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Unfair to expect India Inc to be bold PDF Print E-mail
Monday, 06 January 2020 05:07
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Govt policy can kill your business, your assets can be seized, your dues may stay unpaid ... not criticising govt is a good idea

Govt seized Cairn’s shares but not Vodafone’s, it asks telcos for AGR dues but not PSUs, stops Airtel-Tata merger, won’t pay damages in Antrix-Devas case, doesn’t allow GST credit for telcos ... who can take it on?

As the industrial/investment climate gets worse, paradoxically, India Inc is the new villain of the piece. If only top industrialists  spoke their mind — like Rahul Bajaj did with home minister Amit Shah —and told the prime minister just how badly he was getting it wrong, the government would have course-corrected a long time ago. As part of this narrative, a former CII president, Naushad Forbes, has a recent article where he blames Indian industry’s habit of seeking favours from the government for this state of supplication (his term).

Certainly, even close to 30 years after the Bombay Club days—ironically, Bajaj was a leading spirit of that gathering—sections of India Inc continue to look for favours. Many industrialists have, successfully, petitioned the government to raise import duties—using anti-dumping and other actions as well—on their products; indeed, sections of industry petitioned the government to walk out of RCEP since they were uncomfortable with the import competition this would have resulted in.

But, in a more fundamental sense, the problem is that even after three decades of the PV Narasimha Rao-Manmohan Singh reforms, India hasn’t reformed in critical ways. Reforms are not just about cutting taxes and import duties, they are equally about their irreversibility, the predictability of the downward cuts; the moment there is subjectivity involved, and the possibility that the rates can be hiked, lobbying begins.

Reforms are about easing entry barriers—including for FDI—in as many sectors as possible, but if firms are not allowed to exit, it creates room for lobbying; more important, it ensures that firms have to lobby for what is a natural right. An obvious example is that of Vodafone. When, after years of hostile government policy has driven most telcos to the ground—this newspaper has chronicled this in detail—the Vodafone global CEO said his firm would have to shut its India operations, telecom minister Ravi Shankar Prasad found it easy to condemn this as ‘dictating terms’ to India. Imagine the irony—the firm has invested $30 bn in India, is close to losing all of it due to hostile government policy, and a senior minister is upset at the Vodafone chief speaking the truth! More important, when Vodafone-Idea does shut shop, will the government allow it to, or will it put all manner of hurdles in the way? Keep in mind that while Airtel bought Tata Tele’s mobile business more than two years ago—when the Tatas wanted out—the government has just approached the Supreme Court to nullify this!

Is asking the government to fix this asking for a favour, or is it just a demand for rights? Another good example is the purchase of Bhushan Power and Essar Steel by JSW and ArcelorMittal, respectively, in the insolvency courts. These were sales that PSU banks initiated under a mechanism devised by the government; yet, when the sales were nearly complete, JSW found some of Bhushan’s assets were seized by authorities investigating the crimes committed by the previous owners. Both JSW and Arcelor approached the government to ask for a halt to all investigative action and criminal action—including seizing of assets—since they were not responsible for what happened before they bought the firms; pursue the previous owners, don’t take action against the company, they argued. The question to ask is if either Sajjan Jindal or Lakshmi Mittal were to criticise the government for its poor handing of the economy earlier, would it have changed the law to put a stop to such action after a firm was sold at the insolvency courts? Chances are it won’t have acted so fast, if at all.

There are countless such examples of firms needing to approach the government, not for favours, but just to correct obvious wrongs; but, to get even that done, businessmen can’t afford to take a chance and criticise the government—this applies as much to the Congress as it does to the BJP. After the Congress levied the retrospective tax, and the BJP didn’t fix this despite campaigning against it when in the Opposition, it even seized $1.3-1.4bn of assets of Cairn Energy; can the CEO of Cairn Energy afford to talk openly about the government’s breach of faith and still hope to get justice? Keep in mind that even if Cairn wins the arbitration case on the tax, the decision to honour the award and to give Cairn back its money is Narendra Modi’s. And, in cases like Antrix-Devas, despite the government losing the arbitration, the money has not been paid to Devas Multimedia; in the case of Tata-Docomo, where the government was not even a party, it petitioned the court to prevent the Tatas from paying Docomo!

Even if you believe that the government shouldn’t be diluting the demands made on telcos after the SC’s AGR ruling—read bit.ly/2MO4QPZ to know how flawed this assumption is—it is surely unfair that while the government leans on private telcos to pay up, it is quite relaxed about PSUs paying up even though the amount they have to pay is much higher. Once again, the government has such huge discretion, only someone not too worried about their business would openly take it on.

And, is it a favour if KM Birla approaches the FM to ask for permission to use the GST input credit that is due —`35,000 crore for all telcos—to reduce the  GST that he has to pay? Or take the case of Ajit Gulabchand, who is owed more money by the government’s NHAI—not only was he owed the money, when NHAI contested it, the arbitration panels ruled in his favour—than he owes the PSU banks for his Lavasa township project; he hasn’t got his money from NHAI, but the banks have taken over Lavasa!

If PM Modi really wants to make it easy for industry to invest, he needs to stop this discretionary power his government has, not showcase the easily-gamed and irrelevant Ease of Doing Business index of the World Bank. So, let’s praise Rahul Bajaj for his statement to the home minister, but keep in mind he doesn’t run any business now—indeed, one of his two sons, who runs Bajaj Auto, was quick to criticise his father’s statement the very next day!—and be less harsh on businessmen who don’t want a favour, but are just asking for freedom to run their businesses; businessmen who don’t know, even if they agree to opt out, whether they will be allowed to sell their businesses since government permissions are required for this as well.

 

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