Union Budget 2021-22: Continuing the anti-social offensive to benefit monopoly capitalists

The Budget serves the pursuit of monopoly capitalists of their narrow self-interest, with no concern whatsoever for the insecurity and misery of the masses of working people.

The Union Budget for the coming year 2021-22 was presented on 1st February by Finance Minister Nirmala Sitharaman. In order to fully appreciate the content and aim of this budget, it is useful to begin by examining the question: What is the Union Budget?

What is the Union Budget?

The union budget presents estimates of expenditure to be incurred by the Central Government in the coming financial year (1st April, 2021 – 31st March, 2022). It presents estimates of tax and other revenues to be collected and monies to be raised by borrowing and sale of central public assets.

Once approved by Parliament, the Budget authorises the Central Government to incur the approved amounts of expenditure as specified and to accumulate additional debt during the year up to the specified limit. The Budget is accompanied by the Finance Bill which lays down the tax rates, exemptions and rules to be applicable in the coming year. Once enacted, the Finance Act authorises the government to collect taxes at the prescribed rates.

Expenditures require outflow of funds while revenue, borrowing and sale of assets generate inflow of funds. The budget matches the expected inflow and outflow of funds during the coming year and presents these estimates for approval by the Parliament. That is, it presents estimates which satisfy the equation: Expenditure = Revenue + Net Borrowing + Asset Sales (proceeds from privatisation and disinvestment).

Central Government Expenditures

Apart from the expense of maintaining the bureaucracy, paramilitary and armed forces, and paying interest on accumulated debt, the Central Government incurs expenditures on a wide range of productive activities. These include investments in the education, training, health and wellbeing of human beings and investments in the means of production and transport of commodities. They appear in the government’s accounts under the categories of economic and social services. They include recurrent and capital spending on agriculture, irrigation, energy, transport, education, health, drinking water supply and various welfare programs.

In education, health and some other spheres, state governments have primary responsibility for providing the services within their respective territories. In such cases, money spent out of the Union Budget is on centrally sponsored schemes which are meant to complement the state’s expenditures.

The Central Government in our country, as is the general practice in all capitalist countries of the world, spends significantly more than its revenue year after year. To fill the gap, which is called the fiscal deficit, fresh borrowing takes place every year. As a result, public debt keeps rising, along with annual interest.

It is the capitalist class which advances most of the loans to the government, through the banks and other financial institutions in which they deposit their idle capital. The interest on government debt absorbs a large and increasing share of revenue.  What remains is always too little, thereby enhancing the need for new loans. It is a vicious cycle, which keeps adding to the interest burden while providing a source of guaranteed return on money capital for the capitalist class.

Tax Revenues

The Central Government collects most of the major taxes levied in the country while the states collect a minor part. The tax revenue collected by the centre is shared with the state governments in line with a formula pre-determined by the Finance Commission.

There are two major categories of taxes: direct taxes and indirect taxes.

Direct taxes are claims of the government on incomes earned by individuals and companies. They consist of the Corporate Tax and the Income Tax. Corporate tax is a tax on the profits earned by capitalist corporations. Income tax is paid mostly by regular salaried workers, and some among the self-employed, with annual income of at least Rs. 2,50,000 per year.

Indirect taxes consist of numerous taxes which are collected on the sale of goods and services. Indirect taxes are added to the retail prices of commodities. Hence higher indirect taxes lead to steeper increase in the cost of living for the toiling majority of people.

Indirect taxes collected by the Central Government include customs duty, union excise duty and central GST, all of which are paid by all classes of people while purchasing goods and services. It is an indirect form of taxing people on their consumption of essential goods and services.  Poorer people spend higher share of their incomes on consumption. Hence they bear a heavier indirect tax burden than rich people, relative to their income.

The Central Government has been relying more heavily on indirect taxes, paid by all classes, and on income taxes, paid largely by salaried employees, and less on revenue from the corporate tax.  This is a reflection of the pro-capitalist orientation of central taxation policy.

Redistribution of Income

Taxes levied by the government are claims on the value added by human labour. The gross value added in one year, also called GDP, gets distributed among the different economic classes in the form of capital income, labour income and mixed income of the self-employed.

Capital income includes profits, interest and rent incomes. Labour income includes regular monthly salaries, daily wages and all forms of payment made to hired employees in exchange for their labour power. Mixed income is the net earnings of peasants, artisans and individual professionals who work with their own means of production and family labour to produce and sell commodities.

The owners of capital claim an ever increasing share of the value added. Those whose toil creates the value get paid only the minimum required to keep them working. Even this minimum standard is further reduced by the tax system, designed to rob the working people while lowering the tax burden on the super-rich elite. The exploitative relations of production result in a skewed distribution of income between those who work and those who reap capital income. Taxation and public spending brings about a redistribution of income, from the toiling majority of people to the exploiting minority of capitalists.

The most blatant form of making the entire people pay for the crimes of a wealthy minority is the so-called recapitalisation of banks. The Central Government hands over public funds every year to banks so they can waive the bad loans owed by capitalist defaulters.  People are thereby made to bear the burden of capitalist loot of banking capital. Over the past five years, more than Rs. 3,00,000 crore has been spent out of central budgetary funds to bail out defaulting capitalist companies.

In sum, capitalist governments generally rob the poor for the benefit of the rich. The annual budget of such a government is a plan for extracting more from those who work to boost the profits of those who live off other people’s labour.

Context of this budget

The budget for 2021-22 is being presented in an unusual context.  The Indian economy, which was sinking into a recession since a few years ago, suffered a double digit decline in the year 2020-21.  Unemployment, which had become a major problem even in 2019, reached an extremely high level following the lockdown. The public health system has been stretched to its limits.  School and college education have suffered. Crores of working people have been devastated by wage cuts, loss of jobs and decline in net incomes.

While working people have undergone untold suffering, the super-rich billionaires have expanded their wealth in spite of the crisis. The profits of capitalist companies during July-September 2020 was 22% higher than a year ago, while the average wage of workers in these companies grew by less than 4%.

Tax revenue has declined sharply and government borrowing has far exceeded the original budget targets for 2020-21. Many essential services and social programs have suffered big cuts in spending both at central and state level, far below original budget estimates.

Some weeks prior to the budget, fears were being expressed that the Government of India may resort to some extraordinary taxes, such as a Covid tax or surcharge, to raise additional revenue in the coming year.  Some economists were arguing that an unusual budget is needed, which should tax the super-rich in order to help the poor at least in these difficult times.

The capitalists are dead opposed to any new tax that would eat into their profits. They are eager to recover high rates of growth in their sales and profits. However, utilisation of existing productive capacity has fallen due to the lack of adequate purchasing power in the hands of the working people. Capitalists are not ready to invest in enhancing productive capacity until and unless there is a rise in demand for their products. They want the Central Government to step up its spending on infrastructure projects to boost the demand for steel, cement and other industrial products.

Revenue Estimates for 2021-22

The presentation of the budget on 1st February was received with joy by the capitalist class because there was no increase in corporate taxes and no Covid or other taxes directed at high income individuals.

The budget is based on the belief that quick recovery of capitalist economic growth will raise tax revenues to a little above the pre-pandemic level.  Indirect taxes and personal income tax collections are expected to be higher than in 2019-20 by 15% and 14% respectively. On the other hand, the taxes on corporate profits and share transactions are estimated to fetch 2% less than two years ago (Chart A).

Tax Collection by Central governmentIn other words, even in the conditions of extraordinary hardship, working people are going to be taxed more heavily than before. Capitalist companies are going to pay less than before. There is no change, not even by way of any temporary relief, from the pro-capitalist orientation of central tax policy. The poor will continue to be robbed more intensely, even in these difficult times.

Expenditure Targets

Total expenditure of the Central Government is targeted to increase to Rs. 33 lakh crore (trillion) in 2021-22, as compared with Rs. 26 lakh crore in 2019-20, the pre-lockdown year.

Major categories where increased spending is targeted are interest payments, defence capital expenditure or weapons purchase, capital investment in transport and communications, and drinking water supply. There is marginal increase in the allocation for agriculture and allied activities over 2019-20. There is no change in the central contribution to the abysmally low level of expenditure on education, in spite of the fact that crores of children have been excluded from digital teaching and lost one whole academic year due to the lockdown. (Chart B). There is no increase in the allocation for the National Health Mission, in spite of the fact that the Covid crisis has exposed the acute shortage of funds and staff in the public health system in most parts of the country.

 

The ratio of interest payments to the total revenue of the Central Government has risen from 36% in 2019-20 to an estimated 45% in 2021-22. The additional interest on loans taken during 2021-22 will lead to further increase in the interest to revenue ratio. It is an alarming increase in the parasitic claims of money lenders on public resources.

Borrowing and Privatisation Targets

To finance the significant increase in total expenditure, with revenue only marginally above the 2019-20 level, the Central Government is planning to increase its debt by Rs. 15 lakh crore, on top of Rs. 20 lakh crore increase in 2020-21. It is also targeting a rapid acceleration in implementation of the privatisation and disinvestment program (Chart C)

Sources of fund for Central GovernmentExtraordinary levels of borrowing may be justified if the aim is to finance much needed big increases in investments in education, health and other essential but under-funded services. That is not the case.  Investments are targeted mainly in sectors suited to the needs of the capitalist class. Moreover, a large part of increased spending is for interest payments and arms acquisition.

The working class and people have for many years been told that it is not possible to fulfil their demands because the fiscal deficit must be controlled and government debt must not rise to unsustainable levels. Now an entirely different tune is being sung. “As long as we succeed in accelerating GDP growth, we need not worry about high deficits and borrowing” – this is the mantra being promoted by the government. It reveals the fact that the capitalist class has no principles. Governments in the service of this class change their tune according to whatever suits the class in power at a particular time.

Higher levels of government borrowing is of great benefit to the banks and other financial institutions, who are assured of a high level of zero-risk loans on their portfolio, at a time when there is great uncertainty and high risk involved in lending to private companies.

The emphasis in this budget on privatisation shows that in the present conditions, the monopoly capitalists see it as a preferred avenue for investing their excess capital. They see high profits in grabbing public assets at relatively cheap prices and acquiring huge readymade markets, distribution networks and high-value land.

Several policy measures were announced in the budget speech to boost the sales and profits of particular industries. For instance, an all-India policy of scrapping old cars and commercial vehicles is aimed at boosting the sales of auto companies. Pharma companies have been guaranteed maximum profits from publicly financed programs to supply vaccines to tackle the corona virus.

Capitalist Governance in the name of Raj Dharm

The BJP led government headed by Narendra Modi pretends that it is following the principles of Indian Raj Dharm. The Economic Survey produced by the Ministry of Finance and presented in Parliament two days prior to the Budget included a Sanskrit quotation from Kalidasa, which was translated as follows:

“The state collects tax for the greater welfare of its citizens in the same way as the sun evaporates water, only to return it manifold in the form of rain.” (Chapter 1, Shloka 18) — Mahakavi Kalidasa’s Raghuvansham

The budget presented on 1st February is in blatant violation of this principle. It is based on the idea of making the people bear the burden of the capitalist crisis. Tax collection is not at all like the sun evaporating water from all available water bodies. More is extracted from the toiling majority of people than from the wealthy exploiters.

What is taken away through taxation does not come back to all the people like the evaporated water coming back in the form of rain. The resources sucked out of the already exploited working people get spent in a way that suits the interests of the capitalist monopoly houses.

Conclusion

In sum, the Union Budget for 2021-22 is singularly focused on guaranteeing capitalist profits by shifting the burden of the crisis on to the backs of the working people, who have already suffered acutely in the current year.

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