Budget 2020: Don’t Give Us Tax And Fiscal Sops, Just Give Us TRUST

Budget 2020: Don’t Give Us Tax And Fiscal Sops, Just Give Us TRUST


It’s a familiar cacophony. Cut taxes. Invert the inverted duty structure. Control the fiscal deficit. Be honest about your arithmetic. Abolish equity taxes. Step up government expenditure, the fisc be damned. Bring back investment allowance. Slap inheritance taxes... And on it goes, a laundry list of standard policy tactics which could revive India’s economy.

Budget 2020: Don’t Give Us Tax And Fiscal Sops, Just Give Us TRUST
But you know what, this time the funk is deeper, elemental. It’s in the soul. Frankly, the time for budget quick-fixes is over. If Prime Minister Modi genuinely wants to rejuvenate, he’s got to create TRUST for India’s private enterprise which accounts for 90 percent of the economy. Why is TRUST in all caps? Because it’s an acronym, something our popular PM loves to coin.

T … For Trusting Market Forces

India’s bureaucracy has always been deeply suspicious of well-regulated markets. Which is why they love to micro-manage outcomes; except this time, their quest has become maniacal. Sample these ‘beauties’.

There is a monstrosity called the Anti-Profiteering Authority. No, I am not kidding, it exists and is called exactly that, in a free enterprise economy! 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 free 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?

Now see the mess they’ve created in our e-commerce policy. Our bureaucrats have invented a fiction that only they are naive enough to believe in. It’s grandly called the “marketplace model”. Under that, foreign players like Amazon and Walmart can’t sell directly to consumers, but only provide a trading platform for “third-parties” in which they are allowed a maximum equity stake of 26 percent. This is being done to curb the foreigners’ ‘evil’ intentions. Yet these giants offer massive freebies and discounts, in front of our credulous eyes. And we threaten to take “coercive” action every day, all in the name of protecting small/local kirana stores. But in the same breath, we create ‘favourable’ policies for big Indian capital to annihilate the foreigners and locals, alike. Somehow, that is ‘noble’!

The next one is my favourite. We’ve allowed free pricing of energy, including oil, but we control entertainment tariffs.

Believe it or not, but TRAI mandates how entertainment television will be priced and bundled!  

And we can’t make up our minds on whether pharma prices should be free, controlled, capped or some mishmash, even as critical drugs are held back by global producers.

Also, we love to zig-zag between banning, re-banning, and re-re-banning. In the 1990s, unlisted Indian companies could not float overseas; in the early 2000s, they were allowed; then in the mid-2000s, they were banned again; now I understand they are going to be allowed again! Likewise with put/call options for overseas investors. And with dividend distribution taxes. And with long-term capital gains taxes on listed equity shares.

A million more examples could prove how consistently ludicrous our policymakers are.

R … For Recapitalising, Not Destroying, Assets

Our beleaguered economy had barely begun to recover from the demonetisation shock when we delivered the KO (aka knockout) punch – we allowed one systemically important asset after another to go bankrupt when we should have rescued each one of them. It began with IL&FS, but then spiraled into DHFL, other real estate companies, Jet Airways, PMC Bank and what not. I’ve been writing and shouting until I’ve gone blue in the face. Reclaim the asset, clobber the wrong-doer.

We should have learned from the U.S. Fed and Treasury, who authored the Troubled Asset Relief Program and saved America’s economy from melting down in 2008. If only we too had injected a critical amount of cash – perhaps no more than Rs 1 lakh crore – via a superior/protected debt instrument, we could have avoided almost Rs 20 lakh crore of asset destruction.

We also should have aggressively recapitalised our banks via an innovative, deeply discounted rights issue, rather than cloned the outdated ‘recapitalisation bonds’ from the crisis-ridden 1990s. That alone would have doubled the impact of each recapitalising rupee infused by the Modi government.

Unfortunately, we stuck to the coattails of an unimaginative bureaucracy.

U … For ‘Un-Criminalising’ Business

The ‘criminalisation’ of business has now become quite outrageous. Therefore, it has also had the most harmful impact on India’s economy. Here are just a tiny number of illustrative examples from within an embarrassment of riches.

Budget 2020: Don’t Give Us Tax And Fiscal Sops, Just Give Us TRUST
Budget 2020: Don’t Give Us Tax And Fiscal Sops, Just Give Us TRUST
Budget 2020: Don’t Give Us Tax And Fiscal Sops, Just Give Us TRUST
Budget 2020: Don’t Give Us Tax And Fiscal Sops, Just Give Us TRUST

S … For The Sovereign, Not Supreme Court, Making Economic Policy

The incredibly sorry spectacle spawned by the Supreme Court’s order on the adjusted gross revenue penalties on telecom licensees makes the perfect case here. First, the government frames an inherently ambiguous rule, which could include such non-operating income like rent and foreign exchange gains, in calculating the shareable operating revenue of a telco. When the Supreme Court upholds it, inflicting a Rs 1.50 lakh crore levy and threatening the viability of critical telcos, the government, instead of exercising its sovereign duty to ‘clean up’ policy mistakes, goes quiet.

Worse, when an unintended impact of nearly Rs 3 lakh crore on non-telecom firms, like oil and gas companies and cable operators holding telecom licenses is revealed, the government, instead of quickly dousing this egregious error, fiddles while New Delhi (not Rome) burns.

There are numerous examples of similar abdication by the Sovereign before devastating court orders which have crippled India’s economy. The Modi government now needs to buckle up and take ownership of its policy mistakes, correcting them, rather than watching unmoved from the sidelines.

T … Finally, For Tax Terrorism

This has been so copiously documented that I need not give any evidence in support. It’s perhaps the single most important reason why India’s economy is staggering, lurching like a boxer who has been battered to a pulp.

To conclude then, at least I will not be watching for the odd tax cut in Finance Minister Nirmala Sitharaman’s budget on the first day of February 2020. 

Instead, I will remain solely focused on what her government does in creating TRUST.

Budget 2020: Don’t Give Us Tax And Fiscal Sops, Just Give Us TRUST

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’.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.