If the pre-Budget Economic Survey presented to the Lok Sabha last Thursday and the Union Budget a day later are any indication, the finance ministry is moving towards greater transparency.
It has also begun sharing more information with citizens of this country than ever before. One may still quarrel with the ministry for not sharing all the information that it ought to. But the direction, evident from the documents released on two days last week, is a welcome development.
Once upon a time, the pre-Budget Economic Survey used to be a keenly awaited document, presenting new data on the state of the economy and even the government's finances. That changed over the last few years with several other data announcements coming from the government and the Reserve Bank of India well before the presentation of the Economic Survey.
Thus, the Economic Survey lost much of its importance. One way the finance ministry could have regained the Economic Survey's importance was to have focused on data that is more relevant and fresh. No such effort was made in the last few years till the Survey for 2007-08 was presented to the Lok Sabha last Thursday.
Apart from restructuring the chapters to offer greater understanding of the economy and the government's economic policy imperatives, the Economic Survey this year had a host of new data including those on inflation as measured by GDP deflators, housing price indices, retail prices of essential commodities, comparison of wholesale price indices with international commodity price indices, capital flows through intermediaries and composition of foreign trade.
The same spirit seems to have guided those who prepared the Union Budget documents released last Friday. For the first time, a part of the government's liability on account of oil and fertiliser bonds was explicitly captured in the documents. There was promise that the government's total liability on account of these bonds would be fully captured in the years to come.
In the last few years, the Budget documents have also begun capturing the revenues the Centre loses on account of the various exemptions it grants. This year this section has made extensive disclosures bringing into sharper focus the various exemptions whose continuation should come under closer scrutiny.
For instance, the single largest item of revenue loss on account of exemptions granted to companies goes to units situated in software technology parks - almost 20 per cent of an estimated Rs 58,655 crore (Rs 586.55 billion) of revenues forgone on account of various exemptions granted to an estimated 3.28 lakh companies in 2007-08.
The next biggest item of exemption is on account of companies claiming accelerated depreciation for the investments made by them - almost 16 per cent of the total revenues forgone. Similarly, another 20 per cent of revenues forgone is on account of companies in the telecommunications and power sectors.
The section on revenues forgone also includes information on exemptions granted to partnership firms, individual taxpayers and on indirect taxes like excise and customs.
A detailed table on the effective tax rate on companies, classified under different industry segments brings out interesting pieces of information. For instance, the effective corporate tax rate is only 2.46 per cent on companies in agro-based industries, 11 per cent on companies in the tyre industry, 12 per cent on companies in tea and sugar industries and 37 per cent on security agencies.
Such data establish two points. One, the finance ministry today has the advantage of a good database on the strength of which it can finetune its taxation policies. Two, the ministry has begun sharing these data with the people so that there is greater debate on how exemptions are making a dent on its revenue. It is also conscious that phasing out exemptions is a difficult and hugely unpopular task and hence it is trying to build public opinion by bringing out such data in the public domain.
What the finance ministry should now consider is to extend the same logic to cover other controversial items of government expenditure. For instance, data on the end-users of all the major subsidies that are disbursed by the government should be made public. Such data might be an eye-opener and help the government prune its subsidies bill by ensuring that they are directed only to the needy sections of society.
