New Delhi, Feb. 23: Finance minister Jaswant Singh essays two complex roles this fateful Friday: A toiling farmer who sows the best he can afford, and a deft surgeon wielding the scalpel in a painless operation.
The first is an imperative; the second, a compulsion. He’s been on the tight-rope for some time now, conferring with aides, sounding out ministerial colleagues and ensuring his boss, Prime Minister Atal Bihari Vajpayee, is happy with the poll-punch and the fiscal salve.
Faced with low economic growth, Singh’s principal worry will be how to revitalise GDP growth — a job which involves harsh and, at times, unpleasant decisions.
A key lieutenant to General Vajpayee in his electoral battles, his other task is to tone down proposals that could turn off voters in cities or in the Kulak-dominated northern villages.
He needs to help India Inc, especially the small-scale industry to survive yet another harsh year of factory closures and layoffs. He intends to do that by simplifying excise, which could see three duty tiers — a 16 or else 14 per cent median band, an 8 per cent band just below it for mass consumption goods like processed food or matches and high band of 24 per cent for luxuries. Besides, a zero per cent slab for life saving goods.
Customs duties will be tailored in such a manner that tariffs on components used by the industry — motherboards to gear-boxes — will come tumbling down. This could drive down prices, bring cheer to the industry and pack in feel-good factor for the middle class.
Duties on finished imported goods will come down, though not by the same degree. This, many say, could check cheap imports and give India Inc breathing space.
If all this sounds too good to be true, one has to take into account the fact that all states switch to VAT in two months. Under this, duty paid at some stage of production, can be deducted when the finished good is sold. The arithmetic will not be easy to do and there will be glitches.
So much said for growth. He will have to get votes as well. So, he must help workers, launch pension-cum-medicare plans and throw a social security net that enables those driven out of work pick up new skills.
But then, industry-friendly labour laws that make hiring & firing simpler and strikes more difficult will also be packed in into the budget. All this with the right noises about protecting worker interests. This will earn him kudos from India Inc, but a lot of fire from Sweat India Inc. On balance, a dicey deal for vote winners.
Fiscal crisis is the other key fear that haunts Singh in his search for a formula which delivers growth and yet wins elections. At the moment, he is banking on twin measures: tone up tax gathering – shift away from inspector Raj and instead depend on data mining through an IT-based tax set up which can widen the tax net by forcing traders to report a whole set of normal high value every-day life transactions through an instant e-interface.
He knows he has to cut down expenditure, something he plans to do with the Fiscal Responsibility Bill. He cannot too many government servants out of jobs in an election year, though he will keep pruning the bureaucracy by 2 per cent every year. Nor can he cut down on defence expenditure given his party’s stand vis-a-vis terrorism and Pakistan.
He will try to swap high-cost loans with low-cost ones by announcing new bond issues. But this will still leave the interest burden heavy.
The one expense he can really curb is subsidies. Despite looming elections, he is being forced not only to touch them, but to slice them. He will try to cut the huge food mountain that the government has built up through massive food-for-work programmes, step up open-market sale of FCI stocks and encourage food exports.