Taking on sacred cows

The BJP govt has abolished some long-standing sacred cows (previously unassailable ideas) in the business firmament


Prime Minister Narendra Modi (right) has suggested that the fiscal year should start on 1 January instead of 1 April to facilitate budgeting by putting the monsoon in the middle of the budget year. Photo: Bloomberg
Prime Minister Narendra Modi (right) has suggested that the fiscal year should start on 1 January instead of 1 April to facilitate budgeting by putting the monsoon in the middle of the budget year. Photo: Bloomberg

You may have a legitimate beef that the Bharatiya Janata Party (BJP) government led by Prime Minister Narendra Modi has been relatively mild about taking on cow vigilantism in north India. But you will have to hand it to them for talking about, making us aware, and in a few cases outrightly abolishing some long-standing sacred cows in our business firmament.

Here is a partial list of recent actions against previously unassailable ideas.

Security tags on hand baggage: The new fiscal year brought news that the annoying and rather useless paper tags that you were required to put on your hand baggage had been fully eliminated at seven airports—at the four metros, Hyderabad, Kochi and Ahmedabad. The practice was first implemented in the late 1970s and predates baggage X-ray machines. An earlier pilot was aborted, because the security tag vigilantes (real police in this case) had a vested interest in keeping them alive. Fast forward to this April, and someone higher up decided the tags must go. I must admit, I didn’t think they would ever be gone.

Of course, the work is not fully done since there are over a hundred commercial airports in the country that still use them. One estimate puts the full cost of personnel, wasted paper and ink at Rs1,200 crore per year. Holy cow!

Fiscal year to Gregorian calendar year: Prime Minister Modi has suggested that the fiscal year should start on 1 January instead of 1 April to facilitate budgeting by putting the monsoon in the middle of the budget year. An eminently practical suggestion, if you ignore the irony that this calendar was first adopted by Pope Gregory XIII in 1582 to accurately set the date for Easter based on the vernal equinox. There were many start dates in history to this calendar, including the Roman Consular Year (in May), Easter Sunday and Christmas.

To those technically minded, we are already on a Gregorian calendar albeit one that starts on 1 April, following the British tradition. The British tradition in turn is believed to have been inherited from the Julian calendar (that predates the Gregorian one) that started the year on 25 March (Lady Day), with adjustments for leap days lost. If we get this one done, it will be a major leap ahead for India. Can we now rationalize the plethora of holidays we have?

Farm income tax: This is the mother of all sacred cows, so to speak. The tradition to exempt farm income came about because of the angst from colonial taxation of land. Large and small agricultural land is exempt and so too is corporate income for seeds and other agricultural products. Poultry, beekeeping and shooting of TV serials in a farm house are not exempt. Dairy farming, yogurt, lassi bars, butter and cheesemaking have been milked by the taxman for years and have strangely escaped righteous “protection”. A little-known fact is that many states already tax commercial agricultural income—for instance, Assam taxes tea plantation income at 45%, Kerala at 30%. Some states have abolished previously existing agricultural taxes as Karnataka did in 2016.

This is a complex subject but the NITI Aayog did well to bring the topic into mainstream discussion. There is much received wisdom on whether this tax should be administered federally or in a much more decentralized fashion at the panchayat level. A fair, simple and low agricultural tax (my vote is to farm it out for panchayat collection) on large land income and on corporate agriculture (and products) combined with a policy that tightens the definition of exempt agricultural income will widen the tax base and mitigate tax leakage.

So what’s left to be tackled?

Indian Standard Time (IST): IST (UTC +5:30) is calculated based on 82.30’E longitude at the Shankargarh Fort, Uttar Pradesh. The exact time nowadays is kept by a bank of cesium clocks and a hydrogen maser at the National Physical Laboratory, Delhi. Even though it did briefly during the Indo-China war of 1962, India does not use daylight savings time or any seasonal adjustments. The sun rises nearly 2 hours earlier in the East versus the West: At its widest, India is about 3,000km spanning nearly 30 degrees of longitude. I must admit there is a certain esprit de corps and elegance to the entire country being on a single time zone. No easy answers to this one, but perhaps the North-East could benefit from a head start.

Pricing farm electricity: With the farm income genie out of the bag, it is time to eliminate the electricity price exemption to rural areas. Free power distorts incentives to conserve water, keeps power distribution companies in distress and consequently reinforces poor quality supply. There could be many solutions, but the one that has been tried at scale is the rural feeder segregation (RFS) scheme. RFS is the separation of the technical infrastructure of agricultural consumers from non-agricultural consumers. Its biggest merit is that it tracks everyone but allows for differential pricing.

An alternative model is to innovate and design low-cost capital equipment that is meant for small loads common in rural households. A combination of RFS and frugal equipment may work best for many states. One size may not fit all, but a cogent rural electrification model for each state that tracks all users and balances the needs of consumers, farmers, government and power distribution companies is required.

Chew on it. Do you have a sacred cow issue you would like to tackle?

P.S.: “Action expresses priorities,” said Mahatma Gandhi.

Narayan Ramachandran is chairman, InKlude Labs. Read Narayan’s Mint columns at www.livemint.com/avisiblehand

Comments are welcome at narayan@livemint.com

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