‘An erroneous decision need not be corrupt’

Finance Minister Arun Jaitley says three key changes — implementation of GST, improving health of banks and cleaner political funding — will have positive impact on industry

These days I am in the business of reading the pink papers a little more carefully. Business

Standard, as a serious and an objective newspaper, has its own impact and its quality of coverage and of editorial actually does have an impact on policymakers when they think ahead.

My congratulations to all the leaders of the industry and from the social sector who have been honoured today. The winners of the social sector, particularly, stand out due to the enormity of the task they undertake and the adversity of the circumstances under which they function.

Ordinarily, such functions are an opportunity to discuss what has happened in the past and wear some credit on your sleeve. I don t intend to do so. I just intend to refer to two or three exercises which are currently on and are likely to impact the entire industry. The first major one is the Goods and Services Tax (GST).

When the constitutional amendment was passed mid-2016, it was an enabling amendment that provided that the current indirect tax system could continue for one year from the date of notification. And the amendment was notified on September 16, last year. Therefore, the current structure of taxation can continue at best till September 15. After that, the curtains would be down as far as the old systems are concerned and a new system will have to be in place well in advance.

Some of the states were apprehensive because of the fear of the unknown. And the fear what if we lose revenue? Therefore, we had to put a compensation package. Once that was done, the rest was procedural. In the last six-seven months, the GST council has had 12 meetings with each meeting lasting two days and 8-10 hours a day.

This is India s first federal decision-making body, where both the Centre and the states sit together and come to conclusions. And this has been a truly exemplary exercise in deliberative democracy.

We wanted to set a precedence because the council will continue to function as long as GST continues. The constitutional amendment provides for 75 per cent votes, of which I alone have 33 per cent, in order to take a decision. So, in this current political environment, to manage 75 per cent was not very difficult for me. But I wanted to establish a precedence and that, perhaps, should apply in the future so that none of the decisions are taken by a vote. Therefore, we went round and round and discussed each issue for days together and finally reached a consensus on all critical issues.

The council is now recommending, both to the Parliament and the state legislatures, a set of six laws. Five of these laws are to be approved by the Parliament. All these have been unanimously approved by the council. Therefore, there should be an all-party consensus in the Parliament on Central GST, Integrated GST, Union Territory GST and GST Compensation Bill and other laws.

In the initial years, we intend to amalgamate the existing level of taxation by the Centre and states and fit that particular commodity or good against the nearest slab. In the month of April and May, we should be able to complete the exercise over a two-three day meeting. If all these fit into place, with the information technology structure ready, the council had decided we put it into operation from July 1.

We had a series of meetings on the current health of the banking system. We do believe that some people are quite satisfied exploiting the inability of the system to deal with them, even if they continue to default. I think that needs to be cracked. Hopefully, in the next few days, you will be hearing a series of steps in order to negate that.

There is one important aspect, which not only deals with the banking industry, but deals with all public servants taking commercial and economic decisions. And that is, the applicability of the Prevention of Corruption Act enacted in 1988 in the pre-liberalised era.

The fundamental change that needs to be made in the liberalised era is that public servants, bankers and politicians are dealing with commercial decisions. And what subsequently appears to be an erroneous decision, with the wisdom of hindsight, is not necessarily a corrupt decision. This distinction between an erroneous decision and a corrupt decision is very thin in the 1988 law. And therefore it needs to be restructured.

It s also a hard reality that in 70 years, political funding in India never became clean. In 2001-02, during Prime Minister Vajpayee s government when I was the law minister, I had requested the finance minister to amend the Income Tax Act to allow for donation to political parties by cheques and provide tax deduction.

But there was a reluctance in many because they feared disclosure of the donor s identity. This fear was due to two reasons first, political opponents could target them because the balance sheets would disclose their names. Second, if years later, this particular donor gets a contract from the government in the course of legitimate economy activity, then motives would be attributed. With no improvement in the situation, we have introduced a set of proposals in the Budget.

For those who want to be transparent, the donor can disclose his name. In villages and small towns, where cash donations are collected, the Election Commission felt that converting large cash donations and breaking them into small amounts could be misused. Therefore, it suggested that the Rs 20,000 cash donation should be reduced to Rs 2,000. We brought that change.

I believe that donations to political parties digitally should become the most acceptable method, which is what is followed in many other countries.If every political party with a support base appeals to them to give moderate size donations digitally, that would be the most desirable. But we are not very sure how far it would be successful in India.

Therefore, we also suggested this method with the permission of the Reserve Bank of India, where a particular authorised bank would sell electoral bonds. Electoral bonds can only be purchased by making a cheque payment, therefore, the identity of the buyer would always be known to the bank.

These can only be encashed by political parties in a pre-declared bank account. This is currently being discussed in the Parliament and once the Finance Bill is approved, a scheme, in consultation with all political parties, would be issued.

This year we have made record provision of almost Rs 3.96 lakh crore for infrastructure and Rs 1.87 lakh crore for agriculture and rural development. I think it is going to be a high-priority idea to spend this entire money because this, itself, is capable of generating a large amount of economic activity.

What subsequently appears to be an erroneous decision, with the wisdom of hindsight, is not necessarily a corrupt decision. That distinction between an erroneous decision and a corrupt decision is very thin under the Prevention of Corruption Act. The law was last amended in 1988, in the pre-liberalisation era, and needs to be upgraded to meet the needs of a modern economic system GST Council is India’s first federal decision-making body, where the Centre and the states both sat together and came to conclusions. And this has been a truly exemplary exercise in deliberative democracy