Master of his Survey

Eight per cent is the new Hindu rate of growth. Or, should we say, the new secular rate of growth. The Economic Survey’s macro-economic overview makes clear that India now needs to take 8 per cent growth rates as standard and achievable, and aim higher. From next year onwards, we shouldn’t pat ourselves on the back for 8 per cent growth. We should be disturbed if that is all we can do. The other thing to note is that this growth performance has come despite the absence of big reformist initiatives. Since it is unrealistic, and even unfair, to expect Finance Minister P. Chidambaram to change the reasons why big reform is politically tough, we should ask for, and rightly expect, small but vital changes. Especially changes that help the private sector — much of the 8 per cent growth story is explained by the private sector’s energy.

Fiscal trends in the Survey clearly show that high growth in GDP has led to a higher revenue collection. There are indications of successful fiscal consolidation, both at the central and state level. Given this, and given the private sector’s crucial current role in propelling the economy, the budget can usefully focus on making taxes less of a hassle for companies. There are at least six steps the finance minister can take. First, he should remove the fringe benefit tax (FBT), and reduce the extra burden in terms of compliance which this tax has extracted. Second, he should remove the taxation of dividends to eliminate double taxation of companies. Third, he should remove the cash withdrawal tax. Fourth, he should introduce a Central Goods and Services Tax, riding on a smooth and modern information technology system so that companies get hassle-free input credits for all goods and services. Fifth, he should rationalise customs duties and rid the rulebook of all exemptions. The exemptions essentially give power to government officials and allow them to harass companies. Sixth, he should get rid of all exemptions on corporate profits based on location, so that investment decisions of companies do not get distorted by tax incentives.

None of these needs heavy duty political negotiations. Some, like removal of exemptions, will even get Left approval. How many will we see in today’s budget?