Almost all governments in past 25years have adopted similar
economic policies consistently irrespective of their form (single party or
multi party) or constitution (minority or majority). The policy risk therefore
in India is therefore reasonably predictable.
For example consider the following:
(a)
The process of meaningful tax reforms was
started by the then finance minister V. P. Singh (Congress 1984-89) by
rationalizing the tax slabs, lowering maximum marginal tax rates substantially,
rationalizing wealth tax and introducing CENVAT. The recommendations of Raja J.
Chelliah Committee (1991-93) on tax reforms constituted by the government
(Congress 1991-96) have since formed the basis of tax reforms in India. All
successive governments have implemented these recommendations. No government
has sought to reverse or alter the process started by Congress government
(1984-89). These recommendations form the core of the proposed Direct Tax Code.
Committees formed under the chairmanship of other members of
Raja Chelliah committee like Govinda Rao, Partha Shome and Vijay kelkar etc.
subsequently updated the recommendations to provide further impetus to the entire
process of tax reforms in the country.
(b)
The recommendations of Narsimham Committee
(1991-92) appointed by Dr. Manmohan Singh, th then finance minister in the
Congress government, have largely formed the basis of financial and banking
sector reforms in the country. Most successive governments have implemented the
recommendations consistently. In fact, P. Chidambram, the then finance minister
in United Front government (1998) had re-appointed the Narsimham Committee to
make recommendations about the second generation bankin sector reforms. The
report was submitted in 1999 to the NDA government which accepted the
recommendations. However, almost all governments have failed in building wider
consensus on these recommendations and have failed to implement many of them.
But acceptance and rejection has been very consistence irrespective of the form
and constitution of government.
(c)
The BJP led NDA government enacted the Fiscal
Responsibility and Budget Management Act (FRBMA) in 2003. The arch rival
Congress led UPA-I government implemented the same in 2004 in letter and
spirit. This still forms the very basic of fiscal discipline both at central
and state levels, though implementation was suspended in 2009 in the wake of
global crisis and need for stimulus.
(d)
The minority government of Chandrashekhar in
1991 introduced the disinvestment policy. Every successive government since
then has not only accepted the policy in principle but also tried to actively
integrate into the evolving economic model. Almost all of them have
consistently failed in implementing the policy.
In short, in our view, the policy risks in India from politics
side are low and predictable. Instances like GAAR and DTA with Mauritius are
also very predictable in proposal and retracement. The key risk is execution.
Also read other posts in this series:
Thought for the day
“Risk comes from not knowing what you're doing.”
- Warren Buffet (1930 - )
Word of the day
Balk (v):
To stop, as at an obstacle, and refuse to proceed or to do something specified.
(Source: Dictionary.com)
Shri Nārada Uvāca
Heard the Chief Economic Advisor Mr. R. Rajan yesterday!
He must be realizing that sitting in Geneva (IMF) and criticizing the government is a fun thing. Sitting in Shastri Bhawan in Delhi and doing something is tough.
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