Surjit S Bhalla
Profile: Surjit Bhalla is the chairman and MD of Oxus Investments, a New Delhi-based economic research, asset management and emerging-markets advisory firm. He’s worked at the research and treasury departments of the World Bank, and also had stints with Goldman Sachs and Deutsche Bank.
India turns 66 this month. That it has transformed during this time is believed by most of its citizens. Consider that a majority of us were born after 1990, when India’s per capita GDP was $400 a year. Today, the figure is more than four times higher at over $1,600. Yet, most Indian policymakers behave as if, on an average, we are a very poor country and that nearly two-thirds of the total population needs attention in the form of transfers (doles) from the government. Most people, and almost all taxpayers, in India and across the world do not object to money spent in the uplift of the poor and in providing them with basic infrastructure and services. I have yet to meet anyone who protests the provision of roads, water, sanitation, education and health care to the poor.
Leaky, corrupt, ‘in the name of the poor’ subsidies are the problem and considered objectionable. They provide little income support to the poor and subtract from the subsidies that are desperately needed. This is particularly relevant in the sterile ‘growth versus redistribution’ debate that is currently raging in India. Prime Minister Manmohan Singh and Congress President Sonia Gandhi (the duo is hereafter referred to as Manmonia) along with their advisor, Nobel laureate Professor Amartya Sen, portray that India spends precious little on redistributing income. But the facts indicate otherwise.
There are at least two obvious reasons why India, like other countries, spends its fair share on redistribution. First, it has a very small income tax base, with the lowest taxpayer in the top 20 percent of the population. Thus the poor, the emerging middle class and half of the middle class do not pay any income taxes. Second, corporate taxes are paid by the wealthy. Therefore, a substantial proportion of money spent on redistribution is financed by the “rich” taxpayer.
Now, the poor and the taxpayer alike are concerned with the form taken by the subsidy or redistribution. Bad subsidies do not enhance productivity, good subsidies do. And the Congress-led UPA, both shades I and II, has been consistent in its advocacy of dole for the bottom half to two-thirds of the population.
Never in the history of India was two-thirds of the country considered poor—not even by the ‘garibi hatao’ queen Indira Gandhi. Indeed, there is no country in the world that sets its own poverty line to contain two-thirds of its population. The question, therefore, is: What prompts Manmonia to continue and substantially increase its dole expenditure over what had already prevailed before they arrived on the scene in 2004-05?
(This story appears in the 23 August, 2013 issue of Forbes India. To visit our Archives, click here.)