The once ‘Shining India’ has lost its sheen. With inflation skyrocketing, a large CAD, amid low manufacturing outputs, India’s growth story has hit a bumper. The normal tendency of the ruling party is to blame it on recession in U.S. (of 2008).
But there is a consensus amongst the learned economists of this country that, the current plight of the country is self-created. The slew of popular subsidy bills coupled with not being able to reform existing laws to boost investor sentiments are being blamed as the prime culprit for our currently sluggish economy. The current government brings a law, after opposition, it retracts it, forms a committee to study the law and its disadvantages, brings another law which happens to be a diluted version of the original law, passes none of them in the parliament (so called parliament-logjam), creating an atmosphere of ambiguity. That’s why investors (desi or foreigner) find it extremely difficult to do business in India.
The recent point in case being GAAR (General Anti-Avoidance Rule) , introduced by Pranab Mukherjee when he was the finance minister, which arms the IT department to collect money from the organizations who are trying to avoid taxes by taking advantage of current laws (or absence of it), also trying the siphoning of money to the tax-havens. Vodafone got entangled in this net after it bought Hutchinson. According to the GAAR and retrograde taxing, even on acquisition, Vodafone doesn’t only have to pay taxes in Britain (where the company is based!) but also to India.
The matter is currently being resolved out by Supreme Court, Government of India, Government of England and Vodafone. This case has instilled fears in the heart of investors. The policy swings are hurting investor sentiments.
Environment is another issue which has lead to a standstill in various mining projects and manufacturing units across the country. Granted that, we need to have strong laws to curb pollution and exploitation of resources, but the previous regimes of Jayanti Natranjan and Jairam Ramesh (ex-Ministers of Environment) literally sat on the bills that had environmental clearances, delaying projects of national importance.
It is understood that we need to have strong effective laws which would put check on the rampant exploitation of our natural resources and levy tax on money currently stashed in tax havens. But in order to do so, we need to clear the ambiguity surrounding them and check when the law is applicable.
Otherwise, inspite of the rising labor cost in China, it would remain as a favorite destination for investment, leaving India way behind.
Alienman 