The Hindu Business Line : Pranab may focus on curbing reckless spending

New Delhi, July 2 Predictably, the Pre-Budget Economic Survey has urged the Government to “revisit the agenda for pending economic reforms… to renew the growth momentum.”

Justifying the overarching need to pitch for reforms, some of which would turn out to be controversial particularly in the finance area, the Survey quips that “the macro-economic impact of the global financial turmoil particularly on India’s GDP growth has been relatively muted due to the overall strength of domestic demand and the predominantly domestic nature of investment financing.”

As the Finance Minister, Mr Pranab Mukherjee, rises to present the first Budget of the new UPA Government on Monday, will he announce big bang reforms that are contentious in nature and scope such as passage of the Banking Regulations (Amendment) Bill, 2005 to align voting rights in banks with equity holdings, introduce standardised credit default swaps that could be traded on exchanges, increase the FDI limits gradually in banks and free up entry of foreign banks, revitalise the disinvestment programme to fetch at least Rs 25,000 crore a year, or auction 3G spectrum with the airwaves being freely tradable?

If the major reforms suggested by the Survey, as putatively sought by domestic and foreign investors, could be off its agenda, what the Budget is left with to sustain the growth momentum and make outlays to ensure inclusive growth as also keep the fiscal deficit from soaring would be a tight-rope walk for Mr Mukherjee, who will be presenting a full-fledged Budget after over two decades?

However, with the bold decision of raising fuel prices, the Government has demonstrated its commitment to curbing reckless consumption of fuels and promoting greener growth, though much to the dismay of users. The Survey argues that the low prices of oil provided a temporary window for costless decontrol of petrol and diesel but the Government lacks the pluck to go for it worried as it is about its aam aadmi constituency. But its prescription for addressing other elements of the energy policy, such as open access to power and decontrol of coal, to find a lasting solution to the country’s abject dependence “on foreign oil and the debilitating effect of power failure” is asking for the impossible. This is so given the shambles in which the power and coal sector are in.

The Survey’s claim that India’s trade reforms since 1991 have moved progressively towards a neutral regime for exports and imports, eschewing tax and other incentives for exports is questionable, considering the interminable demands of trade and industry for export-friendly intervention both in downturn and in normal times over the years, which the Commerce Ministry takes up with zeal with the Finance Ministry. Besides the much-hyped Special Economic Zones (SEZs) for tax exemption for a specified period, the Survey pinpoints under the title, “Customs duty exemptions and revenue loss,” that the Revised Estimate of the actual duty collections on non-oil imports the revenue loss of Rs 27,260 crore in 2008-09 was on account of 558 cases of exemptions consisting of 443 in industry groups and 115 thematic exemptions mainly under the subject of exports, country preferences and defence.

Stating that the duty collection will fall further this fiscal as excise cuts in late 2008-09 impacting the countervailing duty have to be accounted for, the Survey concedes that the impact of exemptions on revenue due to additional debits in Customs revenue on account of promotional measures such as the DEPB, enlargement and launch of new initiatives such as Focus Market and Product Schemes and High-Tech Products Export Promotion Scheme by way of duty credit redemption would result in further erosion of Customs revenues.

While revenue compulsions have led to the slapping of a raft of surcharges and taxes and a host of abbreviated agonies to individuals and industry such as CTT. STT, FBT and DDT, the move to grant innumerable exemptions in specific cases to promote certain segments such as exports which are import-intensive have only warped the revenue base, leaving a simple and moderate tax regime a mirage. Will the Finance Minister address this issue in his Budget?

More Stories on : Economic Survey | Budget

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page