Congress prejudices hit economic federalism

By Ashok Malik | Place: Mumbai | Agency: DNA

The fifth Vibrant Gujarat summit this January saw 7,936 memoranda of understanding (MoUs) announced, committing to invest $462 billion. The cream of Indian business was in Gandhinagar for the summit, as were business delegations from as far apart as Japan, the United States and Brazil.

Forty-five countries and 19 other (non-Gujarat) Indian states made presentations and solicited business opportunities at an event that has established itself as India’s premier investor conference.

Missing at Vibrant Gujarat was the Indian public sector, those companies owned by the Union government. ICICI Bank signed a deal with Gujarat promising credit to developers and users of infrastructure projects. At least six Indian public sector banks had negotiated similar arrangements but were prevented from finalising these following instructions from the finance ministry in New Delhi.

Last week, the income-tax (I-T) department, acting on a vague complaint by Congress politicians in Gujarat, asked the Narendra Modi government to furnish details of all investors and companies that had agreed to put in at least Rs1,000 crore. These would be investigated for possible tax evasion. It was clear the UPA government was out to sabotage Vibrant Gujarat and send a menacing signal to business groups that had flocked there.

There are three issues worth noting here. First, the I-T department’s notice to Gujarat is not just blatantly political but also illogical. If X buys a house from Y and pays Y with money that has been earned illegally, the tax authorities need to serve a notice on X, not on Y.

That apart, investment coming into Gujarat, whether from Mauritius or Mumbai or Manhattan, is being routed through banking channels and not arriving in suitcases. If the finance ministry and its agencies want to scrutinise these channels, they can do so even without telling the Gujarat administration.

So what explains this sledgehammer message to the Modi government?

Second, it is possible — though of course improbable — that the Congress-led government in New Delhi has decided upon a crusade against black money, and that it believes corporate India (as well as foreign entities investing in Gujarat/India) are awash in ill-gotten wealth, in profits from the narcotics trade and organised crime and so on. It may even believe Vibrant Gujarat has become a rendezvous of such evil money.

If so, why did Congress-run states such as Andhra Pradesh participate in Vibrant Gujarat, and attempt to persuade the same companies that were investing in Modi territory to pour funds in their direction as well? Should the I-T department send a notice to the Andhra Pradesh government as well, asking it why it is soliciting investment from suspected tax evaders and sources of criminal capital? Alternatively, does the colour of money change (from black to white or maybe ‘communal’ to ‘secular’) when it leaves Gujarat and enters, for example, Maharashtra?

Third, the Gujarat episode only affirms the need to redefine the contours of economic federalism. In Gujarat, the Congress tells public sector companies to stay away and blackmails the private sector. In Orissa, the BJD government’s efforts to revolutionise the economy, by getting Posco to set up a giant steel facility and Vedanta to build an aluminium plant, are tripped by a prejudiced environment ministry and its handpicked committees.

In Uttar Pradesh, the BSP government’s proposal to host a new airport in the western part of the state - bordering the national capital, in the region between Greater Noida and Aligarh - is cussedly denied the green signal. The Congress wants to wait till the 2012 state election so that Rahul Gandhi can make the new airport a poll promise and deprive Mayawati of credit.

India has moved enormously since 1991 and states have far greater economic and financial autonomy today. Even so, the residual powers that remain with the Union government can be leveraged to lethal effect by a bloody-minded ruling party. This is exactly what is happening in state after state ruled by non-UPA parties, particularly those showing business potential.

In the 1980s, an underlying principle of non-Congress unity was political federalism and the need to guard against misuse of Article 356, which allowed the Union government to dismiss state governments at whim.

Today, economic federalism is under siege. The NDA needs to make greater freedom for the states in economic policy, decision-making and regulation one of its core goals. After the UPA experience, New Delhi can’t be trusted. Ask Gandhinagar, Bhubaneswar, Lucknow.