New book on FMs reveals complex yet interesting times of 1977-98 | Book

One may find it demanding to go through a plethora of customs duty hikes imposed by the Biden administration on Chinese imports. But India of the 1980s was a much more complex regime – of not only import tariffs but also other taxes such as Income Tax and excise duties and so on.

Mohan was speaking at a panel discussion on the book called ‘India’s Finance Ministers — Stumbling into Reforms (1977-1998)’ written by A K Bhattacharya, editorial director of Business Standard. This is the second book of a three-volume series on India’s finance ministers. The third series will start with the Bharatiya Janata Party (BJP) coming to power at the Centre, excluding the 13-day experiment of the Vajpayee government.  

Mohan, who also served as economic advisor in the industry ministry that time and later as RBI deputy governor, wondered as to how the economy yielded an annual growth rate of five per cent those years despite sweeping changes in the already complex web of tax rates.

The main task of the business people was to manage the government, he said, adding they clearly did not have to do much in terms of competitiveness, or investment in technology.

Brijeshwar Singh, former chairman of the National Highway Authority of India, cited an instance in the book about the tax rate changes effected by then finance minister Yashwant Sinha when the signs of balance of payments crisis became visible. Sinha did this with complete secrecy and informed about the changes through a notification. This prompted the then chief excise commissioner from Mumbai to ring up Sinha and tell him that this was the first time in his stay in the Maharashtra capital that he had received a tax notification from the finance ministry without getting it in advance from certain industrialists.

Yet, those were the years when ideas of reforms, including in taxation structure, were floated and partially done, as the title of the book itself suggests. Those included modified value addition tax (MODVAT) by then finance minister V P Singh, formation of committees under tax expert Raja Chelliah for reform in direct, indirect taxes and the whole gamut of reforms during 1991-92 among others.

The years 1977-98 were a period of unstable and stable governments. The popular notion of unstable or coalition governments having more finance ministers is not borne by evidence. The author said the Rajiv Gandhi government, which got the maximum number of seats of over 400 in the Lok Sabha, saw four finance ministers. These included Rajiv Gandhi himself who held it for some time as an additional portfolio.

Finance ministers used to have differences with the Prime Ministers on policies but ultimately the heads of the government used to rule the roost, the author said. For instance, then Finance Minister Hirubhai N Patel opposed the idea of demonetisation, the first one in India, by Prime Minister Morarji Desai in 1978. But ultimately, the writ of the Prime Minister prevailed and the high denomination notes of Rs 1,000, Rs 5,000 and Rs 10,000 were taken out of circulation, much before the Modi government effected a similar step in 2016.

Mohan narrated another interesting detail of how the first attempts of classifying various items into a harmonised system of nomenclature (HSN) codes under an industrial policy were junked. When as economic advisor in the industry ministry, he showed the classification to the then Cabinet Secretary, the latter was puzzled since the first items in the list were horses, mules and asses. “What kind of industrial policy is this?” said the then Cabinet Secretary.

There were many finance ministers, known for their far-reaching reforms, during the period such as Manmohan Singh and P Chidambaram. However, Bhattacharya said he found V P Singh as the most fascinating finance minister of that time. This value judgement could be a bit puzzling for many, he admitted.