Shivaji Sarkar
Finance Minister P Chidambaram better rewrite his Budget. People’s expectations of growth acceleration, freedom from inflation and simple tax norms have sadly not been met by the UPA Government’s 10th budget. The promised over six per cent growth too may remain only on paper. Worse, his move to make non-payment of a tax virtually a criminal offence would bring untold miseries to all tax-payers-both individuals and corporate. It may even stymie growth and trigger more litigation.
Additionally, it is difficult for Chidambaram to contain fiscal deficit. Even this year, despite Rs 1.91 lakh crore cut in plan allocation, his borrowings have increased from Rs 5.15 lakh crore to Rs 5.21 lakh crore. As current account deficit grows and he admits he would need to find over $75 billion to fund it, the only probable recourse left for him would be to take hard currency borrowings, which if it happens would get the country mired yet again into the vicious cycle of foreign debt.
Further, the FM has cut allocations in 2012-13 only to window dress his 2013-14 Budget. His lip service to growth is not being supported by the figures in his Budget. Despite his tall announcement of 22 per cent increase in agriculture to rural development, the reality is that these have less plan allocation. The question as to how the nation can progress without participation of 54 per cent of the people –70 crore –in agriculture has too gone unanswered. Neither are there jobs nor a plan for higher production. Even the much-touted MNREGA has Rs 33,000 crore sanctioned as against Rs 40,000 crore in 2012-13.
Figures of the Central Statistical Organisation released on the same day are a pointer. The overall October-December 2012 growth has slumped to 4.5 per cent because of abysmal results of agriculture sector at 1.1 per cent, (from an earlier 4.1 per cent), mining and manufacturing. How then would Chidambaram achieve the over six per cent growth his ministry anticipates?
In fact, expectation was that Chidambaram would to be tough, have a road map for growth and be politically savvy for his Party’s election goals. But he has only been the latter. Sonia Gandhi’s pet projects of Food Security Bill to women and child safety have got a boost. Additionally, the Budget bears Congress Vice-President Rahul Gandhi stamp too-be it the announcement of the first exclusive public sector women’s bank (a decision taken at Congress’ Jaipur chintan baithak) or certain excise duties and taxes imposed, such as the 10 per cent tax on super rich who earn over Rs 1 crore a year, or say the duty hike on imported cars, motorbikes and yachts or the Direct Benefit Transfer Scheme.
Instead of an all-women bank, Chidambaram should have set up women cells in every bank to achieve his objective of helping women self-help groups and entrepreneurs. A new bank is an expensive proposition and has a longer gestation period to become functional. Such announcements are only good campaign material in an election year.
Most critical, of course is how does Chidambaram propose to achieve his twin objectives of containing inflation and spurring growth? There are no ready answers. Besides, he has not been able to give the people a friendly Direct Tax Code by making tax provisions simpler. Rather these have become draconian when it comes to unpaid excise duty and service tax! Shockingly, he is amending Sec 9 A and 11 of Excise Act, Section 91 of the Finance Act for service tax rule and the Customs Act to make any unpaid tax as non-bailable, virtually a criminal offence.
Even Income Tax rules are being amended to facilitate its department to claim the entire demand amount from an assessee on the basis of an original show-cause notice. Remember, harsh laws never helped growth. These only empower the bureaucracy to harass the people and give rise to corruption. The entire political class needs to reject proposals mooted by the bureaucracy and Congress’ youth leadership.
If Chidambaram wants growth he has to consider abolition of personal income tax and make all other tax laws simple. Even the 10 per cent tax on those earning over Rs 1 crore (42,800 persons) is unwelcome as while it may fetch a little more (Rs 45 lakh), it would cause enormous problems in calculations and tax raids. The economy needs stimulus and not moves which go contrary.
Likewise, Chidambaram is yearning for investment–domestic and foreign. He has thus announced 15 per cent investment allowance for those putting in over Rs 100 crore —a good move no doubt. However, he forgets that an investor also looks at comforts and that the Ministry’s amendments threatening arrest for minor mistakes may just keep them away. Remember rating agencies look at the overall atmosphere and not just piecemeal decisions. If such ‘draconian’ moves are not removed, India would become the least attractive investment destination.
Another example is the provisions on royalty. The Budget proposes that distribution of profits by a subsidiary to the foreign parent company in royalty would be taxable. Thus, MNCs will now have to pay tax at 25 per cent by way of royalty and a fee for technical services to non-residents!
Further, the proposal for higher tax on mobile phones above Rs 2000 is a bad idea. It will hit all, particularly the youth and students, who are his stated primary concern. These days nobody buys cheap phones, as the young yearn for information and knowledge, which is a click away in fancier cell phones. This apart, the move will not net much revenue. Likewise, the automobile industry is going through a difficult patch and the proposal to tax SUVs is more symbolic rather than fetching more tax.
On disinvestment his proposals demonstrate a pathetic state of affair. As per the previous budget proposals, proceeds from disinvested companies should go to the National Investment Fund for strengthening public sector companies. The proceeds realized from divestment in ten companies, including BHEL, MMTC and NTPC would be used to recapitalize the banks and be invested in Railways to offset its projected losses of Rs 24,600 incurred on introduction of new trains. However, the Railways capital expenditure for 2013-14 is Rs 63,363 crore while the budgeted disinvestment proceeds are estimated at Rs 55,814 crore.
This apart, the inflation-indexed bonds had failed earlier. It remains to be seen how these succeed now. It cannot be a prescription to increase domestic savings, which have plummeted to 30 per cent from 36 per cent. A pragmatic people-friendly tax law and steps to control inflation could achieve that. That is, however, not the concern of the budget! INFA
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