SPONSORED BY

Auto Segment
Mutual Fund Segment
My Budget
Expert Speak
In Association With
 
Business Standard

T N Ninan: Limits of arbitrariness

The exercise of sovereign power is limited only by what you can get away with

Related News

The exercise of sovereign power (like taxation) is limited only by what you can get away with. steals the of virtually every company that invests in that country, and most of the companies just grin and bear it; the Chinese market is too attractive to boycott it in protest. China also indulges in large-scale hacking of computer networks around the world, it forces content companies ranging from to Rupert Murdoch’s to play ball on censorship, and it has a beggar-thy-neighbour stance on currency policy.

Why? Because it can get away with it, just as western countries undertook gunboat diplomacy and forced opium on China in another age and got away with it, and in the current era launches unprovoked aggression on countries deemed to be out of favour (without, however, the success ratio that gunboat diplomacy achieved). Switzerland has prospered for decades on the back of money stolen from the poorest countries, and has got away with it too. So when western opinion is drummed up against India making retrospective changes to its tax laws, the operative question is not the supposedly moral one of right and wrong — and not just because many “respectable” countries make retrospective tax changes too. Rather, it is how India thinks it will get away with it.

The hard fact is that India needs foreign money, so it has to hang out a welcome sign and treat with respect what comes in. In the last few years, while imports have doubled, the country’s have remained where they were, even as short-term debt has grown and the trade deficit ballooned to record levels. At the same time, the Indian economic story has begun to unravel a bit, so foreign investment is more skittish. Therefore, the problem with the Vodafone clause is not that the Budget perversely proposes a retrospective change in law that is specifically designed to overturn a Supreme Court judgment; after all, the moral argument is quite easily made that when an international company makes a handsome profit in the Indian market, it should pay some tax and not hide behind funny-money countries. There could even be a view that the Supreme Court was mistaken in its opinion, and that the Bombay High Court had got it right earlier. But these are no more than matters of academic debate. The problem with the Vodafone clause is not any of this, but quite simply that it ignores the country’s current position on the external account, and the need to sustain capital inflows. That is why the government should let the matter drop, and not pick a fight.

Our dual standards also need a re-look. The more developed countries – their governments and their companies – have no problem in playing by dual rules: straight ones for their citizens and home markets, and more dubious ones overseas (“When in Rome, do as Romans do”). India has the opposite approach: it deals with its own citizens in very dubious ways, but tries to play by the rules internationally! So the government has got used to making retrospective changes to tax laws, harassing taxpayers with absurd orders and extracting illegal pounds of flesh because citizens cannot drag it to international arbitration, as Vodafone has done. As the country has gained in economic heft, the government seems to have acquired the confidence to treat international business as badly as it treats domestic firms. If in doubt, ask and Qualcomm. Would it be too much to ask that, as India becomes a more “developed” economy, it adopt the best international standards for dealing with its own citizens, and not do it the other way round?

Read more on:   
|
|
|
|
|
|
|
|
|

Read More

Hugo Dixon: Not banking on union

These questions are raised by the increasingly lively debate over how to break the link between troubled states in the euro zone periphery and their ...

Recommended for you

Most Popular Columns

Arvind Subramanian

Arvind Subramanian: Moving towards the fiscal target
Arvind Subramanian

Chief Economic Adviser explains the Budget in an exclusive article

Sunita Narain

Sunita Narain: Decoding the Budget's 'carbon tax'
Sunita Narain

The coal cess has to be used to provide the biggest climate-change game changer for India - to provide affordable and clean power to the millions who ...

Mihir S Sharma

Mihir S Sharma: Small-bang Budget
Mihir S Sharma

Behind the smiles, the deep disappointment

Advertisement

Columnists

Sreenivasan Jain

Sreenivasan Jain: The noise around the land acquisition law
Sreenivasan Jain

The debate over the land ordinance is best located in facts, not hyperbole

Ajai Shukla

Ajai Shukla: Needed - defence budgeting structures
Ajai Shukla

Imaginative budgeting requires a top-down approach, where strategic demands determine procurement priorities

Martin Feldstein

Martin Feldstein: The deflation bogeyman
Martin Feldstein

Sharp decline in energy prices is the primary reason for the recent drop in the inflation rate

Back to Top