The Union commerce ministry has made no bones about its displeasure with any proposal that seeks to effect an across-the-board cut in the basic customs duty in the Budget for 2008-09. What it can live with is a reduction in the basic customs duty only in those areas where the import of raw materials attracts a higher tariff than the finished goods made from them.
The commerce ministry's displeasure is not just over North Block's (headquarters of the finance ministry) initiatives to open up the economy to external competition. There are several other reasons for its obvious discomfort.
If reports are to be believed, companies setting up facilities and projects in special economic zones may be subjected to some new taxes, something they had not bargained for at the time they set them up and certainly not when the policy on special economic zones was announced.
It is obvious that the commerce ministry will be extremely unhappy if the finance ministry were to get the Cabinet's green signal to levy some new taxes on units in the special economic zones.
Even in the recent past, the conflict between the finance ministry and the commerce ministry came out in the open on the question of phasing out income-tax concessions on export profits. A time-bound plan to phase out the tax relief was finalised and Yashwant Sinha as finance minister began to implement it. But there were howls of protest every time a percentage of export profit was to be taxed according to the phase-out plan.
That the plan got implemented even though with some delay (largely because of exporters' resistance backed by the commerce ministry's cry of distress that any such reduction in relief would spell doom for India's export earnings) is proof of North Block's dogged insistence on carrying out its tax reforms agenda in the face of sharp opposition from Udyog Bhavan, where the commerce ministry is headquartered.
The point to be noted here is that while the finance ministry is always keen on implementing reforms in economic policies from a macro-economic perspective of what it views as right or wrong for the country, the commerce ministry is largely influenced by how its main constituency -- exporters -- looks at a certain policy proposal.
How lopsided this could be is evident from the fact that the commerce ministry is rarely exercised over the concerns of importers, many of whom are domestic manufacturers of goods and, therefore, vital for industrial growth. Not surprisingly, there are conflicts between the views of the finance ministry and those of the commerce ministry.
Indeed, it is a rare occasion when the commerce and industry ministries sees eye-to-eye with the finance ministry. One such rare occasion was in the early 1990s when the commerce minister at that time (P Chidambaram) would broadly be in agreement with the overall policy imperatives that his colleague in the finance ministry (Manmohan Singh) would outline, even though there were minor differences over the sequencing of the reform measures and the manner in which those changes were announced.
Since then, however, successive finance ministers have had some difficulty in persuading colleagues in charge of the commerce and industry ministries to see logic in pursuing policies that they see in the larger interest of the economy. The hard reality is that the commerce and industry ministries indeed represent an interest group -- mainly exporters.
In the same way, the industry ministry represents another equally powerful interest group -- mainly producers of goods and services. It is the finance ministry which does not have to represent the interests of any specific lobby or group.
This is also the reason why the finance ministry has been more forward-looking in initiating reforms in the Indian economy. If there have been hurdles, these have always been created by the industry ministry (abolishing the list of industries reserved for the small scale sector), the commerce ministry (phasing out unviable export incentives or pursuing an independent exchange rate policy for the rupee) and even the labour ministry (removing the rigidities in the labour laws).
Given the background in which sectoral policy reforms have got stuck in the corridors of these economic ministries, it is perhaps time the overall responsibility of administering all economic policies should be shifted to the finance ministry, which then could be rechristened as the ministry for economy.
The new ministry for economy could, of course, have a Budget division that takes care of the government's annual revenue and expenditure flows. In addition, it would have departments to oversee changes in the policies for all economic activities. What would happen to the existing economic ministries? Well, that would require another dose of administrative reforms.
