Finance (No 2) Bill-2019 is unconstitutional and unrealistic: P Chidambaram

Finance Bill, budget 2019, Nirmala Sitharaman, Rajya Sabha, Indian economy, Consolidated Fund of India, Reserve Bank of India Act, india GDP gwoth

Finance minister Nirmala Sitharaman

It takes a lot of courage to speak in a House of Parliament where the Opposition benches are empty. That is precisely what the Finance Minister, Ms Nirmala Sitharaman, did on July 23, 2019, in the Rajya Sabha! She piloted her maiden Finance Bill, the Rajya Sabha (minus the Opposition) ‘considered and returned’ the Bill, and all is well with the Indian economy. Congratulations, Finance Minister!

Like there were serious questions about the Budget, there are serious questions about the Finance Bill.

Brazen Violation

Firstly, the Bill is constitutionally suspect. The government is brazen in its defiance of the law. In Justice Puttaswamy, the Supreme Court ruled that a money Bill must comply strictly with the conditions stipulated in Article 110 of the Constitution. Such a Bill shall contain only provisions dealing with taxes and the payments into or out of the Consolidated Fund of India (CFI) or the public account of India. Yet, the government has included in Finance (No.2) Bill, 2019, clauses that are impermissible under Article 110 of the Constitution. Chapter VI of the Bill, that is titled ‘Miscellaneous’, contains clauses that amend several Acts including the Reserve Bank of India Act, the Insurance Act, the Securities Contracts (Regulation) Act, and so on. I counted at least 10 laws that were amended. Neither the Acts concerned nor the amendments had anything to do with the purposes mentioned in Article 110.
Someone will definitely challenge the Constitutional validity of Finance (No.2) Bill, 2019. I am amazed that the government is willing to risk its most important Bill on finance and economy just to avoid a debate on questionable amendments to some non-financial laws!

From Trot to Gallop!

Secondly, no one has found fault with the numbers used in my essay ‘Toward $5, 10, 20 Trillion Economy’ (FE on
Sunday, July 21, 2019). The government has set ambitious — nay aggressive — revenue targets. The actual growth rates achieved in 2018-19 and the projected growth rates for the new year (Estimates for 2019-20 over the Actuals of 2018-19) are:

How does the government propose to achieve these high revenue targets? Especially when the IMF, ADB and RBI have reduced their estimate of India’s GDP growth rate to 7% and that of the world’s growth rate to 3.2%. Every economist who has knowledge of the Indian economy (the latest is Dr Kaushik Basu) has warned of a further slowing down — that is a continuation of the trend witnessed in the four quarters of 2018-19 (8, 7, 6.6 and 5.8%). How does the government expect that revenue collections will gallop to high double-digit rates after the single-digit trot of 2018-19?

I suspect that the government will squeeze the present taxpayers. The government has already conferred extraordinary powers upon income tax, GST and other tax officers. There will be more notices, more summons for personal appearance, more arrests, more prosecutions, more penalty orders, more harsh assessment orders, more summary dismissals of appeals — in short, there will be more harassment of the taxpayer.

Denying States’ Share

Thirdly, are the states getting their share of the taxes? The Fourteenth Finance Commission (FFC) awarded 42% of gross tax revenue (GTR) of the Central government to the states. The FFC report was accepted. The share of 42% became a constitutional right of the states and a constitutional obligation of the Central government. The FFC Award is applicable during the period 2015-16 to 2019-20. Despite the award, what was actually devolved upon the states was much less, as can be seen from the table below:

The reason for not achieving the target of 42% is the liberal levy of cesses and surcharges on taxes. The FFC award does not apply to cesses and surcharges and they do not have to be shared with the states. That is one whammy.
The double whammy is when the Central government’s tax collections fall short of its budget or revised estimates. In 2018-19, on GTR, the budget estimates were `22,71,242 crore and the revised estimates were Rs 22,48,175 crore, but the actual collections were only Rs 20,80,203 crore. When the pie is smaller, states will also get a smaller than expected share.

Please view the FM’s reply or look up the transcript. Did she address any of the issues that I have raised in this essay — or would have raised if there had been a proper debate in the Rajya Sabha?

[“source=financialexpress”]