Why the Finance Bill is Worrisome by Mihir Sharma

Relatively quietly, the Union government has just undertaken an unprecedented power grab — one that should worry not just citizens and taxpayers but also foreign investors. And it comes in the most unlikely of places: the annual federal budget.
The presentation of the budget is a fairly splashy event; it’s announced by the finance minister in a speech to parliament that usually reveals the direction of economic policy in the coming year. Once the speech is done, the budget usually vanishes from view: Lawmakers debate and negotiate, a few minor amendments are carried out, and a finance bill is passed, turning the budget into law.

Not this year, however. While the budget itself was lackluster — with a few handouts, but no real growth-promoting reform — what happened afterward has been startling. The government decided to tack on amendments that are worrying in both intention and execution. These amendments change as many as 40 other laws, and will have wide-ranging effects. They seem to suggest the worst: that Prime Minister Narendra Modi and his government are trying to expand the powers of the Indian state in ways not seen for decades. Also, he’s getting away with it.
Here are just a few things that the new bill does. It will allow Indian companies to donate as much money as they like to political parties, by removing a cap linked to net profits that’s been in force for years. Voters won’t have a chance to examine which company is giving money to which politician; all donations will henceforth be anonymous. An earlier requirement, that a company officially declare its political contributions, has been erased.

Another amendment merges various “tribunals,” or quasi-judicial bodies that examine appeals of regulatory decisions and which are, essentially, ways to get around the widespread rot in regular courts. This might seem like straightforward rationalization, but it’s not. In fact, the government will now “make rules to provide for the (i) qualifications, (ii) appointments, (iii) term of office, (iv) salaries and allowances, (v) resignation, (vi) removal, and (vii) other conditions of service” for the tribunals’ members. In other words, the executive has been given arbitrary power over the tribunals. It’s trying to subvert and control a slew of hitherto independent institutions. The Indian state is already relentlessly litigious and a dangerous enemy. The government has just made that problem much worse.
Most worrying, perhaps, is the way the bill will expand the power of income-tax officials. Indians were already concerned that the prime minister would unleash “tax terror,” using tax raids and claims against political opponents. In the process, they worried, ordinary taxpayers would have to endure arbitrariness from the authorities.
Those concerns now look justified. Soon, an income-tax officer will be able to waltz into anyone’s house or office to conduct a search or a seizure — and not even have to explain why. Not to you if you’re being investigated, and not even to the tax tribunal you would appeal to for help. With almost comical villainy, the government has even made this apply retrospectively — the tax guys can, without explanation, investigate you or your company all the way back to 1962. This after Finance Minister Arun Jaitley has insisted several times that he doesn’t believe in retrospective tax law.

So why is the government getting away with this headlong expansion of its power? Because the annual finance bill is what is called a “money bill” — unlike regular legislation, it doesn’t need the approval of the upper house of India’s parliament. It only needs the lower house to pass it. Right now, Modi’s party has a majority in the lower house, but not in the upper. By tacking these changes onto a money bill, the government has ensured that they’ve been signed into law by Modi’s partymen in just one house.

The larger trend here is what should worry us. India has worked as a democracy and as a slowly liberalizing economy precisely because there are at least some checks on government power. Already, anyone doing business in India knows that half your time — perhaps more — is spent getting on the right side of the government. But the courts, the tribunals and the upper house of parliament have all acted as constraints on the executive. Modi, empowered by his huge victory in recent local elections, is trying to reduce the power of these checks. Together with his decision to turn hard right on social policy, and left on economic policy, this expansion of his government’s power suggests Modi’s chosen path for India is far less liberal than earlier hoped. more