The Hindu : The salariat strikes back

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Saturday, Apr 13, 2002

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The salariat strikes back

By C. Rammanohar Reddy

It is the VHP-Bajrang Dal, not Yashwant Sinha and his mixed-up budget, which by disturbing the very foundations of Indian society poses the larger danger to the future economic security of the salariat.

IT WILL be in all likelihood the first Union budget to have been brought down by the salaried class. Passed the budget will be, but sabotaged it already has been. The partial rollback of the subsidy on LPG will almost certainly be followed by a selective restoration of tax exemptions for savings, a moderation of new tax proposals and perhaps the announcement of fresh savings schemes. Yashwant Sinha will not abandon his budget, but a sufficiently large number of tax proposals will be modified to hollow out what little there was in the budget.

The term salariat, which has many connotations, is a better description than the `middle class' for those who say they have been targeted by the budget and have organised the subsequent assault. The Indian middle class is an amorphous category which exists only as a myth, much like the 100-200 million consumers that the multinationals came looking for in the early 1990s only to burn their fingers. A family living in rented accommodation, with the barest of consumer durables, which struggles to meet its children's tuition fees and has little to save for acquiring its own home would call itself, legitimately so, a member of the Indian middle class. But so too would the family which has already acquired its home, an assortment of consumer durables and has enough to spare to look for ways to minimise its tax liability. The two are worlds apart, but both claim to share the same economic difficulties — only because they depend on salaried incomes and do not have the luxury that comes from living off physical property or financial assets. The urban salariat is a more appropriate description of the white-collar workers in private manufacturing and service establishments, Central and State Governments, public sector companies, universities and other "organised" enterprises. A household that brings in Rs. 10,000 a month would be part of this salariat, so too would one with a monthly income of Rs. 50,000. This heterogeneous category would include lower middle, middle and even the upper middle class salaried, but it would exclude the self-employed and the small businessmen who do not have the protection that comes with organised employment but also enjoy the "benefits" that come from being outside Government scrutiny. If in the first instance we take all those who work in the organised sector (public and private) as part of the salariat then it is 28 million strong.

Tax cuts and exemptions made the urban salariat hail the so-called `dream budget' (1997-98) of P. Chidambaram; tax hikes and the removal of exemptions have now made them savage Mr. Sinha's budget. The irony is that the reaction in both cases is misplaced. The dream budget was an exercise in gimmickry which was eventually found out. And the new budget does nothing to revive economic growth, but it has been attacked for all the wrong reasons. But the reaction of the salariat should not come as a surprise. It has been one of the biggest beneficiaries of liberalisation. For those with jobs, salaries (including of Government staff following the Fifth Pay Commission's recommendations) have risen, on the average, much more rapidly in the 1990s than in the 1980s, income tax rates are even now much lower than in the 1980s, low-cost consumer finance is available in plenty and there are many, many more products and services on which all this money can be spent. The only ones to have suffered in the past decade are the staff of private and public enterprises who have been hurt by import competition and privatisation. And of course those who were ensnared by the promise of exorbitant returns on certain financial investments. (This is not to overlook the impact that events such as the UTI fiasco and a lowering of interest rates have had on the retired salariat who depended on a steady stream of high interest income.)

With all the benefits that the salariat received in the 1990s, it acquired a voice as well. There was also a new assertiveness once the political party it favoured — the BJP — assumed office. So when a budget touches this class even lightly it reacts sharply. It assails an LPG hike of Rs. 40 a cylinder (in effect an increase once a month), because it feels it has a natural right to maintenance of the subsidy for perpetuity. (No wonder then that because of its refusal to accept an end to the subsidy some commentators have derisively called it the "LPG class".) The salariat will, of course, now speak only about itself, though until the 1980s it did show a concern about the larger nation-building project as well. It is worried only about the LPG hike, not about the more damaging increase in the price of kerosene, the fuel that it does not use. Only about (marginally) higher tax rates but not about more expensive PDS food, that it no longer needs. It will worry about LPG prices, but not about the quality of public health services, education or public transport. It is worried about the quality of roads only because it uses them, but will not pay a toll for good quality roads.

There is also a context in which the anger of the salariat is being expressed, a resentment that should not be dismissed out of hand. There is some legitimacy in the complaint about being asked to pay more taxes while those who can evade them merrily continue to do so. The salariat has become a milch cow for taxes because its employers are part of the organised sector and are therefore automatically trapped in the tax net. It is an interesting fact but not an entirely accurate comparison that the number of income tax assessees (28.2 million) is almost exactly the same as the number employed in the organised public and private sectors (28 million). On the other hand, the black marketeer, the entrepreneurs, consultants, lawyers, doctors and the self-employed with the right tax advisers run free or pay only nominal taxes. It is unbelievable that there are, according to Government statistics presented in the media, only 400,000 Indians who report incomes of Rs. 5 lakhs to Rs. 10 lakhs a year and as few as 76,000 who declare that they earn more than Rs. 10 lakhs. An understandable response then from a member of the salariat with a taxable annual income of as little as Rs. 60,000 is why should she pay a higher surcharge this year. The larger poser then becomes: "When corruption is so widespread and goes up to the highest levels of Government, and when the looting of the state is accepted practice, why should I pay more for LPG or pay higher taxes." Yet, there is an ambivalence in this argument. It is not that the salariat is willing to pay its taxes and accept a withdrawal of unwarranted subsidies as long as the rule of law is applied to everyone. Unfortunately, the argument is more that if the rich and powerful can escape paying their dues, there is no reason why the salariat too cannot avoid price hikes and higher taxes.

In a strange twist the biggest supporter of the BJP is striking back at the party's own Government. One would have hoped that the salariat would have woken up more to the activities of the other members of the BJP/RSS family such as the Vishwa Hindu Parishad and Bajrang Dal (organisations that it has blessed) instead of worrying about the LPG prices and tax rebates. It is the VHP-Bajrang Dal, not Mr. Sinha and his mixed-up budget, which by disturbing the very foundations of Indian society poses the larger danger to the future economic security of the salariat.

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