NDA govt takes guard for next 100 days in office
On Sunday, the National Democratic Alliance (NDA) completed the first 100 days of its second term in office under the leadership of Prime Minister Narendra Modi. In the normal course, it would have been a good moment to take stock of the some very impressive political actions and policy manoeuvres undertaken by the NDA in this period.
However, given the exigent circumstances facing the country, both internally and externally, the focus should be on what the government will (or can) do in the next 100 days. On the external sector, an unhinged neighbour with a terrible record of playing assist to dangerous global terrorists together with deepening fault lines in the global economy are cause for acute worry.
On the domestic front, with the Opposition yet to recover from their devastating rout in the 17th general election, political pressures for the NDA are minimal. That said, it is clear that a domestic economy rapidly losing steam is an undeniable cause of concern; ignored, it will sooner, if not later, assume a political challenge too.
Prime Minister Modi himself signalled it as another business day, leaving his colleagues to mark the moment. A day after he played consoler-in-chief to a nation and the Indian Space Research Organisation (Isro), both of whom were distraught after India’s moonshot fell short by a whisker, the Prime Minister turned to the all-too familiar electoral cycle of state assembly elections—launching the re-election campaign in Haryana for the Bharatiya Janata Party (BJP).
While ensuring continued political domination is an obvious priority, it is clear that the policy actions of this regime over the next 100 days will be under scrutiny as they will set the tone for the economy for the next five years. The next three months, which also coincide with the run-up to the next Union budget, will be crucial in hitting the reset on the economy and the pervading feeling of gloom and doom.
All eyes, therefore, will be on finance minister Nirmala Sitharaman. She does not have the luxury of pondering over the hiccups in her maiden budget, which eventually ended in a bunch of roll-backs. The big priority will undoubtedly be in giving shape and form to what will be the next biggest piece of tax reform: the direct tax code or DTC.
At the moment, the ministry is mulling over the recommendations of the high-level expert group, which so far has been kept under wraps. Presumably, the finance ministry is weighing its options.
Hopefully, the experience with the Goods and Services Tax (GST) will be kept in mind. Brilliant in concept—the idea of a single country, single tax—it has got mired in problems arising from a bad design since its implementation on 1 July 2017; largely the result of over-eager state finance ministers keen to protect their revenue base and hence not willing to opt for fewer slabs and a lower median GST rate. Efficiency was overlooked and instead, the priority became revenue collection—ironic because indirect taxes are regressive in nature—and targeting tax evasion. (I recall Vijay Kelkar, former finance secretary and chairman of the Thirteenth Finance Commission, repeatedly making the case for a good design, central to which is a single rate; with the benefit of hindsight, it is clear that Kelkar was spot on.)
As Arvind Virmani, former chief economic adviser in the finance ministry (from 2007 to 2009), argued during a roundtable with Mint, a good design is imperative for the direct tax code too.
At the moment, with their back to the wall in the face of declining revenues and ballooning expenditure priorities, North Block has preferred higher rates for high networth individuals. Many believe it is unwise as not only is it unlikely to boost collections, strong-arm tactics could in a perverse way incentivize evasion.
The DTC is a great opportunity for the government to silence its critics and own another enviable legacy. To guard against missteps, the finance minister may be advised to create a brains trust of experts like Kelkar, Virmani and honchos from consulting firms; because at the moment, to put it bluntly, the bureaucracy, no matter how well intentioned, is coming up short on ideas and implementation.
Seeking and getting assistance should not get weighed down by either professional or political egos. After all, as Prime Minister Modi keeps repeating, it is “India first.”
Anil Padmanabhan is managing editor of Mint and writes every week on the intersection of politics and economics.
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