FIRST STIRRINGS | OP Gahrotra
‘Coalition governments are the biggest obstacles to progress’
Maharashtra’s first Finance Secretary to present two successive surplus Budgets recalls his innovative streamlining measures
I was the Additional Chief Secretary, Finance, and then Secretary, Planning. I was also Secretary in the Ministry of Commerce in Delhi. Unlike other bureaucrats, we who come from the Indian Financial Services cannot be transferred to any other department. Ours is a specialized job – that of managing state finances and also planning for the future. In each posting, I tried to come up with innovative ideas that have brought qualitative changes in the administration.
I was the first Finance Secretary of Maharashtra to have presented two successive surplus Budgets. What we did was to plan the expenditure of every department, seek its monthly cash flow requirement, allocate the expenditure accordingly, and present the monthly cash flow receipts before the State legislature. The net result was that wasteful expenditure was curtailed and money began to be spent where it should have been in the first place.
However, all that was trashed once I left office. In our system, politicians and, more so, bureaucrats thrive on controls. Bureaucrats are basically control freaks; they thrive on power, their ability to control things. Unlike in the private sector, where bosses have to reach out to the people, the bureaucrat is unmindful even if no one comes to him. Let the person’s file remain where it is as long as the person does not come to him for redressal of his problem.
When I was Sales Tax Commissioner in Mumbai, I faced this problem of thousands of sales tax assessees who did not file returns for years. On investigation we found out that 40,000 traders had simply shut shop. However, since their sales tax number was not cancelled, their assessments kept mounting with no attempt being made by my lower ranking officers to recover the outstanding dues.
Another collateral effect of the mounting unrecovered dues was that the department had to create posts of Inspectors to manage those accounts. Besides, there was no record available to find out when the trader’s account was created and how much taxes collected. In 1992, I was instrumental in computerization of sales tax records. For this, we had to keep our offices closed for two months.
After that, I made it mandatory for a computer data entry to be made before allotting sales tax account numbers to traders. Then I began pursuing my subordinate officials to secure pending dues. I set targets for recovery of taxes and dues. But still there was this problem of inoperative accounts and unrecovered dues. So I proposed amending the law and cancelling all the 40,000 inoperative accounts and issuing fresh account numbers. We placed full-page advertisements in all the newspapers and asked the traders to simply cut out the application form from the newspaper, fill it in and submit it to us.
We put up extra desks in the office to clear all the applications at one go, gave the traders their new account numbers – sans any help from the sales tax practitioners. The Sales Tax Practitioners Association was not going to like this one bit as it meant shutting down their shop. They raised a hue and cry and staged massive demonstrations. Wiping out that many inoperative accounts meant reducing that many number of officers in the department who handled those accounts, freezing recruitment for the next three years. Moreover, the sales tax practitioners lost that client base. My argument with the traders was, why do you need the help of the practitioners when you can do it yourself?
The State legislature was in session when the advertisement of the proposed law came out in the newspapers. I was hauled up before the legislature because the Opposition said I had committed breach of privilege of the House. It was just a proposed law. I explained the matter to the Speaker of the Assembly, who understood my point of view. He told me to tender an apology and the matter was closed. However, there still remained another problem. In those days sales tax Inspectors were randomly given traders and their accounts to recover the taxes. An Inspector was given one trader from Colaba, then another from Worli and another from Bombay Central.
I proposed amending the law and issuing fresh account numbers. We placed full-page advertisements in all the newspapers and asked the traders to simply cut out the application form from the newspapers.
Obviously, the Inspector would not carry out the task. So I regrouped and reallocated the areas given to the Inspectors. Another feature I was instrumental in pushing forward was today’s Value Added Tax (VAT) system. Until then, there were 14 items which were charged at various rates. The net result was that manufacturers and government officials, acting hand-in-glove, were fudging records either to evade paying duty or officials were trying to fleece the manufacturer under duress by bracketing his produce in a higher taxation category simply because he did not oblige him. It was the PV Narasimha Rao regime and Dr Manmohan Singh was the Union Finance Minister. I proposed a uniform floor rate and introduction of VAT which was supported by Dr Singh. The rest is history.
AS the head of SEBI, I introduced this now widely known practice of Know Your Customer (KYC) norm. There was no mechanism in place to ascertain the authenticity of the account holder. Besides, we were instrumental in introducing the demat account which is now widely used in the financial markets.
While I was in the Ministry of Commerce, what struck me was that there were these two items that were put on the Restricted Items list – tallow and gold. There was no rationale behind this. Due to import restrictions, there was rampant smuggling of gold. I recommended that the government remove gold from the Restricted Items category. The move worked wonders, with gold smuggling now virtually nonexistent. The biggest hindrance in achieving real progress today is coalition government politics. In a city like Mumbai, everybody is focusing energy on what goes on in the metropolis. You have too many blocks to development, NGOs and regional satraps like the Shiv Sena and Raj Thackeray who are out to block your path towards development at every and any given time. There are pressures and pulls in different directions rather than united commitment on matters of development. Everybody wants his share of the pie.
BUT the biggest blocks are in the finance department itself. The biggest exercise is to cut down on expenditure and raise revenue through imposition of new taxes. Since bureaucrats thrive on power, you have one department blaming another or some department facing public flak. That is because departments like police, health and education interact directly with the people.
However, the finance department often chooses to shoot down any proposal from other departments that is likely to incur expenditure for the government. The finance department is not answerable to the public. But the other departments or the Brihanmumbai Mahanagar Palika, for that matter, have to answer why malaria is spreading rampantly or why there are potholes on the roads. Little does anyone know that proposals for sanctioning funds for these departments are often shot down by the finance department.
Our bureaucratic and administrative system is hybrid in nature, though it has taken several concepts from the British. The British used the police as an instrument of terror, with one cop keeping watch on 10 villages under his jurisdiction. So, he naturally resorted to using brutal techniques. It is true to some extent even today.
As the head of SEBI, I introduced this now widely known practice of Know Your Customer (KYC) norm. There was no mechanism in place to ascertain the authenticity of the account holder.
There have been many good schemes that the government introduced, like the cotton monopoly procurement scheme. The intention was to assure a minimum assured procurement price for cotton growers. Cotton is such a dangerous commodity to store, that the growers start making distress sales or mortgage it even before the crop is due for harvesting. The situation is ripe for the private traders and moneylenders to exploit.
The government has not augmented its storage capacity by building more godowns, grain silos or depots in the State. Also, the greedy cotton growers tend to mix in stones or add water to the cotton bales to increase weight. Once the water evaporates, the weight reduces, leaving the government machinery cheated as it is supposed to buy all the cotton produce. Another problem in the procurement system is that often the traders collude with the growers for the sake of commission and put inferior cotton into a higher grade category.
As for the current hue and cry over shortage of storage space to store food grain and agricultural produce, the lack of infrastructure is the problem. The government has simply not bothered to create adequate storage capacity across the country.
