Sinha replies to Guruswamy, of sorts

In sharp contrast to last year, this budget changed duties based on some broad plan of rationalisation. In excise, for instance, the broad policy was to reduce the number of existing rates from 11 to 3, so the new rates were broadly aggregates of existing ones.

Thus, for example, the existing rates of 5 per cent, 10 and 12 have been collapsed into asingle rate of 8 per cent. Similar adjustments have been done for customs duty, to reduce the number of rates from seven to five. So, if some industrial house won, it was because of this, and not because Sinha decided, like last year, to increase the import duty on cold rolled steel from 25 per cent to 30, and so on.

The previous budget, largely dictated by power brokers within the government, in fact, went to even pettier levels by tinkering with the duty structure for items such as nail-polishes. While increasing the service tax net, it exempted mithaiwalas and tentwallahs. The flip side of this is that it helped identify various lobbies within the government!

You could tell, for example, that Pramod Mahajan had managed to wrest a concession for his friend in the tent business, or that even if the BJP could not build a Ram temple at Ayodhya, it was trying to help Ram’s business prosper in the real world — teleserial Ramayana‘s Sita, Dipika Chikhalia, is married into the cosmetics firm Tips andToes.

You could also see how the budget got caught up in a turf battle between the country’s leading magazines, by first imposing an import duty on paper used by one while reducing that used by the other, and then restoring the balance after an unseemly semi-public war of words between the major players involved. Obviously smarting from the opprobrium heaped upon him, Sinha’s decided that enough is enough, and no more blatant concessions to individual groups.

Even better, Sinha has decided to withdraw the powers to his ministry to grant ad hoc exemptions from excise and customs duties, except in specific cases where the goods involved are of a strategic nature, or are for charitable purposes. Innocuous as that sounds, it’s impact will be near revolutionary.

That means that if an automobile manufacturer comes to the government and asks it to reduce import duties on certain components during the middle of the year, and hike it on others, no matter how much pressure is applied, the ministry will just notbe able to make any changes.

While this is undoubtedly a major step forward, one has to be a naive to believe that this is the end of favouritism by either this, or any other government. Sinha, for example, has been able to do very little to help insulate financial institutions (FIs) from political pressures — one of the serious charges that came up in the Guruswamy affair was that FIs were being arm-twisted to come out with bailout packages for the Essar Group.

Sinha can say till he’s hoarse that it was not he, but Guruswamy, that held the controversial meeting with FIs, at the end of which Essar chief Shashi Ruia was invited in, but the fact is the meeting took place in his room. He was therefore not only aware of what was happening, but did nothing to stop it. And as long as the government forces FIs to do its bidding, it can take little action when the FIs allow promoters to siphon off funds lent to them.

Similarly, for all his talk of taking action against unscrupulous promoters who raisedthousands of crore rupees in the stock market and disappeared, Sinha’s done precious little — the PM’s 90-day deadline for completing all investigation and taking action expired a month ago. In fact, Sinha’s even guilty of pulling wool before the PM’s eyes, by talking of getting SEBI and the Department of Company Affairs (DCA) to take joint action on the subject.

Sinha knows as well as anyone else that, when in 1994-95 SEBI wrote to the Registrar of Companies (RoC) for information on companies, it found only 52 of the 137 which raised funds in Ahmedabad had filed their balance sheets with the RoC, though this is a mandatory requirement; for Mumbai, the figure was even more dismal with only 95 of the 209 companies filing returns; and three years after the initial SEBI query, the Delhi RoC did not give any information for 125 companies that raised funds in 1994-95.

Curiously, none of this triggered off any suspicion or detailed investigation by either SEBI or the DCA. SEBI’s poor record in taking actionagainst companies is, of course, well known. Last month, for example, it gave a clearance for the Bombay Stock Exchange’s depository, even after it had clear evidence that the BSE had opened up its computers to allow brokers to insert fictitious trades to try and cover-up the severity of the payments crises on the bourse last June — in fact, SEBI cleared BSE’s depository two days before it sent a notice to BSE on its role in the payments crises! With very little done in such areas which offer such a large scope for misuse, clearly Sinha’s clean-up task has just begun.