Subject Group on Administrative And Legal Simplifications

Report on
Implementable Action Plans in the area of
Administrative and Legal Simplifications.

In keeping with different dimensions of globalisation, the current approach towards formulation of the budget needs a review. The Task Force had the privilege of speaking to the key functionaries in the Ministries of Commerce, Industry, Finance as also the Planning Commission. It was heartening to find that these Ministries echoed the concerns that the industry had on uncertainties manifesting in the budget process.

In the opinion of the Task Force the budget exercise should be seen more as an exercise that deals with the affairs of the exchequer and should concentrate on revenue, expenditure, plan outlay, bridging the deficit and such other macro issues. The process should not concern itself with pronouncement of duty structures at different micro levels which tend to fuel lobbying, hoarding and speculation.

In essence, the budget should not be seen as a compulsion to effect changes annually in duty structures and the Government must adopt a policy of arriving at a rational duty structure which will remain unchanged atleast for three to five years. This will help industry serve the cause of the nation and society at large by adopting a pricing mechanism that would induce stability in the market place as well as help industry to make investments with a much greater degree of economic certainty.

Should the Government feel that such a long term duty structure cannot be implemented without conducting a detailed study, it could constitute an expert committee to recommend such a structure. The creation of such a committee is the need of the hour in view of the fact that the tenure of the Chelliah Committee has run out. Keeping in view the fact that the Government is adopting a five year plan approach, the Task Force recommends that the committee be directed to evolve a duty structure which is devoid of uncertainties and is transparent and predictable during the plan period. For instance, the Ministry of International Trade and Industry (MITI) of Malaysia has brought out an Industrial Master Plan for 10 years spelling out policy and strategic directions as well as duty structures.

In a sense, what the Task Force recommends is that the mystery that surrounds the budget making process needs to be dispelled and should be devoid of surprise elements.

Keeping in view the aforesaid, the Task Force recommends that other major economic policies like the Exim policy also should be made predictable by making it a long term policy, linking it to the plan period. The practice of issuing notifications making frequent changes which lead to problems of interpretation and implementation should be very sparingly used and that too to meet a contingency that would affect the interest of a concerned industrial sector.

For example, if an exporter has secured a "Deemed Export" order under stiff competition with world renowned manufacturers keeping in view the existing "Deemed Export" benefits and the contract is to be executed within a period of 2-3 years, it totally upsets the calculations of the exporter if any of the "Deemed Export" benefits is withdrawn. It will be appreciated that in such cases, the exporters are helpless and unnecessarily have to suffer losses on this account.

Though it may be slightly beyond the realm of this Task Force, it is considered appropriate to express certain concerns arising from changes in policies arising out of changes in Governments. The duty structure, the Exim policy and other related policy measures, formulated by an expert committee and adopted for a particular plan period should be considered as morally obligatory by Government which has announced it. There would also be a pressure on the subsequent Governments, regardless of their political ideologies, not to deviate from this policy recommended by the expert committee, as they will have to explain the rationale for such an action. Thus, in the opinion of the Task Force, there would be a deterrent on the Government from effecting changes in retrograde, during the subsistence of the policy period and also puts the onus on the Government to justify the need for such a change.

In order that such a commitment is created the Task Force recommends that the duty structure be simplified and broad-banded and then brought into effect by means of a Finance Bill which would be different from the Bill which is annually tabled before the Parliament as part of the budget exercise. The Task Force feels that it is imperative to realise that in the era of globalisation and global capital movements, economies which offer policy stability will be preferred venues for investment.