Monday, 16 July 2012

It’s time for a general amnesty to revive the economy (Sunday Guardian)

New Delhi | 15th Jul

ixated as they are on making themselves and their friends and relatives as rich as possible during the time that they hold high office, it is scant wonder that policymakers in India come up with nostrums that are not simply ineffective but harmful to health. Out of numerous examples, a single one would suffice to show the way policy gets made that hurts Indian interests. For years — decades — it was difficult for foreign investors to place their money in infrastructure schemes, including housing. However, investing in the share market (and being able to take out the funds plus profits) is easy. The consequence is that most of the so-called "foreign investment" coming to India comprises of money that can easily be taken away. On the other hand, it would be a trifle difficult to relocate a housing complex or a highway to another country. Funds poured into infrastructure would remain within the country, no matter what the economic conditions are. Which is why such investment ought to have been given preference over others that are less stable, rather than banned altogether. While it is fashionable these days within Yojana Bhavan and North Block to mutter about Mamata Didi whenever there is talk about dysfunctional policies, the reality is that Sonia Gandhi and her hand-picked team have done far more damage to the economy that Mamata ever has or could. She can have the satisfaction of knowing that two of her favourite destinations, the European Union and China, need no longer have any fear of competition from the Indian corporate sector. This has been comprehensively neutered by policies initiated by Palaniappan Chidambaram/Yaga Reddy (the previous Finance Ministry-RBI duo) and continued by Pranab Mukherjee/Duvvuri Subbarao.
It took a while for most to understand the extent of the damage that was being caused to the economy by the dirigiste policies of Chidambaram et al. Babus love to constantly add on to the rules and regulations confining businesses to a low-level trajectory. The more there are of such, the greater the opportunity for bribes. Since 2004, the Indian bureaucracy has never had it so good. Even as the economy is winding down, the unaccounted incomes of the 20% of officialdom that is dishonest have ballooned greater than the fiscal deficit. If pricey restaurants are still doing good business, it is because of the wads of currency in the hands of those close to politicians and bureaucrats. Those unfortunates who are honest find themselves in a losing battle with price rise, with disposable incomes dwindling to zero long before the end of each month.
Pranab's term was defined by as his efforts at getting Vodafone to pony up taxes on its purchase of Hutchison Whampoa's shares. The problem is that it is Li Ka-shing who ought to pay the tax, not Vodafone, and hopefully the Government of India will initiate legal action against the Hong Kong-based magnate in an effort to get its dues. To tax the buyer when it is the seller that made the windfall profit flies in the face of common sense. Of course, the probability that Li Ka-shing will pay out even a rupee is low, but filing recovery suits across the globe is the minimum needed to show that India is not a country whose interests can be trampled upon with impunity, no matter that such a perception would be entirely contrary to the fact that it most certainly is, and has been since winning freedom in 1947. Another action of Pranab's that cries out for review is his alleged agreement with the Swiss authorities, that made disclosure prospective rather than retrospective.
Again going by press reports, the former Finance Minister and future President of India seems to have worked out an amnesty scheme for those whose illicit overseas accounts have been discovered. His successors need to broaden the scope of such an amnesty to include any individual willing to send back his or her illicit holdings, after paying a 20% tax on it as well as placing 30% of it in India Development Bonds. If Manmohan Singh truly wants "animal spirits" to return to the economy, the only way this is possible is by such a general amnesty.

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