Reserve Bank of India (RBI) in its annual report has cited that in 2020, global output recorded steepest contraction since the Great Depression of 1929. Indian economy is also facing challenges and reports suggest that GDP in FY 22 will be more or less at a similar level as FY 20. Governments across the world are facing unprecedented crisis and the challenge of getting the economy back on track is taking a toll on fiscal deficit targets due to decline in revenue collection and increased public expenditure.
Agility and responsiveness were the hallmark of Narendra Modi’s first regime. Government’s actions were directed towards achievement of stated objectives and there was a sense that the entire machinery is following the chain of command. However, it appears that Modi 2.0 is coming short on these aspects.
A government’s primary job is to implement a conducive regulatory framework, monitor the implementation and outcomes, and make necessary changes whenever required. The first five years of the NDA government are credited with bringing out major structural reforms but monitoring the outcomes of these reforms and alignment of the legislation with the external developments are missing. Goods and Services Tax or GST is the biggest ever indirect tax reform in this country, but it has been plagued by inefficient technological platform even after more than four years of its rollout. Plethora of notifications has made it a complex taxation regime and even chief economic adviser has admitted that some rationalisation is required. GST is broken and it needs to be fixed.
Same story holds for income tax, where the government announced well-intended initiatives like faceless assessment and faceless appeal. However, the very foundation of such initiatives is broken after the launch of new income tax platform in June. Various activities which were online are now performed manually and the so-called tax reforms have become a case of one step forward, two steps back. Government has held discussions with Infosys (IT service provider for tax platforms) but progress is yet to be seen. Tax professionals had suggested rolling back the earlier website and relaunching the new website once all glitches are fixed but there is no one in the government who can take the lead on this.
Insolvency and Bankruptcy Code (IBC) was another major initiative of the Narendra Modi government which was aimed to solve the NPA (non-performing assets) crisis. A time-bound resolution was the unique feature of this legislation but delay in closure of the resolution process has raised a question mark on the successful implementation of the law. According to data published on the Insolvency and Bankruptcy Board of India website, 79 per cent of the ongoing resolution processes had aged more than 270 days (maximum time allowed under the Act) in March 2021. A prolonged resolution process will push the corporate entity towards liquidation which was not the intent of this law.
There is another grey area highlighted by the National Company Law Tribunal (NCLT), which is related to collusion between creditors and bidders. NCLT has pointed out this issue in the Videocon resolution where the bid amount was very close to the value determined by the creditors. Such resolutions are nothing but looting public money under the grab of a legislative reform because a haircut taken by the public sector financial institution is essentially a loss of taxpayer’s money. This is a trend in cases of resolution of listed companies where value of shares of retail investors is extinguished to zero as part of the resolution plan. In nutshell, a former promoter had made the money by indulging in corrupt practices, incoming promoter will make money after acquiring the company at throwaway price while financial institutions and retail investors are the losers in this entire process.
Our adverse balance of trade with China has ballooned again. Last year when tensions escalated between India and China, there were talks that India will also implement quality control standards for imports from China. Government introduced tax cut in September 2019 with an anticipation of increase in investment but it has not happened. Dividend distribution tax was also abolished from April 2020. Our listed corporates have reported good profits and profit-GDP ratio is at a 10-year high for FY 2020-21 (source: moneycontrol).
At a time when inflation is ticking (though it is transitory) and middle class is struggling, isn’t it appropriate to levy some additional taxes on a temporary basis on big corporates who are making huge profits and give some relief to the needy? Such issues may appear small but they have far reaching implications.
The author is a Chartered Accountant. The views expressed in this article are those of the author and do not represent the stand of this publication.
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