To Junk “Socialist Economics”, Just Scrap Two Laws
Then President Pranab Mukherjee and Prime Minister Narendra Modi in the Central Hall of Parliament in New Delhi, on June 30, 2017. (Photograph: PTI)

To Junk “Socialist Economics”, Just Scrap Two Laws

BloombergQuintOpinion

My working day, as for millions of business news viewers, is suffused with the incessant, low-background hum of live stock-market television. I rarely listen to it, but its omnipresence is reassuring, especially if news breaks that could roil stock or bond prices, because then you may need to act quickly, either to cut losses or book profits. So, I always keep it on but never give it much attention.

But the other day, Finance Minister Nirmala Sitharaman was speaking. I expected her to tender the usual homilies, so I remained oblivious to her address, absorbed in a data worksheet. Until I caught a few words that jolted me out of my indifferent skin.

To Junk “Socialist Economics”, Just Scrap Two Laws
What! Did she just say that “the time has come for India to give up its outdated socialist economic policies? (emphasis mine)

I sat bolt upright, upping the telly’s audio. “Socialist policies of the past decades have held our economy back. While most of those policies were harmful, even a few of the useful ones have now outlived their utility. Therefore, we must reinvent our economic rules to make them market-friendly and competitive.” (Although I have used quote marks, I must, in all honesty, confess that I am reproducing her words from memory, so these cannot be exact. However, I am sure that I have been faithful to her reasoning/argument.)

She Dares To Disown Socialism…

This was music for my ears. Usually, our politicians, from Prime Minister Narendra Modi to opposition leaders, dare not disown socialism. Even when they sell public sector undertakings, they couch it in language that speaks of “maximising social capital for pro-poor investments”, instead of celebrating privatisation as an ode to free-market capitalism. But here was no less than the Finance Minister excoriating state socialism without mincing words. How delightful!

Note: I am celebrating the repudiation of socialist economics, although I do support the welfarism and cultural liberalism that is innate to a socialist society.

But then, I also know better than to get carried away by politicians’ words. They almost always over-promise and under-deliver. So, while the Finance Minister may have debunked economic socialism in an unguarded moment, could she take a few quick, sharp actions to convince the world that India truly wants to embrace a modern, competitive, well-regulated free-market economy?

Yes, she can.

Here are just two acts of abrogation—of the worst remnants of an exploitative state—that would establish her reformist creds.

I have chosen these two actions because their repudiation is endorsed by stinging judicial orders, which would give Prime Minister Modi the Teflon to withstand a strong political blow-back.

Believe It Or Not, A National Anti-Profiteering Authority!

There is a monstrosity called the National Anti-Profiteering Authority. No, I am not kidding, it exists and is called exactly that, in an economy that is supposed to be liberalising and creating freer markets! Its mandate is to ensure that ‘super profits’ created by the new GST regime are ‘disgorged’ from corporations. Can you believe that?

Can government inspectors really calculate the ‘super profits’ made by companies operating in competitive markets? What’s the interest rate to be charged on consumer credit? How do you account for surplus employees on the bench? How much of brand advertising is for current sales (an expense), and how much to create future customers (strictly, an investment)?

A million such questions are irresolvable, ab initio. But the consequences are predictable: strange penalties, exorbitant legal fees, extortion, and corruption. On the other hand, if you create truly competitive markets, ‘super profits’ will vanish on their own; so, when will our policymakers understand that?

If you think my diatribe is coloured, then allow me to quote what the Bombay High Court observed in the allegation against Hardcastle Restaurant (McDonald’s India franchisee) of gouging Rs 7.49 crore from consumers when the GST rate was lowered from 18% to 5%:

“The Act and Rules provide no appeal … the Authority can impose a penalty and can cancel the registration. The term profiteering, under the Act and Rules, is used in a pejorative sense (that) can severely dent the business reputation.”

On its part, Delhi High Court has stayed the case against Jubilant Foodworks (Domino’s India franchisee) saying “prima facie” there was no methodology to determine profiteering. It has clubbed 39 other petitions filed by companies such as Hindustan Unilever, Patanjali, Johnson & Johnson, Reckitt Benckiser, and Phillips, among others, to adjudicate on the very constitutionality of this law.

So rather than wait for the courts to rap their knuckles, the Modi government could step up and rescind such an ill-conceived law on its own, thereby accepting its mistake. That would give the Finance Minister’s “kill economic socialism” endeavor the ring of conviction!

Why Is UPA’s 50-Year Tax Swing-Back Still On The Statute?

To further burnish its ‘non-socialist’ economic credentials, the government should banish another atrocious law, the much-vilified Vodafone retrospective tax demand, including expropriative penalties, adding up to $3 billion inflicted on a hapless multinational.

Besides a judicial rationale – after all, the International Arbitration Tribunal at The Hague ruled against India with costs, saying we must “cease the conduct in question”, the Modi government is on firm political ground since this monstrosity is not of their making but was enacted by the UPA government.

On that fateful May 28, 2012, the Manmohan Singh government used its egregious heavy hand to overturn a Supreme Court order that had favored Vodafone just five months earlier. So furious and miffed was then Finance Minister Pranab Mukherjee, that he went back fifty years—yes, a full half-century—to 1961 and changed the tax law with a chilling retrospective impact.

Forget a socialist state, the action was so unforgiving that Stalinist Russia would have turned green with envy! 

Also read: Vodafone Arbitration Award: Opportunity To Enhance India’s Investment Credibility

Worse followed when Cairn Energy was slapped with a $4.3 billion tax charge using the same retrospective principle with an even more devastating fallout, because the government actually expropriated equity shares and dividends to recoup taxes whose legality is now in question.

So, experts are fearing an even more damaging award in favour of Cairn at The Hague, using the Vodafone ruling as a precedent. Once again, it’s a perfect opportunity for the Modi government to retreat, rescind, shove the political blame on the ‘didactic, statist UPA’, and bask in ‘the post-socialist glory of New India’, something I heard Finance Minister Nirmala Sitharaman vow to do on the telly the other day.

Having said this, do I really, I mean really, expect the government to do the right thing and roll back these laws? Sigh, no!

Raghav Bahl is the co-founder and chairman of Quintillion Media, including BloombergQuint. He is the author of three books, viz ‘Superpower?: The Amazing Race Between China’s Hare and India’s Tortoise’, ‘Super Economies: America, India, China & The Future Of The World’, and ‘Super Century: What India Must Do to Rise by 2050’.

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