Posts Tagged ‘CAG’

Robert Vadra, Sensex, and Exchange Value of Rupee.

10 October 2012

Parthasarathi Shome has delivered what he was mandated to deliver, that is to suggest scrapping of retrospective amendments, which were termed *clarifications* by Pranab Mukherjee, to section 9 of Indian Income Tax Act. Indian Express obligingly calls it Shome Relief for Vodafone in Tax Case. Shome committee was appointed by none less than prime minister of India, Man Mohan Singh. It was also tasked with reviewing General Anti [Tax] Avoidance Rules [GAAR], the implementation of which it had already recommended to be *postponed* by three years. Retrospective amendments to statutes should be shunned as a rule, and should be used only when harm of not doing so far outweighs the harm that would otherwise result. The principal touchstone of any law is that it should be just and fair. Retrospective amendment by its very nature is unjust and unfair as it changes the rules of conduct or compliance after the deed is done. More over, it was done to upturn the apex court judgement, which had struck down the Mumbai High Court judgement that upheld the tax demand on Vodafone by Income Tax  department. This amendment or clarification though general was to be applied only in case of Vodafone as both PM and FM assured repeatedly. This made the retrospective application worse. The whole issue was discussed in considerable detail including the infirmities in Supreme Court judgement in the earlier post: Vodafone Voodoo: PC “Homes” in on Finance. While retrospective tax amendments are to be avoided, no one talks about the real culpability in the Vodafone Tax case.

The transaction between Vodafone International Holdings B V [VIH] and Hutchinson Telecommunications International Limited Cayman Islands [HTIL], whether it be called *bonafide structured FDI* or an *offshore transaction between two or more non-resident entities involving transfer of share of an offshore entity*, the fact remains that it had come before Foreign Investment Promotion Board [FIPB] and Reserve Bank of India [RBI] for their *clearances*. What prevented the authorities in Finance Ministry, then under the watch of P Chidambaram, to caution both the parties that their transaction was subject to Capital Gains Tax in India on the profits HTIL would make by selling underlying assets in India by transferring the offshore entity to VIH? Even HTIL it seems was aware of its culpability in the matter from the reference made by the Income Tax department in its tax notice to a clause in the contract between HTIL and VIH whereby HTIL indemnified VIH in case the latter had to pay any income taxes on their deal. Obviously, Shome Committee’s terms of reference did not include such opening up of cans of possible corruption. Its mandate was limited to *undo* the *dent* made by 2012-13 budget pronouncements on *business climate* and *investor sentiments.

These recommendations would be another *crucial reform* that would fast forward the work Man Mohan Singh [MMS] and P Chidambaram [PC] have been painstakingly doing over the past month. What the two together have ensured is that not a week passes without some *grandiose reform* announcements. The diesel and LPG price hike was followed up with announcements of allowing FDI in multi-brand retail and raising FDI stake in civil aviation industry [Congress: Reforms and Discovery of Nonchalant Gall]. The *excitement* it generated had hardly abated when more talking points were provided with the announcements of FDI in Insurance and Pension sectors. It hardly mattered that both these proposals were not within the purview of executive’s *Sweet Will* and have to yet pass the hurdle of parliament. This created another round of excitement, which made it appear that storm and severe scrutiny, which Coalgate and DIAL-gate kicked up, is slowly but surely dissipating. MMS, PC, and other Congress troubleshooters must have barely heaved a sigh of relief when Arvind Kejriwal hit where it hurts hardest, the Son in law of Gandhi family: Robert Vadra-DLF: Arvind Kejriwal’s allegations raise many questions

 

Both DLF and Vadra are stoutly denying the allegations, but no one believes such denials, does one? This one upset normally sedate and passive prime minister so much that he had to put at stake his new found reform agenda to launch a counter attack: ^^The mindless atmosphere of negativity and pessimism that is sought to be created over the issue of corruption can do us no good. It can only damage the nation’s image and hit the morale of the executive^^. Indeed, these are very strong words. Allegations against Robert Vadra, a private individual, would affect the *Nation’s Image* and *Hit Morale of the Executive*. What a breadth taking suggestion?  This is an implicit way of saying that Extended Gandhi Family is India [Does any one recall Deb Kant Baruah’s only contribution: India is Indira, Indira is India?] This is what defending the indefensible does to even the *best among scholars*. The platform where he uttered these inopportune and inappropriate remarks makes the whole affair scandalous: The annual conference of CBI and State Anti-Corruption Bureaux.

Was it his way of sending a not so subtle message to the very apparatus that may eventually end up probing these allegations as to what was expected of them? His complete speech as he delivered is not readily available, but if report about it in Indian Express is anything to go by, then either he is out of his wits or he is deliberately setting out a policy on corruption investigation. ^^I would like to stress upon the need to protect honest public servants and keep the morale of the executive intact with our commitment….We are also examining how the Act can be amended to protect honest public servants more effectively….I would like to stress upon the need to protect honest public servants and keep the morale of the executive intact. I have said this in the earlier conferences also, but I think this is something worth repeating…. we need to ensure that while corrupt are relentlessly pursued and brought to book, the innocent are not harassed….The importance of making a distinction between bonafide mistakes and colorable exercise of power in investigation of corruption cases cannot be over emphasised^^. He seems palpably agitated about *vulnerability* of honest public servants. But he did not flesh out his worries, how could he?,  by citing examples of  punishments these *unprotected* honest public servants faced.

He also cautioned his audience to *study carefully* what really constitutes corruption. ^^a clear and unambiguous definition of corruption is being sought to be provided through amendments to plug gaps in the Prevention of Corruption Act and bringing it in line with international practices….The investigation agencies need to continuously upgrade their skills and techniques to match the newer methods of corruption….The nature of the challenges that a country’s anti-corruption agencies face varies with the level of its economic development….These challenges get even more complicated if the pace of economic development is rapid, as it has been in our country in the last two decades or so….As our economy grows and becomes more integrated with the evolving global economy, the big challenge before our anti-corruption agencies is to keep pace with these rapid developments….Therefore, in many cases, it would be difficult for the investigating agencies to reach the right conclusions without a firm grasp of the complexities involved in the formulation and implementation of economic policy^^. This last statement is bound to raise eyebrows because Comptroller and Auditor General of India [CAG] was faulted for exceeding his brief of being a *mere accountant* and for daring to comment on economic policy, which is a *prerogative of the government* [SC: CAG is a constitutional body, not merely a munim (an accountant)….entitled to review and conduct performance audit on revenue allocations relating to the Centre, the states and the Union territories]. It is rather strange for a man, who is unfailingly hailed for his honesty and integrity, to be not disturbed by Corruption per say, but by efforts to bring such corruption out into public view.

While the *voices* of reforms were troubled, their *masters* were in town to pat them on the back to reassure in public, and may be to twist their tails in private to do more: US pat for reform: ‘Good to see so much change in air.

^^fresh spell of economic reform offers a “very promising path” to boost the growth of the Indian economy….Washington feels encouraged by the initiatives taken by the Indian government on how to generate more confidence and get more investments….offer huge investment opportunities for US businesses and investors….^^. Fed Chairman Bernanke and Treasury Secretary Geithner held talks with Finance Minister P Chidambaram, Reserve Bank of India Governor D Subbarao, deputy governor Subir Gokarn and top finance ministry officials. What is noteworthy is that only in April, barely 6 months ago, the US Treasury Secretary had raised *concerns* over budget proposals for retrospective tax amendments; and his boss, president Obama had flagged his concern over the stalled reforms. Thus when the duo came calling in October it was a great turn around story for *US Concerns*. Chidambaram pointed out that he has done his bit to *Protect Indian Interests*, I raised the concern that it may impact commodity prices and commodity prices may rise referring to the possible impact of QE3, but (they) pointed out that there has been no impact yet on commodity prices. He then followed it up by claiming a consolation prize, There’s also a beneficial side – if the US economy grows, it will help us in our exports, it helps us in attracting more capital inflows.

If the US economy were actually to get into an overdrive, very unlikely event, then Capital Inflows will dry up, not grow. It is only when avenues for handsome returns dry up in *safe* and *secure* markets of developed economies that the global capital hungrily looks elsewhere. Right now both US and EU markets are in terrible shape. Japan has been so for a long time. China’s hyperventilated economy is cooling off. That is why US wants to pry open the Indian market on its terms, something it can’t do in China. His Master’s Voice, MMS & PC, are valiantly trying to talk up the Stock Markets, Business Confidence, and keep the rating agencies at bay. But only talk doesn’t sway hard nosed capital, even for a short spell. Just as the crazy  gyrations of BSE and exchange value of Indian Rupee has shown during the *momentous* last 4 weeks.  Even as the echo of reassuring words of Geithner had not died down, his tail twisting in private I had alluded to earlier found its stern voice in the warning issued by S & P: ^^The Sensex today tumbled by 162 points to close at 18,631.10 on across-the-board selling due to Standard & Poor’s warning of a one-in-three chance of India’s rating being downgraded in two yearsThe S&P’ downgrade threat came a day after the IMF slashed the country’s growth forecasts for 2012 to 4.9 per cent, dampening the sentiment further. After resuming over 100 points lower, the BSE benchmark index failed to stage a recovery amid fresh concerns over the sluggish global economic growth and Eurozone debt crisis. The rupee also wilted under pressure and fell below the 53-mark against the US dollar in early trade^^.

Masters of the Universe always speak in many Voices, though each Voice assumes its the original.

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