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30
January 2019
Opposition (The Total Investment & Insurance Solutions)
India’s main opposition party
is promising to introduce a minimum income guarantee for the poor if it wins
power in an election due by May, alarming some big and small business leaders
who are asking: Where will the money come from?
The programme - which would be one of the
world’s biggest schemes for poor households, supporting around 300 million
people - has yet to be finalised.
But already some business organisations say
they fear the tens of billions of dollars it would be expected to cost will
mean higher taxes and reduced spending on badly needed infrastructure such as
roads and railways.
“We are against such freebies,” said Pronab
Sarkar, head of a tour company in Delhi and the president of the Indian
Association of Tour Operators. “These could be funded only through higher taxes
on industry and the middle class.”
Congress says much of the cost of the
guaranteed income scheme could come from savings made by cracking down on tax
evasion and ensuring existing subsidies on staples such as food and fuel went
only to those who qualified.
A senior Congress official, however, speaking
on condition of anonymity, told Reuters the party might also consider raising
tax rates for the rich to pay for its plan.
“Eventually, it boils to transferring the
resources to some extent from the rich to the poor people,” the official said.
Until a few months ago, the grip of Prime
Minister Narendra Modi’s pro-business Bharatiya Janata Party (BJP) on power
seemed unassailable.
But a series of defeats for the BJP in state
elections at the end of last year, and some opinion polls suggesting its
support has waned, have raised prospects that Congress could take power in
alliance with regional parties and those based on specific groups, such as the
lower caste Dalits.
That has meant the minimum income plan
outlined by Congress leader Rahul Gandhi this week - which would be in addition
to current welfare programmes - is being taken seriously by business groups.
As the BJP’s fortunes have waned,
disillusionment with Modi’s government had been growing among some
industrialists, who were stung by a sudden ban on high-denomination banknotes
in 2016 and the chaotic 2017 launch of a national sales tax.
As the party seeks to win back voters
concerned about low farm incomes and the pace of job creation, Modi’s promise
three years ago to cut the corporate tax rate to 25 percent, from 30 percent,
has been shelved for now.
The government is expected to announce a
series of spending measures and tax changes in an interim budget on Friday
costing at least 1 trillion rupees ($14 billion). As a result, the budget
deficit targets the government had set for the current and the next fiscal
years may not be met.
Concerns that Modi is backsliding on fiscal
prudence pale, though, compared with worries about the Congress plan, according
to several business people who spoke to Reuters.
S.C. Ralhan, former head of the Federation of
Indian Exporters Organisations (FIE), and a leading engineering goods exporter
through his company Sri Tools, said India could not afford the minimum income
guarantee as it would have to be paid for by businesses and individual
taxpayers.
Rahul Gandhi, President of India's main
opposition Congress party, gestures as he addresses his supporters at the end
of the party's youth wing's "Yuva Kranti Yatra" campaign in New
Delhi, January 30, 2019. REUTERS/Anushree Fadnavis
“Congress party’s electoral promise could
tilt traders’ and urban middle class voters towards Modi, since they would have
to bear the economic pressure,” said Praveen Khandelwal, secretary general of
the Confederation of All India Traders.
The view from the business world was not
uniform, though.
D.S. Rawat, head of the Confederation of
Organic industries of India, said that “rich businesses should sacrifice” to
prevent millions of households from being left behind in India’s development.
He represents the niche food processing industry with a membership of more than
250 companies.
Government economic advisers said it would be
difficult to dismantle current welfare programmes, such as food subsidies and a
rural job guarantee programme, to make up for the guaranteed income proposal.
Private economists and the rating agencies,
though, warned that Congress’s proposed income support scheme, if carried out
without replacing current welfare programmes, could widen the deficit further.
Under Modi, higher spending, along with a
shortfall in tax collections, will already push the fiscal deficit up to 3.5
percent of gross domestic product for the year ending in March, overshooting a
previous 3.3 percent target, according to a source with direct knowledge of
budget discussions.
Devindra Pant, chief economist of India
Ratings, an arm of Fitch, estimated that income support of about 5,000 rupees
per month for about 260 million people, about one fifth of India’s population,
could cost about 4 trillion rupees ($56.24 billion) a year, or about 2 percent
of the GDP.
“Whichever party comes to power, government
finances are likely to remain under pressure for next few years,” he said. The Total Investment & Insurance
Solutions
