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Reforms

Dec 15, 2005
VAT as reflected on Indian democracy

To work out these numbers for millions of transactions, an elaborate, unified record keeping system was called for. This would plug leaks, eliminate duplication of taxes, reduce prices generally, create a true common market in India, make Indian produce globally competitive, make our system mesh better with global trade, increase revenue and reduce fiscal deficit. The states and the centre would then share the revenue on a mutually discussed and agreed ratio.

On April, 2003, one of several lapsed deadlines for adoption of VAT, all hell broke lose. Traders felt threatened. It'd been a lovely party for them so far and new record keeping norms were irksome. MPs of the party in office joined the opposition in shouting down the government. "VAT wapas lo," they chanted. West Bengal announced -what else?- a bandh. Most people at large kept out of the debate because VAT was so much arcana.

Four years after the first deadline had lapsed, 21 states hesitantly adopted VAT in April this year. And the Centre stayed helpful, open and patient amidst must much reluctance. What happened then? How have five states as we saw, announced yesterday-almost unasked- that they too will adopt VAT. And why have traders gone quiet? The answers to all that is: India's democracy is a living organism and not just 'a ceremony of elections' as a vicious cynic called it.

The first step was by the Centre that nominated a special officer to counsel the states and handle their misgiving. P Chidambaram, the current Finance Minister, then announced that states will be compensated for any loss of revenue in the first three years. Traders who feared they would lose customers because of runaway prices found instead, that prices fell after an initial unevenness. Retailing in fact boomed. Enterprising software writers developed cheap packages that made VAT easy for dummies.

Most of all, states found that their revenue share grew fat, just four months into the VAT regime. Writing in the New Indian Express on Sep 15, 2005, Vikas Dhoot said, "Even Bihar has a cash surplus of Rs.3,000 crores... Some states like Kerala and Andhra Pradesh have seen an increase of Rs.100-200 crore so far." With experiences like that, was any more persuasion needed?

But this story is not about VAT but about how change comes about in India. Its diverse people cannot be worked with a prickly club imported from China, though many of our gliberati and tycoons would like that. Indians take their time, are vociferous but they are open. They observe and if convinced, they accept. That's how they have survived the millennia.

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