'It'S Time For New Expenditure Priorities'

Jagdish Shettigar is the convenor of the Bharatiya Janata Party's economic cell and a member of the Prime Minister's economic advisory council. He has emerged as the BJP's most authentic voice on economic issues. In an interview to Sudesh K Verma about the BJP's expectations from the Union budget, he said that the government has to rethink its decision to remove quantitative restrictions on imports to give "breathing space" to Indian industry. He also ruled out any proposal to tax agricultural income "now."

Q: What are the BJP's expectations from the budget?

A: In view of the bulging fiscal deficit, where the government is spending nearly 47 per cent of annual revenue collection on the interest payment and where the total debt servicing costs comes to 100 per cent of the annual revenue collection, and in view of the need to invest in social and infrastructural development, the government has to fix new priorities for its expenditure.

Q: How does it translate in physical terms?

A: There has to be some shift from the section of people who have been benefitting from the government to those who have not benefited. This may lead to the government taking some hard measures in the form of rationalisation of subsidies, re-examination of certain tax incentives which are basically associated with the regulated regime and the sellers' market.

Now that we have moved into the market economy where the buyers have a choice, these incentives are no more required. Some efforts may be made to bring some of the sections which are not within the tax net into the tax net.

Q: How do you propose the government should improve the fiscal deficit situation?

A: This has to be tackled on different fronts. First, by utilising the money raised through disinvestment to retire the debt and to bring down the interest burden in the long run. Today the interest burden is more or less equal to the fiscal deficit. Second, by cutting down government expenditure. The government is going to constitute an expenditure commission to suggest ways to cut down and regulate expenditure. A Fiscal Responsibility Act will be passed which I am sure the finance minister will announce in the budget. Under this Act there will be cap on government borrowing. And expansion of the tax base. And rationalising and phasing out subsidies.

Q: BJP leaders have been saying about phasing-out of subsidies. How long do you think it will take?

A: As regards the petroleum products, the phase-out period was decided by the United Front government, when it decided to link the domestic prices to the international prices. In the next couple of years it will be phased out.

Q: What about LPG?

A: Today the subsidy per cylinder is Rs 125. It has to be phased out in three or four instalments. We must understand that the LPG is consumed mainly by the upper and the middle class. I don't think there is any justification to continue this subsidy. Even for kerosene the subsidy needs to be reduced. About 30 per cent of the subsidised kerosene is used for the purpose of adulterating diesel and petrol.

Q: What about fertiliser subsidy?

A: About 50 per cent of the subsidy goes to the fertiliser companies and the rest 50 per cent to the rich farmers. There is a case for rationalisation here as well so that the poor farmers get the benefits. There is a myth that the farmers are looking for government support. In the case of user charges like electricity and water, the experience in Rajasthan and Andhra Pradesh shows that the farmers are willing to pay the user charges provided these are available without any hindrance. The case of Punjab shows that populist measures do not get translated into electoral dividends.

Q: Where does the BJP stand on cutting the government expenditure?

A: Cutting down of the government expenditure will definitely help. In fact there is a vacancy of one lakh government jobs. There are so many departments which have become redundant under the market economy. Certain departments which were regulatory in nature like the bureau of industrial cost and prices does not have any work now.

Q: You talk about widening the tax net?

A: Some sections which are enjoying tax concessions may be brought into the tax net. There is absolutely no jusitification for giving tax exemptions to certain sections, like exports. It has become a route to convert black money into white and also to get the money kept abroad through the hawala route. It is high time that a hard decision is taken on this particular tax exemption. The other area is software exports. There is a boom. We are giving encouragement to promote software exports and various other concessions to the IT industry. But once they start earning profit there is no justification for tax exemption.

Q: What is the BJP's stand on taxing agricultural income?

A: We are not in favour of taxing agricultural income right now. Our approach is to strengthen the hands of the farmers as an effective supply force in the market so that they will be in a position to command the best price for their produce instead of depending on the government's generosity.

The government has taken measures towards this end in the form of proposal to set up cold storage to preserve perishable agricultural produce. The farmers would get a better price. In future an environment could be created where the farmers will be in a position to pay the tax. Right now the time is not proper to introduce a tax on agricultural income.

Q: Is it not politics that no one talks about taxing agricultural income?

A: There has to be a consensus among different political parties and major sections of the society on this. The moment you talk about the farm sector or the farmers, there is a misunderstanding. I don't think the time has come to tax agricultural income. Nevertheless, there has to be a clear-cut definition about farming activities. The farm houses in and around Delhi are meant to evade the taxes and hence there is no justification for including them in farm activities. To start with we have to redefine farm activities.

Q: What about the rich farmers who can pay?

A: The so-called rich farmers are not rich always due to various reasons, like vagaries of nature. There may be the rural rich who are not rich due to agriculture but some other activities. Legally also, this is a state subject and the Centre cannot intervene.

Q: The BJP has been demanding that the income-tax exemption for the salaried class be raised?

A: The BJP is committed to raising the income-tax exemption limit. In fact we have been demanding this for a long time. In 1991 we demanded it to be raised to Rs 60,000. Under the present inflation level, it should be at least Rs 1 lakh. However, it has to be seen whether the finance minister is in a position to raise the limit in view of the rise in government expenditure as a result of Kargil, elections, the Orissa cyclone and the fiscal deficit situation.

Q: What is the justification for the Rs 1 lakh limit?

A: It comes to hardly Rs 10,000 per month. A middle class family spends Rs 4,000 to 5,000 on house rent and the rest to meet the household expenditure. It is actually fully justified. But there is too much pressure on the government and I doubt whether it would be possible to raise the limit. Our commitment is one thing but our ability to fulfil that is another.

Q: What kind of boost does the economy need from the budget?

A: Economy requires a big push. This can be done by augmenting employment opportunities. If the thrust is on infrastructure as for example projects like the express highways or the conversion of 13,000 km of single lane roads into four lanes, or other infrastructure or social and rural sector development, these will create employment opportunities and lead to rise in demand of related industries like steel and cement. The increase in the purchasing capacity of the people will translate into improvement in aggregate demands for goods and services.

Q: From where do you get the money to finance such activities?

A: We are trying to release the funds from rationalisation of subsidies by minimising dependence of people on the government and expanding the tax base. Apart from these there will be involvement of private sector and foreign investment.