near as dangerous to a newspaper as the threats we have received from a string of top law firms trying to prevent revelation of their clients’ secret Swiss accounts.
Over the past four weeks we have been dealing with long and threatening lawyers’ letters from some of those we are naming. They accuse us of “false, misleading, sloppy journalism” and “defamation”, with threats under the Data Protection Act and warnings of injunctions: “You may be in no doubt that legal actions will swiftly follow”, and the like. Carter-Ruck, Schillings, Withers, Hill Dickinson – and many others – pile in to try to frighten us off. The danger is that we can be right 99 out of 100 times, with more revelations still to come – but one error can kill you. The new defamation law should be better than the old libel laws, but its impact has yet to be tested in court.
For nearly five years the government has stayed silent about these HSBC Swiss account-holders. How grateful the world of Tory donors must be to see this embarrassment handled with gentlemanly delicacy. No naming, shaming – or, God forbid, prosecutions. Instead, privately some but by no means all that’s owing has been repaid by UK cheats – so far £135m.
Tax evasion is a risk well worth taking with such trivial penalties: in some cases all HMRC demands is the tax owed, plus interest, plus 10% – not confiscation. The total collected is far less than the French and Spanish have reclaimed, though the UK has many more account-holders. Among them are famous names, entrepreneurs and aristocratic families – alongside dictators and drug dealers. HMRC has treated them with the same discretion as HSBC did when they handed over bricks of money to “respectable” people. Compare all this to the slightest infringement of benefit rules over minuscule sums.
Tax cheats are forever one step ahead. That’s why George Osborne carefully introduced a General Anti-Avoidance Rule – which expensive lawyers can get round – not a General Anti-Avoidance Principle, which would strike at the spirit of avoidance. The US, Belgian, French and Argentinian governments have instigated criminal proceedings against HSBC – it’s no surprise that our government has not.
One embarrassment would be any development implicating Stephen Green, former HSBC top man, appointed by David Cameron as minister of state for trade and investment in September 2010, despite the authorities already having the dynamite details of HSBC’s tax-avoiding connivance. Few experts think HSBC exceptionally venal; it’s just the one that got caught – again. Only regulation can stop them – shame doesn’t work. HSBC was obscured in the public mind by its chairman’s piety as an ordained priest.
Lord Green was chief executive from 2003 to 2006, until he took over the chair. Pursued down the street by Panorama, he had nothing to say. But in the past he has written much about ethical banking in two books reconciling God and Mammon. However, under his custodianship Mammon seems to have got the upper hand. His report is among papers for discussion on restructuring the Church of England at the synod this week. His effort to bring business culture into the church is not well timed, with its management-speak aim of turning the clergy into a “talent pool” of future business-type executives. The Dean of Christ Church College, Oxford, Professor Martyn Percy, is not alone in choking into his chalice at receiving “a summons urging early booking for an MBA-style programme”. Green is one of the high net-worth evangelicals of Holy Trinity Brompton, favoured by many wealthy holy-rollers. Their creed has always been that God rewards wealth: to him that hath, more shall be given – tax-free.
Labour is lucky this global story blew up in a week already dominated by a tax avoidance row: it was a Tory blunder to put up the Monaco-dwelling head of Boots to call Labour a “catastrophe”, when his company pays a fraction of the UK tax it did before switching its base to Switzerland. Timing is important here: the HSBC revelations haven’t emerged on Labour’s watch. Both Eds have frequently – and rightly – apologised for Labour’s feeble regulation of banks pre-crash, while always reminding Cameron and Osborne that they called loudly for less banking “red tape” in those days.
Ed Miliband warns the many tax havens under the British crown that he will clamp down – not before time. He now needs to show his determination by setting up an office of tax responsibility, where he should install Margaret Hodge to chase up her public accounts committee tax investigations.
In power Labour shied away, afraid of offending business. Not this time. It’s worth recalling that Tony Blair in 1997 had no FTSE 100 supporters: they and the CBI warned of the dire consequences of a national minimum wage. They called his £5bn windfall tax on utilities “Stalinist”. For Labour, only the assumption of power brings business converts – seekers after preferments, contracts and influence. Those who assume otherwise delude themselves.
Tuesday, 9 December 2014
PriceWaterhouseCoopers chief Kevin Nicholson denies lying over tax deals
Nicholson stands by previous testimony to MPs, as accountants are accused of mass-marketing tax avoidance schemes
The head of tax at one of the UK’s top accounting groups was accused of lying to parliament about his firm’s role in devising controversial tax deals for clients in Luxembourg.
Kevin Nicholson, PwC UK’s head of tax, who worked as an HM Revenue and Customs tax inspector in the early 1990s, was in front of the Commons public accounts committee for the second time in two years, following last month’s revelations of aggressive tax avoidance by PwC clients published by the Guardian and more than 20 other international news outlets.
In a series of fractious exchanges on Monday, the committee’s chair, the Labour MP Margaret Hodge, said: “We’ve asked you to come back to see us because we’ve reflected on the evidence that you gave us on 31 January 2013, and tried to relate that to the revelations around the Luxembourg leaks that have been in the press. I think I have a very simple question for you: did you lie when you gave evidence to us?”
Nicholson responded: “I didn’t lie and stand by what I said.”
Hodge’s anger stemmed from Nicholson’s previous evidence that PwC did not “mass market” tax products or sell tax avoidance “schemes” to clients, when set against the new evidence of 548 letters – relating to 343 companies – showing how PwC wrote to Luxembourg tax authorities to agree on how their clients structured their businesses for tax purposes.
“It’s very hard for me to understand that this is anything other than a mass-marketed tax avoidance scheme,” Hodge said. “I think there are three ways in which you lied and I think what you are doing is selling tax avoidance on an industrial scale.”
Nicholson again denied that the tax services sold by PwC were mass-marketed schemes and said that around 80 of the Luxembourg rulings related to UK companies, which were all distinct and had been disclosed to HMRC.
He said: “At the heart of the Luxembourg economy now is an economy that is based around businesses going there to finance [and] to hold investments. The tax structure, the system that they have created, facilitates that happening, along with all the other infrastructure. I’m not here to change the Lux tax regime. If you want to change the Lux tax regime, the politicians could change the Lux tax regime.”
Last month’s analyses of the way multinational companies establish businesses in Luxembourg were based on a leaked cache of hundreds of tax rulings secured by PwC Luxembourg that showed major companies – including drugs group Shire Pharmaceuticals and vacuum cleaner firm Dyson – using complex webs of internal loans and interest payments, which have greatly reduced tax bills.
The exposure of these arrangements – signed off by the grand duchy and all perfectly legal – have triggered an emergency debate in the European parliament focusing on the track record of the new European commission president, Jean-Claude Juncker, who had dominated Luxembourg politics as prime minister between 1995 and 2013. Juncker has sought to brush aside criticisms, insisting: “I am not the architect of the Luxembourg model because this model doesn’t exist.” However, Hodge added: “Since I have uncovered all this, I have questions about if Mr Juncker is fit to be the president of the European commission. I think if this had been around during the period of his appointment, it might well be a different decision.”
Appearing alongside Nicholson was Shire’s head of tax, Fearghus Carruthers, who explained how the group had two full-time employees in Luxembourg, who earn a total of €135,000 (£106,200) a year and handle intra-company loans of around $10bn (£6.4bn).
Hodge said: “It is stretching our credulity in suggesting to us that these two employees, who are also directors of umpteen other companies, are seriously the guys taking the decisions on loans totalling $10bn. Let me put this to you, Mr Carruthers, because it is a very serious matter, because if the decisions in substance aren’t taken in Luxembourg, this isn’t just avoidance; for me, it’s fraud.”
Carruthers responded: “Madam chair, I can assure you that the decision-making in respect of that Luxembourg company is made in Luxembourg.”
The executive was also repeatedly asked to explain the commercial rationale behind Shire establishing companies in Luxembourg and his answers included: “The commercial purpose is to allow us to have a treasury operation in Luxembourg which finances our activities”; and “the commercial purpose is for us to reinvest our cash appropriately and efficiently.”
When asked what Shire could do more efficiently in Luxembourg, Carruthers said: “It is not necessarily a question of comparative efficiency, we could have this lending in and lending out in all sorts of other jurisdictions. It’s just a good location.”
Well-known buyout firms such as Blackstone and Carlyle also appeared in the leaked documents, and Luxembourg investment vehicles are commonplace in such investment firms. A 2008 joint venture between private equity group Apax Partners and Guardian Media Group, which owns the Guardian, used a Luxembourg structure after it invested in the magazine and events group Emap, now called Top Right.
When the leaked documents were published, a GMG spokesman said: “We partnered with a private equity company which regularly used such structures. A Luxembourg entity was used because Apax already had that structure in place. The fact that the parent company is a Luxembourg company does not give rise to any UK corporation tax savings for GMG.”
Last year, PwC made revenues of £2.81bn, of which £714m came from its tax advisory practice. PwC Luxembourg had turnover of €276m for the year to June 2013, up more than 12% on the previous 12 months. Tax advice accounted for 29% of revenues, up from 24% two years ago. The Luxembourg partnership employs about 2,300 staff – equivalent to one in every 240 people resident in the small country. New offices for the fast-growing practice were officially opened last week at a ceremony attended by the duchy’s prime minister, Xavier Bettel.
Monday, 9 June 2014
The French are right: tear up public debt – most of it is illegitimate anyway
Debt audits show that austerity is politically motivated to favour social elites. Is a new working-class internationalism in the air?
Contracts for Chilean student loans worth $500m go up in flames – the 'imaginative auditing' of the artist Francisco Tapia, commonly known as Papas Fritas (Fried Potatoes). Photograph: David von Blohn/REX
As history has shown, France is capable of the best and the worst, and often in short periods of time.
On the day following Marine Le Pen's Front National victory in the European elections, however, France made a decisive contribution to the reinvention of a radical politics for the 21st century. On that day, the committee for a citizen's audit on the public debt issued a 30-page report on French public debt, its origins and evolution in the past decades. The report was written by a group of experts in public finances under the coordination of Michel Husson, one of France's finest critical economists. Its conclusion is straightforward: 60% of French public debt is illegitimate.
Anyone who has read a newspaper in recent years knows how important debt is to contemporary politics. As David Graeber among others has shown, we live in debtocracies, not democracies. Debt, rather than popular will, is the governing principle of our societies, through the devastating austerity policies implemented in the name of debt reduction. Debt was also a triggering cause of the most innovative social movements in recent years, the Occupy movement.
If it were shown that public debts were somehow illegitimate, that citizens had a right to demand a moratorium – and even the cancellation of part of these debts – the political implications would be huge. It is hard to think of an event that would transform social life as profoundly and rapidly as the emancipation of societies from the constraints of debt. And yet this is precisely what the French report aims to do.
The audit is part of a wider movement of popular debt audits in more than 18 countries.Ecuador and Brazil have had theirs, the former at the initiative of Rafael Correa's government, the latter organised by civil society. European social movements have also put in place debt audits, especially in countries hardly hit by the sovereign debt crisis, such as Greece and Spain. In Tunisia, the post-revolutionary government declared the debt taken out during Ben Ali's dictatorship an "odious" debt: one that served to enrich the clique in power, rather than improving the living conditions of the people.
The report on French debt contains several key findings. Primarily, the rise in the state's debt in the past decades cannot be explained by an increase in public spending. The neoliberal argument in favour of austerity policies claims that debt is due to unreasonable public spending levels; that societies in general, and popular classes in particular, live above their means.
This is plain false. In the past 30 years, from 1978 to 2012 more precisely, French public spending has in fact decreased by two GDP points. What, then, explains the rise in public debt? First, a fall in the tax revenues of the state. Massive tax reductions for the wealthy and big corporations have been carried out since 1980. In line with the neoliberal mantra, the purpose of these reductions was to favour investment and employment. Well, unemployment is at its highest today, whereas tax revenues have decreased by five points of GDP.
The second factor is the increase in interest rates, especially in the 1990s. This increase favoured creditors and speculators, to the detriment of debtors. Instead of borrowing on financial markets at prohibitive interest rates, had the state financed itself by appealing to household savings and banks, and borrowed at historically normal rates, the public debt would be inferior to current levels by 29 GDP points.
Tax reductions for the wealthy and interest rates increases are political decisions. What the audit shows is that public deficits do not just grow naturally out of the normal course of social life. They are deliberately inflicted on society by the dominant classes, to legitimise austerity policies that will allow the transfer of value from the working classes to the wealthy ones.
A sit-in called by Occupy France at La Défense business district in Paris. Photograph: Afp/AFP/Getty Images
A stunning finding of the report is that no one actually knows who holds the French debt. To finance its debt, the French state, like any other state, issues bonds, which are bought by a set of authorised banks. These banks then sell the bonds on the global financial markets. Who owns these titles is one of the world's best kept secrets. The state pays interests to the holders, so technically it could know who owns them. Yet a legally organised ignorance forbids the disclosure of the identity of the bond holders.
This deliberate organisation of ignorance – agnotology – in neoliberal economies intentionally renders the state powerless, even when it could have the means to know and act. This is what permits tax evasion in its various forms – which last year cost about €50bn to European societies, and €17bn to France alone.
Hence, the audit on the debt concludes, some 60% of the French public debt is illegitimate.
An illegitimate debt is one that grew in the service of private interests, and not the well being of the people. Therefore the French people have a right to demand a moratorium on the payment of the debt, and the cancellation of at least part of it. There is precedent for this: in 2008 Ecuador declared 70% of its debt illegitimate.
The nascent global movement for debt audits may well contain the seeds of a new internationalism – an internationalism for today – in the working classes throughout the world. This is, among other things, a consequence of financialisation. Thus debt audits might provide a fertile ground for renewed forms of international mobilisations and solidarity.
This new internationalism could start with three easy steps.
1) Debt audits in all countries
The crucial point is to demonstrate, as the French audit did, that debt is a political construction, that it doesn't just happen to societies when they supposedly live above their means. This is what justifies calling it illegitimate, and may lead to cancellation procedures. Audits on private debts are also possible, as the Chilean artist Francisco Tapia has recently shown by auditing student loans in an imaginative way.
2) The disclosure of the identity of debt holders
A directory of creditors at national and international levels could be assembled. Not only would such a directory help fight tax evasion, it would also reveal that while the living conditions of the majority are worsening, a small group of individuals and financial institutions has consistently taken advantage of high levels of public indebtedness. Hence, it would reveal the political nature of debt.
3) The socialisation of the banking system
The state should cease to borrow on financial markets, instead financing itself through households and banks at reasonable and controllable interest rates. The banks themselves should be put under the supervision of citizens' committees, hence rendering the audit on the debt permanent. In short, debt should be democratised. This, of course, is the harder part, where elements of socialism are introduced at the very core of the system. Yet, to counter the tyranny of debt on every aspect of our lives, there is no alternative.
Tuesday, 15 October 2013
From Obamacare to trade, superversion not subversion is the new and very real threat to the state
Daily Mail editor Paul Dacre. 'Strangely, this suspicion of the state and the People Who Know Best does not appear to extend to the security services, whose assault on our freedoms Dacre was defending'. Photograph: Suzanne Plunkett/Reuters
Subversion ain't what it used to be. Today it scarcely figures as a significant force. Nation states are threatened by something else. Superversion: an attack from above.
It takes several forms. One is familiar, but greatly enhanced by new technology: the tendency of spooks and politicians to use the instruments of state to amplify undemocratic powers. We've now learnt that even members of the cabinet and the National Security Council had no idea what GCHQ was up to. No one told them that it was developing the capacity to watch, if it chooses, everything we do online. The real enemies of state (if by state we mean the compact between citizens and those they elect) are people like the head of MI5, and the home secretary, who seem to have failed to inform cabinet colleagues about these programmes.
Allied to the old abuses is a newer kind of superversion: the attempts by billionaires and their lieutenants to destroy the functions of the state. Note the current shutdown – and the debt-ceiling confrontation scheduled for Thursday – in the United States. The Republicans, propelled by a Tea Party movement created by the Koch brothers and financed by a gruesome collection of multimillionaires, have engineered what in other circumstances would be called a general strike. The difference is that the withdrawal of their labour has been imposed on the workers.
The narrow purpose of the strike is to prevent the distribution of wealth to poorer people, through the Affordable Care Act. The wider purpose (aside from a refusal to accept the legitimacy of a black president) is to topple the state as an effective instrument of taxation, regulation and social protection. The Koch shock troops in the Republican party seem prepared to inflict almost any damage in pursuit of this insurgency, including – if they hold out on Thursday – a US government default, which could trigger a new global financial crisis.
They do so on behalf of a class which has, in effect, seceded. It floats free of tax and the usual bonds of citizenship, jetting from one jurisdiction to another as it seeks the most favourable havens for its wealth. It removes itself so thoroughly from the life of the nation that it scarcely uses even the roads. Yet, through privatisation and outsourcing, it is capturing the public services on which the rest of us depend.
Using an unreformed political funding system to devastating effect, this superversive class demands that the state stop regulating, stop protecting, stop intervening. When this abandonment causes financial crisis, the remaining taxpayers are forced to bail out the authors of the disaster, who then stash their bonuses offshore.
One result is that those who call themselves conservatives and patriots appear to be deeply confused about what they are defending. In his article last week attacking the Guardian for revealing GCHQ's secret surveillance programmes, Paul Dacre, the editor of the Daily Mail, characterised his readers as possessing an "over-riding suspicion of the state and the People Who Know Best". Strangely, this suspicion of the state and the People Who Know Best does not appear to extend to the security services, whose assault on our freedoms Dacre was defending.
To the rightwing press and the Conservative party, patriotism means standing up to the European Union. But it also means capitulating to the United States. It's an obvious and glaring contradiction, which is almost never acknowledged, let alone explained. In reality the EU and the US have become proxies for something which transcends national boundaries. The EU stands for state control and regulation while the US represents deregulation and atomisation.
In truth, this distinction is outdated, as the handful of people who have heard of the Transatlantic Trade and Investment Partnership (TTIP) will appreciate. The European commission calls it "the biggest trade deal in the world". Its purpose is to create a single transatlantic market, in which all regulatory differences between the US and the EU are gradually removed.
It has been negotiated largely in secret. This time, they're not just trying to bring down international trade barriers, but, as the commission boasts, "to tackle barriers behind the customs border – such as differences in technical regulations, standards and approval procedures". In other words, our own laws, affecting our own people.
A document published last year by two huge industrial lobby groups – the US Chamber of Commerce and BusinessEurope – explains the partnership's aims. It will have a "proactive requirement", directing governments to change their laws. The partnership should "put stakeholders at the table with regulators to essentially co-write regulation". Stakeholder is a euphemism for corporation.
They want it; they're getting it. New intellectual property laws that they have long demanded, but which sovereign governments have so far resisted – not least because of the mass mobilisation against the Stop Online Piracy Act and Protect IP Act in the US – are back on the table, but this time largely inaccessible to public protest.
So are data protection, public procurement and financial services. You think that getting your own government to regulate bankers is hard enough? Try appealing to a transnational agreement brokered by corporations and justified by the deemed consent of citizens who have been neither informed nor consulted.
This deal is a direct assault on sovereignty and democracy. So where are the Daily Mail and the Telegraph and the other papers which have campaigned so hard against all transfers of power to the European Union? Where are the Conservative MPs who have fought for an EU referendum? Eerie silence descends. They do not oppose the TTIP because their allegiance lies not with the nation but with the offshored corporate elite.
These fake patriots proclaim a love for their country, while ensuring that there is nothing left to love. They are loyal to the pageantry – the flags, the coinage, the military parades – but intensely disloyal to the nation these symbols are supposed to represent. The greater the dissonance becomes, the louder the national anthem plays.
Sunday, 8 September 2013
Modi's Gujarat - No model state
Christophe Jaffrelot in Indian Express : Fri Sep 06 2013,
In Gujarat, growth relies on indebtedness. And relegates development.
The Gujarat pattern of development has often been arraigned from the left because of its social deficits. Indeed, the state's social indicators do not match its economic performance. With 23 per cent of its citizens living below the poverty line in 2010, Gujarat does better than the Indian average — 29.8 per cent — but it reduced this proportion by less than 10 percentage points in five years. This poverty reduction rate has something to do with the wages of casual workers. According to the 68th round (2011-12) of the National Sample Survey Organisation (NSSO), Gujarat has among the lowest average daily wages for casual labour (other than in public works) in urban areas: Rs 144.52, when the national urban average is Rs 170.10. This kind of poverty goes with malnourishment. One of the social indicators where Gujarat shows the most dramatic lag is the hunger index — only about 43 per cent of children under ICDS in the state are the normal weight, according to an Indian Institute of Public Administration report.
These indicators are aggregates. Their break up is particularly enlightening. The urban/rural divide is pronounced in Gujarat. This is evident from NSSO data, including estimates of the average monthly per capita expenditures (MPCE). The urban MPCE was 49 per cent higher in towns and cities than in villages in 1993-94. Fourteen years later, the urban MPCE was 68 per cent higher. In 2011-12, the difference stabilised at 68.1 per cent. Certainly, the operationalisation of the Narmada dam has improved circumstances for some people living in rural areas, but only in part, because the canals have not reached the fields, especially in Saurashtra. This has happened not only because of bad planning, but also because the supply of water to cities (including industry) was prioritised. Second, cash crop farmers have been affected by the low level of agricultural prices. Cotton is a case in point: prices did not go up, whereas inputs became costly because of inflation. Third, prime agricultural land has been given to industry and the latter's activities have affected the natural environment. In Mahua, where the Nirma group had been given 3,000 hectares for mining activities and a cement factory, BJP MLA Kanubhai Kalsaria objected that the water tank the villagers depended on would be badly damaged. He was sidelined and subsequently, he resigned from the party to fight the government's policy.
Among the rural groups that suffered from the state's policy, Adivasis are a case in point. According to a World Bank report, between 1993-94 and 2004-05, the share of those who lived below the poverty line increased from 30.9 per cent to 33.1 per cent — 10 percentage points below the national average. The Modi government has been criticised for not allocating to Adivasis and Dalits funds in proportion to their population. While the former represent almost 18 per cent of the state population, they were allocated 11.01 per cent of the total outlay in 2007-08, 14.06 per cent in 2008-09, 13.14 per cent in 2010-11 and 16.48 per cent in 2011-12. Moreover, actual expenditures were even lower. The same was true of the Dalits, who represent 7.1 per cent of the state population and who were allotted 1.41 per cent of the total outlay in 2007-08, 3.93 per cent in 2008-09, 4.51 per cent in 2009-10, 3.65 per cent in 2010-11 and 3.20 per cent in 2011-12.
Generally speaking, Gujarat has not spent as much as other states on the social sector. In a report, the Reserve Bank of India showed that Gujarat spends less than several other states in this area. Take education — in 2010-11, Gujarat spent 15.9 per cent of its budget in education, when Bihar, Chhattisgarh, Haryana, Kerala, Maharashtra, Orissa, Rajasthan, Uttar Pradesh and West Bengal spent between 16 and 20.8 per cent. The national average was 16.6 per cent.
While these criticisms from the left are well known, those on the right, especially the liberals, could also have indicted the Modi government for its lack of financial discipline. The Gujarat growth pattern relies on indebtedness. The state's debt increased from Rs 45,301 crore in 2002 to Rs. 1,38,978 crore in 2013, not far behind the usual suspects, Uttar Pradesh (Rs 1,58,400 crore) and West Bengal (Rs 1,92,100). In terms of per capita indebtedness, the situation is even more worrying, given the size of the state: each Gujarati carries a debt of Rs 23,163 if the population is taken to be 60 million. In 2013-14, the government plans to raise fresh loans to the tune of Rs 26,009 crore. Of this amount, Rs 19,877 crore, that is 76 per cent, will be used to pay the principal and the interests of the existing debts. Gujarat would fall into the debt trap the day this figure reaches 100 per cent.
This fiscal crisis has been caused by several factors. First, many Gujaratis who are supposed to pay taxes don't, whether they are at the helm of companies or ordinary citizens. In 2010, the total amount from taxpayers in Ahmedabad, Surat, Baroda and Rajkot alone was Rs 7,555 crore. This was more than the annual tax collection of Bihar at the time.
Second, the exchequer has been directly affected by the business-friendly attitude of the Modi government. To woo investors, it has indulged in tax deductions and low interest rates, and sold land at throwaway prices. Take the example of the Nano factory. If K. Nag's biography of Modi is to be believed, the Gujarat government made unprecedented concessions to Tata Motors, including the sale of 1,100 acres of land at Rs 900 per square metre, when its market rate was around Rs 10,000 per square metre, a Rs 20 crore exemption on stamp duty levied on the sale of land, a 20-year deferral in the payment of value added tax on the sale, and loans amounting to Rs 9,570 crore against an investment of Rs 2,900 crore (330 per cent of the investment) at 0.1 per cent interest rate over 20 years. Most of the big companies investing in Gujarat — Adani, Essar, Reliance, Ford, Maruti, L&T and others — have been offered special conditions, especially under the SEZ framework.
Certainly, to attract investors is a good way to prepare for the future and heavy debts are not a problem if these investments generate tax revenue. But how productive these investments will be remains to be seen. Many of them are at least partly speculative. The SEZ Act allows the owners of large SEZs (above 1,000 hectares) to use 75 per cent of their superficy for non-industrial purposes (for the smaller ones, up to 50 per cent of an SEZ can be devoted to non-processing areas). SEZ owners have been quick to indulge in real estate speculation and to lease at market price land that they've bought at throwaway prices. Interestingly, the corporate sector is not covered by the RTI. We wonder why.
Those on the right, who overlook the fact that the Modi government is more business-friendly than market-friendly (surprisingly, for liberals), claim that the way Gujarat is attracting investors is good for development. But it is only good for growth. For development, investing in education would make much more sense.
The writer is senior research fellow at CERI-Sciences Po/CNRS, Paris, professor of Indian Politics and Sociology at King's India Institute, London, and non-resident scholar at the Carnegie Endowment for International Peace express@expressindia.com
Saturday, 7 September 2013
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