Search the Internet          Tips  Sites: Finance, Investment

Jaswant Singh an enigma as FM

P Vaidyanathan Iye

As external affairs minister, Jaswant Singh was better known for his clarity of thought and suave manner. As finance minister so far, he has been something of an enigma. His bureaucrats say they have received no briefing on his agenda, and the signals he's sending out are confusing.

"We get to hear what he wants to do from the media," complains one official. The trouble is, there are contradictions between what he says and what he does.

Singh's unspoken mandate from the BJP was to address the concerns of its traditional vote bank, the middle class, which his predecessor Yashwant Sinha had alienated in the interests of solving the government's financial crisis.

Singh certainly started making the right noises as soon as he had moved into North Block. "Garibo ko anna miley," (let the poor get food) he gravely announced to the waiting media when he was asked to list his priorities.

Admirable sentiment, but what has he done so far? Let's look at other similar announcements and the follow-up action.

He told Parliament that India's savings rate was very low and measures would be taken to increase it to 36 per cent of gross domestic product.

This said, the middle and retired class assumed that he would restore the small savings rate to 9.5 per cent. What better measure to channel money into savings instruments, they thought. Nothing of the sort happened.

In reply to a question in Parliament, Singh denied that his ministry was pressuring the labour ministry to cut the interest rate on the Employee Provident Fund to 9 per cent.

Then he added that his ministry had merely "advised" the labour ministry that prudent asset-liability management demanded that EPF rates be reduced. So there was no rate cut in the offing.

Then again, of all the forms of savings in India, gold attracted Singh's singular attention in his first few weeks in office. The minister pronounced investment in gold unproductive, so the bullion market thought he was indicating at an increase in customs duty on the yellow metal.

What happened? Nada (and perhaps rightly since it is well established that high duties do not translate into lower consumption, if only because the incidence of smuggling increases).

Over the next ten days, the finance minister is expected to make a policy statement in Parliament when the first demand for supplementary grants is presented. He has already said changes in the tax policy could be in the offing. Nobody knows what he's going to do, but it's a fair bet that he can't do much since he has few choices.

First, Singh can do away with the hugely unpopular dividend tax, a move that will add to the feel-good factor for both companies and individual investors.

Widely perceived as a double tax on corporate profits, the finance ministry has shifted the incidence of dividend tax from shareholders to companies and now back to shareholders in the last couple of years.

He may also decide not to impose service tax on life insurance premiums or roll back Section 80 benefits, which allows investors to claim tax breaks on investments in specified small savings instruments, or even increase the amount available as standard deduction.

Sinha reduced the income tax rebate from 20 per cent to 15 per cent for people with an annual income of Rs 500,000. For those with incomes over Rs 500,000, the rebates were scrapped.

All these steps may make his government popular again, but will only add to the government's financial troubles.

So far, finance ministry officials say they've been given no specific instructions. Perhaps it will be safe to infer that he'll do the opposite of what he says.

Powered by

ALSO READ:
More Money Headlines