Economic Highlight

New Delhi, 12 July 2021

Cairn Affair

   MESSY, IMAGE SULLIED

   By Shivaji Sarkar

No sooner the new-look Union Cabinet with 43 fresh inductions, many bureaucrats starts the Modi-II second innings, the country gets a shock from a French court freezing residential properties owned by Government of India in the wealthiest central Paris, following a retrospective tax dispute with the British power and energy giant, Cairn Energy.

High taxation, retrospective tax and confusion on predating taxes is an unresolved quagmire, as recently mentioned by President Ramnath Kovind. While there is OECD move to have global minimum tax on corporate at 15 per cent or higher, no such view has as yet been moved for individuals. India hiked the personal income-tax to 42 per cent plus cess, almost 45 per cent. The UPA government introduced the controversial retrospective tax in March 2012. The NDA II was expected to make amends after 2014, but a bureaucrat-pressured system continued with the supposed oddity.

The French court decision is unfortunate as it is feared to start a new diplomatic conflict as it also impinges on the sovereignty of the country. Plus, it sets a bad precedent and may create an image that India can be taken lightly by MNCs and other private players.

The decision will impact 20 properties valued at Euro 20 million (Rs 177 crore), as part of a guarantee of the debt owed to Cairn that exited India a few years ago. The company with market capitalisation of £755 million (about Rs 7,800 crore) -- has filed cases in several countries to pursue the unpaid international arbitration award of $1.7 billion (Rs 12,750 crore).

In fact, in January 20, 2012 in a similar case, the Supreme Court of India ruled in favour of Vodafone overturning a 2010 decision of Bombay High Court, which had ruled that Vodafone was liable to pay $2 billion as income-tax because of the Indian capital gains taxes (CGT) applied on the share transfers between two non-resident entities. The apex court ruled that CGT was not applicable and added that Rs 2500 crore which Vodafone has already paid should be returned. Shockingly, our smitten tax officials took a different route to circumvent the apex SC ruling by the introduction of retrospective tax in March 2012, allowing the government to levy CGT, a move that was piloted by the former Finance Minister Pranab Mukherjee in 2012.

Thereafter, former Finance Minister Arun Jaitley in March 2018 had said the decision to tax Vodafone retrospectively by the UPA government was erroneous and also the “present government will not be going down that path”. On July 18, 2014, he had said that India would not levy any tax with retrospective effect that creates additional burden. But he made no move to repeal the 2011 law, which creates policy uncertainty. Investors are wary of it and retroactive tax bill of $ 2.6 billion.

The statements of Jaitley and Prime Minister Narendra Modi pledging not to use retrospective taxation to overturn on Cairn Energy were used by a three-member tribunal at the Permanent Court of Arbitration in The Hague on December 20, 2020 to rule that the 2006 re-organisation of Cairn Energy’s India business prior to listing on local bourses was not “unlawful tax avoidance” and ordered tax authorities to drop the tax demand. This didn’t happen due to bureaucratic audacity. The NDA government has stuck to the stand and has now challenged the award arguing that bilateral investment treaties cannot override legislature’s powers.

Cairn has moved for an arbitration award in other jurisdictions in different continents, including the US, the UK, Canada, Singapore, Mauritius, France and the Netherlands as the company intends to focus on high-value assets. It had filed cases in the Southern District of New York, seeking judicial confirmation that Air India can be classed as the alter ego of the Indian state and thereby jointly liable for the arbitral award.

Cairn Energy has submitted detailed series of proposals to Government of India for settlement of the case. But the NDA government is now opposing its own stand. And this is because of reticent officials, whose ego is hurt as also perhaps they apprehend action against them for the folly they have committed.

The Cabinet rejig is significant from the point of view of the corporate sector. There are many IAS, some IPS and other officials as also scions of the Scindia family. Being ministers they grow in stature and influence but it’s difficult to understand what changes they would make to citizens’  lives. Some ministers that were dropped had a better rapport with the people and now many inducted are so steeped in “power” they are unwilling to extend access to the commoners. Instead it reserved for the monetarily or otherwise powerful. This obviously serves the corporate well. And if the Neera Radia Tapes and Vaishnavi scandals are instances, it means they have powers, perhaps more than the most powerful. Ministers can thus be in business but would they make a difference to mundane lives?

While many would be perceived as such, three ministers are learnt to be victims of different lobbies – IT Minister Ravi Shankar Prasad because of social media, which had banned him for 24 hours; Health Minister Harsh Vardhan because of pharma lobbies plus his own medical fraternity from AIIMS and ICMR and Labour Minister Santosh Gangwar due to industries, which didn’t want a favourable labour code.

Ministers need to understand and learn to perform as well as be accessible to people. Accessing a minister is right of the people but denial has become common. Inducting seven ministers from Uttar Pradesh and having another seven from Gujarat is good for poll-bound States. But delivery and not propaganda needs to assured. A criteria, which shall decide how the current government is operational. However, delivery many a times is blocked by bureaucracy on the silliest pretext, even in an era of direct benefit transfer, which the common man expects easily.  

And ministers may be fine individuals, but political persons won’t be able to function because of such hurdles. The French court decision on Cairn is of national concern. One company is sullying the image of the country across continents and topmost bosses are prevented from correcting it. India has to lead in smoothening the tax process as also reducing it, if the government wants a quick economic recovery. Modi has to ensure a Cairn or Vodafone is not repeated and bureaucrats do not muddy the waters. ---INFA

(Copyright, India News & Feature Alliance)