VOX POPULI
                                                                    by
                                                              S Kamat
                                                                     as
                                                              Aam Admi

      Issue: 221                     Date: 02.10.2017 

  skamatblog.blogspot.com or aamadmivoices.blogspot.com

Contents:
1. Should Jaitley Go?

2. Mumbai Stampede: The 'Chalta Hai' Attitude Should Stop

3. A Lesson In How Not To Increase Revenue Generation & Try And Legitimise The Economy

4. Saubhagya Scheme Free Power Through Solar Power

5. Media Turning Out Old Hash in Dawood Extortion & Hyderabad Arab Marriage Stories

                                                           Should Jaitley Go?

Yeshwant Sinha is absolutely spot-on in relation to his critique of the present government's handling of the economy which has failed to arrest the slide and is moving towards a crisis. The problem with the handling of the economy has been the lack of knowledge and experience on the part of Arun Jaitley in financial matters. Being an advocate and a good public speaker means Jaitley is very attracted to the turn of phrase. Thus you will find him these days talking of cashless economy, squeezing the availability of high denomination currency etc. etc. with which he is enamoured. Whether he understands any of this is a debatable matter since going by what has happened since 2014 one must conclude that his knowledge of finance is passable at most. Until Nov 2016 there was very limited financial reform activity and even the Big Bang Demonetisation measure is suspected to have been engineered without keeping Jaitley in the know though later he picked up the baton smartly and made a brave attempt to prove that he is part of the PM's A team. Then the measure of GST followed which was great in concept but again suffered in structuring the rates and in implementation. That both would greatly impact economic activity was misjudged and then overlooked in the obsession of defending these measures. It was a case of trying to do too many things, too soon. The compulsion was also to show that the government was serious in its attempt to implement economic reforms. That the Economic Advisory Council was set up just last week also indicates that the PM is probably not too happy with Jaitley's functioning and needs more heavyweight economists to give him a better feel of things. Not only that last week it was reported in the press that the PM & Jaitley would review the economy along with the officials and after that a stimulus package was to be announced. But that meeting did not happen because the PM failed to turn up and Jaitley came up with a lame excuse. The stimulus package was also not forthcoming since it was only the Saubhagya scheme of offering free electricity connections to the poor which was announced and that is a populist measure with an eye on upcoming State elections like Gujarat. In fact the best thing is for Jaitley to go, but then who will be the Finance Minister? This is in fact the BJP's problem, they do not have enough bench strength to bring about changes in the Cabinet. Modi also has no clue of finance and economic matters which is apparent from the fact that while launching the Saubhagya scheme, he could have remembered his Make in India initiative and offered solar packs to the 4 crore targeted families making it a force multiplier for the fledgling solar power equipment industry and catapulted it to world status with these massive volumes. This was yet another opportunity lost is what we will have to sadly conclude because of lack of grasp and bad judgment like the earlier Demonetisation and then GST. 

                              Mumbai Stampede: The 'Chalta Hai' Attitude Should Stop

Why do we always wait for accidents like the latest stampede on the Parel - Elphinstone foot overbridge at Mumbai before we wake up to the need to improve facilities or provide additional infrastructure? It is not only with the Railways but we saw the same thing happen with the Ryan school in Gurugram post the child Pradyuman's killing that the CBSE inspection team came with a list of do's and don't s against the school. Why were these issues not brought up after the last inspection in which case maybe the child would have lived? Going back to the Mumbai stampede, the Railways was clearly aware of the high pedestrian traffic over the bridge, otherwise how have they released a tender on the same day for an additional bridge at the same spot. This 'chalta hai' attitude that we commonly have should be stopped forthwith and wherever anything has to be done should be implemented before the matter reaches crisis point. Commenting on the Mumbai suburban railway network, though it is the lifeline of the city, it is fast becoming a death trap with the pressure of the rapid and massive increase of commuters and is in need of a serious and comprehensive review of services to meet the burgeoning demand. 

A Lesson In How Not To Increase Revenue Generation & Try And Legitimise The Economy

The problem faced by this BJP government vis a vis the economy are two fold. The first is that the revenue coming in from taxes is low and the second is the existence of a parallel economy variously called the black money economy which is purported to be as big as the white economy but does not come under the tax net. With tax revenues being low resources for any activity become scarce and then the government has to start the process of rationing which becomes difficult considering the many competing areas that desperately need funding. Not only that because of the lack of resources big development plans have to be kept in abeyance. As for black money various governments have tried multiple means to check and control it but sadly with little success. The ground situation and the objectives as put out above look good but let us now examine how the present BJP government went about it. 

From 2014 there was lot of sabre rattling being done on the populist agenda of bringing back black money from Swiss banks which had seized the public mind. But nothing really happened on it since the Swiss will always stick to their secretive laws and those Indians that have stashed their black money in Swiss and similar tax friendly havens keep their ears close to the ground and are agile to move their ill-gotten wealth to other locations before even the stodgy Indian tax authorities have made their first move. There has been much talk about the Swiss offering access to accounts that are considered illegal or black which will happen only if per Swiss law the account holders are believed to be linked with criminal activity and will be given only on prospective basis and not retrospective. Given with no success on the black money issue, the BJP government latched onto the leak of information from banks like UBS and Standard Chartered Bank that claimed some Indians had monies with them. The monies stated in the accounts looked small and included many legitimate accounts opened by individuals and corporate entities with due permissions from RBI. Added to this, there was pressure mounting on Modi's government to deliver on its election promise of transferring Rs. 15 Lakhs into each citizen's account upon recovery of the elusive black money. This figure indicates that the BJP government was well aware of the size of the black money hoard abroad. Lately the Basel-based Bank of International Settlements (BIS) has released data which shows that offshore wealth held by Indians in tax havens has surged nearly 90% since 2007 to $62.9 billion (about Rs 4 lakh crore) in 2015-about 3.1% of the country's GDP in 2015, the latest year for which data is available. Also, contrary to popular belief, Switzerland is no longer the preferred destination for this wealth. Over 53% of this Indian wealth is now held closer home in Asian tax havens like Hong Kong, Macau, Singapore, Bahrain and Malaysia. Swiss banks hold 31% of Indian wealth, down from around 58% in 2007. Thus as you can see Narendra Modi and his government have been firstly, unable to stem the growth of offshore wealth held by Indians since it continued to grow even after 2014, secondly, they have been barking up the wrong tree and thirdly, have painted themselves into a corner with their loud claims to bring back black money. 

There was a need therefore to do something drastic that would show that the government was serious about black money. What was there if the black money holdings  abroad were getting stuck in procedural wrangles, there was enough opportunity to do something closer home and that my friends was what prompted Demonetisation of the Rs. 1000 and Rs. 500 notes on Nov 8, 2016. Enough has been said and written about the why's and wheretofores's of Demonetisation and its consequent effects on the economy deleterious or whatever,  we will not go through that here but stick to the strategic intent of the government in announcing Demonetisation. The idea was good but the implementation was bad because the mechanic had forgotten to bring his wrench so there was a leak and in the first fortnight after 10th Nov 2016 the leak became a hole through which all the black money escaped. This left the government looking for pennies to justify their intent and look for alternative stories to divert attention from the trauma of Demonetisation unleashed on the unsuspecting and gullible Indian population.

That is where the government commenced State sponsored financial terrorism on its people to justify their errors. The first assumption in this approach was that all Indians are crooks and none of them pay their income tax correctly. The second assumption was contrary to our judicial system where you are presumed to be innocent until proven guilty, here you were presumed guilty of not paying proper income tax until you proved that you had. In line with this premise the government warned in no uncertain terms to those who were depositing the excess cash they had in the demonetised notes and more than the limit of Rs. 50,000 that they would have to define the source of these funds. In the absence of proper explanation these funds would be taxed at penal rates was the finger-wagging admonition. This affected small businesses and housewives since the measure was sudden and small businesses had not been able to adjust their billings and receivables pattern to move away from cash and were caught napping. Here the amounts were not black money but money caught in the gap while moving from one accounting entity to another and required the consent of the buyer and the seller and could also involve having the say-so of third parties. From that point onwards until today you will find the raucous orchestration from the Finance Minister down to the officials where the recurring theme is - We will get you! In this you would have seen that almost 2 lakh entities who deposited more than Rs. 2 Lakhs or more are purportedly on the IT man's radar as reiterated recently to track down the total quantum of Rs. 3 Lakh Crore suspected deposits. Similarly more than a lakh of individuals who took advantage of the black money declaration schemes have to be investigated. You can therefore see the extra load on the IT authorities given their existing work and the backlog of past cases that is already on their plate. So the question that arises is whether the tax authorities will be able to deliver on this work load in any meaningful manner or will we see again selective assessments and corruption on the table.

Immediately after Nov 8th, 2016 mostly abroad in the Gulf where there is a large Pak population it was being said to Indians that your Prime Minister snatched away even the money that was in your wallet. Similarly all the people like elderly people, servants and women who work as maids etc., people in villages essentially those who have no access to the banking system, found that their nest-eggs and/or comfort money for exigencies and emergencies was in one swipe converted to ZERO. A government is supposed to be sensitive to the needs of its people but in one fell stroke it reduced a large proportion of the population temporarily to beggars. Many could not take the shock because  of their lack of understanding of what was happening leading to increased stress and maybe this led to some of the 100 odd deaths that occurred due to Demonetisation at that time. 

The much touted feature of Demonetisation wiping out black money has been turned on its head since the many 'mules' used by the black money holders to exchange at the authorised limit of Rs. 4000 and then Rs. 2000 nullified that premise. The little that was unearthed in raids around the country by tax authorities or thrown away is nowhere close to the estimated level of black money in the country. Arun Jaitley has been making a lot of noise, reminiscent of the old saying that an empty tin with little in it can make a lot of din, related to these minuscule amounts that have been recovered along with the amount of some Rs. 4,600 crores in the new black money declaration scheme that recently closed. Like where is Rs. 4,00,000 crores of black money stashed abroad as mentioned above and assume an equivalent if not reduced figure of Rs. 2,00,000 crores of black money within the country. Compare this with the Rs. 400-600 crore seized here which includes the assumed tax to be paid on the amounts deposited under the black money declaration scheme. These are just drops in the bucket. But these may not come in easily since they will be contested and possibly end up in our law courts making the tax revenue stream uncertain. But for Jaitley even these amounts are important in a revenue context since he is following the principle that every drop is important to fill the revenue bucket. 

Consider what happened in the first few days after Nov 10th, 2016 when the commercial banks opened their doors to transactions. It was found that the Jan Dhan zero balance accounts that the government had got the people to open, who had no access to the banking system before, showed a remarkable spurt in deposits. In the 'heady' days then, when the RBI was looking at drafting its one circular per day as per quota bound to the government, realised that a lot of the surplus cash and funds that were with people was finding its way to these Jan Dhan accounts. This money was being deposited by the long time retainer or acquaintance or someone the account holder ran into the street or just simply unknown persons into these accounts for and on behalf of the rich persons. Some Jan Dhan account holders found that without their knowledge they had become richer by tens of Lakhs of Rupees overnight. Obviously this was a convenience arrangement and the account holder would benefit to some extent but not to the full amount put in his account. By end of 2016, the deposits in the Jan Dhan accounts had risen to Rs. 75,000 crores since Nov 10th, 2016, though the RBI tried to combat this trend by limiting the amount to Rs. 50,000 that you could deposit into these accounts and also imposed a withdrawal limit of Rs. 10,000 per time. Inspite of that the fact remains that to a large extent other than the 'mule' system that was used to exchange black money to white, the black money holders utilised the Jan Dhan accounts to convert their money to white is a fact. Though Jaitley claims that every Jan Dhan account with large deposits will be investigated and taxed, it remains in the realm of possibility and with chances to get mired in the labyrinth of our legal system. Thus you will see that Demonetisation that was done to catch black money was turned on its head by those having black money to convert their black money to white at no cost to them purely because of the ineptness and lack of imagination in this government. Even this mess was attempted to give credit to the government by none other than the noted economist Jagdish Bhagwati who is supposed to have the right ear of PM Modi on economic matters who said that this was an example of re-distribution of wealth from the rich to the poor and needs to be lauded! 

Now let us look at the insensitiveness of this people's government that was elected with a thunderous majority by the people in 2014. There has not been a single word of commiseration or sympathy to some 100 odd persons who died in the queues to exchange the demonetised notes from either the Prime Minister or his lackeys down the line. Not only that the stories of the impact on the lives of people and on the economy because of Demonetisation that has come out has been mostly from the urban areas and the organised sector. The data on the unorganised sector coming in on a six monthly basis was not reflected whenever the impact of Demonetisation was assessed. Neither were job losses counted in this sector because of the severe crunch on cash faced after Nov 2016. When the data came in it was seen that not only had many businesses in the small and tiny sector had to close down but across the sector there were massive job losses. This was over and above the impact that we had seen in the micro finance sector, farmers unable to sell their produce in mandi's because of no money with the wholesale buyers etc. etc. Thus a popular government that came riding on the promise of creating jobs, but took away jobs and left livelihoods from the people because of the single measure of Demonetisation, leaving them helpless in the face of rising inflation. This was the irresponsibility of this government in showing a complete lack of sensitivity towards the common people in implementing a government policy measure. The problem at the lowest level of the pyramid that of daily and casual labour who were thrown out of jobs from small business, building contracts, microbusinesses etc. because of Demonetisation would have been much worse but for the government MNREGA scheme which showed peaking in enrolment over the quarter immediately after Nov 2016. If this safety net had not been there the misery unleashed by Demonetisation would have been all the more. 

Moving forward the government has been claiming that the formal economy has been expanded. No doubt there is merit in that logic but at what cost? With the expansion of the formal economy as claimed it is proper to expect a growth in tax revenues. But then only time will tell if the inventive Indian will find a way to beat the new system. The government thereafter in July 2017 steamrolled and put in place the GST in its attempt to have more and more transactions into the formal economy. It is a well intentioned measure but has had its own problems at the time of implementation which has been more the haste in putting in place the new system leaving again the trade and businesses in needless stress.

We will now look at the manner in which the Demonetisation measure was projected, define the measure of success on these indices and how the government has now changed track. This is just to highlight the fact that the government in its intent to deliver on its stated objectives falters and tries to change the narrative and in that process taking on more than what it can handle and ultimately ties itself inextricably  in knots in the manner of a kitten with a ball of wool. The Demonetisation objectives were to catch black money within India as much as possible, to hit out at corruption, combat counterfeiting and make it difficult for counterfeiters to copy the new notes and make the funds available with terrorists including Red terror worthless. As outlined above, the black money escaped from the government's hands like water put in a bucket full of holes. Corruption remained unaffected since new funds asked for came in the new currency and the old currency stocks with the corrupt went the escape route for black money. As for counterfeiting within 2 months of the new currency launch of the Rs. 500 and Rs. 2000 notes, fake notes were seized within the country believed to be made in Pakistan and then in Bangladesh. As for the Red and terrorist funding where these funds were being extorted it came in the new currency while their existing horde was legalised like the black money as above. So but for touching the proverbial tip of the iceberg on all counts nothing much was achieved by Demonetisation except to putting a brake on the economy and making people's lives difficult. 

This required the new narrative of the cashless economy, the squeezing of availability of high denomination currency and the continued fight against corruption. With the unending lines in front of commercial banks to either exchange or withdraw money, the government wanted to take advantage of this people distress and push them towards a cashless economy. With no choice the people had to play ball and cashless transactions peaked in Dec 2016 but since then they have tapered off to pre-Demonetisation levels. The problems on this initiative are many but bad network connectivity and problems related to geographical coverage are main. As for squeezing high denomination notes, the government has no need to do this deliberately since the new Rs. 2000 note has not become popular with the people but it is highly regarded by black money holders and those who have the habit of stashing away currency. Earlier and closer to just after Nov 2016 whenever you went to draw money from ATM's the predominance was of the new Rs. 2000 note but you will notice lately that this incidence has reduced. The reason is that banks in some areas of the country are finding that the new Rs. 2000 note is not being circulated! No prizes for guesses here as to who is capturing these notes for safekeeping. So the high denomination currency squeeze is happening on its own without the government having to interfere with it. Both cashless operation and a lesser dependency on cash transactions will happen at a slower pace than what Jaitley wants. It is not like closing one tap and opening another which case is the way Jaitley thinks it is since he does not factor the diversity of the country both in economic terms and geographical spread. People need time to change and be comfortable with the transition to the new system and no amount of incentivisation or pushing from the government will make this happen. 

Concluding in overall terms the strategy to expand the direct tax base in the country though conceptually good was fallacious in terms of implementation and marked by an unseemly haste that resulted in multiple intermediate objectives colliding with one another and where the master responsible for the transition should have had the finesse of a conductor leading a symphony orchestra, we had the hamhanded playing of the leader of a wedding band in Delhi. This irresponsible attitude of the present government has cost many lives, resulted in snuffing out fledgling and small businesses, thrown out lakhs from jobs and has almost brought this country to a shuddering halt. One hopes that the government will learn that - There Is Always A Better Way.

                              Saubhagya Scheme Free Power Through Solar Power

Narendra Modi's Saubhagya scheme to provide free power to the poor is clearly a populist measure. Though the intent is to be lauded, it would have been better if solar power was provided to the families which would have given an additional fillip to the solar power industry. Though the scheme offers solar power packs in remote areas where regular electricity is yet to reach, it would have been better if this was done across the board. With solar power prices at a record low, the industry in India would have been propelled to greater savings in cost by supplying under this Saubhagya scheme thus putting it on a firmer footing and in turn generated more jobs which is the crying need of the day. Thus it would have given a boost to the Make In India program. The surplus power situation which is driving the Saubhagya scheme could have been kept in reserve for industry when it picks up from the current slump. 

        Media Turning Out Old Hash in Dawood Extortion & Hyderabad Arab Marriage Stories

The newspapers lately carried 2 pieces of news. The first about a racket in Hyderabad where marriages were being arranged of impoverished Muslim girls to aged Arabs from the Gulf. The second was upon the arrest of Iqbal Kaskar, Dawood's brother, it was reported that the Don continued to be involved in extortion rackets in Mumbai & other places in India! Is this all new? 

Marriages of poor Muslim girls to old Arabs have been happening for the last 50 years or more in Hyderabad. An organised syndicate has been thriving on this and the agents sell these marriages as a bonanza to the targeted girl's family and extract their pound of flesh from the dowry that the Arabs give.  Girls were sold like this for as little as Rs. 50,000 sometime in the past. Wherever the marriages have progressed to the stage where the poor girl is taken to the Gulf, it is fine because she becomes the financial mainstay for the rest of the family in Hyderabad. She herself may be suffering sexual attacks from other male members of the Arab's family which is fair game in that part of the world since her husband is old and cannot or is unwilling to object.  Additionally she is treated as a menial considering that wives from India are looked down upon in the Gulf in a kind of a throwback to our own caste system. She is thus treated as a servant after the male members get tired of her but the woman now is unable to open her mouth for fear that the money train may stop and her family back home be forced back into penury. Sometimes the old Arab does not take his local bride with him back to the Gulf but abandons her in Hyderabad. This becomes a bigger problem for the girl and family since apart from the dowry that the Arab had paid, there is no other money coming on a regular basis. The police and government in Hyderabad have been well aware of this kind of racket with the police customarily looking the other way for a consideration. So the present racket is not new, it has been existing in the past and maybe the new version is being played out now.

As for the Don's activities in Mumbai the business community mostly the real estate and the diamond industry can spell out the details of the extortion attempts they face. This was very apparent even from the time of the Bombay blasts when Abu Salem was ruling the roost on behalf of Dawood which mantle then fell on others ultimately now resting on Iqbal Kaskar's shoulders. The police from the beginning when Dawood was in India were aware of the rackets but preferred to play possum since the moolah train was made accessible to them and they could draw upon it comfortably and in leisure. The media is after taking out these stories from their archives, dusting it out and then putting the same old story with new characters and a different plot now. Proof that Dawood continues on his muscle-flexing and extortion rackets is there again in today's, 24th Sept, papers where activist, Damania claims he received a threatening call from the Dawood gang.

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