finance – Derek O'Brien

“Chief Minister Narendra Modi today accused the Centre of adopting a policy of coercive federalism and thus pushing states to a subordinate position by monopolising all powers of financial allocations, reducing even the constitutional rights of states,” (IE, January 16, 2012).

Your columnist distinctly remembers the then finance minister, the affable Arun Jaitley, inviting about half a dozen fellow MPs to his room in Parliament for a hearty lunch sometime in 2015. Our gracious host wanted to celebrate the good news: The 14th Finance Commission had recommended increasing the devolution of the divisible tax pool to states from 32 per cent to 42 per cent. We all saw this as a big win for federalism. But Jaitley’s boss, the former chief minister of Gujarat, had other ideas. A dirty, four-letter word that damages federalism: Cess.

As any undergraduate in commerce will tell you, cess is not a part of the divisible pool; that is, the money collected is not shared with state governments. A cess is a specific tax imposed by the Union government to raise funds for a designated purpose. The Union government currently levies a GST compensation cess, a cess on health and education, road and infrastructure, agriculture and development, Swachh Bharat, exports, and crude oil, among others.

Consider this. In 2012, cess formed 7 per cent of the Union government’s total tax revenues. In 2015, this rose to 9 per cent. In 2023, cess contributed to 16 per cent of the total tax revenue. From 2019-23, the Union government has collected a whopping Rs 13 lakh crore as cess. This excludes GST compensation cess. In the last five years, it has collected Rs 84,000 crore as cess on crude oil.

The share of cess as part of the Union government’s gross tax revenue has tripled, up from 6 per cent in 2011 to 18 per cent in 2021. This rise in cess and surcharge has inversely led to a reduction in the divisible pool of taxes. The divisible pool has shrunk from 89 per cent of gross tax revenue in 2011 to 79 per cent in 2021. This, despite the 10 per cent increase in tax devolution to states as recommended by the 14th Finance Commission.

A Comptroller and Auditor General (CAG) report exposed that in 2018-19, the Union government withheld Rs 1 lakh crore of the Rs 2.75 lakh crore collected through various cesses in the Consolidated Fund of India (CFI). Rs 10,000 crore of the Road and Infrastructure Cess collected during the year was “neither transferred to the related Reserve Fund nor utilised for the purpose for which the cess was collected”. More alarmingly, Rs 1.24 lakh crore collected as cess on crude oil in the past one decade “had not been transferred to the designated Reserve Fund (Oil Industry Development Board) and was retained in CFI”. The report further stated that “non-creation/non-operation of Reserve Funds makes it difficult to ensure that cesses and levies have been utilised for the specific purposes intended by the Parliament”.

The key reason for the imposition of cess and surcharge is for the Union government to increase its revenue. One major criticism has been its inability to increase revenue substantially, despite increasing cess. Revenue receipts have increased only marginally in the last 10 years — from 8.8 per cent of GDP in 2014 to 9.6 per cent of GDP in 2024. Less than one percent.

[This article was also published in The Indian Express | Friday, September 27, 2024]

The BJP floundered in the 2024 Lok Sabha election. The floundering continued on the floor of both Houses where Members of Parliament from the INDIA parties delivered multiple speeches that were well-structured, well-executed, and rich in content. A recurring theme in many of these powerful interventions on the Budget was a 12-letter word giving Modi and his coalition sleepless Delhi nights: unemployment.

Article 41 of the Constitution states, “The State shall, within the limits of its economic capacity and development, make effective provision for securing the right to work, to education, and to public assistance in cases of unemployment, old age, sickness and disablement, and in other cases of undeserved want.”

Employment And Food Insecurity

Many MPs in the Opposition quoted CMIE data about the employment rate – which is the ‘proportion of employed persons in the working age population’ – recorded at 37% in June 2024. The Global Hunger Index 2023 was often referred to last week in Parliament – India ranked 111th out of 125 countries. Despite improvements in food production and distribution, food insecurity persists, particularly in marginalised communities.

Impact On Personal Freedoms

A citizen cannot truly enjoy any liberty when perpetually anxious about her family’s unmet needs. This becomes even more important when the Budget skirts around the issues of health, nutrition, social security, and education. It is difficult to think about personal liberties on an empty stomach.

MGNREGA

MGNREGA addresses the issue of Right to Work. However, it ensures it as a statutory right, instead of being a Fundamental Right. The latter cannot be taken away by an amendment of the MGNREGA Act. It bears repetition that states have been constantly deprived of MGNREGA funds. The Union owes the West Bengal government alone ₹ 7,000 Crores for the scheme.

In a labour-surplus society, why then is the Union government often selling the family silver to private entities? Two dozen large Public Sector Undertakings (PSUs) have been privatised. This is not the solution. Should it not be the duty of the state to offer the labour force multiple opportunities for employment? There are 30 lakh vacancies in the Union government and government-controlled organisations. What is the road map and timelines for these vacancies to be filled? Parliament is in session. The government must provide answers.

Education And Skill Development

The Union has an obligation to provide quality education and skill development to improve employability, and guarantee livelihood. But Budget 2024 has allocated only ₹ 1.20 lakh crore to education, which is a 2% decline from Actuals (Rs 1.23 lakh crores) in 2023-24.

Right To Livelihood As A Fundamental Right

Through judicial interpretation, the Right to Livelihood has been read into the Right to Life, even though it is not explicitly listed among the Fundamental Rights in Part III of the Constitution. The Supreme Court emphasised, “An equally important facet of the right to life is the right to livelihood because no person can live without the means of living, that is, the means of livelihood. If the right to livelihood is not treated as a part of the constitutional right to life, the easiest way of depriving a person of his right to life would be to deprive him of his means of livelihood to the point of abrogation. Such deprivation would not only strip life of its effective content and meaningfulness but also make life impossible to live.”

The Right to Work, outlined in the directive principles, has been interpreted alongside the Rights to Livelihood and Life, evolving into a Fundamental Right through judicial pronouncements. Integrating the Right to Work into Fundamental Rights, and ensuring that policies are designed to create sustainable job opportunities, is paramount to ensuring employment. Even after a tepid performance in the elections, where they were punished by young people, this government refuses to prioritise investment in education and vocational training.

Only talk about cooperative federalism will not do. States politically opposed to the ruling dispensation are deprived on flimsy grounds for years of their MGNREGA funds. These are funds due to people who have completed their work, and have still not been paid.

Additionally, fostering a more inclusive job market by supporting small businesses and encouraging entrepreneurship can play a critical role in generating employment. By taking these steps, India can better align its economic policies with its constitutional commitments and provide more meaningful support to its citizens.

The Right to Work still requires the state to take responsibility, and appropriate legislative actions, to fully provide citizens with the Right to Life, Livelihood, and Dignity.

[This article was also published in NDTV | Monday, July 29, 2024]

Tag: finance

An excess of cess

The 12-Letter Word Giving The Government Sleepless Nights