India markets close in 4 hours 36 minutes

Modi needs to give bankers, investors proof that he will protect them

Sunil Jain
narendra modi, pm modi, modi government, banking system, new banking scheme, investors, angel tax, ESOP tax scheme

All too often, when a problem is highlighted in some government plan/scheme, bureaucrats come up with a fix and, we're told, the problem has been taken care of; problem is, often enough, the problem reoccurs. A recent example of this is the angel tax that had the start-up community rightly exercised; despite various iterations, experts say the fix still doesn't address the problem and, it appears, the ESOP tax seems to be going the same way.

Another area where this keeps coming up is in the protection being given to bankers for commercial decisions they take. This is critical because, in the past, bankers were being held responsible for loans going bad even if there was no fraud on their part. Faced with this, one of the first things the Modi government did was to talk of changing the Prevention of Corruption Act (PCA) to fix this; henceforth no genuine business decision would be investigated. Why this took so long is not clear, but in 2018, the PCA was changed.

Clearly this wasn't enough, so this was followed by setting up an advisory board last year to probe graft allegations; it was only after this board felt the decision was mala fide that the CBI proceed against the banker. It seems this fix too had some loopholes, so the order has been reissued with some changes.

If bankers are still not convinced that they will be protected, can anyone blame them? If the government really wants the bankers to believe it, it needs to show proof that the system will work. There are, right now, 5-6 bank chiefs who are being probed by the CBI and ED; the number of officials of a lower rank runs is much larger.

To see if the system works, why not hand over these cases to the panel for examining mala fide? A large number of the cases should get dropped if you go by what many experts in the banking fraternity say. If the government chooses not to act on grounds that it can't apply the rules retrospectively, there is the danger that its latest actions won't convince bankers or other PSU officials who face the same issue.

The issue of tax terror is quite similar. The government regularly promises to stop the UPA's tax terror and, in fact, the BJP even campaigned against the retrospective tax amendment. Yet, when it came to power, it didn't scrap the amendment and, despite promising to accept court/tribunal rulings on the tax demands, the government did its best to not allow the global arbitration under various bilateral treaties.

So if the government wants to send out a message that tax terror is over, it should examine the tax cases and scrap the tax-terror cases itself. Anything less than this won't help convince investors things have changed.