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Modi Govt should opt for 5-yrs tax hike-free, innovative budget

Created on Sunday, 06 July 2014 07:35
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 rst 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 decient, the Government faces an uphill task of taming ination 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 tari 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 Courts 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 ination-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 nalized 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 eect
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 Tari 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 tari 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 Ministers Oce, 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 nancing 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 Committees 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 ve years! Thus, the annual budget could be deemed as ve-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%-
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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 Lutyens 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 Lutyens 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 Nations mazdoor
(worker) Number 1, should thus opt for accommodation within the Presidential Estate. He should order auction of PMs 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 nance 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 Governments 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 dierences
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 nancing 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 dierent 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 rst month in oce, 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
http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=20763
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