The illogical republic

In the mid-1980s when the Rajiv Gandhi government had begun untangling a few industrial licensing regulations, Jagdish Bhagwati received a phone call from an editor at The New York Times. The editor was puzzled by the term “broad-banding” that the economist had used in an article for the paper to describe the decision to allow factories to diversify their product mix without prior permission from bureaucrats in New Delhi. He was incredulous that any government had ever handicapped industry in this way.
 
Three decades on, looking down the long list of products on which the government reduced the goods and services taxes in November from 28 per cent to 18 per cent, I felt similarly befuddled. On what basis was it decided that mattresses and fans should have a tax of 28 per cent levied on them when the GST first went into force? Why does equipment for shooting galleries inhabit the same band of taxation as forklifts? Given the rocketing increase in diabetes, isn’t it illogical for the taxes to be reduced on refined sugar to 12 per cent?

 
Last month, an email conversation with a columnist for this paper, TNC Rajagopalan, drew my attention to the fact that an exporter under the Central GST Act 2017 must round up to the nearest rupee when completing an invoice. But, the customs electronic delivery system rounds down to the nearest rupee; inevitably the invoices don’t match and many exporters’ refunds are delayed. I was trying to understand why India’s export growth was stalling in October while our Asian neighbours were enjoying buoyant trade volumes. Indonesia, for instance, reported yesterday that its November exports grew 12 per cent year-over-year, versus 18 per cent in October. Vietnam’s exports in the first ten months are up 21 per cent and it is closing in on annual exports of $210 billion. (India exported $275 bn of goods last year.) November’s 31 per cent increase in exports is good news of course, but one can’t help feeling we have spent some of this year creating non-tariff barriers to trip up our small and medium enterprises. There is no redressal in the World Trade Organisation for own goals.

 

This government’s fondness for over-regulation is not that different from what transpired in the last 70 years. We have certainly moved on from stipulating that only foreign companies that did not operate airlines could bid for stakes in Indian airlines a couple of decades ago, but are not markedly more logical if the implementation of the (dis)integrated goods and services tax is anything to go by. Why is cement and paint still in the 28 per cent bracket? I grew up under the oppressive Communist government in the Kolkata of the 1980s, which levied an additional tax on buildings that were painted. The predictable result was that many new buildings were left unpainted.

 
On matters big and small, India remains a depressing economic underachiever. Why do we never seem to be able to attract the investment required to build the distribution chains and cold storage we need to prevent onion prices from gyrating year after year? Having made so much progress in putting in place a process to make wilful defaulters accountable, why won’t we privatise public sector banks so they are able to operate independently? What is the logic of linking our mobile phone accounts to Aadhaar numbers? If it is to make it more difficult for terrorists, surely those from overseas would travel with roaming facilities on their phones.

 
I have no wish to be associated with Shalya, the annoyingly negative charioteer of Karna, but anticipating new regulations that will compel everyone with a Twitter account or a newspaper column to disclose their social engagements involving foreigners, I am determined to make full disclosure here. Last week, at the home of a prominent Indian investment banker, I engaged in conversation with a Pakistani banker who was also full of praise for our Prime Minister. A couple of years ago, I attended a Christmas party on December 30 at the home of Finance Minister Arun Jaitley. I went under the pretext of being Christian whereas I am an agnostic, but I did so because I believed the finance minister was making a gesture towards being inclusive. I was told by an Italian diplomat that a representative of the Pope was also present, but to my knowledge no discussion took place about future elections in Goa. Instead, it was a jolly affair. We listened to carols and clapped when the finance minister jointly cut a Christmas cake with a priest who may have been the Bishop of Mumbai. (Jaitley’s birthday is December 28).

 
Next Saturday, I am hosting a party in Kolkata for a few close childhood friends, one of whom is a former chairperson of sundry women’s committees of American chambers of commerce outside India. A visiting Kiwi pastry chef is invited, too. We will likely discuss nothing more controversial than the dab chingri and whether the 6 Ballygunge Place notun gurer ice cream lives up to its reputation. In advance, happy good governance day for December 25 and best wishes for a more logical 2018. We can only live in hope.