Honourable as it may sound, finance minister Arun Jaitley has made a wrong call by recusing himself in the Vodafone matter, leaving all decisions to be taken by his deputy Nirmala Sitharaman who will, presumably, take directions from PM Narendra Modi if she thinks necessary. Just as few accuse judges of bias if they own some shares of a company whose case they are presiding over—one judge recused himself for holding a few thousand rupees worth of shares of a company in a very important case a few years ago—few were going to accuse Jaitley of favouring a company whom he charged a fee several years ago for a bona fide business consultation. Indeed, given the finance minister’s extensive practice as a lawyer, this becomes precedence for those who want him to recuse himself in matters pertaining to other corporates as well. The Vodafone case is, in reality, not just one pertaining to Vodafone, it is journalistic shorthand for the retrospective amendments brought by Pranab Mukherjee when he was finance minister. To that extent, it affects not just Vodafone, but even companies like Shell and Cairn who were trying to either bring in money to invest in their local arms or were trying to reorganise their Indian operations. Jaitley’s predecessor P Chidambaram recused himself in the Hindustan Zinc/Balco case for a similar reason of potential conflict of interest. Just look at the delay that caused in the sale of the government’s residual shareholding in the ertstwhile PSUs since the dynamic minister was no longer pushing the case. This is not to doubt Jaitley’s deputy’s capabilities, but Sitharaman could have used Jaitley’s expertise as the case has some unusual complications.
On the face of things, the case is simple. The BJP, which has spoken of removing tax terror on various occasions in the past as well as the need to bring in predictability in the tax regime, just needs to move an amendment in the Finance Bill. Once the party says the Mukherjee changes will be prospective in nature—some of them like the one which treats income around share transactions as business income need to be scrapped—it has the majority in the Lok Sabha to get the amendments passed. Once the amendments have been passed, presumably any tax demand made on the basis of the retrospective law will automatically fall by the wayside. Here’s the rub, they may not. There is an opinion in the finance ministry that the old tax demands may still stand, and it will take a conscious act on the ministry’s part to nullify those demands—and no one is going to be impressed with a change in the retrospective tax law if the existing cases like Vodafone, Shell and Cairn are not resolved. In which case, there is the possibility that the CAG can come after finance ministry officials; certainly the moribund Opposition parties will get another lease of life and Rahul Gandhi may get to hold forth on his toffee-model once again. That, however, is one of the tough calls the government has to take if it wants to get the business environment back on track. The finance minister needs to be persuaded to rescind his decision.