VOX POPULI
by
S Kamat
as
Aam Admi
Issue: 195 Date: 03.04.2017
Contents:
1. Time to Revisit the 15% Interest Rates on Senior Citizen FD's
2. GST in India
3. Jagdish Bhagwati Should Say - Looking Back at Demonetisation With Regret
4. Sense of Siege in Indian Society
Time to Revisit the 15% Interest Rates on Senior Citizen FD's
With longevity rising in India we have seen certain opinions being expressed in the media and otherwise of the need to firstly, respect the elderly and secondly, to take care of them. However, these seem to be just crocodile tears being shed since where it matters most and that is in providing the elderly financial security the government itself has been looking the other way. Considering that first the Supreme Court judges and now the RBI Governor are being given a raise and that too three fold. None among the elderly is grudging the salary hikes to these functionaries since the 7th Pay Commission has given substantial increases in pay to all in government and quasi-government sectors but why the government is hesitant when it comes to revising interest rates on FD's for senior citizens is not understood. The government has to understand that a large number of senior citizens exist who are not covered by pension schemes and these are the category that are required to be paid more attention in terms of financial protection. Unfortunately the government has this tendency to think that once pensioners are covered , all the elderly are covered. This is not so and happens to be a blinkered approach. The senior citizens community particularly the above mentioned category bears the brunt of price rise and more so those who live on FD interest alone but no one seems to care. Against a review of interest rates to 15% up to a maximum deposit of Rs. 20 Lakhs for senior citizens who are below the Rs. 3 Lakhs income bracket and consequently do not have to file IT returns per the last policy since revised maybe in the last Budget, the PM announced just before the New Year 2017 a measly 8% interest for a period of 10 years. Even that scheme has not been implemented though 3 months have passed with the buck being passed between the scheduled banks and the LIC with the last named being asked to bell the cat now. Thus having served the country in different fields of business and professional activity and contributing to the nation's development the senior citizens finds themselves as a forgotten community and pushed into a corner. It is time therefore that the PM did something about it and announced the interest rates as mentioned above for the senior citizens since the overall cost of this scheme would be nothing compared to some of the other welfare schemes that the government is pushing vigorously.
GST in India
We seem to be the only country in the world who are experts at complicating any matter. Take the case of GST where while claiming to simplify India’s complex tax regime we have finalized 5 levels of tax ranging from 5% to 40%!! In any of the developed countries of the world at the cusp of the 21st century at least, there would be just one rate of GST across all product categories and the quantum would be mostly in single digit levels. The idea of GST is to give a clear and definable rate of tax for all items which implies that the government intends to sacrifice some revenue as a quid pro quo for the savings of administrative costs that GST brings. However, in India we have this unique tendency to grab the best of both worlds. Each tax collecting authority will protect its turf and thus try to maximize the revenue which has ended us being saddled with 5 levels of GST. And then to justify this we have our Finance Minister, Arun Jaitley pompously say that obviously chappals and cars cannot have the same level of tax. Little does he realize that tariff rationalisation and simplification of the tax regime are the objectives of GST and in any case the government in absolute terms will collect more tax for the cars than on the chappals since the tax is applied on ad valorem basis. During the process of moving to the GST regime, some of the unions of revenue employees of the government had objected to GST since it would make them redundant. Thus maybe to protect jobs for this segment of employees the government is deciding to remain as close to the earlier tax structure but still calling it GST!
Jagdish Bhagwati Should Say - Looking Back at Demonetisation With Regret
(For those interested in reading Bhagwati’s article that appeared in Times of India, Mumbai on 30th March 2017, click on the link - http://epaperbeta.timesofindia.com/Article.aspx?eid=31804&articlexml=Looking-Back-At-Demonetisation-30032017016047)
Jagdish Bhagwati and his associates have been carrying out propaganda in favour of demonetisation done by Narendra Modi and his government. The following rebuts each of Bhagwati's arguments.
One is aware that the cash component of black money is hardly 10% or less. Thus the argument that demonetisation of high value notes being an effective measure to curb black money is more than suspect. So we are talking of one ant biting an elephant's back. More than that the RBI is yet to assess how much currency did not come back to the banking system of the demonetised notes and the way things are going it will take an inordinately long time in this exercise since the figures are not what the government presumed and are also not in their favour. The government had thought that the amount of demonetised notes not coming back to the bank can be assumed to be black money which the holders do not want to declare for fear of penal action. But lo and behold almost 90% or more of the demonetised notes had arrived at the banks by 15 Dec 2016 throwing a spanner in the government's argument. That some part of this money is black money there is no doubt but at most it will be some thousands of crores compared to the scale of total black money which by conservative estimates is around 25% of India's GDP and therefore runs into lakhs of crores. That there will be penal levy of tax on this declared black money there is also no doubt but the revenue out of that will still be less than the thousands of crores of the principal amount. Thus this is the second ant biting on the back of the black money elephant. The glaring publicity being given of currency seizures, tax to be paid on the undeclared money if declared now, etc. etc. are all to sway the public mind that the demonetisation measure to combat black money has been effective. The public position of Modi and the BJP is to project a fight against black money and corruption while the internal strategy is to woo them so that financial resources are cornered and other political parties are starved of funding by these elements. This is the common enough position in Indian politics where duplicity is the order of the day.
As far as corruption and the generation of black money being impacted by the demonetisation measure nothing has changed post 8th Nov 2016 since those involved in these activities both givers and receivers as also generators are back in business as usual but for the sharp V that they faced for just two months, Nov - Dec 2016. Narendra Modi and his Finance Ministry officials are to blame for this fiasco since they left the window of opportunity to the black money holders to exchange their notes which they exploited to the hilt by deploying paid 'mules' to exchange the demonetised notes. One can also interpret this as a deliberate political ploy by Modi to draw the black money holders closer to the BJP with all its concomitant benefits towards funding the party as mentioned earlier. The black money holders were happy to play ball hoping that they would get advance notice when the Rs. 2000 is up for demonetisation. Jagdish Bhagwati has elsewhere argued that the black money holders passing the money to 'mules' and to Jan Dhan account holders is like redistributing wealth from the rich to the poor. How stupid can you get? This is India and the money would have been transferred on the basis of pre-agreed terms and conditions which are non-negotiable and irrevocably redeemable if required by the lives of those involved.
The assumption that GDP is going to be marginally affected is fallacious since almost all agencies including the RBI have positioned a drop in GDP from the earlier estimate of 7.1% to 6.5% and attributed this fall to demonetisation. The Central Statistical Organisation (CSO) responsible for putting out India's official economic figures has its credibility in serious doubt with confusion of base years being different for different indices and with allegations that there has been deliberate massaging of figures to show the incumbent government in a good light. Even its head, T C A Anant as late as the 3rd week of March 2017 has been very ambiguous about their estimates for GDP positioned at 7.1% for 2016-17 and confirmed that they were up in the air and subject to revision when more data becomes available. In this kind of a fluid situation how Bhagwati and his team sitting in the US can be so definitive about the impact of demonetisation being marginal on India's GDP defies reasonable logic. This more so with sector after sector of industry showing a dip in growth for the Oct - Dec 2016 quarter. Not only that but State after State including those run by the BJP like Maharashtra have shown a dip in tax revenues for this quarter particularly for stamp duty and registration fees for real estate running into thousands of crores. This will surely impact developmental spending which a person like Bhagwati will well appreciate. The assumption that the demonetisation measure and the lesser cash in the economy will spur the growth of the legitimate economy is still a claim and one has to see as we go into the future how this pans out.
As for the claim being made by Bhagwati and his team that the UP elections results indicate that the people have accepted the principle of demonetisation, an erudite person like Bhagwati should not fall for this trap. First, about demonetisation the people had no choice and they were compelled to accept it. The decision to implement it was unilateral. Second, there is no taking away any credit from Modi for winning the UP elections and obtaining the massive mandate. He fully deserves it but that is no endorsement for demonetisation. A simple math will prove this. The BJP's vote share in the UP elections was around 40% while the voter turnout was around 60%. Thus around 25% of UP voted for the BJP which is being presumed as a vote for demonetisation. By the same logic 75% of people of UP either did not vote for the BJP or did not vote at all. Can we not therefore assume that they were against demonetisation?
The cost of demonetisation has been the human cost. To assess that you need to count the number of deaths in the queues in front of banks post-demonetisation, the number of jobs that people lost because of cash shortage, the number of industries that closed down because of lack of supplies of raw material since suppliers could not be paid, the amount of perishable goods that rotted because there was no cash to buy this produce from farmers. The claim to demonetisation success is thus strewn with pain, misery and death akin to Emperor Ashoka's victory in the Kalinga war. Ashoka upon visiting the battlefield was so shocked with the number of deaths caused that he took an oath to eschew bloodshed. In the same manner Narendra Modi, Jagdish Bhagwati and others in the seats of power should promise that they should never undertake any measures be it economic or otherwise without thinking through the process of implementing the measure so that avoidable confusion, unwanted pain and misery is not needlessly inflicted on its people who for the large part remain poor and illiterate.
Sense of Siege in Indian Society
There is a general sense of siege in Indian society these days. This is generated by the excessive zeal and misplaced enthusiasm of our government and its related authorities in supposedly performing their normal work functions. Take the instance of the need to verify the antecedents of mobile phone subscribers all over again. The Supreme Court in its wisdom has made this mandatory it is understood because of a number of fake identities which could be linked terrorism. The objective of the court is laudable but sometimes the aspect of practicality is lost on the esteemed judges. This has also been seen in the case of closing down all liquor vends near about 500 meters of all our national highways on the plea that drunk drivers cause loss of life in road accidents. In the mobile KYC case, the matter could have been left to the telecom Cos. to handle the weeding out of suspicious records and report back to the court or the government how many such subscriber connections they have suspended over a quarterly or 6 monthly basis as appropriate. Where may be less than 0.1% of the population is linked to terrorism putting 99.9% of the people to difficulty is clearly not sensible. The courts and government should try and understand that creating huge amounts of work is impractical and it is more important to do work that is effective and result-oriented. We have since Nov 2016 seen an example of this with the demonetisation exercise where at least maybe some 40% of the population was involved in handling black money and the whole country was held to ransom for close to 5 months on the plea of wiping out black money on which the jury is still out if any of the black money was at all impacted. Additionally the RBI, the Indian banking system and the Income Tax authorities were dumped with a huge amount of work which at least the first and third are still struggling to cope with and come to the surface with any concrete results. Just like the mobile KYC, the banks have lately sent out messages to their account holders stating that it is time that their KYC norms to be refreshed and to submit fresh details including photos etc. Here again the banks could have been selective and chased only the suspicious account holders. In the above KYC exercises it is also suggested that senior citizens be exempted since their details like appearances for photos etc. rarely change and it is not correct to burden them with the bother of going through the KYC process all over again. It is understood with the banks that they have withdrawn the need for fresh KYC which the telecom Cos. may also be advised to do particularly for senior citizens. The government should also show greater maturity and not allow the agenda of fringe elements, deviants and terrorists to disrupt the life of mainstream India. We have also the Hindutva brigade generating tensions be it on eating habits, moral policing and/or religious fundamentalism which needs to be controlled. The latest in this instance is Ramachandra Guha being threatened for being critical of the present political establishment. The fear of people when faced with such situations is the lack of will of the present government to tackle the attackers and the tendency to paper over such events by claiming that it is a one-off incident while the reality of physical attack and harm is experienced by the victims. For those highlighting problems with the BJP or the government there is also this tendency to unleash agencies like the Income Tax or DRI or FEMA agencies to silence these critics. It is not that such tactics were not used by incumbent governments in the past but presently there seems to be a more pervasive atmosphere towards such action. Thus the whole country seems to be being put on edge for reasons that are not very apparent to the people at large which is surely no way to run a government.
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