FROM THE TELEGRAPH OF 29 FEBARUARY 2005
What brand is
it?
The finance minister rose to present the
budget. He thanked the Prime Minister for making him finance minister. He noted
with pleasure the low inflation, the rise in export growth, and the record set
by stock prices. He proposed to set the economy on a sustained, equitable and
job-creating growth path of 7-8 per cent. He promised to give 11 per cent more
for the Plan, and 29 per cent more for defence. Credit to agriculture would be
increased by 20 per cent. He stressed the government’s commitment to reach the
benefits of reforms to villagers, SC/ST and backward people, and to provide
them with health, education, drinking water, housing and roads. He promised
that 60,000 “habitations” and 30,000 schools would get drinking water in the
next year. People below the poverty line would be given 1.5 million houses. A
task force would be appointed under an eminent person on women in the national
economy. He would allow Indian companies greater access to ADRs and GDRs for
acquiring foreign companies and becoming Indian multinationals…
Sorry, sorry; I
have been reading the wrong budget statement. The finance ministry has not yet
put this year’s budget speech on its web site, and instead I read Yashwant
Sinha’s budget speech delivered on 29 February 2000. But why did I ever think
it was P Chidambaram’s speech on 28 February 2005? Because large parts of the
speech change little from year to year, except for the figures. It makes no
difference where we are in time, and who rules us.
This should
reassure us. Democracy ensures that governments focus on certain key concerns
of the people; a functioning bureaucracy ensures rule of law and continuity
whoever rules. It also reminds us that the scope for change, for innovation,
for upsetting precedents however stupid, is limited in our government, whoever
the finance minister.
But is it always
so? Chidambaram himself presented two budgets in the 1990s; one was considered
pedestrian, the second a dream budget. The Prime Minister he then served under had
some understanding of foreign affairs and none of finance, and left the budget
largely to his finance minister. Manmohan Singh presented five budgets; he
overturned fiscal traditions of forty years. Economic straits compelled him to
seek new ideas, new solutions; and his Prime Minister left him alone to
implement them.
And now we have
the dream team of Manmohan Singh and Chidambaram; why did we not see greater
radicalism? It may be that they no longer have the urge to achieve; they are
older and wiser, and see the wisdom of living in peace with their vote banks.
It may be that they see the straitjacket of interests that surrounds the
country’s finances. Thousands of political foot soldiers live on funds
intercepted on the way from the treasury to intended beneficiaries; there is an
unspoken compact between them and their leaders that their needs will be taken
care of. Maybe, though, that is too cynical a thought. After all, the finance
minister reeled off figures of the government’s achievements: 110 million
children got midday meals, 5.82 million farmers got loans, 15 million families
got food, 125,000 villages got electricity, 560 banks financed 200,000
self-help groups, 172,000 kilometers of roads were given four lanes. Maybe our
leaders believe these figures. And all we have to do to be happy is to believe
the leaders.
But the leaders
could make it easier for us to believe them. They could do so in three ways.
One is to make accessible information that we could ourselves check. It is nice
to know that thousands of miles of highways have been four-laned. But it would
be even better if there was some way to know, without going to a government
office and beseeching some clerk, whether the government is claiming to have
repaired the road outside our house. Another is to get someone outside to check
the information. The government has two organizations to do so: the Programme
Evaluation Division of the Planning Commission, and the National Sample Survey.
But both survey a fraction of the government, and publish a fraction of their
findings after enormous delays in tracts that are difficult to get. It would be
far better if all government expenditure proposals had an allocation for an
independent, preferably a foreign body, to do a simultaneous audit, have power
to stop a project if money is being stolen, and give a report to whoever wants
it. A third is to appoint civil servants that inspire trust, to make them
independent of politicians, and to have a service administration that throws
out anyone remotely untrustworthy.
It is nice to
dream, and having a dream team at the helm makes it easy. But one has to
consider the possibility that our leaders are not capable of providing an open,
transparent, honest government – that they are involved in a marionette show whose
lines cannot be changed. In which case, all we can do is to look at the revenue
proposals, and review them like the marionettes called to television shows.
In that role, I
welcome the fact that the finance minister has equalized the corporate tax rate
and the maximum personal income tax rate. This will remove the incentive to
pass off personal expenses as corporate ones. After doing that, it was quite
unnecessary for the finance minister to tax corporate perquisites. For that
will be double taxation. Such perquisites will bear both the corporation and
the maximum personal income tax. If the finance minister persists in this
folly, corporates will simply add all personal perquisites to salaries and save
tax; the measure will achieve nothing.
The finance minister
has shown courage in reducing the tax on matches made by big producers. We
tried to do it in 1993 when I was in the finance ministry; we thought matches
were a product used by the poorest and should not be taxed at all. But promptly
came the order to desist: there was a cottage industry producing matches in
Sivakasi, and the trade union in it was controlled by Jayalalitha. She was an
ally of the Congress, so the duty on big producers could not be reduced. Now
that she is no longer an ally, Chidambaram could have abolished the duty. But I
guess this was the best compromise he could make.
Similarly,
raising taxes on cigarettes and gutka is a political act. Over 80 per cent of
tobacco is consumed in biris, which no finance minister can touch although biri
makers are amongst the country’s richest people: after all, biris are a holy
cottage industry. If the finance minister is interested in improving people’s
health, he should forgo taxation of cigarettes, and place a heavy specific tax
on raw tobacco.
And that tiny
little tax on bank withdrawals over Rs 10,000. It will get little revenue, and
it will not reduce generation of black money. There was a time when a friend
used to beat me every time in Go, a Japanese board game. After every win he
would say, “Don’t make weak moves.” Chidambaram is a master of weak moves.
