The Art of Pol­i­cy­mak­ing

India Today - - UPFRONT - By Ashok V. De­sai The au­thor is a for­mer eco­nomic ad­vi­sor to the Gov­ern­ment of In­dia

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.

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