Even a high school student of economics knows that the velocity of money (i.e. the speed of its circulation) makes a difference in growth. It is this factor which ensures that the old adage “no man can escape death and taxes” comes true. Take a Rs 2,000 banknote as illustration. Even if an individual has a Rs 2,000 note, the existence of which has not been revealed to the Income-Tax Department, the minute that gets spent on a tank full of diesel, tax gets paid to the exchequer. And not just a small part of the Rs 2,000, given that India probably has the highest taxes on petroleum products of any democracy. If there are ten or more rounds of expenditure of that single banknote (and in a healthy economy, this is a low number of transactions), several of them will result in taxes getting collected, especially now that the long-delayed GST has been made part of the taxation matrix. However, whether it be Pranab Mukherjee (who has the distinction of being the Finance Minister who levied the highest marginal rate of income-tax in the world, 97.25%) or P. Chidambaram, whose initials “PC” are often referred to as “Police Constable”, given the harsh regulations and laws relating to taxation and other economic and commercial matters that originated in the Ministry of Finance during his time. The use of police methods and the deliberate creation of a climate of fear were the most visible characteristics of the functioning of the tax machinery during the period when Manmohan Singh was Prime Minister. The economist who earned a global reputation as a reformer seems to have outsourced much of policy to individuals not in the government, for his record, especially during 2010-2014, was the polar opposite of reform. Had Manmohan Singh obeyed the warnings given by his own physical state and refused to serve a second term, his reputation would have been stellar rather than blemished the way it is now. And this despite the fact that his personal integrity is beyond doubt, and the lifestyle of his family members is positively plebian compared to that of some other politicians who are his peers. The Achilles Heel of Manmohan Singh has always been his willingness—indeed, eagerness—to continue in government in some post or the other, whether as UGC Chairman or Economic Advisor or Finance Minister or Prime Minister till the last second of UPA rule on 26 May 2014, and it shows in his overall legacy
Finance Minister Nirmala Sitharaman has demonstrated a powerful intellect and a willingness to do battle for the causes that she believes in. These are presumably the reasons why she was chosen by Prime Minister Narendra Modi to take over the impossibly onerous task of being the Union Finance Minister, after stints in the Commerce and Defence Ministries. The public knows her as a feisty leader who does not hesitate to speak her mind. Such qualities need to be on display not just on television screens but in handling and altering the innate conservatism and abundance of caution that has for much too long characterised North Block, to the nation’s disadvantage. The manner in which the Reserve Bank of India and the Finance Ministry bungled the brilliant move in 2016 of Prime Minister Modi to demonetise 86% of the currency in use in the country has become a cautionary tale retailed in economics and management classrooms across the four continents. Surely the Prime Minister did not intend the elimination of liquidity that was caused as a consequence of errors made by Mint Road and North Block in the operationalising of demonetisation. Adequate supplies of the currency substitutes created to replace existing Rs 500 and Rs 2,000 notes ought to have been there from the start, so that much of the economy was spared a trauma that resulted in dozens of deaths and the shutting down of countless units that employed millions. PM Modi, unlike Manmohan Singh, managed to make GST a reality. However, not only were many of the rates too high, they were complex to an extent that compliance became a nightmare. During the DeMo days, each day there would be press conferences and news releases altering policies declared just the day before, so that monetary authorities around the world were given a dose of humour to cope better with the working day. Fortunately, the Reserve Bank of India seems to be on the path towards reform, and is now seeking to expand rather than choke the economy the way Subba Rao and Raghuram Rajan did. The Finance Ministry needs to follow suit and lower taxes and simplify compliance substantially. Fear is not a conducive medium for economic growth. Prime Minister Modi has always stressed the positive. It is time for Finance Minister Sitharaman to inject that positivity into the functioning of a ministry that can make the difference between 6% annual growth and 12% annual growth in GDP. India needs the latter, and hopefully the Finance Minister will soon ensure this