The Hindu : A BUDGET BY OTHER MEANS

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Friday, Jan 09, 2004

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A BUDGET BY OTHER MEANS

WITH AN EYE on the impending Lok Sabha elections, the National Democratic Alliance Government has rushed through changes in customs and excise duties that would have ordinarily been presented to Parliament in the budget. Obviously, the Government wanted to beat the election bell. If at first glance the measures smack of a pre-election gimmick, perish the thought. In the bag is none of the goods of mass consumption such as kerosene or wheat or sugar or even cooking gas that politicians are prone to play with ahead of elections. Indeed the list is limited to a few sectors that in recent times have either shown distress such as aviation or those that have experienced such exhilarating growth as cellular phones. The former needs tax breaks to climb out of the hole; the latter to sustain its heady growth rate.

The tax measures that the Government has taken have been on the medium-term agenda. The Government had earlier committed itself to a phased reduction of the peak customs duty; this it has now brought down from 25 per cent to 20 per cent. Likewise, it had promised to cut import tariffs and excise duties on electronic and information technology inputs in order to give a boost to these two sectors. These proposals have also been effected. The same can be said about the tax cuts to boost investment in the health and power sectors, two areas that have been crying out for Government attention. In direct taxes, the decisions to simplify procedures and facilitate electronic filing of income tax returns were both suggested by the Kelkar Task Force in 2002.

However, the manner in which the Government has taken these decisions has no parallel. All Central and State Governments show an inclination to announce welfare schemes ahead of elections, but rarely has a regime undertaken such a major election-eve overhaul of the tax structure and effected such a range of measures through notification. The NDA is clearly hoping to capitalise on the "feel good" factor about the economy ahead of the elections. But by virtually announcing a full-fledged budget sans expenditure proposals, the NDA Government has caused serious damage to the budgetary process.

There are three major problems with these decisions. First, while the Government is well within its right to change indirect taxes by notification, the sweep and selective nature of these decisions are extraordinary. The new measures completely bypass the politically sensitive challenge of removing exemptions in indirect taxes (one of the core recommendations of the Kelkar Task Force) even as they go through with the easier and populist job of reducing rates. Second, the Government usually includes revenue and expenditure proposals in its annual budget because the net effect of the two, as discussed in the budget papers, gives Parliament and the people an assessment of the larger impact of tax and policy measures. Now we have major changes in tax rates without any idea of what impact they will have on the Government's finances. This is particularly true of major changes such as the decision to abolish the special additional duty on customs and the inland air travel tax. Third, and most important, there is supposed to be a sanctity to the larger budgetary process, culminating in debate and approval by Parliament. By presenting a mini-budget bypassing Parliament, the NDA Government has given short shrift to the budgetary process.

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