Bimal Jalan, who was finance secretary and then governor of the Reserve Bank of India, was closely involved in the process of budget-making during his stint in the government. Jalan gave Mint a bird’s eye view of economic policy that underpinned different budgets over the last few decades.
Continuity of policy
Economic policy has evolved and that is the strength of our country. But what we have not been able to get rid of is this annual tinkering of tax rates; different kinds of rates for different products…proliferation of different types of taxes—surcharge, education cess, FBT (fringe benefit tax), and so on. It is all silly… Supposing we just had one tax... If you have to tax, why do you have to tax different people differently: (N.R.) Narayana Murthy (chairman of Infosys Technologies Ltd) had talked about dividend tax. I had talked about that also… If you were to exempt dividend income up to Rs2 lakh or Rs5 lakh, one can understand (it). But you have dividend income of Rs100 crore which is tax exempt; how can you totally exempt dividend tax?
Scope of the budget
Democratic growth: Former RBI governor Bimal Jalan. Ramesh Pathania / Mint
Budgetary policy is part of a larger development policy paradigm. It is supposed to promote the kind of things that we want to do in our society.
So, as you can see, the arching principles of how we can achieve poverty alleviation through planning and then (later) less planning, as it led to too many controls, becomes administratively cumbersome and so on… So there are two parallel strands. One, that development economics has also changed over time based on past experience. For example,...in the 1960s, planning that India had introduced had become the hallmark of development economics. I remember the World Bank would not give you assistance if you did not have a development plan, because the whole idea was how to conserve resources, how to minimize the balance of payments impact and, at that time, great thinkers were talking about infant industry protection; it meant high tariffs. So they were part of the ethos emerging from a colonial era and (moving) to a free society…and how to do in, say, about 20 years what industrial countries took to do in 200 years. So this evolved into a direct role for the government in allocating resources. But then you found this was not fruitful because of controls, corruption, waste of resources and (was) administratively cumbersome.
Then the philosophy changed… The whole world went the other way, the so-called super-capitalism. The world is now changing. With us, in India, we were the leaders in development planning and were a bit slow in changing that because vested interests had developed. On the corporate side, in terms of high protection and high control, if you had a licence for something, then nobody could compete against you and you more or less had domestic markets for given. Similarly, there were administrative and political vested interests.
But we started moving away from that after the crisis of 1979 (after which India had to avail of a loan from the International Monetary Fund). Mrs (Indira) Gandhi came back (the Congress party was re-elected) and she was also in favour of “removing” tentacles of government on all resource allocation and so on.
Then you had an economic crisis, partly because of a political crisis… I would say from that paradigm, we have learnt from past experiences and we have changed our direction in a democratic way, with consensus; no big bang. Even (the) 1991 (budget) was not big bang…you reformed your public policy signalling devices.
As told to Anil Padmanabhan.