The Hindu Business Line : Jaswant strikes right note for polls — Sops for Central staff, promises for the rest

IN what is probably the last of the `feel-good factor' measures announced by the National Democratic Alliance (NDA) Government with an eye on the coming general elections, the Finance Minister, Mr Jaswant Singh, today rolled out Rs 3,500-crore bonanza for Central Government employees, which formed the core of his interim Budget proposals for 2004-05.

Effective from April 1, 2004, Government employees will benefit on account of 50 per cent of the dearness allowance (DA) being merged with basic pay. Currently, the DA amounts to around 59 per cent of the basic pay.

Unlike the various schemes announced over the past month - the Rs 50,000-crore each Agricultural Infrastructure and Credit Fund and the Industrial Infrastructure Fund - today's move involves actual monetary outgo from the Exchequer.

The total financial implication in a full year is projected at Rs 3,500-4,000 crore, which would be partially offset by additional income tax collections of Rs 400-500 crore accruing from the higher effective pay packet for the employees.

But the impact may be beyond that. Some economists believe that Mr Jaswant Singh's announcement could trigger off similar demands from State Government employees to merge DA with basic pay, implying a repeat of the fall-out of the Centre's decision in 1997 to implement the Fifth Pay Commission's (FPC) package.

Mr Singh, however, dismissed these fears, pointing out that the FPC had recommended that the DA be merged with basic pay whenever it exceeded 50 per cent of pay and today's decision was based on an `in-depth' re-examination of this suggestion.

The Expenditure Secretary, Mr D. Swarup, said that the 50 per cent threshold had been crossed in September 2002 itself. "But we did not take a decision then, keeping in view our not-so-healthy finances."

The situation is much different today. 2003-04 is expected to end with a fiscal deficit-to-gross domestic product (GDP) ratio of 4.8 per cent, which is not just lower than the previous year's 5.4 per cent, but an improvement over even the Budget estimate of 5.6 per cent for the current fiscal.

The revenue deficit-GDP ratio too is pegged at 3.6 per cent against the Budget estimate of 4.1 per cent and last year's level of 4.4 per cent.

More important, for the first time in several years, the Centre's net tax revenues are slated to exceed the Budget target by Rs 3,370 crore. Non-tax revenues have also overshot the Budget estimate by Rs 5,722 crore, courtesy largely the extra dividends forked out by public sector undertakings.

The revised estimate for disinvestment receipts too is higher than budgeted (Rs 14,500 crore against Rs 13,200 crore) "as we expect the 10 per cent sale of ONGC and GAIL to be completed before March 31," Mr Swarup added.

Further, the Centre has achieved an expenditure contraction of Rs 11,143 crore, relative to the Budget estimate, with non-Plan spending being curtailed sharply.

Through these, "the Government has demonstrated its resolve about fiscal consolidation by performing better than the budgeted targets", the Finance Minister asserted.

Apart from the huge sop for Central Government employees, there were no other real big announcements.

On the indirect taxes front, he had nothing much to add after the mini-Budget but for some relaxations in Customs baggage rules (allowing up to Rs 25,000 free allowance and cutting Customs duty on these to 40 per cent) and initiating further measures to make tax administration user-friendly.

On direct taxes, Mr Singh restricted himself to making statements of intent regarding extending tax exemption on long-term capital gains from sale of listed shares acquired after March 1, 2003 for a further period of three years and `revisiting' standard deduction for salaried employees.

These measures require amendments to the Income-Tax Act, which will have to wait till a new Government presents a full-fledged Budget.

In addition, the Finance Minister proposed a host of welfare scheme measures with little or no financial commitment from the Exchequer.

These included setting up a National Cattle Development Board, extending of the Antyodaya Anna Yojana from 1.5 to 2 crore families from April 1, expanding the Farm Income Insurance Scheme to cover 100 districts and creating a Budget outlay of Rs 60 crore for establishing six new hospitals on the pattern of the All India Institute of Medical Sciences.

Highlights

* Subsidy tackle leads to cut in non-Plan expenditure

* Excise collections likely to take a Rs 4,400-crore hit

* Small savings collections spurt by 23 per cent

* Free baggage allowance raised to Rs 25,000

* Special non-lapsable defence procurement fund of Rs 25,000 crore

* Stamp duty charges on Central Government transactions halved

* Stance on taxation of BPO units remains unchanged

* Government seeks cheaper crop loans, easing of collateral terms

* Commitment to revisit revision of standard deduction

* Telecom sector growth rubs off on non-tax revenue collections

* Power sops to reduce consumer tariff extended

* Tonnage tax for shipping industry looks certain

* India Inc gives thumbs up to Interim Budget proposals