They say that in India we don’t honour contracts. We seem to
neither value the importance of contracts nor do we have a system to enforce
the contracts – one could also argue that because contracts can’t be enforced,
we don’t value them.
This Op Ed in today’s ET mentions how the “government’s
actions” (here by “government”, I mean the legislature + judiciary) have run
afoul of big deals / contracts resulting in a slew of international arbitration
cases being filed against INDIA.
Modi and Jaitley team is hardly displaying the calibre or
sensitivity to mending India’s image on an aspect which influences FDI
decisions and India’s pathetic ranking on the index of ease of doing business.
Indian companies and parties, unlike foreign entities, cannot appeal beyond the
Supreme Court so they must quietly submit to expropriation of their earnings
and assets by mindless claims of taxes and duties, sometimes decades old.
Babus are known to introduce ambiguity and complexity in
rules and laws to preserve their rent seeking rights. Is software package a
product or a service? Courts in India have given conflicting ruling so most
companies (we too) charge both VAT (which is a tax applicable only on goods)
and Service tax on it. Today’s paper has a story that Telecom companies face a
similar dilemma on Spectrum cross sales (recently Telcos have been allowed to
trade excess spectrum so that resource utilisation improves and “call drop”
problem is mitigated).
What is the remedy?
For one, the legislators (and particularly, the members of the drafting committees) should undergo training in top class law Universities – the language in our laws is ambiguous and incomprehensible. Secondly, the politicians are either not qualified or they don’t have any concern for the consequences people suffer due to bad or complex laws. Thirdly we need to introduce a new subject, “Transaction Cost” and this must be taught to all legislators. The transaction cost is incurred by the person(s) being asked to comply with a law and also by the law enforcers – this must be estimated in monetary terms as well as non-monetary terms – like what are the chances the law will induce the concerned people to break the law AND getaway. We have made many laws which have forced “relatively” honest persons to break the law (like 97.5% income tax on the highest slab, during Indira Gandhi’s time).
For one, the legislators (and particularly, the members of the drafting committees) should undergo training in top class law Universities – the language in our laws is ambiguous and incomprehensible. Secondly, the politicians are either not qualified or they don’t have any concern for the consequences people suffer due to bad or complex laws. Thirdly we need to introduce a new subject, “Transaction Cost” and this must be taught to all legislators. The transaction cost is incurred by the person(s) being asked to comply with a law and also by the law enforcers – this must be estimated in monetary terms as well as non-monetary terms – like what are the chances the law will induce the concerned people to break the law AND getaway. We have made many laws which have forced “relatively” honest persons to break the law (like 97.5% income tax on the highest slab, during Indira Gandhi’s time).
