From Business World of 31 May 2004. I came to know Chidambaram well when I was in the finance ministry; he was the most intelligent minister I came across. He did not suffer fools gladly; that did not do him much good in the Congress. Still, I suppose he had a better life than if he had stayed a lawyer and got richer and richer; beyond a point, the marginal utility of money declines precipitately.
A task worthy of
P Chidambaram
This is P Chidambaram’s fourth innings.
He was minister in the cabinet of Rajiv Gandhi; I am not too familiar with this
phase of his since I was in Canada at that time. His second stint was as
commerce minister in the cabinet of Narasimha Rao. It was he who abolished
import licensing of industrial inputs and capital equipment in 1992. It was a
courageous act. The story is that he was chary of assigning to his Director
General of Foreign Trade the revolutionary task of abolishing most of DGFT’s
work. At that time, DGFT was issuing a million licences, most of them creating
opportunities for bribes. So Chidambaram wrote the entire Export-Import Policy
himself on his laptop, and sent it directly to the press. Every import licence
for capital goods required approval of a Directorate General of Technical
Development in the industry ministry, whose “business” too was destroyed by
Chidambaram. They stormed into the neighbouring commerce ministry to attack
Chidambaram. Luckily he was not there; but his nameplate was removed, and was
missing for a few days.
His third stint
was as finance minister in the United Front government. The best thing he did
then was to change the gold import regime. Manmohan Singh had allowed returning
Indians to bring 5kg of gold with them. That much gold would have cost
something like Rs 2.5 million; few Indian workers abroad could save that sort
of money. Besides, after one declared it to the customs, it was very likely
that the news would leak out. All flights from abroad come at night. No one
would have been prepared to carry 5kg of gold out of customs and into an
unknown taxi in the dark night outside; it would have been an invitation to
murder. So bona fide passengers brought little gold. But Haji Dawood organized
a chain of couriers; so in effect, what had been achieved was to legalize
smuggling. As finance minister, Chidambaram allowed eight banks to import gold
and sell it; he thus destroyed Dawood’s golden racket.
At the moment he
is busy fighting the fires that the incendiary statements of A B Bardhan and
his ilk started last week – trying to reassure the market, and asking people to
place trust in his and Manmohan Singh’s credentials. He will have a chance to
confirm those credentials in a few weeks, when he presents the budget. He is
warning everyone of a cess on taxes; I think he would be hard put not to put a
surcharge on income tax. He does not need to; revenue is going to rise by 18
per cent at least in this year, and he will have plenty of money to spend. But
he may need to prove his credentials to the communists.
The time for the
budget is short, so there will not be time to do anything radical. Jaswant
Singh commissioned three reports on taxes from Vijay Kelkar last year, but used
them little in his budget. There is still considerable ammunition left there;
Chidambaram could make a smart budget by implementing some of Kelkar’s ideas.
But I think
Chidambaram should aim at something higher. He may have a full five years this
time; he has time to aim for something that would make his name in history. I
would suggest three things to aim at: a decisive redressal of the fiscal
balance, a move from the present complicated and oppressive tax structure to a
simpler, more rational one; and a major shift from government consumption to
investment.
The first
requires the introduction of a hard budget constraint – forcing pending
departments to keep within their budgeted expenditure – and setting expenditure
growth below revenue growth. If, for instance, revenue grows at 15 per cent and
the fiscal deficit is to be brought down to 3 per cent of GDP in five years,
expenditure must grow at about 11.7 per cent. The second requires a universal,
integrated, accounts-based value added tax for the center and the states, which
should replace the present excise, sales taxes and income taxes – not the
hybrid bred by the NDA government. The third requires a change in the base of
subsidies. One instance would be to reduce water and power subsidies to farmers
and use the money to fund local rain harvesting, water reuse and conservation
projects. These are objectives lofty enough for a man of Chidambaram’s caliber.
