There is now a feel-good sentiment in the air (12 Jan 2003)
It was only last Monday that this column said that the much touted ‘feel- good’ factor hadn’t really permeated beyond the bull run on the stock markets and the burgeoning foreign exchange reserves. And neither meant much to the average person. Four days later, Finance Minister Jaswant Singh changed all that and delivered a pack of goodies directly into middle-class homes. A range of tax concessions and duty cuts that fulfilled his specific promise to put money in people’s pocket, and showed that the government too was willing to bet on a shining India, instead of merely advertising it. Last week, we said that the reality that confronts ordinary people is that of bankrupt governments, who ‘‘do not hesitate to impose fresh taxes every day, squeezing every new business development to raise scarce revenue’’.
But the Finance Minister says, ‘‘We will meet our revenue expectations of the Budget, maybe exceed them’’. And he has backed this expectation of higher revenue and economic growth by gambling that his tax cuts will be offset by higher income and business activity. On the feel-good front (without monetary benefits), individuals earning up to Rs 1.5 lakh have been freed from the bother of filing returns, as long as their entire tax payable is deducted at source. And pensioners have been exempted from the one-by-six scheme. A higher interest bearing Dada-Dadi bond for senior citizens is expected to put some more money into their pockets. The neighbourhood yuppie has been allowed to bring back, as a part of his baggage — a duty free notebook, more DVDs/VCDs and two bottles of daru (liquor) instead of one, while returning from foreign jaunts. We had said that ‘‘while industry tightened its belts, cut costs and trimmed flab during the long years of economic slump, government did almost nothing to help the process by way of making public utilities more efficient or lowering input costs such as freight rates, electricity and water tariffs and property taxes’’. Singh’s answer to this grouse was a specific reduction in input costs in many sectors including infrastructure. Manufacturing companies in the automobile, consumer durable and IT hardware industries are specific beneficiaries. Peak customs duty on all non-agricultural goods has been cut from 25 per cent to 20 per cent, and the 4 per cent special additional customs duty on goods imported by manufacturers has been scrapped. Electric meters, power transmission and distribution equipment, non-coking coal, nickel, life saving drugs were given significant benefits. On aviation, this column said that if the government showed some far-sightedness by implementing the Naresh Chandra Committee recommendation to cut tax on aviation fuel and airport landing charges, it would give a fillip to domestic tourism.
In one sweeping action, Jaswant Singh has made air travellers ecstatic. Scrapping the 15 per cent Inland Air Travel Tax has made airfares at least that much cheaper and airlines have got a boost through halving of excise duty of Aviation Turbine Fuel (ATF). Competition between carriers may force airlines to pass on some of that benefit also to their passengers. The cheaper airfares have had an impact on the railways. There may be a drop in the First class-Air-conditioned rail fare too, since it has now turned more expensive than the basic flight tariff. All this is bound to provide a big boost to domestic tourism. This column had also said that while India is certainly shining, large parts of rural ‘Bharat’ continued to be poor, hungry and illiterate with no access to housing, electricity or tap water. Singh has tried to address the bijli, sadak, pani issues too in his pre-Budget bonanza. He is trying to boost infrastructure development, which will also generate employment. For starters, customs duty on power equipment and coking coal has been cut from 25 per cent to 10 per cent. Water supply projects, both for industrial nd agricultural use, have been freed from customs and excise duty. And the drop in coal prices is expected to benefit the cement industry and consequently the infrastructure sector.
There is a lot more on the infrastructure front, but with a longer-term perspective. The FM has announced a Rs 50,000-crore Infrastructure and Manufacturing Fund. This envisages that a consortium of banks and financial institutions such as IDBI, IDFC, Life Insurance Corporation, ICICI Bank and State Bank of India would appraise major projects and lend to them at two per cent below the prime lending rates (PLR), with a government guarantee. This fund will finance power generation, ports, airports, tourism, telecom, roads and urban infrastructure. A second fund for small and medium industry to be set up by the Small Industrial Development Bank of India (SIDBI). With general elections apparently planned for April-May 2004, financial institutions are unlikely to fork out much money, even if the government guarantees it. After all, the unresolved Enron project remains a big reminder that government guarantees are no substitute for a honest project appraisal and feasibility studies.
So, these announcements are more in the category of future promises and consequently rather hazy. But they are a way of telling the people that the BJP must come back to power if they want fast-paced reforms and continued development.
Last week, we listed many criticisms, but forgot to give the government the credit for lower interest rates making housing and consumer loans a lot more affordable. In fact, the tax concessions on housing had indeed contributed to the not just the ‘feel-good’ factor but huge financial benefit for the middle class and industry sectors like cement and steel. All these announcements have finally put Finance Minister Jaswant Singh on course to keep his promise of increasing Gross National Contentment. But finance ministry officials tantalisingly say that this is not the end of good news emanating from North Block —it is just beginning. They claim that the concessions announced so far fall in the category of ‘‘executive decisions’’, which do not need parliamentary approval. Santa Clause Singh, they suggest, will be going to Parliament seeking even more concessions for the electorate and probably dare the opposition to turn down the goodies for the masses on the eve of a general election. -- Sucheta Dalal