The Hindu Business Line : Higher revenues a silver lining

While the increase in corporate tax revenues indicates a robust year ahead, government needs to resolve conflicting stakeholder claims that are impeding new projects.

For a Government that is battling on the political front to save the nuclear deal and on the economic, to douse the fires of inflation, the 30 per cent growth in corporate tax collections for the period ending the first fortnight of June in the current fiscal is perhaps the most heartening bit of news. Since there has been no significant change in the tax rates or the structure, the buoyancy in collections means the corporate sector is estimating a proportionate rise in pr e-tax profits. It also indicates that the economy is in reasonably good shape as corporate entities comprising the organised sector cannot flourish if the other segments of the economy are languishing. The buoyancy in collection witnessed in recent times is confirmed by the Government as well, which is reported to have scaled up its estimate of direct tax collections for this fiscal. On the evidence so far, it is safe to say that the numerous populist programmes, such as the farm loan waiver or the employment guarantee programme, will not suffer from lack of resources.

Yet the Government would do well to remember that economic situations can, and often do, dramatically change for the worse in double-quick time, hit by a host of local and international factors. If global commodity prices, particularly that of oil, continue to remain firm, that could heighten inflationary pressures in the economy. If the RBI resorts to further tightening of the monetary policy regime, can investment and consumption demand retain their present robust outlook? Perhaps not. This is not all. The monsoon outlook for the current crop season remains positive for now, but any sluggishness in performance in the days ahead can have serious consequences for agricultural output. It is as yet unclear if the full impact of the mortgage loans to sub-prime borrowers has been fully captured by the banking institutions in the West. A further unravelling of the extent of losses on this count could well become the tipping point in sending these economies from sluggish growth to a full-blown recession, and India is bound to feel its impact. The RBI might well end up having to confront a cost-push inflation from firmer global commodity prices and stagnation in domestic output and incomes.

The only thing the Government has going in its favour is that business confidence is largely high although it might have come off its perch somewhat in recent weeks. Investment commitments in the pipeline are still robust. But unfortunately, they are not getting translated into facilities on the ground for a variety of reasons. Projects in steel, cement and power are some of the worst sufferers. The Government has clearly failed to help settle the differences among various stakeholders affected by a new project. The present situation perhaps provides the final window of opportunity to set things right.

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