Sometime in mid-2016, the revenue secretary Hasmukh Adhia, quoted the prime minister Narendra Modi as saying: “You should behave like mentors to people, rather than invaders. Don’t presume that every one is tax evader.”
The “you” in this case were tax administrators. Prime minister Modi was speaking at a two-day annual conference of tax administrators. He also asked taxmen to be soft and sober in their approach towards those who pay tax.
The Economic Survey for 2017-2018 released yesterday reveals that the taxmen across board are anything but soft and sober towards taxpayers. And that they love to litigate and then lose.
As of March 2017, more than 1.37 lakh direct tax (individual income tax, corporation tax etc.) cases were pending at the level of ITAT, various High Courts and the Supreme Court (See Figure 1).
Figure 1: Pending Direct Tax Cases.
Source: Economic Survey 2017-2018. As the Survey points out: “Just 0.2% of these cases constituted nearly 56% of the total demand value; and 66% of pending cases, each less than Rs 10 lakhs in claim amount, added up to a mere 1.8% of the total locked-up value of pending cases.” Basically, this data shows that the cases where the amount of the tax dispute is really large, form a very small part of the whole.
A similar situation exists for indirect taxes (customs and excise) as well. Take a look at Figure 2.
Figure 2: Pending Indirect Tax Cases.
Source: Economic Survey 2017-2018.
As of end March 2017, a total of 1.45 lakh appeals were pending with the Commissioner (Appeals), CESTAT, various High Courts and the Supreme Court.
As of end March 2017, the total claims for both direct and indirect taxes stuck in litigation amounted to Rs 7.58 lakh crore or 4.7 per cent of the GDP. This value of total claims stuck in litigation has been going up over the years.
Imagine the kind of things that the government could do with this money. The trouble is that the taxmen do not have a great record at litigation. Their success rate is extremely low. Take a look at Table 1.
Source: Economic Survey 2017-2018.
As can be seen from the above Table, the taxmen tend to lose a bulk of the cases. In case of the Supreme Court, their success rate is 27 per cent in case of direct tax cases and 11 per cent in cases of indirect tax cases. This also tells us the strength of the cases brought upon the assessees are fairly week.
In fact, over a period of time, the success rate of the taxmen has been going down, the Economic Survey points out: “The [taxman] unambiguosuly loses 65% of its cases. Over a period of time, the success rate… has only been declining, while that of the assessees has been increasing.”
Despite, this lack of success, the taxmen are big litigants. As can be seen in Table 1, the petition rate is very high. The petition rate is basically defined as “the percentage of the total number of appeals filed by” the taxmen. The remaining appeals are those filed by the assessees. In case of indirect taxes, the petition rates are lower than that of direct taxes.
The taxmen don’t give up litigating easily and even if they lose at lower levels, they continue to appeal at higher levels. But as we saw earlier, at least in case of direct taxes, a bulk of these claims are of less than Rs 10 lakh. And given that the taxmen lose a bulk of these cases, this is basically nothing but the harassment of people who pay their taxes honestly.
Gurcharan Das explains one reason for this in his book India Grows at Night. As he writes: “The problem [lies] in the fact that the decision to litigate [is] made at the lowest level in the bureaucracy but the decision not to litigate [is] made at the highest level. If this process were simply reversed, government litigation would come down.”
In fact, the fact that taxmen love to litigate increases the workload on the Courts and this is something that can be well avoided. Even though, the “strike rate [of taxmen] has been falling considerably over a period of time, it is undeterred, and persists in pursuing litigation at every level of the judicial hierarchy.” And this impacts the functioning of the Courts.
As the Survey points out: “Since tax litigation constitutes a large share of the workload of High Courts and the Supreme Court, Courts and the Department may gain from a reduction in appeals pursued at higher levels of the judiciary. Less might be more.”
This is something that the Narendra Modi government needs to think about if it wants the tax to GDP ratio to go up in the years to come. The taxmen need to litigate less and concentrate on the bigger cases to be more effective and deliver more bang for the buck. But this isn’t happening currently. And most importantly, who reads the Economic Survey?
Narendra Modi, took over as the prime minister of the country on May 26, 2014. On that day, the global price of the Indian basket of crude oil was $108.05 per barrel. Back then, one litre of petrol cost Rs 80 in Mumbai. Diesel in the city was being sold at Rs 65.21 per litre.
Three years have gone by since then and meanwhile, the global oil scenario has changed completely. On September 14, 2017, the price of Indian basket of crude oil was at $54.56 per barrel, around half of what it was when Modi took over as prime minister.
At Rs 79.5 per litre, the price of petrol in Mumbai as on September 14, 2017, in Mumbai, was more or less same as it was when Modi took over as prime minister. Diesel at Rs 62.46 per litre was slightly lower.
What is happening here? While, the price of crude oil has halved, the price of petrol and diesel, which are by-products of crude oil, continues to remain more or less the same (This argument may not hold all across the country, given that different states levy different taxes and different rates of taxes on petrol and diesel).
The gain because of fall in price of oil, has been captured majorly by the central government and the state governments, by increasing the different taxes that are levied on petrol and diesel. Lately, the commission given to pumps which sell petrol and diesel, has also gone up.
A small-scale industry has emerged lately, trying to defend the high taxes that consumers pay on petrol and diesel. Here are the arguments on offer:
a) India imports 80 per cent of the oil that it consumes. Given this, prices of petrol and diesel need to be high, in order to discourage people from consuming more and more of it. The assumption is that at lower price levels, people will consume more petrol and diesel.
b) We need to respect the environment. Petrol and diesel pollute the environment, and hence, taxes on petrol and diesel need to be high.
c) The high taxes on petrol and diesel have helped the government bring down its fiscal deficit without having to cut on its expenditure. This is something that is required in an economic environment where growth is slowing down and hence, government spending needs to be strong. Fiscal deficit is the difference between what a government earns and what it spends.
d) High taxes on petrol and diesel help the government earn enough money in order to fund the physical infrastructure that the country badly needs.
e) High petrol and diesel prices push demand towards more fuel-efficient cars. Also, by taxing petrol more than diesel, the government is ensuring that the private modes of transport (which largely use petrol) are taxed more than the public modes of transport (which use diesel).
f) The oil marketing companies need the flexibility to price their products on a day to day basis. It is this flexibility that reflects in the healthy valuations that their stocks currently enjoy in the stock market.
g) High taxes help the government finance the oil marketing companies which can then sell domestic cooking gas and kerosene at lower prices.
Each of these arguments is largely correct (I mean just because a small scale industry has emerged, doesn’t mean they are wrong) except for the last one. The subsidies on domestic cooking gas and kerosene are now down to around Rs 25,000 crore, which isn’t much in comparison to the petroleum subsidy of the past years. Hence, high taxes on petrol and diesel are clearly not required to fund the subsidy.
But there is one point that these economic commentators and analysts do not talk about. High taxes on the petrol and diesel makes the government lazy and helps it to continue favouring the status quo. Allow me to elaborate. It is worth remembering here that money is fungible. Just as high taxes on petrol and diesel allow the government to fund physical infrastructure, they also allow it to do a lot of other things that a government shouldn’t be doing. Let’s look at the points one by one:
a) Between 2010-2011 and 2015-2016, Air India has lost close to Rs. 35,000 crore, and yet it continues to be run. The losses are not surprising, given that the airline business is a very competitive business and the government clearly doesn’t have the wherewithal to run it. The question is where does the money to keep bankrolling Air India come from? The high taxes on petrol and diesel. Lately, there has been talk of selling the airline. Let’s see, if and when that happens.
b) Or take the case of Hindustan Photo Films Manufacturing Company Ltd. It is the fourth largest loss-making company among the loss making public sector units. It made losses of Rs 2,528 crore in 2015-201 Between 2004-2005 and 2015-2016, the company has made losses of close to Rs 15,000 crore. As mentioned earlier in 2015-2016, the company lost Rs 2,528 crore. It employed 217 individuals. This meant a loss of Rs 11.65 crore per employee. Where does the money to run this company come from?
c) In total, high taxes on petrol and diesel allowed the government to run 78 loss making public sector enterprises in 2015-2016. Between 2011-2012 and 2015-2016, the loss making public sector enterprises have made losses of Rs 1,33,400 crore. Where is the money to finance these losses coming from?
d) Between 2009 and now, the government has spent roughly around Rs 1,50,000 crore, recapitalising public sector banks. The public sector banks have a humungous bad loans portfolio, as they keep writing off the bad loans, their shareholders’ equity keeps coming down and the government as the largest owner, needs to recapitalise them. Bad loans are essentially loans in which the repayment from a borrower has been due for 90 days or more. Take a look at Table 1.
Gross non-performing advances ratio
Indian Overseas Bank
Central Bank of India
Bank of Maharashtra
United Bank of India
Oriental Bank of Commerce
Bank of India
Punjab National Bank
Union Bank of India
Bank of Baroda
Punjab & Sind Bank
Source: Author calculations on Indian Banks’ Association data. As on March 31, 2017.
Table 1 tells us that 17 public sector banks have a bad loans ratio of 10 per cent or high. This basically means that of every Rs 100 of loans that they have given, a tenth or more, is not being repaid. The government currently owns 21 banks, after the merger of the associate banks of State Bank of India and the Bhartiya Mahila Bank, with the State Bank of India.
Some of these banks like the Indian Overseas Bank are in a particularly bad state. This bank has a bad loans ratio of close to 25 per cent i.e. one fourth of its loans have been defaulted on.
Where is the money to keep these banks going, coming from? In a world where money wasn’t free flowing because of high taxes on petrol and diesel, banks like the Indian Overseas Bank, UCO Bank, United Bank of India, Dena Bank, etc., would have already been shutdown or perhaps been sold off. These banks are too small on the lending front to make any substantial difference to the total lending carried out by banks in India. But their losses do hurt the government a lot. Every extra rupee that goes towards funding these banks is taken away from something more important areas like education, health and agriculture.
e) Also, given the different taxes implemented by different states, the price of petrol and diesel tend to vary across the country. Take the case of the government of Maharashtra charging a drought cess of Rs 9 every time one litre of petrol is bought in the state. Why is this cess even there during a time when there is really no drought in the state? It is just an easy way for the government to raise money. Most people don’t even know that they are paying for something like this, every time they buy petrol.
Hence, to introduce a sense of equality among citizens living in different states, petrol and diesel need to be taxed under the GST (They are already a part of it, with zero percent tax rates).
The high taxes from petrol and diesel also helps the government to continue running many inefficient firms as well as banks. Any plan of closing down these firms and banks is likely to met with a lot resistance and also, lead to a lot of hungama (for the lack of a better word). Given this, it makes sense for the government to take the easy way out, maintain the status quo and continue running these firms and banks.
As Donald J Boudreaux writes in The Essential Hayek: “People’s intense focus on their interests as producers, and their relative inattention to their interests as consumers, leads to press for government policies that promote and protect the interests of producers.”
Any idea of shutting down or selling an inefficient public sector enterprise or banks, is likely to be met with a lot of protests from the employees as well as the trade unions representing them. The political parties are likely to join in. Hence, it is easy for the government to maintain the status quo and not make any difficult decisions.
But the money that goes towards keeping these individuals happy, is taken away from other areas like education, agriculture, health etc. People who lose out because of this, do not have the kind of representation that people working for government run firms have.
Of course, all this does not mean that there should be no taxes on petrol and diesel. With the right to govern comes the right to tax people. But these taxes should be at a reasonable level. Also, with lower taxes, people will spend more money on personal consumption and that will help economic growth. And the impact of people spending money, on economic growth, is always greater than that of the government.
To conclude, it is worth remembering that every coin has two sides, and it doesn’t always land up heads.
The Narendra Modi government has unleashed a whole host of numbers on us, the citizens of this country, to prove how demonetisation has led to a huge increase in the number of returns filed. Different numbers have been offered by the prime minister, the finance minister, the finance ministry and the chief economic adviser to the finance ministry. Recently, there was even a clarification put out by the finance ministry regarding how to read these numbers.
This piece is not about how to read the different numbers put out by the government. For that you can read this excellent piece by James Wilson. I try and answer a different question here: Has this increase in the number of tax returns being filed ultimately led to a substantial difference in the total amount of direct taxes being collected by the central government as a proportion of the size of the Indian economy?
If it hasn’t, then the increase in the total number of returns being filed has basically meant more work and more money for the chartered accountants, and nothing else.
So, let’s take a look at Figure 1, which maps the direct taxes collected by the central government as a proportion of size of the Indian economy — that is, its gross domestic product or GDP. Direct taxes essentially consist of corporation tax, personal income tax, income tax paid by firms other than companies, security transaction tax, hotel receipts tax, etc. Corporation tax and personal income tax form a bulk of direct taxes.
The exercise has been carried out for the financial years between 2011-2012 and 2016-2017. This has been done because the GDP data is available only from 2011-2012 onwards. Also, while carrying out the calculations wealth tax has been ignored because it was abolished in the budget speech the finance minister Arun Jaitley gave on February 28, 2015. (To be honest, the collections were so small that even if they had been included, it wouldn’t have made any difference to the overall result.)
(Source for Direct Taxes data: Indiabudget.nic.in Source: Press Information Bureau, April 4, 2017. Source for GDP data: Reserve Bank of India)
Now what does Figure 1 tell us? There has been a slight improvement in the direct taxes to GDP ratio between 2015-2016 and 2016-2017. But at 5.58 per cent of the GDP, it is still trying to play catch up with the earlier years.
Also, it is worth reminding the readers here that in 2016-2017, the government got a declaration of Rs 65,250 crore through the Income Declaration Scheme, a voluntary income disclosure scheme. If we adjust for the taxes collected under this scheme, the direct taxes to GDP ratio falls to 5.48 per cent. This scheme was launched before demonetisation happened. This changes things. And this is how the real scenario looks like (See Figure 2).
What Figure 2 tells us is that demonetisation basically led to a slowdown in the economy where lesser tax was paid than in the past. The direct taxes to GDP ratio of 5.63 per cent was achieved in 2013-2014 without demonetisation.
Also, how do things look if we ignore corporation tax (i.e. corporate income tax) and look at the remaining direct taxes. This primarily comprises of personal income tax. Let’s take a look at Figure 3, which plots the ratio of direct taxes other than corporation tax as a proportion of the GDP.
(Source for Direct Taxes data: Indiabudget.nic.in. Source for GDP data: Reserve Bank of India)
Figure 3 tells us that the direct taxes other than corporation tax as a proportion of GDP has jumped by 23 basis points to 2.33 per cent in 2016-2017, in comparison to 2015-2016. One basis point is one hundredth of a percentage.
Again, the question to ask here is: Has this jump happened because of demonetisation? It has happened primarily because of the money collected as taxes and fines under the Income Disclosure Scheme. Once the tax collected under the Income Declaration Scheme is adjusted for, the ratio falls to 2.23 per cent of the GDP. And this is how Figure 3 now looks like (See Figure 4).
How do things look if we were to simply look at the corporation tax to GDP ratio? Take a look at Figure 5.
As can be seen from Figure 5, the corporation tax to GDP ratio has been falling for a while, and it continued to fall in 2016-2017 as well.
All this analysis was for 2016-2017. How do things look in the current financial year i.e. 2017-2018? We do not have the GDP data for that, so calculating the direct taxes to GDP ratio is not possible. Nevertheless, there are other ways to analyse this issue.
The Direct Tax collections up to July,2017 [i.e. between April 2017 and July 2017] in the Current Financial Year 2017-18 continue to register steady growth. Direct Tax collection during the said period, net of refunds, stands at Rs. 1.90 lakh crore which is 19.1% higher than the net collections for the corresponding period of last year.
Basically, direct tax collections have grown by 19.1 per cent during the first four months of this financial year in comparison to the same period in the last financial year. Hence, has demonetisation led to an increase in collection of direct taxes?
The figures for direct tax collections up to July, 2016 show that net revenue collections are at Rs.1.59 lakh crore which is 24.01% more than the net collections for the corresponding period last year.
Hence, in the period between April to July 2016, the direct tax collections had grown by 24 per cent, without the demonetisation of currency which was carried out in November 2016. What this tells us is that direct tax collections grew faster before demonetisation than they are growing after demonetisation.
Personal income tax collections have grown by 15.7 per cent during the first four months of this financial year. They had grown by 46.6 per cent during the first four months of the previous financial year.
So the point is that as far as the actual direct tax collections are concerned, demonetisation has clearly had a negative impact. This also explains why the government media releases tend to focus on the number of returns filed and not the tax that is being collected. More returns being filed without any increase in taxes collected simply means more work and more money for chartered accountants — and nothing else.
One argument that can be made here is that as the income earned by those who are filing returns now (but not paying taxes) goes up, they will pay taxes as well. But this argument rests on the assumption that the minimum taxable limit to pay income tax will continue to remain where it is and will not be increased in the years to come. If one looks at the history of income tax, this has clearly not been the case. The minimum taxable limit keeps going up every few years and at a rate faster than the growth in per capita income.
[The] argument that who you are matters more than the substantive point you are making is especially true about politicians. Voters focus on character rather than policy partly because they are better able to judge character and are relatively uninformed on policy… So, for a politician, having a good reputation is worth a hundred quick victories in specific arguments.
The moral of the story is that it doesn’t matter if the right data is not being presented, because people will believe what is being presented.
Three weeks ago, the Narendra Modi government completed three years in office. On the occasion, the media went to town discussing the performance of the government. The general opinion among analysts, television anchors and economists, who have a thing or two to say on such matters, was that the government had done well on the economic front, given that that the Indian economy grew by 7.5 per cent per year over the last three years. In coming to this conclusion, these individuals did not take one thing into account: the falling price of crude oil.
When Narendra Modi was sworn in as prime minister in late May 2014, the price of the Indian basket of crude oil was a little over $108 per barrel. As of June 8, 2017, a little over three years later, the price of the Indian basket of crude oil stood at $48 per barrel, around 56 per cent lower.
Lest I be accused of making only a point to point to comparison, take a look at the following figure.
Source: Petroleum Planning and Analysis Cell.
In May 2014, the average daily price of the Indian basket of crude oil was $106.85 per barrel. It rose in June 2014 to $109.05 per barrel. And then the price of oil started to fall. Since June 2014, the overall trend in oil prices, has been on its way down (as can be seen by the red arrow). Even though prices have gone up in the recent past, they are well below where they were between mid-2011 and mid-2014.
This can be best described as the luck of Narendra Modi. At least on the economic front, lower oil prices have made the Modi government look good.
I first made this point in the weekly Letter that I write. The foremost impact of lower oil prices has been on the rate of economic growth. Let’s try and create a counterfactual situation here by trying to figure out how economic growth would have turned out to be if the oil prices in the last three years, were as high as they were during the time when Manmohan Singh was the prime minister.
At its most basic level, the gross domestic product (GDP) is expressed as Y = C + I + G + NX, where:
Y = GDP C = Private Consumption Expenditure I = Investment G = Government Expenditure NX = Exports minus imports
India imports around four-fifths of the oil that it consumes. To be very precise, in 2016-2017, the actual import dependency or the proportion of crude oil consumed that is imported stood at 82.1 per cent.
Given this, net exports (or NX) in the GDP tends to be a negative number. Higher oil prices essentially ensure that oil imports go up. Oil imports going up leads to the net exports number becoming a larger negative entry. In the process, the GDP number comes down and the GDP growth comes down as well.
The reverse is also true. Hence, when oil prices come down, the NX number comes down, the GDP goes up, and in the process the GDP growth goes up as well. This is precisely what has happened over the last three years.
As per the latest GDP numbers declared on May 31, 2017, the economic growth during the last three years stood at 7.5 per cent per year. This was primarily because the average price of Indian crude oil between April 2014 and March 2017, stood at $59.3 per barrel. In comparison, the average price of crude oil between April 2011 and March 2014 had been $108.5 per barrel.
Now, let’s assume that the average net exports figures were at the same level during the Narendra Modi years as they had been when Manmohan Singh was the prime minister between 2011-2012 and 2013-2014. We are basically trying to figure out as to what would have happened if the price of oil had continued to be at a high level even after 2014.
What impact would have this had on the economic growth? The economic growth during the three-year period that Modi has governed would have been 6.5 per cent per year, and not the 7.5 per cent that it has come to. This is nearly 100 basis points lower.
Let’s compare this to the economic growth during the last two years of Manmohan Singh’s government. (I am using the last two years because in case of the new GDP series launched in January 2015, data starts only from 2011-2012.) The economic growth stood at 5.9 per cent.
While this is lower than the three-year economic growth during Modi’s era, it is not as low as it initially seemed. And that is primarily because of lower oil prices during Modi’s time as the prime minister.
So, lower oil prices have bumped up the economic growth figure. They have also benefited the government in another way. The benefit of lower oil prices hasn’t been passed on to consumers in the form of lower petrol and diesel prices.
As mentioned earlier, between May 2014 and now, the price of the Indian basket of crude oil has fallen by 56 per cent. During the same period, the petrol price in Mumbai has fallen by a mere 1.9 per cent. In case of diesel, the price has fallen by only 3.6 per cent.
Hence, the central government and the state governments have totally managed to capture the fall in oil prices. If we look at the central government, the net excise duty collections of the central government stood at around Rs 1,76,535 crore in 2013-2014. This has jumped by more than 100 per cent to Rs 3,87,369 crore by 2016-2017, primarily because the government chose to capture a bulk of the fall in price of oil by increasing excise duty on petrol as well as diesel.
This helped the government to keep increasing its expenditure without having to bother about a large fiscal deficit.
It is interesting to speculate what would have happened if the government had passed on the fall in the price of crude oil to consumers in the form of lower petrol as well as diesel prices. Consumers would have had more money to spend. And robust consumer spending is always a better way to create economic growth than a terribly leaky government spending.
To conclude, while the Modi government has done better in the last three years than the Manmohan Singh government did in its last two years, the fall in the price of crude oil has been a major reason behind it. Modi has been terribly lucky, and it’s time that analysts and economists acknowledged this reality.
The interesting thing here is that people have a hard time distinguishing between luck and skill. As Michael Mauboussin writes in The Success Equation: “Our minds have an amazing ability to create a narrative that explains the world around us, an ability that works particularly well when we already know the answer.” In Modi’s case, this has meant attributing India’s good official economic growth rate to his skill rather than to the fact that he got lucky.
Last week, the Parliament passed the Maternity Benefit Bill. Once the President gives his assent to the Bill and it becomes an Act, women will be entitled to a maternity leave of 26 weeks. Currently, it stands at 12 weeks.
The new law will apply to organisations employing 10 or more people. It will be available only for the first two children. Beyond that the leave will be limited to 12 weeks. The prime minister Narendra Modi called it “a landmark moment in our efforts towards women-led development”. The labour minister Bandaru Dattatreya said the new Bill was his humble gift to women.
Nevertheless, the question is, is this really a gift to women? Before I answer this, let’s try and understand a concept called the broken window fallacy. This concept was put forward by the nineteenth century French economist Frédéric Bastiat.
Bastiat basically talks about a shopkeeper’s careless son breaking a pane of a glass window. He then goes on to say that those present would say: “It is an ill wind that blows nobody good. Everybody must live, and what would become of glaziers if panes of glass were never broken.”
The point being that if windows weren’t broken, how would those repairing windows, the glaziers that is, ever make a living. This seems like a fair question to ask, but things aren’t as simple as that.
As Bastiat writes in Essays on Political Economy: “This form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.”
Bastiat then goes on to explain what exactly does he mean by this. Let’s say replacing the pane of the broken window costs 6 francs. This is the amount that the shopkeeper pays the glazier. If the shopkeeper’s son would not have broken the window there was no way that the glazier could have earned these six francs.
As Bastiat puts it: “The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.” This leads us to conclude that breaking windows is a good thing because it leads to money circulating and those who repair broken windows doing well in the process.
Nevertheless, this is just one side of the argument. As Bastiat writes: “It is not seen that our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps have replaced his old shoes, or added a book to his library. In short, he would have employed his six francs in some way which this accident prevented.”
Now how does all this apply in case of the 26-week maternity benefit? Like the above case, there is a seen part to the benefit and an unseen part. The seen part of the benefit is very obvious. Women currently working in establishments with 10 or more people will get a 26 week maternity benefit during pregnancy. Of course, it is more than likely that this benefit will be limited to the organised sector. It is unlikely to benefit women working in the unorganised sector, which forms a bulk of the lot.
Further, this seen part comes with a cost attached to it. Small and big establishments will have to pay an employee for half a year her full salary, when she is not available at work. While, the big establishments will be able to manage this, the small ones won’t. Hence, the likely unseen impact of this is going to lead to managers not hiring women of child bearing age.
A newsreport in The Guardian points out: “A survey of 500 managers by law firm Slater & Gordon showed that more than 40% admitted they are generally wary of hiring a woman of childbearing age, while a similar number would be wary of hiring a woman who has already had a child or hiring a mother for a senior role.” This evidence is from the United Kingdom. Along similar lines, increasing the maternity benefit to 26 weeks is going to ensure that Indian managers will work along similar lines, not that they don’t already.
This is not to suggest that women should not be entitled to an extended leave post child-birth. Nevertheless, it is only fair to keep in mind that perfect is the enemy of good. The male-female ratio in most of corporate India is anyway lopsided to begin with. As an October 2015 report in The Economic Times points out: “The fairer sex comprises less than 2% of the workforce of marquee companies like Adani Ports, Bajaj Auto, Grasim, UltraTech and Hero MotoCorp.” The 26-week maternity benefit is likely to make it worse and that is clearly not a good thing.
Further, this is in line with the Indian tendency to implement welfare measures much ahead of economic growth.
The other unseen impact of this move is that with a 26-week maternity leave, the mother is likely to become even more of a primary caregiver to the child, during the initial days. Hence, to that extent the extension of maternity benefit is patriarchal in nature. And that possibly cannot be a good thing.