Last week, two important events took place in New Delhi. First, the union cabinet decided to include collection of caste data in the periodic general census; and second, the Supreme Court annulled the acquisition of Bhushan Steel and Power Limited by JSW Steel Limited four years ago, following the proper Insolvency and Bankruptcy Code procedures.
Notwithstanding the argument that inclusion of caste data in the census could be promote social equity, and the JSW-Bhushan annulment might reflect judicial efforts to uphold legal integrity, I find these two events significant for investors and businesses, as these further strengthen the perceptions of unpredictability and instability in the sphere of policy making and political process.
In the recent past we have seen executive actions adding considerable unpredictability in the economic process. Demonetization of high value currency notes (2016); abandoning of Amaravati capital project and cancellation of all partially executed and unexecuted orders by YSR Congress government (2019); repeal of three farm laws (2021); policy on GM seeds; taxation of foreign investors; Several flip flops in telecom policy, railway procurement (e.g., 2017 GE locomotive deal), solar power, pension rules, etc. are only a few examples. Arguably, political parties lack strong commitment to any socio-economic ideology and are often susceptible to compromise on their electoral promise, making the task of business decision making based on election manifestos redundant.
The decision to include caste related data in the decennial national census, is just another case of issues strongly opposed (or supported) by the government and later reversed primarily due to political expediency. This decision adds material uncertainty to the state and corporate (fear of reservation in private jobs) recruitment policies and admission process of the institutes of higher learning.
Despite several promises, the government remains the biggest litigant in the country. As per various estimates, the government (Central, State, and public sector undertakings) is a party to more than 45% of pending court cases in India, and responsible for more than 70% of cases admitted by the Supreme Court.
It is commonly observed that bureaucrats and regulators indulgently pursue litigation, allegedly to avoid accountability, and sometimes even due to personal egoistic urge, using taxpayer money without scrutiny. Various estimates suggest that the government’s success rate in cases/appeals filed by it, is abysmally low. The Income Tax Department reportedly loses 65–85% of its cases in higher courts. The conviction rate in cases filed by the enforcement agencies and regulators like ED, CBI, SEBI, etc., is also low. For example, the Enforcement Directorate (ED) registered 5,297 money laundering cases in the past 10 years across the country, but trials have been completed in only 43 cases so far, according to a report by the central agency submitted to Parliament.
State authorities, police department and lower judiciary audaciously ignore the guidelines set by the Supreme Court in the matters of investigation, arrests, bail, punishment outside judicial process (e.g., demolishing residences of the accused), etc.; instilling a sense of fear amongst common people and making them extremely vulnerable to the exploitation by corrupt officers and judges and frustrating the due process of law.
This clearly highlights the extent of governance deficit, lack of coordination & mutual trust between various organs of the government, fault lines in the federal structure, bureaucratic inefficiencies, deep rooted corruption, widely prevalent malpractices.
It is evident from the JSW-Bhushan Steel episode that various organs of the government lack coordination and cohesiveness in policy making, even in the issues having much wider economic repercussions. Long term socio-economic interests of the country are often ignored for immediate political expediency or pecuniary gains.
A question usually asked by investors and other people is “why India has consistently failed in generating sufficient escape velocity to move to higher economic growth orbit, like some of its global peers like China, have achieved, in the past three decades?”
There are a multitude of reasons for our inadequate growth, including our inability to implement structural reforms to eliminate corruption and promote efficiency. In particular, we have failed in making our economic policies predictable & stable and sustainable – one of the prerequisites for achieving faster growth. Failure to control the tendency of the executive to overreach and overregulate, which perhaps has roots in our colonial and feudal past, may also be responsible for our slower growth and development.
If we want to move to higher growth orbit and realize our aspirational goals of a developed nation by 2047, we need to first ensure stability and predictability of policy, and make a commitment to the slogan of “less government more governess” through appropriate legislative process. Prescribing strict rules for appeals by the government against the decisions of the government authorities and lower courts, would also be a strong signal.
