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Kutch tokenism

EVEN AT THE risk of sounding churlish, it must be said that the excise holiday to manufacturing units in Kutch announced by the Prime Minister is misconceived and unwarranted as being against accepted principles of distribution of state largesse for thos e in distress. It seeks to make a distinction between the people affected by the earthquake in terms of the intensity in the different regions.

The Kutch region might have suffered the most, yet manufacturing units in, say, Ahmedabad too might have a claim on the largesse in proportion to the damage suffered. In fact, some of the units there may even be less able to withstand the ruinous financi al consequences of the earthquake than their counterparts in Kutch. But the proposal is indifferent to the needs of victims in other regions. Kutch is not the most industrialised region in Gujarat. This is reflected in a credit-deposit ratio of around 15 per cent for Kutch district in contrast to 90 per cent for Ahmedabad, a district with a highly evolved industrial economy.

That the average employment per factory is only around 30 in the 500-odd units in Kutch district suggests that output per manufacturing unit must necessarily be small, perhaps even below the threshold limit for excise taxation. If the overall quantum of relief from such a concession is meagre, the damage potential to the accepted principles of public finance from it will be immense.

It overturns the basic principle that relief must be targetted at those who have suffered, and restricted to the quantum of loss. There is no question of anyone profiting from one's personal misfortune. Profit from misery is what this would lead to if a manufacturing unit has not suffered any loss or whose loss is far less than the quantum of excise concession that can be availed of.

The announcement goes against the principle that relief to those affected by natural disasters be funded out of a special corpus or from extractions from taxpayers, as with the special surcharge on corporate profits currently in vogue. If the loss exceed s the corpus or the quantum that could be raised from the special surcharge, the right course would be to either raise the size of the corpus or hike the surcharge on corporate profits.

The Prime Minister's announcement makes mockery of the Finance Commission-mandated special corpus for relief in cases of natural calamities and converts the special surcharge on corporate profits as the fifth wheel in the relief bandwagon. Worse, it woul d also open up the floodgates for similar claims from other regions affected by some natural calamity. The Centre would be hard put to it to deny such claims.

A far better course of action would be for the Centre to nudge units in earthquake-prone regions to seek insurance cover, and evolve a scheme of central subsidy for SSI units to enable them meet the premium commitments. Such contributions could be funded out of the corpus of the Calamity Relief Fund.

Clearly, both the Centre and the State, which made the demand in the first place, must have been aware of the largely symbolic nature of the concession announced. Yet, they have gone ahead despite the policy distortions inherent in the proposal. With the State machinery clearly being shown to be deficient in reaching relief to those affected, perhaps it had no option but to resort to such tokenism.