There is something odd about the World Bank’s ease of doing business ranking. India jumping 23 places to rank 77 in the 2019 report, after a 30-notch rise in the last year’s report—this simply challenges belief.
The Narendra Modi regime has not carried out enough meaningful reforms. Then there was demonetisation and the clumsy implementation of the Goods and Services Tax (GST). Further, in the name of ending black money, the income-tax officials have been empowered to 1970s level, much to the chagrin of businesspersons. Price controls are increasing. Regulatory authorities are multiplying, creating more problems only for wealth creators. For, they do little to check imprudent actions of the bureaucracy.
Consider this: State-owned Life Insurance Corporation of India (LIC) has been allowed by all regulators to redeem sick entities. After acquiring the bleeding IDBI Bank, the insurer took over Infrastructure Leasing & Financial Services (IL&FS), an unlisted debt-ridden infrastructure body owning dozens of subsidiaries. A few months ago, LIC spent Rs 13,000 crore to buy 51% stake in IDBI. The government forced LIC to make this a questionable investment.
It was a violation of norms as LIC is not supposed to hold more than 15% in a company. And what, pray, the regulators were doing? They behaved like lapdogs rather than watchdogs. The Insurance Regulatory & Development Authority of India (Irdai) approved the acquisition without any fuss. The banking sector regulator, the Reserve Bank of India, did little better. So LIC is saddled with an ailing bank.
And what did the so-called “super-regulator”—the Financial Stability & Development Council (FSDC)—do? Set up in December 2010, it is chaired by the Finance Minister and its members include, among others, the RBI Governor, Securities & Exchange Board of India (Sebi) Chairman, the Irdai Chairman, and the Pension Fund Regulatory and Development Authority Chairman. The FSDC also turned a blind eye to the move.
Similarly, the regulators have kept quiet to the taking over of IL&FS by LIC. The IDBI Bank at least is a public sector entity, but IL&FS was a private entity. Its promoters had a gala time till they could, and then they quit, leaving behind Augean stables LIC and taxpayers are supposed to clear.
But the government keeps creating regulators, who regard it as their divine right to torment those who add to the GDP, pay taxes, and generate employment. The recently created monstrosity called the National Anti-Profiteering Authority (NAA)—whose very raison d’etre is an affront to the spirit of open economy—has started wreaking havoc. The GST Act, which brought it into being, says, “Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.” Non-compliance could even lead to the closure of an enterprise.
As Anita Rastogi, indirect tax partner at PwC India, told Livemint (25 October), “Orders issued recently by the anti-profiteering authority have far-reaching implications because discounts are not considered as reduction in price and decrease in margins are not a valid ground for passing on the benefit of tax reduction to the consumers.” Evidently, NAA officials have already started troubling businesses. For “B.N. Sharma, chairman of the NAA, told a recent Confederation of Indian Industry event that the NAA is not a price regulator.”
Then there is the Competition Commission of India (CCI). Constituted by the United Progressive Alliance government, it has been passing orders regularly—apparently without knowledge what competition means in the first place. Business Standard reported on 15 October that the CCI “has hired 24 reputed institutions to conduct surveys to help it understand what constitutes a market. The introspection has been spurred by more than one embarrassing court verdict staying its orders.”
The government wants yet another regulator—a payments regulator outside the ambit of the RBI. This has even triggered an unseemly turf war between the two. So, while the Inter-Ministerial Committee aired the government’s stand, the RBI has fiercely disputed this. What is germane in our context is the government’s predilection to arrogate all powers to itself in all matters pertaining to the economy; it sees the regulators as its departments rather than a check on executive overreach.
Unsurprisingly, little investment is coming to India; the FDI figures showcased by government functionaries are the result of round-tripping, rather than of genuine investment. Wealthy Indians are leaving the country. There is hardly any employment generation; at least the government hasn’t been able to substantiate its claims of crores of jobs created. Against this backdrop, an unprecedented and miraculous improvement in India’s business environment is something that only the World Bank can say and believe.