Mumbai: When the present National Democratic Alliance (NDA) government was first formed about three-and-a-half years ago, Indian Prime Minister A B Vajpayee appeared hell bent on appointing Jaswant Singh as his finance minister.

But the move met with strong opposition from the Sangh Parivar, which claims it influences the Bharatiya Janata Party (BJP)-led government, so much that the chief of the Rashtriya Swayamsevak Sangh lobbied with the prime minister to ensure that Singh was not appointed.

As a result Yashwant Sinha got the coveted job. The Sangh Parivar's anathema towards Singh was that he appeared to be a pro-reformist and under his stewardship the swadeshi plank of the economy could get sidelined.

Three years down the line, the same Sangh Parivar again lobbied hard for the ouster of Sinha for ignoring the swadeshi voice. Sinha was ousted and Singh was appointed as finance minister. Curiously, this time round, there was hardly a whimper of protest from the Sangh Parivar about this appointment although there were no indications of any change in Singh's pro-reformist views.

In view of the past swadeshi lobbying and his own reformist views, Singh has a tough task ahead of him, especially composing the Union Budget, which is to be presented to the Indian parliament on the 28 February 2003. It will be interesting to see how he balances the various forces that are pulling in different directions.

Consumer friendly
One of the earliest statements made by Singh after he became the finance minister was that he would like to see more money in the pockets of the consumer - a tacit admission that the average consumer is taxed hard, which restricts consumer spending and hampers economic growth. The average consumer can, therefore, expect some tax sops, though in what fashion it will be doled out is a matter of conjecture at this moment.

Secondly, Singh also set up two taskforces for recommending changes in direct and indirect taxes - more popularly known as the Kelkar Committee reports. The reports have suggested measures, which, if implemented, would have far-reaching consequences on the economy. The reports have basically suggested that the taxation exemption limit should be increased, the taxation rate be brought down, and nearly all allowances and incentives be done away with.

This would mean that standard deduction, incentives offered on investments on life insurance, housing and small savings schemes would be scrapped. The taxpayer will have to just calculate his taxable income and pay tax according to the flat rate in force. The reports also recommend that wealth tax, tax on dividend and long-term capital gains be withdrawn. The reports further went on to suggest cuts in excise duties on consumer products like soft drinks and cars.

The above suggestions are in keeping with the basic cannons of taxation, which is progressiveness and simplicity of administration. A progressive tax regime implies that more affluent sections of the society pay more tax than those sections that are not so affluent. Hence the raise in the tax exemption limit.

The issues to be tackled
This is fair and equitable and should be acceptable to all sections of the society. Simplicity in administration ensures that tax is easy to compute and pay. It also results in more people entering into the tax net. At the end of the day there are higher tax collections by the government.

The contents of the reports appear to indicate Singh's thinking of how the Indian taxation regime should be molded. Whether other sections of the government are in line with this thinking is to be seen. The BJP referred the reports to its think-tank, headed by Rajnath Singh, former chief minister of Uttar Pradesh, for a view. The think-tank virtually panned the reports and expressed the impracticability of implementing measures like doing away with tax sops and subsidies. It also expressed reservations about bringing in agricultural income under the tax net.

It had been a routine till now that during the preparatory days to the budget, the finance minister and his officials would have pre-budget consultations with representatives of the industry, farming and other sectors of the economy. This gave them an opportunity to put forward their wish lists for the budget.

The present finance minister has put an end to such meetings although these sections are allowed to put forward their views and requests in writing. Therefore, any statement as to how the budget will shape up can only be a speculation. The story, therefore, will unfold only on the budget day.

Given that there are diverse views on the economy and that several state government elections are due this year with the general election looming large in the next year, no one will envy Singh's job. But, keeping in view the condition of the economy, the messy taxation regime and the stretched spending power of the consumer, at least some of the recommendations of the Kelkar Committee report should be introduced this year.

This will set the roadmap for implementing the suggestions of the reports in full over the coming years.