ON  GST

G S T –A Transformational Tax Reform by Shri.V.S.Krishnan ;Published by Academic Foundation ; Pages 192 ; Price Rs 990/-

                              ***********************

The author of this book, Shri.V.S.Krishnan, was “Present at the Creation” of G S T and had participated in many of the crucial G S T deliberations .He was also member of various Sub-Committees on G S T. Krishnan is a senior civil servant belonging to the Indian Revenue Service with wide experience in handling matters relating to Indirect Tax Policy. In the early part of his career he served as the Member of the Tax Research Unit, where he was associated with the formulation of four Union Budgets. He has worked extensively on improving the Compliance Verification system through contributions to the preparation of the Audit Manual (under a Canadian Project) and a Return Scrutiny model (under the Asian Development Bank). He was conferred with the Presidential award for his Distinguished Record in 1999. He was closely associated with the evolution of the G S T and was also Director on the board of G S T N.

The G S T is an audacious attempt at integrating the State and Central VAT into a G S T  which would span the entire spectrum of the Value Chain. The Chief  Economic Adviser waxed eloquently—“To have achieved this in a large and complex federal system of multiparty democracy, with a Centre, 27 States and 2 Union Territories of widely divergent interests via a constitutional amendment requiring broad political consensus, affecting potentially 7.5 million tax entities, and marshalling the latest technology to use and improve the implementation capability, is perhaps breathtakingly unprecedented in modern global tax history.” Its impact is multi-layered, ranging from tax behaviour to strengthening the federal polity to ensuring fiscal equity. 

The book is divided into three parts. The first part explores the evolution of the G S T story including the debates that shaped the G S T.

The G S T will face transitional challenges including the technical one of managing the  G S T N network which is the backbone of G S T.

The G S T N challenges in its complexity the Aadhar Project, which provided an identity number with biometric details for 1.25 billion Indians. Besides providing a common online portal for all businesses to carry out three core business processes—Registration, Payment of Duty and Submission of Returns, the G S T N will match more than 3 billion invoices of buyers and suppliers every month,

The origin of G S T lies in “ VA T”  which was a broad-based tax levied on commodity sales up to and including at least the manufacturing stage, with systematic offsetting of tax on commodities purchases as input against that due on inputs. V A T started as MANVAT or as Vat on manufacturing, but later expanded to goods and services and covered the entire value chain. Today because V A T taxes value addition in both goods and services it is also called G S T—“Goods and Services Tax”. The revenue efficiency of VAT is what makes it so acceptable. A very interesting quote on the efficacy of VAT is attributed to Jean Baptist Colbert, the Minister of Treasury of Louis XIV—“ The art of taxation consists in plucking the goose as to obtain the largest amount of feathers with the smallest amount of hissing”.

Analysing the evolution of G S T, the author quotes the Chief Economic Adviser—“The G S T will decisively alter the Indian economy for the better because the G S T symbolises Indian politics and democracy at its co-operative, consensual best.”

The G S T with the simplification of the return filing system would be truly evident compared to the pre—G S T system. The  G S T  facilitates the ease of doing business by digitally aiding the tax payers to complete the formalities for paying the tax. The creation of an on-line portal in the G S T N will remove the physical interface between the taxpayer and the tax administrators and create a tax friendly environment thereby also promoting the ease of doing business. 

The second part of the book is a detailed analysis of the implementation of G S T which proves that G S T is an opportunity and can translate into favourable business customs only when businesses can successfully marry business evaluation with business restructuring.

The final and third part is concerned with policy prescriptions for going forward. The G S T impact will be strongly felt by the economy. It will spur growth by lowering the cost of investment and by expanding the market.

Krishnan concludes that G S T is  a reform which will not only reorient indirect taxes in India but also strengthen the federal polity and nurture the idea of cooperative federalism

The book carries a Foreword by India's Finance Minister Arun Jaitley who declares“...Mr Krishnan had a ringside view of the evolution of the GST. The book is written in a very lucid and readable style...... a number of interesting  suggestions have been made from the policy perspective. I am sure that this book will be useful for both, the lay reader and the tax professional”.

There is a rich section of Annexures and Appendices that throw a flood of light on this complicated subject.

Anyone interested in understanding of G S T will have to read this invaluable document.

P.P.Ramachandran.

25/11/2018.

PROF--C T KURIEN

Economics of Real-Life: A New Exposition by C.T. Kurien; Published by Academic Foundation; Pages 249 ; Price Rs.995/-.

                                     ***************************

“Age does not wither nor custom stale her infinite variety" sang the Bard of Avon about Cleopatra. The same can be said of Prof.C.T.Kurien who at the ripe old age of 90 has produced this delightful book. He is an eminent Professor of Economics. His students are legion and are found in every region, a number of them in exalted positions. He was Professor in Madras Christian College ;Director Madras Institute of Development Studies. He was one of the six economists invited by the Secretary General of United Nations to make an independent evaluation of the Global Food Situation.

The framework of the volume is one that permits  multidisciplinary analysis and throws the searchlight on the drawbacks  mainstream economics perspective. To name these, they  are emphasis on equilibrium, reliance on the  concept of a utopian economy, the artificial distinction between a market economy and the political system and public sector. He deviates from the mainstream division of the economy into households and firms, identifying instead  different units and the links between them.

To begin at the beginning, Kurien began with a study of Economics  fondly believing  that “through a study of Economics, (he) would be able to understand the causes of poverty and contribute towards its eradication.”

He  became a teacher and was blessed with brilliant students. He expended considerable time on  issues connected with poverty. He discovered his enemies were his own brethren in his profession—the neo-classical economists . He was distressed with role of government in alleviating poverty. He declared that  a ‘high growth’ rate means little unless it leads to reduction in poverty.

Kurien’s next stop was the Temple of neo-classicism --Stanford  ruled by  the Arch-priest  Kenneth Arrow who wore a crown in the guise of the  Nobel Prize. Kurien failed to be enchanted with the new-fangled  mathematical models and accompanying . He was convinced  that these exotica  distanced itself from  reality. He believed that for countries like India with “surplus labour” and prevalence of dual economies the models could hardly explain the factual position. His long discussions with  Arrow  did not take him anywhere near solution.  Kurien wrote bluntly  “The problem with neo-classical economic theory is that through its abstractions it has set up an economic universe almost completely removed from the real world and then claims it to be the ‘ideal world’ to be established on earth!”

Kurien ploughed a lone furrow and resorted to  an independent course of research based on economic issues rooted in real life. Wrote Kurien,” I have used ‘Production’ and ‘Transaction’, the two basic activities, to probe into the working of the most rudimentary economy to the most complicated economy of our times”. Kurien strongly backed eminent  development economists  like Rosenstein-Rodan, Ragnar Nurkse and Arthur Lewis. He assigned  a value to labour, not merely  as a factor of growth but also as a necessity to lift people from poverty. While many economists embraced Marxism  Kurien kept a distance . He opted for  the empirical method and published several books including Theoretical Approach to the Indian Economy , Rethinking Economics: Reflections Based on a Study of the Indian Economy and Wealth and Illfare . The present book is another step in Kurien’s journey.

According to him “the real challenge in economics is to identify the field of enquiry for which it is necessary to have a satisfactory notion of what the ‘economy’ is and to view it as an “Evolving Complex System.” It is necessary to have both conceptual and empirical approaches. This book is a successful attempt to delineate his ideas in a simple and straight-forward manner.

Kurien has no faith in Adam Smith’s theory that the market is led by an ‘Invisible’ hand’. “The capitalist market is, thus, not the mysterious ‘invisible hand’ that steers the economy; nor is it a smooth flowing stream. It is a choppy river expanding through the visible inter-mediation of the producer-trader combine in pursuit of profits.” The book traces the emergence of the complex market of today from the beginning with to today’s sophisticated instruments of  money and banking.

Kurien highlights the invaluable  role of intermediaries, traders or agents who intervene between the producer and consumer.They lead to  “commoditisation” of markets where the producer (farmer) is far removed from the process. With trading and finance having a dominant role, trading and/or arbitraging in “transactions” become an end in themselves. Financialisation, again, is seen as “the pattern of accumulation achieved through transactions in the financial sphere rather than through production of commodities or through trade.” Kurien offers brief  accounts of the rationale of economic policies .  He proves how  economic policies are part and parcel of  society and politics. The  intervention by the State ,in fact, saved the markets on a number of occasions.

Kurien  analyses  the Indian economy and the policies of the government over the years . He believes only in growth resulting in abatement of poverty. According to him, “for the vast majority of people, livelihood remains a precarious issue after approximately five decades of ‘planned development’ and two-and-a-half decades of high growth.” He pooh-poohs  talk of  “high growth” in India since  it serves only the interests of the state, capital and a the richer segments of the economy.

Study of institutions forms an important part of economics. A nuanced view of society and its economic dimension can be developed through a focus on ownership, authority, inter-mediation and asymmetry of information. As intermediaries and knowledge asymmetries are important, social structures evolve, resulting from and enhancing differences.

 Kurien  presents a clear description of his analytical structure of the economy . It can be seen as a network of participants and activities, units and links. These result in nine different types . There are not only various types of households and economic units such as firms and banks, but also traders are separately identified. “If multilateral exchange is one of the main links in a modern economy drawing in practically all its different units into interaction, the role of the trader cannot be minimised” . In addition, he expressly states that the economy is “always in a state of flux”, challenging the perspectives that focus on equilibrium.

As a further step away from economics based on perfect competition and closer to reality, “most markets are controlled by a few producer-trader combines that can easily fix prices” .

One chapter is dedicated to  the emergence of MNCs and provides  a broad sweep of global world economic events since 1945.

 Central to the book is the view that economies are always changing, and so economics must adapt also to be relevant to the country and time under consideration. Consequently there is a need for ‘substantive logic’ based on the nature of the problem under consideration, rather than internally logically consistent axiomatic approaches.

Kurien’s book contributes in a big way to solving the problems faced by a Society with burgeoning needs and demands.His book is compulsory reading  for all students of economics and those who evolve policies.

P.P.Ramachandran.

18/11/2018.

SUJATA ANANDAN--MAHARASHTRA

Maharashtra Maximus: The State, Its People & Politics by  Sujata Anandan ; Published by  Rupa; Pages 244 ; Price  Rs 395/-

                          *****************************

If you proclaim “West Bengal” the image that springs up is that of Subash Chandra Bose. If you call out “Gujarat” it is Mahatma Gandhi and if you invoke “Maharashtra” the figure that emerges is Chatrapati Shivaji.

 Sujata Anandan a veteran journalist, who is working with Hindustan Times, in her earlier book  “Samrat” wrote about another name that had equalled the status of Shivaji—viz  Bal Thackeray. She  explored the life and times of Balasaheb and  as Vir Sanghvi put it—“'The book is an attempt to understand the milieu that Thackeray operated in and to capture the essence of his style amidst the shifting stands and the politics of pragmatism'.Thackeray not just changed the name of Bombay to Mumbai but quite altered the character and fabric of the city even though he was driven not by ideology, as might have seemed to most outsiders.

In the book under review  “Maharashtra Maximus: The State, Its People & Politics” she has spread her wings and extended the scope of her study with the help of  her deep understanding of Maharashtra politics and its people.

Sujata Anandan explains with great acumen the mystique  of Maharashtra politics and its ramifications.  “The Gateway of India” is in Mumbai and Maharashtra also can claim to be the  “Gateway to India” .  The beginnings of the fight for “Swaraj” began with  the movement of Self-rule – or Swaraj –  with Chatrapati Shivaji Maharaj.  That sterling leader  also worked hard for  social integration –which initiative gave birth to  unique and remarkable  movements for the abolition of castes and for ensuring  justice and social equality .  “Marathas gave to India the concept of Swaraj and federalism, and kept it largely Hindu.”

Sujata has cleverly explained the applicability of the concept of the “Triad” in the history of the State .Three major regions --Bombay,Vidarbha and Marthwada  were merged to make  Maharashtra as we know today. Sugarcane, Cotton and Onion  are the major crops of the  State. The Trio who cast maximum  influence on the growth of the State are  are Yashwantrao Chavan, Vasantrao Naik and Sharad Pawar.  What was their philosophy,asks Sujata and answers-- The tripartite spirit of Phule-Shahu-Ambedkar philosophy that firmly laid the foundation of god governance . Finally the three communities that have a paramount influence in Maharashtra are Mahar, Maratha and Brahmin communities,

According to the author  Maharashtra Dharma goes beyond Hindu Dharma and incorporates  nationalism.

 Shivaji Maharaj was the first of the indigenous kings to realise the importance of naval power.  “One can today describe him as the father of the Indian navy. One of modern-day India’s naval training ships is named INS Angre after Kanhoji Angre, a formidable naval commander during the time of Shivaji who conquered many sea powers and seized many islands from both the Portuguese and the British on the Konkan coast. The Indian navy has also named its training ship in Lonavala as INS Shivaji, in tribute to India’s original naval power.”

Maharashtra is vastly superior to other states of India. However ,within the State undeniably there are backward or under-developed regions.  Marathwada is backward. Located on  the edge of a desert, water is a major issue  here. Not a single district including Aurangabad can be labelled  industrialised. Attempts made earlier  to develop industries in and around Aurangabad were not successful. Sujata quotes an authority ---according to Prof. Sudhir Gavhane, “The per capita income and human development index here are even lower than those of Bihar, and if you separate areas around Pune and Mumbai from Marathwada, the entire region comes under the most poverty-hit districts of the country.”

Of course the inevitable subject  Shiv Sena comes up for discussion. No one can afford to  ignore it. Shiv Sena is part of NDA and shares power with BJP in central as well as state government. But, at the same time they are playing role of opposition party. The party has strong base even after death of Bal Thackeray. The author correctly says, “The Shiv Sena’s stubborn and unequivocal position on a unified Maharashtra resulted in the resignation of the state’s advocate general Shreehari Aney who was rooting for the separation of not just Vidarbha but also Marathwada.” BJP is for the smaller states. BJP is in favour of statehood for Vidarbha but it cannot afford separation because that could result in its losing control of Maharashtra. Maharashtra will continue to remain more important than Vidarbha, even if separate state of Vidarbha becomes a reality.

BJP leadership has acknowledged the influence of Shiv Sena when Amit Shah, party president, addressing a meeting on the party’s foundation day in Mumbai said, “It is our ardent desire to contest the 2019 elections with the Shiv Sena.”

The reality is Maharashtra is passing through a dark phase like any other state. Sujata  rightly contends  “It is not confined to Maharashtra alone. There is a general disconnect between the masses and the leaders across India.” These disconnect between the people and political leaders are not a good sign for the democracy.

 The book is an ideal introduction to the great State of Maharashtra and in a brief analysis the author tackles a number of questions—such as--What is Maharashtra? What has been the contribution of various communities and castes in making the Maharashtra of today? What makes Mumbai a centre of political power?  Who is a Maharashtrian? .

P.P.Ramachandran.

11/11/2018.

RAHUL  BAJORIA  ON  RBI

The Story  of the Reserve Bank of India by Bajoria ; Published by Rupa ; Pages 281 ; Price Rs.595/-

                            **********************

The “ Economist ” of London while reviewing Prof.P.R.Brahmananda’s book “Principles of Maximisation of Welfare” wrote “The learned Professor has proved that he has read all the books on the subject—proof that was not  required”. A similar comment can be made of the book under review “ The Story of the Reserve Bank of India” by Rahul Bajoria. He has read all  the books on the subject and he quotes  profusely. There are a forbidding number -- 693-- of  endnotes !.

The author cannot claim much of a close association with the  R BI. He is a post-graduate from the National University of Singapore. Too, he has a decade of service in Barclays in the Asia Desk.

 The book is an attempt to analyse the evolution of R B I and closely studies its autonomy and role in financial development of the country. Bajoria also assesses the role of different Governors and their link with the Finance Ministry.

As everyone knows RBI  played an important role in the Nation’s economic development. Its role since the 1991 reforms has resulted in introduction of best practices in India’s financial markets, especially in the theatres of bank regulation, minority investor protection and bond market relationship . The RBI occupies the primal position in India’s financial labyrinth and it is bound  to play an increasingly dominant role.

Chapter One is on the origins of R B I. There is the mandatory journey taking the reader through, the Fowler Committee, the Chamberlain Commission, the Hilton-Young Commission with the celebrated quote of Lord Montague Norman— “the RBI  should  treat the relationship with the Bank of England as that of a  passive Hindu housewife.”

Rahul moves on to deal with nationalisation of RBI, the advent of the S B I,  the infamous connection between Governor Benegal Rama Rau and the hot-headed T.T.Krishnamachari leading to the Governor’s resignation, the Mundhra scam, the 1966 devaluation of the Rupee and inauguration of the Deposit Insurance Corporation.

We are furnished details of Bank nationalisation which has been covered in a masterly way in D.N.Ghosh’s book “No Regrets”. Next comes the foolhardy intervention of Sanjay Gandhi and the imposition of his henchman Shri.K.R.Puri as Governor. This period also witnessed  the deplorable  and  ignominious exit of Shri.R.K.Talwar from the S B I.

Bajoria analyses the second round of Bank Nationalisation and the establishment of special institutions like Nabard, etc.

The much-bandied subject of “Devaluation” is discussed in one chapter. Narasimha Rao’s single largest reform was Industrial delicensing. By one stroke Government abolished industrial licensing for all industries except eighteen industries on the negative list, regardless of the level of investments. Same time Manmohan Singh presented his historic  Budget which the London Economist called “an economic revolution”

The other significant event was  the  Harshad Mehta scam and its repercussions. Bajoria writes of the Epochal moment in India’s banking system and for the RBI  in September 1994,when the Government signed an agreement with RBI to phase out direct and unlimited monetisation of the fiscal deficit, thus giving the R B I  greater control over its monetary policy. Details are furnished of the Reports of the Committee—headed by Shri.S.S.Tarapore—on preparing a road map for full Capital Account Convertibility.

The Rangarajan era saw not only a significant change in both the regime and form of the Central bank, but also fundamental changes such as the phasing out of ad hoc treasury bills, full convertibility and the reintroduction of private banks into the banking system,

Rangarajan’s successor, Dr.Bimal Jalan  changed the course of monetary policy by postponing the CRR cuts announced in the earlier policy decisions and tightening short-term liquidity in the money market through a new instrument of fixed rate repo- transactions.

The second Narasimham Committee report advocated greater autonomy for public sector banks and a reduced role for the Government and RBI in running the banks, along with a gradual reduction in government ownership to 30 per cent. It also recommended reduction in number of public sector banks through mergers in order to create internationally competitive institutions.

Bimal Jalan presided over one of the longest periods of monetary easing in RBI History. He declared that his term in RBI was spent in demystifying policy making as that led to transparency—accountability—responsibility.

Dr.Reddy succeeded Dr.Jalan and had a long term of five years. The Market Stabilisation Scheme introduced during his term allowed the RBI  to issue special securities to withdraw excess liquidity on behalf of government. This boosted the RBI’s autonomy to conduct its monetary policy. The Reddy era has been presented clearly. As all are aware Dr.Reddy obtained a certificate from no less a person than the Nobel Laureate Joseph Stigler  who  declared, “If America had a central bank chief like Y.V.Reddy, the US economy would not have been in such a mess”Reddy success fully insulated India from being burnt by the flames of the Global crisis.

There was a ding-dong battle between the next Governor Dr.Subbarao and the Finance Minister Pranab Mukherjee--- even resulting in rejection of an extension of the term of Ms.Usha Thorat---who had a brilliant track record. The Government set up a Financial Stability Development Council. The Finance Minister was not happy with RBI’s aggressive positioning on monetary policy.

Subbarao was succeeded by the “Rockstar” Dr.Raghuram Rajan who announced --on his Day One--a string of  measures to stabilise the currency, improve confidence and increase the flow of foreign capital to boost reserves. Rajan declared in his book “I Do What I Do”—“The key policy objective was to present a façade of confidence, to assure the public and the investors that RBI knew what had to be done.” Rajan’s re-orientation of monetary policy won him international acclaim Rajan won “The Central Banker of the Year” Award. However he decided to return to Academia at the end of his three-year term. Government announced the appointment as Governor Dr.Urjit Patel, then sitting Deputy Governor.

 “Demonetisation” attracts one full chapter discussing pros and cons. The author quotes Dr.Y.V.Reddy—he said that he would  have advised the Government against demonetisation had he been Governor. He further added, “If overruled, I would have admitted myself in hospital and resigned after some time.”

From RBI’s point of view the exercise has been stressful and laborious and it has not necessarily added to the Institution’s credibility in the short term.

The book will be useful for students of economics and those interested in the history of banking in India.

P.P.Ramachandran.

28/10/2018.