EDITORIALS Euthanasia of Enthusiasm?

Golubol Buton

W E E K L Y NOTES

Euthanasia of Enthusiasm? THE more forward-looking of T T K's budget proposals are getting

diluted more and more. The latest series of structural modifications in the wealth and expenditure taxes further tone down the more mark-edly bold features which made for the wide intellectual approbation the budget received two months ago. Is it that the spell of courage Is al-ready over, and the theme song, for erstwhile admirers of the T T K sweep, from now on has to be 'Lo! the fair dead'?

Some of these developments, of course, could be anticipated. Econo-mic and financial policy cannot wander very much beyond the political centre of gravity, and where kinks and jerks develop, quiet, behind- the-scene parleys pave the way for restoring the equilibrium. It is not pos-sible to move away from the central t ru th that, even though the Finance Minister springs from their own ranks, the business circles in the coun-t ry wi l l not fai l to neutralise, as much as is decently feasible, some of the sharper tenets of his newly acquired fiscal philosophy. It may be a sad reflection but the fact remains that in an overwhelmingly free-enterprise economy, public finance cannot run along the wishes, prejudices and predilections of 1st class, who continue to maintain strategic holds over the major revotes of progress.

What Is particularly disquieting is that, since the last week of May, the aeries of concessions announced on the original budget proposal'.' have been consistently unilateral. Wi th the exception of the slight to vision in the postal rates, the rest of the modifications announced by the. Finance Minister have been to accommodate the business and commer-cial sections or, more generally, the upper-income brackets. It is also revealing in more than one way that during the past month, while Parlla-ment was not In session, the Finance Minister took trips to Calcutta and Madras to meet representatives of business circle dis-cuss possible ways to smoothen the burden of the new imposts on them. There were no reports of the Finance Minister meeting representives of the trade unions, teachers, lawyers or clerks, to talk over the tions of the additional tax burdens introduced by his May proposals. That such meetings did and did not take place were not, perhaps deliberate. But then one cannot stop people from putting two it rid two together.

Of the three concessions in regard to the wealth tax announced by the Finance Minister, one exempts individual Investments in new firms for a period of five years. The Finance Minister explained that this particular concession was an extension of the concession already being given to Individual investors in regard to income tax and does not there-fore introduce any new principle.

One of the objections raised by the Taxation Enquiry Commission against the then existing provision In the Income Tax Law giving ex-emption to profits of new undertakings was that as the concession applied to all Industrial concerns, it lost some of its effectiveness as a stimulus to capital formation. The Commission was of the view that the conces-sion could operate as a powerful incentive provided it did lead to some actual exemption and was "applied to a selected and therefore limited number of industries", It was suggested that the tax holiday concession should he admissible only to new concerns in the selected industries.

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These industries, according to the Commission, "must obviously fall within the group of producers goods and capital goods industries", and, even among this group, the indus-tries selected for favourable treat-ment should be small in number. From the press version of the Fin-ance Minister's announcement it is not clear whether the concession in regard to the wealth tax shall apply in respect of investments in all new i n d u s t r i a l u n d e r t a k i n g s or o n l y to a few selected industries of the type recommended for favourable treat-ment by the Taxation Commission. The latter should be the case if the idea is to give further incentive to private investment in industrial undertakings in the fields to which the Second Five Year Plan accords priority. The .Select Committee wi l l have to go into this question and make the position clear.

While It may be conceded that concessions of the tax holiday type operate as powerful incentives, it would be inadvisable to ignore the possible pitfalls in the path of such concessions. In order to avail themselves of the concession, there might be a movement away on the part of individuals from old Invest-ments to new investments, because it Is only in respect of the latter that the tax holiday is permissible. A switch-over from old to new in-vestments does not by itself add either to the sum-total of national saving or to that of investment, No doubt, the fact that new industrial ventures carry higher yields net of tax because of a tax holiday wi l l be a factor which promotes investment. But we also have to reckon with the possible contingency ' mentioned above, i e, the tendency to dislodge old investments. To the extern" this tendency reflects itself in depressed equity prices, it is likely to distort investment perspective and there-fore have an adverse influence on new investment decisions as well.

The tax holiday granted in respect of income tax is now proposed to be supplemented by that in respect of the wealth tax. This should there-fore reinforce the tendency to move from old to new investments wi th the consequences referred to above. In order that the adverse effects are kept within bounds, it becomes very important that the concession contemplated In respect of the wealth tax is restricted to a very limited set of industries.

The other concession announced by the Finance Minister proposes the reduction of the rate of the wealth tax to 50 per cent of the rates applying generally, in respect of the property owned in India by foreign-ers. Even in the original Bi l l for the wealth tax, foreigners got favourable treatment because the tax on them was required to be calculated wi th reference only to the property they owned in India regardless of their holdings abroad. It the tax were to be calculated wi th reference to their total 'world wealth', as it should be in .terms of equity, foreigners resident in India would have had to pay at a higher rate. This underlines the extent to which the Government of India is now prepared to go in wooing for-eign investors.

The th i rd concession relates to household effects other than jewel-lery. It is proposed to exempt house-hold effects altogether from the wealth tax. The original Bi l l provided for an exemption of personal wealth up to a l imi t of Rs 25,000. It ap-pears that the concession now an-nounced replaces the exemption originally provided for. Is it that now a person's household effects can be of any value and sti l l not attract the wealth tax? Clarifica-tion w i l l be needed on this point also.

T%f ANY have succumbed to the temptation of suspecting Khrus-

chev as another aspiring Stalin. Any such interpretation of recent political changes in Russia would seem to* ignore certain fundamental facts, Stalin was opposed to the principle of "collective leadership". Khruschev swears by this principle, Stalin purged his rivals on the pre-text of "anti-party" activities. But it soon became evident that his main motive was to firmly establish his supreme authority over the State by subjugating the Party to his iron wi l l . Wi th Stalin, the in-sistence and emphasis on the supre-macy of the Party was a mere ruse to perpetuate his personal dictator-ship. Khruschev and his group wi th-in the party are, on the contrary, determined to rebuild the Party as a "vigorous, voluntary, democratic organisation". Because Malenkov, Molotov and Kaganovich were op-

There has been a further move away from Kaldor in the new modi-fications in the expenditure tax. The exemption l imi t has been raised from Rs 24,000 for an Individual and his wife, and Rs 5,000 each for two dependents to Rs 30,000 for an individual inclusive of his wife and a dependent plus Rs 5,000 for one additional dependent. No doubt this wi l l mean a further reduction in the number who would be assess-able under the tax and consequently, a further drop in the revenue yield? Some may argue that the main vir-tue of the expenditure tax lies in its powerful symbolic force, and the radiation of abstinence that it would' help to spread all around. But at a certain point people may begin to feel that the symbol was only a dull, i r r i ta t ing kind of joke, or, worse, a political clap-trap.

As a realist, the Finance Minister must appreciate that the biggest danger in such one-way concessions is that i t makes it increasingly difli-cult in the subsequent years to coax the general mass of people to shoulder further additional burdens which must necessarily be regressive in their incidence. And, he may have to present three more budgets before the Second Plan rung its course.

posed to the policy enunciated dur-ing the 20th Congress, these leaders had to be dismissed. They have been dismissed, but not purged.

Though the so-called Russian ex-perts seem to be confused, neither President Tito nor Mr Dulles is hazy about the implications of the recent political changes in Russia. Not only President Tito, but many stu-dents of Russian affairs have been anticipating some such development. Since the 20th Congress, a struggle has been going on between, what Mr Dulles picturesquely but fai th-fully describes as 'modernists' and 'fundamentalists'. Molotov had to go because he obstructed the foreign policy of peaceful co-existence. Molo-tov and Kaganovich were opposed to de-Stalinisation and to a reversal of Stalin's policy of r ig id control over Eastern European countries. This explains why President Tito has promptly welcomed the political changes in Russia.

Goluboi Buton

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