Economy
Three Cheers to Three Policies

The government gets going on tax treatment, disinvestment and spectrum sales

 
On 28th January, immediately after bidding goodbye to US president Barak Obama, the government got down to business and announced three big decisions. Of these, the most sensible was the decision not to appeal against a verdict by the Bombay High Court, which ruled that the British telecom company Vodafone was not liable to pay tax of Rs3,200 crore in a transfer pricing case. Finance minister Arun Jaitley had recently said that contentious cases like Vodafone had only given India a bad image while the government had not earned much money from them.
 
In fact, the government spends large chunks of public money on pointless and expensive litigation, not only in major cases like Vodafone, but hundreds of others. Large chunks of funds, legitimately belonging to small and medium companies, have remained blocked in litigation as the tax authorities would not admit that they were wrong even after they lost in appeals. If the government is serious about its ‘ease of doing business’ promise, it will have to follow up the decision not to contest the Vodafone verdict by closing all similar litigation and unblocking corporate funds without specious excuses about meeting Budget targets. 
 
We don’t know what prime minister Modi and president Obama discussed in their highly public-but-private chai-pe-charcha, but the need to end tax-terrorism unleashed by the United Progressive Alliance (UPA) government may have been one item of discussion, given how many US companies were caught in the dragnet. 
 
The second decision, to sell a 10% stake in Coal India Limited (CIL) despite employee protests, is not as easy as it seems. The government owns 90% of CIL, and a 10% dilution will double the publicly available shareholding. On 30th January, the government raised Rs22,400 crore by hurriedly selling CIL to  a clutch of public sector insurers  and banks in what can hardly be termed a disinvestment exercise. This dragged down the entire market and CIL shares tumbled to Rs360.80 on 30th January. After all, there is no move to provide more autonomy to the CIL management and the recent, union-led, protest against this tiny equity dilution is only a negative. 
 
And, although investors know that they are no longer dealing with a highly corrupt UPA government, they are unlikely to forget how a disillusioned Children’s Investment Fund, which owned 1% of CIL equity, finally exited at a loss after trying to get the company to act in the best interest of investors and even threatening to sue the board members. 
 
Finance minister Arun Jaitley’s effort at disinvestment has also been rather poor so far. He provided a Rs60,000-crore disinvestment target in the Budget last year, but managed a pathetic 5% sale in Steel Authority of India Limited (raising Rs1,715 crore) that too to Life Insurance Corporation, another government entity. 
 
The third decision is the announcement of a base price for the sale of 3G spectrum in addition to the earlier announced sale of 2G spectrum. Here, again, the government is expected to raise a substantial chunk of revenue that would go towards bridging down the fiscal deficit, amidst worries that the high price of spectrum will eventually have to be borne by consumers by way of higher telecom charges.

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COMMENTS

vishal

2 years ago

Disinvestment means getting liberty from unions controlling workers in an organisation. Should the Government sell these set ups for this reason or for making money to cover their expenses or loss? A larger fight is on the card between labour force, unions and Government in the future. The road to capitalism in a country like India will see many upheavals.

Dr Anantha K Ramdas

2 years ago

We must remember that we are a sovereign, socialistic democratic republic, which is why, in the beginning, Pandit Nehru got away with a lot government spending in huge projects. In a way, at that time, he was right, and a lot of things have happened in the last six decades.

It is time for government to govern and withdraw active involvement in business. By all means, in certain areas like defence and nuclear related matters, if the government wants to hold control, they should, but rest should be in public hands like in most other democratic countries.

Take the case of Coal India disinvestment. Who bought the major lot? LIC, which is another govt organization. NDA must set out a time frame and start getting out of biz in the next 4 years; hand over the reins of biz to enterprising Indian companies and let the public enjoy the benefit.

They should also do the same with other indirectly controlled organizations like the Banking sector. In any case, what we have been doing in the last 60 years cannot be undone in 4 or 10 years, assuming BJP (NDA) comes to power for a second term.

Given the time frame, they are likely to succeed and deliver the goods to the Indian masses.

Suketu Shah

2 years ago

A Basic fact that cannot be overlooked is that BJP has inherited deep rooted mess of the economy from the Congress.I wonder what Chidambaram did for disinvestment.

Suketu Shah

2 years ago

Coal India is full of corruption.Best to get out of such organisations and sell to private as no way you can get corruption out.Mr Jaitly has only got started although a little late.Let us see what he achieves in terms of disinvestment before 31 March 2015.

REPLY

Gupta

In Reply to Suketu Shah 2 years ago

You are absolutely right. Government should not be running mining businesses. Mining companies specialising in this would do a far better job with much lower cost if the corruption and labour lobbies of CIL were broken down. The challenge is how do you break the labour lobbies, who gang up to strike for anything and everything. Remember how many years it took to corporatize BSNL in the Vajpayee era for the same labour issues. By the time, they cajoled everyone and set it up for sale, the govt had changed and since then, everyone knows how BSNL has performed. VSNL was a smaller organisation and hence they got rid of the dead wood. But how do you deal with something as critical as CIL, whose employees can hold the 125 crore people to ransom by threatening to switch off the power unless all their demands are met!

Suketu Shah

In Reply to Gupta 2 years ago

Even in Coal India where govt got Rs 22500 crores more than 50% of the disinvestment was from non LIC investors which shows the confidence people have in disinvestment.

People forget how much harm, Congress did in the last 10 yrs.Chidambaram was most hated when he went to fool the Americans in June 2013.How Modi and Co have changed things around in 9 months is amazing and they have only got started.Wait and watch how much govt wl eran on 3/4 March auctioing spectrum deals.Modi govt is 100% on the right track and no criticism against them is worth reading.

vishal

In Reply to Gupta 2 years ago

You can not blame employees as they are concerned with their daily bread and they can not antagonize unions. This I have seen in Banks, Insurance etc. In Chennai, in Neyveli, I have seen contract workers beaten mercilessly when they tried go and work in office during strike period.

De-listing Outpaces Listings
SEBI and ministry of finance remain in their own world, as an important indicator of the spread of equity cult sputters
 
If the disinvestment of shares in public sector undertakings (PSUs) is a part of the Modi government’s grand plan to bridge the fiscal deficit over the next few years, it needs to pay serious attention to markets. Moneylife has repeatedly pointed out that India’s retail investor population has halved in the 25 years when the capital market has been under the watch of an independent regulator. Things are worse for companies. They have to deal with mindless tinkering with disclosure and reporting rules, onerously impractical responsibilities dumped on independent directors and draconian punishments prescribed through amendments to the SEBI (Securities & Exchange Board of India) Act and the Companies Act, 2013. No wonder, as pointed out by a report on 20th January in the Business Standard, the number of companies that have de-listed from the bourses outpaces new listings. 
 
The numbers are worrying. Prime Database has pointed out that only 15 companies have been listed on the bourses since 2012, while nearly thrice the number (42) have de-listed. Essentially, any company that can access private money does not want to go through the rigour of mindless and costly compliance. 
 
This is bad news for ordinary retail investors who, ever since the FERA dilution of the 1970s and the Reliance-led equity cult of the 1980s, had gained significantly by investing in initial public offerings (IPOs) of blue-chip companies and staying invested for the long term. Ironically, the equity cult ended in the early 1990s because the government unleashed thousands of fly-by-night companies on the market when it scrapped the office of the Controller of Capital Issues (CCI) and replaced it with SEBI without putting in place any check or verification of companies, their promoters or business plans. 
 
The past 25 years have been spent on making impractical rules rather than making the markets free from dubious corporate behaviour and stock manipulation. Consequently, despite the euphoric, eight-month rally after Narendra Modi took charge as prime minister, the primary market remains dead and the average, long-term, retail investor remains out in the cold.

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COMMENTS

KAVIRAJ B PATIL

2 years ago

When reputed promoters like Ambanis give investors a rotten egg like "Reliance Power", what else will investors do other than exit from the markets? You also have a company called Datar Switchgear, that around the year 2001 or so declared a 1:1 bonus and then shortly thereafter disappeared. You also have a promoter who was given a banking licence. Luckily, for the public, before this crook could establish the bank, he was caught in an over Rs.600 crore scam. Then, we have a company called Uniscans and Sonics which vanished. But, some years later, we saw the promoter of this company, boasting about his capability, on the famous Tehelka sting which cost Bangaru Laxman his party presidentship.

NGO Clean Up Needed
Pathetic reporting of NGOs should be a wake-up call
 
Many in the NGO sector believe that the government has unleashed a witch-hunt of sorts against them. A few big NGOs, who receive a flood of foreign exchange every year, are being questioned about its utilisation. This has opened up a Pandora’s Box. What has emerged is a monumental mess with a majority of NGOs failing to prepare even their annual reports. 
 
In a case before the Supreme Court of India (pertaining to alleged embezzlement of funds by NGOs), CBI has said that out of 23,95,579 NGOs in 21 states, some 2,43,955 had filed their balance sheets with the authorities. That is, just over 10% of the NGOs are complying with this basic requirement. In the seven Union Territories, of the 73,213 NGOs, only 50 have submitted their returns. 
 
While it is interesting that the every state is providing details of NGOs and their ‘alleged’ non-compliance, what about the government departments responsible for regulation? Most NGOs will tell you that the charity commissioner and trust offices are terribly overloaded so that simple filings and ‘change reports’ take months, and even years, to be recorded officially. Also, reporting systems are still in the stone-age. Manual registers and processes continue to be mandatory. Nobody bothers to check compliance except when an NGO is being harassed as part of an inquiry. Compliance with reporting requirements consumes a big chunk of an NGO’s time, cost and resources.
 
If the government really wants to clean up the NGO sector, then prime minister Narendra Modi’s promise of minimal governance—simple online reporting requirements and less harassment—is imperative. 

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COMMENTS

Navroze Havewala null

2 years ago

One of the most corrupt departments of the Maharashtra Government is the Charity Commissioner.
Some people get away with loot of thousands of crores, and honest, charitable folk are harassed.
The officers have no respect for legality, because there is no punishment if an order is reversed in a higher court.

Girish Mittal

2 years ago

I agree compliance take lot of time of volunteer driven NGOs. We give our time, money and talent to provide solutions to people where govt has failed. We need to make life easier for people...everywhere..Corporate, NGO, Individual etc...

Meenal Mamdani

2 years ago

In USA, if a NGO income is less than $25 thousand in a year, all it has to do is file a brief statement online, called a e-postcard.
Similarly, NGO files a short form every year to indicate it is still active, the names and addresses of the directors and a fee of $5 with it takes care of the regulatory requirements.
The Charity Commissioner's office must be brought into the digital age as soon as possible.
If they don't have the (wo)man power, I am sure that they will get many volunteers to help them digitize their records.

Narendra Doshi

2 years ago

Yes, Sucheta you are right. This must see the light of the day sooner than later.

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