Modi Govt cleaned up yet another UPA mess with Devas decision

Modi government

The Narendra Modi government breathed a sigh of relief on Monday after the Supreme Court dismissed Devas Multimedia’s appeal against the National Company Law Appellate Tribunal’s (NCLAT) decision upholding the NCLT’s decision to wind up the company.

The Union of India case against the arbitration award for Devas, which is currently being considered by a Dutch court, would have weakened if the Modi government had not taken prompt action by ensuring that ISRO’s commercial arm, Antrix, moved the NCLT for liquidation of Devas on fraud allegations. The Devas-Antrix deal was signed in 2005 and cancelled in 2011 by the Manmohan Singh government amid allegations of corruption, but without invoking the national security clause.

While the Supreme Court’s decision has bolstered India’s case internationally, it is clear that the Narendra Modi government has spent a significant amount of time cleaning up the mess left by the previous UPA administration – be it retrospective tax, oil bonds, defaulting on CST payments to states, or a ballooning fiscal deficit. Let’s take a look at each of these pitfalls one by one.

OIL BONDS

Oil marketing companies experienced massive under-recoveries during the UPA administration because retail fuel prices did not keep up with global crude oil prices. Rather than compensating the oil companies with fuel subsidies, the government converted under-recoveries into long-term oil bonds and deferred payments. The Modi government is now paying a high price for the UPA’s mismanagement, with annual interest payments of nearly ten billion rupees on oil bonds worth 1.3 lakh crores issued by the previous administration.

NPA CRISIS

Non-performing assets (NPAs) or bad loans, which have wreaked havoc on the banking sector, are another legacy of the UPA era that the current NDA administration must deal with. Thousands of crores were lent to politically connected fat cats by public sector banks during the previous regime, often without due diligence. In some cases, defaulters were able to obtain new loans in order to repay their previous debts.

States’ promises are being broken

The move to a value-added tax, or VAT, resulted in a gradual decrease in the central sales tax (CST), which was distributed among the states. Despite repeated assurances to states about compensation for lost CST collections, the UPA government failed to keep its word. The Modi government approved a CST compensation of Rs. 33000 crore in 2015, restoring confidence in the Centre-State relationship and paving the way for the GST implementation. The truth is that the previous administration did not properly devolve the tax burden to states. According to the CAG, the Centre devolved less than the due share of taxes to the states for several years between 2004 and 2014 as a result of mistrust between the Centre and the states.

Fiscal deficits are high.

Another landmine left behind was the high fiscal deficit. Under UPA II, the average fiscal deficit was between two and 5.5 percent of GDP. To avoid inflationary pressures and significant borrowings, an immediate course correction was required. Since 2014, the Modi government has maintained fiscal discipline without compromising on welfare measures for the poor or adding to the burden on the middle class.

Taxation with retroactive effect

The UPA regime changed the Income Tax Act in 2012 to tax transactions involving the sale and transfer of shares outside India where the underlying assets are located in India. India’s image as an investor-friendly destination has suffered as a result of the contentious retrospective tax amendments. Furthermore, this amendment caused India international embarrassment by causing legal disputes with Vodafone and Cairn, which resulted in legal setbacks for the country. It was up to the Modi government to correct this error.

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