Deficit may be too big a gap to bridge

The Finance Minister is desperately looking for resources to bring down the deficit in the upcoming Budget. The recent ordinance to save the excise revenue from cigarettes by amending the law with retrospective effect going back to 20 years is an example of the limited options before the treasury. (At the end of the day, the Supreme Court will strike down the ordinance as bad in law, but the budget would have been presented and passed by Parliament). The ministry may also test the waters to raise income tax receipts by legitimising past unaccounted earnings in black money. In a meeting at NCEAR on short-term forecast for the economy, the mismatch between rising growth rates in industry, service, exports and imports in the relatively stagnant revenue collection was discussed. On investigation, we found that a large number of zero and 5% duty windows for large value projects, infrastructure projects and show pieces like the Delhi Metro is one of the main factors behind the mismatch between the growth rates of the economy and revenue realisation. The perusal of actual imports under the zero duty notifications and their share in actual imports will reveal interesting patterns. We have also found that a large number of project imports items are not bearing the education cess of 2% on the countervailing duty of 16%. The reason is that the exemption notification itself says that the mechanism of countervailing duty will be 16%; hence, the notional countervailing duty of 16.32% is not attracted. The exemption also shrinks the coverage of education cess. The result of the huge differential between the general duty and exemption duty on infrastructure is that the burden is shared unequally, which affects the balance. The third reason for the fall in customs duty is the rising value of the rupee, which reduces the value of the imports in rupee terms after the exchange rates are applied on the invoices. The reduction in edible oil imports due to a bumper oil seed crop is bad news for customs duty, since palm oil and soya bean oil are the most important sources of revenue. The opening up of sugar imports could be a major source of customs revenue, but promotion of sugar mills and duty-free imports in the name of export promotion are of high importance to the government. Target Plus Scheme: Export houses and the like are looking forward to the Target Plus scheme, which allows duty-free import entitlement for achieving incremental growth of 20% plus over the previous year. The complaint is that the Target Plus scheme is not being implemented by the DGFT, even as the rules and regulations, along with customs notification, are in place. Applications are not being entertained and those which are somehow filed, are not processed. Exporters are upset over the delay in implementation of the promotional scheme. They have already factored the duty saving in their quotation to the foreign buyer, based on which the orders were obtained. The last date for filing of applications has been extended to December 31 from March 31, so that the DGFT has more time to organise the implementation details. Apparently, the problem is that the merchant exporters who account for the bulk of the exporting activity are not in a position to meet the actual user conditions for duty-free imports. The supporting manufacturer/associate manufacturer route as the substitute for actual user is not strong enough to face the scrutiny of the customs and excise inspectors. There is yet another fear. The duty-free licence when issued will be bunched and applications for â€™03-04, â€™04-05 and â€™05-06 will be processed in close proximity. This torrent will result in mismatch between supply and demand and the users cannot consume three years licences in one year. The best way out is to do away with the actual user condition and the nexus between actual import and export product can be established by putting a shopping list with each licence. It is now time to use the market mechanism upfront and remove the sense of shame earlier associated with trading. The exporter should himself specify the item desired and link it with the export product in the application. Export-Oriented Units: The special dispensation to export house EOUs under fast track scheme for customs and excise clearances in the day-to-day operations was severely curtailed by a public notice issued on January 24. The powers of the local excise commissioner to exempt import consignments on random basis are back. Clearances in the form of pre-authenticated procurement certificate for sourcing supplies are now necessary. Duty-free DG sets, removal of goods for repairs will require intimation to the authorities. Personal clearances of samples are subject to limits when the collection is performed without permission of the authorities. The list of activities allowed without prior permission is down to just three. EOUs are getting step-motherly treatment compared to the SEZs. They say that they account for nearly a fifth of exports, but are subjected to transaction costs implied in securing repeated government clearances for the same situation. Officials, however, counter the claim saying that the EOU status has become a licence to get around the law without any checks; hence, reasonable curbs are necessary. WTO Debate At Satyawati College: The teachers of Delhi University came together at Satyawati College in Delhi to discuss WTO under a grant from the ministry of education on January 29. The college is known for its radical orientation, having fathered activists like Madhu Keshwar and Shiv Mangal. After 10 years of experiencing the working of WTO policies in India, the mood at the meeting was very different. The talk has shifted to piping the benefits of liberalisation to the farmer and the urban poor; action on building competencies is recommended by the meeting. (Academy of Business Studies)

Deficit may be too big a gap to bridge

The Finance Minister is desperately looking for resources to bring down the deficit in the upcoming Budget.

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