Every year, around December, the Comptroller and Auditor General (CAG) of India comes out with the annual review of the Financial Accounts of the Union Budget. These reports offer considerable insight into the government’s revenue collection and spending patterns. A government generates its revenue largely through taxes. Every so often, and in India, more often than less, the government levies a cess, as means of collecting additional revenue, for the purpose of specific spending.
In India, we have as many as ten different cesses concurrently collected, either as a percentage of erstwhile service tax, or of excise, or of import value and so on. As per CAG Report 44, the total amount of cess collected between 2012-13 and 2016-17 was Rs 1,72,168 crore, a growth of 30 per cent over the previous year. The mount is by no means small or insignificant. It is therefore disheartening that neither past governments nor the incumbent government has paid any heed to the amount collected.
It is not the first time that the CAG has pulled the government up on mismanagement of cesses. It would appear that almost every cess collected is either under-utilised (Research and Development Cess), over-utilised (Beedi Workers Welfare Fund), not fully transferred to the fund (Clean Energy Cess) or just not thought through (Secondary and Higher Education Cess). This pattern of mismanagement has been highlighted in almost all of the earlier CAG reports (Report 50 of 2015 and Report 34 of 2016). Yet, there seems to be no real effort in looking for solutions.
Take for example the R&D cess that has collected so far a stupendous amount of Rs 7,585 crore between 1996-97 and 2016-17. This cess was levied for the purpose of encouraging domestic investments into new technology, for research and technology. So far only Rs 609.46 crore have been utilised (Report 44, 2017). This fund is administered by the Technology Development Board, under the Department of Science and Technology (DST). Ironically, a recently-made public survey of research and development statistics by DST indicates that their R&D spend from 2005-06 onwards, has only now reached an amount of Rs 2,000 crore as of 2014-15. This is despite the DST having access to almost four times that amount through the R&D cess.
India continues to spend less than one per cent of GDP on R&D, 0.68 per cent to be precise and way below other emerging economies. The private sector must bear an equal part of the blame for not spending enough on R&D, but the government must accept greater responsibility for not utilising money that is available.
The most successfully implemented cess has been the primary education cess. Despite the fact that an amount of approximately Rs 13,000 crore continues to remain in the Consolidated Fund of India (CFI) and not transferred to the Prarambhik Shiksha Kosh, it is only a mere 8.5 per cent of the total cess collected. Concerted efforts of the central and state governments have ensured that the cess collected has been used for the Sarva Siksha Abhiyan. On the flip side, the Secondary and Higher Education Cess (SHEC) can only be called a disaster. As per CAG reports 34 and 44, the SHEC, that was introduced in 2007 and boasts of Rs 64,228 crore in collections, has not been allocated to any account because no scheme for its utilisation has been thought of yet.
Hence the amounts continue to stay in CFI. The Clean Energy Cess is no different. This particular cess has shown year on year growth rates of over 100 per cent with little or no sign of disbursement. CAG Report 36 of 2016 in fact notes that the 2nd Report of the Parliamentary Standing Committee of Finance of the 16th Lok Sabha, on noticing the under-utilisation of the cess recommended that if funds remain unutilised for over two years then, it should be transferred to the CFI so that it may be used for other priority sectors.
The CAG is not in agreement and has said that the money collected should be used for the purposes stated, and rightly so. In itself, a cess is a useful revenue generating instrument, but its efficacy can only be measured by how effectively it has been used. Barring on example, there have been almost no other cess that has been used properly. During these times of low private investment, disbursement of these funds to industry may act as suitable corporate fiscal stimulus. If governments are unable to manage and implement cesses then they must be discontinued and not used it as a means to manage fiscal deficit (and it will if the funds continue to remain in CFI). It may be too late as a budget recommendation, but in its last year of government before the general elections, the incumbent government should consider undertaking an honest audit of all the cesses and look for suitable means of disbursing the funds for economic growth. A cess that does not lead to economic growth or social welfare is useless.
Senior Fellow, Pahle India Foundation