The Telegraph
Since 1st March, 1999
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Govt stirs fiscal potion for industry
- Finance ministry favours retaining duty comfort to help companies claw back

New Delhi, Jan. 13: The finance ministry has decided to tailor tax and expenditure proposals in the forthcoming budget to ratchet up industrial growth that has slackened over the past few years.

In a clear departure from the past, a policy note prepared by the finance ministry for the budget-making exercise says: “Across-the-board reduction in customs tariff only accentuates uncertainties faced by business. Although customs duty reforms are necessary, the process should also help serve the national industrial agenda, which it is currently not doing.”

It points out that “investments in manufacturing are very low due to uncertainties related to the open trade regime” and that “employment generation is at an all-time low”.

The note prepared by top finance ministry officials, which establishes the ministry’s approach to the entire budget-making exercise, clashes directly with the Kelkar Committee recommendations of a cut in customs tariff to a three-layered regime of zero per cent, 10 per cent and 20 per cent. Rather, it favours the industry view that the level of protection afforded by customs tariffs is lower than the taxes imposed on it, especially when the government takes into account non-VATable taxes, such as sales tax and local levies. The note adds that Indian industry is currently facing several problems.

Further, to actually raise tax collections, it recommends what Kelkar has also done in a little noticed part of his report on taxation — shift to a sophisticated IT-enabled data base, which will allow income tax officials to mine data profitably and increase the number of people covered by taxes, instead of wasting time on endless raids and enquiries.

What the government now wants to do is tap people who earn enough but have been avoiding joining the list of taxpayers. To do so, it will chase the computerised data trail left behind by purchases and bank accounts.

The finance ministry is already preparing a blueprint for this project, special funds for which are already being allocated, sources said. On the expenditure side, the note clearly states that the “first principle of government expenditure is that it has to be devoted to the production of ‘public goods’ like defence, judiciary and social services instead of being concentrated on Plan funds”.

This again clashes with the Planning Commission’s demands for a huge outlay of Rs 1,34,000 crore. In fact, the finance ministry is likely to refuse to pay up the huge amount.

This in itself is sure to raise a storm within the Cabinet, with ministers whose bailiwicks like defence or human resources ministries (which will benefit from this decision) supporting the measure and ministers whose share of Plan funds are likely to be cut, protesting.

Even in the case of Plan expenses, the finance ministry wants to lay down a ground rule that expenses have to be prioritised on infrastructure—railways, where it wants to expand and modernise, power where it wants to concentrate on incentives for state electricity boards to reform, and ports and airports to facilitate trade.

Inflation steady

Reserve Bank governor Bimal Jalan today said that he did not see any inflationary pressure in the near future in the face of soaring oil prices due to tensions in West Asia, reports PTI.

“We do not see any inflationary pressures in the near future,” he told reporters in New Delhi.

“As of now, inflation has remained benign. Despite the drought, we had low inflation,” Jalan said after his meeting with finance minister Jaswant Singh.

Inflation based on the wholesale price index rose to 3.34 per cent towards the end of December.

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