By Ramesh Kanitkar
The government is reportedly preparing for a 10 per cent cut in non-plan expenditure. These kinds of rituals will serve very little purpose. To make a real difference either to government expenditure and borrowings or to public confidence in the government’s ability to make an impact on the economy, we need something more than a little cutting, pruning and flower arrangement. It costs an astronomical Rs. 15 lakh crore to run the government. Yes, you read right, that is the size of the government’s central budget. The government’s wage bill if you include all PSUs and the Railways is Rs. 59,143 crore. You might wonder that this figure appears to be on the higher side.
Let me put things into perspective. Air India with 27,000 employees has an annual wage bill of Rs. 3609 crore. Scary, you bet. The UPA government’s much touted, much fangled social security safety net NREGA has an annual spend of Rs. 40,000 crore, the National Rural Health Mission, another flagship scheme which saw blood and scams in UP recently has a spend of Rs. 12,000 crore. Subsidies on oil, fertilizer, food etc are a humungous Rs. 190,000 crore. The trade deficit is a blow out number of $185 billion, which translates into zeroes that you can’t keep track of. And then the mother of all numbers, one that haunts India’s economic policy mavens — the fiscal deficit is Rs. 513,000 crore. Is your head spinning with these numbers?
Does it then make you wonder why we have got it wrong? In this sea of negativity-ranging from weak GDP numbers to what appears for most part to be the prospect of a failing monsoon – the fin min announced austerity measures package is an unmitigated disaster. At best you will end up saving Rs. 100 to Rs. 125 crore annually, nothing but a no brainer. With the Government refusing to bite the bullet on desperately needed economic decisions, instead hell bent on extending careers of top bureaucrats by offering meaty sinecures — in very recent memory — finance secretary Ashok Chawla moving to head Competition Commission of India, commerce secretary becoming the telecom regulator and culture secretary Jawahar Sircar becoming CEO of Prasar Bharati. What we are doing is not downsizing or right sizing; we are only adding to and resizing government.
The total number of employees in the Central government including the Railways and all PSUs is 3.41 crore. Indian Railways, the world’s largest employer of humans alone accounts for 1.32 crore people. The Railways wage bill including pay, allowances and travel expenses is wait… hold your breath … deep breath… Rs. 26,585 crore. A lot of this fat across government departments and Railways and other PSUs is what Keynes used to describe as-disguised unemployment. Unproductive labour at one level. But in reality, disguised unemployment refers to a situation when a person is apparently employed, but in effect unemployed. It is a phenomenon of concealed unemployment, not visible to the open eyes. Here it is not possible to identify as to who is unemployed, as all “appear to be working.” As another famous economist remarked, “In an overpopulated peasant economy, we cannot point to any person and say he is unemployed in disguise. The people may all be occupied and no one may consider himself idle.”
The concept of disguised unemployment was originally conceived by Mrs. Joan Robinson. Her concept of disguised unemployment is more applicable to the advanced developed countries. According to her, ‘a decline in demand for the product of the general run of industries leads to a diversification of labour from occupations in which productivity is higher, to others where it is lower. The cause of this diversion, a decline in effective demand, is exactly the same as the cause of unemployment in the ordinary sense and it is natural to describe the adoption occupations by dismissed workers as disguised unemployment.’ This is what haunts India and its government machinery or steel frame comprising babus and its extremely bloated workforce.
The emphasis on subsidies and fat cats in the central Government is exposing India’s soft financial underbelly. Throw in an additional Rs. 100,000 crore food subsidy bill under the right to food security and one is looking at a crippling number that will be closer to Rs. 300,000 crore over the next couple of years. In 2008, the Sixth Pay Commission rolled out. Now, I am not begrudging the money that the babus got, after all their incomes too needed to be adjusted to inflationary market realities. But you just added to the cost of government, even if it was decadal. Add the farm loan waiver, and we have examples of profligacy that has pretty much brought the economy to its knees over a period of time. These decisions have a nasty habit of popping up at the wrong time, when the trough hits you between the eyes. The sum of all the financial misprudence is a bleeding treasury. Financial inclusion is a great idea, its execution flawed if enough is not done to enlarge the tax base.
The taxpaying middle class is bearing the brunt of the fusillade. Social inequities and inequalities are now the bane of the middle class which has to pay more for everything. By hiking service tax and excise duty on manufactured goods, the Government didn’t merely jumpstart inflation, but it also squeezed the middle class.
It is believed that the middle class which earns anything between Rs. 3.5 lakh to Rs. 18 lakh and beyond is growing at the rate of knots-13 per cent per annum, their great sense of thrift – one of the best virtues of Indian society – is dropping rapidly from a high of 32.8 per cent to 26 per cent to a low of 22.5 per cent currently. Therein lies the rub, while he spends more, he saves less. Net financial savings by Indians, which include deposits with banks and non-banking finance companies, cash, investment in stocks, debentures and small savings instruments besides life insurance, provident fund and pension funds, dipped to 9.7 per cent of GDP in FY11 compared with 12.1 per cent a year ago, a 13 year low. Primarily because household financial liabilities have risen. Showing how since 2008 and that fateful day when Lehman Brothers collapsed in October that year, the world has never been the same again. INAV