This Article is From Jun 23, 2022

Opinion: Agnipath - Reform Or Money-Saver?

Agnipath has certainly lived up to its name. It has ignited flames of discontent among the youth of India, much like the agitation over farm laws. While reforms in military recruitment to create a younger fighting force are important, the predictable arrogance with which the scheme was announced has inflamed the BJP's most ardent support base - the young job-seekers.

This is unlikely to affect the BJP's poll prospects in Gujarat later this year, since few from that state opt for the armed forces. It could, however, have huge implications in Himachal and, further down the road, in Karnataka, Rajasthan, Madhya Pradesh and Chhattisgarh next year.

The scheme is being sold primarily as a plan to create a younger fighting force but the raison d'etre is more fundamental. It is money. Money to modernise the armed forces.

With defence capital expenditure stagnant (corrected for inflation) for three years or more, the need for increased funding is critical for the armed forces. The problem is that the central government has no money in its kitty to increase the allocation for defence (or for anything else).

Agnipath is seen as a means of reducing the ever-escalating spend on Armed Forces pensions, as the scheme has no lifelong pension attached. Money saved here would presumably go into buying equipment, or so we hope. The problem is that the impact on pensions will take quite a while to sink in.

Nothing more clearly demonstrates the niggardliness of the scheme as the duration of service under Agnipath - four years. The time frame was clearly chosen to avoid falling foul of the Gratuity Act, which effectively kicks in after 4.5 years, and which would force the government to pay an additional two-and-a-half months' salary to these recruits. The focus, financially, is saving money and cutting costs. All good ideas but they beg the more fundamental question - how to collect more taxes?

The failure to increase either the tax base or collections is what is hampering almost everything that the government wants to do. India has one of the lowest tax to GDP ratios in the world. That's simply because Indians avoid paying taxes. While some eight crore people file returns, only less than a third actually pay taxes. That's just over two per cent of the population! A couple of years ago Prime Minister Narendra Modi had lamented that only 1.5 crore people pay taxes.

Similarly, only 1.4crore people and businesses are registered with GST. That's strange in country where the Confederation of All India Traders claims 8 crore members through its 40,000 associations.

The government keeps publicly celebrating that GST revenues are over Rs 1,40,000 a month, but the fact is that correcting for 8% inflation, the number is much the same as when it was launched - around 6% of GDP.

GST in its current form has so many issues that unless radically reformed, it will not deliver the financial gains it was expected to.

After the failure of demonetisation, "black (money) is back" in a big way. The total value of currency in the country is twice that in 2016 at the time of demonisation. So, whatever the government does to cut costs, as it has on subsidies on petroleum and now on pensions, or by slowing recruitment in government - the long-term solution can't be just cuts.

There must be a practical push to get more individuals and businesses into the tax net and collect more revenue. Simplifying tax and removing politically motivated tax escape hatches such as no GST under Rs 40 lakh turnover or flat GST for those with a turnover under Rs 2 crore will boost revenue. There is no sense in biting the bullet on armed forces recruitment while playing footsie on improving revenue generation.

In the interim, the government needs revenues and frankly, the only way to do that is to either have a special defence capital cess on petroleum (like the excise increase which saved the government during the Covid downturn) or to add cess to the GST bands of 18% and 28%. Either or both must go directly into the Defence Capital Fund, which cannot be touched for political giveaways like free rations for six months after an election.

On Agnipath, the government should consider going back to the policy of the 1970s to recruit for seven years. Keeping a similar golden handshake policy would mean that while exiting, an Agniveer would get close Rs 25 lakh. Of this, Rs 15 lakh could be schemes like the EPF or senior citizens' saving schemes, in which the government pays at least 7+ per cent interest until it is drawn. Jawans deserve the same benefit as private sector employees (who have EPF), and it would give the Agniveers a goodish package when they finally retire from their second job.

Since second employment is of key importance, and many industrialists are promising that, the scheme should be like Corporate Social Responsibility - something that is publicly audited, both for public and private sector. That will ensure that the drumbeat of support for the Agniveers' reemployment goes beyond social media. Currently, neither the Central Police Forces nor the private/public sector fill up the 10 per cent quota for ex servicemen. This has to be guaranteed in some form, so that Agniveers don't end up as many have said, as lowly paid security guards.

(Ishwari Bajpai is Senior Advisor at NDTV.)

Disclaimer: These are the personal opinions of the author.