The West Bengal government’s new law against incentives to industry is bad in law and against contemporary economic logic.
What is especially troubling is its retrospective application from 1993. In fact, a law was necessitated only for its retrospective application, because abolishing incentives could have been done by just a policy.
Retrospective application of law is against the principle of rule of law. No action can be deemed illegal or punishable without breach of explicit law. The industries have not violated any law, and asking them to return, any incentive they have received since 1993, is punitive.
It’s also against estoppel and legitimate expectations. Industry was entitled to expect what was declared by policy and was a part of the bargain, the government cannot go back on it. While there cannot be an estoppel against law, even law cannot violate legitimate expectations.
The law is also against prevailing economic sense. Current economic order is investment based, and the entire world is competing for attracting investment. In such scenario, this law would scare away both existing and future investment in the state.
The state would be in no position to make up for the loss of investment. It would also result loss of jobs. It may also affect the spread of technology and innovation, in what is fast becoming a knowledge economy.
Seen from a different perspective, and sans retrospective application, the law is in accordance with principles of distributive justice. Any incentive from the state exchequer can be given only to the most disadvantaged people.
The aim to generate fiscal space for welfare schemes, is also noble, but it cannot be at the cost of investment. The retrospective service tax on Vodafone by the upa government created, negative investment environment for the government.
The government should immediately reconsider its law.
