{"id":243141,"date":"2015-06-14T11:53:40","date_gmt":"2015-06-14T06:23:40","guid":{"rendered":"http:\/\/www.tehelka.com\/?p=243141"},"modified":"2015-06-14T11:53:40","modified_gmt":"2015-06-14T06:23:40","slug":"modi-jaitley-duo-flip-flops-on-economy","status":"publish","type":"post","link":"https:\/\/tehelka.com\/modi-jaitley-duo-flip-flops-on-economy\/","title":{"rendered":"Modi-Jaitley duo Flip-Flops on Economy"},"content":{"rendered":"

\"Modi-and-jaitley\"
\nIn his Independence Day speech last year, Prime Minister Narendra Modi said that \u201cif 125 crore people work together, India will move 125 crore steps forward\u201d. Sadly, in the first year of the NDA-2 regime, when his (Modi) cabinet colleagues walked together, they stamped on each other\u2019s feet, and got entangled in inconsistent decisions. On several economic issues, they took giant leaps forward, hopped backwards several times and settled for solutions that were somewhere in between.
\nThus, when it came to foreign direct investment (FDI) in organised retail, the official policy was to allow foreign firms, but Finance Minister Arun Jaitley publicly claimed that his party was against it. Most ministers now claim that they cannot lay down the red carpet for investors. They can only act as facilitators and show their genuineness, as most of the clearances are given by the states. Instead of getting the black money stashed abroad by Indians, the government enacted a stringent law that allowed the offenders to voluntarily declare their foreign assets.
\nWhat was worse was the stance on issues such as corruption and retrospective taxes. Jaitley claimed that this regime was against the latter; the Income Tax department under his ministry promptly sent notices to foreign institutional investors (FIIS) that demanded taxes for the past six years. Through his campaign, Modi said that he would eradicate corruption. His mantra: \u201cNa khaunga, na khane doonga<\/em> (I won\u2019t eat, or take bribes, nor will I allow others to eat).\u201d Now, his loyalists feel that the anti-corruption moves will impede growth and development.
\nAll these decisions and ideas went haywire not because of a lack of vision; the reason was the deficiency in understanding the ground realities. The right intent was there among the ministers; however, crucial information was left out, either deliberately or unknowingly, while policies were formulated. As a senior bjp politician says, \u201cOur government realised that there was a vast gap in saying things while you are in the opposition, and acting on them when you are in power.\u201d
\nTO BE HONEST OR NOT TO BE <\/strong><\/span>
\nNo one denies that corruption in high places \u2014 at the level of senior bureaucrats and ministers \u2014 has come down dramatically. The bjp mps are scared to go to their constituencies because they have been unable to ask for favours for their supporters from the various ministries and government agencies. Since the Prime Minister\u2019s Office (pmo) has its fingers in every pie, or eyes on every file, there is little room for unfair wriggle.
\nUntil yesterday, Modi loyalists proudly claimed that the end of corruption would spur growth and development, and allow all the sections of the society to prosper. It could make India the fastest growing economy in the world. Double digit growth rates would become a reality.
\nToday, they have changed their tunes. For example, a recent report by analyst firm Ambit said that the regime\u2019s bid to end crony capitalism has scared off private investors.
\nThe Ambit report said that businessmen are not in a rush to invest, and some have decided to \u201cconsciously hold back CAPEX (capital expenditure) to create an economic slowdown\u201d, which will force the government to go slow on anti-corruption initiatives. The crackdown on the chiefs of public sector units and government contractors will lower public investments. \u201cSources close to the pm repeatedly stress that he has got multi -decadal ambitions and will not be panicked into generating short-term results (like high growth) which can compromise his long term goals,\u201d the Ambit report added further. Thus, the moves against economic culprits will slow down overall growth.
\nBLACK REMAINS GREY<\/span><\/strong>
\nIn his second Budget speech (February 2015), Jaitley said that his ministry had made breakthroughs in getting black money that is stashed abroad.
\nOne, the Swiss authorities had agreed to share information about illegal accounts in their banks with India. Two, investigations resulted in the \u201cdetection of substantial amounts of unreported income\u201d. Three, there was an attempt to seamlessly integrate data about tainted foreign assets to make enforcement more effective.
\nBut in the same breath and speech, Jaitley accepted that there were \u201climitations under existing legislation\u201d to get the money back. He introduced a new law, The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, to tackle the issue. Experts feel that the need for a new law hints at a feeling within the regime that it will not find it easy to trace and bring back illegal foreign assets, or it will take much longer than expected.
\n
\n

\"Retail
Retail conundrum<\/b> Despite being opposed to FDI in retail, the BJP has not reversed UPA-2\u2019s policy of allowing 51 percent of foreign investment in organised retail.\u00a0Photo: AFP<\/em><\/figcaption><\/figure>
\nThe fact that the new law allowed wrongdoers to voluntarily disclose their foreign assets on a one-time basis and pay the requisite fines indicate that the government is not so sure that it can get the black money back to India. New stringent laws can never prove to be the only deterrent against the black economy. The reason: the culprits are always ahead of them. What is required is the implementation of the laws. Jaitley should have focussed on the latter, and not the former.
\nNot surprisingly, the economic criminals have already found an easy way to escape the provisions of the new law. The Ambit report quoted earlier said that several mid-level Indian businessmen have taken \u201ctax residentship\u201d in other countries. They will not have to pay taxes in India and, hence, need not be bothered about the income tax authorities. Others, including the big ones, have decided to do the same. High net worth white-collar professionals, who work with leading multinationals (mncs), have decided to seek transfers to other countries.
\nRETROSPECTIVE ACTIONS<\/span><\/strong>
\nWhen Pranab Mukherjee, the then finance minister, announced retrospective tax in his budget speech in February 2012, Jaitley was its biggest critic. Other bjp politicians said that Mukherjee\u2019s decision was retrograde and would scare away investors. After becoming finance minister, Jaitley continued his attack against the issue. In his second Budget in February 2015, he deferred Mukherjee\u2019s move.
\nSo, about 100 fiis were taken aback in April 2015, when the income tax department asked them to pay $6 billion in taxes for the past six or seven years. Jaitley defended his department. He maintained that \u201ctaxes which are payable must be paid\u201d, and these should not be perceived as \u2018tax terrorism\u2019. He added that India was not a tax haven, and doesn\u2019t intend to be one. Thus, fiis have to pay legitimate taxes.
\nThe investors countered Jaitley; they withdrew money from the Indian stock markets. Indian equities witnessed huge volatility and the stock market indices yo-yoed wildly. A hassled Jaitley tried to assuage the feelings of the fiis. He set up a committee to look into the issue and submit its report within a month. In early May 2015, the income tax authorities said that they would not send any fresh notices.
\nA week later, the fiis got a jolt when the dispute resolution panel of the income tax department informed them that the hearings on the disputed taxes for the past few years would start. In the ongoing chaos, the damage was done; most investors felt that nda-2 was on the same page as upa-2 in terms of tax confusion.
\nLONG TAIL OF RETAIL<\/strong><\/span>
\nWhile in opposition, the BJP opposed FDI\u00a0 in retail. The Sangh Parivar was even against the presence of multinationals in e-retail. Over the past 12 months, NDA-2 has not reversed UPA-2\u2019s policy to allow 51 percent in organised retail. A few weeks ago, the Department of Industrial Policy and Promotion issued a notification that said that FDI was indeed allowed in retail.
\nWhen confronted with the contradiction, Jaitley said, \u201cOur political stand is clear on FDI in multi-brand retail. We are not in favour of that.\u201d A day later, Commerce Minister Nirmala Sitharaman warned foreign retailers that the government would oppose their entry, even though the existing policy allowed it. She said, \u201cFDI in multi-brand retail cannot go in direct route. Every decision has to come to the cabinet. We will not allow it. I have not cleared a single proposal yet.\u201d
\nWhy doesn\u2019t the government reverse the FDI policy in retail? If it is not going to clear any proposal, why does it continue with upa-2\u2019s policy? The answer was provided by a BJP spokesperson, \u201cThe government will not change the retail policy because it would affect the investment atmosphere as investors wanted to see continuity in policy.\u201d This was a lame excuse in the context of Jaitley and Sitharaman\u2019s statements.
\n
\nWhat the spokesperson meant was that the continuation helped to save Modi, who can easily contend that he is not opposed to fdi in retail, but his ministers were. Moreover, if the government reversed the retail policy, the prime minister would not be able to make exaggerated claims during his foreign tours that he would lay the red carpet for foreign investors in a bid to push his grandiose \u2018Make in India\u2019 plan.
\nEASIER SAID THAN DONE<\/span><\/strong>
\nEver since he assumed power, Modi has said that he would get rid of archaic laws, pursue long-term policies, and make it simpler for all investors to do business in India. He showed the right intents when he diluted stringent labour laws for small and medium enterprises, made environment clearances time-bound and passed an all-encompassing law that allowed the law ministry to amend outdated laws.
\nHowever, his cabinet ministers and bureaucrats have found the going quite tough. They were unable to help businesses to set up new projects because they found that most of the clearances were required at the state levels. Hence, their hands were tied if the projects were located in non-BJP, non-NDA-2 ruled states. In a recent interview, Steel Minister Narendra Singh Tomar admitted that the government could act as a mere \u2018facilitator\u2019 and investors need to pursue clearances from the state governments.
\nTomar\u2019s suggested route out of the impasse was that private firms, including MNCs such as South Korea\u2019s Posco, which has spent years trying to construct a mega steel plant in Odisha, should join hands with the state-owned firms. Most public sector units (PSUS) had surplus land and they could locate their projects in friendly states, which would bend over backwards to give the requisite clearances. It seems a ludicrous way out. One, NDA-2 has not given more decision-making autonomy to the PSUS. Why will the MNCs tie up with state-owned entities that are unable to act and decide? Two, the private firms are in the business to earn profits. Why will they share them?
\nThree, mncs spend billions of dollars on proprietary knowledge, intellectual property rights and technology. Why should they share them with others? Finally, foreign firms believe in either complete or majority control over their projects. Will the psus give them majority stakes when they possess the land? For example, when POSCO complained about Odisha government\u2019s attitude, the central steel ministry asked it to partner with sail, a PSU. During the subsequent discussions, the talks failed for two reasons. First, POSCO was reluctant to share its proprietary technology, and sail did not wish to get stuck with a single technology. Second, POSCO wanted a majority stake, and sail insisted that it should have an upper hand.
\nClearly, the one-time tea server has realised that there can be too many slips between the cup and the lip. Throwing ideas and enumerating a grand vision is one thing. Implementing them and making them work on the ground is another. The fact is that time is running out for the Modi government.
\nUnfortunately, the economic forecast for this year (2015-16) is quite bleak. Experts have reduced the economic growth estimates, monsoons may be below normal in most states, private and public investments have failed to pick up, corporate results are discouraging and inflation may raise its tentacles yet again. More importantly, this may have a political impact; the BJP may not do as well in the forthcoming Assembly election in Bihar. The political-economic combination can easily derail all the plans that Modi has.
\neditor@tehelka.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The government goes back and forth on crucial policies on private investments, black money, ease of doing business and corruption, says Alam Srinivas<\/p>\n","protected":false},"author":78,"featured_media":243143,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[56],"tags":[2879,7448,1770,169,9346,4753,9347,1277,6424],"_links":{"self":[{"href":"https:\/\/tehelka.com\/rest-api\/wp\/v2\/posts\/243141"}],"collection":[{"href":"https:\/\/tehelka.com\/rest-api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tehelka.com\/rest-api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tehelka.com\/rest-api\/wp\/v2\/users\/78"}],"replies":[{"embeddable":true,"href":"https:\/\/tehelka.com\/rest-api\/wp\/v2\/comments?post=243141"}],"version-history":[{"count":0,"href":"https:\/\/tehelka.com\/rest-api\/wp\/v2\/posts\/243141\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tehelka.com\/rest-api\/"}],"wp:attachment":[{"href":"https:\/\/tehelka.com\/rest-api\/wp\/v2\/media?parent=243141"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tehelka.com\/rest-api\/wp\/v2\/categories?post=243141"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tehelka.com\/rest-api\/wp\/v2\/tags?post=243141"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}