<b> XI Lok Sabha Debate, Session II (Budget) </b> XI LOK SABHA DEBATES, Session II (Budget) Thursday, September 12, 1996 / Bhadra 21, 1918 (Saka)
Type of Debate: GOVERNMENT BILLS
Title: Finance (No.2) Bill, 1996-97. (Contd.- Concluded) Motion for consideration
Text:THE MINISTER OF FINANCE AND MINISTER OF COMPANY AFFAIRS (SHRI P. CHIDAMBARAM): Mr. Speaker, Sir, yesterday we had a long but a very peaceful discussion on the Finance Bill. Some very valuable suggestions were made by a number of Members.SHRI MADHUKAR SARPOTDAR (MUMBAI NORTH-WEST): Sir, yesterday we were given an assurance.
MR. SPEAKER: No, please. We cannot complete it. Yesterday it was a clear-cut decision that the debate would be completed and that the Finance Minister would reply today. I cannot make an exception now.
SHRI MADHUKAR SARPOTDAR: Yesterday, it was decided that I would be allowed.
MR. SPEAKER: Sarpotdarji, please take your seat.
SHRI MADHUKAR SARPOTDAR: I leave it to the Chair....(Interruptions).
MR. SPEAKER: The second stage and third stage of the Bill are coming. I do not know whether you can raise some point after the second or third reading. Let the Finance Minister reply.
SHRI P. CHIDAMBARAM: Yesterday, Sir, I had the opportunity and privilege to intervene briefly and clarify some points as and when they were made by the hon. Members who participated in the discussion. Therefore, there are no major issues which I need to discuss today. There are no major issues on which a reply is expected, but I wish to assure the hon. Members that the Finance Bill, as I said, carries forward the philosophy of a low tax rate, simpler procedures. And I promise strict enforcement of the laws in order to raise more revenues.
1327 hours (Prof. Rita Verma in the Chair)
Sir, hon. Member, Shri Jaswant Singh made a number of suggestions. I wish to respond to one on corporate governance. I think this is extremely important. Sir, all over the world, the corporate governance and good corporate behaviour is now insisted upon as a requirement by law and by regulatory agencies. We are on the threshold of reorganising our corporate sector. I agree that a number of bad practices and wrong practices crept into the corporates and the behaviour of some corporates has not been exemplary or even satisfactory.
We are aware of the Cadbury Committee Report. We have asked some of our financial institutions to interact with corporates to draw up a Code of Corporate Governance. I do not think that it is easy to draw up a Code, but we are engaged in that exercise. I am confident that in due course I will be able to come forward with a Code of Corporate Governance.
I have also looked into the role of nominee directors. Government offices are nominated as directors on the boards of a number of companies. Then, there are other avenues through which the directors are nominated. Public financial institutions nominate directors, LIC and GIC nominate directors. Sometimes, it is an instrument of the Company Law Board to nominate directors on the Board. I was given a set of papers which contain what are called the do's and don'ts for nominee directors. Well, if they did all that they were supposed to do and did not do all that they were not supposed to do, I think their role would be more effective. But I think all this has now become a routine and routine is the enemy of change, routine is the enemy of efficiency and quality. I think we must try to break this routine and impress upon the nominee directors that they have a much larger role to play and more active role to play, particularly in banks. I think the nominee directors exercise greater vigil and ask more questions. Even a Socratic method of simply asking questions, would have put Chief Executives and Chief Operating Officers on more guard and would have improved the quality of performance of these companies.
Again I am looking at the role of nominee directors and I intend to revise the guidelines to nominee directors, particularly those who are appointed by the Government.
Madam, I accept Shri Nirmal Kanti Chatterjee's very correct formulation - which I requested him to repeat and I noted it down - that in the draft income-tax law that we are now in the process of drafting exemptions should be given only to four broad categories, namely to research and development, exports, some identified backward areas and in order to promote savings. You will find that this is reflected when the new Bill is drafted.
I also accept his rather radical suggestion for him that direct income-tax rate should be reduced. I asked my people to do a quick back-of-the envelope calculation as to what will happen if the slab rates were reduced to, what appears to be a good ideal rates, 10 per cent, 20 per cent and 30 per cent. I am afraid today we will straightaway lose about Rs.3,000 crore and that is not possible now. But we must move towards these rates and I am glad that Shri Chatterjee and his party are on board that we must lower tax rates. But what applies to income-tax also applies to other duties. I am sure that in course of time Shri Chatterjee will come on board and agree with me that other duties also should be reduced and what applies to direct taxes also applies to indirect taxes.
Take, for example, customs duties. A custom duty is, by economic definition, a tax on exports. It is a tax on competitiveness. Why are some of our old established companies not competitive? It is because they import capital goods at 85 per cent duty. If you import capital goods at 85 per cent duty, how do you compete with another producer in Thailand or Vietnam which are some of the emerging countries? Their capital goods are now coming in at between zero to five per cent duty. Anyway, I do not want to rush Shri Chatterjee. Now that he is with me on direct taxes, I am sure some day he will be with me on indirect taxes also. (Interruptions)
Madam, Shri Priya Ranjan Dasmunsi raised an issue about jute. Now frankly I want to disabuse the impression that we are partial to other fibres and we are not helpful to jute. Let me give you the duty structure on jute today and if he still wishes that something needs to be done, I am willing to discuss it. I have a completely open mind on these items.
Today, we have a five per cent duty, that is the lowest rate of duty that we have, on six items of jute products. They are jute yarn, twist and thread, jute fabrics, twine, ropes, cordage, cable etc., made with the aid of power, floor coverings and carpets of jute, jute webbings and sacks and bags of jute. These are the six items of on which there is, today, an excise duty on jute.
THE MINISTER OF HOME AFFAIRS (SHRI INDRAJIT GUPTA): Is it excise duty?
SHRI P. CHIDAMBARAM: Yes; he is talking about excise duty.
There is no excise duty on other products. There is full exemption for a whole list of products starting from jute fibre, jute yarn, fabrics, twine, ropes, cordage, cables etc., made without the aid of power, jute strips intended for Army, laminated jute bags, made up textile articles of jute etc.
Why do we impose this five per cent excise duty on these six items? The principal reason is that we must allow the jute mills under MODVAT to get the duty paid on capital goods. If I do not impose this five per cent excise duty on a few products, the jute mills will not be able to use the MODVAT to get the duty paid on capital goods and it may hamper modernisation.
Secondly, there is a distinction between goods made with the aid of power and without the aid of power. The five per cent duty, you will find, applies, in some cases, only to goods made with the aid of power and there is an exemption for goods made without the aid of power. If I remove this five per cent duty, those units making these goods without the aid of power will not have the small advantage which they have today.
These are the two reasons why we have a small excise duty on some jute productions. But I am willing to sit and discuss with Shri Munsi and any others who may have some suggestion on jute excise duty.
SHRI NIRMAL KANTI CHATTERJEE: It has to be viewed as a whole. A holistic view has to be taken.
SHRI P. CHIDAMBARAM: This is the lowest. There is no other product.
SHRI NIRMAL KANTI CHATTERJEE: No, it is in competition with the plastic sector that the problem arises.
SHRI P. CHIDAMBARAM: In plastics, the duties are not five. The duties are much higher than five.
Madam, there was some suggestion regarding caprolactam. I know that a large number of hon. Members of Kerala and Gujarat are concerned about caprolactam. I think, the fears are exaggerated. I have looked into it very carefully. Fortunately, there is a study made by BICP in this regard. Let me begin by this assurance that any time I find that either of the two factories which manufacture caprolactam is affected, I will not hesitate to raise the customs duty. Let me give that assurances first. But then, what are the facts? India is not an importer of caprolactam. In fact, we are a net exporter of caprolactam. The prices of caprolactam in India are very competitive with world prices. Last year, in fact, we exported a small quantity of caprolactam. There have been virtually no imports of caprolactam except under the Advance Licence Scheme. But it does not come into the domestic market. That comes of production and goes out. Anyway that comes in mill jute. I have the prices of caprolactam with me and our prices are competitive. So whether the duty is at `x' per cent or `y' per cent really makes no difference to the fact that we are net exporters of caprolactam. We have unified customs duties on all products and caprolactam falls in a family of products where we have brought the customs duty even lower than 30 per cent because I did not want to send any wrong signal to anyone. I have the BICP report which says:
"In order to really make it efficient and competitive, we must impose only one per cent ad valorem duty on caprolactam."
But I am not accepting that report now. That is much further down the road, maybe several years away. I have also got a written recommendation of the Department of Chemicals and Petrochemicals which went into all the family of products which caprolactam belongs to, that we fixed customs duty at 30 per cent. That is how the customs duty on caprolactam is being fixed at 30 per cent. There is no danger to either of the factories.
Now, what is happening is that they are, in fact, making profit in caprolactam because they have virtually a monopoly in the market. I have no grudge against that. If they are efficient, let them have a monopoly and if somebody wants to challenge them, let him come and produce it more efficiently. They are selling their products in the domestic market and there is a small export also. But they have other lines of products where they are making a loss. Now, when they come and tell the hon. Members that we are faced with closure, they are not referring to the caprolactam production but they are referring to other products where they are uncompetitive and inefficient and they are making a loss. The caprolactam today, according to my information, is cross subsidising some other products. So, the real place to look at is the other products which they are making and to see that they are more efficient. There is no import of caprolactam and given the price situation today, I am confident that there will be no import of caprolactam. If there is a demand, capacities in this country can be added. We are a net exporter of caprolactam and its prices compared favourably. They are much more competitive than the prices in the international market.
SHRI RAMESH CHENNITHALA (KOTTAYAM): But, Sir, this will affect the FACT. Therefore, it should be brought down.
SHRI P. CHIDAMBARAM: I want you to go and look into the working of FACT. I also ask you to go line by line, product by product and find out where they are making their losses.
This has been studied by the BICP. I will give you the copy of the BICP Report. It is a very thick Report and that recommends, a very startling recommendation, imposition of only one per cent duty on caprolactam. It is the basic building-block for a large number of other products. We have not done anything like that. We have kept it at 30 per cent.
SHRI MULLAPPALLY RAMACHANDRAN (CANNANORE) But you have brought it down from 45 per cent to 35 per cent.
SHRI P. CHIDAMBARAM: But there is no import. So, how does it matter? (Interruptions) I will tell you why. One is, it belongs to a family of products and they are unifying the import duties. Second is, all duties have a price restraining effect or price rising effect. It is good to have lower duties in order to have a price restraining effect on domestic production. Domestic production must become more efficient. That is why, we bring down duties, according to a timetable, on all products and we have to bring it down to world levels. What does the CMP say? Tariffs must be brought down to world levels over a period of time. That is what Raja Chelliah recommended. So, we have to bring it down gradually. I have brought it down from 45 per cent to 30 per cent at a time when there are no imports. I have also given you an assurance that if at any time I find that domestic industry is affected by indiscriminate imports or dumping or by price crashes, we can always raise the customs duty. But the signal must go that the trend is to bring down the customs duty on all products including caprolactam.
SHRI P.C. CHACKO (MUKUNDAPURAM): Mr. Finance Minister, we have this experiment and, last year, the customs duty was reduced to 30 per cent. Again, it was instated to 45 per cent by your predecessor.
SHRI P. CHIDAMBARAM: But there are no imports.
SHRI P.C. CHACKO: Please listen to me for a minute. Now, the two public sector undertakings -- Gujarat Fertilisers and FACT -- manufacturing caprolactam faced severe problems last year after the announcement was made through the Budget of reducing the customs duty. Then taking into the difficulties faced by the two public sector undertakings, it was reinstated at the old rate. The plastic industry lobby has been pressuring the Government to reduce the duty on caprolactam, it being a raw-material of the plastic industry. The fact remains that the poor public sector suffers a great deal on account of the reduction in customs duty. I am happy with your assurance that if there is any problem for these public sector undertakings, you will revise it. But I think our experience should also be taken into account. We had this direct and bitter experience last year.
SHRI P. CHIDAMBARAM: Madam, I can only present a logical argument. There are no imports of caprolactam and the prices are competitive compared to international prices. Last year, there were no imports except under advanced licence. The caprolactam is not a loss making line. It is some other products manufactured by the company ...
SHRI P.C. CHACKO: The public sector undertaking is making losses.
SHRI P. CHIDAMBARAM: What can I do? Please see the logic of it. If you are making a loss in some other product, whether caprolactam is at 45 per cent or caprolactam is 30 per cent, it makes no difference. You must look at your other products and try to become more efficient in the production of those products. BICP has gone into it. BICP is an expert body. BICP recommended one per cent duty. I have not done that. But we have to bring these duties down because the trend is to bring down all customs duties to world levels. We have brought it down to 30 per cent. It will not affect anyone. There were no imports last year. I do not expect imports this year also. If at any time we find that there is a problem, then we can always raise the duties. But please do not be carried away by an argument that the factory will be closed down. You will find that at the end of this year, FACT becomes more efficient and not less efficient. They will now look at the other lines of production. (Interruptions) Nothing happened last year; not even one kilogram of caprolactam came.
SHRI P.C. CHACKO: But the factory was closed down.
SHRI P. CHIDAMBARAM: The factory was closed not because of caprolactam. The factory must have been closed because they have got other lines of production which are inefficient. In caprolactam, they are making profit and, that is why, BICP says keep duty at one per cent. So, please do not take whatever the management says. I think we should probe what they say, ask them the questions to find out why they are doing badly in some lines. Anyway, I am willing to come to Kerala and we can all go and jointly visit FACT and see what is their problem and talk to them.
Again, Madam, there is a problem faced about rubber. As the Commerce Minister, I think, enough was done in order to reassure rubber growers that nothing will happen to affect rubber and nothing did happen. Last year also, people raised a hue and cry. I had travelled in Kerala, I visited rubber estates, addressed groups of growers and reassured them that rubber industry was married to the rubber grower in heaven. Both have to live together. If rubber industries flee Kerala, the rubber production will go down. What is the price of rubber today? I have got the price of rubber.
SHRI RAMESH CHENNITHALA (KOTTAYAM): My point is that it is attached to the rural development. The people in my constituency were saying that the Finance Minister has done this, what have you done?
SHRI P. CHIDAMBARAM: Nothing happened. I was in Ramesh Chennithala's constituency. I told the people of his constituency that they should believe me and vote for Ramesh Chennithala because he supports correct policies and he has won because of that.
You were there on the stage with me. What I am saying here, I said there also. I am not saying one thing in Parliament and another thing to the people. They accept it. The growers understand the logic of what we are doing. Rubber prices, according to the formula, should be about Rs.24/- or Rs.25/-. What are rubber prices today? Rubber prices are Rs.50/- or Rs.48/- ahead of Kuala Lumpur prices. (Interruptions).
We did not lose on that day. The quotation will go down. But we did not lose that day. We did not sell that day. It is a flush season today. Rubber is coming. Let us not raise an alarm about rubber.Rubber industry is doing well. Rubber production is going well. What Shrimati Lalita Ambika, the Indian Officer who now heads the Association of Natural Rubber Producers say? I have projected rubber growth and rubber demand for the next ten years. In Kerala, I said, in a meeting where all of you were present that there will never be for the next 20 years filling up of the gap between demand and supply. Demand is outstripping supply. So, rubber growers have nothing to fear for the next 20 years. Mrs. Lalita Ambika, one of your own Officers who now heads the Association of Natural Rubber Producers said that between world demand and the world supply, there is a gap of 10 lakh tonnes. In India, there is a gap, according to the Commerce Ministry, of 40,000 tonnes. She estimated it at 50,000 tonnes. Nothing will happen to rubber prices. If only we do not indulge in panic statements, nothing will happen to rubber prices. Rubber prices are being published every day at my instance. In Matribhumi, Kottayam prices are published. Kuala Lumpur prices are published. You know we have done all that. But you do not want to give credit to what we have done.(Interruptions)
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