The Art of Policymaking
The PM’s advisors are mistaken. Cash may be the medium, but black money resides, not in any asset, but in a transaction
The prime minister is a very popular speaker. He is great on the hustings; some may say he is a superb rabblerouser. But that would be unparliamentary language. Anyway, he is good at it; the names he calls his opponents may be impolite, but are memorable. The prime minister has practised a different art of communication, though, in his weekly radio talks.
That said, somehow he has been economical when it comes to speaking in Parliament; the number of times he has spoken in the two years since he was elected can be counted on the fingers of one hand. So his speech at the end of the debate of the President’s opening speech was quite an event. Perhaps he realises that the lower house is not functioning as it should, that its negative atmosphere needed a positive note.
He reeled off his government’s achievements. Now this is not something that happens often. The recessive Narasimha Rao used to speak little; he used to leave it to his finance minister to explain what the government was doing, and boast about what it had done. That tradition was followed by Atal Behari Vajpayee and Manmohan Singh. In Modi’s time too, the finance minister has been the mouthpiece. But the prime minister travels a lot and meets many; maybe he has read the mood of the nation, which is none too upbeat after demonetisation.
The prime minister picked up the issue. He was told that black money is stashed in jewellery and property; but for him, it all begins with cash: whoever buys such assets has to pay cash, for payment by cheque or draft will create a record that will make tax evasion difficult.
But his advisors are mistaken. Cash may be the medium, but black money resides, not in any asset, but in a transaction. If a part of its sales value is not disclosed to tax authorities, that part is called black money. But it is a sum, not an asset; the undeclared part may be settled in any asset. Once an asset is sold, there is no way of tracing the black money used to buy it. If the government wants to curb black money, it can take powers to buy up assets at their declared value, or it can insist that assets must be publicly auctioned. The prime minister can try that, but it will not make him popular, and it will land his government in great trouble. It will be saddled with thousands of properties, and will not know how to keep track of them and sell them off; and auctions will simply not work in small places where there are not enough buyers and sellers. If the prime minister is keen on taxing property, he should levy an annual tax, based on the value of the property. It will not be easy; absent markets will make it difficult to determine the value in many places, and people of limited means, who live in their only property, will find it difficult to pay tax. But that is how it is done in industrialised countries; that is how the prime minister will have to do it.
It is not unusual for advisors to be wrong. Anyone can get economics wrong. Even where there is no mistake, there are often many policy options, and choosing one requires judgement. This is why the finance ministry has had an economic advisor ever since I.G. Patel was borrowed from the International Monetary Fund in the 1950s. When I was economic advisor, I did not put all my trust in my judgement; before the budget, I would call in a dozen or so of India’s best economists to meet and advise the finance minister. Prime Minister Vajpayee did even better; he met a dozen good economists, including me, once a month. Narendra Modi also needs to consult, not just economists, but knowledgeable people with differing views.