|From May to Abe|
|Wednesday, 09 November 2016 07:02|
Cairn and DoCoMo top list of unresolved issues
While prime minister Narendra Modi has a host of issues ranging from visa restrictions to those of nuclear policy to discuss with UK PM Theresa May to Japan PM Shinzo Abe—May is already in India and Modi goes to Tokyo next month—he would do well to pay special attention to the cases of Cairn Energy Plc and DoCoMo. Apart from the fact that every premier has concerns over home-country companies, both cases are a reminder to global companies of just how tough it remains to do business in India, both are relatively easy to resolve and, most important, are largely the fault of the Indian government.
Cairn’s case has been dragging on for more than a thousand days and, though tax terror of foreign firms was one of the issues the NDA campaigned on, when it came to power, it did precious little. It refused to repeal the retrospective tax law as it was too worried about how the Opposition would portray this. And while it promised to tackle all Vodafone-type cases that could possible arise from the retrospective law, it did not bring the Cairn case before the committee that could have dealt with it—since Cairn had only been served with a draft assessment order by the UPA, this could easily have been done. Apart from this, the government delayed the arbitration that Cairn had filed for and consistently argued the case could not even be arbitrated since it involved tax issues. Most important, unlike even Vodafone, Cairn Energy’s holdings in Cairn India, worth around a billion dollars at that point, were frozen and represented a significant loss of opportunity for the firm which had to fire employees since it didn’t have funds to expand the business.
In the case of DoCoMo, the issue of whether the Tata-DoCoMo option was legal remains open—keep in mind, NDA-1 had signed an option agreement with Anil Agarwal for the sale of HZL and Balco, suggesting it was, at worse, a grey area. In this case, while the government cited RBI rules to say Tatas couldn’t make the payment to DoCoMo, it never looked into the reason for why RBI frowned on such options. RBI controls debt inflows and since various debt inflows were masquerading as equity, it was natural to say the DoCoMo transaction was illegal. But since DoCoMo was asking for half its original investment, it was always obvious it could not have been debt. Yet, the government didn’t apply this simple rule. What makes DoCoMo an area of concern for all global investors is that, even after an international court ruled in its favour, it has not been able to enforce the law. Given the government’s desire to convince investors it is serious about making life easier, it is imperative prime minister Modi address the issue at the earliest.