North Block bonanza

Second, a euphoric industry will not resort to protectionist pressures, a more than likely possibility if the rupee were to appreciate. Besides the actual duty changes, one should also flag the procedural improvements, such as the digital filing of direct tax and customs returns and their extension, computerisation of I-T offices, emphasis on self-assessment and selective examination and simplification of TDS payment and exemption claims. While welcoming the reduction in peak basic customs duty on manufactured products to 20 per cent as a move towards greater trade liberalisation, three questions remain. First, does this also extend to products where India presently doesn’t have bindings? Because such unilateral reductions pre-empt the Doha Development Agenda process and compel India to accept reduction commitments on a base of actual tariffs, the Kelkar Task Force had excluded such products from its reduction recommendations. Tariff reductions do bring welfare benefits. But if there is a deviation from what has so far been the official line, clarity is needed. Second, indirect tax reform is contingent on a full-fledged VAT being introduced. A single countervailing duty can then compensate domestic manufacturers for indirect taxes paid. In the absence of a full-fledged VAT, however, the countervailing duties compensates for central excise while the special additional duty (SAD) compensates for state sales taxes. Scrapping the SAD thus appears premature. Third, there is a discretionary element to the selective import duty reductions, which reforms are supposed to eliminate.

Also, while cut in duties are always good news for reformers the question that arises is whether the finance minister has a plan to meet this Rs 10,000 crore reduction in his kitty through any substantive cuts in government spending. Because that, ultimately, is the surest sign of a government that is interested in truly reforming the economy.