More the retro, less the going forward

Retrospective government action has again come into question, this time over telecom spectrum charges imposed over a decade ago on Airtel and Vodafone that were struck down by Bombay High Court on Monday. The verdict, however, contradicts an earlier ruling by Madras High Court on the same levy challenged by Aircel. The matter will now have to be settled in the Supreme Court, whose ruling on treatment of spectrum as a scarce natural resource led GoI to impose the charge in the first place.

This is not the only run-in the telecom industry has had with retrospective action. GoI had amended the law to introduce retrospective tax after Supreme Court ruled in favour of Vodafone over transfer of Indian assets by overseas owners. A decade later, the law was revoked following a string of losses in international arbitration.

It can be argued that retrospective governance arises from extraordinary circumstances. The spectrum charge was imposed after a nationwide outcry over corruption in telecom licences. Likewise, Supreme Court recently upheld retrospective GST on online gaming because state governments were losing agency in an epidemic of wagering. Yet, the ends do not justify the means in most cases. And a steady stream of 'extraordinary circumstances' can smell like policy by whim.


Retrospective executive overreach draws criticism for being undemocratic and violative of rights, and for not being in consonance with the rule of law. In the Indian context, such action weakens the investment climate, which can be particularly damaging for an economy trying to grow rapidly and finds investors packing bags.

Legal systems vary on the leeway given to retrospective government action. Yet, such action upsets market dynamics in ways difficult to rectify later. Shifting goalposts after the game has started changes the game for the worse. Instead of afterthought, governance does better when it is thought through. Admittedly, India has rarely taken recourse to retrospective taxes and charges. Every instance, though, reduces investor confidence.