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''Every businessman fears enforcement agencies'

Last updated on: September 17, 2019 08:58 IST

'Everybody fears them and rightly so. Who in his right senses wouldn't fear these agencies?'
'They can take away everything in seconds with near zero recourse to law.'
Illustrations: Dominic Xavier/

Not known to mince his words, speaking straight and without beating around the bush, Shankar Sharma, co-founder and chief strategist at First Global, has always spoken truth to power.


Known for his contrarian investment style -- "I go against the wind" -- Sharma blasts mutual fund managers in this frank interview with

"Most mutual fund managers are BJP supporters. That's the reason why they went on a cheerleading campaign in 2014, and did the same in 2019 also with no reason or rhyme or data or analyses. When you start talking and behaving like that, then you are no longer rational and indulge only in spreading government PR. You should not be managing public money. Your political inclinations should never ever influence your investing mindset," Sharma tells Prasanna D Zore.

How do you feel about the government's policy on the FPI surcharge?

I have never criticised any of the economic policies of this government.

I am not mad.

In fact, I have been very clear that the FPIs selling has got nothing to do with the government's tax policies (the surcharge levied on the FPIs in the Union Budget 2019-20), which was announced and then retracted.

People have been saying that the FPIs started selling since the Budget day because of the FPI tax.

That's an incorrect assessment. The selling has been because of the sharp slowdown in India's growth.

Has the government done the right thing by levying a surcharge first and then removing the same on FPIs?

Let's put it this way: It would have been better if they had not done it in the first place. Second, they should have reversed it the very same day they announced it.

Was the government justified in levying the surcharge on FPIs in the first place?

The government wants to raise resources, and in pursuit of raising resources the only way is to tax people and it is generally understood that FIIs have more money than other people to spare for taxation and so they might have made the decision.

Now, FIIs are not known to pay much tax anywhere in the world including the US and the UK and most parts of the developed world and even developing markets like (South) Korea where they pay zero taxes. So, it becomes problematic for them to pay tax in a country like India.

In my opinion, the government should have reversed the FPI tax on the very same day. Be that as it may, they have reversed it after a month.

However, I don't think that (the surcharge on FPIs and its rollback) really matters and will help reverse or calm down FII outflows from India.

You have made the case that FPIs are selling because of the slowdown in the economy and not because of the surcharge?

That's right.

The Indian stockmarket has been facing quite some turbulence since Finance Minister Nirmala Sitharaman presented her maiden Union budget on July 5 2019. Why was the market so rattled? Is it only because of the economic slowdown?

That is the only reason and I had tweeted this in April (2019) before the (general) election and before this Budget. At that time the Sensex was at 39,000-40,000 levels.

I had said then that no matter what happens in the election (the market was hoping for a solid bull run if Mr Modi were to be re-elected), the markets is headed for an absolute meltdown.

And that is what exactly happened after the Budget.

There were adequate indications that the economic situation was very, very bad. But people were not noticing that. The same government with 20, 30 more seats will deliver better growth than what it produced in its first term was not a sensible argument at all.

I had also argued that markets usually like change, or if the same dispensation continues then its change in policies must be visible. Otherwise, it is the same set of people, the same set of thinking.

Given this I don't understand why markets should have reacted positively if this government were to come back with 20-30 more seats. That did not happen.

The economy was struggling well before the Budget or the new government was formed. The general economic slowdown started one year ago.

It was the hope trade that started in 2018 and took the markets higher, but the markets' (breadth) were becoming narrower and narrower.

Only a handful of stocks were outperforming and the rest of the market had collapsed.

All these things were a standard recipe for disaster, but people didn't see this coming.

In the light of what you stated just now, why couldn't India Inc and stockmarket stalwarts foresee the economic slowdown?
Or do you think everybody knew the fall was coming, but preferred to keep the government in good humour rather than speak truth to power?

I think it was a bit of both.

As far as India Inc is concerned, looking at the kind of power that the government has given to the enforcement agencies (the Central Bureau of Investigation, the Enforcement Directorate, etc), who in his right senses will openly criticise any policies (of the government)?

Nobody will do that. In fact, nobody should do that right now. So it is better to suffer in silence. That is as far as India Inc is concerned.

As for mutual fund managers, most basically are BJP supporters. Per se, that's fine, but that is the reason why they went on a cheerleading campaign in 2014, and did the same in 2019 also with no reason or rhyme or data or analyses.

When you start talking and behaving like that, then you are no longer rational and indulge only in spreading government PR.

This is all fine, except that then you should not be managing public money. Manage your own money and spin (the government PR) it the way you want. Nobody would care.

When you manage public money there is a huge responsibility on you to not get swayed by popular politics or your political opinion.

You have to focus only on data and economics. Most mutual fund managers abdicated that role completely in the last six years.

Your political inclinations should never ever influence your investing mindset.

For example, I have been both bullish and bearish under the two governments of UPA and NDA, depending on how I have seen the economic situation.

Vote for any party, but your money should vote for returns. Period!

You talked about India Inc being scared about the enforcement agencies. Don't you fear government agencies?

Of course, I do fear (the enforcement agencies).

Everybody fears them and rightly so. Who in his right senses wouldn't fear these agencies?

Every businessman in India, me included, lives in morbid fear of these agencies. They can take away everything in seconds with near zero recourse to law.

I have always believed that India is a political democracy, but an economic dictatorship.

I have had no occasion to change that view.

These are facts not everybody is voicing so vociferously as you.

I think such criticism has been voiced by many people including the MNCs. It is not that I am the only one talking about it. Everybody knows about it (tax terrorism).

The finance minister herself has told the tax officers to not be anti-business. Her statement also came out that we need to have an environment where (business) people are not scared.

Even the finance minister recognised the fact that things have gone too far with the heavy hand of the government and that people need to feel more secure and relaxed in order to run businesses. Even Mr (Narendra) Modi has talked about it.

So the leadership is of the same opinion as the rest of the business community and hopefully they will do something about it.

Do you as a businessman feel there will be no tax terrorism?

Absolutely not.

Any reasons why you don't feel secure as a businessman?

No. There are enough examples (of others who were harassed by the enforcement agencies) throughout the history of India.

I can tell you that in India the rule of law is good to talk about, but in reality it may or may not work out that way. Because the dice is so loaded in favour of government agencies.

All Indian entrepreneurs, with perhaps a couple of exceptions, fear these agencies more than they fear God.

The problem in India is that there is no efficacious remedy against government harassment. Courts rarely stricture government high-handedness.

There is no penalty on government officials for abusing their powers.

Government officials can get away with murder, but as a citizen, you can be made to grovel in front of a lowly government officer.

This is economic dictatorship at its best.

And the difference becomes very stark when you do business globally, like we do.

Nobody comes around harassing you. Nobody foists false cases on you. As an Indian, it's kinda hard to adjust to this climate of non-fear!

Now, even the power of arrest has been given to almost every Indian agency I can think of. Even under GST!

Obviously, with such powers, I don't subscribe to the thought that all these powers will be used (by the enforcement agencies) wisely and judiciously.