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Budget Special
New Delhi, 1 March 2013
Union Budget
CAN FM REWRITE IT?
By
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
(Copyright, India News and Feature Alliance)
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