FM unlikely to levy a new cess
With Polls In Sight, Budget May Spare Taxpayers From More Burden New Delhi: The shadow of elections on Budget 2008 is likely to see FM P Chidambaram avoid taking recourse to any fresh cesses to fund key schemes and projects despite a high subsidy bill thwarting government’s effort to provide a huge jump in public spending. Chidambaram, who has almost made it a habit to announce a cess or surcharge in every budget, now collects almost 15% of his total tax collection through various such measures. While cesses and surcharges were estimated to mop up over Rs 77,000 crore this year, the Centre can hope to collect more thanks to buoyancy. For finance ministers, starting with Yashwant Sinha, these levies have become an attractive tool also because the spoils do not have to be shared with the states, unlike central taxes which are to be distributed in line with the finance commission’s prescription every five years. Though the FM is set to announce large outlays in social sector projects, largely under the flagship programmes, health mission and Sarva Shiksha Abhiyan, he is somewhat constrained by the Rs 100,000 crore that is being eaten up by food, fuel and fertiliser subsidies. The massive subsidy bill has also crimped options on physical infrastructure, limiting its focus even with regard to roads and ports. Here too, the effort has been directed towards private partnership, which is not viable in areas like tribal belts of central, east and west India or the north-east. There are few alternatives to government spending. While buoyant revenues have made Budget planning easier, the temptation to opt for cesses to boost spending on infrastructure has not found favour. Consultations between the FM and PM Manmohan Singh have veered around to the view that cesses were not only unpopular — increasing burdens on the “aam admi” would risk a backlash — but should not be overdone either. Already there is a road development cess on every litre of diesel and petrol and a 2% education cess in addition to the 1% levy introduced last year ostensibly to allocate more resources for secondary and higher education. Creating more ring-fenced funds would not be a good idea as it could trigger popular disgruntlement, all the more so when there are indications that income tax rates will not be changed. In the event, cesses would be a deeply unpopular option coming on the back of price rise in commodities. While the government is looking to deliver a boost to education, health and agriculture, the quantum of increases in budgetary allocations might well be restricted. Here, too, officials involved in budget-related discussions said that there was a skew towards social sector spending. It is expected that secondary and higher education and primary health centres will be focal points in government’s planning. There is a sense of relief in government that the move to introduce OBC quotas in centrally-supported higher educational institutions has been grounded for now by a legal challenge in the Supreme Court. This allows the Budget to concentrate on secondary education and upgrades of regional and vocational institutions. Officials admit that there is pressure on the fiscal responsibility front despite higher revenues. Government’s aam aadmi focus has meant that flagship programmes command a major chunk of resources without it being clear how far they have been able to assist in rural asset creation or employment. Even the plan to extend the National Rural Employment Guarantee Act to all districts will mean at least a doubling of expenditure from Rs 12,000 crore last year. But, political compulsions have ensured that government is unable to effect a Rs 2 and Rs 1 rise per litre of petrol and diesel.