Every government, it goes without saying, is free to review the decisions of its predecessors but, as the Supreme Court (SC) has just reinforced, they need to be prepared to pay for this if need be. In the case of Uttar Pradesh (UP), the Mulayam Singh Yadav government came up with a policy to attract sugarcane units—this included 5-10 years of exemptions from various levies such as purchase taxes on sugarcane, with a caveat that the incentives could never be greater than the investments. Around Rs 9,000 crore of investments were made by various mills under this policy, but when the Mayawati government came in, it decided to scrap the policy and began issuing notices to various mills for dues. The mills challenged this in the courts and, in November 2014, the Allahabad High Court ruled against the government and in favour of the mills. The government appealed and, on Wednesday, the SC upheld the high court judgment despite UP arguing that its order rescinding the sops was a policy decision and, hence, outside the purview of the court.
It is not clear how the mills are to be compensated, or even the formula to calculate the losses since, in cases where the mills were unable to pay their dues, the banks then levied penalties on them—are these penalties to be paid by the government and can the companies look for other compensation as well? If not, then the SC judgment has little meaning since, in some cases, the banks have more or less even taken control of the units that defaulted on loans. The larger point, and that applies to all governments, not just the one in UP, is that governments need to be fair and consistent since their policy actions hurt businesses. The UP case, needless to say, is not the first such instance of policy U-turns or bad policy. The UPA government, for instance, did not honour the NDA’s—of Atal Bihari Vajpayee—to give Anil Agarwal an option to buy the government’s residual share in HZL/Balco; and the NDA, under Narendra Modi, didn’t honour the UPA’s promise to hike gas prices for several years. Few businesses sue the government for damages—UK’s Cairn Energy has done so, but under dire circumstances—but that is not because the government policy is right, it is because the government has the power to really hurt them should it want to. In most such cases, the businesses either just walk away like Cairn has done or write it off as part of the cost of doing business and carry on with their work as Agarwal has done. In the long run, of course, both are damaging to the country.