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Mr. PM, bite the bullet...

There is instinctive opposition to any and every new tax proposal or increase in tariff. Parties in Opposition believe that it is their dharma to oppose every proposal of the party in power. This may relate even to proposals mooted by the previous government, then opposed by the Opposition BJP. When the same proposal is now mooted by the BJP the Congress has no qualms in opposing it. The hike in railway fares and freights is a case in point.

Admittedly the Indian economy is in a bad shape with huge deficits, high inflation, poor capital inflows and depressed market sentiment. Look at some of these: the number of income tax payers is just three crore; a plethora of subsidies is not yet targeted at the most deserving; tax concessions and exemptions that result in a low tax-GDP ratio and huge revenue deficits that come in the way of finding resources for investments in  areas like infrastructure are the order of the day.

These issues are widely known and successive governments have not been able to build consensus on correcting these.

Soon after coming to power in 2011,  J Jayalalithaa made bold to hike power tariff, fares of the state transport corporations and price of milk fairly steep. Yet she has been among the first to be critical of every move of the Centre to correct fiscal deficits through increase in tariffs. Of course, this extends to all the political parties in opposition to the party in power at the Centre. Modi also did this when he was chief minister of Gujarat.

Take the recent case of the increase in railway fares and freights. For over 10 years, the railways have suffered neglect under successive Railway ministers. They failed to nurse the long-term health of the railways and were reluctant to raise resources needed for modernisation, extension of railway lines and safety. It reached a situation where this huge monolith has been suffering a loss of Rs 30 crore a day. The UPA II government almost decided to effect the increase through the railway budget for 2014-15 presented in February; but it deferred the proposal fearing the impact on votes for the Congress in the ensuing elections.

In a separate letter to the Minister of Railways published elsewhere in this issue, IE has suggested a cess on rail freight and passenger tickets to raise resources for the exclusive purpose of funding new rail lines.

More bitter pills appear inevitable. The forthcoming budget is bound to come out with such measures to improve government finances much needed for development and speeding up economic growth. With the comfortable majority in the Lok Sabha, the NDA must bite the bullet. Tough measures are expected to address the humongous size of the subsidy bill on petroleum products, food and fertilisers that exceed Rs 200,000 crore.

We expect bold steps to correct the wastages inherent in not targeting the most deserving sections. We expect the government to eliminate the subsidies on diesel and domestic gas. Even kerosene subsidy needs correction. In fertilisers too, the vast difference between the price of urea and phosphatic and potassic fertilisers has been resulting in the over-use of urea to the neglect of much costlier P&K. Fertiliser prices are a small part of factors affecting productivity of agriculture. IE has outlined measures to achieve quantum jumps in productivity and production in a letter to minister of agriculture published in this issue.

We do not subscribe to the populist ideas of raising the threshold for income tax; this will impact on the already low number of income tax payees. IE suggests targeting at least 20 per cent of the population to be brought under the tax net and increase this progressively to 40 per cent. For this to happen there is a need to lower and not increase the threshold. Effort needs to be made to bring small businesses, traders and professionals under the tax net.

Of course, these measures are not popular and are bound to be opposed by every party in opposition. But, the deficits left uncovered will inevitably lead to higher rates of indirect taxes impacting every sections from poor to the rich and will be regressive.

 

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