Arun Jaitley's 2017 Union Budget raises a cause for worry
A good Union Budget can easily turn sour if, in the name of culling the black economy, the cure becomes worse than the disease.
The proposed cure by the finance ministry involves new search and seizure rules for the Income Tax department that are straight out of Orwellian dystopia.
The fine print of the Finance Bill 2017 that lays out details of the 2017-18 Union Budget does not make for pleasant reading.
First, in search and seizure cases, the assessing officer does not have to provide a reason for the operation.
Worse, the officer can search charitable organisations, again without seeking permission from the principal commissioner as was the case earlier.
The fine print in the Finance Bill 2017, which will be tabled in Parliament, has more such incendiary proposals.
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| With Arvind Subramanian, the anodyne CEA, likely to leave when his term expires in October 2017, Sanjeev Sanyal could move up. Photo: PTI |
For example, one particularly draconian proposed amendment in the I-T Act permits the assessing officer to order attachment of the assessee’s property for six months after obtaining sanction from a senior officer.
Such wide discretionary powers can – and will – beget abuse.
Prime Minister Narendra Modi is instinctively against such abuse that amounts to tax terrorism and defeats the principle of maximum governance, minimum government. His officials in the finance ministry, however, are clearly playing to a different tune and a different conductor.
The prime minister must step in and remove these tax amendments – or accept responsibility for them along with the opprobrium.
Last year’s Union Budget had numerous rollbacks on pension funds, interest rates and EPF withdrawls. The finance ministry hasn’t learnt from those setbacks, which were deeply unpopular with the middle class.
The proposed amendments in the Finance Bill 2017, if enshrined in law, will - like Pranab Mukherjee’s retrospective tax law of 2012 - remain a blot on India’s tax legislation.
On February 4, revenue secretary Hasmukh Adhia made a startling admission. He said finance minister Arun Jaitley’s pledge in the 2015-16 Union Budget to cut corporate tax in stages, from 30 per cent to 25 per cent, depended on how much additional revenue was obtained from personal income tax in future. Each one per cent reduction in corporate tax, he said, meant a loss in revenue of around Rs 19,000 crore.
This is an extraordinary state of affairs: the finance minister pledges a tax cut in a Budget speech and two days later his ministry introduces a conditionality. Trust in government is the first casualty.
A conservative Budget
The Union Budget for 2017-18 was a cautious effort to consolidate the economy after the pain of demonetisation. But the return of the Inspector Raj is not an outcome the government needs.
The prime minister has just one year to reset his economic goals. In 2018, he will be immersed in winning difficult elections in Madhya Pradesh, Rajasthan and Chhattisgarh. All three will encounter strong anti-incumbency headwinds.
Together, the three states account for 65 Lok Sabha seats. In the 2014 general election, the BJP won 62 of those seats which, along with its performance in Gujarat, Uttar Pradesh and Maharashtra, swept it to a comfortable majority.
With the 2019 Lok Sabha election looming and reverses likely in Punjab and Uttar Pradesh in 2017, the 2018-19 Union Budget next February will be intensely “political”. There will be giveaways, farmer loan waivers and other populist measures.
Elections can sometimes be won on such populism but the economy needs a healthy dose of liberal reform to overcome anti-incumbency. The quality of leadership in the finance ministry has been ambivalent. Several bureaucrats from the UPA regime continue to call the shots.
The implementation of demonetisation was botched by bureaucrats in the finance ministry as well as some in the Reserve Bank of India (RBI). Thankfully, some of these officials are retiring shortly.
They should have been transferred out of the finance ministry as soon as prime minister Modi took office. An invisible hand has protected them.
The appointment of economist and historian Sanjeev Sanyal as principal economic advisor is a positive indication that Modi has decided, albeit belatedly, to induct top-notch technocrats from the private sector (Sanyal was managing director of Deutsche Bank in Singapore).
After two similar appointments early in his tenure – Arvind Panagariya and Bibek Debroy in Niti Aayog – Modi has relied on political appointees.
That must change. For example, the induction of former editor MJ Akbar as minister of state for external affairs has paid rich dividends. Akbar has made successful trips to the Middle East, met Syria’s embattled president Bashar al-Assad and taken over some of the burden from external affairs minister Sushma Swaraj, recovering from a kidney transplant.
Politics vs governance
While politics is about winning elections with the likes of Yogi Adityanath, governance needs domain expertise. The Modi Cabinet lacks it.
Defence minister Manohar Parrikar has been a disappointment. He is straining at the leash to return to Goa as chief minister (if the BJP wins the Assembly election). Sushma Swaraj and Arun Jaitley have been workmanlike at best. Rajnath Singh as home minister has not brought the robustness his office needs.
In the rest of the Cabinet, those who have shone possess a technocratic or professional background. For example, power minister Piyush Goyal was a Mumbai-based investment advisor and entrepreneur. Commerce minister Nirmala Sitharaman, a JNU alumna, was a senior manager in PriceWaterhouseCoopers and worked for the BBC World Service.
The finance ministry needs more specialists like Sanjeev Sanyal. With Arvind Subramanian, the anodyne chief economic advisor (CEA), likely to leave when his term expires in October 2017, Sanyal (who reports to Subramanian) could move up.
More such talented men and women drawn from academia, the professions and the private sector should be inducted in government as it completes three years in office in May 2017.
The de-bureaucratisation of decision-making will make issues like tax terrorism a distant memory as India prepares for the next two intensely political years.