India’s business environment is facing headwinds, and recent news points to deeper issues than just market fluctuations. The massive tax demand on Infosys and the tepid response to sovereign green bonds are not isolated incidents. They are symptoms of a larger malaise affecting business confidence and investor sentiment in the country.

GST Demand Shocks IT Giant

IT giant Infosys is reeling from a staggering demand notice of over ₹32,000 crore from the Directorate General of Goods and Services Tax Intelligence (DGGI). The tax authority claims this is Integrated-GST on services from overseas branches. While Infosys contests the claim and NASSCOM backs them, the incident exposes a worrying trend. Differing interpretations of tax laws between authorities and businesses are becoming increasingly common, leading to protracted litigation and stuck capital. This is not just an Infosys problem; many companies across sectors are facing similar GST notices. Such ambiguity creates an atmosphere of uncertainty, hardly conducive for investment and growth.

Policy Clarity Is Paramount

At the heart of the Infosys tax tangle is a fundamental question: is the tax policy framework in India clear and consistent? Tax experts have repeatedly highlighted the divergence in interpretation between GST enforcers and the industry. This lack of clarity sours the investment climate. A nation’s tax policy is its message to investors about stability. Policies must be steadfast and well-considered, not subject to arbitrary interpretation. The Karnataka state authorities withdrawing their initial notice only adds to the perception that these demands are not always thoroughly vetted. Issuing tax notices, particularly ones of this magnitude, should be done with utmost caution, not as a first resort.

Green Bonds Fail to Excite

Adding to the unease is the poor response to the second sovereign green bond auction this financial year. The Reserve Bank of India (RBI) could only sell a fraction of the bonds offered, as investors were unwilling to pay a premium for these ‘sustainable’ investments. This follows the cancellation of the first green bond auction. The reluctance to invest in green bonds, even with government backing, suggests a broader hesitancy in the market. Is it a lack of liquidity, unattractive yields, or a deeper concern about the economic outlook? Whatever the reason, it signals a challenge in aligning government ambitions with investor appetite.

Can India truly achieve its growth potential if businesses are constantly looking over their shoulders, fearing unexpected tax demands and policy shifts? For investor confidence to truly flourish, the ease of doing business needs protection not just from red tape, but also from tax uncertainty. Tax policy should enable business, not inadvertently alienate it.

Image Courtesy: X (The New Indian)