This is no recipe for strong economic growth

If the market players and businessmen had paid attention to the government’s actions, their devout faith would have cracked long ago, says Debashis Basu.

Illustration: Uttam Ghosh/Rediff.com

The Sensex on July 19 crashed by 560 points.

From the pre-Budget close of 39,908, this index is now down by more than 1,500 points.

There is widespread gloom and doom even though the Sensex is just a little below the all-time high of 40,312, which it touched in late June.

If you spend an hour or so on social media, you will hear constant bickering about this government’s policies as the reason for the massive wealth erosion, hidden behind the (still) high level of the Sensex.

Comments like this abound: “It’s not even one month and the entire goodwill of the Modi 2 Govt has been evaporated due to a third rate Budget."

"Must be the shortest honeymoon in Indian political history.”

Last year’s big Budget blow was the long-term capital gains (LTCG) tax.

This year, it is the tax on dividends, the tax on buyback, the plan to cut the promoter stake to 65 per cent (that increases the supply of shares), and a tax increase of 3 percentage points for individuals with an annual income of Rs 2-5 crore and 7 percentage points for those earning more than Rs 5 crore.

Politicians and officials, living comfortably off the State exchequer, are ordering the rich to make this “small sacrifice” for the poor.

We have been used to such demagoguery from Indira Gandhi’s regime onwards, but timing matters.

While the government wants to extort more money from cash-rich companies and rich investors, it is responsible for the economic slowdown, no job growth, very little incremental investment, and huge increase in its own spending.

Waking up from a dream world

If the market participants are miffed today, it is perhaps because they were living in a dream world all these years.

While Narendra Modi won votes of every segment of the population, he has enjoyed especially unstinted loyalty from the business, and the financial and investing community.

For five years, fund managers, analysts, and businessmen were unanimous in believing every flaky promise of change.

They have swallowed every piece of flagrantly fudged data (such as gains from direct benefits transfer) and put it in their own presentations, painting rosy scenarios of growth to investors and financiers.

They have cheered every socialistic move of this government as a step towards a new India, when these should have reminded them of the extortive previous regimes.

It didn’t strike them as odd that a regime that painted everything about the previous (Congress) governments black would not only continue with the same schemes and ideas, but expand them manifold.

For them, demonetisation was a game changer, not mass economic disruption; and bank recapitalisation with no preconditions was a necessary step, not more money down the drain.

Most importantly, they have supported every punitive and coercive decision of the government as a necessary building block for a transparent and clean India.

Whether compulsory Aadhaar even for babies, or arrest without a first information report under the Goods and Services Tax, or tax raids without the need to state the reasons, or the argument that citizens have no right to privacy -- they only detected strong intent and commitment to cleanse India.

Their abiding faith prevented them from seeing that a government that wants to cleanse the system is also slowly destroying the most important transparency tool -- the Right to Information Act.

And then they came for me

The false beliefs now lie shattered.

“The government has failed to protect citizens and business from a tax system that has run amok with a broken assessment system and a broken appeal system!

"No major country has broken both. Tax officials seem to think of everybody as evaders and themselves as vigilantes!

"We have filed returns in over 30 countries, but no country treats taxpayers as badly as India does.”

No, this is not the rant of someone who is opposed to the regime.

This is from TV Mohandas Pai, former chief financial officer of Infosys and the most eager evangelist of this government.

In a recent article, he lamented that while the Bharatiya Janata Party had promised to stop the tax terrorism of the previous government, about 50 per cent of the outstanding tax disputes have come up in the last two years alone.

What do we really know?

I have always wondered: What was the basis of the fond hopes that business and finance types harboured?

After all, this is one of the most secretive regimes we have ever seen.

We know very little about how this government thinks and functions, what its objectives are or what road map it wishes to follow after winning the massive and successive mandates for change.

This government does not leak, the election manifesto is just a piece of paper, official data is massaged to make the regime look good, there are hardly any white papers to go by, and all political pronouncements are aimed at the gallery, peppered with endless coinages, quips, alliterations and abbreviations.

There is even a gag order on retired officials from speaking out.

In any case, we should always go by what the government does.

If the market players and businessmen had paid attention to the government’s actions, their devout faith would have cracked long ago.

On the positive side we have a decline in crony capitalism and some serious efforts to recover bad loans.

On the negative side we have suffered an increase in the Congress brand of socialism, coercion, bans, tax terrorism, arrogance, and a continued decline of institutions.

On balance, this is not a recipe for strong economic growth or a secular bull market.

If we believed otherwise, the joke was on us.

Debashis Basu is the editor of www.moneylife.in