For a government led by Prime Minister Narendra Modi sensitive to accusations of corporate patronage, acquiring a substantial stake in a private company is a leap of faith. Buried in the fine print of the telecom package was this provision that allows the government to do just that.

Even in the United States, in the aftermath of the 2008 financial crisis, emergency legislation was enacted to undertake a $ 700 billion distressed asset relief program or TARP to bail out banks and private institutions. A TARP-like movement – as in the telecom rescue plan – requires more than just belief in the Indian economy, which, like politics, is subject to binaries of a different type: “pro-business” and “pro-poor”.

Indeed, most of the economic decisions made in the last two months – from a law to bury retroactive taxation to a government guarantee for a bad bank – demanded that a political appeal be taken at the level of the Prime Minister. Significantly, almost all of these measures have been discussed over and over again in the past, but have been dropped given the challenges involved and the risks of moral hazard.

After the pandemic, however, the pressure from the prime minister was to focus on reviving the economy and spending his political capital to do so, an official said. “The determination now marks a sharp change in attitude at the leadership level,” one of the top government officials told The Indian Express.

Another source, who advises the government on policy issues, said the goal behind concerted action over the past two months is to reverse the negative sentiment that has gripped the corporate sector due to the pandemic and of the recession last year.

“India, unlike the United States, cannot print money – it has limited fiscal space. But what it can do, and what it does, is identify and remove bottlenecks, instill positive feelings and restore risk appetite so that companies start investing and banks start to lend. “

Speaking to Idea Exchange on the Indian Express last week, Finance Secretary TV Somanathan described this as part of a strategy since late 2020. we don’t have and preserving the capabilities that we have. There is consistency… It’s a continuum of things that make up a compelling strategy, ”he said.

Less than three weeks ago, Modi said the economy was recovering faster than the rate it contracted during the pandemic. “When large economies were defensive, we undertook reforms. When global supply chains were disrupted, we introduced the PLI program with the external environment in mind, ”he said during the Sardardham Phase II bhoomi pujan in Gujarat.

But the “attitude change” the government official spoke of is more noticeable in recent months than during the pandemic period until the end of the brutal second wave that peaked in April-May this year.

Until January 2021, following intense protests by farmers in Punjab and Haryana, and slogans such as “hum do, hamare do” are gaining ground, the government suspended agricultural laws for 18 months. , thus putting them in full freezing. It was very similar to the land acquisition law dumping in February 2015 scared of the boot ki sarkaar jibe costume.

It is in this context that the telecom package takes on its full meaning. An official, who declined to be named, said interest expense from Vodafone India Ltd will allow the government to take a substantial 30% stake in the third-largest private telecommunications company.

While protecting its contributions and consumers from the negative impact of a duopoly, the government can also end up realizing significant capital gains.

Likewise, by introducing an amendment to the income tax law to remove the retrospective tax from 2012, Modi has had to defend his own government’s inaction for seven years since taking office in 2014.

While it was certainly regressive and made foreign investors wary of political certainty in India, it dealt with the sovereign’s right to tax. Arun Jaitley, while in opposition as well as finance minister, criticized him but chose to live with it. In fact, in his 2017 memoir, Pranab Mukherjee, who introduced the retroactive tax, wondered why all finance ministers over the past five years had maintained the same position.

Even the bad bank’s proposal was first brought up by Arvind Panagariya when he was Niti Aayog’s first vice president. Prior to his appointment, he had drawn Modi’s attention to the crisis in the banking sector and actively advocated for the creation of a bad bank with the state contributing to its equity.

Arvind Subramanian, as chief economic adviser during Jaitley’s tenure, made presentations to the Prime Minister and his key agents. But the question of moral hazard raised within the PMO derailed any movement.

In some ways, the government has distanced itself by asking public banks to recoup 51% of the bad bank’s equity and setting up an asset management company to handle bad debts. But the question of moral hazard remains, for which the only answer for the moment, is that large companies have probably learned a lesson from some industrialists jailed, others prosecuted, and the evolution of the Insolvency Code and of bankruptcy.