Unpopular thoughts to end the year with

Why is farm loan waiver such a bad idea? And why did policymakers jettison the idea of inheritance tax?

As the year winds down, it is time to reflect on what lies ahead in the new year. This column will speak about, at the risk of being labelled “red”, two pressing facets that would warrant attention in the new year.  

Purely as a matter of political economy, it would be evident that farmers’ distress could grab most of policy attention — considering how wrecked the farm sector feels and how vital in numbers the farmers are for the national elections due in the next few months.  

There is no shortage of critics who attack farm loan waivers and sops, but how much of the critique is purely because of lack of comfort with “the other” is a question worth asking.  Every other policy commentator believes that farm loan sops and waivers are bad and will wreck the banking system. But how about delving into the not-too-distant past to look at a few industries that faced crises?

When the aviation industry was in distress, policymakers worked on recasting aviation policy and banks were nudged, and pushed hard, to extend more funds to the aviation industry. The electricity generation sector, in morbid fear of the Insolvency and Bankruptcy Code and hit by Supreme Court rulings that prevent contracts from being renegotiated on grounds of economic frustration, is working hard to get sops and influence policy involved in extension of credit to the industry. Historically, the steel sector has been the recipient of many a credit restructuring and bail-outs when it has been unable to service bank loans.

Illustration by Binay Sinha

Now, the urban commentariat recognises and is conversant with these sectors, and believes these are core industries that build infrastructure for the nation. Therefore, while there may be some complaints about loan waivers and bail-outs, in the larger scheme of things it gets muted on the premise that these organised industries deserve to be helped and they are part of nation-building efforts. However, food security and the need for the agricultural sector to survive is as vital an element for society and the nation as a whole as may be industries that build physical infrastructure. If agriculture as a sector is unproductive and unattractive, feeding 1.2 billion people would be an uphill task. It would be no answer to say food can be imported the way fossil fuel is imported, for embedded in that thought process would be leaving the agrarian segment of the populate without remunerative work — fertile soil for anger and “Maoist” ethos.

The movement of individuals away from rural occupations to urban clusters is often laughed at by policymakers as not being an area of concern at all — it is purely a matter of arbitrage between two markets in the eyes of many economists. But so would be the case with no one wanting to generate power, or to make steel, or to run aviation companies. If there is a case to be made for assisting and bailing out some sector for the vitality of their roles in the larger economy, so would there be a case for the agriculture sector.

The other facet is the sheer inability of policymakers to ensure that title to property is not clogged up perpetually — the key measure to keep this moving being inheritance tax, which is conspicuous by its absence in India. The biggest of “capitalist” systems have inheritance tax systems to ease the vice-like grip on property that is passed down multiple generations and enjoyed by individuals who have never met in their lifetime, those who earned the properties they enjoy.

The UPA-II government made some noise about introducing inheritance tax but lost its nerve and will to bring it in its last Budget. A flurry of activity to reorganise property ownership followed but the market seemed to have greater belief in the political will of the UPA-II than the government itself. The NDA government, voted into power on the strength of being different from the UPA, could hardly be expected to antagonise industry and the wealthy in its initial years, but after demonetisation, it was expected to take hard decisions that could hurt the rich. This dispensation, too, has clearly stayed away from any form of reform in the form of inheritance tax or any other like policy and has run its course of introducing five Finance Acts without any reform on this front. Instead, the lowering of corporate tax is a nudge towards moving various forms of economic activity into the corporate form.

The cacophony over the next few months with the impending elections will provide the noise levels adequate for these two unpopular facets of policy to be out-shouted and drowned. In the din, it would be useful to reflect and introspect on where we are headed, burying our heads in the sand and obscuring our senses.

The author is an advocate and independent counsel

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