End Rollback Governance

While Modi emphasises the importance of removing roadblocks in the economy, bureaucrats continue to stymie progress. Angel Tax on investments by venture capital firms in startups was an idea thought up in the dark recesses of the Central Board of Direct Taxes (CBDT) ...

- Minhaz Merchant

POLICY ROLLBACKS are the hallmark of poor governance. In the 2019-20 Union Budget, Finance Minister Nirmala Sitharaman shocked the stock market by imposing a “super-rich” tax. Foreign Portfolio Investors (FPIs) structured as trusts would be liable to pay this tax too.

The market promptly tanked by nearly 10 percent – its sharpest weekly fall in years. Ironically, the value of the government’s own shareholding in listed public sector units (PSUs) also plummetted, just as the government was preparing to finally begin privatizing several big PSUs to raise up to Rs 3 lakh crore.

Realizing its folly – the additional tax mop-up from the super-rich tax would at most be a minuscule Rs 5,000 crore while damaging foreign investment inflows that could cost the economy far more significantly – the government began to have second thoughts. The Finance Ministry is now tying itself into knots to add an amendment in the Union Budget that would ring-fence FPIs from the superrich tax.

Rollbacks are not new in India. Most Budgets presented by governments across the aisle have announced irrational taxes or policies. They have been forced by public opinion and industry associations to roll back several such policies.

The rollbacks aren’t confined to financial policy. An off-Budget announcement a few months ago removed the tax exemption in certain cases of disability pensions to armed forces personnel. Faced with near-universal anger, Defence Minister Rajnath Singh has sensibly decided to roll back the policy that hits armed forces officers and jawans disabled in war or during security operations. It took a concerted campaign by armed forces veterans to overturn the policy.