Just before starting this column, I was reading a chapter titled “Stop It If You Can” from a book by the former Mumbai commissioner of police, Rakesh Maria. He takes us back through some of the most sensational crimes and terror attacks we have faced over the past two decades, with an inside account of the investigation. This chapter lists the wave of serial bomb blasts that ripped across India from 2004 to 2008 -- Ahmedabad, Delhi, Mumbai, Pune, Varanasi, Uttar Pradesh, Karnataka, Assam, Manipur, Tripura, temples, mosques, trains, malls, bus stops, educational institutions, police stations and, most diabolically, hospitals where victims of serial blasts were being rushed. Hundreds of people lost their lives, while thousands of others are still struggling to put their lives together.
This column is not about Mr Maria’s page-turner of a book, Let Me Say It Now, that takes us through some of the most sensational jihadi violence that Mumbai has suffered during his tenure and how he handled it and also the ‘Hindu terror’ angle. Such dastardly attacks had reduced drastically until recent instances of deliberately fomented communal violence. But it got me thinking about how the human mind tends to move on and forget bad times. The same thing happens in all spheres, including economic areas.
We had the global economic crisis in 2008. Although India was less affected, the crisis was an excuse for a hugely corrupt United Progressive Alliance (UPA) to nudge public sector banks (PSBs) to embark on a massive lending spree to crony capitalists, while our national assets—from telecom spectrum to coal mines—and apportioning inflated infrastructure projects. This eventually caused bad loans of PSBs to escalate to Rs10 lakh crore—a cost borne by the exchequer. At the same time, tax terrorism was on the rise. The government dreamt up new ways of transferring the burden of tax collection on to companies and taxpayers through a slew of punitive actions, while at the same time criminalising various statutes. Atrocities against women were also on the rise; the gruesome Nirbhaya rape, finally, broke through public apathy and brought people on the streets and also triggered a movement against corruption, eventually leading to a regime change.
Sense of Déjà Vu
The situation today has no real parallels to that period. But there is a sense of déjà vu in how the ruling coalition seems bent on roiling the country with fear and unrest at a time when it should be fixing a flagging economy and addressing looming unemployment. Hasty new statutes and shoddy implementation of policies with far-reaching impact have added to our economic woes (think of coercive Aadhaar, goods and services tax and, now, the Citizenship Amendment Act or threat to link a flawed Aadhaar with voter cards). The coronavirus threat has further exposed India’s already weak economy to external impact.
The finance minister’s (FM’s) reaction to dire economic news is to rush from one city to another, holding public meetings; but is she listening? A slew of Bills have been cleared or passed by the government in the past two days, to alleviate the pain and friction of doing business; but it come across as band-aid instead of addressing core issues.
Vivad Se Vishwas Bill 2020: This direct tax amnesty statute was rammed through the Lok Sabha on 4th March in the middle of a din over the Delhi riots. The scheme allows a taxpayer to get complete waiver of interest and penalty by paying up the full tax demand by 31 March 2020. Payments are possible until 30 June 2020 with an additional charge. The FM has said there are “4,83,000 direct tax cases pending in various appellate forums” such as commissioner (appeals), income-tax appellate tribunal (ITAT), high courts and the Supreme Court (SC).
A tax dispute arises only when the original demand is so hugely unconscionable that the taxpayer entity finds it worthwhile to incur the cost of litigation. Often, disputes arise because the tax department makes fanciful demands or disallows genuine expenditure to meet collection targets. There is already an element of coercion in implementing the Bill since the tax department has reportedly sent notices
5,627 entities asking them to avail the amnesty. Of these, 1,730 have agreed to pay up.
The Bill may offer true amnesty to those who stuffed bank accounts with demonetised currency in 2016 and are fighting
the tax notices or those in disputes over penny stock manipulation. But large public sector undertakings (PSUs) have disputes that often involve questions of law. Will they be allowed to make independent decisions? Remember, the amnesty has been introduced at a time when corporate and income-tax collections are likely to fall for the first time in two decades, according to a Reuters
Decriminalising Company Law: On 4th March, the Cabinet cleared the Companies (Second Amendment) Bill, 2019, to remove several instances where technical lapses were criminalised, leading to injustice and friction in doing business. This is a positive development. The amendment removed criminality in case of defaults, when there is no element of fraud or larger public interest. Some of the relaxations pertain to spending of 2% of the net profit on corporate social responsibility (CSR) initiatives. This is a shady UPA legacy that was mindlessly criminalised by this government by tying up the process of giving into enormous red-tape reporting requirements, while prescribing jail terms for failing to spend money in a given year.
Importantly, the Bill does really let off fraudsters. The serious frauds investigation office (SFIO) has already been given more teeth, including the power of arrest. It has used its new powers effectively in the Infrastructure Leasing and Financial Services as well as some big cases of wilful default such as promoters of Bhushan Steel. All this is positive, but offsets only some of the red-tape that is smothering those trying to do business honestly in India, while the crooks still get away.
Cooperative Banks: The massive failure of Punjab and Maharashtra Cooperative Bank (PMC Bank) has led to three actions, none of which helps PMC Bank’s depositors. Deposit insurance has been raised from Rs1 lakh to Rs5 lakh (but there is now shift to risk-based premium on their deposits); cooperative banks have been allowed to convert to small finance banks and a new law is proposed to increase the Reserve Bank of India’s (RBI) ambit over the regulation and governance of cooperative banks. It remains to be seen whether this will make a difference, since administrative control of cooperative banks is to remain under the registrar of cooperatives. Meanwhile, it is five months since PMC Bank has been put under an RBI administrator with no sign of revival or resolution. Keeping it in a zombie state, with 120 branches running only for loan recovery and administration, is gobbling up Rs1 crore a day of depositors’ money, in addition to the Rs6,700 crore fraud perpetrated by the Wadhawans of Housing Development and Infrastructure Ltd (HDIL).
Hasty Bank Mergers:
The FM’s announcement that the merger of 10 PSBs to form four new ones will go ahead as proposed from 1 April 2020, seems yet another case of hasty action without adequate preparation
. It will not address the key question of management accountability and independence from political interference. What is the need to push the merger? And in what way do they drive economic growth which ought to be the government’s top priority? One can only hope that another ill-conceived legislation—the Financial Sector Development and Regulation
(Resolution) Bill, 2019 is not pushed through Parliament in the coming days.
A silver lining of sorts is visible in news reports that State Bank of India (SBI) has, finally, been asked to put together a consortium of banks to rescue Yes Bank, if it is unable to find buyers. I had written
about such a move a couple of weeks ago; if all goes according to plan and SBI does not foolishly end up holding the baby, this could be one of the most dramatic moves by the government, provided the finance ministry and the regulators understand the need to facilitate the bailout at a price that investors are willing to pay.
Let us wait and watch which way it goes. The flip side is that inaction will unleash massive chaos once again in the financial sector; there will be a run on India’s fourth largest private bank and wide spectrum of institutional investors, insurance companies and funds will lose money.
Economic revival is not merely about tinkering with policies or interest rates—business needs a sense of peace and stability and confidence that the government is capable of anticipating issues and acting in time, instead of the denial, delay and hasty fixes.