View: Govt shouldn’t repeat past blunders that make foreign investors feel unwelcome

Economy


Two back to back adverse orders in foreign courts against the Indian government have shown India in poor light in the international press. The Permanent Court of Arbitration based at The Hague ruled in September 2020 that India’s attempt to impose a retrospective withholding tax demand of $5.5 billion on Vodafone violated India’s obligations under the India-Netherlands bilateral investment treaty. India’s case was rendered indefensible ever since the Supreme Court in January 2012 ruled that Vodafone was not liable to pay any tax, stating that it was a share sale and not an asset sale.

The second setback involves Devas Multimedia, a Bengaluru-based startup headed by MG Chandrasekhar, the former scientific secretary of ISRO, having reputed foreign private equity firms with equity investments and eminent directors on its board. It was awarded $1.2 billion compensation by a US district court on October 27, to be paid by Antrix Corporation, ISRO’s commercial arm, over a 2005 S-Band spectrum deal case.

Chandrasekhar had moved the Supreme Court and several international tribunals over “wrongful termination” of the deal. SC had directed the case to a tribunal which ordered Antrix on September 14, 2015, to pay $562.5 million as compensation along with damages and interests, taking the amount past $1 billion. Antrix/ ISRO showed scant regard for the tribunal’s ruling. And to complicate and confound matters, the Supreme Court has “stayed” the US Court order.

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Overruling UPA government’s tax claims on Vodafone, Supreme Court’s judgment said that tax policy certainty is crucial for taxpayers (including foreign investors) and certainty is integral to the rule of law. Instead of accepting the verdict with grace and humility, finance minister Pranab Mukherjee, egged on by bureaucrats, took it as a personal affront. By rushing a legislation through Parliament and giving government retrospective rights instead of prospective rights to collect taxes circumventing the SC ruling, in one fell stroke Mukherjee undid all of UPA-1’s achievements.

Global industry associations and investors cried foul. Visiting Singapore Prime Minister Lee Hsien Loong said: “If you can minimise regulatory risk and political risks, it will be much easier for companies to come and invest … Every finance minister should look at implications of changing rules.” A booming economy crashed. Pranabda was moved upstairs to Raisina Hill.

This happening under economic reforms architect Manmohan Singh’s watch is still hard to come to grips with. P Chidambaram, reinstated as FM, spent the rest of UPA-2 undoing the enormous damage. But India’s reputation for axing its own trunk with unpredictable policies still endures.

Devas is another classic example of government acting rashly and irresponsibly. The Devas-Antrix agreement signed after due diligence and clearance from FIPB was annulled post haste over media reports of shortcuts by the PMO. The annulment overlooked the millions of dollars already invested and its global repercussions on the investment community. With the 2G scam already rocking UPA-2 and PMO (Department of Space came under Manmohan Singh), the agreement unilaterally cancelled, fearing another scam, pushed a promising startup over the precipice to bankruptcy and rendered hundreds jobless.

The blame and blunders lie squarely at UPA’s door. But NDA has inherited the fallout. BJP roundly criticised UPA government for retrospective taxation. Now it’s being wrongly advised to appeal both the Vodafone and Devas-Antrix international rulings. This creates the danger of coming across as a state that doesn’t honour international bilateral treaties or its contracts. Our FDI policy woos investors in every international forum to India. Throwing bait to investors only for tax authorities to lay boobytraps and ambush them after putting their money in good faith is not just breach of trust. It scares away future investors too.

The argument that a sovereign country has the right to make laws without being captive and beholden to anyone is specious, especially when perceived as having reneged its own earlier sovereign guarantees executed through bilateral investment treaties. Not honouring one’s agreements is a self goal. Appealing against Vodafone and Devas rulings and tying them up in knots through interminable cases will erode investor confidence. This would be at cross purposes to ‘ease of doing business’, PM Narendra Modi’s oft repeated slogan, which is key to reviving an economy currently in deep crisis.

(The writer — an entrepreneur, founder of Airdeccan, a retired Captain Of Indian Army, an author of a best seller “Simplifly” , a farmer and a ‘failed’ politician. Views expressed are the author’s own)



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