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Selective excise hike likely in Budget

Aditi Phadnis

The finance ministry is likely to apply the recent modification in excise rules to shore up revenues by selectively hiking duties but keep India Inc happy by applying countervailing duty on imports. The amendment might not be limited to petroleum products alone.

An indication to this effect was given by finance minister Yashwant Sinha himself last week when he told the Bharatiya Janata Party economic cell that he might have to "rationalise excise duties" in the forthcoming Budget to fund a hike in allocations for internal security and defence.

Addressing the defence and economic cell of the party, Sinha said the allocation for defence and internal security would be raised despite the "grim financial situation".

"The situation is grim. (Revenue) collections are down and I have to reduce import duties drastically to meet WTO obligations. I have to find the money somehow to increase defence and internal security allocations. There is a lot of leakage and we have to find ways to stop this," Sinha said.

According to tax experts, the move to raise excise duties was an intelligent one in that it allowed the government to increase revenues by hiking excise selectively without straining its commitment to move towards the 16 per cent Cenvat regime. "This can be done by increasing the special excise duty on specific commodities," said an expert.

The advantage for the domestic industry could come in the form of countervailing duty on imports which do not attract WTO restrictions on raising tariff walls. The Centre can levy CVD on imports to the extent of the SED levied on domestic products to ensure a level playing field.

The move will also help Sinha to bring down the peak customs duty as promised in the last Budget. Sinha said he wanted to cover more people under the tax net rather than raise taxation rates. The only way out was to raise excise duties, he told the meeting which was presided by BJP president Jana Krishnamurthy.

Sinha conceded that the UTI scam and other market related events had shaken investor confidence. It was suggested to him that Sebi should be handed over to professional managers and a separate cadre should be created to manage its affairs.

Members also suggested that India had too many stock exchanges and there should be just one, with online trading. "It is a good suggestion but it will be hard to implement," Sinha is reported to have said.

The party cautioned Sinha about setting disinvestments targets that were impractical and unachievable. "I understand that. But I need money" Sinha is reported to have replied.

The finance minister's repeated grouse was that state governments were simply not managing their finances properly leading to huge overdrafts and a burgeoning financial crisis. "My problem is I can't find a way of cutting public debt. Most states are bankrupt. They don't adhere to guidelines. As a result there is no money to develop infrastructure." He said the FDI flow was being seriously hampered because of procedural problems at the level of state governments.

The BJP suggested that Sinha make agriculture the centerpiece of the Budget with an accent on implementation. The party suggested a cess on power consumption to finance more hydroelectric projects.

It also suggested subsidies be given directly to the farmers to eliminate goldplating and that the finance minister concentrate on reducing the unemployment rate in the Budget.

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