Killer instinct missing - Does India need blessings of Lord Krishna?

By Ettirankandath Krishnadas and Sree Kailasam, Kinassery

THE Budget 2011 is no doubt a growth-oriented budget aiming at higher growth trajectory without hurting the Aam Aadmi and many of the initiatives are a bold attempt for convergence of expectations of all the stakeholders in a fair and just manner. However, implementation is key to the success of the Budget.

Setting up of Committee for pricing of natural resources & cash transfer are bold initiatives to bring transparency and improving delivery mechanism

(i) The direct transfer of cash subsidy to the beneficiaries (BPL category) of LPG, Kerosene and fertilizer is no doubt a revolutionary step intended to bring transparency and improving the delivery mechanism. It implies that the APL category are taken out of the purview of the subsidy scheme, which is a good indication that the country is slowing moving out of subsidy regime and the opposition parties should not make any hue and cry on this score. As the suggestion from the NAC is for a complete switch over to direct transfer of subsidies to the entire Public Distribution System, there is no rationale in keeping food grains items covered under PDS out of the purview of direct transfer of subsidies. Also the roll of pilot project in this regard can be commenced immediately instead of waiting till March 2012. The overhauling of the existing PDS and Fertilizer subsidy schemes will not only improve the deliverance but also help the Union Government to contain a substantial revenue outflow as subsidy and the expenditure thus saved can be better utilized by the Government to implement MGNREA and other flagship programmes like Bharat Nirman, Rural Health Mission and Sarva Shikshya Abhiyan, etc. The only apprehension is that the politics should not come in the way of implementation of this novel scheme. The direct transfer of cash subsidy to the beneficiaries should not be viewed as infringement in the federal set-up by the Central Government for political mileage and in the larger interest of the Nation, the opposition parties should wholeheartedly support this revolutionary reforms initiative under taken by the Union Government. (ii) Setting up of price Committee for pricing of natural resources will help to avoid recurrence of scams like spectrum, iron ore and other precious metals and minerals.

Aam Aadmi

Measures like hundred percent wage hike with effect from 1.4.2011 is going to benefit more than 22 lakhs Aganwadi teachers and Helpers all over the country and to index MGNREA wages with inflation are measures which will give solace to the impoverished sections of the society. Creation of Corpus fund of Rs.500 crores for SHG and earmarking of Rs.100 crores for Micro Finance Equity Fund will strengthen the micro finance system of the country aimed at empowering the Nari Shakthi (Women power) at the grass root level. A whopping outlay of Rs.160000 crores for the social and educational sector, perhaps the highest ever since independence, has once again established that UPA leadership is committed for the upliftment of the impoverished sections of the society and make the inclusive growth a reality. The reduction in the interest rate for HBA by 1% for the housing loans upto Rs.15 lakhs is also aimed at the middle class people among the society.

Impetus to Agriculture

Strengthening of warehousing facility, continuation of the four prone strategy announced by the Government in the 2010-11 Budget for the eastern corridor to increase agriculture production, reduction in wastage, flexible and easy credit support to farmers and thrust to food processing sectors, proposal to set up 7 more additional cold storage facilities and increased plan lay out is a pointer that the Government has realized that the growth trajectory cannot be made possible without augmenting agriculture sector. The proposed cold chain will help to tame prices of perishables. The interest subsidy of 3% for the farmers who repay their loan will definitely induce the farmers to make prompt re-payment of their loans and enjoy the benefit. Classification of Cold storage project under infrastructure project will spur private participation in view of the tax relief .

However, if you look at the global food crisis warned by the Food and Agriculture Organization (FAO) and the impending agrarian crisis, the agriculture sector requires a pro active approach and stimulus measures from the Government is required to insulate agriculture sector. FAO has opined that rules are needed to curb the speculation in surging commodity prices and has cautioned that higher prices and volatility will continue in the next years if we fail to tackle the structural causes of imbalances in the agricultural system. Over the next 40 years, a 70 per cent increase in agricultural production will be needed worldwide and a 100% increase in developing countries to meet the demands of a growing population. This alarm situation has to be seen as an opportunity for India from the long term perspective and therefore the focus of attention should be agriculture. India also has to follow the suit of China and Brazil by investing heavily in research and the development of new agricultural techniques and practices. ‘ Food insecurity will affect the poorest populations most seriously – Let us not allow this to happen'.

Amnesty is moral hazard

The fact that despite constitution of a group of experts to suggest measures to encourage tax evaders to disclose their unaccounted income voluntarily and look into different aspects of black money including black money, it is great relief that the Government has desisted from bringing any amnesty scheme. Any amnesty scheme is a moral hazard as it will only encourage the people to indulge in more malpractices. After the 9/11 terror strike in the US, countries have woken up to the fact that terror funding, drug and corruption money are all interlinked. We need to use our economic clout to make tax havens and countries with banking secrecy laws see reason. The tax compliance will depend on the behavioral attitude, professional and moral ethics and more importantly the deterrent action in force and it has nothing to do with controlled regime or liberal self assessment regime. The amnesty scheme has not worked in the past so what is needed is to reform system to track black money.

The timely and bountiful monsoon during the last year and the rival of Indian economy on a faster pitch than expected were possible only because of the profound and generous blessings of Lord Indira and Goddess Lakshmi. However, to overcome the widespread ethical deficit and weakness in governance noticed, the blessings of Lord Krishna is paramount at this juncture to crush the perpetrators of organized scams once for all from the soil and retrieve the ill gotten wealth. Looking at the gravity of the issue and the anguish among the Aam Adhmi, the 5 fold strategies and setting up of GOM to contain the black money and corruption is too little and not sufficient. In order to send a message that the Government is not just bold – but also really serious in solving problem of governance more convincing and concrete plan of action was expected. Even though for the first time in the Budget Speech (and even the Presidential Address), issue of corruption was prominently mentioned, the plan of action appears to be timid. The 3 fold increase made in budgetary allocation to Law Ministry for building judicial infrastructure and project eco is welcome. However, nothing has been said on judicial reforms and Lok Pal Bill without which the contentious issue of black money and corruption cannot be tamed.

SEZ imbroglio and concern of the Parliamentary Standing Committee on Finance duly addressed:

The proposal to levy minimum alternate tax (MAT) on special economic zone developers and units at 18.5 per cent of their book profits, from 1.4.2011 and the decision not to extend the STP scheme beyond March 2011 are laudable. Readers may recollect that STP scheme expired on 31.3.2010 and the industry somehow managed the Government to allow the scheme till such time DTC is rolled out. Also, let us not forget the fact that the DTC was originally planned to implement from 1.4.2011 and the same was shelved from implementation on the pretest that both DTC and yet to be finalized GST will be rolled out together from 1.4.2012. Perhaps, the above two decisions were taken due to the serious concern expressed by the Parliament's Standing Committee on Finance for not doing a review of tax exemption given to Special Economic Zones to distinguish between revenue foregone on account of exemptions/concessions and losses due to the exchequer due to pilferage of revenue. At present, units in SEZs enjoy 100 per cent tax exemption on their income for the first five years, 50 per cent in the next five years and another 50 per cent on re-invested profits in the following five years.SEZ developers get 100 per cent tax exemption on profits for 10 years, which can be used in the first 15 years. On a conservative estimate, as per the report, due to these tax sops, the finance ministry had to forgo revenue of Rs 5,266 crore (Rs 52.66 billion) in 2009-10.

It is also imperative to mention here that in the Economic Survey report for the year 2010-11 the devastating impact of revenue loss due to sops has been highlighted in a lucid and clear manner. As per the survey report, in 2010-11, revenue foregone will continue to be significant at over Rs.50,000 crores due to enlargement of the scope of schemes under the FTP 2009-14 and improvement in export promotion rates in the Duty Entitlement Passbook Scheme coupled with buoyancy noticed in exports. Further, it has cautioned the revenue loss from endues exemptions with rising imports and suggested for rationalization and convergence of these schemes.

The marginal upward revision in Service Tax on both domestic and international air travel and imposition of fresh levy on the services by air-conditioned restaurants having license to serve liquor and short term accommodation in hotels/inns/clubs/guest house, etc. are right decisions and right approach to augment the revenue. However, the scope of expansion on Medicare service may adversely affect the Aam Adhmi from 1.4.2012, as the Health check up or treatment imposed in 2010-11 would now be replaced with a tax on all services provided by hospitals with 25 or more beds that have the facility of central air-conditioning. Excise duty waiver for the capital goods supplied for the expansion of existing mega or ultra mega power projects will provide a level playing for the domestic firms including state run PSUs like BHEL with the foreign firms, especially Chinese, as imported capital goods currently enjoys a concessional basic customs duty of 2.5% and full exemption from countervailing duty. Expansion of tax net by pruning the existing exemption list of commodities and services is a step in the right direction, as a prelude to roll out of GST regime. There is no justification for continuation of Area Based Exemption (original scheme was only upto 31.3.2010). However, it is observed that the Budget is silent on the withdrawal of the same. Signaling about the withdrawal of Area Based Exemption would have helped to send a definite message that the Government is determined for the inclusive development of all the areas and regions of the country. On the same analogy, bringing a specific time lag for utilization and refund of input credit and capital goods credit, as is prevalent under VAT system at the state level would have been a ideal solution to overcome the Cenvat trauma and mounting revenue outflow. As per the Tamil Nadu Value Added Tax Act, 2006, the dealer has to make a claim for refund of unutilized input tax credit with a period of 180 days from the date of accrual of such input tax credit or before the closure of the next financial year whichever is later failing which the credit shall lapse to Government. Similarly, in the case of capital goods, only utilization of the credit for use in the course of business of taxable good shall be allowed and deduction of such input tax credit shall be allowed only after the commencement of commercial production and over a period of 3 years in the manner as may be prescribed and after the expiry of three years, the unavailed input tax credit shall stand lapse to Government.

(The views expressed in the article are strictly personal)