Letters: On VAT and the FRBM Act

This refers to T N Ninan's column "Nine years later..." (Weekend Ruminations, February 23). The write-up contains certain factual inaccuracies as detailed below:

The value-added tax (VAT) was not introduced during the term of the National Democratic Alliance (NDA) government. It is the United Progressive Alliance (UPA) government that was able to forge a consensus on VAT, and VAT was introduced by most states with effect from April 1, 2005. The remaining states followed thereafter.

In so far as the Fiscal Responsibility and Budget Management Act is concerned, though it was passed during the term of the NDA government, it was not notified. It is the UPA government that notified the Act and made the rules with effect from July 5, 2004.

Further, the contention of the columnist that the accretions to the foreign exchange reserves were achieved by the Reserve Bank of India "often acting in the teeth of opposition from the finance minister" is baseless and wrong.

D S Malik,
ADG (M&C) Finance, New Delhi

T N Ninan replies:
It is true that VAT eventually came into being in 2005. However, what my column said was that it was "introduced" by the Vajpayee government. For this, please refer to the Budget speech of 2003, in which the then Finance Minister Jaswant Singh stated that a conference of state chief ministers, chaired by the prime minister, in October 2002 had "confirmed the final decision that all states and union territories would introduce VAT from April 2003". Singh also said in the same Budget speech: "...The coming year will be historic with the states switching over to a value added tax (VAT)... The Government of India considers the introduction of VAT, at the state level, to be a historic reform of our domestic trade tax system...".

My column said the Vajpayee government "enacted" the fiscal responsibility law.

D S Malik confirms this in saying the NDA government "passed" the Act. That it was notified later is another matter.

I was wrong in writing about opposition by the finance minister to what the Reserve Bank of India was doing. There was criticism aired in the media, including by people who were or had been in the finance ministry, but no opposition from the minister. My apologies for this error.

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