Untitled Document

By Jogendra Singh
(Former Chairman, Customs & Central Excise Settlement Commission)

IF one goes by the tenor of his speech, Mr Pranab Mukherjee, Finance Minister, has presented Union Budget 2010-11 on the cusp of ebbing tide of economic slowdown and surging hope that Indian economy is once again entering a high GDP growth trajectory. But this rising hope cannot and should not discount the challenges ahead some of which have been outlined by the FM also in his budget speech. First and immediate challenge is to sustain and enhance recently witnessed recovery of growth. Further, there is need to focus on those sectors of economy where there has been minimal or no positive growth in recent times. Agricultural sector is an example. Second challenge is to make this growth more inclusive and thereby ensuring that we have a population that is healthy, educated and truly empowered. Food insecurity with current high ‘food inflation' is a serious threat to fragile state of tranquility in society which is already under great stress in naxalite affected areas. And even though the Finance Minister has said that now role of Government as an enabler is coming into sharper focus, Government would need very huge resources to ensure that required infrastructure is in place and Government's delivery system improves. Best way of looking at the Union Budget would be to examine and see how the budget proposals help the nation meet these major challenges.

Coming to the fiscal consolidation, Finance Minister has promised that Government would target clear reduction it its domestic public debt - GDP ratio and bring out within six months a roadmap to show how it will be done. So at this stage, it is just a promise. In the area of tax reforms, Finance Minister has committed to implement Direct Tax Code with effect from April 2011. However, on Goods and Services Tax, which among other things is billed to generate more revenue, Finance Minister has promised “to endeavor to introduce GST” in April 2011. No firm commitment on the date of introduction of GST. Government also intends to raise Rs 25000 crores from disinvestment of PSUs. In case of fertilizer subsidy, Government intends to move towards direct transfer of subsidies to farmers. In the pricing system of petroleum products, there is only an uncertain promise that Minister of Petroleum would take a decision on Parikh Committee's recommendations. There is also a promise to make FDI policy user friendly. In the export sector, subvention of 2 percent on the pre-shipment export credit has been extended in some sectors for one more year and there is also a commitment to ensure continued growth of SEZs to attract investments and promote exports.

Agricultural sector is the most worrisome area and no inclusive growth is possible unless it comes out of its current phase of sluggishness. Budget promises a strategy covering areas of agricultural production, reduction in wastages of produce, credit support of farmers and thrust to the food processing sector. Some initiatives have been indicated in the budget speech but what is most important in the context of agriculture sector is an efficient and corruption-free public delivery system which, perhaps, the Union Budget would be handicapped to ensure in the kind of federal set up we have in the country.

Fund allocations have been increased in the education and health sector which is a welcome step. Both these areas cry not only for more funds but also for more commitment and dedication on the part of human resource that is the major vehicle of delivery system. Again, Union Budget can only play an indirect role in the improvement of the quality of the human resource in these two areas.

So far as tax prospects are concerned, Finance Minister has provided relief by broadening income tax slabs which would certainly be welcomed by income tax payers. Allowing deduction of Rs. 20.000 for investment in long term infrastructure bonds in addition to the existing limits of Rs. 1 lakh on tax savings would promote savings and help build infrastructure. Central Government employees would be happy to become entitled to deduction of CGHS contributions at par with health insurance schemes, particularly after the rates of CGHS contribution have been substantially revised upwards in 2009. In the area of corporate tax, it is proposed to effect a 3% increase in the rate of MAT on the ground of inter-se equity among corporate tax payers. The limits of Rs. 40 lakhs and 10 lakhs fixed in 1984 for businesses and professionals respectively to have their accounts audited have also been raised to Rs. 60 lakhs and Rs. 15 lakhs respectively which would certainly reduce compliance costs for relatively small concerns/ professionals.

Major change on the indirect tax side is across the board increase in Central Excise duty on all non-petroleum products from 8% to 10% advalorem. Similarly, there is 2% increase in advalorem component of duty on large cars/multi-utility vehicles. Possibly, the confidence that Indian economy is coming out of the slow down and need for more resource have combined to suggest to the FM that now there is need for partial roll back of fiscal stimulus package. Service tax rate of 10% remains undisturbed but a number of new services have been brought under service tax net.

Tax proposals result in revenue loss of 26000 crores on Direct Tax side and gain of Rs. 46500 crores on Indirect Tax side. Ultimately net revenue gain as projected is 20500 crores.

Through Finance Act, 2007, Settlement Commissions both on Indirect and Direct tax sides were crippled. Restoration of their powers and jurisdictions is a welcome move by the present FM, more so when faster dispute resolution helps both the assessee and Government. Further, while moving on to GST on the indirect tax side, the carrying of past baggage of disputes should be best avoided and Settlement Commission can immensely help in this endeavour.

Budgets have a habit of being differently branded such as dream budget, progressive budget, status quoistic budget and so on. The current economic slow down, even if Indian economy is coming out of it, does not yet permit to dream. So, perhaps, the F M thought that it was a time to be realistic and consolidate the gains and not to make paradigm shifts in fiscal approach. But this makes it an ordinary budget. If all goes well, February 2011 should be a month for bold initiatives, of course, if the Finance Minister dares.