A Threat to Investment

Retrospective policy changes have previously plunged the economy into uncertainty—now, a similar situation looms again

- M GOVINDA RAO

Achieving the aspirational target of increasing per capita income to attain developed country status by 2047 requires the economy to grow at an average rate of more than 8 percent per year over the next 23 years. At the prevailing incremental capital-output ratio, this requires the economy to enhance the investment rate to about 40 percent of gross domestic product (GDP) from the present estimate of 32 percent.

This calls for, inter alia, an accommodating, stable, and forward-looking policy environment in which all three arms of the government—the legislature, executive, and judiciary—and the Union, state, and local governments coordinate policy formulation and implementation effectively.

To have an accommodating investment climate, it is important to ensure stable governance. Clarity in constitutional assignments, coordinated policy calibration, certainty in governance, and consistency in court judgments are important preconditions to creating a stable investment climate in the country. The environment gets vitiated when judgments take a retrospective approach, as investors do not expect rules to change for past business activities.

In this context, the significant adverse economic implications of the judgment by eight judges in the nine-judge Bench of the Supreme Court last year, led by then Chief Justice DY Chandrachud, in the case of Mineral Area Development Authority & Anr. vs M/s Steel Authority of India & Anr., have largely gone unnoticed.