‘Squarely blame Supreme Court for economic slowdown’: Harish Salve in conversation with Indira Jaising 

[dropcap]A[/dropcap] prominent Supreme Court lawyer and luminary of Indian judiciary, Harish Salve (HS) has many feathers in his cap. Besides constitutional law, he is known for his expertise in commercial and taxation law. During a freewheeling conversation with senior lawyer Indira Jaising (IJ), the former Solicitor General talked about economic-slowdown, demonetisation and environment.

Besides the apex court, he held “faulty” implementation of the demonetisation policy partly responsible for the downswing. He said that the Income-tax department is virtually setting the agenda for the Parliament. Commenting on wood imports, he stressed on turning India’s barren lands into wood farms. Here’s the transcript:


IJ: Mr. Salve, you are known for your grasp on the economic laws and tax laws etc. We hear that the Indian economy is not doing too well. In a previous conversation in 2016, you had said that the banking sector in India is going through an extreme crisis. What is your understanding of how the country’s economy is doing today?

HS: Indira Jaising and Prashant Bhushans have succeeded in injecting a great degree of transparency into the system. So, the speed dial culture has died. A lot of big businesses which survived on the speed dial culture and ratcheted up a huge amount of debt, are now facing the flak.  That has a dampening effect on the economy. But I think that is a cleanup we needed even if there is an economic price in the short term.

Having put that to one side, I squarely blame the Supreme Court.  I can understand holding people responsible for the wrong distribution of licenses in 2G… Blanket cancellation of licenses where foreigners are investing… see when a foreigner invested it was your rule which said he must have an Indian partner. The foreigner did not know how the Indian partner got a license. Foreigners invested billions of dollars, and with one stroke of the pen, the Supreme Court knocked all of them out. That’s when the decline of the economy began.

Foreign investment became risky — retrospective change in Vodafone. People started wondering, the great strength of India was, people felt, yes we know the bureaucracy is a problem, we know your income tax is a problem but the courts there will give us justice. Vodafone removed that confidence which people had. People now had to factor in – you win in the tribunal, they will make a retrospective law and change it.

So the Income-tax department is virtually setting the agenda for the Parliament. Now that on an international level, I now advise clients overseas, when they come and say, can you win the case? I say, yes I can win the case, and then what if there is a retrospective law, will it be valid? Of course, it won’t be valid. Then how can we invest? I say it’s a risk. So what happens immediately? And I’ll tell you why I’m saying this. We want a 25 percent return; then we will invest. We won’t invest otherwise…

IJ: Surely, that’s beyond all expected returns for any investor. Which investor can ask for a 25 percent return?

HS: So you are looking at risk. You are willing to gamble at 25 percent. You won’t gamble at 15 percent So what does Café Coffee Day have to do? Whom do you blame? You blame the uncertainty, and two elements have created uncertainty. One is the executive government, the way your Enforcement Directorate (ED), your Income Tax (department) work.

An Income Tax Officer disallowed software export to IBM, saying that IBM has not proved that it is in the software business. He said, all the money, the billions of dollars that IBM centres in India earn, are actually money laundering from the US.

IJ: This reminds me of what they said about Lawyers Collective, that working on women’s rights and HIV affected persons is not within the mandate of our NGO. However, on a larger issue…

HS: So, let me tell you, this is the executive government. The Supreme Court, the way they have been completely inconsistent in dealing with commercial cases, causes grave concern in the minds of investors. So, you increase the price of an investment.

You cancelled coal mines by one stroke of the pen, without examining the merits of every case. Much genuine foreign investment in the coal industry went flat.  Then what happened? Indonesian coal and other world coal prices softened up. It became cheaper to import. Correct? A few million people are without jobs in India. Indian coal mines are lying closed, and we are importing coal. That is putting pressure on the economy.

Iron ore mines. I must say, I’ve read that judgement of the Supreme Court and have always fought for the environment. That judgement is a howler. You’ve shut down all iron ore mines — iron ore cases of Goa. Justice Pattnaik’s bench opened the Goa mines. There were people who invested in a barge. You know how Goa works. People who bought barges, people who bought trucks, you shut down.

So then, demand falls. So, this is how you unravel and believe me, the Government of India sent seven of their senior secretaries to consult me on how to deal with that Supreme Court judgement, and one of them said that this judgement will cost India 1 percent plus of GDP, and that has happened.

IJ: It has happened. Let me shoot this question at you: What was your view of the impact of demonetization? First of all, was it necessary at all, and secondly, its impact?

HS: See, demonetization, by itself was not a bad measure. Its implementation left a huge amount to be desired, but that’s India’s problem. Even the best measures fail because of bad implementation. Let me tell you from where I look at it. It has had two impacts – in the short term it has seriously hit your GDP. We had a very interesting discussion at Oxford University once where they said, why has the global meltdown of 2008 not affected India so badly? They said 30-40 percent of the Indian informal economy is not in the books. You know, your plumber who fixes your tap, the fruit vendor, vegetable vendor who comes to your house and sells vegetables, they are below the radar. They all sell in cash; they all work in cash. There was no transition facility made for them. It is fantastic to transition them into the digital economy.

Whether demonetization, the way it was implemented, was the only way? I don’t know enough to say that it was. In the short term it has definitely impacted your economy. The good which has come out of it is that a large number of bogus companies have been exposed and there is a lot of cleanup going on, so some good has come out of it. But yes, in the short term, it did affect your informal economy. I am not holding any brief for those who had sack-fulls of cash in their house and therefore burnt the cash.

IJ: Finally, Mr Salve, coming back to the environment, you have been involved with the Godavarman case since a decade now…

HS: Twenty-three years, not a decade. Twenty-three years.

IJ: Twenty-three, two decades ago, but you know, I have seen people who now import wood from Malaysia and places like that. As an environmentalist, do you think that the 23-year battle has actually done anything for this country?

HS: See, where we succeeded and where we failed. We injected some degree of transparency into the working of state governments after which the task became so huge. It became impossible for SC to deal forest by forest.  I mean, it’s just impossible. So, we tried our best; unfortunately, the rot lies in the states, as they say, and that administration never came into the mode where we could have controlled this.

Second, and more important is, alongside that, we tried a push for wood farming. India has extremely large tracts of wasteland which, through the investment of technology, can be converted to timber farms. The reason I say 23 years is, 20 years is the maturing time for a tree. If in 1996, ‘97, ’98, we would have started farming, today you would have had alternative forests ready.

IJ: But wasn’t that the purpose of Net Present Value (NPV) ?

HS: It was, but I don’t think the money will be lying in a bank account and governments are now getting greedy for that money because the governments are perpetually short of money. I think, it’s some 40,000 crores. Can you imagine if half of that goes into developing wood farms, we can become a wood exporter, and we will be able to convert so much wasteland…

IJ: Or for that matter, clean air. I mean, you’ve also been involved in clean air issues.

HS: See, if you convert degraded land into wood farms, the economics will pay for it because you will sell the wood. It takes 20 years for a tree to mature, but the tree turns green right from the age of 2-3. So the growing tree changes your environment for the positive, it changes your land for the positive and it changes your airshed for the positive.

IJ: Yes, of course, but quite apart from that, India’s environment is so polluted that many of us feel we can’t breathe.

HS: Because the airsheds have got damaged, you don’t have trees which are natural filters.


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