Summer of discontent

While the news that India is not on the World Health Organisation8217;s Sars list was good to hear, Air India passengers would not have been too pleased to see their flights cancelled because of a pilot8217;s strike. To top it all, the word inflation has made it back to the headlines after five years!

Given the national electoral calendar this was not to be the summer of our discontent preceding the electoral season. That was to be in 2004. But Delhi is India and Madan Lal Khurana is a trader in deals. Agitate, atone, appease. Undo the done, do the undone. So VAT, who cares? Behind the trucker8217;s strike and the trader8217;s tantrum there is a uniting concern about paying taxes. Yes, the truckers had many reasonable demands and it is in the scheme of such things that reasonable demands are always made to camouflage the real, unreasonable demand.

Politicians in power also like it that way so that they can yield to the unreasonable pretending to concede the reasonable. Octroi and entry tax must go, they said, and so did Kelkar. Don8217;t harass truckers at every state border, they said, and so did Kelkar. Delay value-added tax, they said, and who is Kelkar?

Because, elaborated the learned Vijay Kumar Malhotra, compatriot of Khurana in Delhi8217;s BJP, there will be a 8220;north-south8221; divide between 8220;pro-VAT8221; states and 8220;no VAT8221; states. True, Gurgaon is south of Delhi and that much geography Malhotra knows, but since when did Haryana become south? Haryana was the first state to declare it was ready for VAT. On Pakistan policy the Prime Minister asked Malhotra to shut up. Many wished he was given that advice on VAT also. The best has become the enemy of the good in fiscal policy. In search of an ideal a deal is struck. Delhi assembly elections come in the autumn of 2003, and the national elections may be scheduled in the spring to early summer of 2004. If we have a vote on account budget in February 2003, rather than a full-fledged one which must wait till after the elections, one more year of tax evasion has been gained.

What unites truckers and traders and the opposition to VAT is not the assumed burden of VAT itself, for this may very well reduce tax burden. In fact state governments apprehend revenue loss and the Centre has promised to bridge the gap. The real fear is about getting found out. VAT will make incomes more transparent requiring the new class of tax liable households in the services sector to pay income tax. The fear of having to file income tax returns and be captured by the direct tax scanner has fuelled the opposition to VAT.

Delhi is the largest settlement of tax evaders anywhere in the world. It has to be. Nowhere do so many city slickers declare themselves as farmers. No metro has so many truckers and traders. Leaders and dealers. No national capital has so many rent-seekers. And Kelkar thought his tax reform revolution would begin here?! That too by a political party whose machinery is run by the likes of a Khurana and a Malhotra? Fat chance.

Don8217;t lose hope. Third party mediation will happen. When fiscal 2005 arrives India8217;s committed obligations to the World Trade Organisation will kick in. Required to conform to the discipline and timetable of the WTO, and with elections to the Lok Sabha and Delhi assembly behind it who cares about other sundry assemblies anyway, the government of the day will have to perforce bat for VAT. That is how we do it here. Remember 1991? There were a dozen reports from a dozen committees written between 1975 and 1990 recommending all manner of economic policy changes and government after government delayed reform because no one was exerting the required political pressure.

Then came the balance of payments crisis of 1990-91 and under the cover of a fiscal stabilisation and structural adjustment programme the government of the day did what had to be done. Those who opposed the policy package blamed the International Monetary Fund and the World Bank. How convenient for the politicians in power. They also liked IMF getting the flak.

In 2005 VAT will come, because the Raja Chelliah Committee, the Parthasarathy Shome Committee and the Kelkar Committee wanted it to come and because a group of state finance ministers chaired by West Bengal8217;s Ashim Dasgupta also wants it to come. But, when that happens in 2005 and if by then Khurana and Malhotra are in the opposition and not in the ruling party, guess who they8217;ll demonise? WTO! At least the Communist Party Marxist won8217;t invoke the WTO because Comrade Dasgupta of Writers8217; Building has been the most zealous proponent of VAT.

So why do the truckers, traders, bankers, pilots strike? Because when one of them gets the government to bow, others push it to bend.