Captain Gopinath: Retro tax was the art of luring, laying a booby trap on investors

Lawrence J Peter, in his eponymous book The Peter Principle, espoused a curious theory that became famous. The Peter Principle states, ‘Every employee eventually rises to his level of incompetence.’

Some organisations recognise incompetence and take appropriate action: they simply fire the person from the post. Many don't or can't due to the person's loyalty to the organisation or perceived indispensability, and in some cases, emotional attachment. Lawrence says that in such instances they are simply kicked upstairs to posts like vice presidents, where they are imprisoned in ceremonial trappings, so that they are out of the way.

There was general consensus that Mukherjee wrecked the economy and undid all that the UPA had accomplished under Prime Minister Manmohan Singh and former Finance Minister P Chidambaram. Despite the scandals and coalition-induced paralysis, the economy had raced ahead, riding on India’s entrepreneurial energy.

Many alleged that Mukherjee as Finance Minister was unable to grasp the ramifications of his acts on investor sentiments and its impact on the economy, and his inability to rein in his bunch of well-meaning but misguided bureaucrats who committed hara-kiri.

The Congress at the Congress Working Committee meeting, alarmed at the negative publicity and flak it drew from the international community and tail spin of the economy because of retrograde policies, openly castigated the policies of the finance ministry — and by implication the minister in charge. Even then many feared the worst, which eventually came to pass: the Congress may be routed in the 2014 general elections.

The irony was not lost on anyone: the erstwhile architect of India's reforms Manmohan Singh, as the head of government, watched mutely.

It is not easy to fix the economy of a country. “If all the economists were laid end to end, they would never reach a conclusion,” said George Bernard Shaw. In this case, it looked as though the finance ministry was being blamed not so much for its lacklustre performance but for being hell-bent on derailing the economy, which was robust and growing at a fast clip.

Mukherjee was widely respected, without any taint, was suave, had an endearing personality, possessed a Machiavellian mind, was adept at deftly navigating the minefields of politics, was cultured and statesmanlike, and had always delivered on his mission as a trouble shooter.

Elevating Mukherjee was a masterstroke. The Congress had discovered the Peter Principle long before Lawrence J Peter. Was it not the Congress that invented the easy way of getting rid of ministers by rewarding them with governorships? But Mukherjee’s stature was so towering that there was only one post for him: The President of India. He was put out of harm’s way in pomp and splendour at the Rashtrapati Bhavan.

The Present

It still beats one why did the Modi government, which after rightly attacking the Congress on its regressive and bizarre retrospective tax policy, was as bull-headed as the Congress in continuing with the policy, and hounding Vodafone and Cairn Energy UK? Why did it take seven years to dawn on the current government that it was axing the trunk of its economy by going back on its election promises — and that too after Modi aggressively wooed investors during his foreign visits to invest in India.

With international tribunals awarding judgments in favour of Vodafone, Cairn and also Devas Antrix in an unrelated case, India increasingly came across in poor light, as an unreliable partner, disrespecting and violating not only its Supreme Court judgments, but also disregarding international bilateral treaties, which are the bedrock of trade and commerce.

The ‘retro tax’ was ill-starred from the time it was hatched in the UPA finance ministry and enacted. It is never late to allow prudence to triumph over obduracy and skewed sense of sovereignty. The current government’s action to scrap it has to be welcomed. Let this commendable gesture open the floodgates of more sensible reforms in the near future.

However, one still wonders why the government did not show grace and accept the international tribunal awards in toto, which was in consonance with the Supreme Court verdict. The government could have put a lid on it once and for all, instead of allowing loose ends still open for possible litigation, by accepting the award without reservations and qualifications that the tax demand will be waived and refunds would be made where applicable only if the petitioners withdraw claims on interest, penalties, litigation costs and damage, retaining only the caveat that they must withdraw all cases against the government to benefit from the amendment. Magnanimity to those who have been ill-treated and suffered huge losses, and had to fight for justice in international forums, will far outweigh any penny pinching and arm twisting to withhold the tribunal awards.

Let me narrate an apocryphal story which may hold a moral. The late Ramakrishna Hegde, Commerce Minister during AB Vajpayee’s NDA government, had come as chief guest to launch my helicopter base in New Delhi. When I bemoaned the bureaucratic red tape and harassment faced by entrepreneurs, he regaled the audience with this story: A few tourists from the West were visiting some famous Hindu temples. As they entered a temple, the guard stopped them and asked them to leave their shoes there. They were surprised. They were barefoot. They said they had already left their shoes in the car. The guard pointed to a board next to him which said: Leave your shoes HERE, and not in your car!

The long arm of the law and the mind of the bureaucrat can at will make a heaven of hell, a hell of heaven.

Can we expect a change in mindset in the coming years?

Captain Gopinath is the founder of Air Deccan. He served on the Chinese front in Cho La and Indo-Bangla War 1971.

Views are personal and do not represent the stand of this publication.