Understanding the Government..Part 8 (Mistrust!)

After the nerve-racking session with bureaucrats, Raju, our Mysore Maharaja, gulped the 'Nimbu paani' fast!  He reclined in the chair, tried to relax and then looked at Aunty.

“Aunty, tell me, why there is so much stiffness in bureaucrats? Why they are so diplomatic and seem to mistrust everybody else?”

Aunty laughed! “Raju, in government, everybody mistrusts everybody else! The whole system is built on the principle of mistrust!”

“What, the Government is built on principle of mistrust?!”

“Yes Raju, at-least in our country the government systems are built on mistrust!

I will tell how. Let me ask you a simple question now. Assume you got with you gold worth one crore, which you require for your future.

You need to suddenly leave the country for 3 years, and you have to leave this gold with any of your two friends, who can act as a trustee of this gold.

One is Doddanna, who will keep your gold safe, also add a nominal interest every year and give it back to you when you come back.

The other is Chikkanna, who is bold and who takes risks, and will invest your gold in market. He is likely to either earn good profits or suffers huge losses, and whatever is left with him out of the gold, profit or loss, he will give it back to you.

Now, whom will you leave your gold with? Mind you, you can’t intelligently share half of gold with both! It has to be left with one person only!”

“Aunt, if I require that for future, then I won’t risk it. I will give it to Doddanna, though the interest is less, I am sure of getting my gold back!”

“Good! Most of us will do the same when it comes to our future. We will risk it with Chikkanna only when we have lots and lots of money, and we can afford to lose some. Isn’t?

Now apply this to Government. The government is after-all a trustee of our public resources. It could be our tax money, the minerals in the soil, forests etc. These are the resources which are limited and precious. We need them for our future, our future generations.

So, the society does not want to risk it. It is more comfortable in making Doddanna as the trustee, and not Chikkanna! In other words, the society is not willing to take risk with its future limited resources! You get me Raju?!”

“Yes, aunty, it does make sense. Unless the society has unlimited or huge resources, it can’t afford to take risks. They would elect such a government which will act like Doddanna. Now I understand why the elected governments act very cautiously! They seem to be very clear that they should not be seen taking risks.”

“Yes Raju, any elected government would want to portray to the public that, they are responsible and not reckless, and they are doing a good job of a trustee. They would want to tell the citizens that their future is safe in the hands of the government.”

“Aunty, does that mean that the government can’t take risk at all? Then how does development happen? Unless we take risk, we can’t move forward na aunty?”

“Well said Raju! Yes, unless we take risk, we can’t move forward. At the same time, the risk shall be as less as possible. One wrong move, the public will start losing confidence in the government! So, the entire government system is super-cautious!

In order to ensure that it does not make mistakes, the government has evolved a complex system of checks and balances. At each step in taking a decision, there is a check. That makes decision making slow, in-fact very slow!”

“But, aunty, won’t people get upset with such slow decisions also?”

“They do at times! They get upset about the slow way things move, more so, if the systems are old and not able to cope up with the fast growth of the society. But, at the same time, if you take decisions fast, and that ends up in a failure, the society is not going to clap and say. ‘Good attempt!’ Rather, they will think that you have mishandled it badly, and try to replace you!”

“Goodness, I understand it aunty! So, running government is not easy at all! You are damned if you do, and you are damned if you don’t! You need to be one damn superman to take decisions that won’t fail!"

“Of course Raju, running government is not easy! And remember nobody thrusts it upon you! You only go before the public and request them to elect you to govern them well! So, you need to be a real super-man! You can’t blame the people for their expectations, however high and tough they may be!”

“I perfectly understand aunty! I am just wondering that, the aversion to mistakes and risks makes everybody overcautious in government, to the limits of mistrust.”

 “Yes aunty, I get it. So, the government officials do not and can’t trust anybody so easily. If they do, and if mistakes happen, then don’t get a second choice! They end up in jail! So, they are very careful and cautious.”

“You are right Raju! Not only the individuals, the system itself is designed so. It does not trust anyone.”

“Now I understand the entire logic aunty! Just I am worried that such mistrust will make decision making difficult and protracted.”

“It does my dear! Anytime heard of easy & swift decisions in the government?! The interesting part is, while wrong decisions in the government are punished severely, there is no punishment for non-decision!”

“Lol, aunty, you are right! For example, nobody is going to ask Doddanna if he has filed to get a 12% return on the gold! But, if he loses gold, they will hang him! So, officers and the system will support non-decision, which is ‘status quo’!”

“See, I told you that you will understand things fast!” laughed Aunty.

“Don’t laugh aunty, how do make these commissioners to take decision now?!”

“Don’t worry about it. When you have the meeting with Diwan, he will come to a decision which will be acceptable to all. Don’t forget that he is the chief of all those commissioners! So they will not rub him on the wrong side!”

“Then he could have done it in the starting itself na! Why he wanted me to talk to all those commissioners?”

“That’s because, he is wise man. He wanted you to understand the complexities involved, so that not only you will accept his recommendation readily, but you will also learn to tackle conflicts, as the decision will be taken in your presence!”

“Okk aunty! I understand! More I delve into governance, more interesting it is getting! After-all, it’s not easy to govern crores of people with varied capacities and aspirations!”

“You are right Raju, now, I will also tell you about the ‘Home commissioner department’. Regarding, ‘deficit budget’ we will discuss after we have our evening tea. Is that ok dear?”

“Perfect aunty!”

“The ‘Home department’ first came into existence in Britain in the year 1872. Earlier in Britain, they used to have secretaries to the state, like we have Diwan. Those days, the governments were mostly occupied with wars and aggression.

They had two major departments, one which used to take care of war and foreign issues, and another internal. If you check wiki, the war office was called as ‘northern department’ and the internal office was called as ‘southern department’. In 1872 they were renamed as ‘Foreign office’ and ‘home office’, respectively!

Thus started the terminology, which was adopted by India too! So, all issues connected with internal security, like police, law and order etc., come under the ‘Home department’, normally headed by a Home commissioner!”

“Okk aunty! Now time for tea!”

(to be continued next Sunday)

Understanding the government...Part 7 (bureaucracy!)

Raju, our new Maharaja of then Mysore, in our imaginary story, looked confident, and ready to meet his Finance commissioner! Thanks to his sessions with his Aunty on Budget & Finances!

His task with the finance commissioner looked simple to him now. All he has to do is, to find out from the finance commissioner the quantum of ‘crop losses’, that is, the loss in the crop yield, in the six districts, and order for waiver of the tax in the same proportion.

But, poor Raju was not aware of the chakravyuah of bureaucracy that he is going to enter!!

The finance commissioner, Mr. Sastry was called in. After the formal greetings, both settled across the table.

“Sastry avare, what is the quantum of loss to the crops in these six districts?”

“That will be approximately 15 lakhs your highness. But, I suggest that you take the figure from the Revenue commissioner, who is in-charge for the revenue collection. Do we call him here?”

“Oh no! Not required! You have already given the information, why call him unnecessarily?”

“No your highness, I may have given the figure. But, it not official! For that, it has to come from the head of the department who is in-charge for the work.”

“Means, are you saying that your information is not the correct one, but an approximation?”

“Not that way your highness! It’s just that I am not authorized to talk about it. It is proper that the revenue commissioner provides you the data, which can be taken as official!”

“But, you are also an official? Isn't?”

“Yes, but I have specific department, ‘Budget and accounts’! I am not supposed to talk about other departments, and you not supposed to hear about one department from another department person Maharaj!”

Raju was little amused! But as he was new, he didn't know what to say, and hence, he agreed to send for the revenue commissioner.

“Greetings to you, your Highness! I am Jayaram Urs, the revenue commissioner. I am in-charge for mobilizing revenue to the government. Pray, what can I do for you?”

“Greetings! I want to know the extent of crop loss in the six districts, and also, what is it in the percentage terms?” 

“Highness, the total loss is around 15 lakhs, which comes to around 50% loss, as per the crop cutting experiment conducted by our Deputy Commissioners.”

“Crop cutting experiment? What is that?”

“Highness, crop cutting experiment is done by the Deputy Commissioners to assess the loss of crop. It is not easy to assess the loss of crop, as the yield of the crops varies from field to field and from season to season. Thus, even if the rainfall is absent uniformly over an area, still the loss will be different for different places. So, we can’t sit here and calculate it mathematically, but it needs to be done in the field.”

“Oh ok, I understand. It depends on the soil conditions, seeds used etc I guess. Ok, how is it done?”

“Highness, the team officers from the revenue department will visit the fields and cut the crop from both the fields in an area, where the crop is normal, and where the crop has been affected due to drought or any other cause. From that they calculate the loss in the yield. Then they apply this sample for that local area. Like this, they keep doing the experiment for all regions to arrive at the total loss.”

Suddenly Raju got a glimpse of the complexity involved! What he thought to be a very simple calculation of loss due to rain; appeared not so simple!

“Ok, I understand. Now that you have arrived at the percentage, let’s issue orders for waiver the tax, which shall be equal to the percentage of loss in the crops in that district or region!”

The finance commissioner looked at him and said, “Highness there is a problem. In one district, Kolar, where there is almost 100% crop loss, we can’t waive tax 100%, as it has been never done in the past and it will lead to problems with tax collection.

Also, my submission is that, we should not waive of tax so easily, as it will lead to similar demands from all the villages and tehsils. That will be a dangerous trend your highness! I will not be able to get revenue for the government!”

“So, what do we do?”

“I submit that the waiver should be a token amount, and not exceed 25%. Anyway, they had a normal crop last year. This 25% itself will lead to loss of around 3 lakhs in the Budget! Anything which is more than this amount will make the budget a 'deficit budget'!” 

“But, Highness, that is too a small amount. The farmers will be upset and will not be pay the balance 75%. There may be protests. The Deputy commissioners have already has been sending telegrams to me on that.” Now, this was the revenue commissioner.

Raju wondered what to do. “Can’t the protests be handled?”

“My deputy commissioners in-fact had held some meetings thru the local Tahsildars. But, the results are not encouraging. The farmers would want at least 75% waiver, if not 100%.”

“Highness, maybe we can take an opinion from the Police chief or the Home commissioner about the protests?” quipped the Finance commissioner.

‘What? You want to call two more officers now?!’ Raju started wondering what is happening! What he thought to be a simple thing seems to be getting complex!

“Do we really need to consult the police or the Home commissioner? Who is the Home commissioner, by the way?"

“Yes, your Highness! As you know, the Home commissioner is in-charge for all internal issues in the kingdom, including the law & order, police etc. He will be the best person to advise us on the possible farmers’ protests.”

Raju could see that the finance commissioner is keen on keeping the tax waiver as less as possible. May be that’s his job, he thought.

But, he was getting tired with the idea of discussing a small issue with so many officials! It’s going to be like the same meeting that had in the morning meeting, he thought! He started wondering if at all any decision can be taken in government without a meeting!

Finally, he decided to call the Home commissioner, to just see what he says.

Ramanujam, the Home commissioner was ushered in.

“Greetings sir, I am Ramanujam, the Home commissioner. I take care of internal security, law and order etc. I was told about the agitations. Yes, the chief of Police, the Inspector General, did inform me about the possible agitations if the tax waiver is not done adequately. Also, the local newspapers may make some comment, which the Highness may not like.”

Raju now wanted to talk to his Aunty badly! He made a last attempt to solve this.

“Ok then, can you tell me what percent we need to waive off so that farmers are happy and there are no issues?”

“Highness, I suggest that we waive off 100% of the tax in the affected regions.”

Raju almost fainted! Before he could say anything, the finance commissioner gave a cold smile to the Home commissioner and looked at Raju. “Sir, what the Home commissioner says can be only from the law & order point of view, but definitely not in the interest of the state! May be we should get the opinion of the minister, the Diwan.”

‘Oh yes, the Diwan! I will call him!’ though Raju. But then, he remembered that it was the Diwan in the first place who advised him to have a discussion with the Finance commissioner on the waiver! God, this is getting into a loop he thought!

He looked at the Home commissioner and asked, “Can’t you and Revenue commissioner discuss how to handle the situation at the districts and advise me how to keep the waiver to minimum? Or should we call the Diwan?”

There was a silence. Then the finance commissioner spoke, “yes sir, I suggest that we will have a meeting on this with Diwan, and also we can call the Deputy Commissioners from the six districts for the meeting.”

Revenue commissioner interjected immediately, “No. no! There is no need to call the deputy commissioners. We will have meeting of all of us and the Diwan with the Highness!”

Raju wondered at the intricacies and the turf wars! He thought its better to talk to Aunty.

“Ok, let’s call a meeting of all. May be tomorrow?”

“Yes sir!” That was a chorus from all!

Raju almost ran into his room!

“Aunty! My god! What’s happening??! Why can’t things be simple? Why so much mistrust and turf wars? And that is that deficit budget? And, Aunty, what is this Home commissioner department? Why it is called home? I should be called as department of law and order? Isn't?

“Oh my boy, you seem to be having a hard time! First, drink this nimbu paani! We will find a way to solve these problems!"

(To be continued next Sunday)

Understanding the government...Part 6 (Taxes and duties)

“Ha-ha! Ok Raju! You know learnt the expenditure side of the Budget; but, if you want to ask smart question to the Finance commissioner, you should know the income (revenue) side too! That is about the taxes, duties etc”

 “Yes aunty, I know that! The ‘direct tax’ is imposed by the government on the individuals and companies on their income, and the ‘indirect tax’ levied on the products/commodities sold in the market!”

“Very good Raju! You are right! We get our revenue from taxes and duties, like excise duty, customs duty etc.”

“Waittt aunty!! Where did these excise and customs come from? Why so many different types? Can’t we have just 2 categories? Direct tax, and indirect tax?”

“Yes, it could have been simple as that. But the system of revenue collection evolved as per the need. When the expenditure of the government increased, say, due to war etc, then the government used to explore ways to get more revenue thus introducing a new type of tax! Thus, taxation grew from simple to complex over a period of time.  

To start with, ‘customs duty’ was the earliest income to the king! When the traders used to travel and sell their produce in different kingdoms, they used to meet the King and seek his permission and support in selling their ware in his/her kingdom. Needless to say, they used to give a small part of their ware to the king as goodwill.

Later this goodwill almost become a custom, a norm, and soon become a compulsion, or a duty!  Kings issued order on how much to collect and how to collect as ‘custom duty’! ‘Customs officials’ were appointed to collect it at the entry points of the kingdom!

Thus, when the goods or commodity comes from outside the kingdom/country, then this ‘customs duty’ is imposed on the goods at the entry point itself! That’s how you will find ‘customs’ offices at all the entry point of the state, like the ports, airports, road borders!”

“Interesting Aunty! I understand the ‘customs duty’ now! Next is about the excise duty. What is it? Is it some additional customs duty?”

“No Raju, it is not in addition to Custom duty! But, it is the local version of Customs! Meaning, that, it is the duty imposed on the goods manufactured inside the country!”

“But, then Aunty, are we not levying sales tax on them when they are sold?”

“You are right Raju; we are indeed levying sales tax on most of the goods sold. But, in addition to that, we also impose a levy on some of the goods, as and when they are manufactured! This is call ‘excise levy’. The government ‘excises’ it’s right to collect a portion of what is manufactured within the country too!

And interestingly, while the ‘sales tax’ is a percentage of the cost of the good or commodity, the ‘excise duty’ is not on the value, but, it is on the total quantity manufactured!

For example, if a packet of 100 gm coffee powder is sold at Rs.100; the sales tax may be 10% of it, that is, Rs. 10. Whereas, the ‘excise duty’ will be collected at the rate of Rs. 3 for every 100 gm of coffee manufactured! So, the excise duty is normally based on quantity and not on its cost!”

“Interesting Aunty! Smart way of collected revenue! It will also mean that government gets ‘excise duty’, irrespective of whether it’s sold or not! Aunty, is there any connection between ‘excise’ and ‘alcohol’? Why these two words, ‘excise’ and ‘alcohol’ are always associated?!”

“Oh that! That is because, the alcohol industry, what is called as ‘liquor’ colloquially, is one of the major commodity that pays ‘excise duty’, to the extent that the government keeps a officer posted to each distillery to collect the ‘excise duty’! That’s how excise is closely associated with liquor business!”

“Ok aunty! I get it! So, it means, all the commodities either manufactured inside or imported from outside are under either under excise or customs net?”

“Yes. Almost! But, there are some exceptions. Items, which are consumed by the common man, like vegetables, fruits etc are not taxed in any manner. And in the direct tax, farmers are no more taxed! It’s only on individuals who have high income and companies that make profit!”

“Got it aunty! And, if the government wants more revenue, it can tweak the rates and thus get a higher share? Or it can bring more commodities under excise or customs?”

 “Wow! Now you have started talking like a real king!”

“Don’t make fun of me Aunty! I am just learning! I also guess that if more taxes are there, it will make people unhappy. Isn't?”

“Yes, my dear! People will get unhappy when the taxes are increased, as they have to pay more. And if the taxes are very high, people will start buying less, or at times, start cheating the on the tax, by trading secretly!”

“Oh, I understand! It’s like the shopkeeper selling without bills! That sale will not be reflected in his accounts, and thus he need not pay tax for that part to the government?”

“You are 100% right Raju! Many do that! But, it does not start and stop with the shopkeeper! Even the manufacturer has to agree to sell it to the shopkeeper without bills! You get me?  The whole cycle of manufacturing and selling has to happen secretly, without accounts!”

“Oh, yes, I get it! And the same can be done with ‘customs’ too! That’s how he had smugglers smuggling the goods into the country evading the ‘customs duty’! Thus they are able to sell it at a cheaper rate and make huge profit!”

“Yes, remember, the dons you see in Hindi movies?!”

“Lol! Yes, aunty! How can we forget them?! So, if taxes are exorbitant, then it leads to non-compliance and associated smugglers and dons?!

And that, taxes and duties have to be balanced to ensure that they are complied by the public willingly!”

“Yes my dear! Then you will be a good king!”

“Oh thanks Aunty! Let me be an average king, then I will think of becoming a good king!

I am now quite confident! Shall I call the finance commissioner? You think I can decide on the ‘remission’ I have to make in the ‘revenue’? If at all I agree for that, how much I can reduce Aunty? And to counter that loss, do I increase some tax or I reduce my government expenditure?”

“You are growing intelligent Raju! You first check what are the expenditures planned and details of tax you have imposed on the public. Then we can decide it. Also, your finance commissioner will give you some good suggestions!”

Raju winked at Aunty! “Are you sure that he will give me a good advice?!”

Aunty laughed! “Haha, let’s check your luck! Call him in now, I will sit quietly and observe you both”

(to be continued)

Some useful links:

http://newint.org/features/2008/10/01/tax-history/

http://www.econlib.org/library/YPDBooks/Lalor/llCy341.html