Monday, 17 August 1998

Regressive Restrictions - make Honesty the Best Policy

(Originally appeared in the 1990s in the Times of India, as published in M. D. Nalapat's book "Indutva", Har-Anand Publications, 1999)

By 1988, Rajiv Gandhi decided that he had had enough. He had
removed corruption from the system and given India growth
rates that rivalled China’s, yet the newspapers refused to
acknowledge this. They preferred instead to concentrate on
Bofors or the volte-face on the Muslim Women’s Bill. The press,
it would appear, prevented the Indian voters from realising how
lucky they were to have Rajiv Gandhi as their leader.

Fortunately for the then Prime Minister, he had a Harvard-
educated adviser in the home ministry who helped draft a
"defamation Bill" which would have, if passed, put most
journalists behind bars. Sadly, the media did not realise how
beneficial the legislation was to the public interest. In its myopic
way, it opposed the Bill and finally got it shelved. 
The proposer of the defamation Bill in 1988.

P. Chidambaram, is today the Union finance minister. That he
has lost nothing of his belief in tough laws is clear from the 
manner in which he is introducing one punitive legislation after 
another. The first was to give income-tax officers the right to levy
a penalty of up to 300 per cent on unaccounted income. The next
is to make the mere possession of "unexplained" money an
offence. According to this legislation, it will not be necessary to
prove that an illegality or crime was committed to get an
individual in trouble. What next, one wonders? A law that
makes the mere possession of property a criminal offence?

Nehru Family
But one should not judge Chidambaram too severely. After all,
he does owe much of his political career to the Nehru family
which had very clear views on the subject of whether Indians
could be trusted to behave as responsible adults. Under Nehru,
large-scale private business became an undesirable activity. The
effects of such an attitude are evident today, when this country
has dwindled economically. Indira Gandhi, through another
finance minister, Pranab Mukherjee, raised the marginal rate of
income-tax to 97.75 per cent. By the time Rajiv Gandhi came to
power, it was much more difficult to live up to this patrician
legacy, though to his credit he tried. It is nobody’s case that those
possessing black money should not be punished. They should
be, and severely at that. However, before this, the tax rates
should be brought down to sensible levels. There is a strong case
for just three rates of income-tax on individuals: 10 per cent, 20
per cent and 30 per cent. As for companies, 40 per cent should
be the highest rate for them. Should such a downsizing of rates
take place, the number of taxpayers will multiply by tens of
millions, and collections will go up.

The option is the present one of keeping in place a system
that makes it almost impossible to thrive while remaining
honest, and building up a police state to punish the numerous
defaulters. Morarji Desai, a staunch follower of Gandhi, was the
unwitting prime mover behind the growth of the Mumbai mafia.
As in the United States, these groups flourished because of
prohibition. Thanks to another of his edicts, that on gold control,
an entire community lost its livelihood. Today Bansi Lal is going
the Morarji way, breeding corruption within his police by
attempting to stop the sale and consumption of alcohol in
Haryana. This he did even after it was clear that Andhra Pradesh
has gone bankrupt due to the same policy.

Liberaliser's Image
If Chidambaram is to justify his image as a liberaliser, he should
look for ways of creating within India the conditions for enterprise
that operate in countries like South Korea or the United States.
He should nudge the government to bring forward legislation
and policies that encourage people to use their money
productively rather than hoard it. Then, just as the people
responded positively to the good king in times of crisis, they will
respond now by voluntarily coming forward to pay taxes and
fulfil their obligations to a regime that, at last, has begun to treat
them fairly. This country is too big for the stick. It needs
individuals who not only have big minds but also big hearts.

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