From Business World of 10 August 2004.
Why wait till next year?
Any major innovation in our labyrinthine government
requires courage, grit and persistence; these are the qualities the finance
minister possesses. But when you are dealing with the fate of millions, you
cannot afford to make mistakes. Your policies must be robust. Bureaucrats are
supposed to ensure this: they are supposed to warn the minister about all
possible ill-effects of what he proposes to do.
Unfortunately, our bureaucrats are not very competent.
They take central services examinations after graduation at the age of 20-22;
and our college education is not a great preparation for administration. Many
of them fail services examinations. But it does not matter; they can take the
examinations time after time until they pass. If their caste is one of those
occurring in some schedule, they can go on taking the examination even longer.
If they are bright, they get into the prized Indian Administrative Service, and
get others to do all the work. The dumber ones end up in the revenue services,
and run finance ministries. They are the ones that advise the minister; and the
advice is often of poor quality.
One thing they do learn early in
their careers is to please politicians, for politicians can make or destroy
their careers through transfers and promotions. It is not always a bitter
lesson, for cultivating the right – or lucky – politicians can also bring good
fortune – like a job in the Fund or the Bank, or the post of Chief Commissioner
of Customs in Bombay. And one subject they find virtually impenetrable is
economics. They are invulnerable to a simple concept like elasticity of demand.
Excise officials simply do not believe that if you reduce tax on a product and
make it cheaper, it may sell more and revenue may go up. They make budget
projections on the assumption that however much or little you tax a product, it
will sell the same.
That such officials would not be
good in dealing with the public is not surprising. If they go into a market to
inspect shopkeepers’ books, they are likely to be beaten up. Many people lobby
against a tax not because of it is onerous, but because they do not want to be
ensnared by a taxman.
At the time of independence we
had a perfectly good system of agricultural taxation. Thanks to the settlements
made personally by British district officers, it was generally fair –
especially in the ryotwari areas of the peninsula – and it brought states a
decent revenue. But the tax officials were oppressive. Early in my career I was
doing research in Haryana villages. The drill was to find the village patwari
(who kept the land records) and ask him to take one to representative farmers.
When I went with him to a farmer, the farmer would put out a charpoy for us and
serve tea. As the patwari left he would take free vegetables with him. That is
why, when farmers got the power of the vote, they forced politicians to abolish
land revenue.
In preparation for introduction
of taxation of value added – which requires the taxation of everyone on the
basis of the value he adds – Jaswant Singh last year brought into its net all
textile producers and processors. That included the numerous handloom and
powerloom owners, dyers and printers. Their encounters with the excise
officials were not happy, and they lobbied their MPs to persuade the finance
minister to free them of the tax burden. And Mr Chidambaram, now minister of a
populist government, obliged. He exempted the entire production chain based on
cotton from taxation, and confined taxation to producers of synthetics and
blends.
That would raise the demand for
cotton goods at the expense of synthetics and blends – even though some of the
latter are cheaper and hence better suited for the poor. It would slow down the
growth of synthetics, whose supply can be increased more than of cotton goods.
But these are economic effects about which his officials would not have
educated the minister.
Now he realizes his mistake, and
has promised to remove the discrimination next year. But why next year? The
budget is still to be passed; all he has to do is to delete the relevant
amendments he has proposed before he pilots it through the final vote. What is
worth doing next year is worth doing now. He will find that in Thirukkural,
verse 673 – give or take a few.
