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PMs appeal to cut tax triggers competitive scramble
June, 06th 2008

Politics appears to have made nonsense of what the Prime Minister called economic sense. A day after Manmohan Singh engaged the nation on the inevitability of the oil price increase, his party and allies and Opposition alike sneaked double doses of relief through the backdoor.

The rollback clamour rang nervously across the political spectrum as parties scrambled to minimise the damage of the fuel price hike in a big election year. Six states Delhi, Madhya Pradesh, Rajasthan, Jammu and Kashmir, Chhattisgarh and Mizoram are going to the polls over the next few months and general elections are scheduled in a year.

The economy and the exchequer might be creaking under accumulating burdens, as the Prime Minister said, but better that than the burden of political loss.

State governments appeared to have taken the cue from his appeal to them Sonia Gandhi joined in today with like advice to cushion the blow by reducing the sales tax on petrol and diesel.

The Sheila Dikshit-led Congress government in Delhi was the first off the mark, abrogating the value added tax (VAT) on cooking gas and reducing the hike per cylinder by Rs 40 for consumers in the capital.

In other words, her government will soak in all but Rs 10 of the Rs 50 increase in the gas price announced yesterday.

Andhra Pradesh, also ruled by the Congress, went a step further by deciding to absorb the entire weight of the gas price hike, about Rs 10 crore, keeping consumer prices where they were.

The Prime Minister might not have realised his partys chief ministers would read his appeal to suitably reduce taxes because many of whom tax petroleum products substantially as a war cry against levies.

Other party governments Haryana said it was preparing to comply are set to act on the high commands advice.

Party sources said that in Maharashtra, the Congress-Nationalist Congress Party (NCP) government might fall in line and not resist a similar appeal Sonia had made after the last hike.

Ally and rail minister Lalu Prasad promised he would not let the hike cascade into the purses of consumers, passengers or freight users. The price increase means a Rs 681-crore annual bill for the railways; Lalu Prasad said he would make that up by improving efficiency, productivity and volumes.

The BJP matched the move with alacrity, party boss Rajnath Singh getting on the phone to all his chief ministers and asking them to reduce local duties on petroleum products, even as the party lavished scorn on the UPA and Manmohan Singh.

BJP spokesman Rajiv Pratap Rudi suggested that the Prime Minister henceforth be called Dr Mehngai Singh. As finance minister he was responsible for rising inflation, now again he is unleashing financial atrocities on the people.

But economists were with the Prime Minister and disappointed that the political establishment hadnt responded to economic exigencies with due understanding. D. Joshi, of the credit-rating agency Crisil, said: This is quite obviously politics scoring over economics. There were pressing reasons for this hike but the politicians are ready to take none of that, they would rather burden the economy. Such rollbacks reduce credibility.

The Congress, though, justified the backdoor rollback full-throatedly. Party spokesman Abhishek Manu Singhvi said: It shows the sensitivity, empathy and the care and concern of the Congress and the central government that an inevitable and unavoidable increase was spread over most of the stakeholders so as to minimise the impact on any particular section of society.

Asked if the rollback undermined the objective of the governments decision, Singhvi said: It is something to celebrate. If the sales tax and levies are not cut, you will say we have hurt the aam aadmi. If we do, you suggest something entirely different.

Uttar Pradesh chief minister Mayavati was probably the days only exception. She did not intend cutting sales tax on petroleum products immediately, but would take a constructive step after taking the interests of the people of my state into consideration.

Making a case for not immediately cutting sales tax, Mayavati said Uttar Pradesh did not levy VAT on petroleum products and its sales tax rate was among the lowest in India.

She used the price hike to ratchet up her campaign against the UPA government and the Congress after her relations with the latter worsened. Asked if she would withdraw her support to the government, Mayavati warned that this time she was letting them off with a countrywide agitation.

We will not pull out on this issue alone. The day we withdraw, we will do it suddenly without a warning.

Rather close to the Lefts position, which too is protesting against the hike, but is not ready yet to pull the plug. As one senior Left leader said, their protest was also about minimising the brickbats ta ki joote kam padenge.

We cant pull the government down now because the advantage then may go entirely to the BJP, but we must cry out against this hike and inflation because we must articulate the interests of our constituency, the leader said.

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