The Hindu Business Line : Revenue hopes

Even as the Government banks on a turnaround soon to roll back duty cuts, it should ensure that its borrowings are fruitfully employed to generate revenues.

Policymakers will not be surprised by the news that indirect tax collections in the first quarter of this fiscal are lower than those in the same period last year. Customs duty collections have dipped 37 per cent while revenues from excise duties have fallen by a third. Policymakers had expected this when they reduced rates for both substantially over the three stimulus packages since December last. Yet, from a policy point of view, it might be instructive to examine reaso ns for the fall.

The drop in customs revenues follows a fall in both oil and non-oil imports over the two quarters since September 2008. Lower oil prices added to the fall. World trade is likely to remain depressed through 2009, so customs duty collections may not revive soon; given the depressed state of the economy at the moment and the focus of policymakers on easing the fiscal regime for industry, hiking excise duty rates is also not a solution, even if a section of officials have felt it necessary. The fall in excise duty collections is clearly related to the consistent drop in rates since last December. With a large snip of four per cent that brought down the average rate to eight per cent, it was only to be expected that a considerable amount of revenue — a third over last year’s — would have to be foregone. It could have been more if output had continued the downtrend visible since October. But since January, beginning with some sectors, manufacturing picked up from its lowest levels in the third quarter of last fiscal so that by May it had clocked a respectable expansion of 2.5 per cent, roughly half that in the same month the previous year. For policymakers this fits-and-starts turnaround since January holds the promise of speeding up and thereby filling excise duty coffers, all the more so since the RBI is willing to maintain a soft interest rate policy. North Block officials expect the economy’s bright lights to shine in time for the Finance Minister’s next Budget when the duty cuts might be justifiably rolled back. But they should not be so sanguine about the schedule they have set themselves.

Right now the Government has to race against its own clock. If the huge budgetary stimulus must work fast, then front loading the borrowing programme is a sound idea from the private sector’s viewpoint. But that alone will not help realise North Block’s dream of flowing revenues; making sure the borrowed resources are fruitfully employed to crank up the investment climate will.

Related Stories:
Direct tax collections up 13% in April-Jan
Will taxes match Budget hopes?
Net direct tax collection increases 16.88% in May

More Stories on : Editorial | Taxation | Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
The bug of ‘engagement’

More languages, the merrier

Revenue hopes

When Govt foregoes revenues

A question of ethics

Education system and the unanswered questions

Hindi terrorism

Deficit and disinvestment

Raising rates