December 31, 2002
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Money > Special December 31, 2002 |
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Jaswant Singh and the Kelkar report
Going by Singh's actions after taking over as finance minister, he seems likely to opt for the latter. True, Singh has added some elegance to his office by bringing in new carpets and Konark chakras. But on both policy and initiatives, he has preferred to remain on the sidelines. For evidence, consider the finance minister's deafening silence on the divestment drama. It has conveyed the impression that he is a fence-sitter -- which is a pity considering that Singh enjoys a stature that his predecessor never had both within and outside his party. Or consider the rather intriguing stand taken by Singh on the Kelkar task force which he himself constituted. Barely a week after the Kelkar task force submitted its consultation paper, Singh gave an undertaking in the Lok Sabha that the task force's proposals on removal of housing tax exemptions would not be accepted. Also, a day after the mid-term economic review was out, Singh was in an unwarranted defensive mood and asked his finance secretary to call a press conference to assure everyone that the government had no plans to do away with farm subsidies and to reduce interest rates on small savings. People who know Singh well enough are surprised by his inability to buckle down to a difficult agenda and his over-enthusiasm to appease the more vocal sections within his party who managed to ease out Yashwant Sinha from North Block. To some extent, there is nothing wrong in Singh's stand that good politics make good economics, but a pragmatic finance minister is one who finds the right balance between providing immediate monetary benefits and setting in place policies that create the opportunities for households to earn higher incomes. The Kelkar report has shown quite clearly that the plethora of exemptions and concessions available for savings had resulted in post-tax returns on some long-term savings being higher than those on even short-term schemes. Also, members of the higher tax brackets enjoyed better post-tax returns than those at the lower end. At the heart of the report is a table that provides an illustration of the "excess returns" to selected small savings instruments that underlie these costs. The table shows that a major portion of the excess returns arise due to Section 88. For instance, the excess return to NSC VIII, solely on account of the benefit under sections 80L and 88, is 0.97 - 2.92 per cent and 6.06 per cent, respectively, over the tax adjusted nominal administered rates. In order to accommodate the total effective yield of NSC VIII adjusted for all three benefits (i.e., 10, 80L and 88) together the issuer of a taxable bond had to incur a cost of 16.2 to 17.2 per cent, depending on the income tax bracket of the investor. Similarly, the excess returns from PPF turn out to be very high due to its eligibility under Section 10. This will be in addition to the return attributable to Section 88. Last year, Sinha was forced to restore the Section 88 rebates for all except those who earn more than Rs 5 lakh a year after howls of protests from within the BJP. Jaswant Singh should consider himself lucky that he is in a better position to convince his party's shouting brigade as the Kelkar task force has given him irrefutable logic to explain why the tax exemptions must go. But for that he has to find time to read the final reports in full. By his own admission, he hadn't read the task force's consultation paper. Powered by ALSO READ:
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Will Jaswant Singh bite the bullet and accept the 