Non-protectionist but non-performing Budget

Budget is good but not good enough to live up to the FM's promise of getting rid of "socialist baggage"

The best thing about the Budget is that it has belied the lingering fear in the minds of many importers and analysts that the government would raise customs duty to usher in a protectionist era once again. Nothing like that has been done. On the other hand, changes have been made in the rates of duty, both upwards and downwards, depending upon the nature of the industry. For iron and steel industry, the rates have been reduced for several items to neutralise the rise in prices of iron and steel products. Duty has been reduced on caprolactum, nylon chips, nylon fibre and yarn to 5 per cent. Rate on naptha has been reduced to 2.5 per cent. To benefit farmers, Budget has raised the customs duty on cotton from nil to 10 per cent and on raw silk and silk yarn from 10 per cent to 15 per cent. Budget also has withdrawn the end use based concession on denatured ethyl alcohol to rationalise duties on similar products.

An infrastructure and development cess has been proposed on a small number of items for the purpose of improving the agricultural infrastructure. To complete Customs investigations, it has been proposed to prescribe definite timelines. One good thing that the Budget has now proposed is that all new Customs exemptions will expire after two years on the next March 31.

A negative aspect of this Budget is that it says that while 80 exemptions have been removed, it “proposes to review more than 400 old exemptions this year”. It reminds me of what Gandhiji said about the proposals of Sir Stafford Cripps that it was a “post-dated crossed cheque”. It is all for future to do. The fact is that, it was for the Budget team to do the review during the pre-budget time and announce the result as a part of the Budget.

Reviewing the existing exemptions is an ongoing job done by the Budget team and they cannot say that they will do it over the next year. Actually any exemption can be reviewed any time and one does not have to say that in the Budget. Now the situation is that whether 400 exemptions will be withdrawn or how many will be withdrawn finally will remain unknown. So there is no point in saying this.

Again the “crowd-sourcing of suggestions” is an extremely misleading expression which has been used in this Budget. Every year all stake holders write to the government their points of view either directly or through industry or trade associations such as the CII or FICCI or by meeting the finance ministry officials. That is the same as crowd sourcing of view. Crowd does not mean (in the context of budget ) all the men on the street. Only the stakeholders write as they know what to write. For example, when we propose to reduce the rate of duty on grain-oriented steel sheets, we do not consult the general public but only those who use them in India. When we reduce the duty on software, we consult the electronic goods manufacturers and importers and the electronic department. Customs duty rates are not a matter for crowd to comment upon. Using an expression like “crowd” is trying to be populist. An idea has been created that this Budget is a product of crowd sourcing of suggestions. It is a wrong idea since every year this is the process of budget-making. There is nothing new about consulting stakeholders. It is a matter that takes place every year.

Lots of things have been packed in the Budget which are strictly not for the Budget to mention. Budget is meant for what is proposed to be done in the Budget. It is not a document for enumerating what all the so called good things that have been done over the past year. It has been mentioned that Turant Customs procedure has been taken up to introduce faceless, paperless and contactless clearance of goods. It has also been mentioned that initiative towards Foreign Trade Agreements have been successful particularly in regard to country of origin. These things should not have been mentioned since they are not budget proposals. And factually the country of origin has remained a blistering issue. It is learnt that the current issues have been “solved” by taking bonds and bank guaranty which is hardly something for which the Budget can take credit for.

What has not been done in this Budget is that no general reform has been introduced. Customs duty structure is completely irrational as it has different rates with conditions, requirement of certification and a huge list attached. At present there are approximately 19 rates in Customs duty like 150, 100, 85, 70, 65, 60, 50, 40, 35, 30, 25, 15, 10, 7.5, 5, 3, 2.5, nil and some specific duties. Then there are hundreds of exemptions and conditions and “Lists” which make Customs duty classifications quite complicated. There has been no move in removing the exemptions in a big way in Customs which would have given a lot of extra revenue. Moreover, the classification would be simpler. The rates could be combined at 150, 100, 50, 25, 15, 10 & 5. Withdrawal of exemptions is the biggest simplification which has not been done in a big way.

Anti-profit provisions in the GST law is a big handicap in the GST work. The issue has been taken to the High Court Delhi by nearly 80 parties. The revenue involved is not much. To smoothen the functioning for the goods and services tax, the finance minister could have given an idea of when she will withdraw it.

The Budget is good but not good enough to live up to her promise of getting rid of “socialist baggage”. When will she do it?

The writer is a retired member of the Central Board of Excise & Customs

E-mail: smukher2000@yahoo.com