It has been 16 years since the Vajpayee government kick-started this process


The deliberative Indian

Beyond economic policy tussles, there are other examples of excessively durable deliberation and indecision

The most important indirect tax reform awaits action in Parliament. This is the passage of the goods and services tax (GST) bill, which needs the blessing of both the upper and lower Houses. It has been 16 years since the Vajpayee government kick-started this process. Successive finance ministers have announced a firm date for a nationwide roll-out, only to be proved too premature. Even the current finance minister, Arun Jaitley, last year had announced a roll-out by 1 April 2016, but was thwarted by the opposition.

Is this constant indecision an example of an excessively deliberative democracy, which can’t make up its mind? Leaving aside the political point scoring, is there an inherent speed governor in our parliamentary system? Two other examples come to mind. In 1993, finance minister Manmohan Singh appointed the Malhotra committee to examine and recommend reforms in the insurance sector, including the entry of private players. Mind you, this was in the middle of the heady period of big reforms, industrial de-licensing and deregulation. Should have been a cinch to liberalize the insurance sector. It took another seven years and three governments for the insurance bill to be passed in Parliament. The second example is the idea of special economic zones (SEZ), which were inspired by the success of Chinese ones since the 1980s. This idea had excited our policymakers since the early 1990s. The formal policy was, however, tabled in Parliament in April 2000, and the SEZ Act itself was passed only in 2005. The first few SEZs started becoming operational just on the eve of the global financial crisis of 2007-08, when global trade collapsed. Ten years later, the SEZs are woefully short of their promise, exports are doing badly, and the SEZs are in danger of losing their tax exemptions and incentives. In fact, the duty on SEZ goods sold into domestic areas can seriously undermine the Make in India initiative. Policymakers need to now quickly decide how to disentangle the SEZ inconsistencies.

Is the slow and deliberative policymaker to be blamed for missing the bus, or is this how good policy gets cooked? (No pun intended). Beyond economic policy tussles, there are other prominent examples of excessively durable deliberation and indecision. For instance, there is the high drama of the women’s reservation bill, which is a constitutional amendment, first introduced in 1996. In most states, the third tier of government already has women’s reservation, supported by local legislation. But at the national level, it is in limbo. The bill was passed by the Rajya Sabha in 2010, but the Lok Sabha did not find time to vote on it. It lapsed when the House was dissolved. The current Lok Sabha could surely introduce it. But don’t hold your breath.

In recent years, we have also seen a tendency that is the polar opposite of undue deliberation. This is when bills are passed with zero or little discussion. In the 15th Lok Sabha, almost a fifth of the bills were passed with less than five minutes of discussion. Another fifth were passed with about two or three hours of discussion only. The Lok Sabha secretariat as well as organizations such as PRS Legislative Research track and analyse data which shows the efficacy of time spent on bills and discussions. The current Lok Sabha, in its first five sessions, has had less than 1% time wasted in disruptions. And indeed the productivity of the Lok Sabha in the just-concluded budget session was well over 100%. This is in sharp contrast to the winter sessions of the Lok Sabha in 2010, when almost 94% time was lost. Of course, productive time thus defined is still not synonymous with the speed of decision-making. We need both—the debates and the decisions.

If lawmakers move slowly, what about the executive? Do they have a better track record? This space is too short to analyse the whole record, but a recent example might illustrate.

The amendment of the Mauritius tax treaty is one of the Narendra Modi government’s biggest economic reforms, and it was an executive decision. It undoes a pesky clause in the treaty that goes back to 1983. That special clause gave complete tax exemption to companies resident in Mauritius from capital gains made in India. As a result, it led to perverse outcomes such as round tripping of domestic capital or treaty shopping by companies from third countries. A more serious consequence was the distortion caused by the Mauritius clause in domestic tax policy. For the sake of parity, the tax exemption given to non-residents was extended to domestic investors, time duration for exemption was shortened from three years to one year, the exemption was also given to the sale of unlisted shares, and so on. And to make up for the shortfall, the government had to resort to inefficient taxes such as the securities transaction tax. All these distortions can now be fixed because the root of the problem has been addressed. But the question is, what took so long? If it was an executive decision, then surely it was not paralysed all these years by endless deliberation of legislature?

Maybe the Mauritius clause was necessary back then, when India needed to desperately woo foreign capital. But even then, it should have been withdrawn at least 10 years ago. The same is true for a variety of other policies, such as small scale reservations in industry, middlemen in agriculture marketing, or central grain procurement intervention, to name a few. All of these were relevant at one time, and have now outlived their relevance. But our deliberative democracy delays their demise.

Ajit Ranade is chief economist at Aditya Birla Group. Comments are welcome at [email protected]


Leave a Reply

Your email address will not be published.

Solve this and then Post Comment *

scroll to top