G. Srinivasan

Even as the new Government completed its first 100 days in office, the abrupt end to the Budget session with the Opposition not finding enough `political space' to play its legitimate role, served merely as diversions to the myriad problems the polity is faced with.

THE first Budget of the United Progressive Alliance (UPA) Government piloted by the Finance Minister, Mr P. Chidambaram, saw its passage in Parliament sans debate and without the participation of the principal Opposition party, the Bharatiya Janata Party (BJP) and the National Democratic Alliance (NDA) it leads. It is an irony of sorts that the NDA which fought the 2004 election on the "India Shining" platform should find it politically expedient to boycott the Budget debate and let pass an opportunity to pillory the government of the day. The lack of opportunity for involved discussion and the absence of an inclusive approach in the Budget passage, even had the Opposition moved some amendments to the Finance Bill 2004, has perturbed Mr Chidambaram enough for him to voice his "unhappiness". But even as the new Government completed its first 100 days in office, the abrupt end to the Budget session with the Opposition not finding enough `political space' to play its legitimate role, served merely as diversions to the myriad problems the polity is faced with.

The delayed monsoon, rising prices, truckers' strike can affect the confidence of the corporate sector and the general public, besides impacting the economy in terms of lost output and productivity. With just over half a year left, time will quickly run out if the Government does not get its act together and crack the whip on those who might be thinking of exploiting the inherent contradictions of the ruling alliance. If only the ruling dispensation recognises the virtues of cohabitation which had worked abroad particularly in France where strikes and organised protests marked such an experiment in governance and how Paris overcame them, probably the Government would show more determination and resolve to solve any threat to its stability or durability.

Apart from the political distractions that get played up, the state of the economy — as testified by the quarterly review of the trends in Central Government finances in relation to the 2004-05 Budget — does make a disquieting reading. As this statement is in conformity with the clause of the Fiscal Responsibility and Budget Management Act, 2003, the revenue deficit position in the first quarter (April to June) in relation to Budget 2004-05 seems to be a cause of concern. From Rs 40,031 crore (36 per cent of the Budget in first quarter 2003-04), it has gone up to Rs 46,394 crore (61 per cent of the Budget 2004-05 target). Since the Government has set a `stiffer' target of revenue deficit limiting it to 2.5 per cent of GDP at Rs 76,171 crore against 4.1 per cent of GDP last fiscal at Rs 1,12,292 crore, the first quarter revenue deficit accounting for a whopping 61 per cent of the target for the whole year portends ominous signs of massive slippage as the year gets under way when the full figure is available at the end of March 2005.

No doubt, there was a rise in the revenue expenditure under some heads, notably interest payments (mainly ascribable to less than estimated income from premium on re-issue of government securities); pension (due to the previous government's election-eve sop of enhancement in pensionary benefits consequent upon the decision to treat 50 per cent of basic pay/basic pension/family pension as dearness pay/pension/dearness family pension and court judgment granting pension revision benefits to the ex-government employees absorbed in Coal India Ltd; police and elections (due to the general elections) and Plan grants to States.

A silver-lining in the finances is the higher allocation to accelerated Plan expenditure in agriculture, education and rural development proposed in the 2004-05 Budget, in tune with the declared objectives of the national Common Minimum Programme (CMP) of the UPA dispensation. The Ministry of Finance statement placed in Parliament sanguinely says that the robust industrial growth in the first quarter shows a positive outlook for growth, driven both by domestic demand and exports, and might augur well for a healthy revenue performance to contain the revenue deficit within the targeted level. It is also conceded that the Budget Estimates of revenue receipts included a significant step-up in the tax collection targets due to the education cess, other additional resource mobilisation proposals and estimated receipts from recovery of arrears of tax revenue. It is also averred that the revenue from the education cess in respect of direct taxes and service tax and from new tax proposals especially on services tax and securities transaction tax (STT) would start flowing only after the Finance Bill is passed. But it needs to be noted that on July 21, the Finance Minister announced the first partial rollback of his Budget proposals — a reduction in the STT for day-traders, arbitrageurs and derivative traders (futures as well as options). This rollback is likely to impact the fiscal position of the Centre.

Service tax has been the bug-bear of this Budget, especially the raising of the rate to 10 per cent from 8 per cent, and the widening of the net to cover 71 services from 58. Though services tax has its roots in the presumptive tax introduced during the reform period of the then Finance Minister, Dr Manmohan Singh, the yield from this avenue is yet to pick up mainly as it is being implemented by voluntary compliance and not mandatorily deducted at source.

The Kelkar Committee on Tax Reforms had proposed that services valued up to Rs 10 lakh pay tax at one per cent, but the Ministry of Finance did not accept this.

In a country where an individual had to shell out a minimum of 20 per cent tax if his income exceeds Rs 1 lakh and 30 per cent if it exceeds Rs 1.50 lakh, is it justice to let service providers with incomes of Rs 10 lakh get away paying a minuscule one per cent tax?

Equity and fair play factors make a compelling case for inclusion of this important recommendation by Dr Vijay Kelkar and Mr Chidambaram ought not to get upset over orchestrated opposition for reasonable proposals as long as he aims to widen the tax base and lessen the tax burden on the salaried and fixed-income groups.

It is small comfort to be informed that the Government has constituted two special task forces for expediting collection of arrears of direct and indirect tax revenue. Considering the weight of the tax arrears running into crores of rupees, as admitted by the Minister of State for Finance, Mr S. S. Palanimanickam, in a written answer to the Lok Sabha, one only hopes that the task forces would quickly act to realise at least a part ofthe arrears of tax revenue.

The amount of arrears as on March 31, 2004, was: In direct taxes Rs 87,885.21 crore, and indirect taxes Rs 12,613 crore (Central Excise) and Rs 2,725.63 crore (Customs). Contrast this with the expansion of the tax-base, 2.47 crore tax-payers in 2000-01 to 3.01 crore in 2003-04. During this period, the collection of direct taxes also increased, from Rs 68,305 crore to Rs 1,05,236 crore. If tax arrears of both direct and indirect constitute Rs 1,03,223.84 crore, and income-tax revenue receipt (direct tax) alone last year is only a shade above this figure, it is time the authorities worked to realise the arrears through innovative means without a return to the raid raj which might sap the confidence of the economic agents.

Alongside, the Government should not buckle under pressure to organised industry resisting imposition of services taxes lest its commitment to fund social infrastructure programmes so elaborately laid out in the Budget gets completely eroded. Mr Chidambaram has his tasks cut out even as he is to set off the preparatory work for the 2005-06 Budget in a couple of weeks from now to redeem his grandstanding proposals to effect a tectonic shift in budget management to enter into a non-inflationary high economic growth phase for the Indian economy.

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