Budget Dream Nears Reality

As is customary, some minor modifications have been proposed in the Finance Bill. But it is significant that the concessions have been made to various interest groups, not to political parties. This should be an indication of what the finance minister regards as his natural constituency as also the fact that he has succeeded in breaking free of his coalition constraints. The clearest example of this is the decision to defer the service tax which was the only additional resource mobilisation measure in the Budget. The service tax was estimated to yield revenue of Rs 900 crore this year. While it hasnt been scrapped, its modalities will now be worked out in consultation with service organisations.

The other important change made in the Finance Bill is to plug the loopholes in Modvat on petro-goods. Even though the excise tariffs had been raised to 15 per cent in the 1996-97 Budget, oil companies were allowed to pay excise duty at the earlier tariff of 10 per cent to prevent an increase in the prices of petrol products. While the oil companies paid only 10 per cent, they claimed Modvat credit for 15 per cent. By doing so they enhanced their profits at the expense of the oil pool account. The amendment now proposed will not only put an end to this misuse, it will also ensure that the excess credit availed will be returned to the fisc. This should marginally reduce the oil pool deficit, as well as yielding some more revenues in the form of excise duties. In net terms, the changes proposed in the Finance Bill and various token concessions will not put any additional fiscal burden on the government.

On the expenditure side, Mr Chidambaram has altered the composition of plan expenditure by increasing the budgetary support to the power industry by Rs 900 crore which is meant for hydroelectric power projects. But this is not going to increase the finance ministrys commitments to the plan, which remain at about Rs 7,500 crore. The increase in outlay for power reflects a fundamental change in the thinking of the finance minister on the financing of power sector investments. An indication of this change had come at the annual conference of the CII where Mr Chidambaram expressed the view that the governments touching faith in private investment in power was a mistake and that public investment had to play a leading role in this sector. This is a recognition of the constraints which availability of power is exercising on the growth potential of industry, and to this extent it is welcome.