Financial Daily from THE HINDU group of publications
Thursday, Jan 15, 2004
Mini-Budget: Merely clever
Whether amendments of this size and nature can and should be passed without parliamentary scrutiny will be debated in the days to come. So will be the differential treatment to direct taxes and Customs and excise when finally both of them end up drawing from or depositing in the consolidated fund.
Even the logic of premature dissolution of the legislature to suit the convenience of the ruling party needs to be debated. After all, it costs money. The interest cost of advancing the elections by six months would alone be Rs 300-350 crore to the economy if the elections were to cost Rs 10,000 crore Not amusing, given the state of the bottom one-fourth of our population.
The general tenor of the proposals is unmistakable please the middle-class before the Election Commission can say: "Sorry! You can't do this." The cost of the sops (Rs 10,000 crore) in the face of mounting deficits shows a lack of willingness of the Government to reform itself and its profligate ways. No one can any longer point a finger at loan melas, write-offs, Pay Commission largesse, free electricity, and so on.
These general attributes aside, there are some meritorious proposals, though the logic of the one-by-four or the one-by-six rule escapes one. If the Government suspects that some people are non-wilful defaulters because they are unaware of the tax laws, it should have educated them through mass media. The wilful dodgers will dodge anyway whether it is 1/6 or 1/16.
In any case, the I-T authorities have always had the authority to call anyone to furnish information. It could have always done random checks based on the lists of telephone owners, people travelling abroad, etc. This only puts an unnecessary burden on the tax authorities and should have been scrapped altogether in favour of random checks.
Scrapping the need to file returns for pensioners and others earning less than the prescribed limit will better focus the attention of I-T staff on the remaining cases and hopefully help you get your refund cheque faster.
Welcome, again, is the step for e-filing returns for some non-service segments and for all service tax cases.
The removal of the SAD and the reduction in Customs duty across many items will, no doubt, benefit importers. But combined with the rupee appreciation of 7-9 per cent in the last year or so, it will have an adverse impact on employment.
Already, in the reform period, labour intensity has come to one-third, as this paper had reported recently. The advocates of tariff reduction should benchmark not just the rates but the quality of government services and infrastructure too.
The quality of infrastructure imposes a huge burden on the domestic manufacturers. Need we highlight the average speed on our roads, turnaround time at our ports and quality of electricity and several other services? If these are made comparable, we have a better case for rationalising the tariffs with those in competing countries. Otherwise, it will only cut into our employment.
I wish our planners would give up their fixation on the GDP growth percentage as the sole indicator of the success or failure of nation as an economic entity, and switch to employment instead. If only we had aimed at 6 per cent employment increase per annum instead of GDP, one is sure that there would not be many forcibly unemployed by now.
A stable employment rate solves many problems the government would not need to spoon-feed the unemployed, and look after their day-to-day needs of water, food, cloth, shelter, sanitation and medication. With stable income in their hands, they would take care of these themselves.
The Government takes the international commitment to bring the IT and telecom sector duty levels to zero by 2005 very seriously and has been making a whole lot of concessions year after year for this already pampered segment. Perhaps, it should take equally seriously the need to bring down poverty and find employment.
Instead of cutting the international air travel tax and the duty on ATF (aviation turbine fuel) the money so collected could have been earmarked for infrastructure development at airports or select travel destinations. It would have generated employment and tourism.
The cell-phone numbers are exploding as it is, with a consequent effect on service levels. Why not use the funds given away as concessions on cell-phones to improve rural connectivity. The three main constituents who have suffered or been ignored in the latest reform effort are the pensioners, the unemployed, and people below the poverty line.
The pensioners have been hit hard by the steep drop in interest rates. In most cases, the returns on fixed interest investments are negative or `barely there'.
The number of unemployed has increased and some of the measures will hit them even more as decreasing tariff levels will increase imports cutting domestic employment.
As for the BPL families (about 30 per cent of the population), the attitude seems to be "well, they have been there for the last 50 years; they should have got used to it, why disturb them."
These are the classes that vote in the polls. The last because they dare (given the dangers involved in many places in going near the polling booths), the unemployed out of frustration, and the pensioners due to a sense of patriotism.
If the mini-Budget is aimed at raking in the votes, one is not sure if the exercise was as clever as it could have been.
(The author works for a large chemical manufacturer-exporter. The views are personal.)
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