The Hindu Business Line : Avoidable turbulence

It should surprise no one that the States have unanimously rejected the Centre’s proposal of granting “declared goods” status to aviation turbine fuel (ATF) to help revive the airline industry. For quite a while, the major private airlines have been pressing for reduction in the tax on aviation fuel that States impose. The Centre seemed to have been convinced of the need to do so by recourse to Sections 14 and 15 of the CST Act that restrict the power of States to levy tax on goods of “special importance”— such as ATF, for instance. An Empowered Committee of State Finance Ministers rejected this “unilateral” decision citing the loss of Rs. 4,000 crore in tax revenues.

The case for using a constitutional privilege, Article 286 (3) (a), that allows Parliament to declare goods listed in section 14 of the CST Act of special importance was never convincing. Not only would it pass on the burden of uncompensated revenue loss on States but also it would do so at a time when ATF prices are decreasing. That airlines are getting fewer passengers has less to do with high fares than a general slowdown that has weakened air travel in general. The Civil Aviation Ministry is now looking for ways to help the industry without upsetting the States but it would be well advised to not look too hard; policymakers should concentrate their energies and precious resources on investments to stimulate the overall economy the benefits of which alone will help revive fortunes of specific sectors. Any attempt to meet the needs of any one industry invariably involves a cost to another, an outcome that policymakers should avoid.

Legitimate as the States’ concern about revenues from ATF and the decline in general revenues is, they need to balance their expectations of additional grants of Rs 20,000 crore for infrastructure with the economic stimulus packages of the Centre. Most of the Central Plan expenditure will in any case devolve on States and lower level government mechanisms. Instead of simply seeking more money States would do well to look at the way it has been spent so far and beef up delivery systems. It is all very well for the States to shy away from the fiscal responsibility targets that they have admirably adhered to so far but in the bargain they need to ensure public money is well spent. As the UPA government plans its second stimulus package, it will have to draw States into a national strategy to enhance expenditures judiciously with an eye firmly on performance. The economy needs generous, not reckless spending.

Related Stories:
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States oppose declared goods status for aviation fuel
Kerala opposes declared goods status to ATF

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