Ravi K Budget has no capital expenditure proposals

Wednesday, 18 February 2015 00:00 - - {{hitsCtrl.values.hits}}

Surprisingly, the new Budget has no capital expenditure proposals. Other than vaguely hinting that the health budget and the education budget will be gradually increased to 3% and 6% of GDP respectively, there is not even a single capital expenditure program mentioned and the expenditure to be incurred. A figure is given for total capital expenditure in the economy, and its breakdown to education and health, and infrastructure as a percentage of GDP, and that’s it. Does this mean that the Government will use the capital expenditure proposals of the MR Budget? If not, half of the story is missing in the new Budget speech. It may be true that mega projects like new highways should be delayed due to financial constraints, but rural roads and their connectivity are immediate priorities. This would be an important poverty alleviation strategy. No highways should not imply no roads. Capital expenditure should also go towards expanding communication, providing electricity to areas which still don’t have it, and water and sanitation in the rural areas. The Ravi K Budget has 4.6% of GDP for capital expenditure. This is 1.6 percentage points less than the MR Budget. Public investment has high growth enhancing effects if the correct projects are selected and the correct costs are incurred. In this sense, cutting public investment can be detrimental. What should be of paramount concern is how to increase tax revenue in order not to cut capital and recurrent expenditures. Here, no amounts of tax commissions, tax advisers, and changes to tax thresholds or bands are going to solve the problem. How many taxation commissions have we had in the last 20 years? Did they make any difference? What is required can be summed up in one word – compliance. There is a lot of tax evasion and tax underreporting in the country. The culprits are known, but their connections to politicians and tax officials have meant that these tax revenues are never collected. It is a well-known fact that some not-so-well known businesses have two sets of accounts. One for the Tax Department and one for themselves, which is the correct one, and which they also use to secure bank loans. If compliance is met, tax revenue can increase to 15% of GDP or more almost immediately and you don’t need commissions and advisers to do this. Economicus