BCAS President CA Mihir Sheth’s Message for the Month of May 2023

In my previous month’s communication, I had promised that I will delve deeper into the subject of ‘Capitalism’ this month. The trigger of this thought was the recent failure of a few prominent banks in the USA. Any financial collapse results in a loss to the common man the most. Also, in most cases, it is true that such collapses have their root in the unbridled greed of the few privileged people who take the wrong advantage of the eco-system provided by capitalism. If we look at the history of major failures of the enterprises or financial system we will find that somewhere human greed has subverted the purported benefits of capitalism.

The reason of examining here whether capitalism is good or bad for the society is not academic. The reason is that India today is on the cusp of a major turnaround. Socialism practised for many decades in India started to give way in the early nineties and after many years of calibrated policies and a slow change of mindset, we now sing praise for the spirit of the free enterprise promised by capitalism. Is it going to be a game changer to alleviate poverty? Is it going to reduce inequality and make India an economic superpower as is the intent? Or will it put too many at the total mercy of too few to be their potential victims? Expose the large population to the risk of economic collapse?

Let us examine the concept and explore how we could leverage the maximum benefit of capitalism and reduce the risk of exploitation of common people.

Capitalism is essentially an economic system in which the operations are privately owned; and governed by the demand of a free market. It has been the stepping stone of the industrial, technological and green revolution. It has redefined the world order and rendered the role of the state perfunctory in relation to governance. Most significantly, capitalism has enabled millions to escape the clutches of poverty, increased the standard of living and paved the way for innumerable innovations, over the past two centuries by being one of the constituents in the system of capitalism as ‘owner’ or labour or investor. One cannot but agree that capitalism has played a pivotal role in making the world a better place, though not completely!

On the flip side, capitalism has many shortcomings that have severely impacted the world. Capitalism has resulted in enormous and irreversible devastation of delicate ecological systems and the environment. It has three dysfunctions that have severely negated much of the good it has done. It has ushered in unstable and unreliable growth. Driven solely by profit, capital follows where there is an opportunity and flees when there’s a shake-up. The abrupt stifling of capital leads to a recession which results in multiple ripples of misery.

Another volcano of dissent that capitalism earns is its market-driven growth that is blinkered in its compulsive pursuit of profitability. Look at the financial sector and the numerous scandals, scams and frauds will all find their roots there. There is no consideration for the slew of side effects that are detrimental to the holistic and wholesome growth of society. Humans are reduced to a commodity to be used for the benefit of a few. Technology is introduced that eliminates jobs and increases profitability. The environment is contaminated on many fronts with toxic discharges. Look at the history of industries like pharma, automobile, and chemical just to name a few and we realize how a business enterprise started with a noble intent to provide solutions for the common good shifted its gear in blind pursuit of money.

The third prong of capitalism that punctures any possibility of a well-balanced society is the audacious inequity of the distribution of capitalist wealth. There is a very pronounced disparity in income among the many layers of the population. Those at the lower end receive almost a pittance, compared to the oversized compensations paid to the upper levels. Even the concentration of assets is skewed heavily in favour of a very small proportion of people who wield enormous control.

So… is the growing enthusiasm to shift the gear to total capitalism in India will reap dividends without the possible evils discussed above? Certainly not. Regulated economy for many years since post- independence did stifle the innovation, ideation and spirit to excel. Tightened hold of control- freak bureaucracy prevented the enterprise to be competitive and efficient. From that point of view, gradually unshackling the economy was a great move forward. But we will have to learn our lessons from the experience the world’s major economies have gone through. India will have to create a support system to sound the advance warning bell for potential collapse and also create a broad regulatory framework to minimize the impact. It is definitely laudatory that some of the regulatory agencies like SEBI, Competition Commission of India, and RBI are constantly keeping vigil and taking corrective steps. The introduction of IBC is a welcome step too.

“History shows that where ethics and economics come in conflict, victory is always with economics. Vested interests have never been known to have willingly divested themselves unless there was sufficient force to compel them.” These words of Dr. Bhimrao Ambedkar explain why capitalism has flourished unencumbered for so long. It is a different matter that this holds equally true even in the state-controlled economies where a privileged few control all the resources holding millions at ransom. Looking at the history of socialism and communism that failed heavily on their promise to bring equality there is not much of an option but to encourage free enterprise. It is only the free enterprise that can give the human being the will to excel. As Nani Palkhiwala said “Distributive justice can never get off to a start when there is nothing to distribute. Socialism is like prohibition. It is a good idea but does not work. While it is possible to have economic growth in India without a social justice, it is impossible to have social justice without economic growth”. India will need to create an eco-system where it is not a shame to fail in the business, but it is shameful to be dishonest. It is a tightrope but the day it is able to inculcate this ethos it will have great future to look at with the calibrated risks emanating from capitalism.

Developments:

It has been observed that of late many Taxpayers have been receiving notices for outstanding demands relating to various years which are as old as 15-20 years.
The said demands are shown as outstandingly on the portal which have been uploaded by the Assessing Officers.

In most cases, AO would have reduced the demand or issued refunds after carrying out rectification, appeal effect etc. physically. In such cases, though, physically demand may have been deleted but no corresponding effect is given in the case of uploaded demands.

In many cases rectifications, appeal effect etc. are pending for many years in spite of correspondence which remain unattended unless there is follow-up by the taxpayer.

This results in fruitless work and a waste of time in follow-up to save taxpayers from action to adjust the wrong demand against the legitimate refunds due for subsequent year(s). We will have to renew our efforts more vigorously to have this issue resolved.