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| Apr 03, 2005 2:27 pm |
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re: [VAT] - Tamil Nadu must |
SOEB FATEHI
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and . . .Writing for The Business Standard,
T N Ninan - New Delhi April 02, 2005 - - - - -
T N Ninan: Party of business?
Weekend ruminations
The BJP has just turned 25, and it has just committed a blunder which will be an embarrassment to anyone who has to write its authorised history 25 years from now.
In choosing to oppose the introduction of the state value-added tax system, and in getting all five BJP-ruled states to not implement the new tax system from yesterday, the party has dissociated itself from the most revolutionary change in the country’s tax system that we are likely to see in a long time.
The party that likes to see itself as being aligned with the interests of the business community has therefore acted against the interests of forward-looking businesses, and aligned itself with those whose primary objective is to defeat VAT, so that they can continue to evade taxes.
Everyone who understands business and economics in the party (and outside) knows this only too well, but the problem is that in its upper reaches, there aren’t many people who seem to care about (or even understand) good economics. As Prof. Jagdish Bhagwati famously remarked when told who the party’s economic thinkers were: “If they are economists, then I’m a Bharat Natyam dancer!”
Ironically, most political writers consider the BJP to be a party of the right. This is far from certain, and some would argue that it should more properly be called a party of the left. Don’t forget that when the party was formed a quarter century ago, its creed was “Gandhian socialism”, not capitalism or market liberalism.
The BJP was critical of the reform programme when Manmohan Singh launched it in 1991, arguing that it was subjugating us to the diktat of the World Bank-IMF, that it would lead to the de-industrialisation of India, and other such nonsense. And its first instinct when it came to power in 1998 was to raise tariffs and limit the role of international capital. Even today, it is not quite sure that globalisation is such a good thing for India.
To argue that the party has doubts about an unrestricted market, wants to protect the “small businessman” and be mercantilist, if not protectionist, is not to suggest that it was ever in favour of the Congress brand of statism. With its core political base among the community of traders and small businessmen, the BJP was certainly against an overweening role for the government and for the “inspector raj”.
But equally, it was against the uninhibited rule of the market and large companies since these, it felt, threatened India’s indigenous business community. That is why, even today, it opposes foreign direct investment in retailing—although studies have shown that India’s retail trade is disorganised, inefficient and costly (proof of this is the large gap between producer and consumer price). The willingness to try and sabotage the introduction of VAT should be seen in this light.
But among the things that most needs reform in India is the tax administration. It is corrupt, leaky, inefficient, predatory—and iniquitous, in that it penalises the honest and lets the dishonest get away scot free.
There is no one solution to all these problems, but the value-added tax system is one of the solutions. By creating a chain of transactions, each of which is taxed at a moderate rate, and by providing set-offs for tax paid earlier in the transaction chain, it does two things at the same time: it plugs loopholes and also reduces the incentive to cheat.
The state VAT system that has come into effect from yesterday in 19 states is, therefore, the most important change in India’s tax system in decades. It has been a complicated exercise involving coordination between the Centre and states, years of preparation, and many new laws.
The new system may not be an operational triumph from Day 1, for many reasons. But it is here to stay. And the BJP is on the wrong side of history and wrongsiding business by opposing its introduction. Whatever short-term advantage the party seeks will be of no political consequence in any future elections.
Since the party has turned 25, surely it is time for the BJP to develop a coherent economic philosophy and stick to its logic as a sign that it has grown up?
Jai Hind!Private Reply to SOEB FATEHI (new win) |
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