Power Sector: Power sector was the major negative influence on India’s economy as well. The problems and solutions were identified as under:
“As a result of the exchange rate adjustments, at the beginning of July 1991, there would be an increase in the rupee value of the import bill for crude oil and petroleum products. It is, therefore, necessary to raise the prices of petroleum products for domestic consumers. This would also help to restrain the growth in consumption of petroleum products.
I am aware that in basic infrastructure areas such as power, coal, communications and petroleum, we will have to set our sights much higher. In the present situation, characterised by an acute shortage of foreign exchange, it is, in particular, imperative to substantially augment the domestic production of coal, crude oil, natural gas and electrical energy. Efforts will also have to be made on a crash basis for promoting the utmost economy in use of energy through more efficient technologies in industry, agriculture, transport and domestic sectors.
The transmission and distribution line losses would also have to be brought down drastically from the present high level of 22 per cent. We shall address ourselves to all these tasks once we are through with taking stock of the situation.
In particular, I would urge them to ensure prompt payment of dues owed by the State Electricity Boards to the National Thermal Power Corporation, Coal India and the Indian Railways. We cannot allow State level enterprises to become an instrument of unplanned and unauthorised transfer of resources from the Centre to the States. That is neither fair nor equitable”.
The main reasons behind financial crises in this sector were transmission losses, which were around 22 percent at that time; these were picked up and brought to 17 percent over a period of twenty years.
Primary Tax Policy
The primary error in economic policy of both the countries has been duly acknowledged.
“The revenue from direct taxes, both as a proportion of GDP and as a percentage of total tax revenues, has registered a steady decline over time. This trend has to be reversed, so as to restore equity in, and balance to our fiscal system.”
The ratio of direct and indirect taxes has been substantially increased over time in India and overall collection brought to over 15% of GDP during the period. In Pakistan, we are lagging behind with less than 10 % tax-to-GDP ratio.
Tax Amnesty for foreign exchange remittance
Like Pakistan, the situation in India was so severe that Indians were forced to announce a tax amnesty scheme with respect to foreign exchange regime against their culture of high taxation and strict compliance.
“Under the first scheme, I propose that remittances in foreign exchange can be made to any person in India. Even if the remittance is received as a gift by the donee in India, it would not be subjected to gift tax. The source of funds out of which the remittances are made would not be subject to scrutiny under the Direct Tax Laws and Exchange Control Regulations. In other words, I propose to provide immunity for such remittances under these laws. The provisions of Direct Tax Laws will apply in the normal manner to the rupee proceeds of these remittances. The scheme will come into immediate effect and will be open until close of business on 30th November 1991. The details of the scheme will be announced by the Reserve Bank of India. I also propose to introduce the necessary legislation in this regard as early as possible before this House.
Under the second scheme, the State Bank of India would issue India Development Bonds to be denominated in US dollars. These bonds will be available for purchase by non-resident Indians and their overseas corporate bodies. There will be no ceiling for investment in these bonds which will have a maturity period of five years.”
These two measures clearly reflect that if there is a crisis in foreign exchange regimes the countries are forced to adopt the measures, which are not equitable and destroy the very fabric of evolution of equitable tax culture. This cannot persist.
It is to be noted that despite acute financial problems there was no desire to obtain or reschedule the foreign loans. A movement towards self reliance with adequate FDI was the core of the speech.
In summary, an analysis of Dr Manmohan Singh’s Budget Speech in 1991 identifies the primary issues, which are faced by economies of the countries in the region. The neighboring state has resolved, albeit partially, these problems or issues by various methods or measures, which will be presented in this writer’s upcoming series or articles.
(Concluded)
Copyright Business Recorder, 2023