Stamp of waywardness

Just when one felt the government of Maharashtra was finally realising the error of its ways by giving up on its pre-poll promise of free power for farmers , the state has gone and promulgated an ordinance that seeks to tax all stock and commodity transactions, not just in the state but even those from other parts of the country.

The tax is to be levied on trades that take place through exchanges located and registered in the state, and that includes the best known ones like the NSE, the BSE, the NCDEX, and a host of others.

Since the intellectual inspiration for the move is probably the equally ill-advised securities and transaction tax (STT) and more recently the cash withdrawal tax, the Maharashtra government too has backed down a bit in the face of a public outcry, and now says the intention was never to collect duty from out-of-state transactions.

While the ordinance will now be reviewed and a method found to isolate the in-state and out-of-state transactions, it is surely obvious that at a time when one pan-Indian market is sought to be created for all goods and services, the Maharashtra move will serve to split markets as traders will now see whether it is worthwhile to route certain trades outside the state.

It is also open to question as to whether stamp duties should be levied on transactions that are already paying an STT.

Such events make investors lose faith in the government. After all, Maharashtra had free power for farmers earlier. This was later withdrawn, and just when investors thought the state was getting serious about power sector reforms, the Congress-NCP alliance promised free power again to win the assembly elections.

Now that free power has been withdrawn, few investors if any will rush in to set up fresh power plants in the state, as they will wait to see how things pan out in the state.

After all, the cash-strapped Maharashtra State Electricity Board’s (MSEB’s) pathetic condition cannot possibly be blamed on just the free power to farmers, most of it has to do with the poor collections of bills due and the huge power theft.

So, the state will have to demonstrate that it is serious about tackling the other issues as well. Where the state government has a good record, investors would be willing to give it the benefit of doubt.

But when the government feels free to change policy as and when it likes, investors usually vote with their feet.