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.