The Markets Did Not Get What They Wanted From The Union Budget
While income tax reliefs are welcome, the conversion of a tax relief into investible surplus is layered and there is no real guarantee how much will happen
On Episode 497 of The Core Report, financial journalist Govindraj Ethiraj talks to Ashok Bhattacharya, Editorial Director at Business Standard, Jairaj Purandare, Founder and Chairman at JMP Advisors as well as Indrani Bagchi, CEO at Ananta Aspen Centre.
(00:00) The Take
(06:36) Trade wars begin.
(09:13) The markets did not get what they wanted from the Union Budget
(11:14) A distilled Union Budget view and fine print
(27:16) India and China ties are thawing after a freeze, what does this mean in the context of US, India and China equation
(33:39) India launches a fresh effort to kick start private participation in nuclear power. The history
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Monday, the 3rd of February and this is Govindraj Ethiraj, headquartered and broadcasting and streaming like always from Mumbai, India’s financial capital.
The Take
It is somewhat ironic that the day before the Government was speaking of removing obstacles to doing business, the 62-year-old founder of a software company, Vakrangee, suffered a heart attack during an Enforcement Directorate raid on his premises.
The company in question had a network of one stop digital convenience stores and has gone through several iterations in its lifetime.
It is quite likely that the company or the promoters had their fingers in some activity that attracted the attention of the ED which is mandated with investigation of offence of money laundering and violation of foreign exchange laws.
Be that as it may, it is telling that one of the promises in the budget presented on Saturday, February 1, was decriminalising a raft of laws.
The Finance Minister had said the Government will introduce the Jan Vishwas Bill 2.0 to decriminalize over 100 more outdated legal provisions to promote the ease of doing business in the country.
The announcement follows the Jan Vishwas (Amendment of Provisions) Act, 2023, which decriminalized over 180 legal provisions.
Think tank Observer Research Foundation wrote a report three years ago called Jailed for Doing Business: The 26,134 Imprisonment Clauses in India’s Business Laws.
The report had said that there are 1,536 laws that govern doing business in India, of which 678 are implemented at the Union level.
Within these laws is a web of 69,233 compliances, of which 25,537 are at the Union level. In the 12 months up to 31 December 2021, there were an average of 10 regulatory changes every single day, the report said.
And importantly, of the 1,536 laws that govern doing business in India, more than half carry imprisonment clauses. Of the 69,233 complaints that businesses have to follow, 37.8 percent (or almost two out of every five) carry imprisonment clauses. More than half the clauses requiring imprisonment carry a sentence of at least one year.
And so on.
Not all misdemeanors intentional or unintentional result in the protagonists getting jail time but the fear is real and palpable, particularly for smaller enterprises.
And the threat of jail time leads to corruption, particularly at a local level.
Cumulatively, it results in an atmosphere where doing business is like walking on hot sand and constantly hoping you don’t burn your feet.
Meanwhile, news has emerged that car maker Volkswagen has sued Indian authorities to quash an "impossibly enormous" tax demand of $1.4 billion.
Volkswagen has said the task is contradictory to India’s import taxation rules for car parts and will hamper the company's business plans, court papers seen by Reuters say.
Volkswagen's unit, Skoda Auto Volkswagen India, also told the High Court in Mumbai the tax dispute puts at risk its investments of $1.5 billion in India, and is detrimental to the foreign investment climate.
A government source earlier told Reuters that with penalties, Volkswagen India may have to pay about $2.8 billion if it loses the dispute.
In 2023-24, VW India reported sales of $2.19 billion, and a net profit of $11 million.
No wonder, VW has gone to court and taken the Government on.
Volkswagen argues it is not liable to pay higher taxes as it did not import car parts together as a single "kit", but instead shipped them separately, combining them with some local components to make a car.
To explain what a "kit" is, it refers to a "practical analogy" of buying a chair online from Amazon, which is then delivered in one shipment with all parts and fixtures needed to assemble the piece of furniture, Reuters reported.
There is obviously an interpretational issue here but with huge consequences.
There is also a problem with the law or guideline in this case being used as a jackhammer.
A multinational car company told me a few years ago that India represented more than 90% of all cases that the global car maker was fighting in the dozens of countries it was present in.
Indian laws are built on going after exceptions, the polar opposite of an honour system where there is belief that most people will follow the law.
Almost every amendment to a direct or indirect tax law is to catch that one potential lawbreaker, increasing the onerousness of all players.
A simple case is that of tax collected at source imposed to catch Indians who spend liberally on their credit cards overseas.
Go above Rs 10 lakh, as opposed to Rs 7 lakh earlier, and you will pay a presumptive tax of 20% to be collected by the bank, a highly cumbersome process that took months for the banks to create.
Maybe some folks bought several Rolex watches on their credit cards and there was no corresponding customs duty or some other infraction which one can only imagine.
But the TCS, like maybe hundreds of such laws, makes life difficult for everyone.
And for all the promises we hear, we also see more such acts and laws and guidelines.
The Budget did address the income tax part of the problem for middle class India but not the Income part which has been sluggish for several years.
High inflation, high indirect taxes and of course limited growth in incomes had made life difficult for most middle class Indians.
A fact tacitly acknowledged by the Government in raising the income tax exemption limit to Rs 12 lakh per annum
To fix the problem of jobs and employment, we have to create far superior conditions for entrepreneurs to flourish and for businesses to expand.
The present conditions do not encourage both beyond a point, particularly the latter who are likely to bring scale solutions.
We have to focus on the unease of doing business in India, not the ease of doing business.
The top stories & themes
Trade wars begin.
The markets did not get what they wanted.
A distilled Union Budget view and fine print.
India and China ties are thawing after a freeze, what does this mean in the context of the US, India and China equation.
India launches a fresh effort to kick start private participation in nuclear power. The history.
Trade Wars
The trade wars have begun, at least the orders have been signed by President Donald Trump, imposing tariffs on China, Mexico and Canada.
Tomatoes, T-shirts, crude oil and cars are among the items that could get more expensive with the new tariffs, according to a Washington Post analysis of international trade data from the Census Bureau.
Mexico is the largest source of imports to the United States, followed by China and Canada. Together they account for 43 percent of the $3.1 trillion in goods that are imported.
The Wall Street Journal editorial called it the dumbest trade war in history.
President Trump will fire his first tariff salvo on Saturday against those notorious American adversaries . . . Mexico and Canada.
They’ll get hit with a 25% border tax, while China, a real adversary, will endure 10%. This reminds us of the old Bernard Lewis joke that it’s risky to be America’s enemy but it can be fatal to be its friend, the WSJ said.
Meanwhile, China on Sunday denounced the Trump administration’s imposition of a long-threatened 10% tariff on Chinese imports while leaving the door open for talks with the U.S. that could avoid a deepening conflict.
Beijing will challenge President Donald Trump’s tariff at the World Trade Organization and take unspecified “countermeasures” in response to the levy, which takes effect on Tuesday, the finance and commerce ministries were quoted saying in a report on CNBC.
Trump on Saturday ordered 25% tariffs on Canadian and Mexican imports and 10% on goods from China, saying Beijing needed to stanch the flow of fentanyl, a deadly opioid, into the United States.
China’s commerce ministry said in a statement that Trump’s move “seriously violates” international trade rules, urging the U.S. to “engage in frank dialogue and strengthen cooperation.”
“Fentanyl is America’s problem,” China’s foreign ministry said. “The Chinese side has carried out extensive anti-narcotics cooperation with the United States and achieved remarkable results.”
India’s move to slash import duties on a slew of items is a signal that industry can’t count on protectionist measures from the government, India’s finance secretary said on Sunday, amid US slapping tariffs on its neighbors and China.
“We are signaling that India is not a tariff king,” Tuhin Kanta Pandey said in an interview quoted by Moneycontrol, adding it was an indication to both the domestic industry as well as investors.
“Our message is clear, don’t get into protectionist mode,” Pandey said, adding that India’s tariffs were much lower than even some of the developed economies like Japan. He said the latest measures were done to ensure policy consistency for investors.
The government reduced duties on solar modules and high-end motorcycles - read Harley Davidson - something Trump brought up repeatedly in his first term as well.
What will this mean from an India and China standpoint, that is coming up later in the show.
Markets
The stockmarkets did not get what they really wanted.
A somewhat less discussed point is on capital gains.
While income tax reliefs are welcome, the conversion of a tax relief into investible surplus is layered and there is no real guarantee how much will happen, though some will surely trickle in.
Those who invest in markets are looking for capital appreciation and obviously less tax on capital gains, of which there was no reference or mention in the Union Budget.
This is one factor that could have changed market sentiment.
Remember short term capital gains, that is gains on investments sold within a year now attract 20% tax, up from 15% which was held till July last year.
Long term capital gains is at 10% plus surcharge.
Meanwhile, the Business Standard is reporting that the Union Budget has clarified that FPIs will have to pay long-term capital gains tax (LTCG) at 12.5 per cent, up from the previous rate of 10 per cent.
This follows the government rectifying an anomaly in the tax regime because of which foreign portfolio investors (FPIs) will no longer benefit from the lower tax rate on listed bonds, debentures, debt mutual funds (MFs), and listed preference shares.
Experts predict that this change could lead to some liquidation of investments before the higher tax rates take effect. The higher tax outgo will come into force on April 1, 2025, and will apply to the assessment year 2026-27 and subsequent years, the report said.
The markets were flat on Saturday as the Budget did not specifically enthuse the markets.
Brent crude oil over the weekend was $75.67 or under $76 indicating a general stability or wait and watch to see if US tariffs would actually kick in on Tuesday as threatened.
The Distilled Budget Fine Print
What were the big takeaways from the budget, in general and specifically, what is the immediate and the long term and how many people will benefit from the new Income Tax exemptions.
And what made the Government reduce taxes for a segment that is actually quite small.
I caught up with Ashok K Bhattacharya, Editorial Director and columnist at Business Standard and Jairaj Purandare of JMP Advisors, on the boards of several companies and earlier Chairman of Ernst & Young India.
INTERVIEW TRANSCRIPT
Ashok Bhattacharya: A couple of points that I would like to make is that this budget seems to signal shifting of gears the way the government is looking at the economy. In a sense that in the post-COVID world, the government was looking at investment as the main stimulus for reviving growth. And I think there has been a change of approach.
It may be also seen as the political imperative of bringing about this change at this juncture. But I think it is a shifting of gears that is really becoming very, very clear. Not so much as in capital expenditure has not been completely be done away with.
The growth of capital expenditure continues to be in double digits with 10%. But clearly, the government is convinced that it is not enough to revive growth, because I think it is a little disappointed with India Inc. in not responding to the kind of incentives it thought it gave, particularly a cut in the corporation tax rate.
So it wants to give this kind of income tax relief to the middle class. Remember, this middle class is a very small, tiny proportion of India's population. But that is what I think is one.
Number two, I would say is that government is, through this budget, is trying to prepare these policy apparatus to take on the global uncertainties to some ways, in a sense that the custom duty rationalisation seems to be aimed at that, may not be enough. But I think there are early signals that it recognises the need for some sort of customs tariff, which it needs to undertake to take on the post-Trumpian world. And number three, and the final point I would make, fiscal consolidation programme, in a sense that changing course, moving more towards a kind of a debt anchoring, but probably it requires greater fine tuning in the sense that it only talks about a 50% debt level that will bring down the fiscal deficit to its desired course.
But it does not take into account the fact that today that some total of the states in this country is actually more than the central budget. So therefore, to inspire confidence of the markets in fiscal prudence, it needs to follow a path that takes into account that what the states are doing at their level. I would limit my preliminary observations to these three broad trends that I see, Ajit.
Jairaj Purandare: Thank you, Govind, for inviting me to be here. Broadly agree with what Ashok just mentioned. At the same time, I'd like to add a few important points, I think.
One is that this budget actually presents a fairly prudent approach to the fiscal. And if you just look at what she said four years ago, the fiscal deficit at that time was 9.2%. And they had committed that by next year, they will get it down under 4.5%. And they have lived up to that and pretty much made a commitment to go to 4.4% of FISC next year, which is, I think, good. The glide path has been fairly smooth.
And they've lived up to their promise. I think that's important. But I think one other key thing is that they're also focussing on the deck to GDP.
As was mentioned earlier, they are at about 57% at the central government level. And when you add the states, it's about 85%. But clearly, again, they're moving in the right direction.
And it's expected that in the next year or two, this will get down to something like 50%, 49%. So that's a very good sign, I think. So the second point I was making is that the government seems to be thinking, instead of just year by year, a more medium term plan exercise, which I think only can inspire confidence.
And this I take away from a few examples in the budget announcements. But one of them was in the tax changes that they're proposing. And they're talking of changing the sunset clause, not by a year, but by five years, in several provisions relating to IFSC units, relating to startups, and so on.
So I think that's a good sign that they are actually moving towards that sort of thinking. The third important thing is they announced that they want to revamp the tax code. And I'm very glad that they are in the point of doing that.
It's going to come out next week. And more importantly, I think, and I'm hoping to carry this through fully, is that this will probably get implemented next year. And before that, we'll get referred to the Standing Committee on Finance.
They will get consultation feedback from the public at large, from professionals, experts, etc. So that we will have something which is much more robust. These are all signs of, you know, more broader, longer term thinking and radical changes.
The other thing which I would like to just point out is that, you know, anything which is being thought through is, I know they sound like policy announcement, but we are, in the context of India, looking at large policy changes, large spends. So all the numbers are huge. So, you know, while she was cruising along in her budget speech, the Finance Minister, it's almost like the, you know, last over six, preserved the best for the last, and sort of announced the big jump in one sweep, you know, of the income tax exemption going up to 12 lakhs, which is, I think, a very bold, very good move.
Because I think, as you know, initially sort of mentioned, it's going to drive spend, it's going to drive consumption, going to drive demand. But importantly, I think if it drives demand, will then drive private sector capex and investment to happen, which is what has been missing in the last few years, despite whatever, you know, requests and appeals have been made to the private sector.
Govindraj Ethiraj: Just a quick one on the direct tax code, Jayraj. Wasn't there an expectation that it will be actually delivered now, rather than going into a standing committee and that whole process here on, for another, what looks like a year?
Jairaj Purandare: The last budget, which was in July 24, she mentioned that in six months, she expects to have this delivered. So there was initially the expectation that it's going to become law starting April 1, 25. But somewhere down the line, we heard news from North Block in our discussions with the government that this is going slow.
Then they started accelerating the process because they felt that they really need to live up to what they said. So at one level, I would have liked to see it introduced now, but I'm happy that they are introducing it as a draft paper, as a draft code, will consult widely, will refer it to the standing committee. There were 60 odd years we've been looking at the old income tax law, which has become so complicated.
It's got 1400 plus provisos, by the way. And she promised that it's going to be far more simpler, more rational. And I do hope they rationalise it and bring it to more current levels, sort of things.
But can you imagine reading a law which has proviso after proviso in every odd section?
Govindraj Ethiraj: AKB, so let me pick up on two, three points from your comments. So first is, of course, you talked about the middle class being a very small segment and yet obviously getting a fairly significant or significant looking tax break. So the question is, why then?
Ashok Bhattacharya: Because probably the government in its wisdom believes that it must shift gears. It's also a refutable fact that it is politically more expedient in today's environment. So there is economic logic.
It's a fact that more money in the hands of segment, I did a quick calculation around 43 million people who will be benefited in general and overall. So the question is, will those 43 million people will keep that money in their banks or put that money in their mutual fund savings? Or will they go out in the market and buy goods and services?
So that's a gamble I would say the government has taken. This is a gamble. More safe and a secure strategy would have been, use that one lakh crore to invest in avenues and areas and sectors wherein the multiplier effect as far as growth is concerned, may not be immediate, may not be immediately one year, but maybe in two years down the line.
I think the government has also recognised the fact that the absorptive capacity of its investment have actually seen deterioration in a sense that you put the blame on elections, but the elections are over in June. But in spite of that, the first half of the current financial year, well into December, the government could not spend its money. So even in the next year's budget, you have got 1.5 lakh crore given as part of the CAPEX loan to the states. So the question is the larger government system needs to be more efficient to absorb this kind of additional investment. So probably the government realised the limitations of the government system. And instead of going in for major revamp of the government system to speed up with such investments and yield those results, may have gone in for an easier option of benefiting those 43 million people with higher disposable income and see that it will result in more demand.
But I think as a gamble, once again, I would say that it may pay off. It may not pay off.
Govindraj Ethiraj: Okay. So if you were to put that aside, what's the larger sense you got? I mean, if you look at previous budgets, and I'm also obviously asking this in the context of the US now imposing tariffs on Mexico, Canada, China, and it's obviously a different world.
I mean, do you get a sense that this budget is geared for what is happening around us, including maybe equipping businesses to play on a stronger footing, including making life easy for them?
Ashok Bhattacharya: I don't see any attempt in the budget to outline how it wants to deal as far as this global trade is concerned. There is no indication whether the government will like to extend its trading arrangements with different blocks. There is CPTTP going back to RCEP.
Maybe RCEP is a strict no-no because of China, but CPTTP is no-China. So there are no indications that prove its exports, which are critical for improving your growth and manufacturing sector. I don't see any such overtures in the budget that we will be more open to joining these trading arrangements.
The only thing that I've seen in this budget is the customs duties have been rationalised. And once again, it is responding to the US president who is threatening with higher tariffs.
Govindraj Ethiraj: Anything else, AKB, that struck you as something that was, let's say, more long-term-ish, either directionally or thematically?
Ashok Bhattacharya: I think the long-term-ish is that its announcements on regulatory framework reviews. I mean, for example, it wants to set in, put in place a mechanism under the Financial Sector Development Council, mechanism by which it can regulate and monitor the manner in which the regulatory functions happen. Similarly, on the non-financial sector, it wants to set up a committee to look into those regulatory architecture.
So this is probably taking off from where the economic survey talked about the deregulation stimulus. So the government is following up on that, which is a welcome sign, and it is a long-term in nature. So that is what I would say, which is a very welcome sign, actually.
Govindraj Ethiraj: Right. Jairaj, you mentioned that one of the things the government has done is to give more lease of life to laws. You talked about the five-year extension.
But are you confident that even if we may say three years or three years to five years, that these things stand as they are without, let's say, additional guidelines or subsections being imposed later from experience?
Jairaj Purandare: So this is just the sunset clauses that have been extended by five years that I mentioned. Politicians have to take a bigger and broader view and not necessarily get completely influenced by what the bureaucrat may want to do, with some bureaucrats wanting to look at the micros and bring in all these minute permutations and combinations and make the law more complex. In today's world, I didn't see any huge announcements as to how we're going to even attempt to deal with it.
There was no mention of it, which was a bit surprising to me. But there's clearly things on the agenda which need urgent attention. I think what the economic survey says is quite right.
Get out of the way. Let business do business. Just get out of the way.
We've also got into a situation where we've just moved from government approvals to regulatory approvals. We're still, if not in the licence raj, but in the regulated approval large. That doesn't help.
So this light regulation is a must. And I really hope they take it very seriously and act on it within the one year that they've promised. So that's very important.
On the fiscal side, there's a lot to be done in terms of simplification, especially on the GST side of things. Income tax looks as if it's going in the right direction. But again, the GST council and the GST notifications and complex laws are not helping.
And they just need to help business to carry on with their business. I like the focus on manufacturing, especially in the MSME sector where you're likely to provide more jobs. So clearly the focus is perhaps in the right direction.
But I think much more is required in the manufacturing area. And I still believe that we've not really captured the opportunity of China plus one, as they say. So we seem to have missed the bus almost a little bit.
And I was hoping that they will get back onto the bus in this budget. They made some noises. They made some changes, especially on the MSME side.
But for example, you know, they seem to be adamant on this lower rate of corporate tax, which sunset clause happened last year. Now I would like to see that extended in white manufacturing. Let people come and set up doing business.
You're getting foreign investment. You're getting the dollars and it's permanent capital, you know, once you get FDI into the country. I would like to see more of that on the fiscal side.
We were expecting a couple of other things like the global minimum tax of 15%. But I think with the US and Trump making adverse noises on the tariff side, I didn't see any real strategy articulated so far. And maybe the government is doing its thinking still in terms of how to react should the US raise tariffs.
How will that impact us? Will China dump goods into India? How are we going to treat that?
How will it impact our exports? And how are we going to counter that? Because if there are tariffs in the US, you know.
So some of these things I've heard that work is going on in Nordblock, et cetera. But we haven't seen the light of day on that. And I'd like to see that as quickly as possible.
And even on the fiscal side, as I mentioned, even the capital gains tax, they said they've simplified it, but it remains pretty complex even as of now. So I hope as part of the new code, they also simplify what they're doing currently on the capital gains tax. So lots more things, but these are just a few of the major flags.
Govindraj Ethiraj: AKB and Jairaj, thank you so much for joining me.
The New India-China Bonhomie
Last week, India and China agreed to resume direct commercial flights for the first time in five years, in a fresh sign of warming relations.
Flights between India and mainland China were suspended at the onset of the Covid pandemic in early 2020, and remained halted following subsequent political tensions.
The announcement followed diplomatic meetings between the two countries in Beijing.
China’s Foreign Ministry also said it had agreed to reopen Mount Kailash and Lake Manasarovar in western Tibet to Indian pilgrims this year.
With the United States imposing tariffs on China, how should we view the thawing in India and China relations and what could that mean in the evolving geopolitical and trade equations?
I reached out to Indrani Bagchi, CEO of Ananta Centre and columnist on international affairs in the Times of India and began by asking her how she was seeing the India-China thawing first.
INTERVIEW TRANSCRIPT
Indrani Bagchi: When Trump was elected, in his campaign, he had promised a much more confrontational relationship with China. He has packed the top of his administration, whether on the security front or on the economic front, with what are known as China hawks, whether they're in the defence section, whether they're in trade, and it's not just Commerce Secretary or the USTR, but even his trade, shall we say, trade czar in the White House, who's Robert Lighthizer. All of these are a part of the whole MAGA sort of worldview that China has been eating their lunch and they will no longer allow that to happen.
So the tariffs have had approval, political approval, across the board. However, if you see last two weeks, Trump has actually taken a much softer, has taken a softer line. He had a chat with Xi Jinping, put out a tweet that China and America will solve many problems together.
He refrained, he had said that he would hit China within the first 24 hours. I mean, this is literally two weeks after he took office. He invited Xi Jinping to help him solve the Ukraine war.
It has seemed to everybody watching the US-China relationship that he may be exploring what in Indian diplomatic corridors is called a G2. So sort of a limited deal with China and a carving up of spheres of influence. As we saw today, or rather yesterday, he hit China with a 10%, but he hit Canada and Mexico with 25%.
However, if you look at both the trade baskets in Canada and in Mexico, what he's hitting is Chinese rerouting of Chinese exports via both Canada and Mexico. So it is in effect, a larger tariff slap on China. Now to come to India, as you correctly said, you know, India did a normalisation effort with China just before Trump took office, rather just before the elections.
And that was important because it is important for India to be seen to be solving its own problems. It would have been an open wound that could have been used by anybody to leverage a relationship with India. So India did the smarter thing by walking up with China to do a disengagement, which is not, troops have not gone.
There are remaining issues on the border which have not been solved, but there is a lowering of the temperatures. As you observed, the Kailash Mansarovar Yatra is back. I think flights will resume, all of which are important in the normal scheme of things, as in a normalised relationship.
India remains wary of China. India's principal adversary, principal challenge remains China. There is no change in all of that.
But I believe that the effort has been to sort of clear the decks in a way before this new administration comes in.
Govindraj Ethiraj: And therefore, with the US flexing its muscles further, you see India and China, I mean, we're already economically quite strongly connected and more in China's favour in terms of the imports that we do from them. But you see more happening because of this, the new Trumpian view or the new Trumpian moves.
Indrani Bagchi: No, I don't. Two things here. One, you know, this whole make in India, also as it kicks in, not in large ways, but in every small bits, the economic relationship as we know it, which is higher imports from China, very low exports from India, that the dynamics of that relationship will change.
And we can see some of that change. And you can see that China too is acknowledging some of that change, because just the one sector, which is electronics manufacturing, where India's sort of moved from zero to, say, four or three, China's now taking a view on sending its technicians, sending its engineers to India. If you remember, they've been recalled.
They are also, some equipments are no longer exported to India. So it's not that China is not responding either. This relationship will not be at the level that it is.
Besides, if the US puts tariffs on Chinese exports of, say, a particular item, India cannot be importing those items and not fear retaliatory secondary tariffs from the US.
Govindraj Ethiraj: So yeah, for example, I mean, could an iPhone 17, you know, be made in India and 90% of those components come from China, and then it be exported to the US, which is exactly what the US doesn't want.
Indrani Bagchi: Yes, that's a part which we don't know how that will play out. I mean, Trump could just as well call Tim Cook and say, stop that, this India production, bring it all home.
Nuclear x Private Sector
The prospects of India’s private sector getting into nuclear power generation are bright again.
This is presently not allowed by law.
The Government has said it will amend the Atomic Energy Act and the Civil Liability on Nuclear Damage Act.
It has also set targets of building small and modular nuclear reactors as announced in the Union Budget.
In many countries including the US, the private sector is the key driver of nuclear power production.
India has also set a target of 100 Gw (1 Gw is 1,000 Mw) nuclear power by 2047.
There is an interesting history to how this is played out.
I also asked Indrani Bagchi who just joined us to explain the history and what happened behind the schemes in India’s efforts to build private nuclear capacity ?
INTERVIEW TRANSCRIPT
Indrani Bagchi: Actually, that was literally the most interesting announcement in the budget, to be fair, certainly for people like me. Because, you know, we signed the India-US nuclear deal in 2006. India got a unique waiver for nuclear commerce from the Nuclear Suppliers Group in September of 2008.
Then we go ahead and bring into effect an absolutely self-destructive act called the Civil Liability for Nuclear Damage in 2010. This act was so poorly drafted. And at the time, it was not just poorly drafted by the Congress party.
Frankly, the BJP played a huge role, structuring the act in such a way that you would never have industry participation in the nuclear sector. It was why we would do that to ourselves. I mean, we can go on, but that's a different matter.
By 2015, it had become very clear that Indian industry that had been part of the nuclear manufacturing sector in India, which its companies like L&T, Valshan Nagar, etc, BHEL, BEL, all of these, none of them wanted to be a supplier to the NPCIL making nuclear reactors. So that literally took away five years out of our… We asked for Arriva, the French company, to build six nuclear reactors in Jaitapur in Maharashtra.
We asked Westinghouse to build six nuclear reactors in Andhra Pradesh and Hitachi to build six nuclear reactors in Gujarat. Both Hitachi and Westinghouse walked away. Arriva is still there, but only in name.
None of them want to build a single reactor because of these two clauses in the Nuclear Act. By 2015, the current foreign minister was then the foreign secretary. They put out a set of FAQs, which re-designated the supplier.
Now, the killer article, if you will, in the act was an article called 17C that said that suppliers, that the operator who had primary liability for nuclear damage, had to compensate for nuclear damage, had recourse to suppliers, to pass liability on to suppliers, which if you can imagine nuclear damage would be in the hundreds of billions. So no supplier in the world can actually take on that kind of liability. And it is also against India's own international obligations, because it is against India international law, or all the conventions on civil nuclear damage.
Nobody came in. As you see, we are in 2025, not a single reactor from overseas has been in India. Cut to 2023-22, we have a world that is now experimenting with small modular reactors.
India is building its own reactors, but it cannot cooperate, collaborate with anybody without amending this particular CLNDA Act. So this amendment comes at a time when the government has figured out that every other course of action is no longer possible.
Govindraj Ethiraj: Finally, we've reached a point where we are turning the page, so to speak.
Indrani Bagchi: First to do, literally the last to do the right, there is an American-US angle to this as well. The last visit that Jake Sullivan made to India, which was on the 6th of January, he and the US announced that they would take three Indian nuclear entities like BARC, etc., off their entities list. So the restrictions that they had imposed on Indian nuclear entities was gone.
If we didn't take up on that offer by amending the liability law, we would have been truly stupid.
Govindraj Ethiraj: Indrani, thank you so much for joining me.
Indrani Bagchi: Thank you. Thank you, Govind.
