The Hindu Business Line : Drought surcharge on the cards?

The officials, however, clarified that the additional surcharge route would be taken only after exhausting all other options, including re-appropriation of demands under various Plan schemes and dovetailing these with drought-related projects.

NEW DELHI, Aug. 21

THE Government is not ruling out the levy of a fresh special surcharge on Central taxes to finance drought relief operations and replenish the depleted National Calamity Contingency Fund (NCCF) kitty.

"With hardly any reserves left in the NCCF, we may have to raise additional resources to meet the demands of drought-hit States. The imposition of a special surcharge is one of the options available, the others being expenditure re-appropriation and compression, enhanced market borrowings or a combination of all these'', said senior Finance Ministry officials.

States have so far demanded Central aid to the tune of almost Rs 20,000 crore, besides 11 million tonnes of foodgrains to finance food-for-work and associated relief programmes.

Although the Centre is yet to complete a formal assessment of the situation in each State, there is no doubt that the damage caused by the monsoon's failure in three-fourths of the country would eventually entail a substantial step-up in Central assistance. The issue is slated to figure at the next meeting of the National Development Council (NDC) in early October.

The Centre has already released Rs 1,157.26 crore to 12 drought-affected States out of its total share of Rs 1,647.22 crore in the Calamity Relief Fund (CRF) for 2002-03.

Given the limited leeway to make more releases from the CRF, the extra funds would have to come from the NCCF. The outgo from the NCCF, in turn, has to necessarily be recouped through a special surcharge on Central taxes.

The Centre had created the initial NCCF corpus of Rs 500 crore in December 2000 by levying a special one per cent surcharge on corporates. This was over and above the 10 per cent surcharge clamped in the 2000-01 Budget on both corporate and non-corporate assesses.

Subsequently, following the Gujarat earthquake in January 2001, a fresh two per cent special surcharge was imposed on corporates and non-corporates. The special surcharges together yielded Rs 2,000 crore for NCCF during 2000-01, which was entirely used up for flood and drought relief operations in 11 States and also for meeting the immediate post-earthquake requirements in Gujarat. In the 2001-02 Budget, the then Finance Minister, Mr Yashwant Sinha, removed all the surcharges, barring the two per cent Gujarat impost, which garnered Rs 1,500 crore. Besides, he also imposed a national calamity contingency duty or `sin tax' on cigarettes, pan masala, bidis and other tobacco products, raising another Rs 747 crore. The proceeds from these were utilised to finance calamity relief, especially in Gujarat.

In the current year's Budget, Mr Sinha dispensed with even the two per cent Gujarat surcharge. The onus of replenishing NCCF was placed solely on the `sin tax', which is budgeted to yield Rs 1,600 crore during 2002-03.

The officials admitted that the actual realisation would be much lower, more so in the wake of the recent ban on consumption of gutka and other tobacco products by some States.

"The NCCF money has been virtually exhausted. And since a calamity of severe magnitude had not taken place after Gujarat, we did not foresee the need to make extra provisions in this year's Budget, apart from continuing with the sin tax'', they pointed out.

Although the 2002-03 Budget did impose a five per cent across-the-board surcharge on all tax payers, the money from this has been specifically earmarked for `national security', and not NCCF. A fresh surcharge to beef up NCCF's resources would definitely hurt the middle class in an election year, even if helps in lightening the farming community's burden. In the event the Centre decides not to alienate either of these sections, the only option left is to increase market borrowings at the cost of fiscal health.

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Drought surcharge on the cards?