The Hindu Business Line : Vision and action

IN HIS SECOND `national' press conference since taking charge as Prime Minister, Dr Manmohan Singh showed himself as the professional economist he has always been, now imbued with a vision. His statements on the economy have not been a round-up of accomplished facts but have been expressions of objectives. In November and then in December he took the high ground in projecting India's economic growth as a sign of its emerging status as the Asia's economic leader, a proposition that was at least partly realised in the formation of the South Asian Free Trade Area. At industry association meetings he has always set high goals for the economy, for example, achieving a ten per cent growth within the next two years. Atthe press conference, Dr Singh made the pitch for keeping taxes low, not confiscatory, being committed as his government is to a "broad-based moderate tax regime".

Dr Singh's views on the fiscal regime he envisages are based on the strong growth that the economy has shown the past few years with the likelihood of a near-eight per cent growth in 2005-06. Perceive him as an economist with years of practical experience and one might be tempted to believe the idea that the tax regime in this country will finally become "broad-based, moderate". View him as the head of a coalition government committed to a programme that reflects all the contradictions of differing positions on critical sectors of the economy and that same vision appears as grandstanding, an ambiguous statement open to interpretation and therefore signifying different things to different constituencies.

The tax regime is historically moderate; it is broad-based, if one considers the service tax now applicable on the most trivial transaction to be broad-based; or the fringe benefit tax, for that matter. But it is not broad-based if one considers that agriculture is still free of income-tax that along with stagnant productive employment leaves the sector deeply scarred with income inequalities. The Prime Minster's vision of a non-confiscatory, broad-based tax regime, which so far has meant more taxes collected from the urban organised sector, has been inspired by the strong growth of the last three years and consequent buoyancy in tax revenues for the current fiscal. So the logical question would be: what if the growth of 7 per cent or 8 per cent does not sustain itself through 2006-07?

Before tax regimes can become broad-based in a more meaningful sense of the word, growth has to become broad-based, and that is what it has not been so far. Agriculture, the most critical sector for the economy's growth possibilities, is still a sacred symbol but tattered to the bone. Despite the Prime Minister's warm assurances, bank credit to the farm sector is no match for the moneylender who drives the indebted farmer to suicide. Despite the overall improvement in foodgrain production, the ability to buy food in the market is increasingly narrow for the poor. Cities that have become icons of growth have daily power outages. So far the policymaker has spent time talking about power reforms, powering growth with better roads and ports and thereby increasing purchasing power among the poor. It is high time action replaced rhetoric.