 Hello and welcome to NewsClick. The Narendra Modi government is likely to present its last budget. And all eyes are already on the Prime Minister and his cabinet to see what measures they might come up with in the aftermath of their loss in the state elections. To talk more about this, we have with us noted economist and author, Prof. Venkatesh Atreya. Could you just first talk about what you see as the current economic situation in India right now, especially over the last four years of the five years? This regime is reaching the end of its tenure and the international context has also changed somewhat in the last five years. And the other frame within which you have to evaluate this is in terms of what they claim that they would do and what they've actually done. Overall, if you look at the economy, there's been one major problem for many analysts, which is that the government has been changing definitions, changing methods, and the credibility of numbers in the government has taken a big hit over the last one year. So even taking that into account, I guess the two major disasters of this regime in terms of economic policy are widely known. One is demonetization, which was initially drummed up as a measure to fight several things, black money, counterfeit currency, terrorism, and corruption. And of course, we know it has done none of these things, and on the other hand, all the money has come back to the bank. And in fact, the measures of terrorism, whichever measure you want to use, are certainly not going to show the government in a better light than it did before demonetization. As for GST, the ridiculous spectacle of making it a second freedom movement and calling the parliament is an absurdity of a certain kind, where you actually eventually, instead of one country, one tax, this is what the slogan was, you have, of course, one country, multiple tax rates, but also multiple tax rates frequently being changed and resulting in a great deal of uncertainty. But the more important point about both these measures, demonetization and GST, is that they constituted a frontal attack on the informal sector, small and medium businesses, agriculture, and the entire informal sector, including the workers. A demonetization, for instance, set back the economy by at least, in terms of growth rates, about two percentage points, which is an estimate that Manmohan Singh had once put out, and fairly close to the target. And in particular, it ended in the closure of a lot of small and medium scale informal establishments. And the return to their native states of workers would migrate to other states. Tamil Nadu, I witnessed this firsthand in Chennai. A lot of workers was to be milling around the neighborhood and eat on the street. They were just gone in a few days because nobody was going to give them credit in that period. So, I mean, I think the list of losses under demonetization is very large, including 104 precious lives for which the government has still not expressed any kind of regret. Then apart, the GST exercise, you know, often it's lost sight of, what is the central feature of the GST exercise? Basically, to bring the small guy under the tax net and harass him in all possible ways. Because this earlier, the excise duty limit was 1.5 crores. It became 20 lakh turnover per year for GST. Of course, now they are re-gaining it and bringing it back to 1.5 crores because the experience shows that this is completely absurd. But I think this is the other point. You see, what is common to GST and the overall economic policy frame of its government is the emphasis on indirect taxes. GST is an indirect tax. When international oil prices were declining, we had the government increasing excise duties all the time to maintain its revenues. The share of indirect taxes in central government tax revenue has gone up significantly over this period. And while the government has been, you know, kind of parading around growth rate numbers, which change with the rooms and fancies of the concerned agency putting it out, in terms of the impact on people's lives, I would say these last five years, we have been characterized by two major elements of a crisis. One is the agrarian crisis, which is intensified. This government said that once we come to office, there will be no tears shed and no farmers will commit suicide, all the usual rhetoric. What, of course, Amit Shah has kindly told us, it's only zoom land, you know, to take it seriously. But the second thing is that they said they'll create, what, I don't remember, at least one crore jobs a year or something like that. And the jobs are nowhere to be found. Instead, what we now have is that the data-gathering agencies, which put out data on employment and unemployment, have basically been told to stay cold, not to put any data out in the public domain. And so you don't even have, after the 2011-12 National Samples Survey, you don't have any large-scale Samples Survey data on employment and employment. The Labor Bureau used to put out numbers. They have been told to keep quiet. And after the initial attempt to refer to PCORDA making as a major source of employment, subsequently the government has realized that that is not going to sell, and so they've just not put out employment numbers. Now, we have serious issues because the CMI has been tracking the economy, Centre for Monetary Indian Economy, and they're reckoning is that between last November and this November 2017 and 2018, you've had loss of a very significant number of jobs, about 1.1 crore, a huge number. So the total people in employment of any kind, self-employment, has declined by 1.1 crore. And certainly this is not because more people are going to school or women are going to school for longer years. The usual reasoning that is really distraught, there may be a very small part of that. But most of it is basically saying there are no jobs to be found, so you stop looking for them after a while. What in the Westwood we call discouraged worker hypothesis. In India it's more a question of substantial, discouraged unemployment. People have small, half-acre farms. Not enough work for them on the farm. They seek employment, they don't get it. So this is the kind of labour force that shows up when you drive through the countryside or the urban areas at traffic lights trying to sell you a paper, at bus stands trying to sell flowers, or on the train singing to you and hoping you'd give them some money. Or sitting on the road offering to train your shoes. So you really created this very poorly remunerated, extremely fragile, large numbers of self-employed and precariously wage-employed sections of the population. And on the other side, you have actually used the law, made changes in the law to say that those who are currently on more secure employment will eventually have to deal with fixed-term employment. This is the new announced policy of the government, fixed-term employment for everybody. So on employment front and on the gradient crisis, we are in much deeper trouble than we were and you see that people after, you know, these suicides which have been around for a while have now begun to take to the streets to address this issue and to demand of the government that they do something about it. So now you'll see a spate of announcements from different state governments in the run-up to the election and the problem with a lot of the media discussion, especially in the financial media, the discussion on the budget, is it so superficial? For example, two things that happened that have not found much mention at all. In the previous budgets, two major sources of direct taxation. Direct taxation is taxation of income or wealth and therefore it is based on the capacity of the person to pay. And therefore it's a more reasonable form of taxation and indirect taxes where the poor and the rich pay the same rate of tax on any commodity they buy. So one would normally expect that a country's taxation structure will move in the direction of greater direct taxation. However, in India it has been reversed. There was a process of that happening earlier but now in the four, five years of the Modi regime, that has reversed and the share of indirect taxes has gone up. And what this really implies, you contrast the rise in excise duties, contrast GST, which ultimately hasn't delivered them what they wanted because the economy has been in doldrums and also because of the mess with the whole GST implementation. What you find is that two very important direct tax sources have been modified. One, the wealth tax has been abolished. In a country where the most recent Oxfam numbers tell you that the top 1% of households have 61% of the wealth, you have abolished wealth tax. Second, in the most recent 17-18 budget or 18-19 I'm not sure, you had a measure introduced saying that all corporate entities with an annual turnover below 250 crores will now be taxed at 25% instead of 30%. No, this is practically almost the entire corporate sector, most of it anyway, and there's a huge reduction in direct tax revenue on that account. And interestingly enough, the Government of India also puts out data from the Ministry of Finance, budget documents, we look at them. They have a large sample that they study and then they give you what are called effective rates of taxation. For example, a nominal tax rate may be 30%, and then you add the side charge and all that. It looks like 35%, 37% on paper. Penal rate of taxation, some would argue. But you bring in all the exemptions and the concessions. The effective tax rate for corporates making more than 100 crore profits or 10 crore profits a year becomes as low as 22.8% or 20% to 22%. So probably, sector companies pay a little bit more. But the private sector guys are pretty good at using all the loopholes in the system. So effective taxation of the corporate sector profits and of high net worth individuals in this country is something of a scandal. And that, I think, you know, that is where it ties up with the fact that over the last five years what you've seen generally, the Government has been priding itself on the fact that it has met fiscal deficit targets. But how has it done this? First of all, primarily by pruning government expenditure. So the expenditure of the central and state governments and the share of GDP has been going down. Expenditure of central itself with the share of GDP has been going down at a time when the government needed to put in more money into infrastructure and revive the economy post demonetization and post GSD. And at the same time, whatever resources are being mobilized or being increasingly mobilized through indirect taxes. Now, this has an impact on demand as well because ordinary people who pay higher indirect taxes are likely to buy less than they were doing earlier. So if you don't have assets and if you don't have employment, how do you live? Very simple question here. Any household will either need income from its assets, land, other productive assets, or will derive income through productive wage labor. Now, when those two avenues are in crisis, where does the standard typical rural household go to survive? And, you know, it's not that the urban areas are particularly better. They may be marginally better in the rural areas because of infrastructure and so on. But everywhere the crisis of employment and the crisis of agriculture, both of which I wouldn't say are only caused by policies the last five years. They've been there earlier as well. In a sense, enormously increased in size and the contrast is also with the promises that were made. So this is why we are at this point in time. These are the two major challenges and I don't see the budget being able to address them at all. I mean, you know, unless you're dreaming of a wholesale reversal of policies that have been followed for years and years, I don't see that happening.