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|Enjoy the nice safe Budget|
|Tuesday, 02 March 2010 07:50|
The whole point of tax reforms is that we must stop fine-tuning taxes. And we in the past have seen the benefits that come with simplicity
I love balloons. Red, green, yellow and, these days, you can even get silver- and gold-coloured balloons (those, I think, are imported from China). I can do many things with balloons. I can play catch with my five-year-old daughter and help my son and his friends burst them after every birthday party. I fill them with air and watch them float all over the room. One of my great unfulfilled ambitions is to fill up a hundred balloons with helium and take a trip over the streets of Delhi.
And now, the finance minister has made balloons excise duty-exempt. What a stroke of luck! Yes, you might not know it, but that’s what the fine print says. The television channels did not cover the news.
Typically, balloons are manufactured by small entrepreneurs—the safari-suit wearing, betel-chewing types who don’t frequent the corridors of big business lobby groups. So now they need not pay excise tax any more. A small, good-quality balloon costs around Re1; now it could cost 90 paise. People such as me will buy more balloons, there will be greater employment and the country would reach a higher level of gross national happiness.
I have seen many such items in almost all budgets—they have ranged from ‘agarbattis’ to ‘bindis’ to vests, and God knows what else, over the years. And I wonder why? Why do we have these strange items in the budget? Are they really worth it? And what about that whole notion of a simple tax regime that is moving towards uniformity of rates? Look at the range of items which are being exempted from indirect taxes in this Budget—cold storages, transporting cereals and pulses (but not fruits and vegetables), corrugated boxes, latex rubber thread. And the list goes on.
The whole point of tax reforms is that we must stop fine-tuning taxes. And we in the past have seen the benefits that come with simplicity. But somehow, India’s most important annual economic event is full of subtext that is either nonsensical, or a farce, or both. And it is not just this Budget. Pick up any one over the last two decades, and you will see the same story.
The budget could very well be a very simple and important document—how are the expenditure allocations being changed from last year; how are the revenues expected to keep up; and what are we doing about the difference. But what we get is a document that is full of data which confuses as much as it informs. Large expenditure on rural development is confused with stimulus, wherein the boundaries between welfare spending and investment are deliberately kept fuzzy.
The subtext aside, if we work out all the numbers, what do we get? A Budget that is quite safe, does not try to do too much, and does not anger the major pressure groups (though admittedly the oil price increase is very out of character with the rest of the Budget).
It claims that the government is looking into the important stuff, but does not give any details.
We finally know for sure that growth in India is not affected that much either by the government’s expenditures or subsidies or international markets (it would have been far higher if the stimulus package had really made an impact, and much lower if the economy was more sensitive to international markets). In other words, rapid growth is now within the DNA of the Indian economy, and exogenous forces can only affect it a little.
In such an environment, the government could have cleaned up its act so much more. But for that you cannot have play-it-safe politics. The farce enacted by the Opposition after the announcement of the fuel price hike is one such reflection of a larger phenomenon. Do not take any decision that will make anyone unhappy today, even if it makes everyone unhappy tomorrow. To cite an example, we have known about the fuel price problem for so long but play-it-safe politicians on all sides did little, and we are having to now increase prices amid already high inflation. Fertilizer prices are set to rise, healthcare costs are going to increase dramatically, government administration costs will also shoot up, inflation will spread to the rest of the economy, oil prices will rise further. And each of these problems is addressable right now.
But if the government is going to play it safe, we might have a good time as well. So I am off to buy a balloon and tie it with latex rubber thread.