Contribution of Raja Chelliah to Indian Public Finance

Raja Chelliah played a major role in reforming Indian economic policies. He was the main architect of the tax reforms programme when the economic reforms were implemented in 1991. He is often referred to as “The Father of Tax Reforms”.  After working as Chief of the Fiscal Analysis Division in the Fiscal Affairs Department of the International Monetary Fund, he returned to India in 1975. He became instrumental in setting up the National Institute of Public Finance and Policy (NIPFP) in 1976.

Contribution to tax reforms

• He considered that the reformation of the tax system was fundamental to achieve socio-economic goals.
• His policy recommendations provided the basis for the direct taxes to emerge as the major component of tax revenues.
• He pushed for slashing of the tax rates and the number of slabs in respect of corporate as well as individual incomes. His motive was to encourage tax payment rather than tax avoidance.
• In the area of fiscal federalism, he suggested reforms for improving the state’s tax collection and improving their efficiency in spending. He contributed to the concept of sharing of tax revenue.
• He suggested that the basic principles in tax sharing are adequacy, autonomy, fiscal discipline, and equity. His ideas were implemented in the form of 80th amendment of the Constitution, which replaced the system of the Centre sharing revenue with the States tax-by-tax with pooling and sharing all taxes between States and the Centre.
• He also negotiated with state governments in adoption of VAT (Value Added Tax).
• His ideas regarding borrowing led to the enactment of a law on fiscal responsibility and budget management by the Centre and most States.
• He also proposed a comprehensive set of taxes aimed at bringing down pollution and protecting the environment.
• As the Chairman of the Tax Reforms Committee (TRC), he made several recommendations for several tax reforms in the country.
• He was also a member of the Committee on Financial Sector Reforms (chaired by M. Narasimham), whose reports ushered in dramatic changes in India’s tax system and, subsequently, in Centre-State financial relations.