Nirmala in Sanskrit means “clear”, “limpid”, “crystalline”. Vedanta Desika refers to a “Nirmala Spatika” — a “pure crystal”. There is clearly a hint of purity. Given the performance of our finance minister, there might be a few more meanings that we can add to our contemporary version of the Amarakosha. Sensible, sober, sensitive, straightforward — an alliterative series that quite frankly is well-deserved.
I must admit that initially I was a bit of a skeptic. I was appalled by the forty plus income tax rate. I still think her tax rates are too high. But I want to set aside grouses and for once look at a finance minister with a lens beyond — that of personal financial traumas or goodies, while always being conscious that goodies are very rare events.
She resisted fiscal profligacy right through Covid. This despite “eminent” NRI economists urging her to spend recklessly. She is a soft-spoken lady. So, she to date has not bothered to let these folks know that their eminence, if any, is quite undeserved. Our deficits are large, but not gargantuan like those of many other countries; our public debt is yet to hit stratospheric levels; and surprise, surprise, we have one of the lower inflation rates in the world. But Sitharaman stayed the course, even while she actually helped India’s poor in “eminently” sensible and sensitive ways. The recommended additions to the Amarakosha stand justified.
Her recent speeches abroad are focused on objective numbers. If Muslims are suffering in India, then why are their absolute population numbers and percentages increasing? She was too polite to say so. But let me add the postscript. Why are the numbers and percentages of Hindus, Sikhs and Christians dwindling in some neighboring countries? And why are Parsees disappearing there? And why are we being pilloried for trying to help these dwindling populations when they seek refuge and citizenship in India? Sitharaman, as a visiting dignitary, you had to be restrained and not stray too far away from the main point. Humble columnists at ThePrint are not so constrained. So let me repeat it just in case my subtle point has gotten overlooked by some readers.
The world over, the population numbers and percentages of persecuted religious and ethnic groups tend to decrease. They do not tend to increase. In India’s case, the increases have not been small. They have been substantial, crossing the threshold of statistical significance. It is therefore perfectly in order to say that there is no evidence of persecution of Muslims that will stand scrutiny. Given their burgeoning population, statisticians can make the case that they are being favored. Thank you, Finance Minister for making this point in your sophisticated, understated way.
Sitharaman has proved a worthy successor to Arun Jaitley, who successfully put in place a national value-added GST, albeit one which has some sub-optimal features. A second order optimality in the face of tough political pushbacks is better than a fragmented market with cascading taxes, many of which were regressive and decidedly anti-poor. Sitharaman has progressed the GST well and handled the fractious Council with superb aplomb. She has also demonstrated a fever-pointed concern for operating details and administrative matters in order to keep the tax system in a continuous improvement mode. Life has not been easy. Software glitches have contributed headaches. Some crooks have gamed the system. But the fact is that instead of the usual Indian take-it-or-leave-it bureaucratic response, which is citizen-unfriendly, we now have in place a process that is periodically willing and able to make course-corrections. The software is better and more responsive. Crooks have been caught and loopholes closed. Most countries took a decade-and-a-half to iron out similar taxation systems. We certainly are moving much faster.
One must also give our finance minister credit for the things she has not done.
Decades ago, some of her predecessors had introduced a Wealth Tax and an Estate Duty. The country suffered grievously from these measures. Wealth-creation was penalised, gaming the system became the routine behavior of taxpayers, dodgy chartered accountants flourished, and of course departmental corruption became commonplace. Virtually no incremental revenues were collected. Despite the fact that we have a documented history regarding these failed tax experiments, mischievous self-appointed “experts” of dubious NRI and foreign origin have been advocating these socialistic follies. I am not a believer in conspiracy theories. But if there ever was a case that some NRIs and foreigners want to impoverish our country, their advocacy of these poppycock ideas certainly does suggest a malevolent conspiracy. It sounds strange that a Minister of the Republic should be praised for things not done. But it does take an effort to shut off the noises emanating from shrill, hysterical, anti-production sources that are ostentatious in their concern for the poor. They remind me of Uriah Heep’s ostentatious humility. It should not be forgotten that the finance minister who finally abolished Estate Duty openly said in Parliament that the revenues collected did not even cover the collection expenses and that this tax only succeeded in harassing widows and orphans.
I trust that our current finance minister reads up on the follies of her distant predecessors. That would be more useful than reading papers by the fashionable, Leftist, pseudo-intellectuals of today.
The finance minister has been stern with the state governments that have a narrow view of finances and are reverting to the Old Pension System. They clearly want to bankrupt our country and destroy its balance sheet. At the same time, she has understood that these foolish politicians (leading some state governments) can sometimes reap selfish short-term benefits. She has therefore come up with an intelligent response: Let us not jettison the New Pension System. Let us make it more citizen-friendly and attractive. One can only wish her luck in her efforts. If she fails, then it is unlikely that the First Republic of India will live beyond its eighty-fifth year, let alone its centennial.
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MSMEs to benefit
All of the above fade into insignificance when contrasted with a single unheralded change our finance minister has made to the tax rules.
It is a well-known fact that large Indian companies, both in the public and private sector, routinely delay payments to vendors, suppliers, and contractors. The smaller and therefore the more financially fragile vendors experience the longest delays. I have a passing acquaintance with the construction industry. No participant company will ever delay payments to giant steel and cement companies who are part of powerful cartels. In fact, they routinely demand and get advance payments. But a small supplier of bricks or scaffolding or water or contract labor is invariably paid late. We have the absurd situation of small suppliers and service-providers advancing working capital finance to their big clients. A more regressive and anti-MSME business practice cannot be even conceived of.
Now if Sitharaman had passed a law, making prompt payments compulsory, a hundred companies would have gone to court protesting State tyranny and filed mandamus writ petitions. And our citizen-friendly courts would have stayed the diktat. Instead, Sitharaman did something elegant, simple, and quite frankly, revolutionary. Companies can continue to delay payments to suppliers. The state will not resort to arm-twisting tactics. But your friendly Income Tax Officer will simply not let you deduct unpaid amounts as expenses. In the past, you could accrue a payable and deduct the expense. Now you can deduct only if you pay.
Hundreds of thousands of MSMEs across the country are suddenly going to see their payments coming in faster and at least before 31 March, as their large clients need to claim those expenses. There will of course be some gaming of the system and all well-wishers must remain watchful. But the first step has been taken and its effects on the financial health of national supply chains are going to be enormously positive.
What about complaints and grievances? After all, is it not the bounden duty of us citizens to be upset with the finance minister about something or the other? Well, I do have a complaint: we desperately need lower income tax rates. But one cannot be churlish. I am willing to wait on that one.
Jaithirth Rao is a retired businessperson who lives in Mumbai. Views are personal.
(Edited by Anurag Chaubey)