The Hindu Business Line : Flash Budget

IF THURSDAY'S TAX rationalisation indicates anything at all it is that the Government is getting into election mode. A broad policy decision such as a reduction in the peak level of Customs duty is usually reserved for the Union Budget, unveiled on the last working day of February. If, as is being speculated, the ruling National Democratic Alliance Government is indeed planning on an early dissolution of the Lok Sabha — a formal announcement can apparently be expected any time — then it would be reduced to caretaker status and would have lost the moral authority to make any duty rationalisation, however justified it might be from a larger economic policy perspective.

Leaving aside the politics of the latest move, some of the policy measures announced do not come as a surprise. The reduction in the peak Customs duty rate, for instance, is only part of a calibrated annual reduction that has been happening for some years now. From 100-150 per cent in the pre-reform era, the peak rates have been gradually reduced over the years and the latest cut is thus part of the larger plan of making Indian industry more competitive internationally by ensuring affordable access to raw material and other inputs. With Asean countries committed to further lowering their already low peak rates of Customs duty and India proposing greater economic integration (it has already signed a free trade agreement with Thailand), a reduction in the Customs duty is all but inevitable; it would only have been a question when and not if. Again, measures of administrative reform such as the facility of electronic filing of tax returns or a reduction in excise duty documentation are essential. The ponderous tax administration, a legacy of the past, is an imposition on assessees, and its dismantling has been long overdue; something that various expert committees have been repeatedly recommending.

There is a sense of optimism in the air engendered not a little by the increasing global recognition of India's economic potential. The handsome growth posted by the economy in the second quarter of this fiscal has only served to fuel this. But this growth is in part at least a reflection of the performance of the agricultural sector this year after the negative growth of last year. But soon enoughthe arithmetical effect of a substantial contribution from the agricultural sector will evaporate and the country will once again be reduced to looking to the manufacturing and services sector to deliver for it the growth that it has got accustomed to in recent years.

The latest tax concessions could be seen as giving a boost to fresh investments in some sectors and to consumption in those where capacities are in excess. The duty sops to the power sector or civil aviation best illustrate this strategy. But only time will tell if these measures take the economy on to the next higher plane of sustainable growth.

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