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January 13, 1999


Economists moot corpus for education and health in budget

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Leading economists on Tuesday suggested to Finance Minister Yashwant Sinha to ensure that the coming budget should increase exemption of income tax and levy a surcharge to build up a corpus for education and health and ensure that it did not have any protectionist duties.

On the second day of five-day pre-budget consultation exercise by the finance minister, the economists also suggested a higher marginal income tax rate of 35 to 40 per cent. The experts also favoured removal of four per cent customs surcharge and reduction of spread and average rate, which is considered one of the highest in Asia.

However, captains of industry in their meeting with the minister urged him to retain four per cent special import duty, a measure perceived as protectionist by the foreign companies.

Coupled with this, the suggestion by the economists to remove five per cent customs surcharge is unlikely to find favourable response from large and small domestic industries.

The economists who attended the meeting included Dr Isher J Ahluwalia, Prof C D Wadhwa, Dr Ashok Lahari, Dr Amaresh Bagchi, Prof Suresh Tendulkar, Dr Onkar Goswamy, Jagdish Shettigar, Prof Kamta Prasad and Dr Kirit Parikh.

The experts also recommended measures to mobilise Non Resident Indians' savings to take care of currency fluctuations and decline in the flow of foreign institutional investors investments. They wanted setting up of a fund for promoting and defending patents from the country.

The economists said the initiative taken to liberalise trade by the South Asian Association for Regional Cooperation nations should be encouraged. The second phase of reforms should concentrate on domestic liberalisation, particularly in the agricultural sector to reap full advantage.

Sinha in his remarks referred to the seven years of reform and their uneven impact on the economy benefitting only some sectors. He touched upon issues relating to sequencing of reforms pending issues particularly with regard to price and distribution controls and pace and quality of tax reforms.

He also referred to problems concerning fiscal and monetary policy, including the need for an independent monitoring authority.

The minister underscored the need to use constitutional provisions and institutional reforms to restore public finances of both Centre and states.

During the discussion, the economists generally agreed that the focus of policy should be on the following lines.

Medium-term should be kept in view and strategic divestment should be used to realise significant amount of receipts, to be used for retiring debt and also for financing the social sector.

Professionali managers should be incharge of PSUs. Pump priming will be of help in pulling the economy out of recession.

Quality of fiscal deficit is as important as its size. Expenditure control requires immediate attention and an expenditure commission may be set up.

There should be a cap on government debt. Housing sector needs to be promoted to provide more income as well as employment.

To encourage export and growth promoting sectors, existing policy framework for tariff needs to be reviewed and sectors like textiles need to be promoted.

Tax on environmental pollution needs to be levied and efforts should be made to raise tax-GDP ratio by widening the tax base and reducing tax evasion.

Public sector investment in agriculture needs to be stepped up through people's participation based on the Andhra Pradesh model for canal management or the Maharashtra model for watershed development.

Export promotion schemes within the WTO Framework need to be restructured.

Sugar industry must be decontrolled and private entry in milk production permitted. Venture capital funds vis-a-vis mutualfunds must be encouraged, specially with reference to the need to promote knowledge-based industries.

SSI reservation policy must be reviewed to encourage domestic production based on economies of scale in areas like edible oils.

Consignment tax must be introduced along with extension of VAT beyond the manufacturing stage to the wholesale and retail stages. Switchover to destination-based VAT is also desirable.

Reduction in multiplicity of taxes and notifications and elimination of end-use exemptions and levy of countervailing duties are desirable.

Increase in number of parameters by including size of plot of land, ownership of mobile phones and linking of minimum tax liability to these parameters must be looked at.

A scheme for according national recognition to tax payers must be launched. Tax expenditure accounting and audit must be introduced in the budget. Trading in derivatives based on stocks index futures must be introduced.


Pre-budget parleys

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