Business Standard

T N Ninan: The arbitrary state

We now have a state that creates new rules as it finds convenient, and then enforces them as arbitrarily as it wishes

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Most people are justly worried about the downtrend recorded by virtually every economic indicator: exports, industrial production, the rupee, the stock market index, economic growth itself. The only things that seem to be going up are inflation, the trade gap and the fiscal deficit. There is also reason to worry about whether the government is up to the challenge, or even reading the situation correctly. What began as nine per cent growth last year ended up at less than seven per cent. This year’s target of 7.6 per cent is likely to meet a similar fate. More arresting is the fact that the finance minister has twice used the word “panic” in the last few weeks. First, in late April when Standard & Poor’s said it was putting India on “negative” watch, Mr Mukherjee said there was no need to panic — which was odd, because no one panics just because you are moved from “stable” to “negative” outlook, while the rating itself remains unchanged in investment grade. The second time was earlier this week; Mr Mukherjee said he would be announcing austerity measures, but there was no reason to panic. Since no one can possibly panic at the anaemic measures that have now been announced, such statements on panic invite the auto-suggestion that they might reflect the finance minister’s own state of mind. Although the government has given every impression of being clueless when it comes to dealing with the steadily worsening macroeconomic situation, no one would have thought that it is actually losing nerve. The very thought undermines confidence.

While all this is reason for furrowed brows, there is something more insidious to worry about, which is the return of the arbitrary, predatory state. is likely to sweep the forthcoming by-elections in Andhra Pradesh, trouncing the (panicky?) Congress; so the Central Bureau of Investigation seizes the bank accounts of his newspaper, which sells 1.4 million copies daily, and attaches his properties. In the last few days of March, tax officials who were falling short on their revenue collection targets descended on companies across the country and asked for arbitrary sums to be deposited as tax, failing which their financial officers would be taken in for questioning. Asked how he responded to the threat, a businessman known for his integrity said: “When a mad dog comes to bite you, you don’t bite back because you will get rabies.” In other words, he paid up.

Enough and more has been written on retrospective changes to the tax law, an issue on which Vodafone is not the first victim and won’t be the last. Especially since tax cases can now be reopened going back 16 years (have you retained all your financial records for 1996?). Meanwhile, the telecom regulator decides one fine day that spectrum charges should be raised 10-fold, at a time when phone operators’ margins are under pressure. And the minister for human resource development thinks that cartoons in textbooks will damage impressionable young minds, so they must all be banned. The West Bengal chief minister goes one worse, because her cohorts go after someone who merely circulated a cartoon.

Pause for a moment to see how far we have moved from the ideal that seemed feasible when reforms were still talked about in the present tense: a rule-bound state that respects laws and enforces them impartially. We now have a state that creates new rules as it finds convenient, and then enforces them as arbitrarily as it wishes. Just what is it about our rulers that makes them think they can get away with this?

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T N Ninan: The arbitrary state

We now have a state that creates new rules as it finds convenient, and then enforces them as arbitrarily as it wishes

Most people are justly worried about the downtrend recorded by virtually every economic indicator: exports, industrial production, the rupee, the stock market index, economic growth itself. The only things that seem to be going up are inflation, the trade gap and the fiscal deficit. There is also reason to worry about whether the government is up to the challenge, or even reading the situation correctly. What began as nine per cent growth last year ended up at less than seven per cent.

Most people are justly worried about the downtrend recorded by virtually every economic indicator: exports, industrial production, the rupee, the stock market index, economic growth itself. The only things that seem to be going up are inflation, the trade gap and the fiscal deficit. There is also reason to worry about whether the government is up to the challenge, or even reading the situation correctly. What began as nine per cent growth last year ended up at less than seven per cent. This year’s target of 7.6 per cent is likely to meet a similar fate. More arresting is the fact that the finance minister has twice used the word “panic” in the last few weeks. First, in late April when Standard & Poor’s said it was putting India on “negative” watch, Mr Mukherjee said there was no need to panic — which was odd, because no one panics just because you are moved from “stable” to “negative” outlook, while the rating itself remains unchanged in investment grade. The second time was earlier this week; Mr Mukherjee said he would be announcing austerity measures, but there was no reason to panic. Since no one can possibly panic at the anaemic measures that have now been announced, such statements on panic invite the auto-suggestion that they might reflect the finance minister’s own state of mind. Although the government has given every impression of being clueless when it comes to dealing with the steadily worsening macroeconomic situation, no one would have thought that it is actually losing nerve. The very thought undermines confidence.

While all this is reason for furrowed brows, there is something more insidious to worry about, which is the return of the arbitrary, predatory state. is likely to sweep the forthcoming by-elections in Andhra Pradesh, trouncing the (panicky?) Congress; so the Central Bureau of Investigation seizes the bank accounts of his newspaper, which sells 1.4 million copies daily, and attaches his properties. In the last few days of March, tax officials who were falling short on their revenue collection targets descended on companies across the country and asked for arbitrary sums to be deposited as tax, failing which their financial officers would be taken in for questioning. Asked how he responded to the threat, a businessman known for his integrity said: “When a mad dog comes to bite you, you don’t bite back because you will get rabies.” In other words, he paid up.

Enough and more has been written on retrospective changes to the tax law, an issue on which Vodafone is not the first victim and won’t be the last. Especially since tax cases can now be reopened going back 16 years (have you retained all your financial records for 1996?). Meanwhile, the telecom regulator decides one fine day that spectrum charges should be raised 10-fold, at a time when phone operators’ margins are under pressure. And the minister for human resource development thinks that cartoons in textbooks will damage impressionable young minds, so they must all be banned. The West Bengal chief minister goes one worse, because her cohorts go after someone who merely circulated a cartoon.

Pause for a moment to see how far we have moved from the ideal that seemed feasible when reforms were still talked about in the present tense: a rule-bound state that respects laws and enforces them impartially. We now have a state that creates new rules as it finds convenient, and then enforces them as arbitrarily as it wishes. Just what is it about our rulers that makes them think they can get away with this?

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