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New Directions from the New Finance Minister

Will Mr. Jaitley strike out in a new direction, or will he just do the same old things but better

Three days from now, Arun Jaitley will rise in the Lok Sabha to present the most eagerly anticipated budget in decades. However, there are two distinct camps to the anticipation. There are those who are looking forward to a budget characterised by growth-oriented reforms, and there are those who are just waiting for something that can be a reason to say 'I told you so'.

Personally, I expect this budget to set the right direction on many issues like fiscal management, infrastructure, taxation and others. However, when one says direction, that's all that I mean. Given the mess that it has inherited, not to speak of creative accounting on fiscal deficit, it's hard to say how much will it actually be able act on these issues. But the direction is important.

Take taxation, for example. It is a recognised principle--in the Kelkar Report, among other places--that indirect taxes are unfair. A poor citizen paying the same excise and service tax as a rich one on what he consumes is inherently against the principle of progressive taxation. A fair taxation system would probably be heavily (or even entirely!) biased against indirect taxes and towards direct taxes.

However, it has been a long time since we saw any actual taxation measure from the Government of India that even bothered to nod towards this principle. In fact, the enthusiasm with which service tax has been expanded has meant a strong move in the opposite direction. One often hears that rhetorical statements from government functionaries that only two or three or some such percentage of Indians pay taxes. This statement is basically fraudulent. Every Indian pays taxes and whatever the destitute pavement dweller consumes, has practically the same indirect tax percentage as the rich.

This is the sort of thing that one means by the direction of the budget. Is Mr. Jaitley's best case that he'll just do the same things better and more transparently? Or can we hope to see a new and well thought out direction? We'll find out in three days.