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Futile Austerity Drive:WILL HIT INVESTMENTS, by Shivaji Sarkar, 15 July, 2011 Print E-mail

Economic Highlights

New Delhi, 15 July 2011

Futile Austerity Drive

WILL HIT INVESTMENTS

By Shivaji Sarkar

 

The Government’s move to announce austerity measures is clearly ill-timed. It only sends alarm signals at a time when this is least required.

 

Worse, the austerity steps are more cosmetic. They are largely restricted to cutting expenses on demonstrative activities like ban on first class air travel as also holding conferences or meetings in five star hotels. The drive also puts restrictions on the size of foreign delegations and some entitlements of officials. The Government’s order stipulates a cut of ten per cent in non-plan expenditures.

 

True, the aam aadmi would welcome the measures. But the Government functions in a different way. Sometimes saving expenditure is held against a bureaucrat. In some cases, when some officials permitted to spend large sums on their stay, preferred modest accommodation provided by their office unfortunately for them, instead of appreciation, they found themselves embroiled in disciplinary cases.

 

Thanks to some entries that should not have been there in the bills they presented to their department. In other cases when the expenditure on postal stamps did not match the account books, the babus burnt the extra stamps to put the accounts straight!

 

Undeniably, the Government has funny rules and still funnier people, who interpret them in ways they like. The babudom dictum is, “Show me the face, I shall show you the rule”. Thus, all those “good” intentions are good for public consumption and perhaps for vote-bank politics.

 

Questionably, shouldn’t there be austerity? Of course. But the Government knows it does not pay to be austere. It also knows the announcements are largely for the sake of making announcements.

 

How much does the Government save, if a conference, workshop or a presentation is not held at a five-star hotel? In reality, it is not much.  To a layman it might look like a huge affair but people are unaware that all five star hotels in Delhi have to compete with Government-run hotels to get Government business. They are keen on getting these because it results in a steady flow of business.

 

The Government hotels offer special rates for Government conferences. The prices vary between three-star rates or sometimes even lower. The cost of venue and other facilities offered like soft drinks and bottled water are covered by the food prices. Thus, in reality the venue is free.

 

Still one continues to believe that it would be on the higher side. Compare a conference held at a Ministry’s conference room and a hotel. The food cost is almost the same, because it is procured from either a hotel or restaurant of the same star level. The only addition to cost is of soft drinks, water and snacks. Add to this the cost of maintenance of the venue, as good or bad as in any five-star accommodation. In totality, the Government does not save much money. Instead, in some cases, it might end up paying more.

 

On the flip side, nobody counts the money spent on publicity of such non-productive measures. If that is added, the expenses would surpass the actual expenditure.

 

Shockingly, these are part of the flip-flop policies that the Government introduces from time to time, since 1967, when Morarji Desai was the Union Finance Minister. Since then whenever the Government wants to be austere it ends up paying more!

 

The order that no travel on Government account by air will take place by first class also has little meaning. All domestic travel on Government account by air has to be undertaken in economy class, irrespective of the entitlement. Except Air India not many other airlines offers business class trips. Even normally those entitled have to travel “cattle class” as only such airlines travel to their destinations. 

 

Yet another ban pertains to purchasing cars. Most departments are now equipped with luxury cars even for junior officials. Everybody also knows that such a dictat is temporary. So they cool their heels for some more time to buy their coveted car. Is there really a saving?

 

Pertinently, this is not the only reason for making this unrealistic announcement. Significantly, such announcements shake the confidence of investors and others interested in entering business deals.

 

Besides, austerity measures are extreme measures. Such steps are taken in emergency like situations. Greece, Italy, Ireland and now the US have to resort to cut-backs as their economies are going through a severe crisis. They are going downhill as their finance systems have collapsed and people don’t have purchasing capacity.

 

Also, this is not the time for India to ape the Western economies. Already, the Indian industry is facing a crisis. Industrial production and manufacturing index are dipping. Notwithstanding, our strong financial system and a positive growth. The problem here is different. The US despite the crisis is not facing a high inflationary situation. Inflation is India’s bane.

 

Sadly, instead of treating the disease, the Government is trying to look for a face-pack to give its face a brighter look though this is not required. This step has already sent wrong signals and in international circles stories are circulating about the Government’s financial health. This can create serious problems for the country. Whereby, the international rating agencies would make this the basis for lowering credit rating.

 

This is based on lower realization of taxes and higher expenditure on tax collection. During the past ten years, the Government expenses on collection of taxes have increased by over 20 per cent. This is not a healthy sign. The income-tax department is meant to earn and spend only when it is absolutely necessary. It is doing the contrary.

 

Moreover, the Government is celebrating 150th year of income-tax collection. It forgets that a proper tax policy also requires a cut in the number of staff for collecting taxes. If it does not, it will tell on its overall revenue collection. This is where the Government needs to curtail its expenses.

 

This apart, the Government needs to simplify and lower the rates introduced by a colonial power to rob the Indians. It cannot remain the backbone of Government revenue system.

 

In sum, the Administration needs advisers who would guide it about what to do and what not to do at the right moment. Over the past many years, rather decades, the so-called austerity measures have never helped. Yes, these ultimately lead to a cut in development allocations. Which in turn, translates into further misery for the people.

 

Undoubtedly, there are many areas where expenses could be cut. But resorting to cosmetics is not only undesirable but it might also be dangerous as it sends inappropriate signals. ---- INFA

 

(Copyright, India News and Feature Alliance)

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