All the headlines were about his anti-inflation measures but a more enduring aspect of the finance?s minister?s revisions to the Finance Bill was his keeping tax exemption lobbyists largely at bay. The salient feature of the passage of the Finance Bill every year has been the large number of amendments to which each finance minister would accede. Between March and May, the finance ministry was kept busy working out the changes to budget proposals that would be lobbied for hard by interest groups, mostly from industry, but also, of late, from other interest groups. P Chidambaram was spot on when he said each such demand was accompanied by the support of at least one member of Parliament. There may be nothing wrong in supporting a good cause, but it was an open secret that such lobbying is the seamy side of the political structure of India. Let?s put it this way: economic theory or general economic welfare has never figured high in all the high-stakes politician-industry lobbying for exemptions. The media usually have found all the minutiae too mundane, giving exemption lobbyists the chance to work unobserved.
Now look what benefits a harder stance on exemptions has brought the government. Taking the recommendations of the Parthasarathi Shome and the Vijay Kelkar committees seriously, the government has been able to shift key tax revenue figures. The tax-GDP ratio has improved to 12.5% at the end of 2007-08, compared to 9.2% in 2003-04. As a result, the government?s commitment to reduce fiscal and revenue deficits to 2.5% and 1% by the end of 2008-09 has remained on track. Chidambaram accepted only three significant exemption demands?extension of the Software Technology Park tax holiday by a year, exempting APMCs from the definition of charitable institutions, and extending tax holiday for refineries?and scores that must have come to his office were given short shrift. Of course, there are a lot of exemptions that remain on the books, having been granted earlier, that need to be tackled. But in India?s political economy, what the finance minister has done so far is not to be scoffed at. Let?s recall that he started the practice of presenting figures of what exemptions cost the national exchequer. The figure is still high at Rs 150,701 crore in 2007-08, but North Block is no longer indifferent. That?s a good sign.
