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Govt-industry partnership needs a boost

The untimely demise of coffee tycoon VG Siddhartha has spread gloom in corporate circles and sparked a debate over the government’s attitude towards the industry.

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Sushma Ramachandran
Senior journalist

The untimely demise of coffee tycoon VG Siddhartha has spread gloom in corporate circles and sparked a debate over the government’s attitude towards the industry. This has become more heated with amendments being made to the corporate social responsibility law in Parliament recently. It has even fanned fears that India is back to the days of licence raj and tight regulations. And despite the government’s claims of trying to clean up the system, political and bureaucratic corruption has only increased in the past whenever regulatory systems have been made more rigorous. Thus, instead of enabling easier growth of business, the environment is becoming more cumbersome. This is ironical for a regime that in its earlier avatar — Modi 1.0 — claimed to be leaping ahead on the global Ease of Doing Business index.

The charge of tax terrorism has also been repeatedly levelled against the Finance Ministry over the past five years. Efforts have, no doubt, been made to remove any such impression by trying to focus on the big taxpayers and increasingly give smaller taxpayers relief by letting them file returns online. But the mandarins of the Income Tax Department seem to have had their way in imposing new taxes, like the angel tax on start-ups which has now finally been altered, in a relief to those affected. Smaller companies are finding that online systems are often disabled by income tax officials, forcing them to go for physical interactions with them in metros like Mumbai. Finance ministers in the Modi regime have not been able to push back against the arguments of the income tax officials seeking higher revenues by taking stringent action against individual and corporate taxpayers. The net result has been frequent rollbacks on decisions after public outcry, such as in the case of the angel tax and complex tax return filing forms. The latest tax on the super-rich may not have been rolled back, but hints are being given about a partial review, given the impact on foreign portfolio investors.

As for the new penal provisions for not utilising corporate social responsibility funds in time, Finance Minister Nirmala Sitharaman has clarified that these will not be invoked. But the question remains as to the reason for introducing these in the first place. One can only presume there is a segment of policymakers who feel the need to punish rather than reward industry for its performance. In the past, such punitive measures and complex regulations went hand in hand with crony capitalism and corruption, so the second question is whether we going to see a concomitant rise in the levels of venality in this government.

The answer to the first question is a mystery. But such provisions are worrying developments as they imply that corporates do not carry out social responsibilities (CSR). The primary responsibility of an industry is to make profits and provide jobs. That is, in fact, what the Modi government should be seeking from them. The CSR provision, introduced by the UPA regime, was redundant in the first place since there is a long tradition of philanthropy in this country, right from Jamsetjee Jejeebhoy to Tatas, Birlas, and Goenkas. Not to mention new millionaires like Shiv Nadar and Azim Premji whose contributions to education and social uplift in this country have been phenomenal. In fact, the value of a company should be measured by its successful operations. Philanthropy should be a voluntary enterprise. And the lack of it should not lead to punitive action. In fact, perhaps, such action is needed against those who formulate bizarre proposals. 

But the answer to the second question should hopefully be a negative one since there have clearly been sincere efforts to try and reduce the interface between the public and governmental agencies. The digitisation of services has been one of the firm achievements of the Modi government over the past five years. At the same time, as mentioned earlier, these can come to naught when officials are given the authority to disable online systems. The Finance Minister’s latest directive to taxmen to avoid physically meeting taxpayers is encouraging. But such issues need to be reviewed at the micro level so that harassment is eliminated at all levels of the taxation regime. The interests of revenue collection should not become an obstacle to the growth of trade and industry.

Some lessons should have been learnt from past cases, like the closure of the Nokia plant in Tamil Nadu in 2014 owing to a tax dispute leading to thousands losing their jobs.  Owing to the dispute, it was left out of Microsoft’s takeover of Nokia and this, in turn, ultimately led to its closure.

While the industry can take heart from the fact that the Finance Minister is now having a dialogue with industry, it will have to be seen whether the outcome is positive in terms of bringing about an enabling environment for growth. The initial impetus in bringing about a reduction in red tape and bureaucracy that was promised by Modi 1.0 seems to have been completely forgotten in this second term. It is only in a recent statement that Prime Minister Modi is again talking about India’s ranking in the global Ease of Doing Business index.

It is time to bring back the fervour of trying to revive the economy that imbued policymakers in the first Modi administration. There was a drive to reverse the policy paralysis of UPA-2 and kickstart the economy. With the economy currently in a slump, it is high time the government enters into a partnership with the industry to bring it out onto a higher growth path instead of embarking on an antagonistic relationship with corporates.  

PM Modi has taken the first step by calling for respect to be given to wealth creators in his Independence Day speech. But more needs to be done to imbue a sense of confidence in the industry so that the desperately needed investments are made to revive the animal spirits of the economy.

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