Context:-
It is now celebrates 30 years since India’s economic liberalization programme began. Massive libraries can be built solely devoted to how the Indian economy and Indian lives have changed since 24 July 1991, but let us swim against the tide and go back several decades before 1991, and look at something that’s core to reforms, an area where much has changed, yet much may not have.
Mohammadali Carim Chagla, an extraordinary man who is largely forgotten today.
Chagla was chief justice of the Bombay High Court, was handpicked by India’s first prime minister, Jawaharlal Nehru, to be our ambassador to the United States, was education minister from 1963 to 1966 and then briefly minister for external affairs in Indira Gandhi’s cabinet.
He went on to be a leading voice against the Emergency. Throughout his distinguished career, he stood for certain inalienable principles of liberty, nationalism and secularism.
Chagla saw from close quarters, the like of Muhammad Ali Jinnah to Nehru, John F. Kennedy to Fidel Castro. But lets confine to one episode, again largely forgotten today—the Haridas Mundhra affair, which was the first big financial scandal of independent India.
In 1957, Parliament was rocked by allegations that Life Insurance Corporation (LIC), under pressure from the finance ministry, had bought worthless shares in companies promoted by Calcutta-based businessman Mundhra for ₹1.24 crore—about ₹9,000 crore in current terms.
The finger of suspicion pointed towards then finance minister T.T. Krishnamachari and finance secretary H.M. Patel, both of whom denied any knowledge of the matter. Under fire in Parliament and in the media, Nehru appointed Chagla as a one-man inquiry commission.
Chagla submitted his report within a month, which must still be a record for Indian inquiry commissions. Though no direct guilt could be established, Nehru had no option but to ask Krishnamachari to take responsibility for the LIC scandal and resign. Mundhra went to prison.
The last section of Chagla’s report starts with the words: “If I may say so, without undue presumption, the following principles seemed to be established as a result of a careful consideration of all the material that has been placed before me…“
He then made some recommendations.
- One, the government should not interfere with the working of autonomous statutory corporations.
- Two, the chairman of the corporation should be appointed from among persons who have business and financial experience.
- Three, if executive officers of the corporation are to be appointed from the civil services, it should be impressed upon them that they owe a duty to the corporation, and that they should not permit themselves to be influenced by senior officials of government, or surrender their judgement to them.
- Four, the funds of LIC can only be used for the benefit of its policy holders and not for any extraneous purpose. If they are used for any extraneous purpose, that purpose should be in the larger interests of the country.
- Five, in a parliamentary form of government, Parliament should be taken into confidence by the relevant minister at every stage, and all the relevant material must be placed before it.
- Six, a minister must take full responsibility for the acts of his subordinates, and he cannot be permitted to say that his subordinates did not reflect his policy or acted contrary to his wishes and directions.
These recommendations were made in February 1958. Can anyone argue that they were wrong? And can anyone claim that they have not been extensively ignored by almost every government?
Politicians in power have routinely used the resources—in cash and kind—of public sector units (PSUs) to further their own narrow objectives.
Ability vs Loyalty
- By the 1970s, the heads of some of the largest and wealthiest of these corporations were being appointed for political loyalty rather than ability.
- Bureaucrats with no domain expertise were heading PSUs in sectors that needed specialized knowledge, and they would do the bidding of the bureaucrats they reported to.
- This was in their personal career interests, which may or may not have had anything to do with the company’s.
- LIC has traditionally been the favourite milch cow for governments. Its money has been used to shore up markets, buy useless stock in dead-end PSUs and help out crony capitalists.
- A significant part of the disinvestment figures claimed by governments has been one PSU being forced to buy shares in another PSU, which is nothing other than transferring money from one pocket to another without real economic or financial goals being met.
- On the other hand, several once-valuable PSUs have been sold off at a pittance after they had been systematically run into the ground.
Conclusion
Yes, an LIC public issue is said to be in the works, and a general insurance company is to be privatized. But there is uncertainty about when these could happen. The longer the government waits, the less money it will possibly end up raising. Meanwhile, as we celebrate 30 years of the economic reforms, Chagla’s recommendations remain as valid as they were more than six decades ago.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.