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Budget 2018: Hope higher tariffs are 'temporary phenomenon', says Rajiv Kumar
Niti Aayog vice-chairman Rajiv Kumar said on Monday that he “hoped” that higher tariffs in the Budget were a “temporary phenomenon”. “I hope this is a temporary phenomenon,” Kumar said at a discussion on the Budget at the Vivekananda International Foundation. “Make in India has not been as successful as we had thought and therefore the Budget has taken the route of greater import tariffs to give manufacturing a targeted approach like we did in the case of Maruti (Suzuki).” At the same event, two members of the Economic Advisory Council to the Prime Minister (EAC-PM) expressed concern about various elements of the Budget. Kumar also urged members of EAC-PM to inform Prime Minister Narendra Modi about their worries about the Budget.
“I hope the EAC-PM is sending a memo to PM on the wrong choices made in this year’s Budget as two of its four members are saying so,” he said, adding that the council is expected to highlight such issues. EAC-PM member Surjit Bhalla voiced concern about the imposition of long-term capital gains tax on stocks in the Budget while another member Rathin Roy said the country’s credibility has been impacted because fiscal deficit reduction commitments had not been met. “Reintroduction of the long-term capital gains tax is the most absurd policy initiative of the government without any justification,” Bhalla said, adding that this will not fetch the government any more than Rs 5,000 crore against the budgeted Rs 20,000 crore. He also said that the country is back on the path of protectionism through increase in custom duties without any clarity on how much revenue this will generate. Finance minister Arun Jaitley had raised custom duty on imported juices, vegetable oils, furniture, smartwatches, auto components and imported phones among other items in his February 1Budget, as the government felt there was substantial potential for domestic value addition in these sectors.
Long-term capital gains tax was imposed on stocks to ensure parity among asset classes. The comments follow former Niti Aayog vice-chairman Arvind Panagariya’s article in ET on Monday in which he had said a “new generation of bureaucrats” is on “course to erect the wall of protection all over again”. His successor said that he doesn’t see a return to the days of the licence-permit raj. “I doubt there is a creeping reversal of the 70s when we had import tariffs. Want to be assured to myself this (is) not (the) beginning of a new phenomenon,” said Kumar. The Niti Aayog, a government think tank and premier policy making body, is chaired by the prime minister.
Jaitley had said in his Budget speech that the move on tariffs was meant “to further incentivise the domestic value addition and Make in India in some such sectors”, which in turn would “promote creation of more jobs in the country”.
At the World Economic Forum in Davos, PM Modi had championed global trade.
“Many countries are becoming inward focused and globalisation is shrinking and such tendencies can’t be considered lesser risk than terrorism or climate change,” he had said in comments that were seen as being in contrast with the protectionist stance of the US administration.
HIGH INTEREST RATES Kumar said the more critical issue in the country was high interest rates and argued that there was scope to lower them, adding that they don’t make sense given the level of external debt, which is 18% of GDP. “There is enough scope to bring it down,” he said.
The Reserve Bank of India kept rates unchanged last week as it warned about inflation accelerating. Incidentally, January’s retail inflation eased to 5.07% from 5.21% in December, according to data released on Monday. Rathin Roy said the country is heading for a fiscal crisis in the next 10 years if remedial action wasn’t taken. Dividend payouts from the RBI and state-run units weren’t high enough and the lack of coordination among stakeholders had led to a significant dip in non-tax revenue despite the disinvestment target for the year having been exceeded. “Our credibility has been impacted because of our inability to meet our commitments,” Roy said. Jaitley said in his Budget speech that the government’s fiscal deficit will be 3.5% this year, compared with the targeted 3.2%. It pegged the fiscal deficit at 3.3% for FY19 versus the earlier pledge of 3%.
Kumar said long-term capital gains tax had been imposed to bring household savings back into the real estate sector, which had been hit by demonetisation, as well as to ensure that any bubble in the surging stock markets did not burst and hurt the middle class. Kumar said the Niti Aayog has developed an outcome-based performance framework for each of the 740 budget lines, which will be a game changer going forward.