Matru depicts the real India

January 23rd, 2013

India has often been described as an economy which is fast moving towards capitalism with a socialistic backdrop. Edward Luce in his book “Inspite of Gods” has rightly remarked that “India’s economy offers a schizophrenic glimpse of a high-tech 21st century future amid a distressingly medieval past.”

The quotation above sums up the theme of the latest release from the Vishal Bharadwaj stable - Matru Ki Bijli Ka Mandola.  The film has aptly captured the great Indian paradox – the continued coexistence of capitalist ambitions and social relations along side a predominantly non industrial agrarian based economy. Of course the quintessential Indian politician continues to play a corrupt role in this evolving interplay of the economic models. The movie very beautifully depicts all these underlying realities of the country.

Pankaj Kapur, representing the rich has a socialist heart but a mind of a capitalist. Under the influence of alcohol, his heart rules and he leads the poor farmers, in a protest march against himself. The moment the influence of alcohol recedes, his capitalist mind starts ruling his actions and he fires on the same protestors to disperse them. Does this mean that all capitalists are socialists at heart?

Imran Khan plays the JNU educated modern Indian youth who leads the farmers against the land acquisition plans of Pankaj Kapur. While doing so he manages to camouflage his real identity and guides the villagers by dropping pamphlets under the assumed name of Mao. This is good news for the Left leaders in India as he has been portrayed as a savior of the villagers.

In his effort to save the villagers, he does not mind going to a rich industrialist with a request to buy the produce of the farmers. This clearly indicates that both sides need each other to survive and thrive. A lesson which the Indian Left should learn and appreciate.

Shabana Azmi plays a greedy politician who does not mind compromising on any principles as long as she is able to achieve her goal – wealth accumulation. The politician does not understand what is good or bad for the people but clearly understands her goal of wealth accumulation and does not mind to use her office for goal fulfillment.

The end of the movie is a dream which most Indians would love to see transform into reality. The capitalist allows his heart to rule and he embraces socialism and of course the corrupt politician is thrown out of the scene.

Ah I wish the Indian politicians watch the movie and realize what they are in for.

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Should death be taxed?

January 14th, 2013

The inheritance tax, which was abolished in India in 1985, now seems to be making a comeback. At least, that is what we understand from the whispers emanating from the corridors of the finance ministry.

A large number of countries are facing fiscal problems and India is no different. Having failed in numerous attempts to raise tax revenues, governments in the UK, US, Germany, Italy and elsewhere are looking at inheritance tax as a measure to claw their way out of recession. India, it seems, may want to follow suit. However, there are large differences in the structure of those economies as compared to India. As a result of these differences, it would be wrong to introduce inheritance tax in India without a proper study and debate on the subject.

The first point that goes against the re-introduction of inheritance tax is the existence of a large proportion of the GDP in the form of a shadow economy (parts of the economy which are not reported for the purposes of GDP computation and also for the purposes of tax payments). According to World Bank estimates made in 2007, the average size of the shadow economy in majority of the OECD countries as a percentage of their GDP was below 15% where as in India it was 26%. This clearly indicates that the OECD countries stand to gain very little even if they widen their tax bases. While in India with such a large amount of GDP going unreported and untaxed, it would make sense to evolve measures to tax the living rather than the dead.

The other point that goes against the re-introduction of the tax is that it goes hand in hand with gift tax. India has long abolished gift tax and has introduced changes in the Income Tax Act, 1961 to tax gifts. If and when the inheritance tax is re-introduced, the current provisions with respect to taxation of gifts will have to be revisited. Inheritance is nothing but a form of gift and the taxation of two cannot be very different.

The third and the final point is that in a country where a taxpayer pays tax during his lifetime on the wealth that has been accumulated (under the Wealth Tax Act) should there be a tax on the wealth again on his death? Or the best will be to increase the amount of wealth tax and ensure strict enforcement. Or else, to give a blanket exemption from inheritance tax to those assets which have suffered the brunt of wealth tax during the life of the owner. Serious issues to ponder on!

To end this on a lighter note, the only silver lining, as a lawyer friend of mine remarked, is that the imposition of the inheritance tax may act as deterrence to the large amount of litigation which the country has witnessed for inheritance some famous some not so famous. For this one we really need to wait and watch.

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The new President and economic reforms

October 11th, 2012

Last week, a colleague of mine who teaches in a university in Belgium, was asked to prepare a paper on the recent reforms unleashed by the Indian government. The poor guy has no knowledge of India and so reluctantly accepted the assignment. This is what he sent me for checking:

With the new President taking charge at Raisina Hills, the reform juggernaut has started rolling and that too rolling pretty fast. First came the announcement to permit FDI in multi-brand retail and the steep increase in diesel price accompanied with the cap on LPG cylinders. Not only that, from 1st of October, the rail fares are also being hiked because of the additional levy of service tax. These have been tough and unpopular decisions and in the process the government has lost an ally got itself converted into a minority government but has stood its ground firmly. Surprisingly, no roll back has been hinted and now it seems the decisions have sunk in and settled.

Again, in the last few days, the government has okayed FDI in aviation and insurance and these measures have come as a much needed breather to some of the bleeding industries and in turn has acted as major relief to the banks who had lent to these industries. The government has gone ahead and announced a restructuring of the State Electricity Boards which was a much awaited exercise.

Now we read that the government is planning a new method of implementing the subsidy schemes by which the targeting is much better and the existing leakages in the subsidy schemes are plugged. In short, the subject for whom the subsidy has been planned gets it straight in his bank account from the government. Another brilliant move which when implemented will help the targeted class to enjoy the subsidy benefits much better.

Unfazed by the growing opposition to some of the reform measures, the Indian Prime Minister Manmohan Singh has reiterated that the above reforms initiated by the central government were an ongoing process for the good of the country and hence would continue. The fact that the Prime Minister has regained his ability to speak and that too in such a strong voice has itself come as a major relief to a large part of the Indian population.

And let us not forget that the Indian stock markets have closed at a 5 month high and so has the India rupee. And imagine all this has happened within a month or two of the new president settling down at Raisina Hills. Since he is going to occupy the seat for five years, India is surely going to see a lot of liberalisation.

My god, I never knew about these qualities of the new president. I really don’t know how to reply. I feel the best would be to dissuade him from requesting for a new topic which deals with India.

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Mamata and Mulayam: The only way to govern

September 20th, 2012

In the good old days when the country was ruled by the Rajas and the Maharajas, one of the prerequisites of a good ruler was to govern with a lot of love and affection and to deal with the subjects in a soft and tender manner. The possession of wealth was of course desired but could not be pronounced in an open court. So two of the most important virtues a good ruler was supposed to possess were – LOVE & AFFECTION (Mamata) and SOFTNESS (Mulayam) and of course WEALTH (Maya) was meant to be secretly pursued.

Ha ha there we are.

Even today it seems no government in India can govern successfully without Mamata and Mulayam. The tumultuous turn of events over the last few days have convinced that the possession of Mamata and Mulayam by the ruling UPA-II is a must if they are to govern successfully and it seems that this conclusion is not going to change in the near future.

In fact, this conclusion is going to be strengthened in the coming few years. Let us see how.

With Mamata virtually out of UPA-II, the ruling coalition has been reduced to a minority and will now be looking at (the second quality) Mulayam. Whether Mulayam obliges or not depends upon what bargain he gets in return. If he has a short memory he may decide to repeat his earlier mistake. But in all probability he will have some sane thought and will definitely not allow him to be used as a stop gap arrangement. Even last time the UPA-I had used him as filler and dumped him at the time of the general elections. And of course the bitter fight between the Congress Scion Rahul Gandhi and Akhilesh Yadav is too recent to be swept under the carpet. But again as we have learnt, politics is strange and so are the ways of people who practice it. In the likely event of Mulayam declining to come to the rescue of the ruling UPA-II, the last option will be to fall back on Mayawati.

As in the olden days, even today the ruling party would like to pursue this secretly and off course this combination without Mulayam or Mamata may not survive long. With the support of Maya alone a ruler can not rule for long – so said the ancient rulers – how true!!

Let us now analyse the possible scenario in the event of a mid term polls. Even here we will realise that Mamata and Mulayam continue to remain the support pillars of the next government irrespective of which party emerges as the single largest and stakes it claim on 7 Race Course Road. According to the Opinion Poll / Survey conducted by a leading TV Channel a few days back, the Samajwadi party and the Trinamool Congress are likely to increase their Lok Sabha tally in the event of a mid term. Even if we assume that surveys may not turn out to be true we should not forget that both these parties are ruling the states which together constitute around 20% of the strength of the Lok Sabha and surely can not be taken lightly.

So we are again back to where we started. No ruling party in India can ignore to have Mamata and Mulayam on its side if it wants to govern successfully.  Oh what about Maya – well UPA-II has taught us that maya can be pursued without Mayawati.

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Lakshman Rekha: the real definition

September 17th, 2012

Mamata Banerjees’ recent warning to the Congress party not to cross the Lakshman Rekha prompted me to do some research on the imaginary line so often used in our vocabulary. A summary of my research findings is given below.

Lakshman Rekha is a line drawn by Lakshmana around the dwelling he shares with his brother Rama and Rama’s wife Sita at Panchavati in the forest of Dandakaranya while he is away searching for Rama. Anybody other than Rama, Sita and himself attempting to cross the line would be singed by flames erupting from the line. Once Lakshmana leaves in search of Rama, king Ravana comes in the form of a mendicant and asks Sita for alms. Not expecting a trick, she unsuspectingly crosses the Lakshman Rekha to provide alms to him and Ravana kidnaps her. Thereafter starts the real macho story of Rama and his heroic deeds which culminate in the destruction of evil (read Ravana) and also signal the victory of truth and morality. Ram becomes the hero and the ideal man who is the saviour of all.

After going through the above, I felt that Ram must have thanked Sita (of course secretly) for breaching the Lakshman Rekha and allowing him the opportunity to show off his valor and qualities of leadership.

Cut Ramayan and come to 2012 India.

Any similarities? Hardly!!

And even if we assume there are some similarities and the Congress party is crossing the Lakshman Rekha by taking unilateral decisions on the economic issues, what are the consequences Mamata Banerjee is talking off. Off course the only one thing she can do is to withdraw support which may force mid term elections. The UPA – II government is bloody corrupt and the number of scams under its reign are unprecedented. Going by some of the scam reports (may read CAG) the exchequer has lost Lakhs of crores of Rupees and the public is being fed regularly with trailers of what is more to come. The last few years have been marked by absolute corruption and total lack of governance. All these are being reflected in the day to day miseries of the common man. Infact so much is the despondency of the common man that the current PM – once a hero of the common man is fast emerging as a national shame.

In these tragic circumstances, it is quite clear that the UPA – II under the leadership of the Congress Party has already breached the Lakshman Rekha of good governance and financial propriety long time back.

By ignoring the earlier actions (corruption / scams etc.) and terming the current actions (economic reforms) as a breach of the Lakshman Rekha, the political parties (especially the TMC) are allowing the (now struggling) Congress party a fresh lease of life. The allies who wish to bring down the UPA – II on this breach of the imaginary line should not forget the fate of the Left Front (which had withdrawn support on the Nuke deal) during the 2009 elections.

The Left Front had mistakenly thought that by signing the nuke deal with USA, the UPA – I had crossed the Lakshman Rekha, and deserved to be pulled down. The public thought otherwise and the 2009 election results reflected that in clear and unambiguous times. Similarly this time too, a large section of the Indian public may feel that the current decisions are in the national interest and may deal similarly with the allies who wish to force early elections.

But nobody will ever forgive the UPA – II (specially the Congress) for the corruption scandals wherein the people feel that the real Lakshman Reka has been crossed and the ruling coalition deserves to be singed in the flames which erupt thereafter.
Let the people decide what the real Lakshman Rekha is and who is breaching it and what should be the consequences.

Do not use faulty definitions and allow the Congress party to deflect the mind of the people from the breach of the actual Lakshman Rekha.

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Constitutional checks and balances

August 28th, 2012

The CAG has done it again. Another series of reports castigating the government for its wrongdoings and causing a loss of hundreds (or maybe thousands or may be lakhs of crores) to the exchequer have been tabled in Parliament (CAG reports on allocation of coal blocks, mega power projects under special purpose vehicles and on the private public partnership project for Delhi’s Indira Gandhi International Airport). And yes, the government has responded in its own trademark manner, by either rubbishing the findings or remaining silent. The government has always responded in this manner to anything which is not in sync with its line of thinking.

The one response that is new this time is that the CAG has exceeded its brief and is now working beyond the powers vested in it by the constitution. This is what Narayanswamy (MoS PMO) meant when he accused the CAG of “exceeding his mandate”.  This is not a matter of joke and such a comment should not be taken lightly in any democracy. CAG is one of the few independent institutions deriving strength from the constitution - not from the government and any comment questioning the limits within which it can perform its duties is surely an attack on democracy.

This response is in line with the Government’s stand on judicial overreach which it is trying to counter by introducing the judicial accountability bill. What perplexes the mind is that is this government trying to champion the cause of independent constitutional authorities which form the bedrock of democracy or it is fast trying to bring all such institutions under its the control? In all probability, it is the latter which is the main intention of the government. If the government succeeds in this effort, it is going to be a disaster for the long-term survival of the democracy.

The constitution of India has developed a system of checks and balances to ensure the smooth functioning of the democracy. The CAG and the judiciary are two important constituents of these checks and balances. By lambasting them in public and trying to bring in laws to curb their work areas, the government is doing the nation a huge disservice. The ruling UPA should realise that the nation will not come to an end in 2014 (when it faces the electorate) and so should not try to respond to serious issues like scams etc. by undermining the authority and functioning of the independent authorities.

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An underachiever and an overrated economist

July 9th, 2012

It has been a little over three years (2009) when India had voted clearly in favour of Manmohan Singh as the prime minister of the country. It is quite amazing that in this span of three years the PM has managed to earn so much of disrepute not only nationally but now also internationally. The forthcoming issue of Time magazine (Asia edition) has a cover story declaring the PM an “underachiever”. And this sums up the entire mood of the nation. In 2009 it was expected that the UPA coalition would be far more stable than the previous one and this would enable the PM to lead the nation into a more stable economic environment.

Unfortunately, the last three years have been the worst the country has ever seen. With a highly acclaimed and successful economist (1991 era) as the PM, it is ironical that the Indian economy has been the worst performer in the region. What has Mamohan Singh the economist been doing, is a question a large number of people are trying to answer.

Manmohan Singh has not only failed as an economist but has also as a politician even after more than two decades of active politics. His political naivete is evident from his inept handling of not only the coalition partners but also his own partymen (Pranab, Chidambaram, Kalmadi etc).

With the departure of Pranab, some of the comments made by the PM regarding the state of the economy and the actions taken by the finance ministry are laughable to say the least.  The comments clearly point towards the discomfort which the PMO had with Pranab as the FM. What disturbs the most is the fact that nation is being led by a PM who could not do the right things because his ministers thought otherwise. The PM played the role of a consultant who only advises, does not execute and takes no responsibility for the failure.  Is this the kind of PM the nation wants?

If the PM doesn’t change his role and learn to act decisively, the nation is at a high risk of losing the status of an economic growth engine for the global economy. A number of reforms are stuck for different reasons and the PM appears or be doing nothing to push them through. Time is running out and if he continues to find alibis for his failures on all fronts the nation is sure to be doomed. From being a puppet prime minister (2004) to a decisive leader (2009 elections) to a total failure (2001–2012) the PM has seen it all. “Perform or perish” is the only way forward and the PM should learn it fast.

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Economic reforms: consensus the only way forward

March 7th, 2012

At around 1pm on Monday, large parts of north India experienced tremors as the earth underneath shook for around 10 to 15 seconds. Little did the people realise that is was just a precursor to the earthquake the country was to witness on Tuesday (election results). As the results were announced it was clear that the elephants (BSP’s poll symbol) had started to fall from Monday itself.

Well, let us not waste time and come to our topic of economic reforms. The general perception is that since the results have not given the desired leverage to the ruling UPA, the possibility of economic reforms being speeded up by the ruling coalition at the centre receeds. The fall in the Sensex post results is being attributed to this. Another general perception doing the rounds is that the voters have voted for a development agenda and have not been swayed by the equations of caste, creed, religion etc. The third general perception is that the voters have cast their vote in favour of a young leadership (read Sukhbir in Punjab and Akhilesh in UP).

Given the last two perceptions to be true, they directly contradict the first perception. The young leaders, who now have a decisive say in the policy matters of their party will surely realise the need to support the right kind of policies at all levels be it economic or otherwise. This should be utilised by the ruling UPA at the Centre to start a new set of consensus policy making involving all the political parties including the opposition. If the nation needs the reforms and the UPA is able to articulate and present its case in a strong manner, there appears no reason why the opposition parties will not accept them. Infact after the results, merely opposing a policy for the sake of it will not throw good light on the opposition parties. The newly coronated state leaders will realise that they have come to power on the promise delivering development and this is what the electorate will be evaluating them on.

The one thing that is needed, is for the UPA to shed its arrogant, know all attitude and include all stakeholders in the decision making process. A tough call for a party used to take decisions without consulting its own constituents but nonetheless a must call.

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The telecom tangle

February 25th, 2012

“Sorry you seem to have dialled a wrong number”; “Please check the number you have dialled”; “The dialled number does not exist” ……… and the list goes on and on.

For long, subscribers to cellular services in India have got used to hearing such automated messages the moment they make an error in dialling the number. The service provider took great pains to make it known to the subscriber that he has dialled a wrong number. But now it seems a large number of service providers have themselves dialled a wrong number. Surely for foreign telecom majors such as Telenor, Etisalat, Sistema etc., India has been a wrong number and they have already announced exit plans.

The above is a direct consequence of the judgement and is surely not the only consequence. The collateral consequences will now start and the dangerous ramifications of the judgement will be felt by a large number of sectors including but not limited to consumers, corporate, banks, telecom equipment vendors etc.

The least affected will be the large number of consumers who were availing services from providers whose license has been cancelled. According to industry estimates such consumers would total around 50 million. With number portability the woes of such consumers would be greatly reduced.

The worst fallout of the decision is the dent in investor confidence when it comes to the foreign players. In the aftermath, there is no doubt that the foreign investor will now think twice before entering a regulated sector in India. The foreign players have a valid argument – they argue that the apex court has passed the decision of cancelling the licenses whilst the corruption case is still to be decided (read A Raja and the CBI case). If the corruption case, as made out by the government, fails (going by the past rate of success in getting convictions for the politicians in corruption cases, failing is more likely), will the apex court reverse its decision of cancelling the licenses. Further, they argue that even if the licenses were issued by causing a loss of exchequer, the court could have asked the existing players to make good such notional loss. Cancellation of the licenses has created total confusion in the industry. No body is clear as to what will happen to the gains which have already accrued to the India players in the course of selling the licenses to the foreign players. The Damocles sword is still hanging over the equipment vendors and banks that have exposures to this industry. It is fast appearing that the practical roll out of the decision is beset with problems.

There is every possibility that at the end of the day we may feel that the hon’ble lordhips at the apex court in their quest to deliver solutions to a issue problem have created more problems than they have managed to resolve.

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Per capita income crosses Rs 50,000 – HURRAY!

February 1st, 2012

If India’s recent economic growth experience has been less spectacular than China’s, it has still been extremely impressive by the standards of most other developing countries in the same period and in comparison to its own past. This is, by and large, the opinion that has been doing the rounds across the globe ever since the “economic reforms” started in the country two decades ago. Data released yesterday shows that for the first time the per capita income at current prices is estimated at Rs 53,331 in 2010-11, against Rs 46,117 for the previous year, depicting a growth of 15.6%.

This huge increase is bound to be used in countless presentations, talks etc. by the policy planners as a showcase for the success of the economic policies being pursued by the nation. There is no doubt that this is an impressive achievement but it should not be used to draw any conclusions. The figure surely gives an idea of the standard of living of the people, though much of the growth in income may have been driven by the richest Indians – which is a fact. And it is this fact which is the reality of the country. Growth in GDP, per capita income etc are the indicators which reflect on the income poverty of the country and India is doing fairly well on these measures. However, the real well-being of a nation needs to be measured by human poverty indicators and not the income poverty indicators.

Human poverty indicators in India suggest a totally reverse picture of the economy. India has never been a good performer in human development terms. Overall, both health and education indicators (one of the best measures of human poverty) have lagged well below those in other countries at similar levels of development and with similar per capita incomes. A few weeks back the prime minister had released a report on the extent of child malnutrition in India and the outcomes of the report forced him to term the malaise of child malnutrition as a national shame. Recent data released by the UN has placed India as the worst performer in child mortality sex ratio, even worse than its neighbours like Sri Lanka and Pakistan. A recent report on inequality released by OECD mentioned that income inequalities have gown in India over the last two decades. In fact none of the reports cited above are contrary to the ground realities in India.

It is a paradoxical situation, the income indicators and the human indicators show divergent outcomes. The benefits of the income growth have not impacted the human indicators. Clearly, increasing inequality is an important factor, since it has meant that the benefits of the growth have been concentrated and have not “trickled down” (a.k.a top-down approach) sufficiently to ensure improved consumption among the lower income groups. The policy planner should not forget that the common man is benefitted only when the income growth impacts his daily life. In fact, it seems that the government has lost total connect with the common man who is supposed to be the ultimate beneficiary of all income growth.

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