The Hindu Business Line : Govt betting big on industrial recovery

IS the Government betting rather big on industrial recovery sustaining its tax collection efforts? Or so it would seem. For without any increase in excise, customs and income-tax rates (a constraint imposed by the circumstances of a `vote-on-account' budget) it is counting exclusively on higher output to deliver substantial increases in tax revenues.

Take customs duty collections, for instance. Thanks to the policy progressive reductions in the levy, customs duty revenue has stagnated at the Rs 40-45,000-crore mark in the six years that the BJP-led Government has been in power. But the Government nevertheless estimates that collections in 2004-05 would be of the order of Rs 53,000 crore that is a good 17 per cent more than the revised estimate for the current year.

On the excise duty front, collections are pegged at Rs 80,000 crore that is nearly one-fifth more than what would be collected before the current year is out.

What this means is that the manufacturing sector (which bears the burden of excise levy) would have to grow in nominal terms, by nearly 20 per cent next year. That is a tall order even in these `feel-good' times.

The manufacturing sector has managed to achieve an average annual growth rate of only 11.5 per cent in the last six years.

The story is pretty much the same on corporate tax collections. This has grown at a compounded average annual rate of 21 per cent between 1997-98 till date. Thus from a figure of Rs 20,000 crore in 1997-98, it has gone up to Rs 62,968 crore according to the revised estimates for the current year.

But that hasn't prevented the Finance Minister from pegging the growth rate in such collections at a good 26 per cent higher over the previous year with an estimate of collections at Rs 79,550 crore for 2004-05.

The stock market will have something to say on that, considering that it has of late been nervous about the near term prospects for the corporate sector.

About the only segment where the Finance Minister's calculations for the next fiscal are in alignment with the earlier years is in the area of personal income-tax.

He has reckoned that this would register a growth of 15 per cent over the current year to record revenue of Rs 46,300 crore.

True, the average annual rate of growth in the NDA years is around this figure. But then, there has to be a substantial `laffer curve' effect if actual collections hit this number in the face of some generous tax sops that the Finance Minister had hinted at, should his party be returned to power.