1997: Dream Budget

A weak United Front government was not expected to bite the bullet and push through bold policy reforms. But P. Chidambaram unleashed high octane tax reforms in his "dream" Budget for the year 1997-98. Chidambaram was a votary of the Laffer curve principle - lower tax rates would boost compliance, thus ensuring higher tax collections. He slashed maximum marginal income tax rate for individuals from 40 per cent to 30 per cent, and cut the income tax rate for domestic companies to 35 per cent from the earlier 40 per cent. Peak customs duty was reduced from 50 per cent to 40 per cent, and the excise duty structure was simplified. Individual investors were no longer required to pay dividend tax. Chidambaram also announced a Voluntary Disclosure of Income Scheme to recover black money and introduced a new criterion to widen the tax net. If an individual satisfied any two of the following four criteria - ownership of a fourwheeler, occupation of an immovable property, ownership of a telephone, or foreign travel in the previous year - he/she had to voluntarily file a tax return. With falling tax rates, collections as a proportion of GDP have gone up from a low level of 8.2 per cent in 1998-99 to over 10 per cent now.

Coal reforms
After a lot of dithering, the government finally opened up the country's coal sector. The government feared that demand would soon outstrip supply if the sector was not opened up. It allowed the private sector into coal mining - but only for captive use. It promised to allow the private sector into commercial mining as well but never implemented it. It is estimated that by 2011-12 the demand for coal will be 730 million tonnes and domestic production will be 520 million tonnes, which will leave a shortfall of 210 million tonnes.

Level playing field
Liberalisation of the Indian economy enabled corporates to grow rapidly through mergers and acquisitions (M&A). Market regulator SEBI soon unveiled a Takeover Code setting the basic rules for M&As in the country. It stipulated that any company acquiring more than 15 per cent of the voting rights of another company should acquire at least 20 per cent of shares from other shareholders through an open offer. It also laid down the ground rules for proper disclosures to investors.

Did you know?
Karnataka became the first state in the country to come out with its own IT policy. Its IT exports have since jumped from Rs 900 crore to Rs 74,929 crore now.

Quote of the year Not every generation - or its members - of a business family can become top-notch businessmen. Lalit Mohan Thapar, Chairman, LM Thapar Group