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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