Table of Contents
I deem it a great honour and privilege to be invited to deliver the first K R Narayanan Oration under the auspices of the Australia South Asia Research Centre of the prestigious Australian National University. It is an honour to be invited by such a prestigious educational centre and a privilege to deliver a lecture named after a national leader of my country, Mr K R Narayanan, who is now the Vice-President of India. Both as an academician and as a political leader, he is held in great respect in India. I am happy that this oration has been named after him and will be delivered every year.
Great challenges are taking place in India. The wide-ranging economic reform programme encompasses every major sector of the economy. One of the important sectors of reform is the tax system. Since I have been associated with the work of reforms in this area, I have chosen to speak on the subject of Reforming the Tax Base for Economic Development.
Tax reform has been an integral part of the economic reforms of most countries that have undertaken structural adjustment programmes. Even in the developed countries, tax reforms have been a prominent feature during the 1980s. One of the important reasons impelling governments of the developing countries embarking on economic reform programmes to undertake tax reform has been the need to cut the fiscal deficit through higher growth of revenues. That is perhaps also the reason why multilateral agencies supporting structural adjustment programmes have usually insisted on tax reform. But in most developing countries including India thoroughgoing tax reform was needed in order to improve the efficiency of resource allocation, to remove obstacles to the smooth flow of business activities, to minimise costs and to improve the equity of the system. Improvement in equity was needed not merely for its own sake, but also for encouraging tax compliance.
The need for reforms and the nature of reforms in other important areas such as industrial policy, the financial sector, trade policy and foreign exchange regime, as a prerequisite for improving efficiency and accelerating growth has been widely discussed and understood. The need for tax reform exactly for the same reasons has not been fully appreciated or understood by the general public and by policy makers. Even economists in general in India have only stressed the need for higher tax revenues and better enforcement to ensure vertical equity. The economic aspects of taxation were neglected in India by economists themselves, which is one of the reasons why we ended up by having a complicated and irrational tax system.
Taxation was thus an area of darkness. It was, therefore, especially difficult to make people understand the serious shortcomings of the system and the nature of the reforms needed. However, the task had to be undertaken because the tax system was one of the major contributory factors to the inefficient functioning of the economy and the distortions in resource allocation.