'If Govt is going to amend its Budget, then where is its sanctity?'
Amberish K Diwanji in Bombay
Some industrialists wanted a hike in import duty, and soon all the others joined in. The buzz word then was "level-playing field" via a hike in import duty to counter those big bad multinationals and save the "swadeshi" industry.
Yashwant Sinha, finance minister in an avowedly pro-swadeshi Bharatiya Janata Party government, obliged. Industry asked for 5 per cent duty, he gave it 8 per cent!
Then came the realisation, and the fear that the swadeshi measure would also hurt Indian industry bad. "Most Indian industries have some import components, often quite a bit. So any increase in import costs will directly affect them," pointed out Jibon Mukhopadhyay, senior economist at the Tata Services Limited.
Any increase in costs would have been passed on to the consumers, but at a time when industry is crying out against the recession-like situation, any hike in prices was anathema. The last thing industry wants to do is turn away the few customers who are still around. And so began the next round, asking the government to cut the hike.
The Confederation of Indian Industry, which had championed the cause of the import duty, has welcomed the cut. "The government has only responded to our request, though not entirely," said Manushi Roy, deputy director, CII, adding, "Such a high duty would have pushed up the input costs. Instead of providing the level-playing field that we were asking for, it would have made Indian industry less competitive."
Joseph Thachil of the Federation of Indian Chambers of Commerce and Industry echoed Roy's views. "It is a correct step especially since the economy has slowed down," he said, "There were fears that such a high duty would only lead to a cost-push inflation."
N Kumar, vice-chairman of the Madras-based Sanmar Group, hailed the government's decision. "Industry had only wanted a five per cent import duty hike, and I think the government went in for eight per cent only to increase its own revenues. So this rollback is a good measure," he said.
Roy isn't too worried about the fall in revenues. "The import duty cut will aid growth, and this will help fill the government's coffers," she said. The CII deputy director was certain that the economy was picking up and thus government revenues would go up.
Incidentally, imports for trading does not come under the import duty, and both Roy and Kumar were critical of such a split. "By allowing traders to import will hardly protect industrialists," said Roy.
Added Kumar, "It will only force industrialists to open trading companies to take advantage of the benefits. The government should bring the traders also under the import duty hike cover."
The total impact of eight per cent duty works out much higher. Added to that will be the customs duty, additional customs duty, and special customs duty. This means that the total duty would be anywhere between nine per cent to
12 per cent, depending on the goods concerned. To make matters worse, the sharp depreciation of the rupee has only made imports even more expensive for Indian industry.
Mukhopadhyay also pointed out that last year, the then finance minister Palaniappan Chidambaram had increased import duty by five per cent. "He did it because of the demand of industry and also to raise revenue," said the economist, "This means, if you add Chidambaram's hike and the new ones, it can be as high as 17 per cent!"
Adding to the woes is the sharp rupee drop which crossed the Rs 42 barrier after the western countries announced the imposition of economic sanctions.
Earlier, the rupee plunged because of the Asian economic crisis late last year. "The rupee has gone down by as much as 30 per cent in the recent past," stated Mukhopadhyay, "and this implies that costs have increased by as much as a huge 40 per cent."
In an extremely price-sensitive market like India, hiking prices is akin to committing harakiri! Eicher, which manufactures tractors and trucks, had recently announced that it would not be passing on the increase in costs to its consumers. Other industries too have been chary of hiking final the prices of their goods.
Meanwhile, the complete rollback on the urea price hike was lambasted. The government had hiked the price of urea by Re 1 per kg, then reduced it by half. Today, it announced its decision to remove even the remaining 50 paise hike. Thachil of FICCI called it a political decision, not an economic
one.
"The subsidy hike should have stayed and the government should instead have improved the delivery system to ensure that only the poor farmers benefit," said Kumar, "By keeping the price up, you are also helping the manufacturers and reducing the government burden."
"There are two ways of seeing the urea hike rollback," stated Mukhopadhyay. "On the one hand, we can say that the government is seeking the opinion of others to reach a consensus, and this is certainly welcome. However, it can also be seen as giving in to the farmers's lobby, and this only hurts everyone else."
Mukhopadhyay pointed out that the government had already corrected itself vis-à-vis the petrol prices, and now come the latest changes. "If the government is going to revise every measure that it presented in the Budget, then where is the sanctity of the Budget?" he asks.
N Kumar summed it up. "It is a good Budget, but in the end, it all comes down to implementation. That still remains to be seen," he stated.
Budget '98
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