The Hindu Business Line : Needs of the poor take precedence over commerce

New Delhi, April 18 The Finance Minister Mr P. Chidambaram’s utterance in Washington last week that he is prepared to sacrifice revenue to tame inflation by fiscal measures and the repetition of the same point during his intervention in the discussion on price rise in the Lok Sabha on April 16, 2008 have unwittingly been used to wrest more import duty cuts. The latest to join the bandwagon is the Petroleum Ministry, which is seeking a scrapping of 5 per cent customs duty on imported crude oil.

Undoubtedly, inflation is the cruellest form of taxation and is hurting the poor harsher than others since the income of the latter always get indexed to price escalation. While inflation has suddenly become a hot issue in the last one month when it breached the 7 per cent on March 29, 2008, which subsequently moderated by a few points in the week ended April 5, 2008 (the latest available official figure based on Wholesale Price Index), the UPA government saw the pressure on the price front much earlier.

In fact as early as in the fourth week of July, 2007 it effected customs duty cut on crude palm oil including crude palmoelin from 50 to 45 per cent and in refined sunflower oil from 60 to 50 per cent and effected minor duty adjustment in refined palm oil, soya bean oils and crude sunflower oil. This was followed by whittling down duty on wheat flour from 30 per cent to nil.

Recent cuts

More recently, on March 20, 2008, the government effected drastic duty cuts in crude palm oil including crude palmolein from 45 per cent to 20 per cent, refined palm oil including RBD palmolein from 52.5 per cent to 27.5 per cent, crude mustard/rapeseed/colza/canola oils from 75 per cent to 20 per cent, crude sunflower oil from 40 per cent to 20 per cent, refined sunflower oil from 50 per cent to 27.5 per cent. On April 1, 2008, the duty on soya bean oil (crude) was brought down to zero from 40 per cent and on soya bean oil (refined) from 40 to 7.5 per cent, crude palm oil (including crude palmolein) from 20 to nil and on RBD palm oil (including RBD palmolein) from 27.5 per cent to 7.5 per cent. Duty cuts on miscellaneous edible oils (crude and refined) and on partly or wholly hydrogenated vegetable fats and oils commonly known as “vanaspati” were also effected.

The raft of duty cuts on edible oil between March to April 2008 were so steep that trade policy analysts began wondering whether all the posturing India took with Malaysia and Indonesia in the run-up to wrapping up India-Asean Free Trade Agreement were worth all the trouble when inflation fuelled by domestic supply constraints has on its own accomplished what the trade negotiating team in the Department of Commerce could not deliver at least for the time being.

Up to a point

But when it comes to food security and spurt in prices of mass consumption goods, the Government has no justifiable reason for keeping a protectionist trade policy to safeguard domestic producers’ interests as the needs of the people take precedence over commerce. But the Finance Minister can afford to abnegate revenue from customs only up to a point where it does not make a big dent into the tax kitty for providing funds to competing demands for other development purposes.

Presumably, the pressure on food and fuels would continue to remain, given the gyrations in global crude prices as the price of basket of crude from the 13 members of the Organisation of Petroleum Exporting Countries (OPEC) stood at $107.13 a barrel on April 17, 2008.

The point to ponder is that can a developing country with heavy dependence on imported crude for meeting its energy demands afford the rising price unless it makes a conscious bid to promote conservation or inter-fuel substitution on a war-footing. Otherwise, demand for cut in imported duty on crude would reach a crescendo not only from the Ministry of Petroleum but also from the lay public, bitten as they are with a double whammy of food and fuel price flare-up. Can the country afford a duty cut spree and still fend for itself to fund its developmental programme for the aam admi?

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