Spending Public Goodwill

The governments statistics continue to proclaim that there is no recession, indeed not even a slowdown, just as the monetary numbers last year insisted that there was no credit squeeze. But most of industry says it faces serious problems in the market, and they cant all be talking through their hat, or (to use Mr Chidambarams word) just whining. The finance minister must consider what is to be done, other than exhorting people to spend.

He should encourage exports, which have been slack, by persuading the Reserve Bank to buy still more dollars, so that the rupee falls somewhat and renders exports more attractive. A cheaper rupee would help customs revenue. Mr Chidambaram could then address the psychology of domestic industry by scrapping the minimum alternative tax (MAT), which has become a lightning rod for all complaints about the state of the economy. Indeed, if exports become more profitable, Mr Chidambaram could remove the tax concessions on export profits (these concessions are an incentive for booking bogus exports). The extra customs revenue and tax on export profits would neutralise the revenue lost by scrapping MAT. While he is about it, Mr Chidambaram should also look at why the customs authorities have been allowed to turn every export promotion device the passbook, the import duty credit, the freedom from income tax into an instrument of oppression and exploitation. This is where the finance minister might turn his attention with profit.