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Taxed by reckless discretion

Taxed by reckless discretion
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First Published: Wed, Feb 20 2008. 12 45 AM IST
Updated: Wed, Feb 20 2008. 12 45 AM IST
There seems to be little that is common between Mayawati’s demand of Rs80,000 crore from the Centre and Punjab threatening to take the Union government to the Supreme Court for the latter’s policy of tax incentives for states such as Himachal Pradesh.
In these, and other cases, the issue of policy discretion favouring one state over another, looms large. One major factor in favour of such discretion was the objective of balanced regional development. This was to ensure that states’ growth rates did not diverge greatly. But the manner in which party politics has evolved, it’s difficult to believe that such aims animate the Centre’s actions. Calculation of political gain is at the heart of such policies. Equitable development of states is a mere fig leaf. Mayawati’s demand was acceded to. But it’s hard to believe that it represents anything but political expediency. Ostensibly, the Rs80,000 crore was for a “package” to develop Bundelkhand and Purvanchal, two backward areas of the state. Did the state government make any macroeconomic assessment to arrive at that magic figure? The Centre has trebled the quantum of resources available to Uttar Pradesh during the 11th Plan. That figure too was arrived at with no serious deliberation.
Tax breaks to Himachal Pradesh (which Punjab has taken exception to), Uttaranchal, Jammu and Kashmir and the north-eastern states, fall in the same category. Units set up in these states from 2003 to 2010 enjoy exemption from excise duty for the first 10 years and income tax for the first five years.
The policy was put in place when the National Democratic Alliance (NDA) controlled the Centre. The Bharatiya Janata Party (BJP) ruled Himachal Pradesh and Uttaranchal during that period. States such as Haryana and Punjab lost revenue as industries moved out to states with tax breaks, but their protests had little effect. What mattered most was political consolidation by the BJP in these states. Again, the excuse was that mountain states and the North-East were economically backward.
In the absence of markers that enable distinction of policies into politically motivated and genuine cases, it’s best to narrow the scope of policy discretion.
Does discretion allow for the creation of better policies? Write to us at views@livemint.com
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First Published: Wed, Feb 20 2008. 12 45 AM IST