Indian tax proposals are usually dull. So when the Union Budget’s General Anti-Avoidance Rules, better known as Gaar, had global investors going ‘aargh’ in horror, it was something of a spectacle. Proposed as a sarkari tool against tax dodgers of the globalised kind, Gaar’s fine print revealed it for what it was: a Ha’gaar-the-Horriblesque axe for the taxman to terrorise investors with. This explains the ‘aaah’ of relief that has greeted the report of a review committee that wants it deferred by three years and blunted by a set of riders.
An ‘aaah’ will always beat an ‘aargh’, no contest, but this triumph could yet prove pyrrhic if it worsens the trauma of India’s transition to a market economy. Could it? For one, the pressure that global capital exerts on Indian policy has never been so obvious, and it sure feels creepy. For another, suspicion has duly been aroused by an add-on proposal to replace India’s ‘capital gains’ tax on sales of shares held for short periods with a far stiffer ‘transaction’ tax on trades. This would shift some of the burden from profit bookers who play the market to aam investors who buy shares for dividends.
As it is, India has far too few dividend seekers, a legacy of corporate apathy for minority shareholders, poor profit payout ratios and an equity cult that privileges gains on ticker-tape gambles over actual investments. This needn’t matter, but it does. So long as stockmarkets are popularly seen as a closed club of the big and foreign, with market indices a reflection of their interests, any policy shift made at the behest of big capital will be viewed with knit eyebrows.
Like it or not, the air is already thick with suspicion, its brunt borne by allocations of natural resources. In the days of Central Planning, the Centre could argue that keeping input costs—airwaves, coal or whatever—artificially low was its chosen way to maximise consumer welfare and economic expansion, and that telecom and energy were sectors all too vital to expose to market forces. That would have kept the policy framework above argument and directed attention to the fairness of its execution and evidence of kickbacks if any. But those days are allegedly over, leaving policy after policy mired in doubt over who gains what from each twist. Why let Gaar go the same way?
‘Aargh’ or ‘aaah’, India’s market economy is unlikely to get all that far without a critical mass of aam investors cheering India Inc on.