The restructuring of the economy underway by Prime Minister Modi involves, most importantly, a change in the socialist mind-set, and despite all the faults of this government, on balance, Modi’s first year has been remarkably good. While you may not know it, or more accurately believe it, but the revolution being ushered while not quite here, will get there, InshaAllah.
Labour laws are being reformed in a major way, and once the land acquisition Bill is passed, India will finally begin to be competitive. Even if the Congress’s obstinacy prevents the passage of the land Bill, there are encouraging signs that “land reform” may go the labour reform way, i.e., will be implemented on a state-by-state basis.
The biggest fault of the UPA was high inflation. Look at the record: Starting in 2007 and continuing for the next six years, seven-year CPI inflation averaged the second-highest level ever—10.2%, almost equal to the highest such level, 10.3% in 1996. Compared to that, inflation in April 2015 was a low 4.9%. At first glance, this might indicate the influence of declining oil, food and commodity prices. However, that interpretation is not entirely correct; seasonally adjusted six-month inflation was 5% in June 2014, 6.2% in Sept. 2014, and 4.3% in Oct. 2014. Brent oil price was $103 in August 2014 and $95 in September 2014.
It is another story as to whether the Modi government has been able to get the message of its success across. This may have to do with some of its self-induced inglorious failures. One failure I want to discuss in detail—retrospective tax or Tax Terrorism (TT). The ‘structural change’ election result of May 2014, which brought Modi to power, and reduced the major opposition party, Congress, to a stump, can be viewed partly as a protest against TT.
Hence, it was surprising, even for many within the BJP, when the Modi government shied away from making any effort to dismantle the dreaded retrospective tax legislation in the July 2014 interim Budget presentation. But hope still remained. Therefore, when finance minister Arun Jaitley presented the Budget on February 28, while he explicitly ruled out retrospective taxes in the future, hope sprang eternal that, at worst, there would be benign neglect of cases in the past. This was more than a reasonable hope because the government had also not pursued TT cases that it had lost (e.g., Vodafone, Shell).
Yeh kya hua, yeh kaise hua, yeh kyon hua—No, the translation is not que sera sera. The nation wants to know why the BJP allowed big-time tax terrorism to creep in when it instigated retrospective MAT taxes against FIIs. I have asked many, many individuals for their best interpretation for why the BJP indulged in “apne pair pe apni kulhadi”.
No one has provided any answer. So, was it just a case of legacy, of continuing with the past, because that is how we are and always have been? Yes, that is the best answer I can come up with, and it is not as non-sinister as it sounds.
Consider this. The Congress has ruled India for nearly 60 of the last sixty-eight years. That is legacy. What that means is that most, if not all, of the Indian industrialists are beholden to them. What that means is that most, if not all, of the senior Indian bureaucracy is obligated to the Congress for their career path. I should add the “obligation” of mainstream media as well but I already discussed that in my article Time to bash the media, April 25, 2015, FE.
The Congress, with dynasty, but rudderless and leaderless, is desperate for a change in its misfortunes.
The best, and only, way for Congress to get an inch back is to make people believe that there is no difference between it and Modi. “The more things change, the more they remain the same” is the repetitive mantra you hear from all the ConBhakts. What better way to achieve similarity than to get the BJP to enforce the very policy that brought it down?
So, the cabal gets together and drafts the policy. Start with MAT; continue with land acquisition; who knows, soon the bureaucracy will be recommending to reinforce NREGA, and an even more enhanced “food security” bill, and while Sonia Gandhi lamentably could not bring into law the Right to Happiness, the BJP will. At least, that is what the bureaucracy would recommend.
Assume I am right about there being Congress moles in various layers of the Indian system. Assume they did bring to Jaitley and Modi’s attention the “legacy” needs (or was it the desperate need for money for irrigation—Jaitley’s suit moment?) of the retrospective tax. In Bhagwan’s name, why did the BJP have to accept this Trojan horse into their base camp? One doesn’t need to be a lawyer, or even an economist, to recognise that a retrospective tax is terrorism.
And certainly Modi and the BJP benefitted enormously from the Congress’s operation of this terror. But continuing to do the same—is that even logical, or is it beyond stupid?
Some people are saying that we have to treat FIIs with kid gloves because they finance our deficits, and with so much equity purchase (50% of floating capital), they can wreck the stock market, and with it the economy. That maybe is what the moles were hoping (and did they succeed!). But FIIs should not be treated with kid gloves; they should be treated like everyone else. Retrospective taxation should be abolished because tax terrorism is wrong. Changing the rules of the game after the match has ended is a law that no one can endorse.
But we can’t rely on the Supreme Court to rule this unconstitutional because for them, everything is Constitutional—even an Emergency. BREAKING and not apocryphal NEWS: Supreme Court has just mandated that
in order to prevent a personality cult, public funds can only be used for displaying pictures of the President, Prime Minister and wait, the CJI! Now, regardless of the use or misuse of public funds, what Constitution can be interpreted so specifically? And, only to mention the obvious, to-date we do not have a personality cult for the CJI, but now the SC is mandating that we do!
Getting back to tax terrorism. The retrospective tax has to be killed, plain and simple. And killed not because we want to please the FIIs. No, killed because according to ancient Hindu principles, India wants to be both fair and just.
The author is Chairman of Oxus Investments
One year of Modi government – Read more on how the govt fared on expectations:
Waiting for JAM
Expectations were unrealistically high
A year of consolidation
Not a good year for the farmer
Missing Prince of Denmark in the Hamlet of reforms
Well begun is not half done
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