BOOK REVIEW: NITIN GOKHALE-SECURING INDIA THE MODI WAY

BOOK REVIEW

TITLE: SECURING INDIA THE MODI WAY

PATHANKOT SURGICAL STRIKES AND MORE

AUTHOR: NITIN A GOKHALE

PUBLISHER: BLOOMSBURY INDIA, 2017

PRICE:Rs. 499/- HARDBACK

No  More Playing At Mr. Nice Guy

Only once in a while does one come upon a book which is non-fiction, and on the defence/intelligence/security policy and establishment, but more compelling than its imagined counterpart.

This is thanks to the author Nitin Gokhale’s basic training as a journalist of over 30 years standing, rather than the fulminations of a typically stuffier “expert”.

For India, living for long in a Gandhian cum Nehruvian haze of confusion that our enemies have exploited, a change of attitude is most welcome.  

Of course, the Indira Gandhi years were an exception to the foreign policy naivete that preceded and succeeded it.

Prime Minister Modi is often likened to Prime Minister Indira Gandhi, both for his ability to garner votes like her, and refusing to be anybody’s push-over.

So the new resolve, coming from the highest political level, has evidently liberated the National Security establishment and the Armed Forces to do their jobs without hindrance, and show all what they are truly capable of.

It is making Pakistan and China less certain of what to expect from India after years of a predictable timidity and disgraceful unpreparedness in security terms.

Now all this is changing before their very eyes, as the surgical strikes through the LoC and the Doklam standoff demonstrated to each respectively.

Continued work on connectivity and border area infrastructure including train lines, roads and airports, placement of missiles and other military hardware, and the raising of Mountain Corps trained to operate at high altitude and difficult terrain, leaves no one in any doubt.

Combined with an energetic and muscular diplomacy  led by the Prime Minister that has gained a fresh understanding of India in the comity of nations, things have changed a great deal.

Gokhale’s book from start to finish reflects, with glowing approval, this new confidence, though it also underlines our bureaucratic approach. The audacious Surgical Strike, post the attack on an Army unit at Uri, is a departure from the norm typical of Modi.

Gokhale describes, in time-lined reporter format how India retaliated on 29 September 2016, sending soldiers into Pakistan occupied Kashmir (PoK) to wipe out some 80 terrorists/ Pakistan Army personnel without suffering any losses of its own.

The saving of the massive Pathankot Air Base, also in 2016, using effective multi-specialized units, based on timely and credible Intelligence is notable too.

Going further back into 2015, Gokhale describes the “hot pursuit tactics” employed using Special Forces. This, into Myanmar,  in retaliation for several ambushes suffered by Indian forces. The insurgents in Manipur and Nagaland typically slipped away into multiple camps some 10 km. inside Myanmar.  

The signal strikes here were followed up by visits by the Indian National Security Adviser (NSA) Ajit Doval, and the Foreign Secretary Jaishankar to obtain Myanmar’s endorsement to the actions taken into its territory.

Nitin Gokhale goes on to tour the diplomatic territory too, the fresh reengagement with West Asia - UAE, Saudi Arabia, Israel, as well as Iran.

It points to the tangible success of Chabahar as an India-Iran-Afghanistan initiative, joined also by Japan of late. With the first wheat shipment to Kabul via Chabahar reaching safely, Afghanistan has been quick to point out its sole dependence on Karachi Port is over.

This Government’s dealing with Maoist violence in 10 States in Central India is still a work in progress though, with liberal uses of both carrot and stick.  

There is the force, of the Central Armed Police Forces (CAPFs) - CRPF, SSB, CISF, BSF and the ITPB under the leadership of the Home Ministry’s Rajnath Singh, plus the thrust towards “Vikas” via roads and infrastructure development.

Is it working?  Hearts and minds apart, the number of clashes have come down to 554, from 2,213 in 2010.  Civilians killed in 2010 were 720, including suspected “police informers” (320). This is down to 113 as on 15^th August 2017, with 63 of them being alleged informers. Similar declining trends are seen in the number of security forces killed, arms recovered, and so on.

The worst internal situation of this kind is certainly in the Kashmir Valley where frequent  attempts at appeasement have not yielded good results.

Modi’s policy of eliminating known terrorists and pulling apart the veil on Hurriyat complicity, has given Pakistan a fresh strategic headache. And this applies to new fronts sought to be opened by Pakistan’s ISI and others in Assam, West Bengal, Kerala (ISIS), and even Punjab (Khalistanis from Canada).

Gokhale has written a long chapter on “Standing up to China”. It encompasses India’s closer relationship with Japan, its refusal to participate in the CPEC citing the illegal use of PoK, the Dalai Lama’s visit to Tawang, the initiating of quickened development and infrastructure in Arunachal Pradesh, and of course, the stand-offs at Doklam and in Leh.

In addition, India has drawn closer to B IMSTEC, ASEAN, Australia.

There is military, economic, and high technology potential from drawing closer to Israel, America, France, Britain. India continues strong with Russia, and with a lot of the oil and uranium rich Central Asian Republics. There is no neglect of Beijing and BRICS, G-20 etc. either.

But China is no longer in a position to take an aggressive military posture with India.

The chapter on the Ministry of Defence reveals how the Indian establishment, both political and bureaucratic, has been and continues to be, the worst obstacle. They have made pig’s breakfast of Modi’s ambitious plans to manufacture in India state-of-the-art armaments and equipment in collaboration with the best in the world. It smacks of clashing and powerfully entrenched vested interests.

The book ends with a happy chapter on the accomplishments of the ISRO ( Indian Space Research Organisation), and a worried note on our capability to secure the cyber domain. This covers threats to power, banking, communications , transportation, all in the backdrop of persistent suspicion that  China is able to knock our fighters and helicopters out of the sky (in Arunachal Pradesh), because of their prowess at cyber-hacking.

For: The Sunday Pioneer BOOKS

(991 words)

November 15^th , 2017

Gautam Mukherjee

Has Something Fundamentally Changed For Mutual Funds In India?

Has Something Fundamentally Changed For Mutual Funds In India?

For two decades, the Indian Stock Market has had an upward momentum.  That some of this was through NDA I, and ironically as the Kargil War raged, is interesting as a phenomenon. The market, we are told, marches to its own drum, and anticipates the future.

At the same time, even as key indices doubled and trebled, it built a higher base continuously, never falling back to original levels during  periodic consolidations and corrections.

And of course, it moved now in response to not just domestic issues, but global trends, as protectionist walls were lowered. The combination of openness and regulatory caution in India has kept the worst excesses from happening, even in the difficult days of 2008.

This maturing of the bourses began, it is seen, within seven years after Liberalisation, in 1991.

Probably as soon as some people, mainly Gujarati and Marwari market men, began to believe it was a permanent change for the better, after the long years of Socialist constriction.

The fuel for the rise of the stock market though, which mirrored the real economy after a fashion, till very lately, was almost exclusively the ingress of Foreign Institutional Investor (FII) funds.

This showed up as billions of dollars, never seen before. Though in overall size, even now, it does not exceed $30 billion odd per annum.

The FII domination was palpable for years, and they controlled the rise and fall of the indices based on what they chose to do. Domestic retail and institutional money,  mirrored the FII plays, or sat watching on the sidelines.

Our companies mostly, with the exception of Dhirubhai Ambani’s Reliance, did not dare to raise big finance from the stock markets at first, and truth be told, there is much unexploited potential even now.

The FII money, climbing over the years from a billion or two at first, is not a large sum as a proportion of international investment in the emerging markets. China gets over a $100 billion every year. The Indian portion represents a tiny percentage still.

But nevertheless, it has been enough to transform. It took our bourses, over the years, from a turnover of just $ 250 million or less in the eighties, through its stimulation, to around $ 2 trillion today.

As it grew, there was intelligent speculation that a proportion of this money was Indian, round tripping, from clandestine Black to Hawala to White on the return  journey, via the anonymous participatory notes (PN) route.

This was a loophole that the Government of the day was loathe to close for more reasons than one. PNs were hosted by the FIIs, but they did not have to disclose the identity of the beneficiaries.

Another portion of the flow in was from global investment firms taking advantage of no tax treaties with countries like Mauritius. These have recently been plugged in the main.  But back in the day, investment entities registered there enjoyed nil taxation in India on their stock market profits.

The domestic investors too had a lot of tax incentives and exemptions that exist to this day, but not for short terms of a year or under.

All the while, the relatively substantial domestic “household savings”, higher than any other country except China, stayed away from the bourses. Just 5% of this resource strayed from bank fixed deposits into equity, and sometimes the debt instruments, directly,  via stock brokers, but more often than not, through private and  Government  bank floated Mutual Funds. These made an entry into the country in 1993, and then grew exponentially over the years since.

That is, with the exception of the Government owned Unit Trust of India (UTI) that had a solitary mutual fund operating since 1964, joined by some more offerings in the eighties, paying steady dividends for years. But eventually they, soon after the millennium, had to be wound up. Government owned funds were too often forced to invest in Public Sector Units (PSUs), and other Government debt, not always on commercial considerations, or to its own benefit.

But in fiscal 2016 all this changed organically. After a gestation period of nearly 23 years, the share of direct equity investment, much of it via personal trading accounts online, via the traditional brokers and through mutual funds doubled, from a largely inelastic 5.29% of household savings to 11.04%.

This trend is likely to accelerate, due to better returns, and much better tax treatment, compared to fixed deposits in banks. And because the dam of suspicion may have been breached at last.

Domestic interest rates are trending downwards, with inflation and long term contracts in imported oil prices largely under control.

This means fixed deposits in banks, taxable at the marginal rate complete with tax deducted at source (TDS), cannot do very much to satisfy going forward.

Also, with real estate prices, the other big traditional favourite, stagnating with oversupply, there is less fresh speculative investment going into it.

Meanwhile, reflecting these tectonic shifts, overall asset management by the Indian mutual fund (MF) industry surged 30% to Rs. 21.45 lakh crore in September 2017, up from 16.51 lakh crore just a year earlier.

The MFs have reached into the tiered cities in a big way, for the first time as well. Investment from beyond the top 15 cities rose to Rs. 3.79 lakh crores in September 2017, up from 2.74 lakh crores a year earlier, representing a rise of 38.5%.

Individuals investing, as opposed to corporate parking their liquidity, rose a quantum 50%. This is represented by 6.68 lakh crores, up from 4.45 lakh crores a year ago.

The net effect of this surge in domestic, largely retail money, going into the bourses is that the markets have tended higher, ahead of results and fundamentals. Any corrections have been shallow and recent levels have seen all time highs.

Also, and importantly, the FIIs have been matched and bettered, and they cannot rule the roost and manipulate pricing anymore, unless they bring in much bigger monies than so far. But, at the same time, with even a strong, stable rupee to boot, they cannot stay away either.

The Government, on its part, is earning international kudos for its structural reforms, such as the new bankruptcy law, and the introduction of an online linked Goods and Service Tax (GST), even though the execution of the latter has been clumsy.

The depth of the Indian financial market is insufficient to absorb quantum leaps in foreign investment without more structural reforms, growth, and modernisation across the board - in equity, debt, futures, options, derivatives and so on. Nevertheless, a continued surge from this point onwards is more than likely. The fact that India does not yet have a fully convertible currency when other much smaller countries do, is a glaring negative too.

But, as is long held true of the real economy, the domestic demand for financial instruments too can be huge once the public sheds its inhibitions. India may indeed be waking up to the charms of the financial markets on a more widespread basis for the very first time.

With the cash economy being subsumed into the official one post demonetisation to a large extent, the joys of tax evasion are not what they used to be.

Putting the money to productive use to earn higher yields instead of being forced to consume it as before, may benefit the erstwhile cash hoarder as much as the national economy. It calls for a shift in mindset, of course, but judging from the sharp increase in digital transactions, the change of heart may be taking place automatically.

All in all, it is probably true to say that the Indian Mutual Fund Industry could begin to emulate the US giants as drivers of growth and excellence, with domestic houses plunging in to compete more effectively with subsidiaries of international giants.

Investment Bankers, will not just engineer mergers and acquisitions on an accelerated basis, but will increasingly tap the financial markets. They are expected to dwarf the banking universe for opportunities for their client Start Ups.

How long now before the paradigm shift from reticence to risk appetite like the Hong Kong Chinese?  And when the bolder ones amongst the Investment Bankers look at launching some aggressive Indian Hedge Funds of their own?

  

For: The Sunday Guardian

(1,378 words)

November 8^th, 2017

Gautam Mukherjee

BOOK REVIEW: The Political Economy Is A Varied Landscape

BOOK REVIEW

TITLE: INTERVENTIONS IN POLITICAL ECONOMY-EXPLORATIVE OBSERVATIONS

ESSAYS IN HONOUR OF PROF.MANJAPPA D HOSAMANE

EDITED BY: PROF. MUZAFFAR ASSADI

PUBLISHER: KALPAZ PUBLICATIONS, DELHI, 2017

PRICE:  Rs. 850/-

The Political Economy Is A Varied Landscape

This is a slim, variegated, and academic volume, of 13 macro-economic essays, broadly classified under the moniker of the Political Economy.

It has been written by an assembly of distinguished professors from Mysore University, in the main, with others from abroad, and an industry voice or two to join the chorus.

The Editor Prof. Muzaffar Assadi, PhD from JNU and post-doctorate from the University of Chicago, briefly sets the tone by recounting the development of   theory on the Political Economy, beginning with Adam Smith and John Stuart Mill, through the unavoidable Karl Marx, and on to distinguished 21^st century ethnic Indian thinkers like Amartya Sen and PN Bhagwathi.  

The essays in this book include one from Prof. Kishore Kulkarni PhD from the Metropolitan State University of Denver, Colorado  which argues that: “Policy effectiveness is  better explained when interest rate is treated as a reflection of money supply change rather than as an instrument to make the change in money supply”.

Kulkarni implies the recent US macro situation with regard to small hikes in interest rates is a post facto acknowledgement of improving money supply, rather than an agent provocateur  to make it happen.

However, it will be remembered, that under President George W Bush, post 2008, and much of  both terms of Barack Obama,  US interest rates were kept at near zero, and combined with huge stimulus packages to keep the US economy from collapsing into a 1930s style Great Depression.

Another, on export decision making by the small scale industry, comes from Dr.Younos Alroaia, Islamic Azad Industry, Semnan, Iran.

He picks on the small scale industry in Iran because it has become a major source of employment and is a growth driver of exports. This may well have parallels in India. Reflective of this, in the Indian stock market, it is small and midcap stocks that are much in demand.

Younos quotes 2004-2005 figures to cite 23% of the total exports emanating from the small scale sector, along with 20% of total manufacturing output,35% of indirect investment,18.4% of value-addition, and 4% creation of fresh employment.

In Iran, largely dependent on its oil exports, small scale industry accounts for over 80% of its entire industrial sector.

Dr. Alroaia demonstrates a strong preference for “the Technique for Order Preference by Similarity to an Ideal Solution (TOPSIS) developed by Hwang & Yoon in 1981 for solving Multiple –Attribute Decision Making (MADM) problems with a finite number of solutions”.

And to improve matters, there are, inevitably, multiple variables to consider.

Prof. Assadi also writes on the Political Economy of Climate Change. He calls it “the child of science”, implying that it is both the problem and the solution, but with large implications for politics.

“Societies,” says Assadi, “ will not survive unless and until capitalism is not disciplined, commoditization of environment is not contained, and consumption is not restricted”.

Infosys Ltd. Lead Data Scientist Dr Vinay M R has written on Innovative Business Solutions using Big Data Analytics. It is used to analyse Retail Customer Behaviour.

He analyses a Switzerland based multinational (14 countries), client’s experience.

The company is in e-Commerce via an online retail platform, publishing of  newspapers /magazines, digital newspapers, web property, online ticketing, mobile platforms and Apps, TV and radio stations and so on.

The Infosys worked mining of data threw up, amongst other things, significant customer profiling, identified 14 opportunity areas for potential increase in sales/revenue/ profitability,   and  new monetization possibilities across business lines. This last, using both available and potential data that Infosys could take on another contract for.

Is there a direct connection between Financial Liberalisation and Industrial Growth in India? Dr. Niranjan R of Vijayanagara Sri Krishnadevaraya University, Ballari, Karnataka, says yes.

Dr. Niranjan’s exploration suggest that “controlling for other variables, the integration of financial systems promotes growth of all industries regardless of their characteristics”.

Does a financial analysis of public, private and foreign banks in India reveal a particular advantage for any one category? The answer according to Seyed Mehdi Pourkiaei and Prof. S Mahendra Kumar of the Department of Economics & Cooperation, University of Mysore, is yes and no.

Each has its advantages and there is room for improvement all around. But yes, the comparative performance of Foreign Banks is better than that of both Private and Public Sector Unit (PSU) Banks.

When we are headed towards becoming the most populous country in the world by 2030, the question of “International Labour Migration” is of particular interest.

Professor HR Uma of the University of Mysore and Madhu S, Research Scholar explore this matter. Some countries with the opposite problem are beginning to invest in skilling Indian labour already.

There a mismatch between countries with nil or declining population growth and ageing populations, and India with its much vaunted demographic dividend. Some 65% of its people are already under 35, and will be 30 going forward.

The world, on its part, is realizing that “Sustainable Development” must recognize the positive contribution of migrants, and move towards international cooperation in this regard.

This thought provoking volume has essays on a number of other issues such as the viability of rainfed sericulture, the renaissance and revival of languishing industry in the States of the Indian Union with special reference to Karnataka, Voluntary Retirement Schemes (VRS), and the gaps/ lacunae in official Statistics Systems.

It is dedicated, touchingly, in a Goodbye Mr. Chips way, to recently retired Mysore University Professor Hosamane, who was also a distinguished Banker and is clearly a Mentor to many of the contributors in this book.  

For: The Sunday Pioneer BOOKS

(923 words)

November 4, 2017

Gautam Mukherjee

BOOK REVIEW: MUHAMMAD YUNUS: Utopia On Earth Or Wishful Thinking?

BOOK REVIEW: FOR THE SUNDAY PIONEER

TITLE:     A WORLD OF THREE ZEROS

THE NEW ECONOMICS OF ZERO POVERTY,

ZERO UNEMPLOYMENT,

AND ZERO NET CARBON EMISSIONS

AUTHOR:      MUHAMMAD YUNUS  with KARL WEBER

PUBLISHER:    HACHETTE INDIA, 2017

PRICE:          Rs. 599/- hardback

Utopia On Earth Or Wishful Thinking?

 This is Micro-Credit Maestro and Bangladesh’s Nobel Laureate For Peace (2006) Muhammad Yunus’s 4^th book.

It paints a broad swathe across the bigger alternative canvas of “poverty economics”. Yunus offers several conceptual panaceas here. They are thematically akin to the small-is-beautiful and people, well chosen, can be trusted world of micro-credit that he pioneered nearly fifty years ago.

He does quote the celebrity “inequality” economist Thomas Piketty, but the refreshing thing is Yunus spends little time and effort railing against the system. Instead he wants to persuade it to pay countless billions towards the more equitable changes he wants to bring about.

He sets about trying to charm the leading Capitalist nations, like an Economist Ismail Merchant of film-makers Merchant-Ivory fame, into rebooting into its alternative save-the-world avatar.

Yunus wants Capitalism to address the bottom of the pyramid as an act of global survival.  He starts in early by indicting traditional and indeed modern Capitalism for breeding inequality. The author says just 8 people in 2017 own wealth exceeding that of the bottom half of the world’s population, or 3.6 billion people. And that this rich- get-richer trend is getting stronger.

However, the wealthy, particularly in the West, he readily acknowledges, do give away billions of dollars in charity every year. Western Governments too pursue  extensive Welfare agendas to help the poorest of their number.

But Yunus wants them to do more. He wants Capitalism to change its very focus and cites the example of the Grameen Bank to illustrate how well his ideas can work. That he originally founded it in Bangladesh in the happening Seventies makes it confident and familiar territory.

Yunus highlights that what he began with a few rupees in credit, now lends $2.5 billion per annum to 9 million poor women. And this, not so much on the basis of collateral which they do not have, and track records which they often have yet to build, but on plain if not blind, trust. And yet, the Grameen Bank still enjoys a stellar repayment rate of 98.96%.

Muhammad Yunus is a Fulbright Scholar and former Head of the Economics Department at Chittagong University. He wants the “economic engine” to embrace the concept of  “Social Business” based on “Selflessness” as opposed to “Selfishness”,  in an almost Buddhist application of its “detachment” doctrine.

At the centre of Yunus’ Selflessness, is the controversial idea that profits cannot be taken out of enterprises to benefit only their investors, promoters, or owners. Instead, the enterprise must work like a cooperative to raise up its poor members.

Yunus  describes Social Business to mean : “ non dividend companies” dedicated to “solving human problems”. That it sounds Utopian does not seem to embarrass him.

He  goes on to emphasise entrepreneurship over jobs, and financial services designed to assist those at the bottom of the pyramid.

Most of his economic remedies are already being practiced in India by those with no access to pelf, power or much education. We call a good deal of it the “unorganised sector”, which actually employs over 80% of those holding jobs in India.

Yunus cites Uganda for his entrepreneurship model, where more than 28% of the population has started in business in the last 3.5 years. His concept of entrepreneurship at the grassroots could mean opening small shops for all manner of inexpensive consumables, milk production and animal husbandry beginning with a single goat or cow, a taxi service with a single vehicle, making a few handmade craft items for sale.

Small entrepreneurs are encouraged to open tailoring establishments, nurseries, craft businesses, rice mills, beauty parlours, restaurants, hair-cutting saloons, boutiques, copy centres, stamp paper vendors, fruit and vegetable dealers, courier services, tattoo parlours.

And the essential tool to finance Yunus style entrepreneurship: micro credit to the erstwhile unbanked demographic, and the few layers above.

Qualified professional people may have to do work like this too, because there are not enough mainstream corporate jobs to be found. Except perhaps in providing a plethora of imaginative services in tourism, telecommunications, real-estate, design, government services out-sourced, printing, interior décor, and so on. And India has grown best in the Services Sector, hopping over problematic manufacturing actually, and it accounts for more than 50% of its GDP now.

The problem of not enough jobs and even chronic unemployment ,Yunus states is not restricted to the poorer countries of the world.  Jobless people under 25 is at 18.6% on average in Europe, as of December 2016.

And in some individual EU countries, such as touristy Greece, Spain ( where resource rich Catalonia is attempting to break away now), and large, multi-faceted Italy - the rate is 40% plus. 

With increasing automation and digitisation, there is no easy solution in sight, even in the long run.

Yunus urges unsuccessful “job seekers” to turn entrepreneurs and become “job creators” instead. But it is not all glibness. He makes multiple suggestions from the bottom of the pyramid.

For “Zero Net Carbon” he wants to structure environmentally sustainable micro businesses that sell goods and services that address deforestation, plastic trash, potable water, and so on.

He wants the G20 to cancel $55 billion of debt owed by the poorest countries. Note the number when his Grameen Bank, even today, deals in just $ 2.5 billion. Yunus wants the United Nations (UN) adopted Millenium Development Goals (MDGs) which include items such as eradication of extreme poverty and hunger, universal primary education and other such lofty goals, acted upon urgently.

The true significance of such a book that soars over the inequities of the world, is in its sincere attempt to create wealth and promote equity for the poorest in every country, and not just in the Third World.

And to achieve this, Muhammad Yunus, who did win his Nobel Prize for Peace, says his model of “Social Business”, and not Capitalism’s core profit motive, will overcome poverty, and ensure: “peace among people”.

For: The Sunday Pioneer BOOKS

(984 words)

October 20^th, 2017

Gautam Mukherjee

BOOK REVIEW: THE GLOBAL TAX AVOIDANCE INDUSTRY

BOOK REVIEW for THE PIONEER ON SUNDAY-BOOKS

TITLE: BLACK MONEY AND TAX HAVENS

AUTHOR: PROF. R. VAIDYANATHAN

PUBLISHER: WESTLAND PUBLICATIONS LTD.

CATEGORY: NON-FICTION

PRICE: Rs.  350/-

Year of Publication: 2017

The Global Tax Avoidance Industry

Prof. R Vaidyanathan, recently retired after 30 years of distinguished teaching at The Indian Institute of Management (IIM) Bangalore, is one of the small tribe of right leaning economists close to the evolving thinking of the Bharatiya Janata Party (BJP).

He has served as a committee member of national regulatory bodies such as the Reserve Bank of India (RBI) and Securities & Exchange Board of India (SEBI), and on the boards of several leading companies. He is currently the Cho S. Ramaswamy Visiting Professor of Public Policy at Sastra University, Thanjavur, in Tamil Nadu.

The subject matter of this book, has interested the author ever since NDA I, under Prime Minister AB Vajpayee, around the millennium year 2000.

Later, Prof. Vaidyanathan has served on a team constituted by then leader-of-the–Opposition LK Advani, with Ajit Doval, the current National Security Adviser, eminent lawyer Mahesh Jethmalani, and  ideologue and financial expert S Gurumurthy. 

Their report on Black Money and Tax Havens was released in two parts, in 2009 and 2011.

However, not much was done by the Government of the day about the issue, and it is only now, under the Modi Government, that the menace of Black Money is receiving the political will and policy attention that it deserves.

So, the release of this book, in October 2017 is indeed timely. That the erudite scholar-author has written this primer so simply for the layman, is by way of a very special benefit.

Just how much Black Money is there within India? It is anywhere between 10 to 20% of GDP- between Rs. 15 lakh crores and 30 lakh crores of the 2016-17 GDP of Rs. 150 lakh crores. But when the Indian economy was smaller, black money accounted for 51% of it, according to studies conducted in the eighties.

After demonetization, almost 100% of this 20% cash of today’s shadow economy entered the banking system willy-nilly. And a proportion of it is still hiding in plain sight within the banks.

The Modi Government, in its own version of “nudge” economics that has recently won a Nobel Prize for the US behavioral economist Richard Thaler, is deliberately shorting the amount of currency in circulation ever since.  

There are restrictions and penalties applied on cash transactions exceeding Rs. 2 lakhs. The quantum of digital transactions in white money, the use of mobile wallets, debit and credit cards, an an expanded access to the erstwhile unbanked, have all increased dramatically. The linkage between bank accounts, PAN cards, driving licences etc. and Aadhar cards will further make it difficult to fake identities.

The shadow economy is under siege and is being forced to join the mainstream via the online indirect tax system, the General Sales Tax (GST) also. Though still a work in progress, it is operative via multiple slabs and notable exceptions, since July 2017.

Direct tax collections too have already grown 16%. Lakhs of new assesses have been added. Hundreds of Income Tax probes are underway with regard to the larger unexplained cash deposits running into over Rs. 3 lakh crores.

Abroad, the Indian share of the illicit money lying in the tax havens of the world is estimated at a minimum of Rs. 65 lakh crores, nearly 50% of the 2016-17 GDP.

Between just 2002-2006, Global Financial Integrity Organisation (GFI), the Ford Foundation aided organization, headed by a Harvard and Brookings scholar, Raymond Baker, says Indians stashed Rs. 6.88 lakh crores ( $ 137.5 billion) in tax havens abroad.

However the global total of this “illicit” money is estimated at $11.5 trillion growing at about $1 trillion per annum.

Tax Havens, old as ancient Rome, don’t however just cater to criminals and dictators. They have uses for legitimate Governments too.

Prof.Vaidyanathan quotes Nicholas Shaxson to state more than half of world trade passes, at least on paper, through nearly 100 tax havens around the world - some with no tax,  others with very little tax, yet others with tax exemptions for corporations.

Over half of all banking assets, and a third of Foreign Direct Investment by multinational corporations are routed offshore, as a measure of discreet tax planning, secrecy, and to take advantage of various bilateral and multilateral tax treaties.

The US Government reported that 83 of the USA’s biggest 100 corporations had subsidiaries in tax havens in 2008. Richard Murphy’s Tax Justice Network says 99 of Europe’s 100 largest companies use offshore subsidiaries. The International Monetary Fund ( IMF) estimated in 2010 that small island tax havens alone accounted for $18 trillion on their balance sheets, a third of world GDP at the time. So tax havens are not about to close down!

What affects India most adversely is their being used for arms supplies and terrorism against it. And , of course, the widespread laundering of clandestine and ill-gotten gains.

Along with a number of other countries, including the US, at G-20 and other fora, India has been seeking intelligence on deposits made by Indians, entities owned by them etc.  This, with increasing success.

However, money being easy to move, the focus is shifting to real estate and property, often financed by monies routed through tax havens and shell companies.

Prof. Vaidyanathan’s book on Black Money largely concentrates on how it is generated and whisked away, mostly to tax havens abroad. It is a mine of fascinating information, engagingly written. To an extent it is a comparative study of how the nations of the world are attempting to tackle the ill effects of the phenomenon that is nearly universal. 

However, the legitimate uses tax havens are put to, and the benefit to their economies, cannot be wished away.

The happy thing is that the Modi Government has started in, implementing at least some of the many suggestions made in this worthwhile and good read of a book.

For: The Sunday Pioneer, BOOKS

(945 words)

13^th October 2017

Gautam Mukherjee

For Growth & Speed: Say No To Non-Performance, Negligence & Corruption

For Growth & Speed: Say No To Non-Performance, Negligence & Corruption

How does the Prime Minister get a bloated, self-indulgent Government to deliver? Remember, in its political train, there is a gargantuan Semi-Government establishment, the Public Sector, and a wider “quango” universe too. Plus a country-wide bureaucracy that runs to lakhs of employees.

The case for permanent tenure, long a thing of the past in the private sector, has worn thin in Government as well. Directors make poignant films on the plight of erstwhile “Company Men” now, and not just in Japan.

And for good reason. In the face of persistent abuse of “permanency”, by Babus, covenanted Academics,  Government Hospital Doctors running private nursing homes on the side, absent but salary-collecting teachers and administrators in Primary Schools etc. what can be done?

Is there is an urgent case for reform? But where does it say in the Service Rules that going slow or lacking diligence is a sackable offence?

There is a vague provision, little used, that those in the Central Government may be compulsorily retired at age 50, provided the target joined service before the age of 35. This, after a prior review,  and in the “public interest”. The All-India Service Rules also work on the same lines.

But in practice, mostly what would get a Government Servant fired, is proven corruption, entered on his service record, because words like “integrity” and “conduct” are the chief markers.

Non-performance, willful negligence, flouting of deadlines etc. are probably seen as abstractions too difficult to measure objectively. Annual reports from superiors rarely cite such issues, lest the blame spill over. And politicians, till the strict Modi Government took over, were often in cahoots.

Even the Indian Judiciary has seen to it that it has become an insulated and nepotistic Cabal of the increasingly corrupt. The uniformed cadres, save the regular Armed Forces in the main, are also affected.

Bastar in Chattisgarh and the Kashmir Valley have demonstrated, time and again, CRPF  personnel  ambushed and massacred by Naxalites and Terrorists, partially due to flouting of standard procedures, slack oversight, discipline issues,  all leading to grievous loss of life.

And the regular Police are given to abuses of power in imaginative ways. These include rape, intimidation, extortion, illicit trades, falsification of evidence, and endemic graft.

The service rules for the Indian Administrative Service (IAS), the Indian Foreign Service (IFS), the Indian Police Service (IPS), let alone the lesser all-India cadres, do not actually have specific provisions that focus on non-performance.

Corruption too, as defined in the Service Rules, does not embrace the province of subtle external empire building, facilitation of post retirement careers, all but the most obvious benami acquisitions, gratification in kind, influence peddling to facilitate vested interests and so on. It sticks pretty much to unearthing “assets disproportionate to known sources of income”.

Zero tolerance for non-performance and negligence must become the new normal.  Suspicion of corruption too has to be looked at on an enlarged canvas, so that it does not stay so hard to prove, except against the most cavalier officials.

Recent reports indicate that the Modi Government, as part of its “Perform or Perish” mantra for a “New India”, has taken “action” against 381 civil service officers  inclusive of  27 from the IAS. This, for being corrupt, redundant and/or “non-performers”.  Some of these officers were dismissed via forced resignations and prematurely retirements, others had their pensions cropped.

The action, against just 381, came as a result of a review of the records of 11,828 Group A officers, including 2,953 from all India services, such as the IAS, the IPS and the Forest Services. The service records of 19, 714 Group B officers were also reviewed. The three digit total of those actioned came from an examination of as many as 31, 542 officers!

This sarkari excavation, with its attempt at objectivity, contrasts quite sharply with another recent report that said out of 52 CEOs appointed in 2010 in the private sector, 24 were shown the door within 5 years. These highly paid executives were dismissed for non-performance, just for not meeting stated objectives in the view of their governing boards.

The Prime Minister’s “Probity & Performance” drive probably needs to incorporate much more stick. His Government will have to fire people for incompetence, non-performance, negligence, dereliction of duty etc. on par with corruption.

Right now, shirking of duty, gross negligence, sloth, apathy, passing the buck, absence without permission, etc. go routinely unpunished. This often results not only in low morale amongst the better class of officer, but losses to the public exchequer, and all too often, needless, and callous loss of life.

Cases in point are the recent stampede that took 22 lives and injured 30 at Mumbai’s Elphinstone Road-Parel station overbridge, unimproved since it was erected in 1972. This even after then Union Railway Minister Suresh Prabhu sanctioned Rs. 12 crores odd to revamp it in 2016. But local officials concerned did not even put it out to tender.

Then there are the scores of avoidable deaths from lack of ICU Oxygen in Government hospitals, the series of railway derailments and deaths, bridges and flyovers collapsing, planes and helicopters crashing, hit-and-run road accidents, murders, rapes, pilgrimage disasters, all slothfully handled by the unscathed authorities concerned.

There is actually no real accountability of people whose job it is to ensure safety, compliance with normatives, and implementation of time-bound objectives.

Yes, Commissions of Enquiry and probes are ordered, mea culpas recited, and compensations announced, if not paid, every time. But the eventual reports from tardy investigations usually find a minor player or two to act as scapegoats.

A Government that has succeeded, with enormous determination and in the face of considerable obstruction, to push through matters stuck for decades, such as the GST, the Armed Forces Pensions, the Bankruptcy Law, a new Benami Law with bite, can indeed reform the bureaucracy too.

The standing bureaucracy is however, truly formidable. Not only does it do little effective work, but incredulously want to add lakhs of jobs to their number, claiming there are vacancies that need to be filled.

Many of the lakhs of Government servants, appointed and sustained, even pampered by tax-payer money, to “work” on matters of public weal, simply don’t. Great numbers in their ranks, high, middling, and low, use their positions to blatantly ignore the interests of the citizenry, even while being very alive to their own.

Of course, the near unaccountability of elected representatives, their overlords - in Parliament, in the State Assemblies, also acts by way of an evil role model.

The public does have the Right To Information (RTI), and there’s public interest litigation, and of course, peaceful street agitations and demonstrations, but it all seems to bounce off the thick-skinned political class.

It is clear however that, even at the top, they cannot allow themselves to continue with their brazen lack of public spiritedness and abuses of privilege in this age of 24x7 TV news coverage bolstered by the Social Media.

The credibility of this present Government’s ability to deliver is at stake.  Even as it contemplates a range of stage-two structural economic reforms, such as long pending changes to Labour Laws that would attract investment, domestic and foreign, towards new and expanded industries, creating much needed jobs.

But first, and perhaps on an ongoing basis, Modi must change the chalta hai culture of this country. He is certainly working on it. Swachh Bharat promotes civic cleanliness and toilets for everyone. Our foreign policy and engagement with other countries has been revamped to a new high. This, along with a new attitude towards our national security paradigms that has not only attacked terrorism in the Kashmir Valley but  held  China and Pakistan at bay.  Corruption in high places is non existent. There has been an unprecedented war on black money ongoing. The General Sales Tax (GST), implemented on an Information Technology (IT) backbone, makes it difficult to evade.

The linkage of Aadhar with PAN, driving licences, mobile numbers, bank accounts, Income Tax returns, subsidies, and so on, is already preventing tax evasion and vast pilferage of welfare benefits to the poor via identity theft.

But the deeper malaise to tackle is in how this country sees itself.  While that is a multi-faceted and complicated thing, it is certain that if we are to join the first rank of nations within ten years, promptly sacking Government Servants who don’t deliver will be salutary.   

For: The Sunday Guardian

(1,397 words)

October  3^rd, 2017

Gautam Mukherjee