Now, turn to governance

Times of India, March 13, 2005

The Budget has come and gone, and it is time now to turn to governance. It was a good Budget, overall–it should continue our growth momentum. It lowered tariffs, reduced corporate tax rate, raised infrastructure spending via public-private partnerships, and simplified personal income tax. I especially liked some of the reforms buried inside like nuggets: for example, a city like Mumbai will only get funds if it reforms land ceilings, stamp duty and rent control; states will get funds from the horticulture mission only if they disband their dreaded Agricultural Produce Marketing Committees, thus giving farmers freedom to sell anywhere; scholarships will not go schools but to Dalits, who can now choose their school. The folly of the fringe benefits and cash withdrawal taxes has been rightly criticized--it’s a pity that Chidambaram persists in defending the indefensible, and diminishes himself in the process.

Every leader, whether political or business, has two jobs: to deliver results and to build the organization. For a finance minister, the Budget falls in the first category and it will deliver a certain sort of result. It is time now that Chidambaram turns his considerable talent and energy to his second job, which is to reform his three revenue-collecting departments. Despite many honest and hard working officers in income tax, customs and excise, these departments give India a bad name. Surveys show that foreign investors invariably cite them as the chief reason why India is still not a good place to do business.

In the case of Income Tax, a huge opportunity for transparency is waiting to be seized. Government has invested over Rs 1000 crores in creating a powerful computerized Tax Information Network. As with any new IT system, it has plenty of teething troubles and tax collectors and tax payers are tearing their hair out. Part of the reason is that the actors, especially in the banks, have not been trained. In the private sector we have learned that a major IT investment is a great opportunity to change systems and attitudes, and Chidambaram would do well to invest in a massive training program by outside professional, expert change managers and transform the ethos of the dreaded tax officer.

There are similar opportunities for transparency, improved systems and attitudes in Excise and Customs. Now is also the time to begin work on a national VAT and the dream of a borderless India. To small entrepreneurs, the excise collector is our government’s blackest face that holds the unfortunate power to imprison. He unleashes terror daily in honest entrepreneurs’ hearts, and is the symbol of the Inspector Raj that continues to prevent India’s industrial revolution. I applaud Chidambaram’s zeal for revenue, but he must reverse the unintended impression he has given to some officials that he doesn’t care about the means.

This Budget has continued India’s slow, elephant-like pace of reform. While it is frustrating to know that we could grow faster, let’s remember that even slow reforms add up over time, and it is this that has made India one of the fastest growing economies in the world. Prosperity is indeed spreading, and one per cent of our poor have been crossing the poverty line relentlessly for 25 years. Hence, I am confident that India will solve its age-old economic problem within a generation. I am less sure about governance. It is tragic to see the pain inflicted daily on the ordinary citizen by bad governance. This is partly because ministers ignore administrative reform. Ironical, isn’t it, that succeeding finance ministers have made our companies world class while our administrations remain in Jurassic Park?