labels: economy - general, writers & columnists
Kiron Kasbekar
01 January 1900

I hate the government's budgets. I hate them because they complicate our lives for no good reason at all. It doesn't make a difference which political party or mishmash coalition is ruling the country. They're all the same.

The finance minister of the day goes into convoluted explanations about why he (no she so far) has raised the taxation rate by some percentage points here and reduced it there. Many man-years (or man-decades) are wasted by people trying to figure out the different implications of the differential treatment given to different industries.

All this rigmarole is supposed to help accelerate growth, shore up our national defence, alleviate poverty, support farmers, protect consumers, encourage investors, and enthuse businessmen. All it really does is ensure that the government continues to raise a massive amount of tax from the public to support a bloated and uncivil administration and favour certain industrialists and other interest groups.

I hate it personally because it's utterly painful trying to unravel the complications that the budget creates for editors and analysts like me who have to understand its impact on different industries. It takes a while to figure out what's really what, and it's not unusual to see analysts, newspapers, chambers of commerce, and rating agencies issuing conflicting comments on the budget's impact.

Simpler budgets needed
I believe the country needs simpler budgets. What we need, ideally, is one single rate of taxation for all industries. Or, rather, one single rate of excise duty, one single rate of import duty, one single rate of countervailing duty, and so on. And a direct tax rate, which would be unfair to poor and middle class people if it were not arranged in slabs, that does not whimsically change every year or second year.

Just see how finance minister Yashwant Sinha is discriminating in favour of information technology and against, say, pharmaceuticals. He has decreed that only companies operating from software technology parks or export promotion zones before 1 April 2000 will be entitled to exemption from tax on their profits from exports.

Obviously, no pharma company does any manufacturing in a software technology park. Take pharmaceuticals. Indian pharma producers have done an excellent job, any which way you look at it. In terms of investing in research, in terms of exports, in terms of giving good value to their investors.

Or take steel, an industry that has not covered itself with glory, but that doesn't matter one bit. It doesn't matter how well or badly an industry is doing. Can it export? If it does, then it should be entitled to the same export benefits that software companies get. Some people may have a case against export benefits. If you believe in scrapping export benefits, they should be scrapped for all.

They can afford to pay tax now
It might have made sense a couple of decades ago to give special encouragement to the computer software industry. Industries sometimes need help at their nascent stage. But today, when the software companies are making money hand over fist, it doesn't make any sense to continue discriminating in their favour.

The government must be absolutely even-handed with its tax treatment for industries. It cannot take the view that software is more important to the well being of our country than, say, cement, textiles, two-wheelers, colour TVs, or processed foods. There is no reason why these industries should be treated as second class or third class citizens compared with the computer software industry.

There is so much hype today about the information technology industry that we tend to forget a basic fact of life. That we don't live by software alone. We need cement, steel, two-wheelers, cars, processed foods, air-conditioners ... Yes, even air-conditioners!

Industries must be allowed to grow or decline depending on the behaviour of demand for their products. They should be allowed and encouraged to export -- or let them fail to export -- depending on their international competitive advantages.

Unfortunately the government's economists forget economics when they draft the budget proposals. Discrimination of the sort reflected in the special concession given to software exports from software technology parks flies in the face of all economic logic. It achieves little. The only thing it really achieves is to allow bureaucrats and ministers to retain the power to decide the fate of industry.

And that's exactly what liberalisation, or economic reform, is not about. And that's another reason why I hate today's budgets, because in essence they are no different from the budgets of the past.

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