With Devas judgement, Modi government cleans yet another UPA mess
The Narendra Modi government on Monday heaved a sigh of relief after the Supreme Court junked the appeal filed by Devas Multimedia against the decision of the National Company Law Appellate Tribunal (NCLAT) which in turn had upheld the NCLT decision to wind up the company.
Had the Modi government not resorted to timely action by ensuring that ISRO’s commercial arm, Antrix, moved the NCLT for liquidation of Devas on the allegations of fraud, the Union of India case against the arbitration award for Devas, currently under consideration of Netherlands court, would have weakened. The Devas-Antrix deal was signed in 2005 and was cancelled by the Manmohan Singh government in 2011 amidst allegation of corruption but without invoking the national security clause.
While India’s case has been bolstered internationally with the SC judgement, it is quite evident that the Narendra Modi government has spent considerable time from sorting out the mess left by the previous UPA regime - be it retrospective tax, oil bonds, defaulting on CST payments to states and ballooning fiscal deficit. Let’s examine these pitfalls one by one.
During the UPA regime, oil marketing companies had massive under-recoveries as the retail fuel prices did not keep in pace with the global crude oil prices. Instead of compensating the oil companies through fuel subsidies, the government converted under recoveries into long term oil bonds and postponed the payments. It is the Modi government that is now paying through its nose for UPA’s mismanagement as close to ₹10,000 crore have been paid annually as interest on oil bonds worth ₹1.3 lakh crores issued by the previous UPA regime.
Another UPA era legacy that the present NDA regime has to contend with are non-performing assets or bad loans that have wrecked the banking sector. During the previous regime, public sector banks lent thousands of crores to politically connected fat cats often without due diligence. Fact is that in some cases, defaulters managed to get new loans to pay off old loans.
Breaking promises to states
The transition towards value added tax or VAT led to gradual reduction in the central sales tax (CST) distributed among the states. The UPA government, despite repeated assurances to states on compensation for lost share of CST collections failed to fulfill the promise. In 2015, the Modi government approved ₹33000 crore as CST compensation, restoring confidence in Centre-State relations and paving way for the GST implementation. Fact is that the previous regime did not even properly devolve the share of taxes due to states. The CAG has pointed out that for several years between 2004 and 2014, the Centre had devolved less than the due share of taxes to the states as a result of distrust was generated between Centre and States.
High fiscal deficit
The high fiscal deficit was yet another landmine left behind. The average fiscal deficit under UPA II was between two to 5.5 per cent of the GDP. This meant that immediate course correction was needed to avoid inflationary pressures and substantial borrowings. Since, 2014, the Modi government has stuck to fiscal prudence without compromising on welfare measures for poor and without imposing additional burden on middle class.
In 2012, UPA regime retrospectively changed the Income Tax Act to tax transactions involving sale and transfer of shares outside India, where the underlying assets are in India. The controversial retrospective tax amendments adversely impacted India’s image as an investor friendly destination. Further, this amendment caused international embarrassment to India as it caused legal disputes with Vodafone and Cairn, in which the country had to face legal setbacks. It was left to the Modi government to undo this blunder.