JULY 07, 2008

By Prof M D Nalapat, Director of Deptt of Geopolitics, Manipal Univ

ARE Indians a free people? Although they get to cast their votes ever so often, be it in local, state or national polls, the citizens of Independent India are often treated as serfs by an administrative system still embedded with the chemistry of colonialism. The foreign occupier saw the people of India as either knaves or morons, and quite often as both. As a result, laws and procedures were created and implemented that drained the rights of the citizen into the sink of governmental privilege. Save in exceptional cases, the official was always right and the citizen wrong. India has some of the most complex, restrictive and superflous procedures and laws on the planet, all the better to collect bribes as the price of relaxation. Rather than make productive endeavour painless and smooth, the processes put in place from colonial times and lovingly continued - and indeed added to - since 1947 have made most activity impossible except through the grasping, suffocating governmental mechanism that has made countless politicians and their favourite bureaucrats wealthy much beyond their declared sources of income. An audit of foreign universities would reveal tens of thousands of the offspring of these fortunate super-citizens studying there, even while the folks at home purchase expensive real estate and lead lifestyles that would be the envy of nobility. All that an honest correspondent would need to do would be to document the before and after homes of the recently powerful. An individual who retired as Principal Secretary to the Prime Minister entered office owning a dowdy middle-class home in New Delhi, but left it to reside in a luxurious apartment worth twenty times the value of his previous abode. The homes of the powerful and their hangers-on bristle with luxuries as well as add-ons such as expensive paintings, even though their incomes lag way behind the value of their assets. Of course, such super-citizens seldom come to the attention of the income-tax authorities. When in office, they would have protected those that are now ensconced in seats of power, who now repay the favour by keeping the taxman at bay.

Senator Barack Obama, now running for the office of President of the United States, has declared that he wants every citizen of his country to enjoy the same healthcare as a US Senator. Until the taxman treats every citizen in India the way she or he does - for example - a retired Principal Secretary to the PM, India cannot be spoken of as a free country. The reality is that in large part, the people of India are still serfs if not slaves to a system that enjoys arbitrary authority over them. Since 2004, the few remaining rights of Indian taxpayers have been taken away by a governmnent intent on returning the people of India to the slavery of the Nehru era. That was a time when the marginal rate of taxation crossed 97%, when property was confiscated at the whim of the powerful, and when companies were penalized for daring to produce beyond their rated capacity. Over the past four years, the rate of taxation has crept upwards, less through changes in the rates than by new methods of colection such as the Service Tax and the infamous Fringe Benefits Tax. The FBT assumed that India's corporate sector would function best were it to imitate the babus of the Finance Ministry. In other words, just sit at their desks and wait for events to occur. The FBT saw business travel and entertainment as personal perquisites rather than business requisites, and imposed a tax on them that, naturally, got reflected in higher costs

Governor Yaga Reddy of the Reserve Bank of India may not understand this, so obsessed is he with garnering invitations to speak in European and North American locations, but the single biggest cause of inflation in India is the tax system. Because of the Service Tax, an immediate jump in the price of services became inevitable. Of course, those paying the tax also need to pay income-tax, with the result that several topflight professoinals now surrender nearly half of their income to the exchequer. Palaniappan Chidambaram may believe that his government can spend money more productively and wisely than the average citizen, but he is wrong. A rupee left in the hands of the people of India would do much, much more good to the country than that rupee grabbed by the state.

When the East India Company set up its administration in India, its only interest was in securing as much revenue from the colonized masses as conditions would allow. Small wonder that the officer in charge of a territory was named the Collector. It was his job ( those were the days when women were foolishly excluded from responsibility) to soak up as much money as possible from the people, so that the Directors of the East India Company and its officers could prosper at the expense of the people they ruled. Sad to say, more than 60 years after freedom was won, this is precisely the attitude adopted by the Finance Ministry. All that Mr Chidambaram cares about is collection, collection and collection. This he does through a medley of taxes, and by stripping away the rights of taxpayers against arbitrary assessment and outright harassment. According to our Finance Minister, each householder should spend hours each day keeping a meticulous record of her or his expenditure, whether on vegeables or on other things. Since 2004, the Income-Tax Department has reverted to the British-Nehru principle that the citizen is always wrong, as evidenced by the scant respect paid to efforts to render more equitable a particular assessment. Each scorned taxpayer will be a vote less for the UPA, which is why the opposition ought to be grateful to the Finance Minister, for making his government so unpopular.

Each item of consumption ought to have a code indicating how much of the price comprises of taxes. This would enable the consumer to know just how big the bite of government is on the item that she or he has just purchased. Since 2004, the tax component of most items of consumption have gone up substantially, and in almost every case, this has resulted in a rise in prices. Petroleum products - of which taxes account for half the price - is just a single example of the way in which this governnent has adopted the East India Company style of governance.

A healthy economy depends on production and consumption for growth. By a policy that reflects the dominant position of the Communist Party of India and the Communist Party of India (Marxist), the government led by the reformer Prime Minister has re-introduced many of the same obstacles to production and investment as were present during the Brirtish-Nehru period. Although China has prospered because of Special Economic Zones, the development of these have been severely cut back in India. Of course it is wrong to pay a pittance to landholders and then transfer the land thus secured at a low price to a favoured businessperson. What needs to be done is to follow the Gujarat example, where the state refuses to get involved in land acquisition, leaving that to the private investor. Another method would be to acquire double the land needed, then give back to each affected citizen half the acreage of land that has been surrendered, plus a reasonable payment for the other half. The rise in value of the half given back would increase several times in value because of the planned development, thus benefitting not only the state and businessperson, but also the landholders

Both by taxes as well as by increased regulation and restrictions, the government is holding back production, including that of services. In addition, it is seeking to curtail consumption. According to the RBI and the Finance Ministry, it is immoral to consume, unless one is a favoured bureaucrat or politician. Since 2004, hotels, travel agencies, banks and shops have steadily been converted into snoops seeking to entrap the consumer. In an economy where a lot of the income comes from the farm sector, and which is still largely outside the plastic economy of credit cards, the harassment involved in such an approach is severe, and has led to a crimping of demand that has slowed down growth

It is time for taxpayers to demand of government that they be treated with the dignity and respect that they merit as citizens of a presumed democracy. The bringing back of the East India Company mindset needs to be condemned, and the Finance Minister reminded that he is not just to squeeze, squeeze and squeeze but to enable the economy to grow, grow and grow. For this to happen, there needs to be a limit of 25% on income and indirect taxes, so that the government would be forced to find ways to promote expansion in order to secure more revenue to generate the kickbacks that those in high office expect. In India, the government takes away about 40% of the income of a more productive citizen through direct imposts and at least another 30% through indirect taxes, thus leaving only the balance for the citizen to invest. This in a country with primitive infrastructure and social facilities, and with no safety net provided to its citizens. While our Finance Minister rattles off the tax rates in countries such as Sweden, is he aware of how much better state-provided facilities in that country are, and not just to VVIPs such as himself? Unless income-tax be reduced to a maximum of 25% and an exemption limit of Rs 5 lakhs per year, and indirect taxes not exceeding 25% of the price of an item, India will not be able ro achieve the 15% growth rate its people deserve. Today, inflation is caused by high taxes, as well as the reduction in production caused by a policy that seems to be crafted for the benefit of the EU and China, at the expense of India's people and corporates.