GDP Paradox in India

Two-trillion India

India's impressive growth has to be more socially inclusive,

Business Standard / New Delhi March 06, 2011, India is poised to join the coveted club of economies whose national income, or gross domestic product (GDP), exceeds $2 trillion. According to recently released data, India’s nominal GDP is expected to grow at 14 per cent in 2011-12, to reach Rs 90 lakh crores. At a dollar exchange rate of Rs 45, this works out to $2 trillion. However, if inflation is assumed to be 7 per cent and the real growth rate is 9 per cent as projected, the growth rate of 14 per cent may actually understate nominal growth rate by 2 percentage points, which means India’s nominal GDP in dollar terms will actually exceed $2 trillion this fiscal! India’s nominal GDP crossed the $1 trillion mark in 2007-08, which implies GDP has doubled in four years. Applying the ‘rule of 72’ would mean India’s average annual growth rate of nominal GDP during the period is a stupendous 18 per cent! That it was achieved in a milieu of pervasive economic gloom makes the feat even more impressive. Amidst the prevailing euphoria, it may be time to take a pause. The future may well be less perfect than we imagined. First, the magic number of $2 trillion is based on an exchange rate of $45 to the dollar. If the rupee were to depreciate, India’s nominal GDP would be lower for the same level of output. Second, in celebrating the nominal as opposed to the real GDP, we may be losing sight of the contribution of inflation. The difference between real and nominal GDP is inflation, and so for a given level of real GDP, the higher the inflation the more rapidly would nominal GDP increase. This is clearly an undesirable outcome for everybody. Statistical convolutions aside, the health of the Indian economy needs a candid review, particularly in light of potential downsides that could derail the genuine progress the Indian economy has made over the past two decades. The slowdown in virtually all sectors of the economy, barring a few select industries like ‘transport, logistics and communication’, which has been growing annually at 25 per cent, is indeed worrisome. Growth in the agriculture sector continues to be dampened by under-investment, despite some increase during the past five years. This has resulted in the sector being caught in a classic low productivity trap. Manufacturing too is spinning on its wheels, with annual growth rates stubbornly in the single digits. This reflects deeply embedded structural problems, which have been discussed in this space. India’s economic growth continues to rely on the service sector growing at or around 10 per cent annually, which renders it vulnerable to global shocks. The situation on the supply side also leaves a lot to be desired. This particularly applies to the tardy progress in the development of infrastructure and investment in human development, which is already holding India back. Apart from the bottlenecks and the shortcomings that are holding India back, the recent spurt in growth has also been accompanied by increased inequality, with the rich becoming richer. Hence, even as India pursues policies that enhance and sustain growth, there is a need to ensure greater equity in the growth process. India has much to celebrate by way of economic progress, but there is still some way to go in making this growth process more socially, economically and regionally inclusive.

Kerala is actually no. 1 as per GDP

Mahesh Vyas: Kerala is actually no. 1

Its per capita income for 2009 stands at Rs 63,000 — the highest in the country

Mahesh Vyas / New Delhi June 28, 2010, 0:12 IST

The state of Kerala is fascinating in many ways. This lush green coastal beauty is deservingly called God’s Own Country. A drive through the state almost never shows any distinction between urban and rural regions. The houses generally reflect a good standard of living and even the cities do not seem to have beggars on streets.

The good standard of living and the scenic beauty of the state do not seem to motivate Malayalis in general to work hard in their own state. They stopped cultivating labour-intensive rice paddy and shifted to coconut and rubber plantations long ago. Like Punjab, Kerala imports farm labour from Bihar.

Kerala has succeeded in keeping most industries out. It never joined the rat race that Maharashtra, Gujarat and Tamil Nadu indulged in to attract investments. Neighbouring Karnataka’s extraordinary vigour in wooing investments in recent months indicates that it has taken some serious lessons from Gujarat. But not Kerala. On the contrary, the state seems to be quite content with not attracting any new industrial investments. It ranks 14 out of 23 states in terms of outstanding investments.

States attract investments to ensure employment and growth for its citizens. Kerala solved this problem in a different way long before others even thought about it. If the Andhraites and the Kannadigas discovered the advantage of exporting software engineers in the 1990s, Kerala had discovered the advantage of exporting its labour to the Gulf in the 1970s.

Kerala has been ahead of the curve in globalisation. While the North battled with intruders, Kerala quietly incorporated first Christianity and then Islam and enhanced its trade with the rest of the world. There were no famous battles in Kerala. It is just a story of seamless and peaceful globalisation over time without much ado. Today, Kerala exports its labour to the world and also imports labour into the state. This is globalisation at its best.

When the time came, Kerala embraced communism too. But the Malayali communist does not bring the rest of the state to a halt when the government raises oil prices. Kerala has less of state bandhs compared to West Bengal and it has no Nandigrams.

It is interesting to note that today the country’s top administrative official, the cabinet secretary, is from Kerala; so is the home secretary, the principal secretary in the Prime Minister’s Office and the national security adviser. Yet, there is no chest-thumping about it. Kerala’s history has no wars and, therefore, the state does not believe in heroes. To put it simply, it has simply progressed to become the most literate state of the country.

The popular perception of Kerala outside of Kerala does not reflect this tranquillity and progress. Correspondingly, most Malayalis do not have a great opinion of the rest of the country.

Official statistics do little justice to Kerala’s prosperity. Kerala was ranked ninth in terms of net state domestic product (NSDP) among 22 states in 2008-09. This is a reflection of its small size. It ranks higher at the sixth position in terms of per capita NSDP. Goa, Delhi, Haryana, Maharashtra and Punjab (in that order) beat Kerala in terms of per capita NSDP. But, this does not do justice to the state.

Per capita NSDP is a poor estimate of the well-being of the people of a state because it is a measure of the income generated in a state and not the income accruing to the people. Thus, globalised Kerala, whose households receive a lot of remittances from Malayalis working in the Gulf and in other regions, suffers because NSDP does not reflect these remittances in the income of the people.

The official statistical machinery does not measure the income of households. It estimates the income of households along with that of the not-for-profit institutions that serve the households at the all-India level. Even this combined estimate is available only at the all-India level. There is no estimation of even this indicator at the state level. Therefore, commentators are forced to use only NSDP in their analysis.

The Consumer Pyramid put together by the Centre for Monitoring Indian Economy (CMIE) bridges this gap. And, in the process, it amends our (mis)understanding of Kerala. According to the Consumer Pyramid, Kerala ranks first, and not sixth, in terms of per capita household income.

Kerala’s per capita income in 2009 at Rs 63,000 was the highest among all states in the country. It is way ahead of Delhi (Rs 55,000). Punjab is a distant third with Rs 42,000. The official per capita NSDP understates the income of Kerala households by 22 per cent at Rs 49,000. It also overstates the income of Delhi households by a massive 65 per cent at Rs 90,500. Punjab is overstated by 22 per cent.

Delhi generates a lot more income than Kerala does. But the income of Delhi does not accrue to the people of Delhi. Therefore, the purchasing power of consumers is much lesser in Delhi. Kerala does not generate much income, but its households receive a lot of transfers in the form of remittances from its people working outside. These transfers raise the purchasing power of Kerala households substantially.

Kerala is correspondingly a big spender. As a result, its household savings rate is close to the all-India average. This is also the case with Delhi and Punjab. Ownership of assets such as household appliances and entertainment devices is high in Kerala, but the ownership of transport equipment is low. This explains the clean air in Kerala.

Given the excellent transfers, the Malayalis do not find it necessary to pollute their land by having scooters and industries. They do not even find it necessary to work hard in God’s Own Land. But it’s not that the Malayalis are lazy. Their excuse for taking it easy is that they have worked hard elsewhere. They work hard elsewhere and transfer part of the income back to Kerala where they build a nice home and spend a relaxed life.

Kerala is also the land of India’s best-known rationalist, Abraham Kovoor.

The author is managing director and CEO, CMIE mahesh@cmie.com

The remains of Naxalbari Thu, Mar 10 2011, Live Mint

This one-road village wears no clues to its revolutionary past. Advertisements overshadow faded busts of Mao, Lenin and Charu Majumdar on grounds that once saw a bloody national rebellion

Shamanth Rao

The Siliguri office of the Communist Party of India (Marxist-Leninist), or CPI(M-L), Liberation is a tiny room with big posters of Lenin, Stalin and Mao. One poster exhorts “workers of the world—unite”. Yet another declares “the proletariat have nothing to lose but their chains”.

The low-roofed room’s walls haven’t been painted in a while. There is a rusty table in the centre. There are a couple of trunks by the walls. A weak bulb shines dimly. There are no computers, nor is there any trace of technology. In this single-room office, I wait for Abhijit Majumdar.

I’m in Siliguri in north Bengal en route to the nearby village of Naxalbari, which is the origin of the words Naxal and Naxalite, because it was the location of a 1967 peasant rebellion. I’m visiting Naxalbari to try and understand how a localized rebellion snowballed into a movement with national significance in the 1960s and 1970s.

My host in Siliguri, Prodip Sarkar, has suggested I meet Abhijit, the son of Charu Majumdar, one of the leaders of the 1967 Naxalbari rebellion. Abhijit is also the secretary of the CPI(M-L) Liberation for Darjeeling district in West Bengal.

On one wall of Abhijit’s CPI(M-L) Liberation office is a framed photograph of a wiry, bespectacled, almost malnourished-looking man with the caption “Comrade Charu Majumdar at Lal Bazar Police Headquarters, 1972”. That is the year and location of Majumdar’s death in police custody.

Rather, as Abhijit puts it in an emotionless voice, “That was when my father was murdered by the police.” Abhijit is a suave, articulate man, his sophistication looking oddly out of place in the ramshackle office.

Yet Abhijit’s brand of activism is not quite like his father’s. Charu Majumdar had famously said, “He is not a true Communist who has not dipped his hands in the blood of the class enemy.” Abhijit, as district secretary, has led protests against land acquisition for industries and for farmers’ rights. While these protests have been vocal, they haven’t resulted in anything close to the violence or bloodshed that happened in the Naxal movement of the 1960s and 1970s. Abhijit maintains that the proletariat revolution is inevitable, and class enemies will be overthrown—yet expressions denoting violence or killing are guardedly absent from his talk.

Split within the party

The story of the Naxalbari rebellion is intertwined with the history of communism in India. Far more important than the revolt itself were its chief cause and effect—a rift among Indian Communists and the widespread violence of the Naxal movement, respectively.

During the 1960s, there were ideological disagreements within the Communist Party of India (Marxist), or CPM. Extremist factions of the CPM advocated the armed overthrow of landowners by means of a workers’ and peasants’ revolt. They proposed direct violent action against “petty bourgeoisie” as the only way to change an unjust society, and sought to follow in the footsteps of the Chinese and Russian revolutions.

The Naxalbari rebellion of 1967, then, was a trigger for the extremist factions of Communists to bring their ideologies into the open. When agrarian land issues arose in Naxalbari, extremist Communists saw an opportunity to begin a violent overthrow of landowners.

Naxalbari 1967 was to become the first step in the great Indian proletariat revolution.

A village that has moved on

After a lunch of rice and fish curry, I enter a rattling, ramshackle bus whose conductor loudly advertises “Panitanki-Nepal, Naxalbari”.

The bus’ destination is across the Nepal border, but it is due to pass through Naxalbari on its way. The vibrations of the rickety bus are amplified by the potholed road. Soon, the bus goes past a road to Darjeeling. On the narrow road to Nepal, tea gardens flank the road, rolling away in a green expanse into the horizon.

Naxalbari lies 25km from Siliguri. Right at the entrance to it is a solitary building named “Block Land & Land Reforms Officer”, rather appropriately for a place linked with land struggles. The locked building looks desolate and abandoned on Sunday afternoon.

Naxalbari is a one-road village—nearly all activity centres around this road. Single-room shops line it, selling sweets, cellphones, provisions, computer education and more, with what could be frenetic commercial activity for a place of Naxalbari’s size.

There are no obvious memorials or mentions of the 44-year-old rebellion that made Naxalbari famous. When a place comes with associations attached, as Naxalbari does, it is easy to project one’s own expectations on to it. I expect to see overt signs of the past—signboards narrating stories of the historical incident, or libraries or memorials, but there are none to be readily seen. Naxalbari wears no clues to its past on its shoulder.

It has moved on from 1967.

A retired revolutionary

At Naxalbari, I have to meet Nathuram Biswas, one of the few surviving Naxalite activists from the 1970s. I have been told that the best way to find him would be to “ask anyone in Naxalbari”. With typical city-slicker scepticism, I wonder if that will work. But I get directions from the first man I ask.

Biswas, 60, is a bespectacled, balding man. His face is untouched by the wrinkles of age—my first reaction is that the person in front of me is far too young to be him.

As we talk, and he narrates the story of the revolt, I realize there is considerable blood, violence and grief behind the seemingly innocuous euphemism “peasant revolt”.

A rebellion unfolds

Biswas tells me the spark of the violence in Naxalbari was lit when a landlord, Ishwar Tirkey, ousted a labourer Bighul Kissan from his land in April 1967. Since many leaders of the extremist factions of CPM were from the region, they mobilized thousands of farmers, and laid siege to Tirkey’s farm. Tirkey, though, was politically well connected, and had arrest warrants taken out for the leaders of the farmers’ protests.

The next stone was cast when another landlord faced with a protest, Nagendra Roy Choudhury, took out a gun and fired in the air. Nearly a thousand farmers seized his crops and captured him. Biswas tells me in a matter-of-fact way, without a change in tone, that Choudhury was then tried by a people’s court and promptly executed.

The CPM, which was part of a coalition government in Bengal, was alarmed. The government could neither be seen as condoning the violence, nor disowning fellow comrades who were leading the agitation.

Naxalbari came under unprecedented focus and attention. The then land revenue minister Harekrishna Konar stayed nearby to negotiate with the agitators. Seven ministers came to the area and kept watch. Police and paramilitary forces were employed in huge numbers. Landowners sought special police protection. There was an uneasy calm in Naxalbari.

An uneasy calm is but ammunition awaiting a flame. After one police search operation, word spread that a village leader’s pregnant wife had been attacked. This was all that was needed to ignite the already explosive atmosphere.

In one confrontation with policemen, a protester shot an arrow into the police ranks and killed inspector Sonam Wangdi. Tension escalated, and the police launched ruthless combing operations for leaders of the farmers’ agitation. It was in the hamlet of Bengai Jote near Naxalbari, Biswas tells me with an air of finality, that the event which Naxalbari 1967 is most known for occurred—nine women and two children were shot dead in police firing.

The flame spreads

The extremist factions of the CPM thought the police action and shooting was an act of betrayal, more so since the home minister was fellow comrade Jyoti Basu. They announced that the shooting at Naxalbari was a clarion call for the beginning of the proletariat revolution in India. The extremists decided that violent overthrow of “class enemies” was the only way ahead. The People’s Daily of Beijing declared, “A peal of spring thunder has crashed over the land of India”, giving ideological justification to the activists.

Extremist activists had debated theories of class action and revolution for years. After the Naxalbari shooting, they felt their time had come. CPM had party offices across rural Bengal and Bihar—the party’s extreme factions had local leaders and cadres everywhere. Their influence and grass-roots support became evident in the aftermath of the Naxalbari shooting. The leaders of the extreme factions, in particular Charu Majumdar, attained cult status. The activists named themselves after the place where it all began, and began calling themselves Naxals.

Agitations and protests began fanning across West Bengal and Bihar. Farmers and workers responded to the call of local Communist leaders for class action. Landowners, government officials, everyone perceived to be “class enemies”, began to be annihilated.

It wasn’t just the villages—Kolkata became a hotbed of Naxal activity. Young men and women joined what they were convinced was the cause of revolution. Many dropped out of college, some went to live in the countryside to “sow seeds of revolution among peasants” and become “foot soldiers of revolution”.

Historian Dilip Simeon, now 62, who was an activist in the Naxalite movement, writes in his essay “Rebellion to Reconciliation” (2006) about what made young people join the Naxal movement. “Somehow it felt as if we had no option, that this was like the freedom movement all over again, that if young and committed Indians did not do what was necessary to change the dreadful conditions in which most of our fellow countrymen and women lived, we would be betraying the most precious values of life.”

There was perhaps a sense of historical inevitability, as he adds, “(1968) was the year of the Prague Spring, the Tet offensive by the National Liberation Front in Vietnam, the May uprising by students and workers in France, the assassination of Martin Luther King, the Cultural Revolution in China, the Black Power salute by US athletes at the Mexico Olympics.”

It wasn’t easy for young people to go into villages for the sake of revolution. Young people who’d grown up in cities found the rough-and-tumble village life a shock. Many couldn’t cope with the spartan lifestyle. Much of what it was to be young in those tumultuous times is powerfully portrayed in Sudhir Mishra’s heartbreaking film Hazaaron Khwaishein Aisi, as also in Simeon’s 2010 novel Revolution Highway, about young people involved in the Naxal movement.

As the Naxal movement intensified in violence, the rift in the CPM became official. In 1969, at a rally in Kolkata, Charu Majumdar announced the formation of a new party —the CPI (Marxist-Leninist) Liberation. The schism was so evident that the official break-up was but a formality.

Underground

Biswas and Simeon both dropped out of college to join the Naxal movement, albeit in different circumstances and places. Biswas took his first step in 1968 after he read an essay by Charu Majumdar exhorting students to spend a summer vacation among the rural poor in villages. Simeon was a student at St Stephen’s, New Delhi, when he went on a trip with the college’s Social Service League to famine-hit Palamau in present-day Jharkhand. This was his first step.

It wasn’t difficult to quit college, Biswas tells me, because he was clear he didn’t want “bourgeoisie education”. Simeon tells me on email about his decision to leave the security of college life and career prospects: “Most of us didn’t think about the long term, and of what we would be doing after 10 years—the passions of the moment were enough to carry us. The revolution would have been accomplished by then—if we bothered to think about time at all.”

I ask Biswas if it was easy to kill or engage in violence for the first time. He smiles and says, half-jokingly, “My leaders said that if I didn’t take part in ‘action’ in a week’s time, that’d mean I’m petty bourgeoisie.” He adds that having seen the villages and empathized with peasants’ conditions, it wasn’t so difficult to go out there and engage in “action” for their sake.

“Once you’ve been involved in action,” Biswas shrugs his shoulders, “you have no choice but to go underground.” It was not like he had to stay in jungles, he adds—underground activists stayed in sympathizers’ houses. He stayed for sometime in Nepal, and for some time in Bangladesh.

Today, Biswas is a businessman, owning a cellphone and a furniture shop—both ironically capitalist establishments. He’s still a member of the CPI(M-L) Liberation, and has led farmers’ protests in the last few years.

Simeon works with Aman Trust, which seeks to mitigate the effects of violent conflict.

The waning

Naxal activists defined “class enemies” rather broadly. Government employees, judges and a vice-chancellor were among those killed in Kolkata in “class action”. At the height of the movement, traffic policemen were stabbed on the streets of Kolkata.

Police reprisal was brutal. The government of West Bengal gave wide-ranging powers to the police. Naxals were picked up from houses, horrific tales of police torture spread, encounters became commonplace. The death blow for the movement came, though, when the police started to pick on the leaders of the movement—Charu Majumdar was killed in police custody, Saroj Dutta was killed in an encounter.

The ideological basis of the revolution was gradually eroding too. China backed the Pakistan army’s crackdown in East Pakistan, China and the then USSR (Union of Soviet Socialist Republics) supported the quelling of the JVP (People’s Liberation Front) insurrection in Sri Lanka, Mao engaged in a dialogue with former US secretary of state Henry Kissinger even as the Vietnam war continued. As Simeon puts it, “From 1971 onwards it became clear that the cut and dried formulations of Indian Maoism would not work.” China, whose revolution the Indian Maoists aspired to inherit, was itself veering off the path of Marxism and being opportunist.

This ideological confusion showed not only among the young activists, but also in the party lines. The CPI(M-L) Liberation split into more than 30 factions during the 1970s, torn apart by ideological differences.

By the mid-1970s, what was to have been the Indian proletariat revolution had all but collapsed.

The remnants

Biswas introduces a middle-aged man as Comrade Manik, adding, “He’ll show you Shaheed.” The Shaheed Vedi is 2km from the Naxalbari bus stand. This is the only memorial in the place. This is where the nine women and two children were shot in 1967.

I take a cycle rickshaw that stumbles over stony, unpaved roads to Bengai Jote, where the memorial is situated. Bengai Jote is a single-road village too, but unlike Naxalbari, this road hardly has vehicular traffic. Right behind the row of huts with bamboo compound walls is a railway track on one side and a stream on the other. Beyond the houses, at the far end of town, is the Bengai Jote primary school, a small building with a couple of rooms.

Beside the school’s closed gates is a small clearing. The lawn is untrimmed and has a stubble and undergrowth, there’s dust and bits of paper strewn about—it clearly hasn’t been cleaned in a while. There are four busts—of Mao, Lenin, Charu Majumdar and Lin Biao. These busts haven’t been painted or cleaned in a long time. There’s a faded red board announcing through flaking-off paint that this is the “Tiananmen square of India”.

A river twists its way through the fields behind the memorial, quietly gurgling past. In an open field in front of it, children run about, playing without a care. Tiny shops in the lane leading up to the memorial unfurl cloth banners advertising Vodafone, Maaza and Hero Cycles.

Acknowledgements: Prodip Sarkar, Bibek Sarkar, Abhijit Majumdar (all in Siliguri), Nathuram Biswas (in Naxalbari), Dilip Simeon, Sourabh Datta Gupta.

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Budget Glossary

Team ET simplifies the important Budget items for its readers in a five-part series. We have, however, departed from the usual way glossaries are presented, in alphabetical order, to a flow-type format wherein terms are explained as the reader would encounter them in the budget. Read on... On the Budget day, the finance minister tables 10-12 documents. Of these, the main and most important document is the Annual Financial Statement. Annual Financial Statement Article 112 of the Constitution requires the government to present to Parliament a statement of estimated receipts and expenditure in respect of every financial year — April 1 to March 31. This statement is the annual financial statement. The annual financial statement is usually a white 10-page document. It is divided into three parts, consolidated fund, contingency fund and public account. For each of these funds, the government has to present a statement of receipts and expenditure. Consolidated Fund: This is the most important of all government funds. All revenues raised by the government, money borrowed and receipts from loans given by the government flow into the consolidated fund of India. All government expenditure is made from this fund, except for exceptional items met from the Contingency Fund or the Public Account. Importantly, no money can be withdrawn from this fund without the Parliament’s approval. Contingency Fund: As the name suggests, any urgent or unforeseen expenditure is met from this fund. The Rs 500-crore fund is at the disposal of the President. Any expenditure incurred from this fund requires a subsequent approval from Parliament and the amount withdrawn is returned to the fund from the consolidated fund. Public Account: This fund is to account for flows for those transactions where the government is merely acting as a banker. For instance, provident funds, small savings and so on. These funds do not belong to the government. They have to be paid back at some time to their rightful owners. Because of this nature of the fund, expenditure from it are not required to be approved by the Parliament. For each of these funds the government has to present a statement of receipts and expenditure. It is important to note that all money flowing into these funds is called receipts, the funds received, and not revenue. Revenue in budget context has a specific meaning. The Constitution requires that the budget has to distinguish between receipts and expenditure on revenue account from other expenditure. So all receipts in, say consolidated fund, are split into Revenue Budget (revenue account) and Capital Budget (capital account), which includes non-revenue receipts and expenditure. For understanding these budgets — Revenue and Capital — it is important to understand revenue receipts, revenue expenditure, capital receipts and capital expenditure. Revenue receipt/Expenditure: All receipts and expenditure that in general do not entail sale or creation of assets are included under the revenue account. On the receipts side, taxes would be the most important revenue receipt. On the expenditure side, anything that does not result in creation of assets is treated as revenue expenditure. Salaries, subsidies and interest payments are good examples of revenue expenditure. Capital receipt/Expenditure: All receipts and expenditure that liquidate or create an asset would in general be under capital account. For instance, if the government sells shares (disinvests) in public sector companies, like it did in the case of Maruti, it is in effect selling an asset. The receipts from the sale would go under capital account. On the other hand, if the government gives someone a loan from which it expects to receive interest, that expenditure would go under the capital account. In respect of all the funds the government has to prepare a revenue budget (detailing revenue receipts and revenue expenditure) and a capital budget (capital receipts and capital expenditure). Contingency fund is clearly not that important. Public account is important in that it gives a view of select savings and how they are being used, but not that relevant from a budget perspective. The consolidated fund is the key to the budget. We will take that up in the next part. As mentioned in the first part, the government has to present a revenue budget (revenue account) and capital budget (capital account) for all the three funds. The revenue account of the consolidated fund is split into two parts, receipts and disbursements — simply, income and expenditure. Receipts are broadly tax revenue, non-tax revenue and grants-in-aid and contributions. The important tax revenue items are listed below. Corporation Tax: Tax on profits of companies. Taxes on Income other than corporation tax: Income tax paid by non-corporate assesses, individuals, for instance. Fringe benefit tax (FBT): The taxation of perquisites — or fringe benefits — provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax. It was introduced in Budget 2005-06. The government felt many companies were disguising perquisites such as club facilities as ordinary business expenses, which escaped taxation altogether. Employers have to now pay FBT on a percentage of the expense incurred on such perquisites. Securities transaction tax (STT): Sale of any asset (shares, property) results in loss or profit. Depending on the time the asset is held, such profits and losses are categorised as long-term or short-term capital gain/loss. In Budget 2004-05, the government abolished long-term capital gains tax on shares (tax on profits made on sale of shares held for more than a year) and replaced it with STT. It is a kind of turnover tax where the investor has to pay a small tax on the total consideration paid / received in a share transaction. Banking cash transaction tax (BCTT): Introduced in Budget 2005-06, BCTT is a small tax on cash withdrawal from bank exceeding a particular amount in a single day. The basic idea is to curb the black economy and generate a record of big cash transactions. Customs: Taxes imposed on imports. While revenue is an important consideration, Customs duties may also be levied to protect the domestic industry or sector (agriculture, for one), in retaliation against measures by other countries. Union Excise Duty: Duties imposed on goods made in India. Service Tax: It is a tax on services rendered. Telephone bill, for instance, attracts a service tax. While on taxes, let us take a look at an important classification: direct tax and indirect tax. Direct Tax: Traditionally, these are taxes where the burden of tax falls on the person on whom it is levied. These are largely taxes on income or wealth. Income tax (on corporates and individuals), FBT, STT and BCTT are direct taxes. Indirect Tax: In case of indirect taxes, the incidence of tax is usually not on the person who pays the tax. These are largely taxes on expenditure and include Customs, excise and service tax. Indirect taxes are considered regressive, the burden on the rich and the poor is alike. That is why governments strive to raise a higher proportion of taxes through direct taxes. Moving on, we come to the next important receipt item in the revenue account, non-tax revenue. Non-tax revenue: The most important receipts under this head are interest payments (received on loans given by the government to states, railways and others) and dividends and profits received from public sector companies. Various services provided by the government — police and defence, social and community services such as medical services, and economic services such as power and railways — also yield revenue for the government. Though Railways are a separate department, all its receipts and expenditure are routed through the consolidated fund. Grants-in-aid and contributions: The third receipt item in the revenue account is relatively small grants-in-aid and contributions. These are in the nature of pure transfers to the government without any repayment obligation. We now look at the disbursements section of the revenue account of the consolidated fund. It lists all the revenue expenditures of the government. These include expense incurred on organs of state such as Parliament, judiciary and elections. A substantial amount goes into administering fiscal services such as tax collection. The biggest item is interest payment on loans taken by the government. Defence and other services like police also get a sizeable share. Having looked at receipts and expenditure on revenue account we come to an important item, the difference between the two, the revenue deficit. Revenue Deficit: The excess of disbursements over receipts on revenue account is called revenue deficit. This is an important control indicator. All expenditure on revenue account should ideally be met from receipts on revenue account; the revenue deficit should be zero. In other words it is difference between Revenue Expenditure and Revenue Receipts. When revenue disbursement exceeds receipts, the government would have to borrow. Such borrowing is considered regressive as it is for consumption and not for creating assets. It results in a greater proportion of revenue receipts going towards interest payment and eventually, a debt trap. The FRBM Act, which we will take up later, requires the government to reduce fiscal deficit to zero by 2008-09. Receipts in the capital account of the consolidated fund are grouped under three broad heads — public debt, recoveries of loans and advances, and miscellaneous receipts. Public debt: Public debt receipts and public debt disbursals are borrowings and repayments during the year, respectively. The difference is the net accretion to the public debt. Public debt can be split into internal (money borrowed within the country) and external (funds borrowed from non-Indian sources). Internal debt comprises treasury bills, market stabilisation schemes, ways and means advance, and securities against small savings. Treasury bills (T-bills): These are bonds (debt securities) with maturity of less than a year. These are issued to meet short-term mismatches in receipts and expenditure. Bonds of longer maturity are called dated securities. Market stabilisation scheme: The scheme was launched in April 2004 to strengthen RBI’s ability to conduct exchange rate and monetary management. These securities are issued not to meet the government’s expenditure but to provide RBI with a stock of securities with which it can intervene in the market for managing liquidity. Ways and means advance (WMA): One of RBI’s roles is to serve as banker to both central and state governments. In this capacity, RBI provides temporary support to tide over mismatches in their receipts and payments in the form of ways and means advances. Securities against small savings: The government meets a small part of its loan requirement by appropriating small savings collection by issuing securities to the fund. Miscellaneous receipts: These are receipts from disinvestment in public sector undertakings. Capital account receipts of the consolidated fund — public debt, recoveries of loans and advances, and miscellaneous receipts and revenue receipts are receipts of the consolidated fund. We now take up the disbursements on capital account from the consolidated fund. The first part deals with capital expenditure incurred on general, social and economic services. Some of the biggest expenditure items under these heads are defence services, investment in agricultural financial institutions and capital to railways. The second part takes up the public debt (repayments of loans) and various loans by the government. The consolidated fund has certain disbursements ‘charged’ to the fund. These are obligations that have to be met in any case and, therefore, do not have to be voted by the Lok Sabha. These include interest payments and certain expenditure such as emoluments of the President, salary and allowances of speaker, deputy chairman of the Rajya Sabha, and allowances and pensions of Supreme Court judges, Parliament and so on. Budget at a glance: This is a snap shot of the budget for easy understanding. Nonetheless, it introduces some new concepts. While receipts are broken down into revenue and capital, unlike the consolidated fund, it shows the centre's net tax revenues. This is because a decent part of the gross tax revenue, as decided by the relevant Finance Commission, flows to the state governments. Budget at a glance also segments expenditure into plan and non-plan expenditure, instead of splitting into revenue and capital. Each of these is then split into revenue account and capital account. Before discussing plan and non-plan expenditure it is important to discuss the concept of the central plan. Central plan: Central or annual plans are essentially Five Year Plans broken down into annual instalments. Through these plans, the government achieves the objectives of the Five Year Plans. The central plan’s funding is split almost evenly between government support (from the budget) and internal and extra budgetary resources of public enterprises. The government’s support to the central plan is called budget support. We will take up plan and non-plan expenditure in the next part. Expenditure The expenditure of the government can be classified into plan expenditure and non-plan expenditure. Plan expenditure is an expenditure that the government plans to incur on a scheme to be implemented in a given year. For example, construction of national highways. This expenditure that was incurred for construction of national highways came in as a part of plan expenditure. Non-plan expenditure is defined as expenditure committed by the expenditure. Interest payments, pensions, salaries, subsidies and maintenance expenditure are all non-plan expenditure. Non-plan expenditure is generally an outcome of plan expenditure. For example, the national highways the government constructed need to be maintained. All the expenses going towards this is treated as non-plan expenditure. Plan expenditure: This is essentially the budget support to the central plan and the central assistance to state and union territory plans. Like all budget heads, this is also split into revenue and capital components. Non-plan expenditure: This is largely the revenue expenditure of the government. The biggest items of expenditure are interest payments, subsidies, salaries, defence and pension. The capital component of the non-plan expenditure is relatively small with the largest allocation going to defence. Defence expenditure is non-plan expenditure. Fiscal Deficit: When the government’s non-borrowed receipts fall short of its entire expenditure, it has to borrow money from the public to meet the shortfall. The excess of total expenditure over total non-borrowed receipts is called the fiscal deficit. In other words it is the difference between the Revenue Receipts and Total Expenditure. Primary deficit: The revenue expenditure includes interest payments on government’s earlier borrowings. The primary deficit is the fiscal deficit less interest payments. A shrinking primary deficit indicates progress towards fiscal health. The Budget document also mentions deficit as a percentage of GDP. This is to facilitate comparison and also get a proper perspective. Prudent fiscal management requires that government does not borrow to consume in the normal course. FRBM Act: Enacted in 2003, Fiscal Responsibility and Budget Management Act require the elimination of revenue deficit by 2008-09. Hence, from 2008-09, the government will have to meet all its revenue expenditure from its revenue receipts. Any borrowing would only be to meet capital expenditure. The Act mandates a 3% limit on the fiscal deficit after 2008-09. Resources transferred to the states: A part of the Centre’s gross tax collection goes to state governments. In the Budget 2007-08, the states were to receive nearly 27% of the gross tax collections. The Centre also transfers funds to states by way of support to their plans. It also gives large grants to manage centrally-sponsored schemes. The government counts small savings transfers to state governments, which are in the nature of borrowings, as resources transferred to states. Before March 31, 1999, the Centre used to borrow net accretions to small savings and lend them to the states. From April 1, 1999, states started receiving 75% of net small savings directly; the balance was invested in special government securities during 1999-2000 to 2001-2002. The sums received in the NSS fund on redemption of special securities are being reinvested in special G-secs. From April 2002, the entire net collection under small saving schemes in each state and UT are advanced to the concerned state/UT government as investment in its special securities. The expenditure and receipts Budget take up the respective heads in greater detail. Value-Added Tax (VAT) and GST: VAT helps avoid cascading of taxes as a product passes through different stages of production/value addition. The tax is based on the difference between the value of the output and inputs used to produce it. The aim is to tax a firm only for the value added by it to the inputs it is using for manufacturing its output and not the entire input cost. VAT brings in transparency to commodity taxation. In this concluding part we take a look at some of the important terms that figure in the Budget BHARAT NIRMAN: Bharat Nirman is the current UPA government’s ambitious programme for building infrastructure, especially in rural India. It has six components — irrigation, roads, water supply, housing, rural electrification and rural telecom connectivity. In each of these areas, the government has set targets that are to be achieved by the year 2009, within four years of its launch. CESS: This is an additional levy on the basic tax liability. Governments resort to cess for meeting specific expenditure. For instance, both corporate and individual income is at present subject to an education cess of 2%. In the last Budget, the government had imposed another 1% cess — secondary and higher education cess on income tax — to finance secondary and higher education. COUNTERVAILING DUTIES (CVD): Countervailing duty is a tax imposed on imports, over and above the basic import duty. CVD is at par with the excise duty paid by the domestic manufacturers of similar goods. This ensures a levelplaying field between imported goods and locally-produced ones. An exemption from CVD places the domestic industry at disadvantage and over long run discourages investments in affected sectors. EXPORT DUTY: This is a tax levied on exports. In most instances, the object is not revenue , but to discourage exports of certain items. In the last Budget, for instance , the government imposed an export duty of Rs 300 per metric tonne on export of iron ores and concentrates and Rs 2,000 per metric tonne on export of chrome ores and concentrates. FINANCE BILL: The proposals of government for levy of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by Parliament are submitted to Parliament through this bill. It is the key document as far as taxes are concerned. FINANCIAL INCLUSION: Financial inclusion is universalising access to basic financial services (to have a bank account , timely and adequate credit) at an affordable cost. Exclusion from financial services imposes costs on those excluded ; these are typically the disadvantaged and low-income group. Exclusion forces them into informal arrangements such as borrowing from local money lenders at high rates. Financial inclusion remains a serious issue in India. The government has proposed a no-frills account to provide cheap banking. MINIMUM ALTERNATE TAX (MAT): This tax on corporate profits was introduced in 1996-97 and has been modified since. If the tax payable by a company is less than 10% of its book profits, after availing of all eligible deductions , then 10% of book profits is the minimum tax payable. Book profits are profits calculated as per the Companies Act, while profits as per the Income-Tax Act could be significantly lower, thanks to various exemptions and depreciation. PASS-THROUGH STATUS: A pass-through status helps avoid double taxation. Mutual funds, for instance , enjoy pass-through status. The income earned by the funds is tax free. Since mutual funds’ income is distributed to unitholders, who are in turn taxed on their income from such investments , any taxation of mutual funds would amount to double taxation. Essentially , it means the income is merely passing through the mutual funds and, therefore, should not be taxed. The government allows venture funds in some sectors pass-through status to encourage investments in start-ups . SUBVENTION: The term subvention finds a mention in almost every Budget. It refers to a grant of money in aid or support, mostly by the government. In the Indian context, for instance, the government sometimes asks institutions to provide loans to farmers at below market rates. The loss is usually made good through subventions. SURCHARGE: As the name suggests, this is an additional charge or tax. A surcharge of 10% on a tax rate of 30% effectively raises the combined tax burden to 33%. In the case of individuals earning a taxable salary of more than Rs 10 lakh a surcharge of 10% is levied on income in excess of Rs 10 lakh. Corporate income is levied a flat surcharge of 10% in the case of domestic companies and 2.5% for foreign companies. Companies with revenue less than Rs 1 crore do not have to pay this surcharge. current account deficit : Occurs when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers. This situation makes a country a net debtor to the rest of the world. A substantial current account deficit is not necessarily a bad thing for certain countries. Developing counties may run a current account deficit in the short term to increase local productivity and exports in the future.

Tahelka - Tarun Tejpal interview - a revealation

Tarun Tejpal, author and journalist, is 46 years, one of the most influential media and political landscape of India. He founded the information site Tehelka.com, and the magazine of the same name, which are the best investigative tools of the Indian press. In 2001, Tehelka had revealed a corruption scandal brought down the defense minister, George Fernandes, and undermined the whole government. It had earned its founding three years of death threats, harassment, moral and economic.

Tarun Tejpal was also editor, he published twelve years ago the God of small things Arundhati Roy. In 2005, his magnificent novel Far from Chandigarh has been published in French by Buchet-Chastel. This week spell in France's second novel.

History of my assassins, who tells the story of a journalist threatened with death and especially that of its five potential assassins, Tejpal is a portrait of the impoverished country, violent and corrupt behind the Indian economic miracle. Great, warm and speed, he came to Paris to be our guest editor.

Q: Your previous novel, "Far from Chandigarh, spoke of love and desire. "History of my killers" is a novel of violence.

A: True. I think that basically, the violence is an emotion as powerful as love. These are probably the two most powerful emotions that may exist. This book describes all kinds of violence, emotional, physical, psychological. History speaks of my assassins underclass, it happens in India, but it could be in any country.

These killers, these five men were born the wrong side. Basically, prior to the victims, they have themselves been victims. There is a tendency in India in particular, to imagine that the sub-proletarians have no real emotional life rich and complex, they are just animals that eat and die. But everybody has a complex emotional life, assassins too. What I wanted to do here is to both capture and restore the dignity and complexity of these lives by going back to the childhood of each of the assassins. In childhood, we are all innocent.

It is also a reflection on power. This book is an exploration of power, including state power, which is huge. In my own life these last ten years, it became a dominant theme: the power, its fundamental lack of nobility, and his ruthlessness too. Again, this story could happen anywhere. Part of what happens to the narrator think of Kafka's Castle. In real life, the authority operates in a highly opaque, it is his nature, nothing is ever completely clear.

This novel is an exploration of power, and also violence. These themes are universal, but they are particularly important in India. So very strange, India has an image of tolerant and non-violent, but there is absolutely no truth in it: we are one of the most cruel and violent societies that exist in the world. We practice all kinds of violence: religious, gender, caste, household, their children and animals ...

But because of men like Buddha and Mahatma Gandhi, we had the idea of a non-violent India. Yet if you look in history, there is no sign that she was not violent, however. In fact, curiously, why incredible thinkers and reformers like Buddha and Gandhi have emerged, it is precisely to counter this great violence.

Hindus themselves, and I'm Hindu, swap stories and imagine they have a non-violent religion, look, all their gods are armed!

This story tackles still two or three things about India that are accepted by the pub and some media. The "India Shining" for example, India's dazzling success, prosperous India ... In fact, the truth of India is that there are nearly 400 million people living with less' one dollar a day. This book goes against this stupid story of the "India Shining".

To me, a great and good novel must enter commonplaces accepted by all and question them, subvert. In Chandigarh, I worked on other things, love, desire, trying to subvert the cliches. The work of the novelist is not to embellish reality, but to subvert it, wondering what kind of things their raison d'etre.

A great and good story should also, to some extent, put you uncomfortable. Even as he makes you good, even if you warm up and reassure you, it should also force you to think and question your beliefs. They are not supposed to be sleeping, they are supposed to wake you up.

Q: How long have you think in power?

A: Long time but of course, these last ten years I have been deeply immersed in it because I was opposed to the state, and it allowed me to examine the nature of power. In a sense, people in my class in India are on the right side of power. In some ways, "we are" power. But it does not function as a demonic power that works in our favor.

In fact, only when it is opposed to power, they begin to measure it. In my case, because of Tehelka, I am opposed to power again and again, and it gave me a fabulous opportunity to see how it worked.

I believe deeply that the heart of any human endeavor, there is power. If you do not understand it, that either French or American or Indian, you do not understand how people shape society. Take the power to exercise, keep it the big thing. And for me, as a writer, is the most important issue. This is not to write the pretty prose, with nice characters. It is to understand the brutality of power. And that's what the great books. For me, the greatest book in the history of literature, the Mahabharata, well, the whole effort of this novel of a million words, is to understand what the power and how men should behave. What is good and what is evil.

In the novel, one of my characters says: "power is the engine. Sex and money are the lubricants of power. " But obviously, we all know. Including your president, including Berlusconi. For 5 000 years since the dawn of civilization, the power went hand in hand with the lubricant of money and sex, or pleasure.

Q: What is the role of journalism in a democracy?

A: I always said that, ideally, journalism should work for the public good. Democracy has three main structures: money, political power and media. Money and power are always together for the benefit of each other.

In modern democracies, journalism is supposed to be the joker in the back. In Tehelka, we believe that the work of a journalist is to control the power and money. This is not to attack them or destroy them, but be aware that power and money, because their metabolism is intrinsically coded in the excesses and abuses. This is true for all cultures and eras, since time immemorial. The journalist's job is to make sure they behave properly, they keep well. As such, the journalists were the votes and public representatives.

Q: A few months ago you wrote an open letter to Sonia Gandhi ( "Dear Sonia Gandhi, I beg you ..." Release, dated June 11). What do you think of her?

A: Despite me, year after year, I started to admire more and more. India is the country of the world's most difficult and most complex to administer: a democracy of 1.2 billion people, a mosaic of peoples and religions, the second largest Muslim community, 250 million dalits (untouchables ), 30 dominant languages, 500 dialects ... In these conditions, the risk of doing stupid things is extremely high. Well, it's remarkable this woman managed not to ridicule, to behave wisely and stay for the poor and destitute. I think all the people in power in India should be plenty of time for the poor because we are absolutely heartbreaking and so a country of poverty, the poverty level is alarming, we can feed our children, or give them education, they are hundreds of millions on the roads. And some speak of the "India Shining"! Sonia Gandhi, she understands what is fundamentally important. In a country like India, political power must remain engaged.

When I see the path it did, a young Italian girl arriving in India, through personal tragedy, the murder of his stepmother and her husband, fearing for her life and her children, when I see she managed to get where she is the most powerful politician in the subcontinent, is extraordinary. There must be an amazing strength of character behind it. And she has raised her children. Rahul Gandhi, 39, is very good. Consistently, he showed that he pushed for the poor. For me, India, the rich can take care of themselves, people in my class too, but the job of those in power is to take care of the destitute.

Q: How do you assess the state of India sixty years after independence?

A: It is a nation that is still evolving and remains a very difficult and complex. It has survived as an electoral democracy. Many promises have been kept, and many promises were not kept. There is still a very poor country. We had great successes and great failures. It is a unfinished project. The good news is we have not failed. The bad news is we did not succeed. Our greatest asset is the fact that the founding vision was spectacular. Men like Gandhi and Nehru were amazing. The founding vision was pure, it was exhilarating, especially when compared with the vision of other post-colonial countries, which have long since collapsed. The only difference between India and the rest of the postcolonial world, is the founding vision. And this vision of an India liberal, secular, democratic republic, committed to the poorest, we have much damaged, but it is still sudden. This is the original idea that has allowed us to survive.