Will Power Surplus Lead To Lower Tariffs For All?

Will Power Surplus Lead To Lower Tariffs For All?

A Committee composed of the chairman of the Central Electricity Authority, the secretary of the Central Electricity Regulatory Commission (CERC), the president of Industry body FICCI, the energy secretaries of Bihar, Tamil Nadu, the principal energy secretaries of Madhya Pradesh, Gujarat and Uttar Pradesh - is about to finalise its report.

The report is on how to tariff electricity in future, not to ration out a scarce resource as before, but to increase its demand.

India is rapidly moving from shortages to surplus of this highly perishable commodity.

A month or so earlier, the same committee was reportedly of the opinion that industries which currently cross-subsidise domestic power tariffs for the poor, should be incentivised to consume more power with lower tariffs. They should also get cheaper power during off-peak hours, felt this committee.

The thinking was not dissimilar to how the Indian Railways are hamstrung and in decline because of its high freight rates, low capacities, dismal performance and safety records and losses over subsidising passenger fares. Even as, despite all this, it loses freight business to road transport.

Then, the electricity committee’s view went, the cross-subsidy burden to keep electricity cheaper for the poor, should be passed on to the larger domestic consumers instead, defined as those who consume more than 800 units a month.

That these domestic consumers, particularly those in the middle classes who ran air conditioners in summer and heaters in winter, were already paying much high tariffs for consuming a couple of thousand units of power or more, notwithstanding.

Now, as the report is about to be finalised and tabled, the committee has happily revised its stance.

It now plans to suggest that ALL large consumers, including domestic ones, should pay progressively less for higher consumption.

The revision in its thinking is prompted by the tendency towards lower generation costs in new facilities, thereby lowering average costs, and the compelling fact that electricity wheeled out must be consumed by ready-made demand or lost irrevocably.

The slabs and steep larger use tariffs, created to serve a chronic power shortage scenario, particularly for domestic consumption, are now rapidly becoming obsolete.

Instead, the idea is to generate enough ready demand in order to sell all the new electricity that is being generated, inclusive of increasingly green - nuclear, wind, hydroelectric and solar power.

With backbone improvements alongside, it is now being transmitted all over the country, and to neighboring countries as well.

In the West, which made sure it does not have any shortage of electricity, utility companies are numerous, largely private, and make routine profits by catering to local area demand.

To them, large consumers, be they industrial, commercial, or domestic, are valuable customers, and to be rewarded for consuming more via reduced charges per unit.

The slab system, obtaining here in India, works in reverse there. Small consumers, more numerous and costly to  service, pay a higher rate.

While it is not appropriate that the millions of the poor should pay more here in India, it is important to take into account that they often cannot, or do not, pay at all.

But, the state electricity boards can only be financially healthy by selling their electricity to solvent large users.

Incentivising them therefore, is the best way to ensure that the impact of cheating, pilferage, transmission losses are recovered. Also that money for operations, maintenance, renewal etc. can be paid for, largely by increasing consumption exponentially.

And this, in tandem with increasing production.

Production of electricity has long been a bottle-neck to India’s industrial and commercial growth, both in terms of scarcity and high tariffs, compared to neighboring countries in South East Asia, let alone much bigger manufacturing countries such as China.

This weakness, combined with other infrastructural lacunae such as connectivity, communications, living conditions in remote areas etc. have held us back, and rendered Indian manufacture uncompetitive internationally. It is no wonder that our biggest success area is in services, particularly in IT, where a lot of it is conducted in host countries. 

Our advantage is cheaper charge-out rates for personnel. Theirs is in the superior infrastructure.

Ambitious programmes such as Prime Minister Modi’s ‘Make in India’ initiative, largely targeted towards high technology and precision defence manufacturing, must suffer from this lack of infrastructure attractiveness for foreign investors.

But under the dynamic Union Power Minister Piyush Goel, electricity, as one of the vital inputs necessary, is not only likely to reach every village before the end of the first term of this government, but is being exported as well.

With the recommendations of this committee now, it may also result in higher and profitable consumption of electricity domestically.

The policy direction being taken by the committee is commendable. Many state governments have rendered their state electricity boards sick. They have given away electricity free to farmers and large non-recoveries from other constituents for political considerations.

While the intentions behind some of this may well be laudable and pro-poor, it is unsustainable in the medium term.

Electricity boards in the red makes it very difficult to repair, maintain, augment, even replace, the concerned facilities.

With losses and mounting debts, there comes a time when the state government itself finds it difficult if not helpless to honour its commitments of providing electricity round-the-clock to all.

Most industry, unable to depend on inconsistent supply, has had to set up captive electricity generation/transmission and distribution facilities, and also use expensive and polluting diesel-based generator banks extensively in order to cope. This is the ground reality over recent decades.  

But, as India moves towards developed nation status from  an emerging economy, it cannot afford to be retarded by lack of essential utilities and facilities.

The past may have been one of neediness and want because of  the adoption of misguided socialist policies. Not only did they result in negligible GDP growth  but compounded mounting problems with backlogs.

But now India is amongst the fastest growing of major economies in the world, with an impressive PPP rating and aspirations to be in the very front rank of nations. 

It therefore cannot but attend to the basic demands of its sustenance.

The danger now is not in boldly enhancing capacity but sliding back because of a povertarian mindset.

Our political establishment and administrative bureaucracy must understand that there is no mileage in harking back and citing our shortcomings.

That post-colonial India with its quaint notions has grown as obsolete as our erstwhile place in the third world.    

For: Nationist Online English

(1,077 words)

January 15^th, 2017

Gautam Mukherjee

A Magic Wand Moment: SC Bans Communal Politics

A Magic Wand Moment: SC Bans Communal Politics

Sometimes the Supreme Court (SC) with its frequent interventions seems like the proverbial good fairy with the magic wand. It is the highest court in the land and cannot be denied. Even politicians must obey it.

It instructs traffic policemen to get strict with red light jumpers and city speedsters. It tells politicians to remember the Constitution. It bans Jallikattu, only to be roundly defied.

But armed with its torrent of strictures, it certainly increases the cash income of various enforcement agencies.

 “No politician can seek a vote in the name of caste, creed or religion,” intoned Chief justice T.S. Thakur in a rather wishful Supreme Court (SC) order of January 2^nd 2017.

Justice Thakur was heading a 7 judge bench on the matter and announced the verdict days before he retired from the SC.

The Chief Justice nevertheless had to use his vote in favour of the order to break through the three each judgements.

Judges who agreed with his view were MB Lokur, SA Bobde and LN Rao.

Chief Justice Thakur added for good measure that the election process must be a “secular exercise”, completely ignoring the  present realities of vote-bank politics that Prime Minister Modi has been trying to break out of with exhortation to support “Vikas”.

The ruling came at long last on a petition filed by a politician in distant 1996! The apex court was revisiting a 20 year old judgement that called Hinduism a “way of life”.

The fact that the judgement was not unanimous is telling, as telling perhaps as the Indira Gandhi era (1976) insertion of ‘secular’ into the Preamble.

The dissenting judges, DY Chandrachud, Adarsh Kumar Goel and Uday Umesh Lalit termed the order a ‘judicial redrafting of the law”, and that it reduced “democracy to an abstraction”.

The judgement preceded the imposition of the model code of conduct by the Election Commission (EC) on January 4^th. And it will need to be observed and enforced by the EC in the coming couple of months and beyond. But determining its breach in subtle ways will not be easy.

Results for all five states going to the polls, Uttar Pradesh, Manipur, Uttarakhand, Goa and Punjab, will be out on March 11^th.

But this ruling, unless superseded by another in future, will be in place for other coming elections too.

It is an irony that it is difficult to say which of the contending parties, candidates and states now going to polls will be most hampered by the judgement.

But can it be really this simple? Will these and other forthcoming elections be fought on merits and issues alone?

After all, the SC has only reiterated what is supposed to be done in the first place as per the Indian Constitution since  1976.

Or will the politicians find euphemisms, metaphors, innuendoes, proxies, events, victims, deflections and surrogates as usual. Putting out polarising messages are thought to motivate voters. 

Some parties project themselves as protectors of minorities and specific castes. Some are clearly set up along these lines from the word go.

Most politicians have been careful to not directly step on such banana peels anyway. But political correctness in India does not mean the same thing as it does in an increasingly multi-cultural West, because the native Caucasian and nominally Christian populations are in a vast majority. 

Nor for that matter does it compare with countries that profess a state religion and even follow religious law such as the sharia.

Here in India, issues of caste, creed and religion have a distinct economic dimension that towers above issues of discrimination and affirmative action or as we often call it, ‘reservation’.

And secularism as practiced here, may, in fact, fly in the face of the majority community in cruel, discriminatory, ways. It may seek to underplay or even obliterate religious observances for fear of stepping on secular toes.

In this particular instance sequentially, five state elections are taking place after the momentous disruption of demonetisation.

So will the debate on the effects of notebandi and its aftermath overshadow all else? Will it become a referendum on the increasingly left-leaning policies being pursued by Prime Minister Narendra Modi?

If so, the chances of the BJP and NDA doing very well might overshadow judgements such as this one.

Almost all politicians quoted from the different political parties were quick to pay lip service to the SC judgement by saying they welcomed it.

But you could almost see their brains whirring with strategies on how to energise their voters without falling afoul of it.

An obvious effort began almost immediately after the verdict.

It was to blame the BJP and the Congress for making it necessary for the SC to pronounce on the subject in the first place. Might as well get the kettles out to call the pots black.

One man’s “way of life” is another man’s discrimination in the artificial world created by Indian secularism. It is not a native concept at all. Tolerance is. Not secularism. So better luck with the new Chief Justice and Jai Hind!

For: SirfNews

(843 words)

January 13^th, 2017

Gautam Mukherjee

Liberals & Advantage-Takers Be Warned:Trump Is Intimidation Proof!

Liberals & Advantage-Takers Be Warned: Trump Is Intimidation Proof!

Nothing about the victory of President-elect Donald Trump has   been digested by some, even eight days before his inauguration.

So yet another surreal, badly mistimed attempt to queer the pitch was essayed, as if it was still early campaign season.

It preceded Trump’s first press conference to America and the world after five months, on the 11^th.

Getting to the substance of it, Trump had, on display, his two grown sons Eric and Don Jr., his precise lawyer Sheri Dillon, heaps of legal documents (to illustrate handing over control of his businesses to his sons), and the Veteran Affairs nominee David Shulkin.

He was also roundly endorsed by Vice President-Elect Mike Pence for his ‘energy’ during the transition period.

Trump, looking rested and chipper, said he wouldn’t personally run his business empire for the next ‘eight years’.

He also made clear that military veterans who had been ‘horribly’ dealt with, will be treated much better in the forthcoming Trump administration.  

The globally covered occasion, as expected, put China once  again, on notice, both for being allowed to take commercial advantage of America, and for its militarisation of the South China Sea.

The President-elect promised to generate jobs for the ’98 million unemployed’ Americans. The days of American companies freely ‘offshoring’ are over, he said.

Trump said he believed the Russians had indeed hacked into the Democratic Party servers, in a 21^st century echo of Watergate.

He couldn’t resist gloating over some of the revelations on Hillary Clinton and other Democratic Party people the hacking had put out in the public domain.

But, he trashed the suggestion that the Russians had compromising information on him personally. And he refused to comment on his business dealings in Russia, and indeed his much sought after tax returns, saying he had already won.

Trump acknowledged the Russian contribution to his victory however, declaring that a better relationship with Russia should be seen as an ‘asset’.

Trump said the hacking epidemic was actually more widespread from ‘China’ and some other countries too. In any case, he promised to investigate, and have a report presented to him in 90 days.

The oft mentioned wall on the Mexican border to keep out illegal immigrants, would begin to be built shortly, he said, and will, either by way of ‘border taxes’, or other forms of ‘reimbursements’, be eventually paid for by Mexico.

While Trump said nothing specific on India, the need for Indian IT companies and others to go ‘on-shore’, set up or buy companies there, and employ much larger numbers of Americans is very clear.

There were comments on replacement of Obamacare, on the over-charging of the pharmaceutical industry, the cost and performance of the F-35 project being rationalised and bettered, on supreme court appointments, on the grand inauguration coming up.

The motivated but unverified canard was released on the 10^th, just a day before. It was put out by website Buzzfeed citing Russian sources via a 35 page dossier prepared by one Christopher Steele, an operative of Britain’s MI6 from the Tony Blair years.

The most salacious part of the dossier, was about a younger Donald Trump. The businessman was allegedly cavorting with Russian prostitutes in the Ritz-Carlton Hotel in Moscow, involving certain sexual perversities.

Apparently, Steele was financed to gather dirt on Trump’s Russian connections by anti-Trump Republicans at first, and then by the Democrats.

In addition, elements of the outgoing Obama administration’s US Intelligence establishment, in the FBI, not only put out a two-page summary to President Obama and President-elect Trump, but allegedly leaked the entire dossier.

In addition to Buzzfeed, the contents were also amplified by CNN and the BBC. Trump pointedly thanked those in the media who refused to put out the unsubstantiated libel.

By way of contrast, all involved were scathingly berated. Trump called Buzzfeed ‘a pile of failing garbage’, CNN purveyors of ‘fake news’, and BBC ‘another beauty’, in his now trademark style.

Trump’s Press Secretary Sean Spicer came out swinging from the first moments, pointing out the report’s many inaccuracies.

And Trump’s controlled fury on the matter saw to it that most of the media steered clear of the lead balloon after the 58 minute conference.

However, the slur could have been the unexploded bomb in the room for a less confident person. The innuendo might even have competed with the authority of a phalanx of 10 American flags hung on eagle standards that Trump stood in front of.

But as it happened, it failed miserably, despite the new round of opeds stating the opposite.

Donald Trump, red tie, blue suit, and blond Dennis the Menace hairdo, underscored the message that he was tough enough for the most powerful job in the world, and could not be intimidated.  

For: ABP Live

(789 words)

January 12^th, 2017

Gautam Mukherjee

Cleaning Up The Augean Stables: Simultaneous Elections, State Funding

Cleaning up the Augean Stables: Simultaneous Elections, State Funding

Every election is determined by the people who show up- Larry J Sabato, Pendulum Swing

Before everything there has to be an admission. Are we willing to sacrifice some element of personal freedom and democratic process for faster growth and development?

If yes, then much of what follows here is worth the candle. If not, then it is an approaching encroachment, even a reengineering of our fundamental rights as citizens.

In the roiling manthan of the post demonetisation period, the near immunity of the political parties regarding their massive  anonymous cash funding stood out in sharp contrast.

It seemed as if the rule of law enumerated in the Income Tax Act was simply not applicable to the political class.

Of the nearly 2,000 registered political parties, only a few ever fought elections. What did the rest do? Were they registered only to launder black money?

Ironically, once the Election Commission (EC) has registered a political party and allocated it a symbol, it does not possess the authority to de-register it.

The largest amongst them, the Congress, the ruling party for decades past, and the presently ruling BJP, have long been opaque, even on the source of their non-cash funding.

However, the Prime Minister has now said that the public has a right to transparent disclosure of such political funding too.

Hopefully he will sponsor the legislation to make this happen. But of course, having made such a statement, he has already scored vital political points over those opposed.

In addition, this government has boldly mooted state-funded electioneering, political donations entirely by cheque, and simultaneous elections to the Centre and the States.

It sounds improbably utopian, and yet such ideas have never been spear-headed by an Indian Prime Minister before. Narendra Modi says he is determined to curb corruption and make India foreign investment friendly by way of motivation.

There have indeed been many committees on partial or complete state funding of electioneering already. Perhaps, once economic liberalisation came to our soviet style ‘planned economy’, thoughts on improving political processes followed.

There was the Indrajit Gupta Committee on the State Funding of Elections (1998), the Law Commission Report on Reform of Electoral Laws (1999), National Commission to Review the Working of the Constitution (2001), the Second Administrative Reforms Commission (2008), and the Law Commission of India Report on Electoral Reforms (2015).  

Were any of the worthy recommendations from so many studies ever implemented? The answer is no.

Advanced countries such as Germany, Austria, France, Denmark, Israel, Norway, Netherlands, Italy, Canada, Japan, Spain, Australia, South Korea, the presidential election in the US, have had partial or comprehensive  state funding of elections mechanisms in place, and operational, for 30 years now.

But, it must be said, everywhere, it has not prevented vast  raising of monies and additional spending by a candidate and/or his political party.

If state funding was intended to keep lobbies at bay, it has not worked in any of these countries, and it won’t do so here either.

But combined with white money funding, and transparency on the names of donors, amplified during the electioneering, it might yet clean up the Augean Stables and better help the voter make up his own mind.

Despite its many edges, a potentially transformative discussion on this and related issues will be tabled at an all-party meeting just before the forthcoming budget session.

Ideally, a political consensus would be desirable. But, given the polarisation along party lines and routine acrimony in parliament, this seems near impossible.

Because of this endemic mistrust of the NDA’s brute majority and its alleged non-secular agenda, new laws on electoral reform, if any, will have to be pushed through by itself.

And this, debate initiation notwithstanding, presumably only after it improves its numbers in the Rajya Sabha.

This could happen shortly, particularly if the reported approval of its demonetisation initiative continues to prevail during the five forthcoming assembly elections.

So far, the BJP has done very well in almost all municipality elections held after November 8^th.

The government’s numbers in the Rajya Sabha will be boosted enormously by 2018, if the ruling NDA wins in Uttar Pradesh.

While the EC has been pushing for various aspects of electoral reform for quite some time, it has met with very little legislative support. Conventional wisdom too dismissed the possibility as it would reduce elbow-room for the political classes.

And yet, the Modi government sees considerable advantage in it, thinking, no doubt, of 2019 and beyond.

The Prime Minister promptly welcomed the EC’s recent call to limit anonymous cash donations to political parties to just Rs. 2,000 each, asking for them to be banned entirely.

And he reiterated his call to hold simultaneous elections to the Centre and the States.

That it would save time and money, and free the government to concentrate on its work uninterrupted for five years is both compelling and undeniable.

And yet, smaller political parties argue that the elections to the Centre are fought on national issues while state elections are focussed on more localised matters.

Some political pundits argue simultaneous elections would curb India’s essential diversity, never mind the chaos and expenditure.

In addition, to club all of them may distort the voting patterns if there are pronounced swings in favour of a given party at the centre. 

The resistant are, of course, thinking of the ‘Modi Wave of 2014’ being repeated.

And so, many regional parties, facing other existential crises, afraid of being swamped in their own strongholds, are not in favour.

The decision comes more easily to a national party that runs various state governments. But this currently applies only to the BJP, to a lesser extent to the Congress, and only slightly to the nearly vanished CPM.

If Congress continues on its precipitous decline, it will leave just one national party standing to benefit.

Besides, all the implied neatness is disrupted instantly if either the central government or any of the state governments fall in the course of their tenure. As they do, owing to political tugs and pulls, quite often.

It would then imply, that to cement the process, there must be fixed tenures as well. How democratic that would be in a Westminster style parliamentary democracy as envisaged by our founding fathers, is yet another issue to mull over.

If we implement all this soon, we may have to make more changes still, probably towards a presidential form of government.

There will also have to be many practical adjustments made to make one-size-fit-all.

Some states will have to cut short their terms to fall in line, and others will need to extend theirs. However, it would only have to be done once and for all. But try telling that to an elected state government, say two years into its tenure!

The current narrative also leaves out problems such as a large number of parliamentarians and state legislators with criminal cases against them.

Legislation has already been passed to debar those who are convicted. That it still doesn’t prevent them operating via proxies, often close family members, is another evolutionary loophole of our parliamentary democracy to be tackled in future.

It all began with the grand adoption of universal suffrage in a largely illiterate country. But after 70 years, the fact that this enormously complex electoral process for almost a billion voters works so well, warts and all, is impressive by any standard.

That is should also be in need of course correction and reform is not surprising. Particularly since the need to grow economically is essential to poverty alleviation and present day aspiration.

Getting rid of some enormously expensive and disruptive electoral freedoms will not take away anything from the people. However, the jury may be out amongst the much pampered political class.

For: The Sunday Guardian

(1,292 words)

January 11^th, 2017

Gautam Mukherjee

Will Jaitley Halve Corporate Taxes On 1st February?

Will Jaitley Halve Corporate Taxes On 1^st February?

Key Indian financial policy inputs have come from a series of highly qualified US-backed World Bank(WB), International Monetary Fund (IMF), Washington think-tank/American academia nominees, for over 25 years now.

The latest buzz from such quarters is the suggestion that India should halve India’s corporate tax from near 30% to a 15 to 18% band. This may be less than Pune think-tank Arthakranti asking for its abrogation, but it has gained urgency after the upset Trump presidential victory.

Not only is Republican Trump a life-long businessman used to making hard-nosed deals, but he is clear that it must be beneficial to America in his new take-no-salary-for-the-job avatar.

He wants to ‘Make America Great Again’ and is already under pressure to reduce US corporate taxes to 15% likewise. This, to fulfil his pledge to retain, if not return, manufacturing to American shores.

He also proposes to renegotiate trade terms with China, and India could do well by standing by as a worthwhile alternative.

India, similarly looking for ‘Make in India’ high-tech and mammoth defence manufacturing projects, does have a wage cost advantage if it drops its taxes, despite increasingly wide use of robotics.

The promise of massive state-of-the-art military equipment manufacturing for the Indian Armed Forces and export is most alluring.

Several reports have said that our chaotic demonetisation process was also carried out at American behest to promote a profitable digitisation push, the largest on earth.

The suggested reduction of corporate taxes could well follow on, as early as budget presentation day on February 1^st 2017.

If so, it is sure to be amplified by the roll-out of the online General Sales Tax (GST) regime later in the year.

The Indian citizen is used to gaining lateral benefits arising out of such global diplomacy. But this time it could come with an expected lowering of income tax rates, or even its abolition, to be replaced by a universal bank transaction tax.

The Indian Government, in need of international support led by the US after the USSR went into decline, has tamely acceded to this influence over the years. This even as China rose and rose simultaneously, to eventually pose a challenge to US supremacy.

It might be a form of hegemony, but certainly no worse than the erstwhile command and control Soviet version, or a possible Chinese domination.

Being capitalist in refrain, it is also the most political way to bring about economic reform here, giving our politicians a chance to shrug and abdicate responsibility.

We would have otherwise stayed hog-tied to a history of welfare sop socialism, still most popular with Indian netas, and Stalinist trade union strangleholds. Think of the fireworks expected from the reformist hire and fire labour law on the anvil!

Prime Minister Modi may put India first, but today our military ally America cannot be denied for the sake of an indifferent status quo. 

This particularly when our other key military collaborator Russia, and oil supplier Iran, have already joined the China Pakistan Economic Corridor (CPEC). They need its benefits, irrespective of Indian sensitivities.

Pakistan has even had the cheek to ask India to join, even as the CPEC runs through Pakistan Occupied Kashmir (PoK).

Besides, the only hope of slowing the CPEC juggernaut and giving the Indo-Japanese-Iranian Chabahar port a chance, is via US diplomacy. More so, because Trump has little use for the United Nations (UN).

And this applies to Indian hopes of joining the NSG despite China publicly frowning on India’s successful Inter-Continental Ballistic Missile (ICBM) programme.

Besides, we owe our very first stage of liberalisation, the dismantling of the Licence-Permit Raj in 1991, to this benign dictation from Washington.

The citizens of India have got the luxury of personal options, much greater prosperity, progress, infrastructure modernisation, GDP growth, all thanks to this American influence.

This thought invasion-from-the-inside phenomenon is more or less an open secret, despite professions of a heightened nationalism under the present regime.

And it persists, even though India’s reliance on aid and the lending of multi-lateral agencies, including the Asian Development Bank (ADB) and BRICS Bank, has reduced or stopped over the years.

We now favour the aggressive promotion of foreign direct investment (FDI), and presently it is indeed at unprecedented highs.

Nevertheless, these distinguished policy wonks continue to be air-dropped into the Finance Ministry, the erstwhile Planning Commission, the current Niti Aayog, the Reserve Bank etc. happily, to open up the taps some more.

The process began after the Indira Gandhi era, ever since 1985. Young ‘Computerji’ Rajiv Gandhi, as Prime Minister, started the ideological opening up during the presidency of Republican Ronald Reagan, much admired by Donald Trump.

What does America gain from it? Access to one of the biggest markets in the world, and yes, hegemony in an important geopolitical sphere in Asia.

So Finance Minister Arun Jaitley who had pledged to bring down corporate taxation to 25% over five years, may have to get his skates on.

For: ABP Live

(822 words)

January 6^th, 2016

Gautam Mukherjee    

What Will We Do With All The Cash In The Banks?

What Will We Do With All The Cash In The Banks?

Almost all of the 86% by value of the demonetised cash in circulation is safely deposited in the banks. As 2017 wakes up and begins to stir, the cash economy has chosen to seamlessly join the official one.

Now the challenge for the Government is not only to catch whom to tax at penal rates, but to use this money to stimulate growth afresh.

Even before demonetisation, the private sector, unhappy over high interest rates, had been sitting on the side-lines.  It was the Government’s own infrastructure spending that was keeping the GDP rates growing.

The methodology envisaged now is to lend much more cheaply and widely than before.

This should encourage industry, agriculture, services, infrastructure, manufacturing, trading, consumption of white goods, two-wheelers, cars, housing.

Adding on to the stimulus of the 7^th Pay Commission and one- rank-one-pension (OROP) initiatives, the economy should benefit substantially going forward.

The public-sector unit(PSU) banks no longer have a statistically significant non-performing asset (NPA) problem. This even as a lot of it was attached to bottle-necked infrastructure loans, now largely untangling via fresh permissions and funding.

Both PSU banks and private ones have already slashed lending rates by 0.9%. This without waiting for the expected 50 bps repo rate cuts from the Reserve Bank of India (RBI), which should lower them further still.

Conversely, deposit rates will also be cut. This may force risk-averse fixed deposit investors to seek other, better yielding avenues. Will this hurt bank liquidity? It remains to be seen.

To cushion the blow, the Government has fixed an 8% yield for senior citizens. It is also holding the deposit rates steady for small savings schemes at post offices.  

The ongoing cash shortage due to slow remonetisation is also acting as a brake on inflation. It is doing so more effectively than the high-interest rate regimes of the past, which only choked off credit.

The Modi Government plans to permanently reduce cash in circulation to hamper the revival of the parallel economy. This too will force mainstreaming of many erstwhile cash businesses.  

With the momentous roll-out of online general sales tax (GST) country-wide, more business/industry will be inescapably conducted through official channels.

This integration will yield much more indirect tax in value terms, though it accounts for two-thirds of the total anyway.

Direct taxes from individuals and corporates yield the remaining third, but there is potential for a quantum jump if a universal bank transaction tax comes about instead.

The ‘Make in India’ lobbyists, said to be mainly from the US, are pressing the Modi Government to lower corporate taxes at one fell swoop to a 15-18% band. However this is a far cry from the 30% plus prevailing at present.

The Government could be tempted, because it would  encourage massive foreign direct investment (FDI) into defence manufacturing and create lakhs of skilled jobs.

FDI is already at an all-time high, attracting more than China, but still far from massive.

There is also a persistent demand, that failing its abolition, individual income taxes should be reduced. This would both encourage compliance and increase the tax base, especially now that many more people find their money dragged into the bank.

If there is ‘unaccounted money’ in the calabash, an estimated three lakh crore, nestling amongst the kosher deposits, it is obviously determined to make a valiant effort at explanation.  

None of it has been extinguished. This implies that large tranches of black money are simply not kept in cash. Ergo the amounts that have been put in the bank can be explained.

More so, if this freshly laundered money is broken up into little bits and many heads. The tax man, all too few in number, given the size of this task, has his work cut out for him.

Besides, quite a lot has round-robinned straight back into cash, but in the compact new Rs. 2,000 notes, courtesy the back doors and after-hours.

There is anger with regard to the nearly 2,000 political parties that can deposit all their cash and claim it is from anonymous donors paying in Rs. 20,000 or less. But Modi seems sincere about his avowals to reform political funding next.

Right now, the Government is basking in the glow of public approval despite the discomforts of ‘notebandi’ visited on many. It is therefore keen on a political dividend in the forthcoming assembly elections after sweeping municipalities around the country.

Accordingly, it has refrained from more disruption by going after gold stashes and benami property till further notice.

For: ABP Live

(750 words)

January 5^th, 2017

Gautam Mukherjee