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Three Cheers to Three Policies
Sucheta Dalal 03 February 2015

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.
Comments
vishal
1 decade 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.
Reply
Dr Anantha K Ramdas
1 decade 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.
Reply
Suketu Shah
1 decade 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.
Reply
Suketu Shah
1 decade 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
Replied to Suketu Shah comment 1 decade 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!
Reply
Suketu Shah
Replied to Gupta comment 1 decade 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.
Reply
vishal
Replied to Gupta comment 1 decade 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.
Reply
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