• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

G. Raghavan

India's Fiscal Matters By Parthasarathi Shome Publishers: Oxford University Press, New Delhi Price: Rs. 495

All over the world, raising resources to meet the growing government expenses has been a major issue to tackle with. In an ideal world, the governments would raise just enough resources easily and without causing pains to the society to meet their justified minimum and controlled expenses. Unfortunately, in reality, every Finance Minister or Chancellor has become very unpopular just because he is per se forced to implement suitable fiscal measures to steer the State carefully to ensure its financial health and stability.

Such fiscal policies comprise a mix of instruments that governments can use to target chosen economic goals. Some governments try to set right the disequilibria in wealth/income distribution through these measures, but it is a different story that they fail miserably and ultimately leading to still further deterioration in the wealth/income distribution.

They also in their anxiety to be ever popular do not take or initiate any timely and corrective measures to manage their fiscal position judiciously, which naturally and ultimately lead to detrimental ramifications including near bankruptcy of the very governments themselves.

Some `smart' finance ministers knowing fully well that they may not last for another term, pass on the job of `belling the cat' to the next finance minister belonging to their own party or the opposition party who is tipped to wrest `power' in the forthcoming polls due to their own or their party's lacklustre performance — the present incumbent in post/power. There has been no uniform solution to this persistent problem.

The Indian experience is no different. It has its own countless insurmountable problems in the fiscal areas. The federal set-up adds to further misery with the tax subjects divided into Central, State, local governments, etc., with the result the tax payer-consumer ends up paying two or more types of taxes on the same goods or services and in some cases, tax on taxes too. In addition, periodic revision in tax slabs (mostly upward only) causes the business planning go awry affecting the investor very badly.

Stability in taxation, one of the basic cannons of taxation, is not assured or ensured by any of the finance ministers either in the Centre or in the States. The policy formulations of the most of these finance ministers are unfortunately their respective party-centric rather than country/State-centric. Thus there is a long felt need for a viable long-term fiscal strategy to be debated and developed in India.

To facilitate in this direction and to provide the basic frame-work to start on the subject, Parthasarathy Shome, an authority on the subject, has chosen to highlight various elements that should comprise a cohesive strategy in India's future fiscal policy in his book on India's fiscal matters.

In the first chapter, the author unfolds the ultimate fiscal policy architecture by generating a discussion on the role of government, its commensurate need for resources and the minimum services it should provide at various levels (central, state and local), emphasis on a fiscal strategy that could render fiscal policy sustainable in the medium term including fiscal deficit and the build up public debt.

In the second chapter, the author presents an overview of recent Indian fiscal policy and attempts to develop an appropriate strategy comprising comprehensive reform measures. With the objective of charting out a cohesive strategy, this chapter reviews India's performance of the 1990s when liberalisation of the economy essentially began. It focuses on fiscal trends of both Central and State Governments and points towards the need for a macro fiscal framework.

The subsequent chapter addresses selected aspects of India's fiscal policy, using international comparisons, with the objective of bringing to the fore pivotal fiscal measures that should be urgently addressed. In chapter four, the value added tax structure and administration has been discussed in greater detail. This discussion assumes great importance since the centre and the states have mutually agreed to introduce VAT on goods from April 1, 2003.

Tax policy and tax administration inter linkages have been objectively discussed in the chapter five. The ground reality and also one of the major lacunae of tax policy in India is that the intentions of a tax structure as designed by the tax experts and legislated may be difficult to carry out if the design is too exacting for prevailing administrative capabilities. Such ramifications of tax administration actions on the effective tax policy structure have been carefully analysed and discussed in this chapter.

In the final chapter, the main conclusions and recommendations of the book are summarised. This chapter brings forth the lessons of the foregoing analysis that should have some durability for the long term, in particular relating to fiscal federal structures and tax policy and administration. It also brings the essential conclusions from India's recent fiscal performance and the main ingredient of an appropriate fiscal architecture for India.

Thus this book brings out its very best on India's fiscal measures and matters. The author has very lucidly brought out the subject in an easy and understandable language even to a layman who wishes to make a sincere attempt to understand the intricacies in the mystic areas of fiscal policies and matters.

The reviewer would like to observe that the author could have considered the issues of frequent changes in tax policy and measures, their resultant impact on the economy and the need for some sort of near/medium-term stability in matters relating to taxation in more detail. This could have led to suggesting some long-term institutional efforts.

Despite this observation, this book is a master-piece from an authority in the subject.

This review would be incomplete if a special mention is not made about the efforts of the publishers in bringing out this book in an altogether different get up from their traditional style, which is quite catchy and instantly attractive. This latest book on India's fiscal matters will prove to be an asset to fiscal experts, policy makers and the students of public finance.

Picture by Kamal Narang

Send this article to Friends by E-Mail
Comment on this article to BLFeedback@thehindu.co.in

Stories in this Section
Writing your resume right

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line