Sabka Vishwas and the need for more of the same

TAPONEEL MUKHERJEE
Wednesday, 5 February 2020

As debates rage on the nature of stimulus most appropriate for the Indian economy and on whether increased government expenditure or a reduction in taxes is the best way forward, recent data on the Sabka Vishwas (Legacy Dispute Resolution) Scheme, that reveals that the government will get close to Rs 39,500 crore from the dispute resolution and amnesty scheme, throws light upon another area of focus. The extra revenue available has critical ramifications on both the current revenue perspective and ways to push the economy rapidly forward.

As debates rage on the nature of stimulus most appropriate for the Indian economy and on whether increased government expenditure or a reduction in taxes is the best way forward, recent data on the Sabka Vishwas (Legacy Dispute Resolution) Scheme, that reveals that the government will get close to Rs 39,500 crore from the dispute resolution and amnesty scheme, throws light upon another area of focus. The extra revenue available has critical ramifications on both the current revenue perspective and ways to push the economy rapidly forward.
The Sabka Vishwas scheme essentially allowed the settlement of pending disputes of service and central excise tax with the waiver of interest, penalties, relief on tax demand and immunity from prosecution. The most significant point to note is that the government has very substantial non-exaction resources available to meet urgent budgetary requirements. A dispute resolved is resources released.
In the medium term, this implies that improving and expediting the tax dispute resolution mechanism is to provide a fillip to the economy without exercising the state's exaction power. Essentially, money that is stuck in resolutions is capital for productive use that is locked up. The ability of the government to boost the economy will indeed be a function of its capacity to undertake outright expenditure or provide tax cuts, but it is as much true that in the grand scheme of things, the ability for the money to find productive use and flow through the economy will be an even more significant factor for boosting economic growth. The Sabka Vishwas scheme has demonstrated just how important it is to create mechanisms that help resolve issues to release capital and, most importantly, create an environment that is conducive to business.
The question about how much should be spent, must be quickly followed by answers to the question of how can every rupee spent take us as far as possible? Essentially, how to get the "biggest bang for the smallest buck" for the investments? An investment of Rs 5,000 crore in a project that can create jobs lead to a demand of Rs 2,000 crore of raw material, Rs 100 crore in salaries and the rest of it. The raw material order can, in turn, lead to igniting both the supply chain for that company and employment generation. Effectively, the ability of the initial investment to generate value across a lengthy supply chain is as important as the amount spent. Effective tax resolution mechanisms help create higher value by allowing each rupee spent to go that much further. Thus, the urge to smoothen and quicken the flow of capital in the economy must remain vigorous in the years to come.
A Sabka Vishwas scheme is also a powerful signalling tool for the government. It signals to the market and businesses that the government is willing to resolve issues through a practical approach and help propel the economy forward. The Sabka Vishwas scheme sets a precedent, providing helpful hints in terms of how a less onerous tax regime can significantly boost the economy. Capital flow and availability are some of the most important drivers of growth.

Marginalising the common man

We hasten to add that in no way must a scheme like Sabka Vishwas scheme be looked upon as providing tax evaders with an easy passport towards absolving themselves of their liabilities. Tax regimes must implement strict rules that penalise tax evaders, but the rules must not pose hurdles for businesses from both gross tax amount and compliance perspectives. Primarily, any regulation implemented must be made so only after two critical questions have been answered. Firstly, will the new regulation help curb the issue it has set out to solve? Secondly, will the new regulation adversely affect the existing compliant taxpayers? The second question is of great importance, especially in an economy of the size and complexity of India.
A quick overview of the issues the economy has faced over the last few years will point towards the stagnation of capital and the shortage of capital as two key issues. While the stagnation of capital was driven by a raft of issues such as NPAs in infrastructure and NBFC liquidity issues, the problems of capital shortage were driven by both a lack of capital and a reluctance to lend. Not only was less capital available, but the capital was circulating much more slowly. The practicalities of managing government revenues and expenditure will mean that capital budgeting will always be an issue of much debate. The focus, therefore, must be as much on how much to spend, as on how to ensure that the money spent can flow through the economic supply chains faster. The Sabka Vishwas scheme shows us a tool that is effective in achieving both the said objectives. Surely, more of the same is the need of the hour.

Budget 2020 Thoda Khushi Zyada Gham

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