Businessmen In The Well
The BJP-led government and Indian industry seem to be competing with each other in devising harmful policies based on misconceived pride and misdirected protectionism. Both the Prime Minister and the finance minister are reportedly toying with the idea of introducing another voluntary income disclosure scheme. This is part of the strategy to seek the co-operation of the trading and professional classes "�"� both major tax dodgers "�"� which are close to BJP, and also to garner badly needed revenue. Neither of the two seems overly worried about what repeated tax amnesty schemes do to the culture of paying taxes, particularly when the previous one was billed as the last. If this goes on, taxpayers will make an even firmer habit of not paying taxes and wait for the inevitable amnesty scheme. This, in effect, happened when VDIS collections crossed expectations but the income tax revenue target was missed.
Chiming in almost perfectly with this mindset of considering only sectional interests and soft solutions, the new Confederation of Indian Industry president, Rajesh V Shah, has called for an additional customs duty of 5 per cent "�"� over and above the 5 per cent additional customs duty imposed in two stages last year "�"� on all imports, for one year. This is to tide over the difficult situation created for Indian industry by the East Asian currency turmoil and devaluations. Mr Shah has also projected export growth of 15 per cent and admitted that the tariff hike will make the Indian economy more costly.
All these do not fit together. If the Indian economy is to become a more high cost one, then it cannot rapidly pick up on the export front. If Indias major trade competitors have devalued, then the right thing for India to do would be to let its own currency adjust. This would not only bring the government much needed revenue without raising tariffs or the effective level of protection, it would have the additional advantage of boosting exports. Industry is happy to suggest a protectionist solution to its problems, riding piggyback on the false notion of linking national pride to the exchange rate, because it does not care to export and knows full well how uncompetitive many of its products are.
Another curious position of the CII president is that domestic companies needed help to protect themselves from foreign tak-eovers. This is quite disingenuous as a foreign takeover will almost inevitably need the inflow of foreign funds. The FIPB, whi-ch is the doorkeeper for this, will not allow in such funds for acquisition in a company unless it has the approval of the board. The only major instance where a foreign majority-owned company sought to acquire a substantial stake in an Indian company was the ICI bid to acquire a stake in Asian Paints. ICI would not have been able to embark upon this course had not one of the promoter families voluntarily decided to sell its stake. In any case, the matter is still with the FIPB.
Mr Shah has justified his position by explaining that Indian promoters have built up their companies over decades. True, but under conditions of little domestic or foreign competition, eliminated by licensing and the highest tariffs in the world. This led to their manufacturing some of the costliest and shoddiest of products. What future there is for such a mindset in an economic system which is increasingly globalising is difficult to see.