Just change in labour laws or tax rates won't help PDF Print E-mail
Wednesday, 13 May 2020 04:29
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Shobhana edit

In September last year, the government slashed the corporate tax rate to 22% from 30% for existing companies, and to 15% from 25% for new manufacturers in a bid to coax industry to start investing. Lately, state governments, too, have been trying to woo industry. Karnataka, for instance, has allowed businessmen to sell agricultural land converted for industrial purposes after seven years, provided the same enterprise is in operation. And, the Gujarat, UP, and MP governments have virtually scrapped labour laws, making it easier for enterprises to hire and fire workers, eliminating inspector raj, and marginalising the trade unions. A Bloomberg report says the trade ministry is mulling a strategy whereby units would be given a 10-year tax holiday for a minimum investment of $500 million, or a four-year tax holiday for an investment of $100 million. Even before this, there has been talk of the government having reached out to 1,000 global corporations to convince them to move out of China and set up shop in India. Indeed, there is much talk about the big opportunity that has come India’s way post the pandemic. The fact is, the opportunity was always there, we failed to capitalise on it because our regulations are unreliable, even unfriendly, our wages uncompetitive, labour laws outdated, and infrastructure insufficient.

Let’s face it, no corporation is so enamoured of our big market that it will set up shop here simply because the tax rate is now comparable with those of peer nations. By now, MNCs—and even locals—must be disgusted at the manner in which tax laws are interpreted and applied. A few years back, Nokia shut down its plant and moved out of Chennai after the local government slapped a Rs 2,400 crore sales tax bill. That cost us some 10,000 jobs. For all the talk of eliminating tax terrorism, both MNCs and local industrialists have found themselves harassed by taxmen. The point is that the government—and this includes the states—needs to roll out industry-friendly policies that are not overturned at the first signs of protest from local industry, or to favour local businessmen. In e-commerce, for example, the rules are being constantly revised because local traders feel they are not on a level playing field; again, telecom regulations have favoured one company to the extent of nearly bankrupting others. Indeed, India’s reputation for honouring contracts has taken a severe beating after a clutch of renewable energy PPAs having been dishonoured by states like Andhra Pradesh. Gujarat, Madhya Pradesh, and Uttar Pradesh may believe they have rolled out the red carpet, but few businessmen are likely to invest because there is no guaranteeing these rules won’t be changed after a few years.

Few businessmen are likely to be inspired by a government so high-handed that it asks companies not to cut salaries and wages during the lockdown, even those that have been able to hammer out an agreement with the unions. Such interference is unwarranted, even in the prevailing situation. It is true that industrialists often bend the rules and wilfully default on loans, but the way to address these breaches is by using the law in the right manner, not by armtwisting them. To be sure, FDI flows, averaging $60 billion in the past four years, have been robust. Much of the investments, though, flowed into the services—especially, e-commerce—rather than manufacturing. But, in the last six years, exports have topped the FY14 earnings of $314.4 billion just once.


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