Why India should tax agricultural income

Why India should tax agricultural income

The political establishment must move beyond a reflexive rejection of the very concept of agricultural tax

In 1925, the Indian taxation enquiry committee noted, “There is no historical or theoretical justification for the continued exemption from the income tax of income derived from agriculture. There are, however, administrative and political objections to the removal of the exemption at the present time.” Almost a century later, both parts of that observation still hold true.

NITI Aayog member Bibek Debroy’s suggestion last week that agricultural income above a certain threshold should be taxed is a case in point. The political reaction was swift and predictable, from both the government and the opposition. But Debroy’s stand—backed by chief economic adviser Arvind Subramanian—is no heterodoxy. Six states currently have agricultural tax legislation on the books—Tamil Nadu, Kerala, Assam, Bihar, Odisha and West Bengal—even if implementation varies substantially, from taxes not being levied at all to being levied only upon income from plantations. A number of other states such as Uttar Pradesh and Rajasthan have flip-flopped on the issue over the decades, introducing and then rolling back agricultural tax.

The economic and governance necessity of such a tax has always been apparent. Yoginder K. Alagh’s 1961 analysis of agricultural tax yields, Case For An Agricultural Income Tax, in The Economic Weekly—now The Economic And Political Weekly—is illuminating, showing a substantial rise in revenue over the previous decade, vital for a young nation state. Concurrently, the Planning Commission’s sample study of cooperative farms showed the onset of tax avoidance as mechanized farms with hired labour took advantage of the exemptions provided to cooperative farms. That evasion has grown over the decades into an administrative swamp. In assessment year 2014-15, for instance, nine of the top 10 claimants for tax exemption of agricultural income were corporations; the 10th was a state government department. And an RTI (right to information) query by Vijay Sharma, former income-tax chief commissioner, turned up massive irregularities in agricultural income in 2011-12 and 2012-13.

This goes beyond foregone revenue. As the 2014 Tax Administration Reform Commission report points out, “Agricultural income of non-agriculturists is being increasingly used as a conduit to avoid tax and for laundering funds, resulting in leakage to the tune of crores in revenue annually.” Nor can this government or its predecessors hide behind the fig leaf of honest—if unwise—populism. According to the National Sample Survey’s 70th round, over 86% of agricultural households have land holdings of less than 2 hectares. Low-income farmers—the constituency state legislatures are ostensibly protecting—would thus fall outside the ambit of any sensible tax regime. The reality of political opposition is more sordid: pressure brought to bear by the rural elite that can deliver votes and funds and would fall under the tax net.

Little wonder there is a robust history of policy reform attempts. The 1972 Raj committee on taxation of agricultural wealth and income report is perhaps the most comprehensive. The Vijay Kelkar committee in 2002 had also addressed the issue, noting that states should be persuaded to pass a resolution authorizing the Centre to pass a tax on agricultural income that would then be assigned to the respective states. The reform attempts stretch as far back as 1947—when the report of the expert committee on financial provisions to the Constituent Assembly suggested consulting with the states to address the issue swiftly—and are as recent as Prime Minister Narendra Modi’s conference with tax administrators in June last year when the latter brought up the issue of taxing agricultural income.

Given the extent of the informality that still exists in the agricultural sector, implementation of an agricultural tax would admittedly not be easy. In a 2004 World Bank paper, Taxing Agriculture In A Developing Country: A Possible Approach, Indira Rajaraman has analysed data from 70 developing countries to show how the twin problems of payments in cash or kind and a lack of standard account-keeping throw up barriers. But there is, demonstrably, a wealth of work done in this area to draw upon.

For instance, Rajaraman herself suggests a crop-specific levy on land rather than on self-declared output, assessed and implemented at the panchayat level for accuracy and flexibility—with the added incentive of tax yields being ploughed back into agricultural sector infrastructure.

However, to engage with such policy debates, the political establishment must first move beyond a reflexive rejection of the very concept of agricultural tax. Given the optics created by decades of grandstanding, this will perhaps be as difficult as actually implementing a tax. But with the Modi government’s push for a less-cash economy and the proscription of cash transactions of over Rs2 lakh, both making money laundering via the agricultural sector more difficult, this is as good a time as any.

It would be a pity if the logic of the colonial administration continued to dictate tax administration in India nine decades later.

Should the political class rethink the idea of taxing agricultural income?

Cabinet clears ordinance to tackle Rs9.64 trillion bad loans at India’s banks

Cabinet has approved promulgation of an ordinance to amend the Banking Regulation Act for resolution of the bad loan crisis facing banks

The cabinet on Wednesday decided to amend the Banking Regulation Act to put in place a scheme to resolve stressed assets in the banking system totalling about Rs9.64 trillion as of end- December and enable this capital to be redeployed productively in the economy.

A proposal to amend the Bill has been sent to President Pranab Mukherjee, who is expected to sign an ordinance to that effect shortly, perhaps as early as Wednesday night, a person with knowledge of the development said on condition of anonymity.
Finance minister Arun Jaitley, who briefed reporters about the decision taken at a cabinet meeting chaired by Prime Minister Narendra Modi, said an important decision related to the banking sector was taken but details could not be made public before the President approves the proposal.

“There is a convention that when some proposal is referred to the President, then details of it cannot be disclosed till it is approved. As soon as approval comes, details will be shared,” the minister said.
The person cited above said the proposed amendments seek to empower banks to resolve large non-performing assets (NPAs) and protect them for loan decisions taken in good faith.
The scheme does not involve setting up a ‘bad bank’ , as recommended by chief economic advisor Arvind Subramanian in the Economic Survey in January, another person briefed about the development said on condition of anonymity.
Early results for the March quarter show that the problem of bad debts has only grown worse since December with big lenders such as ICICI Bank Ltd and Axis Bank Ltd reporting an increase in their gross non-performing loans.
In the last three years, the Reserve Bank of India (RBI) has come out with several schemes to resolve the bad loan problem such as strategic debt restructuring (which allows banks to convert part of their debt in a stressed company to 51% equity, allowing them to take operational control) and scheme for sustainable structuring of stressed assets, or S4A (where banks can break up the debt into sustainable and unsustainable halves, allowing deep restructuring in the latter, while the former continues to be serviced).

But many of these schemes have rigid rules or high entry barriers and do not provide lenders with enough flexibility, bankers complain. Bad-loan resolution has also proved elusive because bankers are reluctant to sacrifice a part of the loan or initiate a one-time settlement process for fear of provoking inquiries by investigative agencies. The government has also put in place an Insolvency and Bankruptcy Board of India (IBBI) to help turn around or to monetise stressed assets.
“The bankruptcy code will help in preventing future generation of stressed assets. It may not be of much use in dealing with the bulk of current non performing loans as they may need liquidation or other flexible solutions more than resolution (restructure),” said Sumant Batra, insolvency expert and managing partner of law firm Kesar Dass B. & Associates. “Banks which are unlikely to approach IBBI for resolving most of their existing NPAs need an alternate mechanism that is efficient and cost effective.

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PM Narendra Modi bats for simultaneous elections, changing fiscal to January-December

The prime minister called for carrying forward the debate and discussions on holding simultaneous elections to Parliament and state legislatures.

Prime Minister Narendra Modi today pitched for conducting simultaneous elections to the Lok Sabha and the state assemblies and shifting to a January-December fiscal year. Addressing the Niti Aayog Governing Council’s third meeting, which was attended by several state chief ministers, Modi said for long, India had suffered from economic and political mismanagement. “Because of poor time management, many good initiatives and schemes had failed to deliver the anticipated results,” he said, adding there is a need to develop robust arrangements that could function amidst diversity.

The prime minister called for carrying forward the debate and discussions on holding simultaneous elections to Parliament and state legislatures. On the Goods and Services Tax (GST), Modi asked the states to make legislative arrangements “without delay” for the rollout of the indirect tax regime from July 1. The GST, which will subsume central excise, service tax, Value Added Tax (VAT) and other local levies, is scheduled to be rolled out from July 1.

The consensus on GST reflects the spirit of ‘one nation, one aspiration, one determination’, Modi earlier said in his opening remarks at the meeting. Referring to the change in the budget dates, he said in a country where agricultural income is exceedingly important, budgets should be prepared immediately after the receipt of agricultural incomes for the year. He added that there have been suggestions to follow January to December as financial year.

The prime minister asked the states to take the initiative in this regard. Currently, India follows April-March as fiscal year. Later, briefing reporters about the meeting, Niti Aayog vice chairman Arvind Panagariya said the prime minister wants that “we should think of January-December financial year as this is appropriate from the point of view of farmers”.

Modi also urged states, local governments and NGOs to decide goals for 2022 and work in mission mode towards achieving them. Referring to the issue of regional imbalance, which was raised by a number of chief ministers, Modi said the matter needs to be addressed on priority, both nationally, and within states. He also called upon states to “speed up capital expenditure and infrastructure creation” to spur growth.

“Niti Aayog is working on a 15-year long term vision, 7-year medium-term strategy, and 3-year action agenda,” Modi said, adding the vision of ‘New India’ can only be realised through the combined efforts and cooperation of all the states. The draft of the three-year action plan was circulated at the meeting and would be finalised after seeking comments of the chief ministers.

Stating that poor infrastructure in the country is hampering the economic development, Modi said that more expenditure on basic infrastructure such as roads, ports, power and rail would help in accelerating the pace of growth. The meeting of the Governing Council at the Rashtrapati Bhavan was attended by several chief ministers, including from non-BJP ruled states like Punjab, Bihar, Tripura and Karnataka.

The notable absentees were West Bengal Chief Minister Mamata Banerjee and Delhi Chief Minister Arvind Kejriwal. The council, which is the apex body of the Niti Aayog, is headed by the prime minister and includes all chief ministers and the Aayog’s members.

A justice more complete

SC promises closure in Babri demolition case. But what of the perils of memory and age, the problem of delay?

It is said that the mills of God grind slowly but they grind fine. This is true of human law and justice as well. The Supreme Court of India very recently ruled that it was justified to act under the constitutional mandate to do complete justice and restart the criminal justice process against senior BJP leaders and cadres in the Babri Masjid demolition case, despite the lapse of a quarter-century.

It clubbed all the cases to Additional Sessions Judge (Ayodhya Matters) at Lucknow; it restored conspiracy charges against some leaders, which were earlier dismissed, and ordered that the judge shall complete the trial within two years. It also directed that the judge would not be transferred in this period and may receive the completed testimony of all those who have testified before a Rae Bareli court.

There is already a thriving political discourse around this decision. Some commentaries speculate about why the present regime allowed the CBI appeal against a 2010 high court order, overlooking the Supreme Court observation that the agency was like a “caged parrot”. Almost everyone then agreed that the agency should act autonomously — now it stands indicted when it seems to act relatively autonomously! But the pundits are undeterred. Some say that the revival of prosecution for conspiracy was a way to control intra-party rivalry, to eliminate L.K. Advani as a presidential candidate. Some others take the view that the two year period coincides with the prospects in the next general election.

The Supreme Court, correctly, was not concerned with all this. What mattered were the legal principles and juristic interpretation, not political motives or fallout. Proper trial, conviction, and acquittals were necessary lest “the secular fabric of the Constitution” be ever torn. Although the apex court does not say this expressly, it takes seriously all threats to the structure and essential features of the Constitution — a judicial doctrine limiting Parliament’s otherwise plenary powers to amend the Constitution.

How far the court’s power to do complete justice should go was a principal juristic question in this case. The court held that the rights to free and fair trial were not affected by lateral transfer from one court to another. No right to appeal to a higher court was here entailed, as it is in situations of a vertical transfer. But the scope of Article 142(1), the power to render complete justice, was severely contested.

Justices Rohinton Nariman and Pinaki Chandra Ghose explicitly agree that the power to do complete justice merely supplements the enacted law and does not supplant it. But it is an unusual power, not having “any counterpart in any other Constitution world over”. The Latin maxim fiat justitia ruat cælum (let justice be done even if the heavens fall), the court ruled, “is what first comes to mind on a reading of Article 142”.

The power under Article 142(1) is “very wide” and is to be exercised with due care and caution, as an affair of equity and not of strict law.

K.K. Venugopal argued strenuously that the Supreme Court’s power is “circumscribed” by Section 406 of the CrPC that authorises transfer only from a criminal court subordinate to one high court to another criminal court of equal or superior jurisdiction. But their Lordships ruled that “clearly” that section “does not apply” to the present case “as the transfer is from one criminal court to another criminal court, both subordinate to the same high court”.

However, we must await an uncertain future in search of an answer to the question: May a high court’s power to transfer cases be affected by Article 142(1)? The court offers a welcome clarification: Unlike Article 141 (the law declared by the Supreme Court shall be binding on all courts within the territory of India), Article 142 declares no binding law. SC judgments have “two components — the law declared which binds courts in future litigation between persons”, and the “doing of complete justice” in any cause or matter which is pending before it.

It is, in fact, “an article that turns one of the maxims of equity on its head, namely, that equity follows the law”. But were this inversion to be wholly correct, may the SC do “complete justice” without regard to any binding law, other than the law declared by it? Surely, this perspective requires further constitutional chastening.

The decision is also interesting for its handling of the issue of judicial delay. The SC squarely holds the CBI responsible for not appealing against governmental orders that refused, contrary to the high court judgment of February 12, 2001, to cure a technical error in notification. It also holds the state responsible for not so doing.

Yet, it also seems that the SC failed to act when a SLP filed by one Mohd Aslam alias Bhure on February 12, 2001, stood dismissed (November 29, 2002). Dismissed also was the review by a speaking order (March 22, 2007) and a curative petition (on February 12, 2008). But given the concern over judicial delay, one may ask: Why so? Does not the maxim fiat justitia extend to all, including social action litigation matters? The task of the examination of 656 witnesses within 564 working days seems uphill, but it now stands mandated by the apex court.

No one is held guilty of violation of the law. Constitutional propriety raises the question of whether high constitutional dignitaries should resign their offices — a question that seems left to the incumbents. They may, or may not, follow the dictates of the Rajdharmaparva of the great Mahabharata.

Fiat justitia is the cardinal maxim of law and justice in situations of mass violence and criminality. From Nuremberg onwards, genocide, ethnic cleansing and other war crimes are tried regardless of law’s delays. While some debate whether desecration of constitutional secularism is a comparable radical evil, and others celebrate the promise of justice, the perils of memory and age, and the problematic of inter-generational justice also need urgent attention.

ONGC plans $11 billion investment to boost gas production by 30%

ONGC plans to put into production its gas blocks in the KG Basin and Ratna and R-Series oilfields in Mumbai offshore by 2019

After more than a decade of nearly static output, state-run Oil and Natural Gas Corp. (ONGC) expects to increase gas production by nearly 30% over the next three-four years with an investment of around $11 billion, according to two senior company officials with knowledge of the matter.

The officials said ONGC will put its blocks in the Krishna Godavari basin (KG-DWN-98/2) and Ratna and R-Series oilfields in Mumbai offshore into production by 2019. The coal bed methane (CBM) blocks in Jharkhand will begin production by 2020, while the Daman offshore fields, which have been pressed into production this month, will be ramped up next year.

“Our production has been stagnant but some discoveries are in the pipeline. In the next three-four years gas production for ONGC should be up by 30%,” the first ONGC official cited above said on condition of anonymity.

He said, while KG-DWN-98/2 will be pushed into production by 2019, Daman will begin production shortly and be ramped up by 2018.

ONGC currently produces around 23 billion cubic metres (bcm) of gas a year, which is expected to go up to 29-30 bcm in four years. However, gas production at some existing fields is projected to drop to 11.8 bcm in four years from the current 19.73 bcm.

The first official said given that production from the existing fields is declining, some part of the fresh gas production would go toward compensating that loss.

ONGC did not reply to an email sent on 13 April.

The company plans to invest more than $10-11 billion in exploration, a major chunk of which would go towards developing the KG block. It plans to develop KG-DWN-98/2 in three clusters, said the first official cited above.

The ONGC board last month approved the field development plan for fields falling under Cluster II, the first cluster to be developed. The development will involve a capital expenditure of $5.08 billion, ONGC said in a statement on its website. Cluster II will produce its first gas by June 2019, according to the statement.

The Ratna and R-series fields, lying 130km off the Mumbai coast, will be put to production from 2019. The fields were returned to ONGC last March, 22 years after they were awarded to Essar Oil. The Ratna and R-series oil fields hold an estimated 87 million barrels of oil and 1.2 bcm of gas reserves.

Last fiscal, ONGC drilled 501 wells against 386 in 2015-16. The second official quoted above said the company has achieved this number for the first time in more than two decades. “Success of drilling will ensure establishment of newer resources and augment production,” he added. ONGC spent Rs15,747 crore in drilling these wells.

The Daman offshore project, which will begin production from this month end or early next month, will contribute around 2 to 3 million metric standard cubic metres per day (mmscmd) of gas from May.

Phase II of the Daman project will be completed by next May and would add another 3 mmscmd to overall production. Total production would be ramped up to 8 mmscmd by 2020.

“ONGC has become quite aggressive on its discoveries and production, something that was lacking thus far. At a time when the government is pushing to bring down natural gas imports by 10%, it bodes well for ONGC and its prospects going forward,” said an oil and gas analyst with a Mumbai-based broking firm, speaking on condition of anonymity as he is not allowed to speak to the media. 

ONGC has also started work on its coal bed methane (CBM) project. Methane is a form of natural gas extracted from coal beds. “Land acquisition for the project has been completed. By September, we would begin the drilling and then once we have sufficient number of wells, we can put them into production,” said the second official quoted above.

ONGC holds four CBM blocks. Two—North Karanpura and Bokaro in Jharkhand—will start production by the second half of 2017-18. Production after the development of all four blocks is estimated to be about 1.7 mmscmd.

The company has sold a 25% stake in its North Karanpura CBM block to Prabha Energy Pvt. Ltd, a unit of Deep Industries Ltd. The block in Bokaro will be developed by ONGC.

The explorer also plans to begin work shortly on the high-pressure high temperature Deen Dayal West field in which it acquired 80% from Gujarat State Petroleum Corp. this February for $1.2 billion.

New types of blood cells discovered

The cells are new classes of types of white blood cells called dendritic cells and monocytes, researchers said

cientists, including those of Indian origin, have identified new types of blood cells in the human immune system. The cells are new classes of types of white blood cells called dendritic cells and monocytes, researchers said.

Researchers, including Rahul Satija from New York University and Karthik Shekhar from Broad Institute of MIT and Harvard in the US, identified two new dendritic cell subtypes and two monocyte subtypes. They have also discovered a new dendritic cell progenitor.

Researchers used a technique called single-cell genomics to analyse gene expression patterns in individual human blood cells. Previously, different types of immune cells were investigated and defined by the set of marker proteins that they express on their surface.

This new technique is much more powerful and can reveal previously unrecognised and rare cell types that would be otherwise difficult to find. Dendritic cells display molecules called antigens on their surfaces. These molecules are recognised by T cells which then mount an immune response. Monocytes are the largest type of white blood cell and can develop into macrophages that digest debris in our cells.

“Two important white blood cell types in our bodies help defend us from infection - dendritic cells and monocytes,” said Divya Shah, from Wellcome Trust’s Infection and Immunobiology team. “In this study, scientists have used cutting-edge technologies to find that there are many more types of cell than we originally thought.

“The next step is to find out what each of these cell types do in our immune system, both when we’re healthy and during disease,” said Shah. The finding was published in the journal Science.