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Cong tugs at pre-91 hearts
- Manifesto steps away from spirit of liberalisation

March 26: The Congress today set out a broad economic agenda in its election manifesto that blended a chimera with a mirage, embellished the resulting fondue with some bits of paradox and topped it off with fanciful numbers.

The party, which is going to the polls battling the pangs of incumbency and a botched-up economic record, promised to return to an 8 per cent rate of growth in the next three years.

The Congress said if voted to power, it would create 10 crore jobs in the next five years even as it signalled its commitment to economic pragmatism by promising to haul fiscal deficit down to 3 per cent of GDP by 2016-17 and always stay below that level.

But there is a stark irony behind these pie-in-the-sky numbers: economic growth this financial year, which ends on March 31, is projected at 4.9 per cent with the slowdown likely to persist well into the next year.

The big beef is over manufacturing sector which has gone through the wringer this year and is reporting a contraction of 0.4 per cent in the first 10 months (April-January) against a tepid 0.8 per cent growth in the same period last year.

The party’s manifesto said it would ensure a 10 per cent growth rate in the manufacturing sector.

There were some disturbing elements in the party’s economic agenda that appeared to strike at the root of the spirit of liberalisation and openness that the Congress had embraced way back in 1991.

Protectionist move

First, it signalled a throwback to protectionism when it tried to explain how it would get the manufacturing sector out of the deep rut. Then it appeared to articulate a desire to crank up exports in a manner that could force it to duck its obligations as a member of the World Trade Organisation (WTO).

“We… propose that there should be a minimum tariff protection so that there is an incentive to manufacture goods in India rather than import them into India,” the manifesto said. This is likely to warm the cockles of India Inc, which has been trying to stave off competition from a rising tide of imports.

It also promised to provide tax incentives so that companies could be persuaded to establish manufacturing plants in the country to make IT hardware, seeking to re-energise an idea that had been snuffed out more than two decades ago by competition from superior products made overseas.

The Congress said that it would ensure that all central and state taxes that go into an exported product will be “waived or rebated”. It was short on specifics but long on intention and seemed to promise a new tax El Dorado for exporters.

But the trouble is that the two big ideas — protectionist tariff for Indian manufacturers and a tax waiver for exports — would fly in the face of India’s commitments to the WTO, inviting the wrath of its trading partners and a rash of lawsuits before the world trade body’s dispute settlement wing.

Indian industry will, however, be uneasy with the Congress’ desire to build a national consensus on affirmative action for SCs and STs in the private sector.

The manifesto is a mish-mash of progressive and regressive ideas.

The progressive elements included the desire to limit subsidies to only the deserving, a commitment to promote flexible labour laws especially for the export-oriented sectors and the introduction of sensible user charges in areas like the provision of uninterrupted power — borrowing an element that already exists in cities like Mumbai and Pune.

During the Congress-led government’s decade in office, subsidy spending has soared from Rs 45,900 crore in 2004-05 to an estimated Rs 2,55,000 crore in 2013-14.

The manifesto said there was “no room for any aversion to foreign investment” and underscored the intent to put out a clear policy on tax treatment for foreign firms. It also attempted to soothe foreign investors’ fears by vowing to ensure that the “unpredictable risk of retroactive taxation is avoided”.

This is a suggestion that was made by the Parthasarathi Shome committee in September 2012 after the huge outcry over the government’s move to amend a 60-year-old tax law in order to force Vodafone Plc to fork out over $2 billion in taxes over its buyout of India’s second largest mobile telephony operator in 2007. The retrospective amendment had blunted the effect of a Supreme Court verdict that had gone in Vodafone’s favour.

The manifesto promised that the party, if voted to power again, would invest more than $1 trillion over the next decade in upgrading country’s power, transport, and other infrastructure.

The growth rate in manufacturing reduced from 9.7 per cent in 2010-11 to 2.7 per cent in 2011-12 and 1 per cent in 2012-13. In the last fiscal, only 3.3 per cent of the country's growth was generated by manufacturing as opposed to 83 per cent contributed by services.

It also aimed to double trade in services within five years from the current level of $ 1 trillion.

The Congress pledged to encourage foreign direct investment (FDI) and push goods and services tax (GST) and direct taxes code (DTC) within a year of returning to power.

The GST has been in the making for almost a decade with stiff opposition by several political parties including the BJP on some of the provisions. The tax will subsume central excise taxes, additional customs duties, surcharges and state taxes such as VAT, entertainment and luxury taxes, lottery and gambling taxes.