No More Critical Exports
By Shivaji Sarkar
The call for atmanirbhar Bharat has been given a new touch for “enhancing capacity, creativity and skills”. In his Independence Day speech, Prime Minister Narendra Modi made a pitch for a virtual halt to exports of critical raw materials and minerals.
Over the decades, economists have been raising the issue for a vibrant self-reliant economy. Modi echoed the sentiment and suggested a reversal of the policy to import of raw material and export of value-added products to make India a manufacturing hub epitomizing vocal for local, ‘Make in India’ and make for the world.
The conceptual change in the policy, if implemented, can create a manufacturing country that would not only meet its needs but also export enough to the world. This would create jobs, spare Indians with enough resources to sustain themselves and may even attract aspirants from across the world. The no-export policy of critical materials would help Indian manufacturers add more value to their products.
India, as Modi says, would eventually become a global hub. Many firms keen on relocating themselves may flock to India. So far though, the hitch has been its tax system. So, two days before his I-Day speech, he announced a faceless tax transparency system that is expected to be more honest and hassle free for the taxpayer.
At the same time, a debate is raging as to why Modi is trying to ensure a transparent tax system even as the number of taxpayers have shrunk by 55 per cent from 3.29 crore in 2018-19 to 1.46 crore in 2019-20, raising the taxable income limit to Rs 5 lakh a year from Rs 2.5 lakh in the interim Budget 2019-20. This led to 1.8 crore people having no tax liability, which was sensible.
But now the question is why 1.46 crore people, the real middle class is being tormented to pay tax at high rates? Even those senior citizens having no pension are being robbed off a huge chunk of their deposits due to interest accruals at measly rates of an average of 5 per cent a year. The tax on bank deposits is retrograde and no step has been taken to waive it off.
In reality, the transparent system should have freed the bank deposits of TDS or any other tax payment. This is hurting India’s purchasing capacity and furthering a feeling of oppression. If someone needs to survive on his own savings, without a pension or any other support, any tax on the interest accrual, a mere hedging of his principal amount, is considered draconian.
There is considered opinion that these small numbers of personal Income tax payers need to be freed from paying taxes. It would not only help them but the government too, as expenses on collection could be saved. In 2019-20, there are 8600 individuals who declared Rs 5 crore taxable income and about 3.2 lakh who declared taxable income of over Rs 5 lakh. In 2018-19, the net tax collection of both direct and indirect taxes saw a significant decline. In 2019-20, personal income tax is to contribute about 5.69 lakh crore. The figure could be actually less in 2021 as the economy has taken a hit due to COVID-19 lockdown.
So the question is whom are these new set of transparency slated for? Apparently, for the new entities which are likely to enter the country for business with dollar investments. However, Modi would have done well if he were to have announced an end to personal income tax, given the many benefits. This increases purchasing power, creates a healthy economy, boosts demand and larger collection of indirect taxes. In fact, the government achieves far more by ending the Income tax and the ‘transparent’ system is primarily to help foreign and Indian businesses and reduces litigation.
Compared to this, Prime Minister’s concept of atmanirbhar Bharat of putting a cap on exports raw materials and minerals is more beneficial. The country produces and works with about 100 minerals, which are an important source for earning foreign exchange as well as satisfying domestic needs. India exports iron ore, titanium, manganese, bauxite, granite, and imports cobalt, mercury, graphite etc.
By weight, coal and iron ore are the most extensively traded minerals. It has long been held that developing countries tend to export raw materials and import manufactures. India’s major mineral resources include coal (fourth largest reserves in the world), iron ore and manganese (seventh largest reserve), mica, bauxite (fifth largest reserve), chromite, natural gas, diamonds, limestone and thorium.
Japan is a critical buyer of iron ore from India as is China. Japan’s annual purchases are more than its needs. It stores ores in shallow seas for future needs. These kinds of sales deplete Indian reserves and reduce its capacity for value addition. The new policy is to boost ore enrichment and value addition.
Careful tax policy incentives can change the Indian manufacturing and business scenario. Most foreign companies shy away from the country for its flawed terrorising tax rules and disputes. The tax troubles for Vodafone and Nokia may have earned the I-T department some peanuts but it discouraged many potential investors.
Along with the new atmanirbhar concept of empowering farmers, middle class and creation of rural clusters, a Deendayal Upadhyay-RSS concept, build multi-modal integrated transport linkages and highways for as low as Rs 1500 crore for attracting small companies a new development process may become a reality.
In the long run, if the concepts are implemented it would lead to rapid changes in the economic systems. Tax rule transparency or simplification is good for foreign investors, who often feel hassled and knock the doors of the ministry for corrections. Convincing tax men has not been easy even for many astute finance ministers. Prime Minister Narendra Modi’s direct intervention is expected to help in simplification of the process. The country, aiming to become a global hub, has to have a friendly tax policy which lures all.
However, the pandemic is likely to delay implementation of the new announcements, whereas the industry is gasping to start their operations. There are many uncertainties and many rent seeking. Sporadic or weekly closures are impacting normalisation of business.
The scare of the pandemic is more damaging than the supposed disease. This too has to be tailored to the vision. The country wishes success to Modi, but he too has to ensure practicable operations to achieve it, if growth has to be the bedrock. – INFA