(Image Courtesy mea.gov.in)

 

 

“If a location lags for multiple reasons that reinforce one another, a simple tax incentive package is unlikely to attract private investment as intended. It may be more effective to improve its connectivity to major markets and support skills development and industries such as agro-processing and labour-intensive manufacturing”.

This observation made last week by Asian Development Bank (ADB)’s Asian Development Outlook Update is welcome. It should turn focus on the limitation of corporate tax cut (CTC) announced by India. The Government should discuss publicly limited role of direct and indirect taxes in attracting investment and its trade-off with fiscal health of the country.

Let there be a status paper that should factor in non-tax factors that attract or repel investors. The paper should ideally shed light on role of foreign capital in all forms of loans & equity in catalysing growth and jobs creation.  

Prime Minister Narendra Modi marketed CTC as a “very revolutionary step” before multinationals during his recent tour of the United States. CTC might not fire up growth of gross domestic product (GDP). It might not ramp up significantly capital formation. 

Existing companies might well pass off CTC-induced surplus profit as higher dividend to shareholders. The companies might finance shares buyback with such surplus instead of ploughing back in greenfield projects and thus enhance lengthen the chain of CTC benefit flow.

CTC has not been accompanied by reduction or withdrawal of existing tax incentives. This is a departure from the original plan to phase out tax incentives and reduce corporation tax. The regulation & management of direct taxes regime is thus set to become complicated.

Businessmen are shrewd. They would prefer to wait and watch for announcement and interpretation of CTC rules by Income Tax Department (ITD). If CTC benefit is protected statutorily for new manufacturing projects for 15 years period, then they might feel assured to make new investments. 

(Image Courtesy: taxindiaonline.com)

 

“If I were to say that on the strength of these conversations, many and long, I pretend to know all about India, I should be foolish. I do not dogmatise. The man who dogmatises at all is not, I suspect, the wisest of men. But the man who dogmatises about India — and I throw this out for this afternoon's discussion—is a pure simpleton”, stated Lord John Morley.

Lord Morley said this as Secretary of State for India while presenting Indian Budget for 1906 in the House of Commons. His speech is relevant to existing Indian economic slowdown. This is because Modi Government’s dogmatic reiteration of ‘Strong Fundamentals’ as its defence against any economic criticism has contributed to the situation.

Reiteration of this mantra became more emphatic since 2017 when many stakeholders talked of adverse impact created by demonetisation. And ‘Strong Fundamentals’ were invoked by Minister for Information & Broadcasting Prakash Javadekar last week while releasing report card on 100 days of Modi Government’s 2nd tenure.  

Lord Morley’s wisdom require more recall as he presented a surplus budget. In that he proposed further cut in salt tax to enhance purchasing power of citizens. He admitted cost of governance was high when he talked about “fiscal reforms”. Yes, he used the term ‘fiscal reforms’ for colonized India way back in 1906! 

The key to resolving present economic crisis thus lies in first defining it comprehensively by invoking Lord Morley’s speech. He said: “I have heard a thousand times that India is an insoluble problem. Well, the man who runs away from problems called ‘insoluble’ is not fit for politics. I have generally found that what is called an insoluble problem is after all a problem wrongly stated”.

The first step in grappling with economic slowdown and resulting jobs losses is to admit that a grave problem exists. It is certainly not a temporary one as claimed by Prime Minister Narendra Modi. Unemployment & layoffs won’t disappear with Labour Minister Santosh Gangwar’s claim that there is no jobs crisis. 

“Netaji Bose would be extremely concerned at the state of affairs in India today”, stated Narendra Modi as Gujarat Chief Minister on 6th July 2012. He was speaking at a function in Ahmedabad to mark foundation of Azad Hind Fauz.

Netaji would indeed be worried at political half-heartedness in grappling with population explosion (PE). It is an issue that perturbed him. As President of Congress Party, he minced no words in identifying as PE as the country’s foremost challenge.

Addressing 51st Congress Session at Haripura in Gujarat on 19th February 1938, Subhas Chandra Bose said: “With regard to the long-period programme for a free India, the first problem to tackle is that of our increasing population”.

He stated: “I simply want to point out that where poverty, starvation and disease are stalking the land, we cannot afford to have our population mounting up by thirty million during a single decade.  If the population goes up by leaps and bounds, as it has done in the recent past, our plans are likely to fall through”.  

He added: “It is not necessary at this stage to prescribe the methods that should be adopted to prevent a further increase in population but I would urge that public attention be drawn to this question”. 

If pre-partition India added 30 million to its population in 1930s in 10 years, post-partition India added 370 million in 18.5 years since 2000, a rate 20 times the one that rattled Netaji.