The Hindu : National : Higher growth, revenue buoyancy to help bridge fiscal deficit

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Sunday, Jun 20, 2004

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National

Higher growth, revenue buoyancy to help bridge fiscal deficit

By Sushma Ramachandran

NEW DELHI, JUNE 19. The services sector is not likely to be spared in the first budget of the Congress-led coalition Government as the Finance Ministry plans to cast its net wider and deeper over this booming area. The salaried class may also have to wait in vain for cuts in income tax with the focus on ruling out exemptions for both individuals and corporates. Overall, higher growth and revenue buoyancy along with cuts in "wasteful" expenditure are expected to help in containing the fiscal deficit this year, even though there will be a big gap in the area of disinvestment receipts.

Finance Ministry sources say revenues are expected to exceed the targets laid down in the interim budget for the current fiscal — 2004-05. They describe these targets as "conservative" and anticipate much higher inflows. In addition, a drive to cut down on wasteful expenditure is expected to help the resource mobilisation effort. This may include making subsidies more sharply focussed about which a detailed paper is to be released by July-end.

The sources say the budget will draw heavily on the priorities laid down in the Common Minimum Programme and the theme can be described as "agriculture, manufacturing and employment." Though the pride of place being given to agriculture has been highlighted with the agriculture credit package announced yesterday, they stress that equal emphasis will be given to manufacturing with the aim of boosting employment.

Giving these broad indications about the thrust of the budget proposals, sources say that all efforts will be made to "disaggregate production" by providing specific excise relief. In other words, companies will be allowed to manufacture products in different units without paying double excise duty. This is expected to help corporates shift from setting up large umbrella units to smaller, more widely dispersed production establishments. In turn, more jobs may be created over a wider area instead of having employment concentrated in a few big factories.

The sources say manufacturers will be helped to disperse production units not only through changes in excise rules, but in any other way that is deemed necessary. They point out that industry's wish list this year has been purely to help the economy grow as fast as possible. This is a far cry from 1996 when P. Chidambaram was last Finance Minister and the industry then clamoured for many special concessions.

Noting this sea change in outlook, the Finance Ministry feels that the previous Government's efforts should not be ignored in terms of bringing an end to the "investment drought." Investment intentions have just begun their upward curve. It is now up to this Government, they feel, to ensure that the curve continues to rise higher and faster. One of the ways to do this is to change the attitude towards investment and becoming pro-active rather than passive. Instead of becoming "gatekeepers", they say the Government must become a "gateway" for investment.

One of the key issues in this regard is completely cutting back on red tape and procedures. In the area of taxation, this includes rationalisation and streamlining of both direct and indirect taxes. In fact, the Ministry is currently in the process of going through all exemptions with a fine toothcomb and putting them under the scanner. Only those which are absolutely essential will be allowed to remain and all others will be dispensed with, the sources say. Open-ended exemptions are not likely to be retained as tax shelters and most exemptions will now have a sunset clause after a two or three-year period. The exporting community's demand for restoration of Section 89 HH C is considered a dead issue in this context, especially since exports are buoyant currently without any tax breaks.

Since there is not much time left with the Finance Ministry to prepare the budget this year, it is not clear whether the entire exercise will be completed by the first week of July but efforts are certainly being made to do so.

As for widening the tax net, sources say there is no option for any Finance Minister but to tap the burgeoning services sector. And if the salaried classes are looking for yet another dream budget from Mr. Chidambaram, it seems they will have to tone down expectations for the time being.

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