Bombay Dude
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Read the Article Carefully to understand of What the Congress Bi*tches have been doing since 2004. Imagine What must have they done from 1947-1997! Which only gave the World's Largest Number of Poor!
Who said this? India needs investment, not disinvestment.
It was none other than Palaniappan Chidambaram, while criticising the NDAs privatisation efforts when he was jobless and had turned a columnist for the Indian Express in the early part of the last decade.
Who said this? We must raise the tax revenue to defend (the expected aggregate decline of resources). I know many people wont like this. But, I think, I can summon the courage to make the statement you must be prepared to pay higher tax rates, especially the rich must be prepared to pay higher tax.
That, too, was Chidambaram, making the comment from the safe perch of Home Minister.
Chidambaram, now back as finance minister and scraping the bottom of the barrel at the national treasury, is quietly swallowing his words as his government prepares to launch the greatest firesale in Indian history both of public sector shares and public sector land banks to meet the gaping budget deficit which will exceed 6 percent of GDP this year. This years disinvestment target is Rs 30,000 crore, and Chidambaram wants to exceed that.
Disinvestment will now be elevated to first priority. Not exactly what he thought was right for the country when he was out of a job.
According to a report in The Times of India today, the government, as suggested by the Vijay Kelkar committee of fiscal consolidation, is planning to sell thousands of acres of public sector land some owned directly by the government and others by ministries such as defence, railways and public sector companies.
The newspaper quotes a cabinet note from the finance ministry which means Chidambaram is behind it that says the money so raised will be used to repay debt or create capital assets, and not to feed any populist impulse.
The intention to use money from land sales for retiring debt seems good on paper, but one needs to ask: since the budget hole and huge government debts have been created precisely because of populist spending and subsidies (NREGA, farm loan waivers, etc), repaying debt with land sales is like paying for past vote purchases with the same money. This is better than spending the money on new populist schemes, for sure, but we still need to make this hair-splitting argument to explain why the sales are being thought of in the first place.
The firesale is to pay for previous largesse, and maybe also for future freebies. What is to stop the government from spending more on freebies (and hence incur more debt) and then saying the sales proceeds will be used to reduce the debt incurred?
The only right way to pay for populism is through taxation and price adjustments in subsidies, not asset sales as Chidambaram himself seemed to suggest the other day when he talked of raising taxes for the rich. But he, too, is planning to abandon his original goals of taxing the rich on the altar of political expediency.
But is this what Chidambaram is planning to do?
Absolutely not. His ministry is even now considering lowering the tax burden on Vodafone, postponing GAAR a law to prevent tax avoidance by companies and the rich by three years, and abolishing capital gains tax on capital gains. It has already reduced withholding taxes on foreign loans.
All of this will benefit companies and the rich. One is not against the idea, if that is what is needed to improve business sentiment, but this is not what Chidambaram said last year when he talked of taxing the rich.
Now, lets consider the deeper and negative implications of disinvestment first.
When government sells its shareholdings in public sector units to the public, the company does not get the money since it goes into the pockets of a spendthrift government. The only way for a public sector unit to benefit is if it raises capital directly through an IPO or a further public offer, if its already listed. The government need not disinvest, but can reduce its stake to benefit the company.
Secondly, when a government disinvests only to raise money but does not give up its right to meddle in the company, the stake reduction serves no corporate purpose. Corporate governance does not improve, nor does the government stop treating the company like a political vassal. So who benefits? Only Chidambaram.
The only correct way to disinvest is to privatise hand over a company for a good profit to the private sector and this was what Chidambaram was cribbing about during the NDA regime. He is no reformer if he does only disinvestment upto 51 percent.
Now, take land sales.
Like public sector stake sales, land sales have negatives to them.
One, it takes money away from the owner (say, the railways or defence), which is then thrown down the bottomless pit called government spending. If the intention is to let the public sector undertaking use the money for its purposes, then Chidambaram should be the last one talking about it. At best, he can reduce his budgetary contributions to the railways, Air India or other such undertakings if they can finance their expansion through land sales.
Two, and this is more important, trying to plug budget deficits resulting from rural largesse is like transferring resources from urban areas to rural areas.
Lets understand why this is wrong.
The only land on which government can make big money is urban land.
The Economic Times estimates that in the big cities, large tracts of land valued at thousands of crores are owned by the ministries of civil aviation, railways, defence and port trusts, along with other government agencies and public sector firms. The port trusts own 6,300 hectares, the Airports Authority 20,400 hectares, the railways 43,000 hectares, and the defence forces 17.3 lakh acres.
Put together, thats the size of several Mumbais put together. (Mumbais area: about 60,000 hectares).
Selling urban land to raise money for non-urban purposes is not right for the same reason why we oppose taking tribal land away from tribals without proper compensation and rehabilitation.
Lets also remember, the value in urban land comes from its people from the process of migration and urbanisation. It has little to do with government contributions. The bulk of its value must thus go back to improving and speeding up urbanisation which is vital for progress and speedy reduction of poverty.
India is urbanising at a rapid pace (we are already one-third urban) and investments need to flow to areas such as public transport, sewerage, water supply, et al.
If urban land is sold to raise resources for the centre, one can be certain that most of the money will go to buy votes in rural areas, and not in urban areas. Land sales will be used to fund the Food Security Bill, the fertiliser subsidy, the high minimum support prices for foodgrain, and fuel subsidies only the last named subsidy benefits urban areas more than rural, and even here subsidies have to be phased out. Public sector disinvestment and land sales are thus intended to ultimately buy rural votes.
Two conclusions follow:
First, disinvestment in public sector shares is not good for the public sector. Privatisation is better. If the government does not have the gumption to do this, it can at least be honest and say this firesale is to save our budget, not to improve the public sector. Since ordinary disinvestment involves only tapping global and Indian urban savings for budgetary purposes, its a veiled money transfer scheme to favoured constituencies.
Second, selling urban land is not for the benefit of the urban population. The money will be used to plug the budget hole and is effectively an indirect way of transferring even more resources from urban to rural areas when this is already being done with food subsidies, makework schemes (NREGA) and the new Land Acquisition and Mining Bills.
Given the high cost of urban housing and infrastructure, shouldnt urban resources raised from land sales be routed back to these areas?
The recent Supreme Court opinion on auctions suggests that government can auction or not auction scarce resources depending on public good. Urban land comes under this category.
The government can auction land for investment in urban infrastructure. Or it can even give away urban land at cheap lease rates for building affordable housing for the aam aadmi.
What it should not do is sell urban land to raise resources for the exchequer. This way it will be serving neither the aam aadmi nor the growth agenda. It will only be fattening the profits of realtors and promoting more profligate spending in rural giveaways.
India needs an urban revolt to prevent rural politicians from hijacking urban resources.
Chidu’s firesale will rob urban wealth to buy rural votes | Firstpost
Who said this? India needs investment, not disinvestment.
It was none other than Palaniappan Chidambaram, while criticising the NDAs privatisation efforts when he was jobless and had turned a columnist for the Indian Express in the early part of the last decade.
Who said this? We must raise the tax revenue to defend (the expected aggregate decline of resources). I know many people wont like this. But, I think, I can summon the courage to make the statement you must be prepared to pay higher tax rates, especially the rich must be prepared to pay higher tax.
That, too, was Chidambaram, making the comment from the safe perch of Home Minister.
Chidambaram, now back as finance minister and scraping the bottom of the barrel at the national treasury, is quietly swallowing his words as his government prepares to launch the greatest firesale in Indian history both of public sector shares and public sector land banks to meet the gaping budget deficit which will exceed 6 percent of GDP this year. This years disinvestment target is Rs 30,000 crore, and Chidambaram wants to exceed that.
Disinvestment will now be elevated to first priority. Not exactly what he thought was right for the country when he was out of a job.
According to a report in The Times of India today, the government, as suggested by the Vijay Kelkar committee of fiscal consolidation, is planning to sell thousands of acres of public sector land some owned directly by the government and others by ministries such as defence, railways and public sector companies.
The newspaper quotes a cabinet note from the finance ministry which means Chidambaram is behind it that says the money so raised will be used to repay debt or create capital assets, and not to feed any populist impulse.
The intention to use money from land sales for retiring debt seems good on paper, but one needs to ask: since the budget hole and huge government debts have been created precisely because of populist spending and subsidies (NREGA, farm loan waivers, etc), repaying debt with land sales is like paying for past vote purchases with the same money. This is better than spending the money on new populist schemes, for sure, but we still need to make this hair-splitting argument to explain why the sales are being thought of in the first place.
The firesale is to pay for previous largesse, and maybe also for future freebies. What is to stop the government from spending more on freebies (and hence incur more debt) and then saying the sales proceeds will be used to reduce the debt incurred?
The only right way to pay for populism is through taxation and price adjustments in subsidies, not asset sales as Chidambaram himself seemed to suggest the other day when he talked of raising taxes for the rich. But he, too, is planning to abandon his original goals of taxing the rich on the altar of political expediency.
But is this what Chidambaram is planning to do?
Absolutely not. His ministry is even now considering lowering the tax burden on Vodafone, postponing GAAR a law to prevent tax avoidance by companies and the rich by three years, and abolishing capital gains tax on capital gains. It has already reduced withholding taxes on foreign loans.
All of this will benefit companies and the rich. One is not against the idea, if that is what is needed to improve business sentiment, but this is not what Chidambaram said last year when he talked of taxing the rich.
Now, lets consider the deeper and negative implications of disinvestment first.
When government sells its shareholdings in public sector units to the public, the company does not get the money since it goes into the pockets of a spendthrift government. The only way for a public sector unit to benefit is if it raises capital directly through an IPO or a further public offer, if its already listed. The government need not disinvest, but can reduce its stake to benefit the company.
Secondly, when a government disinvests only to raise money but does not give up its right to meddle in the company, the stake reduction serves no corporate purpose. Corporate governance does not improve, nor does the government stop treating the company like a political vassal. So who benefits? Only Chidambaram.
The only correct way to disinvest is to privatise hand over a company for a good profit to the private sector and this was what Chidambaram was cribbing about during the NDA regime. He is no reformer if he does only disinvestment upto 51 percent.
Now, take land sales.
Like public sector stake sales, land sales have negatives to them.
One, it takes money away from the owner (say, the railways or defence), which is then thrown down the bottomless pit called government spending. If the intention is to let the public sector undertaking use the money for its purposes, then Chidambaram should be the last one talking about it. At best, he can reduce his budgetary contributions to the railways, Air India or other such undertakings if they can finance their expansion through land sales.
Two, and this is more important, trying to plug budget deficits resulting from rural largesse is like transferring resources from urban areas to rural areas.
Lets understand why this is wrong.
The only land on which government can make big money is urban land.
The Economic Times estimates that in the big cities, large tracts of land valued at thousands of crores are owned by the ministries of civil aviation, railways, defence and port trusts, along with other government agencies and public sector firms. The port trusts own 6,300 hectares, the Airports Authority 20,400 hectares, the railways 43,000 hectares, and the defence forces 17.3 lakh acres.
Put together, thats the size of several Mumbais put together. (Mumbais area: about 60,000 hectares).
Selling urban land to raise money for non-urban purposes is not right for the same reason why we oppose taking tribal land away from tribals without proper compensation and rehabilitation.
Lets also remember, the value in urban land comes from its people from the process of migration and urbanisation. It has little to do with government contributions. The bulk of its value must thus go back to improving and speeding up urbanisation which is vital for progress and speedy reduction of poverty.
India is urbanising at a rapid pace (we are already one-third urban) and investments need to flow to areas such as public transport, sewerage, water supply, et al.
If urban land is sold to raise resources for the centre, one can be certain that most of the money will go to buy votes in rural areas, and not in urban areas. Land sales will be used to fund the Food Security Bill, the fertiliser subsidy, the high minimum support prices for foodgrain, and fuel subsidies only the last named subsidy benefits urban areas more than rural, and even here subsidies have to be phased out. Public sector disinvestment and land sales are thus intended to ultimately buy rural votes.
Two conclusions follow:
First, disinvestment in public sector shares is not good for the public sector. Privatisation is better. If the government does not have the gumption to do this, it can at least be honest and say this firesale is to save our budget, not to improve the public sector. Since ordinary disinvestment involves only tapping global and Indian urban savings for budgetary purposes, its a veiled money transfer scheme to favoured constituencies.
Second, selling urban land is not for the benefit of the urban population. The money will be used to plug the budget hole and is effectively an indirect way of transferring even more resources from urban to rural areas when this is already being done with food subsidies, makework schemes (NREGA) and the new Land Acquisition and Mining Bills.
Given the high cost of urban housing and infrastructure, shouldnt urban resources raised from land sales be routed back to these areas?
The recent Supreme Court opinion on auctions suggests that government can auction or not auction scarce resources depending on public good. Urban land comes under this category.
The government can auction land for investment in urban infrastructure. Or it can even give away urban land at cheap lease rates for building affordable housing for the aam aadmi.
What it should not do is sell urban land to raise resources for the exchequer. This way it will be serving neither the aam aadmi nor the growth agenda. It will only be fattening the profits of realtors and promoting more profligate spending in rural giveaways.
India needs an urban revolt to prevent rural politicians from hijacking urban resources.
Chidu’s firesale will rob urban wealth to buy rural votes | Firstpost
