By Vijay Kelkar
With Jaswant Singh’s departure, India has lost a noble son, and our polity, a classical liberal. He was a true patriot, he dreamed of India becoming an advanced liberal democracy and passionately worked towards these goals.
I first met him in 1998 when he was the deputy chairman of the Planning Commission, and I was the finance secretary. In those days, there used to be strong differences of opinion between the finance ministry and the Planning Commission over the plan size.
In a meeting presided over by prime minister Atal Bihari Vajpayee to finalise the plan, I differed with him, as the ministry of finance’s (MoF) view was that the Planning Commission’s demand for resources was not sustainable. His reaction to my presentation was somewhat frosty. But, the PM partly agreed with the MoF, and the plan size was suitably modified downwards. At the time, he told me that the MoF is not very sensitive to India’s development ambitions.
Hence, I was somewhat surprised when I got a call from him in 2002, when I was India’s executive director in the IMF in Washington, DC. He asked me to join him at the MoF, where I became his advisor.
He felt a palpable urgency in solving low economic growth in India. He knew that the path to solving this lay in building a mature market economy, in scaling back the intrusions of the government in the form of central planning or through the arbitrary power of officials.
He told me that he wanted the country to have a world-class and a modern tax system, in terms of both policies and administration. Towards this, he asked me to chair two task forces, one on direct tax reforms and another on indirect taxes. These task forces proposed new policies and IT-driven tax administration.
He accepted the core of our proposals and launched the tax reforms that would dominate the tax policy framework for the next decade. He abolished the capital gains tax as well as the dividend distribution tax, as he agreed with our view that we must reduce the high cost of risk capital in order to kick off high private investment.
He understood how the tax administration in India was broken. He would repeatedly tell officers of the CBDT and CBEC that no civilised country has tax officials conducting raids. He gave instructions so that during his two years as the finance minister, not one raid was undertaken by the tax bureaucracy.
The path to the future lay in technological improvements of the tax administration. We designed the Tax
Information Network (TIN), and he approved it even though many tax officials were not too supportive of this. According to professor M Govind Rao, this innovation led to an increase in the tax-to-GDP ratio of almost 150 basis points, through a more capable tax administration, without any burden of tax terrorism.
One of his great contributions was to support the state governments to improve their fiscal health. In 2002-03, interest rates started moving downwards, and he quickly realised that the state governments were struggling with the repayments of their old high-interest-rate loans. He persuaded the prime minister to extend a helping hand to state governments. In collaboration with RBI, MoF made arrangements by which expensive state debt was recycled/exchanged or retired.
He announced a debt swap package, under which states were allowed to borrow cheaper funds from the markets for pre-paying high-cost loans owed to the Union government. This led to an adverse impact on the finances of the Union government. This was an extraordinary act of co-operative federalism, about putting the welfare of the Republic uppermost. In my view, this large-hearted approach offers an inspiring path for thinking about the present debate on state governments and GST compensation.
He was the first finance minister who was deeply steeped in international relations. This brought a unique perspective into economic policy thinking. As a modern Chanakya, he understood the intrinsic link between a strong domestic economy and the freedom for India’s foreign policy options.
He had great dreams for India’s role in world affairs, but he knew that the foundation for that was a vibrant private market economy and financial system.
He was uniquely able to make the links between being a nuclear power, and the importance of fiscal prudence. There could be no strategic autonomy for India without fiscal soundness and high economic growth. Hence, he led the work that got us the FRBM Act, which was enacted in 2003. This was the first attempt to put India on a sustained path of fiscal prudence. Once the FRBM Act was passed, he asked me to lead a working group that would work out implementation details, and that report featured the first full-blown design of the GST.
Similarly, he knew that the path for India lay in engaging with the world and winning in the exports game. Towards that, he energetically continued with the trade liberalisation policy of Yashwant Sinha and maintained the pace of the customs duty rate reduction. The combination of trade liberalisation, sensible reforms of tax policy, reining in of tax officials, and modern work on financial reforms, was key to the private investment boom which began in 2003 and has not been matched since.
He led critical financial sector reforms but challenged the economic policy team to build Bombay as an international financial centre that could rival London within 25 years. That led to design work led by Percy Mistry. He asked me to lead work on designing a ministry of finance for the 21st century, to replace the organisation design that was many decades out of date with a ministry of finance that can meet the requirements of a modern India. Both these workstreams could have been transformative, but have languished. We will miss his vision and wisdom at a time when it is most needed.
Former finance secretary, who later worked with Jaswant Singh as Advisor to the Finance Minister Views are personal