By Anjan Roy
Going by the Indian calendar system, we are currently entering a new year. On the other hand, we are emerging from the umbra of the last fiscal, ending with the delayed presentation of the budget. In these twilight zones, one tends to ruminate: How was the last fiscal year and how are the prospects for the coming one.
There could not possibly have been a more poignantly contrasting week than the last one before the extended fiscal year. In recognition of India’s increasing importance in global affairs and its rising economic weight, the BRICS summit was held in the capital. Taking note of India’s importance in global economy, iconic private sector investment bank, Goldman Sachs, held its full board of directors meeting in the country and the World Bank president, Robert Zoellick, was in town, presumably before he lays down his office in a few months from now.
At the same time, India’s economic prospects have suddenly looked clouded for foreign investors. Following up the budget, we have seen global protests against India’s budget proposals on retrospective taxation and continued withdrawal of funds by FIIs from India. The stock markets as a result tanked and in the absence of funds flow from overseas, the rupee began to decline. Already, the growth rate had come down, prices were again rising and investors are feeling nervous. The distinguished visitors expressed their widely differing views on the Indian economy and prospects.
One after another, government decisions or court verdicts have introduced new uncertainties about decisions and policies. Supreme Court verdict on the 2G spectrum allocation scam had sought to punish errant and irregular decisions rightly, But in the process some global investors, who might have acted in good faith about Indian government decision-making, have been affected. Their investments stand to lose.
Quickly on the heels of this, the union budget proposed to pursue tax avoidance by companies by using double-taxation avoidance treaty between India and Mauritius. What was worse, the budget proposed to bring about retrospective changes to capture capital gains on transfer of assets in India, even when these were effected through deals overseas. These proposals in the union budget heightened uncertainties about certain investments by overseas investors which were now feared to attract taxes.
If the World Bank president supported the government’s resolve to get at the companies which resorted to aggressive tax practices and avoided paying taxes seeking loopholes, the chairman of Goldman Sachs criticised government proposal for giving retrospective effect to changes in tax laws. The representative of global capitalism, as Goldman is seen globally, felt that such changes made Indian legal framework look very, very uncertain. And investors look for stable investment regime.
The budget proposals were viewed as targeted to one single now-celebrated case of Vodafone, where the company was slapped with a back tax claim of Rs 11,000 crore on its purchase of the Indian assets of Hutch-Essar. The government move was somewhat discredited in the light of the fact that earlier the Supreme Court had given a ruling in favour of the company, dismissing the government’s tax claims on the grounds that the law prevailing at the time of the deal was uncertain and did not expressly impose a tax obligation. However, now the government was coming out with a clear statement of the law on tax obligation. While legal clarification and restatement was welcome, its retrospective application was resented.
Recently, the National Greens Tribunal overturned an environmental clearance to POSCO’s ambitious steel projects in Orissa, saying the clearance was granted without going into the environmental impact of the steel mills when its entire projected capacity comes into commercial production. The Tribunal said it should source its water requirements independently of local supplies.
The POSCO project is now hanging fire for almost a decade. It was stalled by local action groups, asserting the rights of forest people and others. It was stalled for environmental clearance earlier too. And it was stalled for want of mining rights for iron ore. The delay is scandalous. It is still a wonder that the company is pursuing its mega project. And the last straw possibly is the fresh cancellation of the clearance. This despite, the prime minister promising and even and fair handling to Koreans in course of his meetings in that country last week.
Maybe, it is time some rethinking is done on conducting our affairs impulsively or in ad hoc manner. We need to bring in a little more consistency with vision. (IPA Service)