Short on the walk
Long on the talk, a little short on the walk
By Roopen Roy Feb 29 2016
The most disappointing feature of the Budget is the FM’s inability to bite the bullet of NPAs
There is a lot of encouraging words and promises for the agricultural and rural sector, infrastructure, low-cost housing and the containment of fiscal deficit. But this Budget is not a bold one that grasps the nettle of our domestic industrial slow-down with both hands. The most disappointing feature of the 2016 Budget is the inability of the finance minister to bite the bullet of NPAs. The Rs 25,000 crore he has allocated to recapitalise the distressed PSU banks is a drop in the ocean. Without elaborating on the sources, he has vaguely promised that if “additional capital is required by these banks, we will find the resources for doing so.” This half-hearted measure is more like applying a band-aid to a long-festering wound that is gnawing at the vitals of our banking system.
Appointing of Vinod Rai, the former Union comptroller and auditor general (CAG), as the first chairman of the proposed Banks Board Bureau (BBB) is not part of a deep surgery that RBI governor Raghuram Rajan had prescribed. The root causes of NPAs are stranded projects of course. But let us not forget the healthy promoters of sick enterprises, too politically connected, to be held accountable.
I was frankly expecting some measures to make PSU banks more responsible with taxpayers’ money. One step could have been to sell at least 51 per cent of the shares of PSU banks to the public and the bank employees. This would have taken away the control of the politician and the bureaucrat of PSU banks and made them more accountable and responsible in granting and recovering loans. There is not a word about how the huge NPAs will be tackled, what is the game-plan of taking action against dishonest promoters and how fresh NPAs will be controlled. Other than saying that IDBI Bank would be “privatised”, with the government holding going below 50 per cent, no other bold step has been outlined.
While we all have to watch how the promise is fulfilled, I believe we have moved forward in the right direction in curbing tax terrorism and corruption in tax gathering system. Most foreign investors I have talked to are not frustrated with the corporate tax rates in India. Their unending nightmare emanates from the lack of predictability and stability of our tax system. In order to ensure that re-opening of settled cases are not used as a tool to terrorise investors, the FM has provided us with definite assurances including the setting up of a high-level committee. “In order to allay any fears of tax adventurism, this committee will now be chaired by the revenue secretary and consist of chairman, CBDT, and an expert from outside,” the FM said. It is important that this ‘outsider’ is an independent tax-expert of impeccable credentials and not a retired bureaucrat from the ministry of finance, for example.
For domestic taxpayers, there are assurances which are heartening at face value. FM wants to bring some method in the madness of unbridled litigation, which cannot be the hallmark of a tax-friendly regime. The size of the problem is enormous and as described by the FM himself, “There are about 3 lakh tax cases pending with disputed amounts being Rs 5.5 lakh crore.” Creating frivolous demands and penalty proceedings are weapons in the hands of tax-gatherers to force taxpayers to fall in line and grease palms. By taking away their draconian powers and putting in place a new dispute resolution scheme, the FM has moved the needle in favour of the taxpayer.