#330 Mixed Bags and Mixed-up GoalsRetrospective Taxation, A Review of 'The Caste Con Census', and Policy Impediments to Rare Earth Mining in India
India Policy Watch #1: A Mixed BagInsights on current policy issues in India—RSJWith the customary year-end break and the beginning of the year predictions done in the last two editions, it is time to look at what else has been happening since the start of the year that doesn’t involve Trump. No easy task given the incredible talent of the man to generate news cycles out of thin air, but there’s more happening in India that is worth a conversation or two. The first thing I was interested in was the trend in Q3 2026 results of listed companies, coming on the back of the GST rate cut boost that came into effect in late September. During the festive period (most of October), there were multiple media reports quoting unnamed company sources that suggested a massive uptick in consumer goods, durables, and automobiles. Biggest ever festive season, unprecedented booking numbers, a hundred per cent growth etc were the headlines thrown about then. With about 200+ companies having published their Q3 results as I write this, I guess we have a better picture of the numbers now. Revenue growth on an aggregate basis has been about 9 per cent y-o-y, which is a couple of points above what the medium-term trend had been so far. Aggregate profits came in weak at 4 per cent on account of supply chain disruptions, price impact of GST cuts and the adoption of the new labour code, which increased wage costs. Parsing through the data, the FMCG sector growth was up about 7 per cent y-o-y, which was actually lower than the trend in previous quarters. Retail same-store growth was also 7 per cent, and credit card spending after the jump in October actually ended flat by the end of December. Passenger vehicles and two-wheelers are the only segments that saw a mid-teen growth number, which was expected, given that September was a washout as people paused their purchases. Frankly, I was expecting much stronger numbers than these. Clearly, the price elasticity assumption that drove the enthusiasm for GST rate cuts has not materialised. Volume increase hasn’t offset the price cut to the extent expected. I will wait for the results of the larger FMCG companies (including HUL), expected next week, but I suspect the data won’t change materially. Will the 9 per cent revenue growth seen so far sustain itself in Q4? Unlikely, given the trend in December and the commentary that I have heard so far, where people pay lip service to GST rate cuts but then give innovative answers to why the volume growth has been tepid (the most creative reason was from a large retailer who blamed pollution in northern India for poor volumes). In the last edition of October, I had looked at the festive season demand uptick and written this:
Given the evidence so far, I think the 3-4 per cent increase in consumption growth that I expected was a tad optimistic. I suspect it is more likely to be about 2 percent and I don’t think it will sustain itself beyond Q4. I expect the annual budget on Feb 1 to have announcements to further boost consumption in another attempt to get the flywheel going. The real challenges continue to be slow real wage growth and weak job numbers, which has been the case post-COVID-19. The tactical boosts are welcome, but won’t solve the structural issues hurting consumption. The other area to take stock of is India’s exports to the US since September, when the 50 per cent tariff came into effect. Four months is a good period to get a sense of what’s happening here. Did Indian exporters take a hit on their prices to share the tariff burden (as Trump expects), or were the US buyers and retailers forced to digest tariffs to not pass on the price increase to the US consumers or did the retail price for US consumers go up as the tariff increase got passed on to them (as a consumption tax like traditional economics predicts)? A recent report from the Kiel Institute for the World Economy, “America’s Own Goal: Who Pays the Tariff,” has an interesting case study on Indian exports to the US since September 2025 that is quite illuminative. The report states:
My personal experience in dealing with exporters in the past quarter is that many among them have found alternative routes to reach the American shores, exactly like China has used intermediate sites in Vietnam and Malaysia to have its exports flow uninterrupted despite tariffs and dumping charges. So, while the value of exports to US fell by 18-24 per cent relative to other destinations, it is eventually finding its way to the US. Global trade channels are so intermeshed and complex that traded goods, like water, find a way to flow along the pressure gradient. These alternative channels may have increased the costs for Indian exporters (every intermediary will take its cut for the value added), but it’s better than a 50 per cent tariff any day. Also, most exporters believe these tariffs are a short-term phenomenon which will go away with the trade deal or Trump may change his mind one day. So, sticking to the price makes sense rather than cutting it now and then trying to increase it later (always a difficult thing). So, the Indian exporters have taken some volume hit (by reducing their exports to the US) and some margin hit (finding alternative routes to send their goods) while navigating the tariff. Indian exporters will be fine but, as the paper suggests, US consumers will eventually face inflation. Lastly, we have a new retrospective taxation case in India. As the Business Standard reports:
Quick background here. Till April, 2017, Indian law and tax authorities had held that if an investor had a valid Tax Residency Certificate (TRC) from Mauritius, they could avail the benefits of a tax treaty signed back in 1983 that allowed for investors based in Mauritius to sell shares of Indian companies without paying capital gains taxes in India. The idea was to attract foreign direct investment in India. Courts usually agreed that tax planning wasn’t tax evasion. In April 2017, the treaty was amended to align with General Anti-Avoidance Rules (GAAR) while clearly stating that treaties signed prior to that date were to be “grandfathered” that is those treaties will hold. Tiger Global had invested in Flipkart back in 2012-15 through a Mauritius-based fund. After it sold its stake to Walmart, it sought an advance ruling on tax exemption using the India-Mauritius treaty. The tax authority ruled against it, stating the structure appeared designed mainly to avoid taxes. I mean, what else was the treaty there for? Mauritius is no talent magnet for global fund managers. Anyway, Tiger went to the High Court, which rejected the tax authority’s ruling and reaffirmed the TRC and the grandfathering principle. The Tax Authority then appealed to the Supreme Court, which agreed with them that TRC is not the final word for treaties signed prior to April 2017 if the structure is designed to avoid tax. Grandfathering is apparently subjective. Further, the Court also held that if the tax benefits arise after GAAR came into force, the old arrangement can be considered invalid. I’m still getting my head around this logic. We are the Messi of self-goals. India Policy Watch #2: A Review of The Caste Con CensusInsights on current policy issues in India—Pranay KotasthaneIn edition #271, RSJ and I put forth two differing perspectives on the implications of the caste census.
Challenging three common assumptions about the census, my view was:
Given my priors, I was intrigued to find that Anand Teltumbde—a data science professor, a Marxist, and one of the most-prominent Ambedkarite scholars—was also making a somewhat similar argument in his latest book. So I picked it up for deep reading. What follows is my commentary on this book. These lines from its preface lay out the core argument:
The book begins with a quick primer on the history of caste. Teltumbde is of the view that Brahminism was not the sole cause or origin of caste. It was a ‘fluid, localised and relational system’ rooted in local contexts. It was not standardised, and in any case, the lack of physical mobility meant that caste couldn’t be codified into a single universal measure. Nor were caste identities unchangeable. Through ‘temple building, ritual imitation, donation to Brahmins, or martial success,’ groups gained upward social mobility. But it was the colonial state that bureaucratised caste. Guided by ideas of systematisation, race theory, and motivated by the principle of ‘divide and rule’, the enumeration of caste began after 1857. So while the British did not invent caste, they ‘created a caste order through text, rather than discovering one on the ground.’ The bureaucratic recognition of caste accorded it semi-permanence and froze the caste status of communities in exchange for official recognition or state-provided benefits. Such was the power of this categorisation exercise that even after independence, caste continued to be further bureaucratised rather than move towards annihilation. While one scheduled caste member of the Constituent Assembly called for the abolition of caste, not just untouchability, the other 31 SC members did not press for this. Teltumbe speculates it was because ‘they feared that the abolition of caste would jeopardise reservations.’ On how to abolish caste, he goes on to make an interesting claim that:
I am not sure if outlawing a social practice could have ended it. In practice, it would have meant citizen groups tattling to the State against each other. There would inevitably have been false cases motivated by personal feuds. This would have increased State power and further decreased bridging social capital between people of different caste groups. Nevertheless, I am happy to reconsider my view on this point. Moving on. Once caste was implicitly accepted and reservations were enabled on that basis, the ‘weaponisation of reservation’ became imminent. Teltumbde says that using the vague social and educational backwardness as a criterion for identifying backward classes paved the way for ‘future casteization of the society’, as every caste in a poor and hungry India could lay claim to backwardness. Annihilation of caste was annihilated at that moment. In a sharp paragraph, he writes:
After this brave stance questioning the conventional logic behind the caste census and caste-based reservations, the book veers into a confused territory. I guess there’s a limit to how much you can agree with a Marxist scholar. Here are some points which had me scratching my head:
These disagreements aside, the author concludes that reservation policies can serve only as a final backstop, while the main solution is universal provision of education, healthcare, and livelihood opportunities. While I disagree on what this ‘universalisation’ means, we can agree that we must hold governments accountable on all three counts. I encourage you all to read the book and reach your own conclusions. The editing is sloppy, and the logic can be frustrating at times. Nevertheless, it is a brave polemic with fresh ideas that questions the mainstream narrative while always being sensitive to the concerns of the disadvantaged. India Policy Watch #3: India’s Critical Minerals Strategy Has a Mine-Sized GapInsights on current policy issues in India—Shobhankita Reddy and Pranay Kotasthane(An edited version of this article first appeared on the Indian Express website on Jan 19 with the title, India is talking about critical minerals. But do we have a plan?) Less than 20 per cent of India’s vast geological potential has been explored, and much of this has been carried out by governmental agencies like the Geological Survey of India. It has been tasked with conducting 1,200 exploration projects by 2030 under the National Critical Mineral Mission. Yet realising India’s mineral resiliency goals is an uphill battle, as the global average time from discovery to first production in mining projects, according to the International Energy Agency, is over 16 years - with Indian projects often faring worse amid regulatory challenges, low private-sector investment, and several stalled projects. India has a mine-sized gap in its mineral strategy. In many ways, the policy changes made since the 2012 Coalgate scandal continue to have detrimental effects for the industry today. India’s recent attempts to secure critical minerals must grapple with the mining industry’s long-standing trust deficit and historical baggage. The ContextFollowing the 1991 economic liberalisation, the National Mineral Policy in 1993 and the 1994 amendments to the Mines and Minerals Development and Regulation (MMDR) Act, 1957, sought to expand the role of the private sector and fuel FDI by allowing any company registered in India to apply for a prospecting or mining license. The period between 1998 and 2008 saw a boom in activity. Subsequently, a policy of First Come, First Served (FCFS) was put in place to allocate mineral blocks. A 2012 report of the Comptroller and Auditor General of India on coal block allocations between 2004-2009 cited a notional loss of ₹1.86 lakh crore to the exchequer, revised from a previous estimate of ~₹10 lakh crore, owing to the government’s failure to employ competitive bidding. In its judgement on the 2G spectrum license allocations in 2011, the Supreme Court (SC) held the FCFS method to be flawed, prone to manipulation and favouritism, and cancelled 122 issued telecom licenses. It later opined that auctions were a preferable method insofar as the objective is revenue maximisation, but acknowledged that the “common good”, not revenue maximisation, must be the guiding principle behind resource allocation. The court held that the primary test of the method employed is that it be fair, transparent and in pursuit of healthy competition. 204 out of 218 coal blocks allocated since 1993 were deemed to have failed this test, and cancelled. As a result, the 2015 amendment to MMDR replaced the FCFS method of granting mineral concessions with the auction system. About 66,000 applications pending with different state governments from the pre-2015 regime got automatically cancelled. An additional National Mineral Exploration Trust (NMET) contribution, charged at 2% of royalties and now increased to 3%, and a District Mineral Fund (DMF) levy were introduced to fund exploration projects and support districts affected by mining activities, respectively. Deeming the pre-2015 allocations non-competitive, a higher DMF of 30% of royalties (compared to 10% for newer licenses) applies to them. Auctions are conducted in a two-stage process with progressively competitive bidding, where the highest bid from the first stage serves as the floor in the second stage. The highest percentage bid (over a minimum threshold) of the value of the produced mineral payable to the government wins. Auction data from 2015-2021, however, indicates that this change did not spur any meaningful mining activity. For instance, several auctioned blocks were already operational (not greenfield) and triggered by a lapse of certain leases in accordance with MMDR 2015, a mere procedural feature. Furthermore, several auctions saw extremely high bids, even exceeding the estimated value of the mineral reserves, skewing the bidder profile toward captive miners able to transfer mining losses to downstream activity rather than merchant miners who sell the ores in the open market. Additionally, high auction bids, combined with statutory payments such as NMET and DMF, along with corporate taxes and other forest- and water-related taxes, are sure to make mining economically unfeasible. Consequently, this would either hinder the operationalisation of the mine or skew the costs of downstream products for the economy. The 2010s also saw several blocks previously explored under reconnaissance or prospecting licenses surrendered to the government due to a combination of land acquisition and clearance delays, environmental protests, economic and technical challenges. For instance, Rio Tinto, a British-Australian multinational company that had led the successful, milestone greenfield exploration of the Bunder diamond deposits, abandoned the mine in 2017 after investing $90 million and 14 years. This was auctioned off by the Madhya Pradesh government to the Aditya Birla Group in 2019, which continues to await approvals to start operations. Rio Tinto has not invested in India since. A decade later, it is this track record and the burden of a tarnished reputation that India must shed to unlock its vast mineral reserves. Recent DevelopmentsThe 2023 amendment laid emphasis on critical minerals, and policies have since rapidly improved to streamline processes. Six minerals were removed from the list of “atomic” minerals, allowing private sector participation. The cap on the sale of minerals in the open market by captive mines has been removed, and the NMET, in its rebranded form, invests in international projects. These are positive changes, but several bottlenecks remain. A separate exploration license (EL) regime was introduced for prospecting and reconnaissance. This was meant to attract junior explorers focused on specialised technology work, requiring high risk at the early stage, to act as feeders into mining operations granted via auctions, while avoiding vertical integration in the sector. However, exploration activity is incentivised by a preferential right to mine which the EL does not offer. Several jurisdictions also offer junior explorers tax rebates to offset exploration losses. The current system in India offers a 50% cost reimbursement, capped at ₹20 crore, split across six stages of the exploration process, which is too little, when compared with the ~₹150 crore exploration costs. The long wait for production, contingent upon which the EL holders earn revenues, will deter prospects. Way ForwardExploration is the leverage point, not mining itself. One way to remodel the current EL regime may be to approach critical mineral extraction as a semiconductor fab construction project and provide upfront capital support on a pari passu basis. The funding needed for this should be sourced without imposing additional burdens on mining firms. Further, despite GSI’s investments in early prospecting, the UNFC resource classification followed by India is proving inadequate to distinguish between varying grades of ore and their economic viability and mining feasibility, contributing to low auction uptake. India must seek to transition to a system such as Australia’s JORC in alignment with international norms. Secondly, the two-stage auction process with iterative bidding should be converted to a single, sealed-bid process to avoid overbidding. And finally, while the royalties on several critical minerals have now been rationalised to 2-4%, the royalties on major minerals remain high, resulting in an effective tax rate for mining companies in India of 60-65%. While the system should have progressed towards lowering this, the SC in 2024 held that royalty on mining is not a tax and upheld states’ power to levy additional taxes on mining activities, overturning a previous 1989 judgement. The ruling’s implications for state demands were made retrospectively applicable from April 1, 2005. Payments are due starting April 2026 and staggered over a period of 12 years. This is characteristic of an extractive state, and needs revision - especially because royalty rates had been steeply increased since 1992 in light of the 1989 judgement. HomeWorkReading and listening recommendations on public policy matters
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