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Thursday, May 26, 2022

The brink of bankruptcy

It was just before the French Revolution, that Marie Antoinette is supposed to have told her countrymen, ``If you don't have bread, eat c...

Written by Madhav Godbole |
February 5, 1999

It was just before the French Revolution, that Marie Antoinette is supposed to have told her countrymen, “If you don’t have bread, eat cake”. This typified the callous approach of the then French rulers and their pathetic understanding of how the common man lived. We, in Maharashtra, are recreating history, but in our own mould. Exponents of Hindu Rashtra and Swadeshi may be offended if you say they were imitating the French of an earlier era. But this, essentially, is what the Shiv Sena-Bharatiya Janata Party (BJP) coalition government is doing.

The state government is faced with serious problems on the financial front. Its treasury is empty. Contractors on several irrigation works manhandled officers and abused them in the choicest Marathi while seeking payments for pending bills. Several grant-in-aid institutions have not received grants. The government has defaulted on the guarantees for overdue loans worth Rs 250 crore given by the all India financial institutions to the co-operative sugar factoriesand spinning mills. Large cuts have been announced in the Annual Plan and non-Plan expenditure. The burden of subsidies given each year through the state government and its public sector undertakings has reached a staggering figure of Rs 9,000 crore. Inevitably, the credit rating of the state government has been downgraded by the Credit Rating Information Services of India due to the rising revenue and fiscal deficit and reliance on market borrowings for financing Plan outlays.

One would have expected any responsible government to take steps to set its house in order. But the Maharashtra government is intent on blazing a new trail. It is actually giving up revenue by announcing a series of tax and non-tax concessions. Only a few are discussed here. The discretionary powers of the state government to grant entertainment tax exemption to movies, which uphold wholesome values but are not likely to succeed commercially, has been grossly misused for obvious political and extraneous considerations. Evenblock-buster Hollywood and Bollywood films have been given such exemptions, resulting in the government losing crores.

Luxury hotels in Mumbai got a bonanza of over Rs 100 crore by way of a waiver of the charges for the extra floor space index (FSI) granted to them. In its generosity, the state government also announced that those hotels which had paid the charges according to the erstwhile policy would get a refund of the excess amount. Permitting additional FSI is like giving land in Mumbai, and that too at a concessional price.

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Amazingly, the st-ate government has now announced sales tax exemption to the Tatas for their Indian car. This decision can be questioned on a nu-mber of grounds. First, such a concession, even if it is considered deserving, should have been announced before the actual investment took place, so as to attract such investment to the state, and not after it had materialised. Second, does an item like a car deserve total sales tax exemption? Why should the state government sacrificeRs 25,000 of its revenue to subsidise the price of each car? For over a decade, Maharas-htra had consistently stated on inter-state fora that goods like cars should not be taxed at low rates, when several items of daily necessities attract higher rates of sales tax. For a number of years in the eighties, Maharashtra’s sales tax rates for cars which were higher than 10 per cent were being undercut by nearby states and Union Territories. Maharashtra then became the first state in the country to impose an entry tax on cars to protect its revenue. This was challenged right up to the Supreme Court but the levy was upheld by that court. Third, this car manufacturing unit is located near Pune. In its industrial location policy, for over three decades, Maharashtra had always treated the Mumbai-Thane-Pune region as an industrially highly developed region which did not deserve any special incentives. This cardinal principle has now been flouted. Besides, it has opened a Pandora’s box — it will make it difficult toresist similar requests in the future. The two-wheeler industry too is facing a serious slump. In fact, fears are being expressed that the car industry will now offer stiff competition to the two wheeler industry. One should not be surprised if the state government decides to come to the rescue of this industry as well. Fourth, the finance ministers’ conference convened by the Union finance minister over two years ago had passed a resolution to discontinue sales tax incentives for industrial investment as these were impoverishing all the states. Instead of acting on this well-considered resolution, this government has decided to give tax exemption to this car.

The common man in whose interest all these decisions are presumably being taken, is difficult to identify. No wonder, Maharashtra’s rulers are opposed to enacting a law on the right to information!

In Maharashtra, we are witnessing the unsavoury spectacle of competitive populism between the two partners of the ruling coalition. Shiv Sena chief BalThack-eray wants to capture the rural vote-bank by announcing free supply of power for agriculture. He argues that this would mean a sacrifice of a mere Rs 650 crore! Whose money is it anyway? The loss has to be computed not on the basis of the present unduly low agricultural tariff but a reasonably higher tariff which will have to be charged in future in the light of the resolutions passed at the chief ministers’ and energy ministers’ conferences. While this highly contentious issue is still being debated, the deputy chief minister, who represents the BJP, rooted for a steep hike in cotton procurement prices. In spite of economic reforms, the anachronistic cotton monopoly scheme has been allowed to BE continued by successive central governments. This scheme has already caused a loss of over Rs 1,500 crore over the last few years. The state government has, apart from paying high procurement price well beyond what the sale price in the market can justify, also reduced the number of grades while acceptingcotton from cultivators, thereby reducing the demand for Maharashtra cotton in domestic and international markets.

The time has come to file a public interest litigation in the Supreme Court to fix a ceiling for the maximum damage which a political party can be permitted to inflict on the state while in power! The ruling elite in Maharashtra can tell the miserable populace of the state, “If you don’t have zunka-bhakar to eat, don’t despair. Go and stay in a five-star hotel, see the tax-exempted movie, Satya, and buy an Indica instead”!

The writer is a former union home secretary

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