Throwback to Budget 1997: Chidambaram's 'Dream Budget' for all

1948-49 || Finance minister R.K. Shanmukham Chetty, in independent India’s second budget, used a term that later became an institutional process for every year the Lok Sabha elections are held. What is this term? Ans: “Interim Budget”. This was the first time Chetty introduced it in his budget speech for 1948-49. Subsequently, Interim Budget began to mean a budget for a short period, usually presented just ahead of Lok Sabha elections. (Finance Minister P Chidambaram arrives at the parliament to present the interim budget in 2014: Reuters)

Palaniappan Chidambaram’s Budget of 1997 came at a time when no one expected bold reforms from a weak United Front government, but the man, known for never mincing his words, introduced measures that put India on the world map.

Chidambaram lowered the maximum marginal income tax rate for individuals to 30 percent from 40 percent, and reduced the income tax rate for domestic companies to 35 percent from 40 percent. Peak customs duty was reduced from 50 per cent to 40 percent, and the excise duty structure was simplified.

Chidambaram believed in the principle that lower tax rates would boost compliance and hence make more people and corporates pay taxes.

Keenly aware of his unique situation — he had quit the Congress and joined the regional Tamil Manilaa Congress which formed a coalition government in the general elections of 1996 — Chidambaram called himself “the Finance Minister of the genuine coalition government at the Centre”.

He also introduced the Voluntary Disclosure of Income Scheme (VDIS), which has arguably been one his most effective reforms.

“I believe that the time is opportune to introduce a Voluntary Disclosure Scheme. This would be a simple scheme where, irrespective of the year or the nature or the source of the funds, the amount disclosed, either as cash, securities or assets, whether held in India or abroad, would be charged at the revised highest rate of tax. Interest and penalty will be waived. Immunity will be granted from any action under the income-tax, Wealth tax and Foreign Exchange Regulation Acts,” he said in his speech.

He relaxed some of the provisions of the minimum alternate tax that he introduced in his budget of 1996. The MAT facilitates the taxation of “zero tax companies,” or companies that pay little or no tax by taking advantage of exemptions, but earn huge profits.

“When a company pays MAT, the tax credit earned by it shall be allowed to be carried forward for a period of 5 assessment years and, in the assessment year when regular tax becomes payable, the difference between the regular tax and tax computed under MAT for that year will be set off against the MAT credit available,” Chidambaram said in his Budget speech.

He also cut the import duty on several products, and phased out ad hoc treasury bills used for financing the budget deficit.

Peppered with political and literary references, Chidambaram’s Budget speech was crisp and sharp, delivered in his quintessential style- methodical and well thought out.

In conclusion, he quoted the Chinese revolutionary Deng Xiao Peng and Rabindranath Tagore.

Before that however, he laid out the gist of his dream budget: “Our goal must be to achieve rapid and broad-based growth which alone can ensure higher employment, better living standards and a humane and just society. The challenges that we face today are not unique to India. Other countries, including our friends in Asia, have faced similar challenges. Japan showed the way. Other Asian countries are surging ahead. And, finally, there is the example of China, powering its way to becoming the second largest economy in the world. These countries have shown that with courage, wisdom and pragmatism they can find their rightful places in the world.”