Jan 15, 2013

GAAR Deferred. Investors, stock markets, industry and media celebrate the induction of black money. Is India really against corruption?

Some years back, I was sitting with some family friends. For some reason, the topic of discussion shifted to henpecked husbands. The ladies were telling how bad they feel when they see a henpecked husband. While it was interesting to hear what each one had to say I was particularly amused to hear when one of them said: "I certainly don't like to see henpecked husbands, but I wouldn't mind if my own husband is henpecked." Everyone laughed.

When I see the nation's anger over corruption, I am reminded of that evening. Swami Ramdev and Anna Hazare have led from the front. The movement against corruption, the way it has mobilised the masses, certainly remains unprecedented in India's history. Everyone points a finger at other's corruption, the favourite whipping boy of course being the politicians. Commonwealth Games, 2G scam, Coalgate and everything else points to the politicians. But sometimes I wonder whether we are willing to look inwards, to see and evaluate how corrupt we are as individuals? 

The same holds true for the business and industry, the foundation of India's growth story. Have India Inc every turned the mirror inwards to see how corrupt it is? Or like the lady the other evening, India Inc can't tolerate political corruption, but doesn't mind its own corruption?       

The decision by Finance Ministry to defer the introduction of GAAR rules provided me the answer. The Indian business and industry, and I am including FII and FDIs, have no problem when it comes to their own dirty money. "The finance minister's resolve to put the economic reforms process back on track by announcing drastic changes to the controversial General Anti-Avoidance Rules (GAAR) was cheered by Dalal Street on Monday, with the Sensex and Nifty both rallying to two year peak." This is how the Times of India begins its report (Sensex hits 2-year high, eyes 20k, TOI, Jan 15, 2013) on the jubilation over the Finance Ministry's decision to defer the implementation of GARR to April 2016.

Now, hold on. Before you think this is a subject that doesn't concern you, it is time to do a reality check. The Hindustan Times says: "The GAAR provisions, put forward in the budget for 2012-13, triggers howls of protest from global and domestic business leaders as it can potentially affect almost anybody, and everybody (Tax-Avoidance rules delayed by 2 years, Jan 15, 2013)." It then goes on to tell you how you can be impacted. "For instance, many companies, experts had said, would have been forced to restructure salaries of employees if taxmen concluded that these were structured only to avoid taxes." 

In simple words, the market experts have created a fear psychosis. They have warned you to keep quiet since your job too is at stake. So that you too can become a willing party to corruption. 

Only a few months back, and it wasn't long, when India had witnessed what many called as people's rising over mammoth corruption. Some even likened it to Arab Spring. Anna Hazare became the torch-bearer of the fight against rampant corruption. Everyone joined to point an accusing finger at the political system, holding it primarily responsible for prevailing corruption. If this was really true,  I don't understand how could everyone now turn a blind eye to the Finance Ministry's controversial decision to provide a legal route for dirty money to flow in through the Mauritius route. 

GAAR, introduced in Budget 2012-13 by the then Finance Minister Pranab Mukherjee with the aim of checking tax avoidance, was to come into effect from April 1, 2014. 

Since nearly 40 per cent of the FII investments come through the tax haven route of Mauritius (as part of a treaty signed earlier), it clearly shows how the flow of black money has been formally allowed in the name of economic reforms. The next obvious question therefore: Is India's growth story based on black money? Is India's economic reforms actually driven by corrupt practices? If not, then how come the chairperson of the Federation of Indian Chambers of Commerce and Industry (FICCI) Naina Kidawi be very proudly welcoming the decision saying that the industry needs this investment at this critical juncture. Does it therefore mean that India Inc is growing on tainted money? Not only the FICCI chief, I am shocked that every other economic writer and (of course the newspapers/TV channels) and industry leader are visibly excited. There is a sense of relief over the continuation of corrupt practices. Sensex and Nifty have have already cheered the induction of more black money in the economy.

At a time when globally the sentiment is for improving governance and transparency, how can India Inc justify the continuation of corrupt practices in the name of economic reforms? Isn't GAAR a set of rules to check how FIIs are evading taxes? Will it not help to weed out black money that some FIIs bring? How can any sensible economist or a market analyst support the postponing of GAAR rules? Does it not mean that corruption runs deep in this country, afflicting the rich and the powerful more than anyone else? And business as usual, (which means continuing with corrupt business activities) is what the rich and the super-rich want?  

So the next time you rally against corruption, don't only blame the politicians and the government. Be bold to point an accusing finger at Indian business and industry, market analysts, and also the media. 

That brings me to the moot question. Is India really against corruption? #

Additional reading: Tainted money, Deccan Herald. 

3 comments:

Harsh Kanchan said...

Nice writeup. I also had the same reaction as you when I came to know about the deferment of gaar.

Vivek Sharma said...

Great article sir. Following are my trivial comments.
1. Liked the way you fearlessly criticized all the so called estates of our nation including media (whom's intentions now a days can easily be suspected on very rational basis).
2. You rightly questioned our failure as a nation and as people in pushing an already very well ignited movement (by Anna and Ramdev)to a fine finish. I think the reason is that the great Hindustani motor in our times is trying to start. Anna pulled the lever and it sounded Brrrrrrrrrr then Ramdev pulled the lever and it again sounded Brrrrrrrrrr. So, I think we need very continuous efforts towards public awakening to start it completely.
3. Reading a critique of intentions and role of business and media houses is rare. I think this trend must keep going on. Especially the political and financial interests of media houses must be studied and strongly criticized as now a days media houses have become more blunt about expressing their ideological leanings and less concerned in putting the popular opinion.
You raised lots of questions. Answers for these questions are quite simple but the ambience in which we are, is really difficult. As it’s quite easy to drive but obviously it’s hard to drive in thick fog. The political ambience of our nation right now is really foggy, very foggy. But as the great line of Andy from Frank Darabont’s 1994 super hit “Shawshank Redemption” goes. “Hope my friend is a good thing”. Keep believing.

Vivek Sharma said...

Great article sir. Following are my trivial comments.
1. Liked the way you fearlessly criticized all the so called estates of our nation including media (whom's intentions now a days can easily be suspected on very rational basis).
2. You rightly questioned our failure as a nation and as people in pushing an already very well ignited movement (by Anna and Ramdev)to a fine finish. I think the reason is that the great Hindustani motor in our times is trying to start. Anna pulled the lever and it sounded Brrrrrrrrrr then Ramdev pulled the lever and it again sounded Brrrrrrrrrr. So, I think we need very continuous efforts towards public awakening to start it completely.
3. Reading a critique of intentions and role of business and media houses is rare. I think this trend must keep going on. Especially the political and financial interests of media houses must be studied and strongly criticized as now a days media houses have become more blunt about expressing their ideological leanings and less concerned in putting the popular opinion.
You raised lots of questions. Answers for these questions are quite simple but the ambience in which we are, is really difficult. As it’s quite easy to drive but obviously it’s hard to drive in thick fog. The political ambience of our nation right now is really foggy, very foggy. But as the great line of Andy from Frank Darabont’s 1994 super hit “Shawshank Redemption” goes. “Hope my friend is a good thing”. Keep believing.