- Created on Sunday, 06 July 2014 07:35
- Hits: 5343
Sniffing innovation in budget-image courtesy: PIB
The Narendra Modi Government is treading the path laid down by the UPA Government. It is also working in the same fashion as any previous government-proceed as advised by the bureaucrats and make select deviations necessitated by political compulsions.
The new Government has so far done nothing creative in its first month of operation. It has not made any worthwhile announcement. Even the organizational restructuring of the Government achieved through clubbing of certain ministerial portfolios is nothing but slipshod implementation of certain recommendations made by Administrative Reforms Commission (ARC) during the UPA regime.
With monsoon set to be deficient, the Government faces an uphill task of taming inflation and accelerating growth without putting additional burden on the common man.
The new Government has to think imaginatively to usher in Acche Din (good days) for all – work opportunities for all, growth for all, essential amenities for all, peace for all and happiness for all. The annual budget to be presented by the Minister for Finance, Defence and Corporate Affairs, Arun Jaitley, on 10th July would indicate whether the Government has the political will to embrace innovative and good governance.
Before suggesting a few ideas for tax-free and imaginative budget, let us see how the Government has so far failed to live up to the public expectations. It did not bring out a white paper, listing the major socio-economic challenges faced by the country and suggesting the way forward.
It did not put in public domain numerous reports and studies on national development and social welfare that UPA Government kept under the wraps, making a mockery of the Right to Information Act.
Modi Government did not take any concrete step to take on corruption at high places, thereby giving an opportunity to Arvind Kejriwal to go an advertisement campaign against rail tariff hike and non-action against corruption in the Railways. The new Government has not announced any step to tackle the menace of black money, except for complying with the Supreme Court’s directive on money stashed in secret bank accounts abroad.
The least that it could have done was to set up an independent commission of inquiry on Vadra deals and all other similar cases of preferential equity allotment, unsecured loans and donations given by businessmen to near and dear ones of powers that be as quid pro quo for governmental favours.
Modi Government, however, did fall into the rail tariff hike trap laid down by the UPA.
On 16th May 2014, the outgoing UPA government announced hike in passenger fare and freight rates. And it immediately put the hike on hold the same day. As stated by the UPA, “the decision on the proposed hike in the freight charges and passenger fares have been kept pended till further advice for placing this proposal before the new government for taking a view/decision in the matter. This means that there shall be no revision/hike in Freight Rates and Passenger fares wef 20-5-2014. Accordingly, the Railway Board commercial circular No.19 dated 16-5-2014 and freight rate circular No.RC-15 dated 16-5-2014 are kept in abeyance till further advice.”
On 20th June, Modi Government announced a hike of 14.2 % in Passenger Fare and 6.5 % in Freight Rates. It rationalized this inflation-stoking and anti-election mandate decision by stating that this revision was “done as part of interim budget presented by the previous government. But the implementation of revised rates was withdrawn by previous regime because of the elections. Meeting the annual expenditure would not be possible unless the revised rates as finalized by previous government is implemented, hence order of withdrawing implementation of revised fare and freight has been withdrawn. Accordingly, the revised passenger fare and freight rates & freight structure rationalization will come into effect from 25th June 2014.”
What the new Government did not tell the public was that it had two other options that were also proposed by the outgoing Government. The new Railway Minister, D.V. Sadananda Gowda, should have acted on both the options.
First, Mr. Gowda should have set up Rail Tariff Authority (RTA) that was approved by Dr. Manmohan Singh Cabinet in January this year. RTA should have been asked to examine the justification for the tariff hike proposed and deferred by UPA.
Second, Mr. Gowda should have made the tariff hike redundant by accepting the recommendations of the Report of the Committee Creative Financing for Indian Railways submitted in April 2014.
The Committee, which was set up by Planning Commission in November 2013 at the behest of Prime Minister’s Office, estimated that the Railways can generate Rs. 3,29,800 crore by way of creative financing during the 12th Plan.
As put by the Committee, “This would also unlock and release committed resources of about Rs. 1,36,500 crore for other railway projects which are not amenable to such means of financing.”
Listing out various project financing options including allowing private sector to operate passenger trains on railway tracks, the Committee stated: “The recommendations contained herein can only fructify in the event that the report is implemented in its entirety and Railways begins to think and work like any other commercial organization.”
Modi Government should have used the Committee’s report to launch a slew of projects to revive economy, create jobs and open up new revenue streams for the Railways.
It should not fritter away opportunity to announce imaginative initiatives in the forthcoming regular budget for 2014-15 that would make redundant the need for hiking taxes for the next five years! Thus, the annual budget could be deemed as five-year budget as for as taxation is concerned. The stability and certainty of tax regime itself would perhaps add 1% increase to gross domestic product (GDP).
The first obvious option that Mr. Jaitley must embrace whole-heartedly is to unlock the value of unproductive or low-yielding government assets.
The auction of zero return-giving real estate in prime locations can yield thousands of crores of rupee, which can be utilized to fund 100%-transparent and fool-proof public private partnership projects to fire growth engine and create millions of jobs.
It is high time the power-wielding elite gives up comforts of Lutyen’s Delhi, a colonial legacy, and starts living in multi-storey apartments, some of which can easily be built within the sprawling 340-acre presidential estate.
If the political class could enact land ceiling laws ostensibly to promote equity in farming and urban living, it can also pave the way for bungalows-sealing in Lutyen’s Delhi (Lootero Ki Dili for cynics) for the sake of inclusive growth.
The bungalow land should be auctioned to information technology companies and other non-polluting enterprises. A part of the land can also be auctioned to builders for eco-friendly residential estates.
The vacation of bungalows would enable the ruling class to empathize with the countless people who are displaced by the projects. The ruling class must share the pains of the change and growth that the public has been bearing for decades.
And only a person of the stature and integrity of Mr. Modi can take a lead in this direction. PM, who has declared himself as the Nation’s mazdoor (worker) Number 1, should thus opt for accommodation within the Presidential Estate. He should order auction of PM’s residence - 7, Race Course Road, which reportedly comprises five bungalow spread over 12 acres.
The new Government should also immediately order auction of the Presidential Retreats at Hyderabad and Shimla. The President visits each retreat once a year, a practice that is disgusting for a Head of a Nation teeming with millions of malnourished and diseased persons.
The 90-acre retreat at Hyderabad, Rashtrapati Nilayam building was acquired from the Nizam of Hyderabad. The Shimla retreat, situated on a hill top, has a colonial legacy.
Mr. Jaitley, who holds Defence porfolio, should pave the way for sale of defence land in prime urban areas. A case in point is sprawling ammunition depot near IFFCO Chowk in Gurgaon. The unauthorized construction around the depot, which is under litigation, should hasten auction of this land. The Defence Ministry can use the proceeds of this auction to relocate depot at a safe site as well as finance the purchase latest defence equipment.
There is a compelling case for preparing a blueprint for real estate-funded strengthening of national security.
Unlocking of wealth in real estate is virtually a cashless model of growth as it does not put any strain on the national exchequer.
And this cashless model can be strengthened by imaginative divesture of public enterprises to fetch the maximum revenue as compared to modest proceeds earned through muted disinvestments done over the years.
As many as 169 public enterprises are not listed on the stock markets at present. To start disinvestment, the Government should categorize them into ones that can be sold outrightly or the ones that can be transformed into joint ventures or retained as public enterprises even with equity dilutions.
There is also ample scope to unlock the value of Government’s investment in 50 public enterprises that are already listed on the stock exchanges.
Yet another option for raising resources without tinkering with taxes is re-negotiating with multilateral institutions projects that have been dropped over the years especially the ones during the UPA regime.
India has the dubious distinction among the countries of having the largest number of dropped World Bank (WB) projects.
As many as 52 projects with soft loans aggregating to $ 14.49 billion have been dropped by WB over the years apparently due to differences between the Government and the Bank.
According to WB, a project may be dropped when, after more in-depth assessment during the pipeline phase, it is decided not to proceed with the project. If a Project Information Document (PID) has already been issued, dropped projects will remain in the Projects Database. Projects dropped before a PID is issued will not appear.
The projects dropped during the UPA regime include: Second National Tuberculosis Control Program Additional Financing project envisaging aid of $ 200 million, Integrated Child Development Services (ICDS) Program IV envisaging aid of $ 450 million and Railway Regenerative Braking Project that was to be implemented with a project cost of $ 5.33 billion.
The advantage of loans given by multilateral institutions is that they carry low rate of interest and have a long maturity period as compared to commercial loans.
NDA Government must aggressively pursue its inclusive development agenda with both multilateral and bilateral institutions to get soft loans and grants for funding projects that directly benefit the poor people.
Yet another option for financing growth without tax imposts is opening up of the new areas to private sector including foreign direct investment (FDI). Mr. Jaitley, for instance, can allow 100% foreign direct investment in export-oriented defence production units.
If Defence Ministry intends to procure from such units, then it can enter into suitable agreements with such units to safeguards supplies during the war with any country. It can stipulate the right to control such enterprises during the war.
Atomic power generation, shale gas power production and coal mine methane production (which is different from coalbed methane extraction) should also be thrown open to private sector.
Sea-bed mining and surface mining of low-grade potash are two other areas that should be thrown open with attractive tax incentives. The Finance Ministry should not mind giving income tax incentives for virgin industries because it would collect indirect taxes on purchase of capital goods required by mining companies.
Last but equally important is the option of collecting tax and non-tax arrears. The non-tax arrears aggregated to Rs 99549.75 crore as on 31st March 2013 according to Interim Budget presented on 17th February 2014.
Similarly, the tax revenue not under dispute aggregated to Rs 492637.66 crore at the end of 2012-13. The disputed tax revenue totaled Rs 410277.06 crore. Arrears on both the counts include revenue that has remained uncollected for over 10 years.
This analysis has a simple message: Modi Government must show the will and vision to break free from the bureaucracy-paved path of play-safe mediocrity. It must fire all cylinders for national development and generation of employment opportunities.
The forthcoming budget should be utilized as a launch pad for truly inclusive and sustainable development of the country.
As rightly put by Mr. Modi in his blog on completion of first month in office, his Government does not have the luxury of honeymoon period. It must act. It must deliver results.
Published by taxindiaonline.com on 28th June 2014
