Pre-Budget or Post-Budget 2020, India’s Economy Needs T.R.U.S.T

Video Editor: Varun Sharma
Video Producer: Sonal Gupta
Cameraperson: Abhishek Ranjan

It’s a familiar cacophony around any Union Budget. Cut taxes. Invert the inverted duty structure. Control the fiscal deficit. Or, step up government expenditure, the fisc be damned. Bring back investment allowance.... but you know what, this time the funk is deeper, elemental, it’s in the soul.

If Prime Minister Modi genuinely wants to rejuvenate our economy, he’s got to create TRUST for India’s private enterprise, which accounts for 90 percent of the economy. So why is TRUST in all caps? Because it’s an acronym (something our popular PM loves to coin).

T – For Trusting Market Forces

India’s bureaucracy has always been deeply suspicious of well-regulated markets. Which is why they love to micro-manage outcomes; sample these “beauties”:

• There is a monstrosity called the Anti-Profiteering Authority to ensure that “super profits” created by the new GST regime are “disgorged” from corporations. Can you believe that? What, for instance, is the interest rate to be charged on consumer credit? How much of brand advertising is for current sales (an expense), and how much to create future customers (strictly, an investment). A million such questions are irresolvable, ab initio. But the consequences are predictable: Strange penalties, exorbitant legal fees, extortion, and corruption. On the other hand, if you create truly competitive markets, “super profits” will vanish on their own; so, when will our policymakers understand that?
• Now see the mess they’ve created in our e-commerce policy. Our bureaucrats have invented a fiction that is grandly called the “market place model”. Under that, foreign players like Amazon and Walmart can’t sell directly to consumers, but only provide a trading platform for “third parties” in which they are allowed a maximum equity stake of 26%. But in the same breath, we create “favourable” policies for big Indian capital to annihilate the foreigners and locals, alike. Somehow, that is “fine and noble”!

• This one is my favourite – we’ve allowed free pricing of energy, including oil, but we control entertainment tariffs! And we can’t make up our minds on whether pharma prices should be free, controlled, capped or some mish-mash, even as critical drugs are held back by global producers.
• Also, we love to zig-zag between banning, re-banning, and re-re-banning. In the 1990s, unlisted Indian companies could not float overseas; in the early 2000s, they were allowed; then in the mid-2000s, they were banned again; now I understand they are going to be allowed again! Likewise with put/call options for overseas investors. And with dividend distribution taxes. And with long-term capital gains taxes on listed equity shares. A million more examples could prove how consistently ludicrous our policymakers are.

R – For Recapitalising, Not Destroying, Assets

We’ve allowed one systemically important asset after another to go bankrupt when we should have rescued each one of them. It began with IL&FS, but then spiralled into DHFL, other real estate companies, Jet Airways, PMC and what not. I’ve been writing and shouting until I’ve gone blue in the face. Reclaim the asset, clobber the wrongdoer. If only we had injected a critical amount of cash – perhaps no more than Rs 1 lakh crore – via a superior/protected debt instrument, we could have avoided almost Rs 20 lakh crore of asset destruction.

U – For “Un-Criminalising” Business

The “criminalisation” of business has had the most harmful impact on India’s economy. Here are just a tiny number of illustrative examples from within an embarrassment of riches:

• Rashesh Shah, a much-celebrated first-generation entrepreneur, former President of FICCI, is publicly hauled in an Enforcement Directorate summons, which could be entirely misconstrued. Should not a discreet enquiry have happened before tarring his fair name?
• Ravi Narain and Chitra Ramakrishna – pedigreed professionals who’ve virtually created the National Stock Exchange – are treated like common criminals in a highly technical case regarding alleged market manipulation
• Jagdish Khattar, an ex-IAS officer, the much-feted former CEO of Maruti, encounters a business failure in his post-retirement venture. Instead of being given the benefit of the doubt, he is thrown before the CBI in a corruption case
• Two auditors of an E&Y-affiliated firm are arrested in a six-year-old case, after their firm has made nearly fifty appearances before the police recording evidence

S – For the Sovereign, not Supreme Court, Making Economic Policy

Just look at the Supreme Court’s order on the AGR (Adjusted Gross Revenue) penalties on telecom licensees. First the government frames an inherently ambiguous rule, which could include such non-operating income like rent and foreign exchange gains, in calculating the shareable operating revenue of a telco. When the Supreme Court upholds it, inflicting a Rs 1.50 lakh crore levy and threatening the viability of critical telcos, the government, instead of exercising its Sovereign duty to “clean up” policy mistakes, goes quiet.

Worse, when an unintended impact of nearly Rs 3 lakh crore on non-telcos, like oil/gas companies and cable operators holding telecom licenses is revealed, the government, instead of quickly dousing this egregious error, fiddles while New Delhi (not Rome) burns.

There are numerous examples of similar abdication by the Sovereign before devastating court orders. The Modi government now needs to buckle up and take ownership of its policy mistakes, correcting them, rather than watching unmoved from the sidelines.

T – Finally, for Tax Terrorism, Just Kill It

So, to repeat, if we want to revive India’s economy, Budget or no Budget, we need to create TRUST:

• T for trusting market forces
• R for recapitalising and saving assets, rather than destroying them
• U for “un-criminalising” business
• S for the Sovereign pro-actively correcting its policy mistakes rather than leaning on the Supreme Court
• T for tax terrorism, killing it.