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Author: Dinesh Unnikrishnan

Demonetisation: Rs 4,500 per day ATM limit is of little help when 2/3 machines run dry

ATMs will dispense a maximum Rs 4,500 per day per account holder beginning 1 January, said a circular from the Reserve Bank of India (RBI) on Friday. Friday marked the end of the 50-day period Prime Minister Narendra Modi promised he will take to bring back normalcy after the demonetisation of Rs 500 and Rs 1000 notes on 9 November. Earlier, daily limit was Rs 2,500 per day. An enhanced limit is a relief for citizens and will help to shorten queues further, but only in areas where ATMs are dispensing cash.

The problem is only a third of the total ATMs in the country (around 2 lakh) are dispensing cash and most of them are in urban centres with the periphery areas continuing to run dry, according to reports (read here and here). In other words, the enhanced ATM withdrawal limits would not help the people in non-metros much.

PTI file photoPTI file photo

PTI file photo

Banks are unable to fill their ATMs on account of an acute cash shortage, especially lower denomination notes that is persisting even after 50 days of demonetisation and the situation is unlikely to get better soon, said a few bankers this writer spoke to.

“We are looking at February-March before things become normal,” said one of the bankers. This is the reason banks have asked the government to extend the curbs on cash withdrawals beyond 30 December till the time there is adequate quantity of new currency infused in the banking system. Ultimately, it is the banker who has to face the angry customer.

The RBI has retained the weekly cash withdrawal limit of Rs 24,000. But, the problem is that banks are unable to honor even that amount and the customer is forced to often settle for what is available at the moment at the bank counter. Of course, this situation will ease further in the weeks ahead, but much depends on the ability of government mints to churn out sufficient units of new currency. Until 19 December, the RBI has infused Rs 5.92 lakh crore of currencies into the system, which is less than half of what the public has deposited in the form of invalidated notes (Rs 12.44 lakh crore as on 10 December).

On Friday, PM Modi launched a new payment app, BHIM, that allows anyone to transfer money to any bank accounts. The PM stressed on the need to embrace cashless payment modes at the earliest and elaborated on the incentives government planning to encourage individuals and merchants using electronic payment modes. A change into cashless economy is indeed good in an aspiring economy and government initiatives, such as UPI-supported BHIM app, are helpful to facilitate such a migration.

But, Modi’s immediate challenge remains to 1) normalise the cash situation in the economy; and 2) give a convincing cost-benefit analysis of the demonetisation exercise to 125 crore Indians. Modi has a major task of justifying his act that has pushed the economy into an economic standstill and has caused gross inconvenience to a large number of the population due to the lack of preparedness of the government to implement the currency swap.

When PM address the nation on the New Year Eve, there are questions he’ll need to answer on how did the note ban help the country to achieve the originally stated goals — black money, fake currency, corruption and terror funding. Also, most critically, the general public would expect clarity from the PM on when the cash crunch will end. The 50 days the PM sought has, for sure, eased the pain to an extent, but has not ended the cash crunch.

Another question the PM owes answer is clarity on the political funding. Though his government has repeatedly assured that rules will be same for all, there is lack of clarity on political funding since the government also says that provisions of existing laws will continue.

This would means that political parties will enjoy certain immunity from tax scrutiny since cash donations below Rs 20,000 do not require the source to be revealed. Can Modi score a point by stating that the government will work towards the necessary changes in laws to make all political donations through digital mode? If yes, that’ll be much bigger catalyst in the process of creating a cashless economy than announcing lucky draws.

For now, when the PM addresses the nation on the eve of new year, the big question common man probably would want to ask the PM is how long the current cash shortage will continue.

First Published On : Dec 31, 2016 11:28 IST

Demonetisation Day 50: Why Arun Jaitley is wrong in painting a rosy picture of economy

Union finance minister Arun Jaitley is a good communicator. Well articulate and sophisticated in his arguments to convincingly present a case to any audience. On Thursday, Jaitley demonstrated this ability yet again when he listed out the gains of demonetisation to the economy citing data to say why the critics of note ban are wrong. Following is the main points Jaitley made in his address yesterday.

In all the categories (of indirect tax) till 30 November, there has been a significant increase in tax collection. Till 19 December, direct tax mop-up rose 14.4 percent, indirect tax grew 26.2 per cent, central excise is up 43.3 percent percent and service tax by 25.7 percent, Jaitley said.

Secondly, life insurance and mutual fund sales, tourist arrivals and fuel consumption have gone up. The flow into mutual funds was increased by 11 percent. “Assessment can be unreal but revenue is real,” the FM said.

Finance Minister Arun Jaitley. PTIFinance Minister Arun Jaitley. PTI

Finance Minister Arun Jaitley. PTI

Jaitley is missing the point here or is simply being selective in choosing his data to assess the impact of demonetisation over the last 50 days.

First of all, the above sets of numbers do not reflect the segment that has been hit badly by the demonetisation — the small traders/ service providers and those in informal economy.

Small traders with annual turnover less than Rs 1.5 crore and service sector with turnover of less than Rs 10 lakhs are not reflected in the indirect tax net. If one talks about impact on account of demonetisation, shouldn’t the segments that got hit most be factored in first?

Second, November typically shows a spike due to festive season. This will reflect in the indirect tax numbers too, including the excise duty. The full impact of the demonetisation will come with a lag.

Already there has been a slowdown in indirect tax collection in November, when the kitty swelled by 21.8 percent as against 34.6 percent in October. Similarly, growth in excise duty collection declined to 31.8 percent in November against 40.9 percent in October. Now , look at the monthly data on service tax. The growth in November slipped to 13.3 percent from 66.5 percent in October. (see the table below).

indirect tax collection table - Dec 30, 2016indirect tax collection table - Dec 30, 2016Third, the sudden spike in fuel consumption at a time when the overall economic activities are slow is dubious. Part of the reason could be that black money hoarders were smartly using the government-permitted window to dump the old notes in petrol pumps.

Fourth, FM Jaitley ignored the pessimistic GDP forecasts from various forecasters, including that from the Reserve Bank of India, which has lowered the full year forecast to 7.1 percent from 7.6 percent even while stating that it hasn’t fully taken into account the full impact of the demonetisation resulted cash crunch. Private forecasters are even more pessimistic.

Fifth, the spike in mutual funds and insurance premiums isn’t a good set of data while discussing the impact of demonetisation. According to the Insurance Regulatory and Development Authority of India’s (IRDA) 2015-16 annual report data, the life insurance penetration in India is 2.72 percent. Similarly, as a share of GDP, mutual fund penetration in India is still around 7 percent. The section of the population in the cash economy who are affected by the demonetisation has nothing to do with spike in life insurance premiums and mutual funds. Also shouldn’t the spike in insurance premiums also take into account the digital incentives rolled out by the government?

Sixth, Jaitley was also silent about the number of jobs lost in the informal sector post demonetisation. There is no official estimate for this. But, various estimates say about 4 lakh jobs could be lost due to the note ban.

According to the Centre for Monitoring Indian Economy (CMIE), unemployment rates rose to 6.1 percent in the week of 4 December and further to 6.6 percent in the week ended 11 December and then to 7 percent in the week ended 18 December. The impact comes with a lag and we need to wait for fresh numbers. The full impact of the demonetisation resulted cash crunch will only unfold in the next few months. If the cash crunch prolongs, things can get worse .

Seventh, Jaitley missed crucial indicators such as PMI data when assessing the economic situation. The consumption story has taken a hit. The services sector PMI sharply fell to 46.7 in November from 54.5 in October — that is the biggest monthly drop since November 2008, just two months after the global financial crisis hit the economy following the US investment bank Lehman Brothers going bust in September. The manufacturing PMI too fell with the index shrinking to 52.3 in November from October’s 22-month high of 54.4. These signals are hard to ignore. Here again, one need to wait for further data.

The bottomline is this: Full impact of demonetisation on economy will be visible only with a lag. May be next few months should offer more clarity. What FM Jaitley has done is presenting selective set of data and use that to prove demonetisation critics wrong and, finally, conclude that demonetisation has helped the economy in 50-days. This is too early an assessment and an incorrect presentation.

(Kishor Kadam contributed to this story)

First Published On : Dec 30, 2016 15:30 IST

Demonetisation Day 50: Pain from ‘Mahayagna’ eases in India, but not in Bharat; what have we gained?

Prime Minister Narendra Modi called demonetisation a ‘Mahayagna’ in his speech on the evening of 8 November when he scrapped Rs 500, Rs 1,000 currency notes asking citizens to ‘stand up and participate’ in the exercise to make it a grand success.

The note ban was initially sold as a war on black money, fake currency and terror funding and later as a project to create a cashless economy. Everyone, including Modi’s political rivals, lauded his intention behind note ban — cleansing the economy from illegal cash and fake currency and make each rupee floating in the banking system accountable to tax scrutiny — but in the same breath criticised the way the government and Reserve Bank of India (RBI) handled the implementation.

PM Modi asked for 50 days to end the common man’s pain. Post 50-days, let’s take a look at what has happened since the demonetisation announcement.

Prime minister Narendra Modi. PTI file photoPrime minister Narendra Modi. PTI file photo

Prime minister Narendra Modi. PTI file photo

To begin with, there were a series of flip-flops in rules that could have been avoided had there been a proper plan. More than 60 circulars were issued in just one month confusing both bankers and customers. Promises made by both the PM and RBI were broken adding to confusions.

Promises broken

Look at these statements: In his speech, Modi said “you will have 50 days to deposit your notes and there is no need for panic. Your money will remain yours. You need have no worry on this point. After depositing your money in your account, you can draw it when you need it. Keeping in mind the supply of new notes, in the first few days, there will be a limit of ten thousand rupees per day and twenty thousand rupees per week. This limit will be increased in the coming days.”

True, money in their bank accounts belonged to the citizens but Modi’s promise that people can withdraw as per their need wasn’t fulfilled since banks struggled to fill their ATMs and branches to meet the increasing customer demand. This was on account of three reasons: 1) the government mints couldn’t churn out enough new notes to meet the demand; it was beyond their capacity even after working in three shifts; 2) the fresh lot of new currencies that arrived were mostly Rs 2,000 notes; there were not enough change to go around; 3) people who managed to draw money started hoarding it as curbs on cash withdrawals created panic.

On Thursday, Finance Minister Arun Jaitley refused to acknowledge even a single case of ‘unrest’ during the 50 days of demonetisation.

But, what about the ruckus at the banks and ATMs causing inconvenience to the public reported from across the country linked to demonetisation? Surely, all of it can’t be fake.

During his parivartan rally in Moradabad, UP, Modi asked Jan Dhan account holders not to withdraw the black money deposited in their accounts and promised that he will find a way for them to keep that money. This wasn’t in good taste because he was effectively offering a reward to the benami account holders for abetting a wrongdoing.

In his 8 November speech, Modi assured the citizens that they don’t need to panic and can exchange their old currency till 30 December. “From 10th November till 24th November the limit for such exchange will be 4,000 rupees. From 25th November till 30th December, the limit will be increased.”

But, the government, in fact, chose to advance the deadline much before the promised date. Lastly, there was a 19 December circular from RBI restricting deposits above Rs 5,000 only once, which was later withdrawn. Here again, a promise made initially was broken.

Lack of preparedness, transparency

The point here is both the government and the RBI were not prepared to face the rush for cash as evident from the frequent change in rules in the days following the demonetisation announcement. Even though the RBI promised a weekly withdrawal limits of Rs 24,000 (hiked from the initial Rs 20,000) and Rs 2,500 from recalibrated ATMs (from Rs 2000 initially), banks were unable to give even this amount to customers, often leading to altercations between staff and customers.

After 50 days, the cash situation has improved for sure, but only mildly. The situation has indeed turned better in metros, where ATM queues are now shorter. But, in rural areas the situation hasn’t improved much. As this Indian Express ground report states: since most farmers maintained accounts in cooperative banks, they continue to be in a spot. The informal economy, which offers employment to millions of workers, has been shattered. It will take a long time before small entrepreneurs recover from the shock. The cooperative banking sector, which plays a prominent role in rural India, is struggling to survive.

The RBI’s reluctance to communicate effectively and lack of transparency in updating information in public domain, added to confusion. An end to the cash-crunch isn’t in sight yet. Till 19 December, the RBI has infused Rs 5.92 lakh crore in the banking system as against the Rs 15.44 lakh crore demonetised. Given the physical constraints of four mints run by the RBI and government, it is unlikely that cash situation will return to normal before March 2017, according to bankers. This means, the cash curbs will stay longer.

Economy impact

Demonetisation is sure to have short-term impact on the economy which is predominantly dependendent on cash transactions the signs of which are already visible. The RBI has lowered the GDP forecast for the year to 7.1 percent, so have most private forecasters. The consumption story has taken a hit. The services sector PMI sharply fell to 46.7 in November from 54.5 in October — that is the biggest monthly drop since November 2008, just two months after the global financial crisis hit the economy following the US investment bank Lehman Brothers going bust in September.

Similarly, the manufacturing PMI too has fallen with the index shrinking to 52.3 in November from October’s 22-month high of 54.4. data from the Centre for Monitoring Indian Economy (CMIE), unemployment rates fell to less than 5 percent in the week of 27 November, but has since risen to 6.1 percent in the week of 4 December to 6.6 percent in the week ended 11 December and then to 7 percent in the week ended 18 December. The impact comes with a lag and we need to wait for fresh numbers. The full impact of the demonetisation resulted cash crunch will only unfold in the next few months. If the cash crunch prolongs, things can get worse.

RBI fighting a trust deficit

Another highlight of the 50-day period was the fall of the RBI, which faced criticism for giving up its autonomy and credibility. The RBI appeared clueless how to take the demonetisation process ahead from the beginning and faced criticism from former central bankers including Usha Thorat and K C Chakrabarty. According to a Bloomberg report, the RBI board approved demonetisation less than three hours before Modi announced the decision in a televised address to the nation.

Information on how many members favored or opposed the move isn’t “on record,” the RBI said in response to queries from Bloomberg News under the Right to Information Act, the report said.

The report also cited Power Minister Piyush Goyal’s comment to lawmakers on 16 November that it was RBI’s 10-member board that came up with the idea of note ban. Was the RBI forced to approve the idea of demonetisation is something only time will tell.

Demonetisation gains

Will demonetisation deliver its originally stated long-term gains of demonetisation — winning black money, killing fake currency and terror? Long-term gains are hard to predict at this stage. The tangible gains of demonetisation will dependent up on how much illegal cash is unearthed at the end of this exercise. Demonetisation as a trigger for Indians to shift to a digital world of finance is a far-stretched idea since such a change can’t happen overnight and should be gradual. As of now, only pains are visible.

True, in the long term demonetisation may prove to be beneficial when more people come in the tax net. This coupled with the Goods and Services Tax (GST) rollout can reboot the economy. But, that point is still away. Adjusting to the loss to the economy and the pain suffered by common man that isn’t quantifiable, what will be the net gain to economy from demonetisation is a question PM Modi will have to answer with support of evidence when he once again face the electorate in 2019.

First Published On : Dec 30, 2016 12:01 IST

Can Viral Acharya, RBI’s new deputy governor solve Mint Street’s communication block?

It’s been only a few hours since his name was announced as the new deputy governor of the Reserve Bank of India (RBI) in charge of monetary policy, but Viral Acharya is already a star. Media reports describe him as ‘Poor man’s Rajan’, picking the phrase from one of his old interviews, while some wrote about how the cricketer, singer and poet Acharya also has a music album to his credit.

The newfound stardom and fanfare accompanying Acharya in Indian media reminds one the initial days of Raghuram Rajan, former RBI governor, who was often called as a ‘rock star’ governor of Mint Street and James Bond who’s put the “sex” back into the Sensex’. At 42, Acharya, is the youngest deputy governor of the RBI. One needn’t be surprised if he morphs into a ‘junior rock star’ in media.

Viral Acharya - RBI Deputy Governor. Image courtesy - NYU-Stern.Viral Acharya - RBI Deputy Governor. Image courtesy - NYU-Stern.

Viral Acharya – RBI Deputy Governor. Image courtesy – NYU-Stern.

But once the welcome party is over, there is a trial by fire awaiting Acharya, who is entering the RBI at a time when the economy is fighting a self-imposed demonetisation crisis and the central bank itself is fighting a major trust deficit and credibility crisis, due to the way it has handled the Modi government’s decision on the evening of 8 November to demonetise Rs 500 and Rs 1,000 currency notes.

Acharya needs to hit the ground running making the RBI’s voice heard in the monetary policy committee (MPC) on the course of interest rates in a challenging economic scenario. Since there is already an MPC with experts in place, Acharya’s task wouldn’t be too tough as in the old days when the monetary policy was solely the central bank’s responsibility.

Nevertheless, there is likely to be pressure from the ruling political dispensation for steeper rate cuts in the backdrop of a sharp decline in economic growth due to the demonetisation-induced cash crunch.

The RBI itself has lowered the GDP forecast for the fiscal year 2017 to 7.1 percent from 7.6 per cent while forecasters have gone even more pessimistic forecasts (one even predicted 3.5 percent for current year).

Acharya isn’t a big fan of ultra-loose monetary policies though. He believes such a policy stance ,when introduced in a weak banking system, can turn out to be disastrous. In an interview given to Bloomberg Quint, Acharya had said, “We are yet struggling to figure out what the global economies are from the ultra-loose monetary policy. Whereas, now we are seeing emerging evidence of the unintended consequences that these policies have had. So, the biggest problem that I worry with low interest rates is when parts of your banking sectors aren’t healthy; it’s a recipe for disaster.” This was in the global context, but applies to India as well.

On the bad loan issue, one of the big headaches for India’s policymakers, Acharya had made two important remarks in the same interview.

First, to hive off bad loans into a separate entity. Acharya had said that Indian banking system need to create a bad-loan bank to separate the good assets from the bad. “I am absolutely proposing, either explicitly or implicitly, that we separate the unhealthy parts of the troubled banks from the healthy parts,” Acharya said.

Secondly, he warned that taking profit from the RBI and using it for the recapitalisation of state-run banks is a solution to the capital problems of India’s PSU banks.

“I don’t think half-baked solutions like taking the RBI’s profits and putting them into public sector banks is the way to go. I think that is just like putting on a band aid and actually it’s a pretty bad band aid in my opinion, because it, kind of, distances the fiscal authority from the monetary, it reduces the distance of the two. It, kind of, almost says that central bank should generate profit because you have to recapitalise the public sector. Everything smells wrong about it.”

Interestingly, one of the thought processes within the Modi government when it announced demonetisation was that the exercise will create some fiscal boost in the form of a ‘windfall’ profit from the RBI when its currency liability goes down.

The idea didn’t work since most of the money demonetised returned to the banking system and RBI governor Urjit Patel clarified that there is no such plan to transfer a one-time surplus to the government on the cards. India’s PSU banks are reeling under heavy bad-loan burden (totalling Rs 6 lakh crore as on September) and need huge capital to meet their Basel-III credit requirements, credit expansion needs and bad loan provisioning.

In a research paper co-authored with Krishnamurthy V. Subramanian of Indian School of Business — State intervention in banking: the relative health of Indian public sector and private sector bank — Acharya had said that many of the problems faced by Indian public sector banks are due to their lack of efficient human resources (he cited the P J Nayak committee report here), their inability to adapt to a rapidly changing technology and the issue of dual regulation of these banks by both the RBI and finance ministry. In the paper, Acharya strongly advocated that in the due course some of the public sector banks will have to by privatised.

“Over the long run, some of the public sector banks can be privatised or their assets reallocated. Some of them could be acquired by the relatively well-capitalised private sector firms; the ones with worst asset quality could be wound down; and, greater entry of smaller and newer banks can be enabled to yet maintain healthy levels of competition,” Acharya said.

As Patel’s deputy in charge of monetary policy, there is no clarity whether Acharya will have a say in the bad loan resolution issue. But, if he continues to argue for some of the above recommendations in the past, he may run into trouble with the government, especially on the issue of using RBI profit to recapitalise state-run banks.

But, beyond these two issues — monetary policy and banking sector NPAs — what one needs to watch is whether Acharya can offer a solution to the communication block the Reserve Bank is suffering ever since Patel took over as RBI governor. Over the years, especially during the tenure of Raghuram Rajan, the RBI has taken serious efforts to improve the central bank’s communication to the public also using public engagements of the RBI top brass to converse and clarify key policy decisions with various stakeholders. This was done with the assessment that effective communication is equally critical for a central bank as much as taking policy decisions.

But, arguably, the RBI under Patel has been a failure to carry forward this effort, especially during the demonetisation rollout. Former RBI deputy governor, Usha Thorat, in a column in The Indian Express, criticised the RBI for not communicating to the desired extent on certain critical aspects of demonetisation. “The RBI top management must communicate more through the media and speaking opportunities. This is necessary in the interest of transparency and credibility. It generates confidence that the RBI believes in honest communication,” Thorat said. Governor Patel’s prolonged silence since 8 November, despite uncertainty on cash crunch gripping the public, had attracted strong criticism.

Can Acharya, an articulate academic, fill the void of the effective communicator in the central bank? “Perhaps he can,” said Gaurav Kapur, an independent economist. “ Not just on the demonetisation issue, but on other policy decisions as well. Acharya can be the person to communicate the RBI’s policy decisions more effectively, which was largely missing during the demonetisation episode,” Kapur said.

Over to you Mr Acharya.

First Published On : Dec 29, 2016 12:38 IST

Demonetisation ordinance: Beyond technicality, it means little for public and govt

The Narendra Modi government’s demonetisation ordinance, passed by Cabinet on Wednesday, is only a technical requirement to extinguish the RBI’s liability on banned Rs 500, Rs 1,000 currency notes, and will not mean much both for the government and the common man.

Reason: The relevance of the ordinance is almost nil otherwise since 90 percent of the demonetised money has already come back to the system. Hence, it is unlikely that the ordinance will scare the crooks and force them dump their illegal cash in PMGKY or banks. For citizens with legitimate funds, there is little to worry. They still have time till 31 March to deposit their money in RBI counters. Only tax cheats, who are in no position to take their ill-gotten wealth to day light need to fear.

Going by the reports, the ordinance will effectively penalise any one holding demonetised Rs 500 and Rs 1,000 notes after 31 March, when the deadline to deposit these notes at the RBI window ends. According to the ordinance, named the Specified Bank Notes Cessation of Liabilities Ordinance, holding these notes after 31 March deadline would be a criminal offence that can attract a penalty, including a jail term, for possession of the scrapped 500 and 1,000 rupee notes beyond a cut-off date.

Representational image. PTIRepresentational image. PTI

Representational image. PTI

The cabinet also approved the decision to extinguish the liability of the government and the central bank on the demonetised high-denomination notes to prevent future litigations.

As mentioned above, this ordinance is only a technicality and wouldn’t serve much purpose for the government since out of the Rs 15.4 lakh crore currency demonetised on 8 November, already Rs 14 lakh crore have already come back, according to reports. For the common man too, there is no reason to worry on depositing his money. That means nearly, all the money government invalidated on 8 November has found their way back to the banking system.

Also, people can deposit whatever money remaining with them in banned currencies in bank branches till 30 December. Even after that, there is a window at designated RBI branches until 31 March. Only those with unaccounted cash with them needs to worry since depositing money at RBI counters will attract tighter scrutiny.

The only purpose of this ordinance is to legally terminate RBI’s liability on the banned currencies to prevent future litigations. Similar ordinance was promulgated in 1978 too to extinguish government’s liability after Rs 1,000, Rs 5,000 and Rs 10,000 notes were demonetised by the Janata Party government under Morarji Desai. Unless the liability is legally ended, the RBI cannot refuse someone carrying an old Rs 500, Rs 1000 note and claiming its value in a court of law, since it will continue to remain as a legal tender. This is the reason why the ordinance was necessitated.

For the tax cheats, the final deadline of 31 March is crucial. If they fail to deposit the money either at bank branches or RBI, or deposit in the black money declaration scheme, PMGKY by 31 March, they will have to face prosecution.

But only fools will keep the old currency with them beyond March, when these notes will cease to be legal tender. Smart tax cheats with unaccounted cash would have pushed their money into different bank accounts using benamis since 10 November instead of waiting to walk into RBI counters to face scrutiny and where chances of getting caught are high. The RBI window is originally meant for high value depositors, like institutions, who couldn’t deposit their old notes by 30 December.

The short point here is the demonetisation ordinance means little, beyond technicality, both for common man and the Modi government.

First Published On : Dec 28, 2016 16:00 IST

Demonetisation: Urjit Patel must come out of Modi’s shadow to arrest RBI’s unmaking

Demonetisation has shown its many faces to various stakeholders since 8 November. A bold, high-risk reform experiment for the Narendra Modi-government, a big learning for 125 crore Indians on what a disruptive reform actually means to their daily lives and, finally, a trial by fire for the Reserve Bank of India (RBI) that is now fighting to save its image and credibility. The demonetisation episode has inflicted severe damage to RBI’s integrity–something that hasn’t happened in the past even when the central bank had to walk a tight rope through multiple economic crises that originated both in India and abroad.

As Usha Thorat, a former Reserve Bank of India (RBI) deputy governor writes in her Op-ed for Indian Express: “There have been times when the Old Lady of Mint Street was criticised for being too conservative and cautious — for not being able to keep up with innovation and markets — never has she been accused of not knowing her job. Never has she been the butt of as many jokes as in the last few days.”

RBI Governor Urjit Patel. PTIRBI Governor Urjit Patel. PTI

RBI Governor Urjit Patel. PTI

Thorat is probably the only voice, so far, among former RBI top brass to speak up openly on the issue of RBI’s eroding credibility. As far as the demonetisation issue is concerned, the RBI has been in a sad state clearly overshadowed by the Modi-government in all respects.

Beginning with the decision-making, the roll out and repeated U-turns on rules, all along it appeared that the North Block is in command, rather than Mint Street, when 86 percent of the currency in the country was scrapped in one go by PM Modi in a televised statement. The RBI has remained on the sidelines since then.

The RBI, one of the most reputed institutions in the country, known for its credibility and independence (operational) is now reduced to an object of jokes on social media. Thorat acknowledges this in her Op-ed when she wrote, “it is indeed a sad day to see one of the most respected public institutions in India becoming an object of ridicule and scorn”.

It appears that the RBI remains clueless at a time the common man is exposed to such massive disruption in his daily life as a result of an executive decision, making it largely inaccessible for him to draw his own money on account of curbs.

What was the turning point? Demonetisation has probably been only a trigger to expose the change in the working style of the central bank post the Raghuram Rajan era. The RBI leadership under Urjit Patel has so far been a near-failure to carry forward the virtues the central bank has guarded over several decades. There have been major shortcomings on many accounts, some of which Thorat has mentioned in her piece.

These can be summarised mainly into two issues — lack of transparency and absence of effective communication.

Beginning late evening of 8 November, government functionaries have dominated the demonetisation scene with the RBI largely reduced to an agency whose job is to only notify what is already there in public domain. At a time when the common man was gripped with panic seeing closed ATMs/ bank branches, long queues (which continues to an extent even now) and uncertainty regarding how long the cash crunch situation will continue, the RBI should have addressed the public to calm nerves and offer firm guidance, but Patel chose to remain silent for a long time. About 60-circulars in just one month of demonetisation doesn’t give a sense to the public that the RBI had any plan or conviction about the demonetisation rollout.

Thorat talks about the pressing need for more transparency and effective communication in RBI’s functioning. “The RBI top management must communicate more through the media and speaking opportunities. This is necessary in the interest of transparency and credibility. It generates confidence that the RBI believes in honest communication.”

Further, the former deputy governor tells RBI management. “Be transparent. It is good that the RBI has started giving some information on the notes issued and deposited periodically. Doubts have been expressed on the double counting of old notes returned to the RBI. There are press reports that the data furnished by the RBI on notes issued between December 10 and December 19 do not tally between the pieces and values. Data on notes returned to the RBI after December 12 has not been officially released — this is generating enormous speculation whether the notes returned exceed the notes issued.”

Transparency has been an issue all along.  This was true for the timely availability of information on the amount of old currency deposits returned to the banking system or regarding the break-up of the new Rs 500, Rs 2,000 denominations infused.  As far as the total chunk of currency infused, the last available data is as on 10 December, which was released on 13 December. According to this, banks have garnered Rs 12.44 trillion (Rs 12.44 lakh crore) in banned notes till 10 December, while they have issued Rs 4.61 trillion.

According to Thorat, “The RBI would do well to release every week, say, every Monday, data on the notes issued, denomination and value-wise, as also on old notes returned, to set all speculation to rest.”

There are two other instances worth mentioning that gives clues on a break from the past in the central bank’s mode of functioning and preparedness. One is RBI’s decision (read the Firstpost column here to not invite a number of journalists for the policy presser, the first after the Modi-government announced demonetisation. The second is its major flip-flop on the decision to cap deposits in old currency at Rs 5,000, which was later withdrawn due to public anger.  On 19 December, the RBI issued a notification imposing restrictions which it had originally promised time till 30 December (as also the Prime Minister) to accept old currency deposits without any limit.  “Could it (the RBI) not have refrained from issuing the circular of December 19 that clearly went against earlier assurances and had to be rescinded immediately?,” Thorat asks.

It is unfortunate to see an institution of RBI’s repute, which is regarded as one of the best central banks in the world, fighting a trust deficit of this magnitude. The loss of central bank’s credibility will have disastrous impact on Indian economy and lead to bigger problems. There is an immense responsibility on governor Patel, whose credentials for the role at RBI are second to none, to get his act together and take control of the situation, thus regaining the lost image of India’s central bank.

Here, Patel would do well to pay heed to Thorat’s caution.

First Published On : Dec 28, 2016 13:50 IST

Demonetisation: Four things Narendra Modi should do to take the economy out of the mess

For the Narendra Modi government, which stormed into power in May 2014, to come out of the demonetisation mess unhurt isn’t an easy task. This is despite what it promises to achieve in the future –an economy free of black money, corruption and fake notes, and no matter how good the latter-stated objectives are (including a shift to a cashless economy). And certainly not in the manner it has gone about scrapping 86 percent of currency in circulation all of a sudden on the night of 8 November throwing the economy into a crisis. The consequences so far have been disastrous — corporate profitability has taken a hit, lakhs of jobs have been reportedly lost in the informal sector, consumer ability to spend has been curtailed, farmers affected as prices have crashed, services and manufacturing sectors have been impacted and there is skepticism globally on the rationale behind Modi’s currency ban.

Not surprisingly, both government and private forecasters are competing to show lower India GDP numbers for fiscal year 2017. The estimates range from 7.1 percent (Reserve Bank of India) to an extremely pessimistic 3.5 percent by Ambit Capital, a private brokerage firm.  The available data–advance tax payments by corporates, PMI numbers, auto sales and slowdown in service-oriented sectors confirm the fear of a deeper impact to the economy.

Prime Minister Narendra Modi. AFPPrime Minister Narendra Modi. AFP

Prime Minister Narendra Modi. AFP

Most economists have ruled the third quarter as a miss, but the real danger comes if the cash crunch-woes spill over to the fourth quarter since then there will be a cascading impact in the economy.

According to data from Centre for Monitoring Indian Economy (CMIE), unemployment rates fell to less than 5 percent in the week of 27 November, but has since risen to 6.1 percent in the week of 4 December to 6.6 percent in the week ended 11 December and then to 7 percent in the week ended 18 December. The impact comes with a lag and we need to wait for fresh numbers.

Need of the hour

There are a few critical tasks before the Modi-government that should be done urgently:

First, refrain from populist, non-productive expenditures such as promising the poor that the gains on black money will be distributed to them and that farm loans will be waived. The government should focus on boosting the capital base of banks on an urgent basis so that bank credit flow to productive sectors doesn’t suffer, and sell off the loss-making banks or consolidate a few if there is synergy amongst them. Finance Minister Arun Jaitley has a good opportunity in the 2017 Union Budget slated for 1 February to announce some bold measures to take the reform process ahead in the public banking sector.

Presently, state-run banks are severely undercapitalized and the problem is worsened with their non-performing assets (NPAs) hitting the roof (nearly Rs 6 lakh crore as on September, 2016 or nearly 8 percent of the total bank credit), and total chunk of stressed assets (bad loans and restructured loans together) jumping to 12-13 percent of the total bank credit. Under the government’s Indradhanush plan, of the Rs 1.8 lakh crore capital needed by banks under Basel-III, the government has offered to infuse Rs 70,000 crore over four years till 2018-19 and wants the government banks to fend for themselves for the remaining Rs 1.1 lakh crore from the market. This is not enough. Also, it is almost impossible that weak state-run banks will find takers. This compounds the problem. So far, there is not much progress on the reform front. That is why the government, the majority owner in these banks, will have to think about infusing them with higher chunks of capital and push the reform button.

Two, offer a fiscal boost to the economy by ramping up infrastructure spending. A section of economists agree that the economy is in need of a strong stimulus to get back on track. This is warranted because several layers of economy have taken a hit post-demonetisation. One of the expectations from the demonetisation exercise was to get a ‘windfall’ of Rs 4-5 lakh crore provided that kind of money doesn’t return to the system as black money hoarders run for cover. The government was expecting to garner around Rs 10 lakh crore of the Rs 15.44 lakh crore demonetized on 8 November. But, that hasn’t happened yet. This, coupled with the Reserve Bank of India’s (RBI) clarification that there is no possibility of a transfer of surplus from the central bank to the government on account of reduced currency liability, has ruled out any immediate tangible gains for the government. Instead, the exercise has resulted in considerable damage to the economy.

Third, Jaitley should also announce reliefs to both individuals and corporations in Budget 2017 by offering substantial direct tax reductions to tide over the difficult phase. This will work in three ways—to make India still an attractive destination for companies when US president-elect Donald Trump’s administration rolls out massive tax cuts, reverse the negative mood on account of the artificially imposed cash-crunch and put more money into the household kitty to keep the consumption story going. Corporate tax incentives should be over and above the ongoing plan to bring down corporate tax rates to 25 percent over a period and gradually remove exemptions. But this hasn’t found much appeal in the industry since the effective rate is only about 23 percent after exemptions. This is the reason the marginal tax cut in the last budget hasn’t received much response. The government will have to act to regain losing momentum by offering industry a temporary stimulus.

Fourth, it is even more critical now to resolve the cash crunch as fast as possible and bring things back to normalcy. The government can’t expect a miraculous shift to digital payments in a few months replacing a world of cash. Estimates are that 70 percent of the economy still transacts in cash. Pulling out 86 percent cash in one go in a country like India and then facing a cash shortage could be compared to an act of removing blood out of a healthy human body to filling it again with better quality blood, only to realize that there is not enough stock!

Until 19 December, the RBI has infused only Rs 5.92 lakh crore into the banking system as compared with deposits worth Rs 12.44 lakh crore in old Rs 500, Rs 1,000 currencies. Of the total 22.6 billion pieces of notes of various denominations infused, only 2.2 billion belonged to higher denominations of Rs 2,000 and Rs 500. It is not clear how many of the 2.2 billion is in Rs 2,000 notes and how many are Rs 500 notes. Herein lies the problem. The ongoing cash crunch, according to bankers, is mainly due to shortage of the new Rs 500 notes. An end to the current cash crunch is possible only when there is enough Rs 500 notes coming out of the government mints.

But the tricky part for the Modi government will be to find the fiscal space to spend more simultaneously keeping the fiscal roadmap intact. It needs to meet a 3.5 percent fiscal deficit target for the fiscal year 2017. Given that demonetisation itself is unlikely to give any major fiscal boost, the only hope is for the taxmen to dig out substantial chunks of illegal cash from the system from the funds that reach bank accounts either through the black money declaration scheme or raids contributing to the exchequer. Handling a bigger budget, including that of the Railways, is another challenge. “There is a big monster called the Railway budget coming as part of the general budget this year. This can sharply spike numbers on the expenditure. How will the government handle the new situation is worth watching,” said Devendra Pant, chief economist at India Ratings and Research. The expected boost to tax kitty from more number of digital transactions will come, but only at the beginning of the next year.

The short point here is about balancing Union Budget 2017 with the much-required economic stimulus while keeping the fiscal deficit roadmap intact. This will be a trial by fire for the Modi-government.

First Published On : Dec 27, 2016 13:42 IST

Demonetisation countdown to day 50: Why are govt, RBI so secretive on the whole affair?

Indications are that cash withdrawal curbs imposed after the demonetisation announcement will not end fully by 30 December, 2016 the deadline promised by Prime Minister Narendra Modi to end the pain of the common man. According to two senior bankers, cash curbs will continue beyond 30 December though some withdrawal relaxations are likely to be announced for businesses.

Also, the Reserve Bank of India (RBI) might ease some restrictions on ATM withdrawals, but curbs on high value cash withdrawals are likely to stay for a longer-than-expected period.

ReutersReuters

Reuters

“It will take some more time and only gradually,” said one of the bankers quoted earlier. But it is clear that the government will ease some restrictions, to save its face in the backdrop of the promise made by PM Modi to the common man. In his last Mann Ki Baat telecast of 2016 on Sunday, Prime Minister Narendra Modi aggressively defended demonetisation. His line of attack on his critics was that it is the corrupt and black money hoarders who are finding fault with his government’s 8 November surprise move. Also, Modi justified the frequent changes in note ban rules saying it was being done only because the government is sensitive to the problems of the people. Since note ban, the Modi government’s stance has been that demonetisation is for short-term pain and long-term gain.

But, none of these excuses would suffice to justify the gross inconvenience caused to people from all walks of life owing to the cash crunch that isn’t over even now. Even after a month and a half, people are allowed withdrawals of only Rs 24,000 per week from their banks and Rs 2,500 per ATM. India isn’t facing an economic emergency to face such prolonged restrictions on normal banking transactions. Even by the current limits, banks are unable to honor it simply because there is not enough cash in the banking system despite the repeated assurances from the Reserve Bank of India and finance ministry.

Hence, Modi’s reasoning that only the corrupt and fraud oppose demonetisation isn’t fair. Only five days are left for Modi’s 50-day deadline to come to an end. That’s the time he sought to end the ‘temporary’ pain of the people on account of demonetisation-induced artificial cash crunch. But, it is likely that the PM will fail to make good of his promise in its entirety.

The reasons for this aren’t difficult to understand. Until 19 December, the RBI has infused only Rs 5.92 lakh crore into the banking system as compared with deposits worth Rs 12.44 lakh crore in old Rs 500, Rs 1,000 currencies. Of the total 22.6 billion pieces of notes of various denominations infused, about 20.4 billion pieces belonged to smaller denominations of Rs 10, Rs 20, Rs 50 and Rs 100, while only 2.2 billion belonged to higher denominations of Rs 2,000 and Rs 500. It is not clear how many of the 2.2 billion is Rs 2,000 notes and how many are Rs 500 notes.

Here is where the problem lies. The ongoing cash crunch, according to bankers, is mainly due to shortage of new Rs 500 notes. The government pulled out 86 percent of total currency in circulation on 8 November. According to an RTI response, the RBI had only 4.95 lakh crore in the new Rs 2,000 notes on 8 November and not even a single Rs 500 note on that day. The printing of Rs 500 notes only began later. That means, the government and RBI started on Day One with less than a fourth of stock of new currency, that too Rs 2,000 bills, which caused a cash crunch. So far, neither the government nor the RBI has given any clarity on the breakup of Rs 2,000 and Rs 500 notes infused since demonetisation. Chances are that Rs 500 notes issued are only a small fraction.

PM Modi’s justifications for demonetisation or finance minister Arun Jaitley’s clarifications cannot wish away the fact that the Modi government started blind on a massive gamble in public life and economy. It was totally unprepared and decided matters on the go. That explains the endless number of rules, sharp U-turns and the 60 circulars from the Reserve Bank in just a month.

The government had an excuse of secrecy for making an abrupt start but that excuse no longer holds after a month and a half. The entire exercise lacks transparency even at this stage. According to reports (read here), the RBI has refused to make public the details of the board meeting that discussed demonetisation saying “it would lead to disproportionate diversion of resources of the organization.”

It has thus refused to disclose its recommendations to the government to scrap Rs 500 and Rs 1,000 banknotes. This response isn’t satisfactory since there has been tremendous pain in the lives of the common men during the exercise and the very role of RBI in demonetisation has been questioned by many. On Friday, the Hindustan Times reported that the decision to scrap high-value notes was cleared by the bank’s board hours before Prime Minister Narendra Modi announced the decision on national television on 8 November.

Given that the excuse of secrecy isn’t valid any longer, the common man deserves to know a) how the demonetisation plan emerged in the first place, b) who were part of the decision-making,  c) how many new currency of Rs 500 has been printed so far, d) how long will the cash crunch last, and e) what is the actual quantifiable cost to the economy on account of demonetisation (economic loss, cost of roll out and estimated job losses).

If people have begun hoarding legitimate cash withdrawn from branches and ATMs post demonetisation, that’s because the trust of public with the banking system is shaken and there is considerable uncertainty on the road ahead. The Modi government still draws considerable support from a good number of the 125 crore Indians on the demonetisation gamble, the pains of which is likely to last beyond the short-term and the likely gains (on black money, wider direct tax base and checking fake currency and terror) will only be visible in the long-term. It is only just that both the government and the RBI take the common man fully into confidence and be transparent about the whole affair.

First Published On : Dec 26, 2016 11:27 IST

Narendra Modi in Mumbai: Demonetisation isn’t the final big-bang, PM promises more

The key takeaway from Prime Minister Narendra Modi’s speech at the National Institute of Securities Markets (NISM) campus near Mumbai on Saturday is his reiteration that the NDA-government doesn’t think that demonetisation is an accident.

The government is willing to pursue it till the end irrespective of the difficulties it may face in dealing with the after effects of this massively disruptive exercise and what the critics say. “Let me make one thing very clear: This Government will continue to follow sound and prudent economic policies, to ensure that India has a bright future in the long run. We will not take decisions for short term political point scoring. We will not shy away from taking difficult decisions, if those decisions are in the interest of the country. Demonetisation is an example. It has short-term pain, but will bring long-term gain,” Modi said at the inaugratin of the NISM campus.

Narendra-Modi-in-New-Delhi4_PTI

Narendra Modi. PTI

This is a clear message to his political opponents and critics that the government wouldn’t go back from what it has begun on 8 November. PM Modi’s comment comes not long after severe criticism on demonetisation from known global names such as Steve Forbes called it an “immoral and sickening move” and “a massive theft of people’s property” and Wall Street Journal, which dubbed demonetisation “India’s bizarre war on cash” and essentially cautioned the government that it shouldn’t force cashless transactions on its people.

Modi has faced criticism at home as well. But, his speech on Saturday tells us that the prime minister isn’t perturbed with any of these. He is willing to risk the after effects of the note ban including a severe cash crunch that is persisting even after a month and half of the currency ban, negative impacts on the economy and reported job losses in the informal sector, as well as signs of public patience diminishing faster than in the initial days.

As the prime minister said in his speech, the government is willing to face the risks and is betting big on the long-term gains of the demonetisation. The prime minister’s statement isn’t difficult to understand given that he has invested too much of personal and political goodwill in the decision to pull out 86 percent of currency in one go on 8 November. There is no going back from this decision since it can become the admission of a political defeat.

Since 8 November, the note ban has been presented as a bold, personal political move to the public by the prime minister rather than as an economic reform originating from the government or the central bank, Reserve Bank of India. But, the other side of this is that by not admitting the serious flaws in the implementation of a well-intentioned move and harping on a 50-day deadline to end the pain of demonetisation, the PM is also running a risk of inviting more public anger should he fails to keep his promise of 50-days and keep ignoring the ground realities.

The fact is that there is still considerable pain on the ground which might last very well beyond the “short-term”. No one, including RBI, seems to have a clear idea of how long will the cash crunch last. Till now, the RBI has managed to infuse only a fraction of the Rs 15.4 lakh crore currency demonetised by the scheme. It might take a few more months before things turn normal. As Indiaspend points out in this article, Modi’s 50-days deadline is likely to fail. Here, instead of repeating that the pain is only for short-term, the prime minister would have done well if he admitted that the impact of currency ban will probably last longer than the government had initially anticipated, thus giving a realistic assessment of the current situation. Such a move would have helped him gain more public support.

In his speech Modi also touched upon some crucial, but long-discussed, issues concerning capital market reforms such as deepening the municipal corporate market, routing long-term funds from the bond market to fund long-gestation infrastructure projects and ways to translate the growth in capital markets to gains for rural India. The remark on deepening the municipal bond markets should be seen in the backdrop of government’s smart city programme, which requires large revenue sources one of which is tapping the municipal bond market.

Modi also hinted at tweaking laws concerning gains from capital market gains. “Those who profit from financial markets must make a fair contribution to nation-building through taxes. For various reasons, the contribution of tax from those who make money on the markets has been low. To some extent, it may be due to illegal activities and fraud. To stop this, SEBI has to be extremely vigilant. To some extent, the low contribution of taxes may also be due to the structure of our tax laws. Low or zero tax rate is given to certain types of financial income.”

Similarly, the mention on reinventing the derivative product segment to benefit farmers is a message to the market regulator, SEBI to think of ways of working on new products. “People say that derivatives can be used by farmers for reducing their risks. But in practice, hardly any farmer in India uses derivatives. That is the fact. Unless and until we make the commodity markets directly useful to farmers, they are just a costly ornament in our economy, not a useful tool…SEBI should work for closer linkages between spot markets like e-NAM and derivatives markets to benefit farmers,” Modi said.

The prime minister yet again made it clear his idea of reforms when he said that his “aim is to make India a developed country in one generation”. In other words, what this means is that his government believes in massive disruptions to bring about large changes in the country rather than following the method of gradual transformation. It tells us that one should expect more big bang announcements in the remaining two and half years of his tenure. For sure, demonetisation wouldn’t be the last surprise.

First Published On : Dec 24, 2016 16:46 IST

Demonetisation: Why Narendra Modi won’t have an easy win over India’s penchant for cash

The buzzword now in the post-demonetisation days is cashless economy. A change to ‘less-cash economy’ and then ‘cashless economy’ is the new punch line of Narendra Modi government’s changed demonetisation narrative. It believes in target-based massive disruptions in the social equilibrium to attain quick results, not gradual transition. For this reason, both the government and the Reserve Bank of India (RBI) are pushing the banking system hard to nudge the public to embrace alternative payment modes to cash transactions, mainly using mobile payment platforms and Point of Sale terminals. Is India prepared for this change?

Going by the data available so far, the citizens in metros are willing to try out the new way of payments but the rural Indian isn’t yet ready for an overnight transition to a cashless world. That’s the sense one gets when analyses the RBI studies and other private surveys. According to an SBI research report, though there has been an increase in the volume of card-based transactions post 8 November (When PM Modi announced demonetisation), however the value per transaction has dropped.

It isn’t hard to understand why this has happened.

1) There isn’t enough infrastructure to propel a sudden spurt in digital payment activities.

2) There is a broader impact on consumer demand thanks to a drop in economic activities following the artificial cash-crunch.

3) A good number of people still do not trust the security features accompanying the digital payment instruments.

4) Laws aren’t strong enough in India as in developed countries to support the customer to compensate him for possible financial loss.

5) Despite all the digital India talk, internet and mobile penetration is far inadequate in non-metros to support the connectivity for seamless mobile-based financial transactions. A significant number of India’s 6 lakh odd villages still do not have good mobile, internet connectivity. According to TRAI report, only 15 percent of India’s 1.02 billion wireless subscribers have broadband connection.

A shop assistant uses an eftpos system at a Specialty Fashion Group owned Katies store in Sydney December 11, 2012. Australia is being invaded by a swathe of foreign retailers, piling pressure on a local industry already battered by weak consumer spending and ruthless internet competition. Picture taken December 11, 2012. REUTERS/Tim Wimborne (AUSTRALIA - Tags: BUSINESS FASHION) - RTR3BNKDA shop assistant uses an eftpos system at a Specialty Fashion Group owned Katies store in Sydney December 11, 2012. Australia is being invaded by a swathe of foreign retailers, piling pressure on a local industry already battered by weak consumer spending and ruthless internet competition. Picture taken December 11, 2012. REUTERS/Tim Wimborne (AUSTRALIA - Tags: BUSINESS FASHION) - RTR3BNKD

Reuters

Nevertheless, why there has been an increase in non-cash transactions since demonetisation? This spurt is artificial and a forced one by the government’s decision to pull out 86 percent of the currency in circulation in one go.

It is like saying when you artificially spike the price of vegetables to an unaffordable level to common man, he will start using meat and egg products more. That’s not necessarily because of his sudden love for meat but simply because vegetable isn’t affordable for now. For the same reason, when the veg prices come down again, there is a likelihood of many of these people returning to their old consumption pattern. Even in such a scenario, many vegetarians would rather start eating less than beginning to eat meat.

The current scenario, where the government and banking system is pushing citizens is something similar to this. The current spurt in the volume of non-cash transactions isn’t likely to sustain when the cash-crunch eases, unless there are good reasons (clear incentives) for someone to shift to the new mode. This is something one needs to wait and watch.

The reason for decline in per value transactions could be attributed to combination of factors mentioned above, of which a dip in consumer demand and lack of trust of plastic money transactions. The government’s well-intentioned move to progress the economy to a cashless mode needs more than short-term monetary incentives and lucky draws. These are mere gimmicks that might get only some short-term responses but not lasting results as this Firstpost report points out. The government needs to have a well laid out policy plan for the shift to digital economy that should happen over a period of time by preparing the infrastructure.

As the SBI report points out, India is lagging far behind when it comes to providing adequate infrastructure for cashless transactions. “Additionally, we may require an additional 20 lakh PoS machines. Interestingly, the per value transaction in post demonetization period has declined (though the no of transactions has increased) possibly reflecting less number of PoS machines in the country compared to the demand (India has 15.1 lakh PoS machines),” the report said.

This improvement in banking infrastructure is already happening, albeit in a slower pace, with more financial institutions like payments banks and small finance banks that are technology driven coming to the picture and bank accounts are being made available to hitherto unbanked through Jan Dhan Yojana scheme. Along with this, the banking system should make the customer aware about new mode of payments, instead of forcing someone, who hasn’t even used an ATM so far, to do it overnight.

According to an RBI concept paper on Card Acceptance Infrastructure, the average number of card transactions per inhabitant in India is among the lowest in major economies. Between Oct 2013 and Oct 2015, ATMs increased by around 43 percent while POS machines increased by around 28 percent. As of end-December 2015, the number of ATMs has increased to 1,93,580 while PoS machines had increased to 12,45,447 in the country.

As far as the usage is concerned, “from April 2015 to December 2015, the usage of debit cards at ATMs continues to account for around 88 percent of the total volume and around 94 percent of total value of debit card transactions. Usage of debit cards at POS machines accounts for only around 12 percent of total volume and 6 percent of total value of debit card transactions. This is despite the fact that between FY2012-13 and FY 2014-15 the debit card usage at POS machines registered a growth of 72 percent in terms of volume and 63 percent in terms of value,” the report said.

India’s penchant for cash is well known and even post demonetisation this nature is evident with people using their ATM/debit card more than ever but mainly for cash withdrawals, not purchases. India has around 94 crore debit cards but most of it is used for only cash withdrawals (read this report in The Indian Express). Then there are severe concerns about security issue on such transactions and laws to support a common customer in the event of loss from using technology platforms for financial transactions (read here). If the government hopes that it can bring about such a massive transformation, even hoping a less-cash society, in such a huge country in short-term, it is nothing but asking for the moon.

Such a change should happen on a need-based model, wherein a customer who has seen his income levels and financial literacy improves feels the need to migrate to the cashless mode, where the inspiration to shift comes from the customer not the government or banking system.

Having said this, over years, there has been an increase in non-cash transactions in the banking system with more number of people get accustomed to newer modes of payments. Things will improve when confidence builds up in electronic payment modes and infrastructure improves. But, empirical evidence available so far suggests that more than availability of infrastructure, India’s penchant for cash transactions will be the biggest hurdles of PM Modi’s cashless dream. A change in the mindset will be gradual and can’t be forced. Even if it is forced, the results are unlikely to sustain. There is no easy cure for India’s penchant for cash.

First Published On : Dec 22, 2016 15:11 IST

RBI U-turn on Rs 5,000 deposit rule: It’s time for Central bank to come out of its trance

The Reserve Bank of India (RBI) has done well by removing restrictions on deposits above Rs 5,000 for the remaining days of this month when the deadline to surrender old, invalidated currency expires.

Though Wednesday’s RBI notification is silent on the reasons for reversing the move, it is obvious that the decision is triggered by widespread criticism against its earlier directive that required anyone who wanted to deposit over Rs 5,000 in old currency to face questions by two bank officials on why he/she didn’t do it earlier.

Even if one makes multiple deposits that add up to more than Rs 5,000, the restrictions would have kicked in.

This was a breach of promise and lacked logic as this writer said in an earlier Firstpost column.

Reserve Bank of India (RBI). ReutersReserve Bank of India (RBI). Reuters

Reserve Bank of India (RBI). Reuters

The new RBI notification, which says the old directive will not apply for KYC compliant accounts, would mean that almost all genuine customers will escape the unnecessary scrutiny, since majority of bank accounts are now KYC compliant. The only exceptions, perhaps, are Jan Dhan accounts which were opened with loose KYC norms and fraudsters.

The Rs 5,000 limit was absurd looking at the purpose (tackling tax cheats) from any angle. Any large deposit in any kind of account should naturally trigger scrutiny by bankers and taxmen to check likely money laundering. For this the government and the RBI didn’t need to trouble all customers and bank officials at a time when the common man is already feeling the pain of an artificial cash crunch.

Besides, such a restriction contradicted the repeated promises of Prime Minister Narendra Modi and Finance Minister Arun Jaitley that people do not need to rush to bank branches to deposit their old currency since there is time till 30 December.

In hindsight, the many flip-flops by the RBI and the government show the lack of planning and coordination among the top authorities who handle the demonetisation implementation. There are reasons to believe that the central bank isn’t in control of the situation and experts have pointed fingers at the erosion in the credibility of the central bank, an institution that is known for its ability to drive the economy through even worse phases with skill and conviction.

It was clear the Rs 5,000 deposit rules will hit the common man hard. Those who would have waited for the queues at the banks to get shorten to deposit their old currency savings, were taken by surprise with this rule. Remember, a number of time rules have changed for the common citizens on cash withdrawals and deposits. Last month, the government had abruptly stopped the currency exchange facility at bank counters after initially promising until 30 December. Bankers, at one point, even inked customers to ensure people don’t withdraw cash beyond certain specific limits, reminding one of war-time rationing. All this created more panic and confusion among the public.

Demonetisation, in the scale the Narendra Modi government has undertaken (pulling out 86 percent of the currency in circulation), has no parallel among major economies.

The entire world is watching this episode in India as a rare case study of a botched up economic reform plan. No one has a clue on where this is taking the Indian economy – the fastest growing major economy in the world – in the days ahead. In this backdrop, there is a closer scrutiny on the Indian central bank and government by global economy watchers and investors on each and every stage of demonetisation.

Here frequent flip-flops in rules only does damage to the credibility of the economy and its political and economic institutions.

As of now, there are a few missing links in the demonetisation plan that the central bank needs to clarify, including the number of new Rs 500 and Rs 2,000 notes printed, giving guidance to the public on until when the cash crunch will last and what is the cost of the exercise to the economy.

Except for assurances there is enough cash in the system, the RBI hasn’t offered specific details of the currency operation that is underway to ease panic. The RBI assurances do not reflect on the ground as still ATMs run dry and bank branches ration money. So far, since the 8 November demonetisation announcement, there have been 60 circulars issued by the finance ministry and the RBI. This points to a lack of planning and hold of the situation.

The RBI should make up its mind and guide the economy and the general public through this uncertain phase. Though demonetisation began as a political decision, the responsibility to ensure that this does not harm multiple spheres of the economy equally lies with the central bank which is the authority of monetary policy and currency in circulation. It’s high time the RBI came out of the trance and took control of the situation.

First Published On : Dec 21, 2016 15:24 IST

Demonetisation: Chidambaram may be right in calling note ban a non-reform, but he shouldn’t forget the past

P Chidambaram, four-time finance minister and a senior Congress leader, has been an aggressive critic of Prime Minister Narendra Modi’s 8 November demonetisation drive, much like his colleagues in Congress party such as former PM Manmohan Singh and Vice president Rahul Gandhi. On Tuesday, inaugurating the Prof T D Lakdawala lecture series at the University of Mumbai, with a talk on ‘Twenty five years of Economic Reforms and Challenges Ahead’, Chidambaram escalated his attack by stating that the authors of note ban lacked elementary knowledge of economics.

“Whoever planted the idea of demonetisation should enroll in a graduate school of economics,” said Chidambaram. Chidambaram argues why demonetisation is not an economic reform but a ‘man-made tragedy’. To support his argument that why note ban isn’t an economic reform, the former FM said an economic reform can be defined as a new model whose effectiveness could be measured with its outcomes. “A reform can be judged on the parameters of enhanced output, efficiency and distributive justice,” Chidambaram said.

Senior Congress leader P Chidambram. AgenciesSenior Congress leader P Chidambram. Agencies

Senior Congress leader P Chidambram. Agencies

Some of the landmark reforms of last 25 years Chidambaram picked in his speech include 1991 foreign trade policy, doing away with industrial licences, moving away from fixed exchange rate to a market determined rate, direct reforms, private public partnership, capital market reforms, initiating Aadhaar-based direct benefit transfer.

Chidambaram concludes his reform talk saying the aim of many of these reforms was to end poverty. “Given the capital, the technology and the human resources available in the 21st century, if any country is poor, it is because of its own faults and failures,” said Chidambaram is quoted as saying by the Indian Express. Pro-demonetisation economists will cry foul with Chidambaram terming demonetisation as a non-reform. Note ban critics will cheer him.

Strictly going by Chidambaram’s definition, i.e if a reform is measurable by tangible output and efficiency of implementation, then demonetisation may not qualify to be called as an economic reform. Some of the stated gains of this exercise—rejuvenating the economy by recovering black money, ending corruption involving cash exchange, choking terror funding and as an effective trigger to nudge the society to non-cash transactions—can be evaluated only in the long-term. Reports of fresh cases of black money, fake currency seizure and terror attacks even before the demonetisation exercise over casts shadows on the effectiveness of the demonetisation exercise on these fronts.

As this writer had pointed out in an earlier article, it is naïve to imagine that swapping currency alone would kill illegal cash build up in the system, curb corruption and end organized terror. Also, at this stage, any tangible, meaningful gains for the exchequer out of demonetisation look doubtful considering the massive pain it will inflict on the economy in the approaching quarters.

A 1.5-2 percent slowdown in the GDP on account of cash-ban resulting in paralysis will be a major drag on the economy. The impact of job losses, slowdown in manufacturing and services will have cascading impact across the economy. Apart from the quantifiable impacts, the pain on the common man on account of prolonged cash crunch too should be taken into account when one does the final cost-benefit analysis of the demonetisation exercise. Unless positive results are proven in the long-term, not many can dispute Chidambaram if the former FM refuses to call the note ban an economic reform. It is more of a cleansing exercise and an economic experiment. Till hard results are visible, the fate of Modi’s demonetisation gamble, hangs in balance.

But, the problem with Chidambaram’s Tuesday talk arises where he begins to sermonize on the eradication of poverty as the end result of any major reforms and criticise the failure of the state for its failure to end poverty despite having all tools—capital, the technology and the human resources—at disposal. This is where the Harvard educated lawyer-turned-politician should perhaps also introspect the success of the UPA-regime in the last decade or so to achieve this critical end result. Facts should speak rather than political claims and counter claims. One of the major characteristics of that regime was a phase of jobless GDP growth.

According to a 2013 paper — ‘Joblessness and Informalisation: Challenges to Inclusive Growth in India’–by the Institute of Applied Manpower Research (IAMR), a think-tank of the erstwhile Planning Commission, not only has India witnessed jobless growth during the UPA’s tenure, it has also seen millions pushed to become casual labour with little social security. One cannot deny the link of unemployment trends to the poverty graph.

Between 2005 and 2010, the manufacturing sector saw the loss of 5 million jobs, it said. Also, the services sector, which witnessed 18 million jobs between 2000-2005, added only 4 million additional jobs in 2005-2010. Though the larger consensus is that poverty reduction has been quicker in the three-years to 2011-12 but going by the C Rangarajan panel, the fact is that one third of India (29.5 percent) remains poor, way above 21.9 percent estimated by Tendulkar committee. While there are no accurate estimates of poverty in the country, various indicators show a good number of Indians still lack access to labour, shelter and formal financial system.

This raises a key question. Despite the critical economic reform steps initiated in last several decades and despite UPA initiatives to increase social spending, provide employment through MGNREGS, how far India has achieved the desired results to end poverty is a matter of larger debate. While Chidambaram’s remarks on demonetisation are indeed valid, a counter question to him, thus, is why a significant chunk of Indians still live in poverty despite a series of economic reforms and having all tools of poverty eradication at disposal for long.

First Published On : Dec 21, 2016 14:49 IST

Demonetisation: Why PM Modi shouldn’t have offered another scheme for tax cheats

The new scheme for tax cheats that is in force now shows the desperation of the Narendra Modi government to somehow show demonetisation has indeed worked well in trapping the black money in the system.

This was necessitated as close to Rs 13 lakh crore has already returned to the banking system through deposits out of the Rs 15.4 lakh crore demonetised on 8 November.

It is anybody’s guess how much of these deposits will turn out to be ‘black money’ at the end of this whole exercise. Much depends on the taxman. Under this scheme Pradhan Manrti Garib Kalyan Yojana, evaders get another opportunity to bring out their ill-gotten wealth by paying 50 percent tax and penalty and by parking a quarter of their illegal assets in a scheme for four years.

Representational image. CNN-News18Representational image. CNN-News18

Representational image. CNN-News18

This is the last such scheme, the government has said, for black money holders — something they had said even when the first IDS (income declaration scheme) scheme for domestic black money holders was launched a few months ago.

That time, the government warning was that post September, there will be big crackdown and no chance will be given for anyone to come clean again. But here we are again with yet another black money scheme .

This, in all likelihood, will give an idea to the tax cheats that the ‘last chance’ for black money holders will keep returning periodically. The latest amnesty-like scheme tells us one clear thing. This is born out of the government’s growing realisation that demonetisation may not be an effective tool on the black money hunt.

Hence, the government was forced to once again offer incentives to tax cheats to get some money out of the shelves. The taxman has, so far, not found much luck in unearthing the illegal cash from raids, which is evident from the numbers given by the CBDT chairman last week. The department has so far conducted searches and seizures in about 291 cases, carried out surveys in 295 cases, where it has seized over Rs 316 crore including Rs 80 crore in new notes in raids, besides jewelry of Rs 76 crore, totaling Rs 393 crore, the chairman said.

The department has also sent over 3,000 notices on the basis of deposits in bank accounts. One needs to see how much illegal money is unearthed post this exercise. The other side of this exercise is that the honest taxpayer will feel foolish with repeated amnesty schemes for tax cheats.

In fact, the last black money scheme was even better for the evaders. Those who declared black money under the scheme had the option to pay the 45 percent tax in three easy installments — 25 percent by 30 November, another 25 percent by 31 March 2017 and the balance amount by 30 September 2017. The 45 percent penalty black money holders need to pay include tax, surcharge and penalty.

If someone with unaccounted money didn’t use such easy an installment scheme then, he is either a fool or someone who knows to fool the taxmen for the rest of his life. The chances that this time the tax amnesty scheme, which is open until 31 March 2017, may not yield much since the evader, who skipped the attractive September scheme, will now have to pay 50 percent of tax/ penalty and lock quarter of his deposits for four years. Rather, he would look for alternative ways such as benami channels.

Including the first scheme for foreign black money holders, this is the third amnesty the Modi government has offered to tax cheats. There is an obvious danger in rolling out back to back amnesty schemes. In the BJP Parliamentary meet, PM Modi mentioned the 1971 K N Wanchoo Committee report to support his ongoing demonetisation move.

But, the same report and the Shankar Acharya Committee in 1985 had also pointed out the ill-effects of announcing black money voluntary declaration schemes unless there is a compelling reason to do so. “Resorting to such a measure during normal times and that too frequently, would only shake the confidence of the honest taxpayers in the capacity of the government to deal with the law breakers and would invite contempt for its enforcement machinery,” the Wanchoo panel had said in 1971.

Whether the scenario, under which Modi announced demonetisation and black money declaration scheme for tax cheats falls under the description of ‘normal times’ or not is a matter of debate. But, PM Modi will do well revisiting the Wanchoo report for clues on the consequences of back-to-back black money declaration schemes.

First Published On : Dec 20, 2016 16:11 IST

Demonetisation: RBI curbs deposits above Rs 5,000; what happens to Modi’s promise now?

On the 41st day of Prime Minister Narendra Modi’s 50-day promise to get back normalcy in common man’s life post 8 November demonetisation announcement, yet another promise is broken made to the common man.

A customer waits to deposit 1000 Indian rupee banknotes in a cash deposit machine at bank in MumbaiA customer waits to deposit 1000 Indian rupee banknotes in a cash deposit machine at bank in MumbaiThe Reserve Bank of India (RBI), in a press release said in the remaining days of this month, one can make a deposits in Rs 500 and Rs 1,000 notes in excess of Rs 5,000 only once per account.

If you want to deposit cash in banned currency in excess of that amount, you’ll have to explain in the presence of at least two officers on why you could not do it earlier. Even if the deposits are made in small amounts multiple times, if they add up to the magic number of Rs 5,000, again you stand exposed to questions.

One wonders what happened to PM Modi’s promise (read the full text of PM Modi’s 8 November speech here) to the nation that, “Persons holding old notes of 500 or 1,000 rupees can deposit these notes in their bank or post office accounts from 10th November till close of banking hours on 30th December 2016 without any limit. Thus you will have 50 days to deposit your notes and there is no need for panic. Your money will remain yours. You need have no worry on this point.”

The RBI circular is also silent on why should an honest citizen need to answer a banker on the timing of his deposit and the amount? A banker, after all, is not an investigator. Or is the assumption here that anyone who hasn’t deposited invalidated currencies in their bank accounts are hoarders of black money?

Repeated flip-flops in withdrawal/exchange rules since 8 November makes one wonder what is the nature of the plan both the RBI and the government claims to have for the ‘well-thought out’ rollout of currency ban. It reminds one the statement of former Prime Minister Manmohan Singh’s caution to the RBI, an institution he headed once, about the trust deficit the central bank is facing with the way it dealt with the demonetisation from the very beginning.

“It is no good that everyday the banking system comes with modification of the rules, the conditions under which the people can withdraw money. That reflects very poorly on the Prime Minister’s office, on the finance minister’s office and on the Reserve Bank of India. I am very sorry that the Reserve Bank of India has been exposed to this sort of criticism which I think is fully justified.” The ardent fans of frequent rule flip-flops in government and the RBI would do well reading history and find the story of a former Delhi sultan, Muhammad bin Tughluq.

What do the government and the RBI achieve by breaking their promise by restricting deposits before the 30 December deadline? One possibility is that the government doesn’t want a likelihood of all money demonetised returning to the bank counters. At the last count, almost Rs 13 lakh crore of the Rs 15.4 lakh crore demonetised currency notes had found their way back to the bank counters. If all the Rs 15.4 lakh crore returns, it will be an egg on the face of the government, which probably expected a good part of the unaccounted wealth to get destroyed. This would have helped it to say that much illegal cash is destroyed in the exercise. Earlier, the government was expecting only around Rs 10 lakh crore to return, but the public surprised the government by depositing money diligently.

If the action is to target hoarders, it is unlikely that the government finds any luck with this latest flip-flop. The tax evaders would have deposited their money much earlier in small doses either by creating fake accounts (like in the Axis Bank episode), donating to one of the 1866 political parties that enjoy no tax, no scrutiny under the current laws, by splitting the amount to several small bundles or depositing it multiple benami accounts.

Thus, the likely victims of this latest U-turn will be the common man, some of whom would have waited for the queues in banks to get short to deposit their old currency savings. If they have a large amount to deposit, they should get ready to face questions at bank counter to establish that this is their own money. Last month, the government had abruptly stopped the currency exchange facility at bank counters after initially promising until 30 December. Remember, a number of time rules have changed for the common citizens on cash withdrawals and deposits. Bankers, at one point, even inked customers to ensure people don’t withdraw cash beyond certain specific limits, reminding one of war-time rationing.

Demonetisation story is taking new turns rapidly with changing goal posts and theories of as yet uncertain gains in the long term. But, no matter what the final gains of the demonetisation are, both the RBI and the government will have to answer the common man on the repeated breach of promises while executing a ‘well planned operation’ and fight a growing trust deficit that’ll also have likely political implications.

First Published On : Dec 19, 2016 15:38 IST

To end black money in political funding, Modi govt must do more than blame old law

On Saturday, Union Finance Minister Arun Jaitley embarked on a spree of damage control mode by issuing a statement on the Narendra Modi government’s stance on political funding and black money. Political parties have not been granted any exemption after demonetisation and the introduction of Taxation Laws (Second Amendment) Act, 2016 which came into force on 15 December, said Jaitley.

He added: “Income and donations of political parties fall under the purview of Section 13A of the Income Tax Act 1961 and there is no change in its provisions. In this era of instant outrage, a 35-year-old law is presented as a new law being passed by the NDA Government.”

Representational image. PTI

Representational image. PTI

This statement came in response to media reports and a political storm brewing among certain Opposition parties after the revenue secretary Hasmukh Adhia said, “If it is a deposit in the account of political parties, they are exempt. But if it is deposited in any individual account, in anyone’s account, that information will definitely come on our radar.” Adhia’s statement drew immediate media and political attention in the context of the ongoing demonetisation exercise. The plan, originally announced on 8 November gives time to deposit old, invalidated Rs 500, Rs 1,000 currency notes in banks till 30 December (in bank branches) and 31 March (at Reserve Bank of India counters).

Going by Adhia’s statement, political parties could have deposited any amount without paying taxes or facing any investigations. Hence, the possibility opens up for tax cheats to approach a registered political party to make their loot legit with an understanding that the money will be returned at a later date — with a cut going into the pocket of the agent (in this case, the political party).

Under the current rules, no political outfit needs to show the source of funds for cash donations under Rs 20,000. Hence, parties have a logical opportunity to show a majority of their deposits under this category by creating thousands of backdated receipts and can, thus, launder black money with no questions asked. Typically, political parties do not even keep receipts for donations.

According to an analysis of political funding by the Association of Democratic Reforms (ADR) in the past few years, around 75 percent of such funding in India remains opaque and falls in the anonymous donation category.

Here, we have a serious problem.

Political parties have a clear option to print backdated receipts and launder black money. This is a major hole in the implementation of demonetisation, one of the main goals of which is to unearth the black money in the system. What the finance minister clarified in his carefully-worded statement on Saturday is absolutely true to every word. Exemption to political parties is not a law that was created by the Modi government. This is a law that has been in existence for a while.

But, there are few things of which the government has to take note:

First, whether the law is old or new, the fact is that political parties presently enjoy a big loophole to make their black money white openly. They do enjoy immunity from paying tax and tax scrutiny/prosecution if these outfits show that money came through small donations. This is what Adhia probably meant and what the finance minister reiterated in his statement when he said that the income and donations of political parties “fall in the purview of Section 13A of the Income Tax Act of 1961” and that “there is no change in its provisions”.

The question is given that the Modi government has waged an all-out attack on black money, shouldn’t it have plugged this loop hole before demonetising 86 percent of the currency in circulation, risking serious economic and social repercussions? The government managed to amend the income tax law for individuals, why didn’t it expand the purview for political parties? The demand of the Election Commission, seeking an amendment of laws to allow exemption from tax only to parties that win seats in elections and ban anonymous contributions of Rs 2,000 and above to parties, should be an eye opener to the Modi government and prompt it to ponder over the holes in the black money war plan.

Second, it is true that under Section 13A of the I-T Act, political parties have to submit audited accounts, income and expenditure details, and balance sheets as Jaitley says in the clarification. The finance minister also says that following demonetisation, no political party can accept donations in Rs 500 and Rs 1,000 notes since they were rendered illegal tender. Any party doing so would be in violation of the law. “Just like anyone else, political parties can also deposit their cash held in the old currency in banks till 30 December, provided they can satisfactorily explain the source of income and their books of accounts reflect the entries prior to 8 November,” he said.

Here, isn’t Jaitley himself giving a clue to political parties how to deal with their black money — that parties can still take invalidated higher denomination currency notes (including those from black money hoarders for a decent cut) and make thousands of backdated receipts to show the funds arrived before the cut-off date?

If the parties choose to act as conduits of ill-gotten wealth, isn’t it almost impossible for the government and taxman to track down the tax cheats?

Third, at a time when the Modi government is aggressively pushing for electronic transactions (cashless), why is the government silent on making political funding can’t be made cashless including that of the ruling party? According to PTI, there are 1,866 registered political parties in India as on August, 2015, including six national parties. Many of them haven’t even contested elections. There has been a rush for registration of political parties, with as many as 239 new outfits enrolling themselves with the Election Commission between March 2014 and July this year, taking their number to 1,866.

According to data compiled by the EC, in the last Lok Sabha election in 2014, 464 political parties had fielded candidates. The present figure could be much more than 1,866 since 2015, many more parties would have joined the club. Political parties get massive donations from individuals and institutions. They need funds for those who contest elections from their parties and spend substantial funds on administrative, functional expenses. There are no official records for most of these transactions. The possibility of crooks launching political parties solely with the aim of laundering funds is high.

Four, what prevents the government from asking banks details of deposits done by political parties in the months prior to demonetisation (remember the sharp surge in bank deposits between July and September) and after 8 November, including those of the BJP and thereby, setting an example? Asking party members to hand over details of bank deposits to party president alone wouldn’t suffice if clean transparency is the goal. Given the radical nature of the demonetisation exercise and considering that banning 86 percent currency in one go isn’t a conventional step, the government shouldn’t hesitate in going the whole hog to attack all sources of black money. Unarguably, the most critical part of the black money battle is tackling political funding, which is missing here.

Jaitley’s clarification that the I-T Act that protects politicians is an old law and the Modi government had nothing to do with it is not a valid argument

It was the responsibility of this government to plug the necessary loop holes before attempting a big gamble to hunt tax cheats, who have been looting the country. The government should have foreseen that crooks will think far ahead and use one of the 1866 political parties as black money laundering machines to make a mockery of the system. If that happens, isn’t the pain and trauma forced up on the common man who has, by far, stood by the Modi government on this move going in vain?

When it comes to political funding and black money, the Modi govt could surely do much more than blaming an old law and hoping tax cheats will follow the rules of the game.

First Published On : Dec 19, 2016 11:53 IST

Black money hunt: Why protect political parties and harass the common man?

On a day the Narendra Modi government laid out the contours of new black money declaration scheme for tax cheats, it also left a big loophole that could potentially cause the entire exercise to fall apart— exempting deposits made by political parties from tax scrutiny and subsequent investigation.

This move is absurd, lacks logic and raises a big question on the very intent of the Modi government to unearth black money in the system at any cost.

Reason: The opaque political funding is the foundation of black money in any economy. It is that evil that feeds and nurtures all other forms of illegal cash in the system. Unless political funds are brought under tax scrutiny, everything else the government does in the name of black money hunt will be seen with suspicion.

PM ModiPM Modi

PM Modi

The government move also show how there is a clear double standard for the common man and political parties when it comes to black money hunt. The aaam aadmi is supposed to bare it all, answer questions, face harassment even if his money is legit but politician enjoys a God-given immunity.

Take a look at what the revenue secretary Hasmukh Adhia told reporters.

“If it is a deposit in the account of a political party, they are exempt. But if it is deposited in individual’s account then that information will come into our radar. If the individual is putting money in his own account, then we will get information.”

The Section 13A of the Income Tax Act, 1961 is what gives immunity for political parties in respect of their income from house property, other sources, capital gains and income by way of voluntary contributions received from any person.

Political parties will merrily use this opportunity to put their black money (money for which there is no real source or income that is not taxed) on the table and would say that they got it all from small donors (cash donations less than Rs 20,000 does not need any source). It is not difficult to make backdated donation receipts. This defeats the entire purpose of black money operation.

Analysis by Association for Democratic Reforms (ADR) and National Election Watch in past few years shows that about 75 percent of the sources of funds to political parties remain unknown. Here is where the real problem lies.

When political parties arte party to accepting black money, how do one expect an honest action from them against the very same black money?

It is not a surprise that none of the opposition parties, including principal opposition party, Congress and its (occasionally) fiery leader Rahul Gandhi hasn’t uttered a word on political black money and hasn’t offered to give an example by daring to give own party’s financial details or declining any law-given immunity. That’s understood because all drinks from the same pot and it taste sweet.

But the larger question is why is it that always the common man suffer and the rich and powerful get away?

Why the double standard?

The ongoing demonetisation exercise, originally launched to counter black money and fake currency, has inflicted maximum pain on the poor, not the rich and powerful. The layman waits for hours in ATM/bank queue, face unemployment and financial loss, commits suicide because he couldn’t find enough cash for his daughter’s wedding amid the black money fight of the government, while the rich smiles all the way to the backdoors of banks.

Even in the post-demonetisation era, they have lavish weddings and joy of seeing bundles of new currency notes in their backyards, while it is a miracle for the aam aadmi even if he get hold of a few pieces of new currency.

PM Modi certainly owes an answer to 125 crore Indians, of which a good number are hard working middle class, on the government’s double standard to the common man and the political parties when it comes to the issue of black money.

First Published On : Dec 17, 2016 12:53 IST

National anthem: Can the Supreme Court also ask for CCTVs in movie theatres to ensure compliance?

Twelve persons, including two women, were detained by police for not standing up while the national anthem was in progress at the International Film Festival of Kerala (IFFK) in Thiruvananthapuram on Monday, said a report. That was a day after eight youths were beaten up in a Chennai cinema hall for not standing up during the anthem.

These are the first such instances since a recent Supreme Court interim order made it mandatory to play the national anthem in theatres before movies are screened. The Kerala and Tamil Nadu incidents would surely help to instill fear in the minds of anyone at a public place listening to the anthem either by choice or by accident. These would offer them one more valid reason to display their patriotism besides the feeling of patriotism itself — the fear of being prosecuted.

The Chennai incident gives us hope of the emergence of a new breed of vigilantes, let’s call this group, national anthem vigilantes. Remember those days, when self-appointed gaurakshaks went berserk, days when people were beaten up at several places for either eating beef or ‘harming’ the cow. Even tanners who made a modest living skinning abandoned dead cow carcasses weren’t spared. That uncomfortable phase prevailed for a while and of late one doesn’t hear much about cow vigilantes.

Can patriotism be checked? AFPCan patriotism be checked? AFP

Can patriotism be checked? AFP

But, that void will now be filled by a different kind of vigilantes. Here too, the mode of employment is self-appointment. The job profile is to guard the nationalist cause. The mandate is to beat up people who are found (to the discretionary power of vigilantes) to disrespect the national anthem. The places of their postings are theatres and international film festival venues. They have begun the job self-appointing themselves for the role after the Supreme Court order. It does not matter that you are at the air-conditioned, dark hall to unwind after a hectic week of work to watch that long-awaited film or even to watch your favorite adult movie, you are supposed to stand up first and remember your nationalist commitments.

Enjoyment later, patriotism first.

If not, you are likely to get heckled, abused and manhandled by the new breed of vigilantes. That’s what happened in Chennai when youths were assaulted for not standing up during the national anthem and even taking selfies. Let’s get one thing clear. There is no question about how we all should respect the mother nation, not just the anthem — all ideals it stands for. If the youths in question were taking selfies with the intention of insulting the nation, their action is questionable.

But, come on, they were students, who came for a movie — not to attend a republic day parade. Why in the world should someone be forced to show display of patriotism in a theatre of all places? Or, why only in theater, shouldn’t this be forced on people on bus stands, railway stations, offices and even bars (Why not?). If this brings on the true patriot in every Indian, shouldn’t this be done first in the august house of Parliament and state assemblies at the beginning of every day of Parliament session, where public representatives often behave worse than street thugs? But, then of course, there is a court order for cinema theaters. And you must follow the rule. No questions asked. But, of course, questions will keep coming. Questions that have been already asked and questions that will be asked again, till answers come. Here goes some of them.

One, should the feeling of patriotism come from within or forced upon by someone else? Should one do it fearing the crowd around? Two, how do citizen or police measure the feeling of patriotism in his fellow citizen? Three, how different is display of patriotism from the feeling of patriotism? Four, how does one decide the show of display is indeed a display of patriotism or a dishonest action? For instance, is someone technically standing up in a theater during the national anthem but makes a face, would they still be tagged as an honest patriot? And, how on earth would the vigilantes or police standing around him even know that he is making a face unless then cease to display their respect to the anthem and start looking at the subject in question? Unless a movie theatre fixes CCTVs all around the hall that capture the faces during the anthem and an ethics committee in theatres inspects the footage during the movie so that the fake patriots can be booked by the end of the show, implementing this rule isn’t possible.

Can we, thus, conclude that checking patriotism isn’t an easy task unless vigilantes turn out to be the investigators, the judge and the executioners? Last month, there was an incident reported from Goa where a wheelchair-bound man who couldn’t rise up during the national anthem was reportedly attacked at a multiplex. The Supreme Court later clarified that the disabled doesn’t need to stand up and the doors needn’t be bolted.

But, the Supreme Court order to make the national anthem mandatory alone is sufficient to embolden the self-appointed guardians of national anthem in cinema theaters. The Supreme Court order, though an interim one, lacked logic. Make it mandatory to respect the national anthem wouldn’t alone safe guard the symbols the constitution bestows respect. If Supreme Court is so determined to force patriotism on citizens, shouldn’t it also ask zoos in the country take out peacocks and tigers (national bird and animal) out of their confinements too. Aren’t we insulting the national symbols by putting them in cage?

Like mentioned earlier, as the next step, to ensure theaters do follow the rule, the Supreme Court should also ask theater owners to install CCTV cameras in all theaters and constitution of an ethics committee to ensure movie-goers pay real respect to national anthem. If these measures aren’t possible, the other way is to simply let the citizen use his individual freedom and discretion to fulfill his moral and constitutional responsibilities to the motherland.

Within us, each of us cherish being an Indian and feel lucky to be born here. Fear of prosecution shouldn’t necessarily be the motivating reason to bow to the mother and feeling of patriotism and fear of being watched and prosecuted shouldn’t come in the same breath.

Makes sense my Lord?

First Published On : Dec 13, 2016 11:53 IST

Goodbye April GST: Missing the deadline is better for all in demonetisation season

It is now fairly certain that the 1 April roll out of the grand indirect tax reform, Goods and Services Tax (GST), isn’t happening. The plan is comfortably put on the backburner at least till September, when the time given by the constitutional amendment will automatically expire for GST roll out, meaning that the new regime will have to kick in by then.

There are two clear reasons why GST isn’t happening now as planned. One, till now, there is no consensus on the contentious issue of dual taxation between the centre and state governments. States, especially the likes of Tamil Nadu and Kerala, are hell-bent on their demand that control of companies with annual turnover of less than Rs 1.5 crore should rest with them. A data goof up by the centre has worsened the relation (read here ). Centre isn’t too comfortable with the idea of giving up too much to states.

This was evident when the GST council met on Sunday. With no consensus in sight on the crucial issue, GST is unthinkable for 1 April since two important supportive legislations, central GST and integrated GST, is yet to pass the House test. The current session gets over on 16 December and there is no time to pacify the states and opposition by then. The next likely meeting of GST is planned for end-December.

Representational image. ReutersRepresentational image. Reuters

Representational image. Reuters

The second reason is the change in political climate post demonetisation. Though states wouldn’t flag the political displeasure on demonetisation for slowing the GST bandwagon (as it would be seen as a regressive step), the hardening of resistance by states like Kerala on the revenue sharing issue is because of the adverse impact of the demonetisation. Demonetisation has triggered political and economic impacts in different states in different ways. This has also, states allege, gone against the centre’s promise of cooperative federalism . States like Kerala are in a sort of political crisis with the key sector of cooperative banks (a big employer and key institutions for low-income groups/ farmers) being hit hard. There are enough evidences around to believe that services, manufacturing too would have taken hit in the demonetisation resulted cash-crunch.

The hard-won political consensus on GST by finance minister, Arun Jaitley, is now on shaky grounds due to the ongoing tussle between the Narendra Modi-government and key opposition parties on the demonetisation issue. The opposition parties have been harping on prime minister’s persistent reluctance to speak on the issue in the House and use that a reason to take the House business to a standstill. The Modi-government too, so far, has not been able to justify the the demonetisation exercise with hard evidence. With no immediate monetary gains in sight, recovering black money—the originally highlighted objective of the operation—looking a tall order and ‘cashless economy’ turning the only savings grace, the Modi-government will have a tough time explaining the opposition, the negative economic impact and the prolonging pain to common man. This is an uncomfortable situation for the government.

But, in the post-demonetisation scenario, it is good both for the centre and the state to have a late GST, rather than facing another mammoth implementation challenge. In the post demonetisation days, the Indian economy is already having a tough time in manufacturing, services sector and even on discretionary consumer spending—all of these has taken a hit. Auto sales numbers and November PMI data offer enough evidence of the near-term growth impact. The Reserve Bank of India’s (RBI) fiscal year 2017 growth downward revision (from 7.6 percent to 7.1 percent) , which doesn’t even take into effect the demonetisation impact fully , adds to the worries.

The most optimistic expert assessments (except from the government) of the economy returning to normal cash conditions are March. In such a scenario, the immediate disruptions GST roll out by April will have a double whammy effect on the economy. September sounds more realistic. Also, the industry isn’t ready for an early GST roll out, especially in the aftermath of demonetisation shock. What does a delayed GST means to the investor? It is not a surprise, said D K Joshi, chief economist at Crisil rating agency, Indian subsidiary of Standard and Poor’s. “Anyway, we were of the view that April roll out lacks the necessary preparedness. Right now the focus should be on the roll out of demonetisation,” Joshi said. But yet again, how soon the government can contain the impact of the demonetisation cash crunch is critical, before the Modi-government can even think of readying to welcome the GST juggernaut. For now, it’s a goodbye to April GST and the delay is good news to all in demonetisation days.

First Published On : Dec 12, 2016 11:59 IST

Manmohan Singh’s warning to Narendra Modi: Is demonetisation already a ‘mammoth tragedy’?

The choice of words of Manmohan Singh, former prime minister and an economist, for his column in The Hindu on demonetisation impact on India’s economy, beginning with the title, Making of a mammoth tragedy, should worry the average Indian. Even if one tend to discount the politics of Singh’s article, the former RBI governor’s warning on an impending economic crisis, that according to him, will mainly hit the poor, is worth paying a great deal of attention by his successor in PMO, Narendra Modi.

Singh begins the piece by lauding Modi’s intention—addressing black money, fake currency problems—but later goes on to say that what he has done to achieve this task will not only work but its ‘unintended consequence’ will harm the poor greatly. Singh said. “All black money is not in cash, only a tiny fraction is. Against this backdrop, the decision by the Prime Minister is bound to have obverse implications by causing grievous injury to the honest Indian who earns his/her wages in cash and a mere rap on the knuckles to the dishonest black money hoarder.” Singh, who had just recently warned about a 2 percent GDP decline following demonetisation, ends his article saying “It is my humble opinion that we as a nation should brace ourselves for a tough period over the coming months, needlessly so.”

Prime Minister Narendra Modi. AFPPrime Minister Narendra Modi. AFP

Prime Minister Narendra Modi. AFP

Is the former PM overstating the short-term pain caused by the demonetisation calling it ‘a mammoth tragedy’, launching a political attack intended to bulldoze a massive economic reform shouldered by his political rival–something and a missed opportunity for his government? Or is it an important caution from an economist-cum former central banker that should be an eye-opener even to his political enemies and the finance ministry?

It is too early to talk about the actual impact on the economy and its various stakeholders from the artificial cash crunch that is a consequence to PM Modi’s massive currency crackdown that has parallels in India only to the 1978 currency ban by Morarji Desai Government. But, some indications have begun to flow in, which indeed shows things have taken a bad turn for the economy though no one is sure how things will pan out from this point.

Let’s look at the available data so far and try understanding Singh’s caution.

Services/manufacturing

The demonetisation announcement happened on 8 November. The only real numbers that gauge the economic activity in the month of November that is out is the Nikkei India Services Business Activity Index for manufacturing and services sectors. This is an important index economists and central bank track to fathom the trends in these key areas. The services sector PMI sharply fell to 46.7 in November from 54.5 in October—that is the biggest monthly drop since November 2008, just two months after the global financial crisis hit the economy following the US investment bank Lehman Brothers going bust in September. A reading of PMI above 50 typically shows economic growth, while a figure below 50 indicates contraction. “The latest set of gloomy PMI figures for the Indian service sector shows that companies were heavily impacted by the 500 and 1,000 rupee notes ban. Cash shortages resulted in fewer new business intakes, which in turn caused a fall in activity and ended a 16-month sequence of expansion ,” said Pollyanna De Lima, Economist at Markit and author of the report.

A decline, though not to this extent, was seen in the manufacturing PMI as well with the index shrinking to 52.3 in November from October’s 22-month high of 54.4. But, the PMI numbers do indicate both manufacturing and services have taken a major hit in November. One needs to wait and watch how things will pan out from here on when more data comes.

November auto sales

Then we have the auto sales numbers, which is a good indicator to know what is happening on the ground. According to PTI report, the vehicle sales across categories registered a decline of 5.48 per cent at 15,63,665 units, from 16,54,407 in November 2015. It is the steepest decline in 43 months when total sales had declined by 7.75 per cent in March 2013. Two wheelers and commercial vehicles are the segments that are hit most. According to Society of Indian Automobile Manufacturers (SIAM), passenger vehicle sales last month were at 2,40,979 units, as against 2,36,664 in November last year. Domestic car sales ticked up to 1,73,606 units as against 1,73,111 in November last year while that of commercial vehicles (CVs) was down 11.58 per cent at 45,773 units in November, SIAM said. According to this report, total two-wheeler market sales dropped by five per cent, with market leaders like Hero MotoCorp and Bajaj Auto witnessing major fall. Hero MotoCorp sold 4,79,856 units of two-wheelers in November, marking a fall of around 12.9 percent year-on-year, while Bajaj Auto saw sales dropping by 12 percent in November, and others reported a flat growth.

The RBI cues

The RBI’s approach to the demonetisation impact on the economy is bit perplexing, but the obtrusive caution is hard to ignore. In its latest bi-monthly policy review, the central bank has already cut the FY17 growth forecast to 7.1 percent from 7.6 percent, but not taking into account the full impact of demonetisation shock. “The withdrawal of SBNs could transiently interrupt some part of industrial activity in November-December due to delays in payments of wages and purchases of inputs, although a fuller assessment is awaited,” the RBI said.

The RBI indeed acknowledges that there’ll be ‘short-run disruptions in economic activity in cash-intensive sectors such as retail trade, hotels & restaurants and transportation, and in the unorganised sector’. But the RBI’s larger assumption seems to be that there will be a recovery beyond short –term pain of cash-crunch. “ If the impact is transient as widely expected, growth should rebound strongly.”

But the central bank too only ‘expects’ that the demonetisation effect is ‘transient’ but it is not fully sure on the actual impact. “The outlook for GVA growth for 2016-17 has turned uncertain after the unexpected loss of momentum by 50 basis points in Q2 and the effects of the withdrawal of SBNs (specified bank notes) which are still playing out.” In short, the RBI has no clue at this stage what the demonetisation will do to the economic growth. It primarily attributes the loss of growth momentum in second quarter to the downward revision and to the as yet unclear effects of note ban. This means, if things turn bad, the 7.1 percent growth projection could be revised downwards even further to 6-6.5 percent.

Job losses

There are indications of severe hit to the employments in the informal sector post after the government announced Rs 500, Rs 1,000 notes as illegal tender on 8 November. As Singh points out in his Op-ed, “more than 90 per cent of India’s workforce still earn their wages in cash. These consist of hundreds of millions of agriculture workers, construction workers and so on”. The pain and suffering of these segments, which constitute the majority is not quantifiable, but no government can shun the responsibility of massive losses in the country that is a consequence of a “well thought-out”, conscious policy action, which according to RBI governor Urjit Patel, “wasn’t done in haste”. We don’t have reliable figures on job data. But, according to a report in Financial Express, which quotes unnamed industry officials, “As many as 4 lakh people, mostly daily wagers, may have either lost their jobs or shunned work temporarily due to the lack of payment so far, and the number is only going to grow if the cash crunch persists.”

Even the Bharatiya Mazdoor Sangh, the labour wing of BJP’s ideological parent, Rashtriya Swayamsevak Sangh has raised an alarm about the huge hit on job losses. “”Under the new government, 1 lakh and 35 thousand job opportunities have been created so far but 20 lakh people have lost their jobs,” Baij Nath Rai, president of the Bharatiya Mazdoor Sangh, told The Telegraph. This is a serious situation indeed in a country where job creation is already a massive challenge. The onus, yet again, falls on the Modi-government here.

The big question is how long the pain will last. There is no clarity on this either from the government and the central bank. PM Modi talks about 50-days, his finance minister, Arun Jaitley speaks of two or three quarters and the RBI doesn’t seem to have an answer except assuring the public that there is enough cash out there and things are under “constant review”.

There are no two thoughts on the intentions behind the demonetisation exercise but when ultimately a cost-benefit analysis is done, and if the government finds little luck on recovery on unaccounted cash, the cost of this whole exercise will be enormous, far outweighing the gains that may include more people moving to non-cash transactions. PM Modi’s big task now is to ensure demonetisation doesn’t end up as a tragedy.

Data support from Kishor Kadam

First Published On : Dec 9, 2016 14:59 IST

Demonetisation day 30: Govt’s digital push is good, but it also shows a changing narrative

At this stage, there appear to be no immediate tangible monetary gains of demonetisation in sight, hence the change in the primary narrative and target of Narendra Modi government’s major currency crackdown to cashless economy isn’t difficult to understand.

This is even more evident from Finance Minister Arun Jaitley’s presser on Thursday detailing government’s big package to push cashless transactions in the society. The announcement, mainly reduction in transaction charges on digital payments and tax rebates on smaller transactions makes it clear that the government intends to pursue the theme of cashless economy with more vigour in the days ahead.

Prime Minister Narendra Modi. AFPPrime Minister Narendra Modi. AFP

Prime Minister Narendra Modi. AFP

Announcing the measures, Jaitley said the government will offer reduction of 0.75 percent on digital transactions for fuel purchase, similar discounts on suburban railways tickets, insurance policy payments, toll payments on national highways besides offering Rs10 lakh free insurance cover for travellers who book railway tickets through digital mode. The minister also announced the offering of free Rupay credit cards to farmers and two PoS terminals each to one lakh villages with population over 10,000. These measures are indeed positive to encourage more people do digital transactions and lessen the use of cash.

This new focus also reflects in prime minister’s recent speeches too. Marking the 30-day of demonetisation, the PM said, “We also have a historic opportunity to embrace increased cashless payments and integrate latest technology in economic transactions.” This is something which he said in the last Mann Ki Baat programme too. Modi saluted people “for wholeheartedly participating in this ongoing Yagna against corruption, terrorism, and black money”, and said, “government’s decision has several gains for farmers, traders, labourers, who are the economic backbone of our nation.” The shift in focus as 30 days of demonetisation gets over would likely raise further questions from the opposition. Modi’s critics would perhaps want to know the status of the originally stated objectives of fighting black money, corruption and terror funding. This is particularly so when seen against the hardships majority of India’s poor have been pushed into due to this massive exercise in the economy.

But, there are reasons to believe that the shift in the government narrative to cashless economy is also due to the indications that the gains on black money wouldn’t be major. Let’s set aside political claims and counter claims and look at this one month impartially. What are the salient features of one month of demonetisation?

On the negative side, there have been repeated flip-flops on rules, stories of cash crunch from across the country, the huge hit on rural economy and massive disruption of the informal sector that employs a majority of poor Indians giving them their livelihoods. On the positive side, we have seen a notable jump in non-cash transactions and the move has impacted the counterfeit note networks for now. After a month of demonetisation, the available data point out to the possibility that immediate gains from the drive are unlikely to be anything significant than one had hoped for. This is unless the government comes out with a big number on the amount of unaccounted cash uncovered and taxed to benefit the exchequer.

A cost-benefit analysis of demonetisation will have to be done once the government is done with the process and that’ll happen sooner than later. Unless there is a clear monetary gain at the end of the demonetisation exercise, the government will find it difficult to explain the timing and massively disruptive nature of the whole exercise, given the hit on the economy, which is difficult to estimate at this stage.

Speculations that the government will benefit from a “windfall” gain from RBI when a significant chunk of currency notes do not find their way back to the system, has ended after RBI governor Urjit Patel clarified that there is no plan to give any special dividend to the government.

Anyway, Patel’s clarification was irrelevant since almost Rs12 lakh crore money have come back to the banking system already (out of the Rs14 lakh crore demonetised).

Going by this pace, almost the entire money will come back to the banking system before the deadline to deposit old notes expires on 30 December. So what is the immediate monetary gain for the government now?

The only tangible benefit thus becomes the tax recovery from unaccounted cash deposits. If through the exercise, taxmen manage to get hoarders taxed for a substantial amount, the plan is a success, since that money is now taxed and up for productive use. The unaccounted cash could come back to the banking system either in the form of voluntary deposits or when the taxman knocks on the doors of tax evaders. In the first case, the tax and penalty will together be around 50 percent plus 25 percent of the deposits get locked for four years. If they get caught with the illegal cash, they will have to pay a penalty of 85 percent. Certainly, it isn’t an easy exercise for the taxman since the crooks know well how to keep their ill-gotten wealth safe, such as using benami accounts. Part of the reason why the government chose to offer an amnesty scheme to tax cheats is knowing this difficulty.

One should see government’s big push to cashless economy in this context. The government probably realises that at this stage putting the whole weight behind the cashless narrative is a safer bet rather than chasing the black money mirage, where a big success appears unlikely. Such a narrative will also have a revolutionary reform character. However, there are major challenges in aligning the consumer behaviour in favour of digital transactions in a country like India, where a majority of the poor still live in ash economy and initiatives such as two PoS terminals per village may not be effective enough. Even developed countries such as Singapore are still dependent on cash transactions to a significant extent is a proof that cash is something difficult to get rid of. Most experts agree that the change to cashless society should happen over a period of time, rather than being forced on the poor.

First Published On : Dec 8, 2016 20:01 IST

Jayalalithaa dead: Amma’s populist policies leave a debt bomb ticking in TN

The word, ‘Amma’ (mother) is used six times in Tamil Nadu’s 2016-17 budget document, presented by finance minister O Panneerselvam on 21 July, the adjective Puratchi Thalaivi is used once and references to ‘chief minister’ 31 times.

Just like the verses of scriptures typically begins with a prayer to the cosmic force, Panneerselvam, appears to offer prayers to the AIADMK supreme leader often in the budget speech, thus making the whole 86 page budget document a humble submission at the feet of his and his party men’s supreme ‘mother’.

File photo of Jayalalithaa. PTIFile photo of Jayalalithaa. PTI

File photo of Jayalalithaa. PTI

A quick glance through Panneerselvam’s 2016-17 budget document reaffirms Jayalalithaa’s iconic, cult status. Terms like, “unparalleled”, “unflinching” “historic”, “infinite love”, “affection” are used to describe Mother Jayalalithaa, who died on Monday night at Apollo hospital in Chennai, while serving her sixth term as the chief minister.

Perhaps, in these times, there is no other Indian state as TN where political leaders enjoy blind devotion of their followers, mostly the poor strata of the society. For most part of her life, Jayalalithaa carried the stature of a demigod, first as an actress and later as a politician, universally admired by her followers as ‘mother’, before whom they never shy to prostrate. For them she was never human.

Most of the social welfare schemes in TN are named after her — ‘Tamil Nadu Village Habitation Improvement’ (THAI) scheme (‘Thai’ in tamil means mother), “Amma Unavagam” (subsidised food), Amma Kudineer (drinking water scheme), Amma laptops, ‘Amma Baby Care Kit’,‘Amma Magapperu Sanjeevi’ and ‘Amma Arogiya Thittam’. There are a number of such schemes that carry her name. People adore those products/services as mother’s blessings, thus melting the thin line between political populism and insane, often blind personality-driven politics.

The populist bandwagon

How did Jayalalithaa win the hearts of poor? To say the least, she was also the ‘mother’ of all freebie schemes that ensured the support of middle and lower-income class in multiple areas. To be sure, some of these were transformative in nature in the areas of education, housing and aiding small entrepreneurs.

Certain examples include the World Bank-aided ‘Pudhu Vaazhvu Project launched in 2005.  Under this scheme, which the government claims to have given job-oriented skill training to 3.27 lakh youth. The THAI scheme, so far implemented in 71,126 habitations pertaining to 9,511 village panchayats and the housing scheme under which in the last four years, the Tamil Nadu Housing Board has constructed 10,059 units at a cost of Rs 565.92 crore, including 2,293 houses for the low income group.

‘Amma’ is also known for her investor-friendly approach, which explains the reason why the state is home to more industries and employment than any other Indian state, according to IndiaSpend research. TN is also home to a small-sector movement with the Micro, Small and Medium Enterprises (MSME) sector providing employment to 63.18 lakh persons.

No doubt. Jayalalithaa has been an able administrator. This is evident from the progress made by the state in the areas of poverty eradication, social welfare, investor-friendly measures and overall economic numbers. TN’s Gross State Domestic Product (GSDP), which fell to 3.4 percent in real terms, during 2012-13, was reversed to 7.3 percent towards 2013-14 — higher than the national average growth rate of 4.7 percent of that period.

The state recorded a GSDP growth rate of 8.8 percent in 2015-16 as against the country’s Gross Domestic Product (GDP) growth rate of 7.6 percent, based on the 2011-12 constant prices. The gross fixed capital formation, which indicates the investment activity too has improved significantly, touching Rs 34,091 crore in the fiscal year 2014 compared with Rs 23,054 crore when her predecessor, M Karunanidhi left office in 2010-11.

A TN debt-bomb in making?

But, in the process of rolling out freebies, she also built a debt bomb for the state. At this point, TN’s debt is over Rs 2 lakh crore. But, according to an IndiaSpend analysis, TN’s debt has witnessed a 92 percent increase over five years ending 2015. According to the Reserve Bank data, TN registered the highest gross fiscal deficit among all states in 2015-16 at Rs 31,830 crore. For current fiscal the TN government pegged its fiscal deficit at Rs 40,534 crore or  2.96 of GSDP.

In the last five years, when Jayalalithaa was in office, the debt level of Tamil Nadu has risen 105 percent from Rs 1.14 lakh crore to Rs 2.35 lakh crore. This is the sharpest increase in debt levels by a large state.

Of all Indian states, only Haryana has beaten TN with a 141 percent rise in public debt. It is needless to say most of this debt is the consequence of Jayalalithaa’s populist bandwagon aiming at the poor of the state. Other large industrial states like Maharashtra and Gujarat have seen their debt level increasing by a relatively better 64.5 percent and 60.3 percent in the same period.

There is no impressive trend in tax revenue correspondingly. According to 2016-17 TN budget, the tax revenue is estimated to increase to Rs 90,691.87 crore in revised budget estimates for 2016-2017 from Rs.86,537.70 crore as per the revised estimates 2015-2016.

For TN, ‘Amma’ leaves an era of political populism and a debt bomb in making. Amma’s presence will still be felt in the TN cabinet meetings through her image and the memories of her charismatic leadership. But, the task of dealing with the debt bomb in making is up to her trusted lieutenant O Panneerselvam and his AIADMK colleagues.

(Kishor Kadam contributed to this story)

First Published On : Dec 6, 2016 15:08 IST

Jayalalithaa dead: How Amma’s populist policies left a debt bomb ticking in TN

The word, ‘Amma’ (mother) is used six times in Tamil Nadu’s 2016-17 budget document, presented by finance minister O Panneerselvam on 21 July, the adjective Puratchi Thalaivi is used once and references to ‘chief minister’ 31 times.

Just like the verses of scriptures typically begins with a prayer to the cosmic force, Panneerselvam, appears to offer prayers to the AIADMK supreme leader often in the budget speech, thus making the whole 86 page budget document a humble submission at the feet of his and his party men’s supreme ‘mother’.

File photo of Jayalalithaa. PTIFile photo of Jayalalithaa. PTI

File photo of Jayalalithaa. PTI

A quick glance through Panneerselvam’s 2016-17 budget document reaffirms Jayalalithaa’s iconic, cult status. Terms like, “unparalleled”, “unflinching” “historic”, “infinite love”, “affection” are used to describe Mother Jayalalithaa, who died on Monday night at Apollo hospital in Chennai, while serving her sixth term as the chief minister.

Perhaps, in these times, there is no other Indian state as TN where political leaders enjoy blind devotion of their followers, mostly the poor strata of the society. For most part of her life, Jayalalithaa carried the stature of a demigod, first as an actress and later as a politician, universally admired by her followers as ‘mother’, before whom they never shy to prostrate. For them she was never human.

Most of the social welfare schemes in TN are named after her — ‘Tamil Nadu Village Habitation Improvement’ (THAI) scheme (‘Thai’ in tamil means mother), “Amma Unavagam” (subsidised food), Amma Kudineer (drinking water scheme), Amma laptops, ‘Amma Baby Care Kit’,‘Amma Magapperu Sanjeevi’ and ‘Amma Arogiya Thittam’. There are a number of such schemes that carry her name. People adore those products/services as mother’s blessings, thus melting the thin line between political populism and insane, often blind personality-driven politics.

The populist bandwagon

How did Jayalalithaa win the hearts of poor? To say the least, she was also the ‘mother’ of all freebie schemes that ensured the support of middle and lower-income class in multiple areas. To be sure, some of these were transformative in nature in the areas of education, housing and aiding small entrepreneurs.

Certain examples include the World Bank-aided ‘Pudhu Vaazhvu Project launched in 2005.  Under this scheme, which the government claims to have given job-oriented skill training to 3.27 lakh youth. The THAI scheme, so far implemented in 71,126 habitations pertaining to 9,511 village panchayats and the housing scheme under which in the last four years, the Tamil Nadu Housing Board has constructed 10,059 units at a cost of Rs 565.92 crore, including 2,293 houses for the low income group.

‘Amma’ is also known for her investor-friendly approach, which explains the reason why the state is home to more industries and employment than any other Indian state, according to IndiaSpend research. TN is also home to a small-sector movement with the Micro, Small and Medium Enterprises (MSME) sector providing employment to 63.18 lakh persons.

No doubt. Jayalalithaa has been an able administrator. This is evident from the progress made by the state in the areas of poverty eradication, social welfare, investor-friendly measures and overall economic numbers. TN’s Gross State Domestic Product (GSDP), which fell to 3.4 percent in real terms, during 2012-13, was reversed to 7.3 percent towards 2013-14 — higher than the national average growth rate of 4.7 percent of that period.

The state recorded a GSDP growth rate of 8.8 percent in 2015-16 as against the country’s Gross Domestic Product (GDP) growth rate of 7.6 percent, based on the 2011-12 constant prices. The gross fixed capital formation, which indicates the investment activity too has improved significantly, touching Rs 34,091 crore in the fiscal year 2014 compared with Rs 23,054 crore when her predecessor, M Karunanidhi left office in 2010-11.

A TN debt-bomb in making?

But, in the process of rolling out freebies, she also built a debt bomb for the state. At this point, TN’s debt is over Rs 2 lakh crore. But, according to an IndiaSpend analysis, TN’s debt has witnessed a 92 percent increase over five years ending 2015. According to the Reserve Bank data, TN registered the highest gross fiscal deficit among all states in 2015-16 at Rs 31,830 crore. For current fiscal the TN government pegged its fiscal deficit at Rs 40,534 crore or  2.96 of GSDP.

state debt tablestate debt tableIn the last five years, when Jayalalithaa was in office, the debt level of Tamil Nadu has risen 105 percent from Rs 1.14 lakh crore to Rs 2.35 lakh crore. This is the sharpest increase in debt levels by a large state.

Of all Indian states, only Haryana has beaten TN with a 141 percent rise in public debt. It is needless to say most of this debt is the consequence of Jayalalithaa’s populist bandwagon aiming at the poor of the state. Other large industrial states like Maharashtra and Gujarat have seen their debt level increasing by a relatively better 64.5 percent and 60.3 percent in the same period.

There is no impressive trend in tax revenue correspondingly. According to 2016-17 TN budget, the tax revenue is estimated to increase to Rs 90,691.87 crore in revised budget estimates for 2016-2017 from Rs.86,537.70 crore as per the revised estimates 2015-2016.

For TN, ‘Amma’ leaves an era of political populism and a debt bomb in making. Amma’s presence will still be felt in the TN cabinet meetings through her image and the memories of her charismatic leadership. But, the task of dealing with the debt bomb in making is up to her trusted lieutenant O Panneerselvam and his AIADMK colleagues.

(Kishor Kadam contributed to this story)

First Published On : Dec 6, 2016 15:08 IST

Demonetisation seals RBI rate cut deal, but that will not reboot a battered economy

Most of the originally stated results of the demonetisation exercise—killing black money, corruption and terror, are disputed now by experts. It is too early to assess these outcomes. But, if there is one result for certainty with regard to the massive currency crackdown, then that is a rate cut from the Reserve Bank of India (RBI) on Wednesday (7 December)—which, perhaps, wouldn’t have happened under normal circumstances, when the rupee is struggling to recover and global factors are at play.

ReutersReuters

Reuters

Most economists forecast a quarter percentage point rate cut decision by the Monetary Policy Committee (MPC) that will be read out by governor Urjit Patel, but even a 50 basis points cut in the key lending rate of RBI repo, at which the central bank lends short-term funds to banks, cannot be ruled out now given the deep slowdown fears in the economy after the government sucked out 86 percent currency in circulation overnight on 8 November while executing the demonetisation plan.

What this means is that the MPC and the RBI are left with no option but to take a growth supportive stance sooner than it thought, said Radhika Rao, economist at Singapore-based DBS Bank. “Ahead of the looming US rate hike at the mid of this month and ongoing volatility in domestic financial markets, especially the weak rupee, the MPC would have ideally preferred to wait-and-watch before easing rates,” Rao said.

“However, the government’s recent banknote ban has raised downside risks to growth for at least two quarters, starting 4Q16. Scope of food inflation dragging headline inflation lower also keeps the door open for an easy policy bias. These are likely to prod the MPC to consider a 25bp rate cut on Wednesday, followed by another cut in 1Q17,” Rao said.

It is indeed true that demonetisation has resulted in a cash crunch that has caused considerable pain on the ground. It is difficult to assess the actual impact yet. Small traders, construction workers, services sector, perishable goods market are all hit due to the ongoing cash-crunch. The activities in the informal sector have come to a standstill considering, even on conservative estimates, close to 70 percent of India lives on cash economy. There isn’t any consensus yet on the resultant impact on the GDP.

According to former Prime Minister, Manmohan Singh, the hit that the GDP growth will take will be as much as 2 percent. Many others predict 1 to 1.5 percent and some state that it could be less than one percent. But, almost everyone, like Rao of DBS, agree that the dragging effect on the economy will continue for at least two quarters.

The growth scene is not looking good if one goes by the latest GDP growth print. The July-September growth, despite a marginal improvement in the overall numbers to 7.3 percent in Q2 from 7.1 percent in the April-June quarter, has been disappointing since the only bright spot in the GDP graph is a minor improvement in the agriculture sector. Also, there is no sign of investment activity picking up yet.

Gross Fixed Capital Formation (GFCF), which portrays the actual investment activity on the ground, dropped by close to 6 percent at constant prices. Now remember, this parameter has been contracting for the last three quarters at least. That is not a healthy sign for an aspiring, ambitious economy. When investments don’t support a growth-revival, typically, a consumption-led recovery should come to the rescue. Now, what has been happening here is the government spending, which picked up from the last quarter in a major way, has actually dropped in the second quarter, from 18.8 percent in Q1 to 15.2 percent in Q2, in terms of constant prices. As against this, private spending has shown a marginal increase during the period — from 6.7 percent in Q1 to 7.6 percent in Q2.

In terms of current prices, the government expenditure has fallen to 20.8 percent on year-basis in Q2 from 24.3 percent in Q1. The corresponding numbers for private spending is 11.7 percent in Q1 to 12.4 percent in Q2, showing a minor rise. If one looks at sectors, except the growth shown in agriculture, all other segments —mining, manufacturing, electricity, construction and services such as hotel industry— have shown a decline. This means it is consumption that has been holding the growth story and remains the main growth driver. But, this is where the challenge lies ahead in the aftermath of the demonetisation exercise. The recent PMI data, the first set of economic indicators after the demonetisation exercise, shows a decline to 52.3 in November compared with 54.4 in October. Though, theoretically, a number above 50 is growth-positive, what it indicates is a slowing trend ahead. Services PMI fell even more sharply to 46.7 in November from October’s 54.5, the first time since June 2015 that the index has gone below the 50 mark that separates growth from contraction. It was also the biggest one-month drop since November 2008, just after the collapse of Lehman Brothers triggered the global financial crisis.

Will an RBI rate cut make any major difference at this stage to aid growth? It is doubtful for a few reasons.

First, if banks wanted to lend more to industries, they would have done so already. There is liquidity surplus already in the banking system. More than the availability of cash to lend, poor demand has been hurting loan growth, especially to industries. If one looks at numbers till October (just before the demonetisation happened), bank credit to industry contracted by 1.7 per cent in October 2016 in contrast with an increase of 4.6 per cent in October 2015, with all major sub-sectors witnessing deceleration, contraction in credit include infrastructure, food processing, gems and jewellery and basic metal and metal products.

Second, the problem of NPAs (non-performing assets) continues. Till the time the bad loan stock is cleaned up and bank balance sheets turn healthier, banks are unlikely to take more risks.

Third, the demonetisation and resultant chaos on the ground would mean that consumer spending will go through a dull phase in the near-term. Bankers do not expect any major pickup in consumer lending when the economy is looking at a prolonged downturn.

Nevertheless, a rate cut must happen on Wednesday’s RBI bi-monthly monetary policy review and the full credit for that should go to demonetisation. What most economists agree is that the solution to revert to the growth path lies in the following steps — 1) resolve the cash crunch at the earliest before it does more damage and get economic activities going, 2) boost public spending and work on ways to bring in more private capital to get the economic engine going, and, 3) make sure farm output doesn’t suffer on account of the currency shortage since a crop failure could stoke inflation further and erase the inflation gains. A rate cut from RBI would be of least help at this stage to reboot the economy.

First Published On : Dec 5, 2016 12:02 IST

Demonetisation: Old Rs 500 notes for fuel, air ticket only till tomorrow; repeated U-turns do not augur well for Modi govt

Despite the hardships to common man, the Narendra Modi government always had the moral ground to defend its decision to demonetise 86 percent of currency notes— a bold step for the larger ideas of killing black money, fake notes and usher in an era of cashless economy. But, the government doesn’t have any excuse to justify the repeated flip-flops on the roll out.

Representational image. ReutersRepresentational image. Reuters

Representational image. Reuters

On Thursday, when the government announced that the deadline for using old Rs 500 notes at petrol pumps and for airline tickets at airports has been cut short to 2 December, instead of December 15, as announced earlier, it became the latest of the U-turns during the implementation of demonetisation exercise.

The last was on 24 November when it abruptly stopped the facility to exchange old Rs 500, Rs 1,000 notes at bank counters as against the earlier promise by the Prime Minister himself and the Reserve Bank of India (RBI) that the facility will continue till 31 December. No adequate explanation was offered even then for going back on the earlier promise.

Now, the question is why on earth the government wants to promise something to the citizen, only to roll back the facility or go back on the promise just a few days later? What has changed between 24 November and now to stop the use of Rs 500 notes on petrol pumps and buy air tickets? If the fear is that people will misuse the airline booking leeway (to book and cancel to get rid of the old notes), why was this allowed in the first place?

Even the abrupt termination of old note exchange facility at bank counters, some one month before the promised date, was an avoidable decision and only points to lack of foresight. Such breach of promise could even upset those standing in long queues but still support the PM thinking of a larger national cause.

According to a PTI report, the government has also dropped its earlier announced plan to allow the use of Rs 500 notes for payment of toll at national highways from 3 December. Toll payment in both old Rs 500 and Rs 1,000 notes was accepted till 2 December, and from 3 December, it was to be limited to Rs 500 notes. But now, this facility too has been withdrawn.

This sort of U-turns are unfortunate because despite the widespread criticism in the way demonetisation was implemented, the very idea of demonetisation was never a hated concept by the common man on the street, forget economists and experts. Even though the peasant in the rural village didn’t understand the whole concept, he knew that this was being done for some good of the society. Hence, it is necessary to live through the difficult days.

But, the flip-flops confuses him and prompts him to doubt all other rules in place. There is a difference between reacting to the situation on ground during the roll out of a complex exercise in a large economy and failing to frame the fundamental rules that defines the implementation of the larger plan. The frequent changes in the cash withdrawal limits at banks/ATMs can be tagged in the first category, while the U-turns on deadlines to exchange old notes at counters and now asking not to use them for certain essential activities falls in the second.

Ever since the demonetisation announcement on 8 November, there has been a series of changes in rules by the government. In the case of exchange, the daily limit was first set at Rs 4,000, then increased to Rs 4,500 and later the limit was reduced to Rs 2,000. Then the government introduced a new method — of marking people who come to exchange notes with indelible ink and late to stop the exchange facility itself one month ahead of the promised time. Today’s (Thursday) announcement to discontinue use of old Rs 500 notes in petrol pumps and airline ticket booking marks the latest.

Once again, former prime minister, Manmohan Singh‘s comment in Parliament on demonetisation implementation becomes relevant. “It is no good that everyday the banking system comes with modification of the rules, the conditions under which the people can withdraw money. That reflects very poorly on the Prime Minister’s office, on the Finance Minister’s office and on the Reserve Bank of India. I am very sorry that the Reserve Bank of India has been exposed to this sort of criticism which I think is fully justified.”

The short point here is flip-flops in rules by the government do not augur well for the two main stakeholders in this gigantic exercise—the government itself and the common man. It breaks the trust element and give rise to suspicion. The government should refrain from such adventures, especially given the persisting cash crunch on the ground.

First Published On : Dec 1, 2016 14:38 IST

Demonetisation: Cash crunch unlikely to end soon; PM Modi’s 50-day promise may fail

“For us, 33000 ATMs are currently dispensing cash. More will come up as day proceeds. You need to talk to RBI (Sic),” said SBI chairman, Arundhati Bhattacharya on Wednesday, when asked how long the cash-shortage will last in ATMs and how well the banking system is ready to face the week when salaries get credited to employee accounts and people rush to ATMs/ branches to draw money.

A file image of people standing at an ATM queue. ReutersA file image of people standing at an ATM queue. Reuters

A file image of people standing at an ATM queue. Reuters

Presently, SBI has about 49,000 ATMs. If 33,000 ATMs are dispensing money, that means about 67 percent of the ATMs of the country’s largest lender (by assets) are dispensing money. Let’s assume that rest of the banks too have managed to fill in cash in at least 50-60 percent of their teller machines. Things must have improved. But, then you can’t fool your eyes. A good number of the 2 lakh ATMs in the banking system continue to remain cash-starved even after three weeks of demonetisation announced by Prime Minister Narendra Modi and there are still stories of pain in daily lives.

Even after 21 days, there are still no visible signs of pain easing significantly, especially in rural areas if one goes by reports (read here, here, here and here)

The problem of Rs 500 notes

Both the Reserve Bank of India (RBI) and the government have been assuring the public that there is enough cash in the banking system and there is no need to panic. Then why do we still see continuing cash shortage on the ground?

The reason is simple. There isn’t enough lower denomination notes (Rs 500 and below) to go around. The government mints have been aggressively printing Rs 2,000 notes, whereas the printing of Rs 500 notes, which is more handy to the common man for daily transactions, is a scarce item. Bhattacharya too attributed to the continuing cash crunch to the shortage of Rs 500 notes.

“The current availability is more of higher denomination notes. People want lower denomination notes, especially Rs 500. It takes time to change printing queues. Initially printing was concentrated on Rs 2,000 so as to provide bulk,” Bhattacharya said.

How long more should it take before banking system gets enough Rs 500 notes? “Talk to RBI,” Bhattacharya replied. The RBI has not provided any details about the printing of Rs 500 notes. A detailed questionnaire sent to the spokesperson of the central bank on the details of cash shortage remained answered till the time of writing this copy.

The 50-day promise

On 13 November, PM Modi had sought 50 days from the public to tide over the hardships post the demonetisation. But, can the PM keep his promise? At this stage, it looks doubtful. Most bankers, economists and financial sector experts said that the cash crunch could last at least until March (three more months beyond what the PM sought) for things to return to normal. A recent report in the Quint, says that the printing of the new Rs 500 note has come to a near-halt at the government’s Nashik and Dewas mints.

The report, which quoted RBI sources, attributes a series of errors on the new Rs 500 notes and the low printing capacity of Nashik and Dewas presses as the reason that promoted the RBI and the government to call off printing of Rs 500 notes. Firstpost hasn’t verified this information independently. But, if indeed this report is true, we are looking at even more delay for the Rs 500 notes coming in sufficient numbers to the rescue of common man. But one need to wait and watch how the scenario unfolds.

“The situation is pretty bad. It shall take 5-6 six months before we reach normalcy,” former RBI deputy governor KC Chakrabarty told Firstpost.

Indeed, the government’s hurry to print the stock of Rs 500 notes and the lack of preparedness while doing so was evident when two versions of Rs 500 notes appeared in the public. There were printing errors on certain features like the shadow of Mahatma Gandhi’s picture, placement of the national emblem, colour shade and border size. This shows noting but lack of preparedness by the central bank as far as Rs 500 notes are concerned.

Salary rush and hoarding

In the coming days, the scenario could turn even tougher for banks given that salaries will get credited to employee accounts and to draw this money, there could be long queues before ATMs and bank branches.

Evidently, there isn’t enough lower denomination notes to go around, which means some of the state governments will find it tough to give salaries. One example is Kerala government, which has already written to the RBI citing the lack of availability of currency to give salaries. The state has sought about Rs 1,200 crore worth notes to give salaries and pensions from the RBI, according to reports in local newspapers.

What will likely add to the pain is the hoarding tendency of people till the time cash withdrawal limits stay. As of now, there is a weekly withdrawal limit of Rs 24,000 at branches and Rs 2,500 daily limits at ATMs. Even Jan Dhan account withdrawals have been capped at Rs 10,000 a month, as a temporary measure. All this would mean that the public who draw cash at ATMs and bank branches would be hesitant to spend it except for basic necessities. When the speed of the circulation of the money is slow, that will add to an artificial cash shortage. That is even the money printed out of mints wouldn’t return to the system fast.

This, in other words means, banks will struggle to fill up their ATMs and permit higher withdrawals. Even now, most banks are seeking the KYC details of their own customers who come to the counter to withdraw money, to ensure the person is the account holder and the need is genuine. But, beyond a point, banker at the counter cannot keep doing this. Until the government presses churn out sufficient number of cash units into the system, the RBI would not be in a position to remove withdrawal restrictions for public. More withdrawal restrictions, such the current one on Jan Dhan accounts, signal danger to the common man and tell him the problem persists and he needs to be cautious with the cash in hand.

For now, the most optimistic assessments show the cash situation to turn normal only by March at the earliest, that is if the four government printing presses work in full capacity in three shifts. Until the time Rs 500 notes are available in plenty, there is an issue. The Rs 2,000 notes repel the average user as there is no change out there. One should hope that the RBI and the government prove these predictions wrong.

First Published On : Nov 30, 2016 13:59 IST

Demonetisation: Why the cash crunch may not end anytime soon

“For us, 33000 ATMs are currently dispensing cash. More will come up as day proceeds. You need to talk to RBI (Sic),” said SBI chairman, Arundhati Bhattacharya on Wednesday, when asked how long the cash-shortage will last in ATMs and how well the banking system is ready to face the week when salaries get credited to employee accounts and people rush to ATMs/ branches to draw money.

A file image of people standing at an ATM queue. ReutersA file image of people standing at an ATM queue. Reuters

A file image of people standing at an ATM queue. Reuters

Presently, SBI has about 49,000 ATMs. If 33,000 ATMs are dispensing money, that means about 67 percent of the ATMs of the country’s largest lender (by assets) are dispensing money. Let’s assume that rest of the banks too have managed to fill in cash in at least 50-60 percent of their teller machines. Things must have improved. But, then you can’t fool your eyes. A good number of the 2 lakh ATMs in the banking system continue to remain cash-starved even after three weeks of demonetisation announced by Prime Minister Narendra Modi and there are still stories of pain in daily lives.

Even after 21 days, there are still no visible signs of pain easing significantly, especially in rural areas if one goes by reports (read here, here, here and here)

The problem of Rs 500 notes

Both the Reserve Bank of India (RBI) and the government have been assuring the public that there is enough cash in the banking system and there is no need to panic. Then why do we still see continuing cash shortage on the ground?

The reason is simple. There isn’t enough lower denomination notes (Rs 500 and below) to go around. The government mints have been aggressively printing Rs 2,000 notes, whereas the printing of Rs 500 notes, which is more handy to the common man for daily transactions, is a scarce item. Bhattacharya too attributed to the continuing cash crunch to the shortage of Rs 500 notes.

“The current availability is more of higher denomination notes. People want lower denomination notes, especially Rs 500. It takes time to change printing queues. Initially printing was concentrated on Rs 2,000 so as to provide bulk,” Bhattacharya said.

How long more should it take before banking system gets enough Rs 500 notes? “Talk to RBI,” Bhattacharya replied. The RBI has not provided any details about the printing of Rs 500 notes. A detailed questionnaire sent to the spokesperson of the central bank on the details of cash shortage remained answered till the time of writing this copy.

The 50-day promise

On 13 November, PM Modi had sought 50 days from the public to tide over the hardships post the demonetisation. But, can the PM keep his promise? At this stage, it looks doubtful. Most bankers, economists and financial sector experts said that the cash crunch could last at least until March (three more months beyond what the PM sought) for things to return to normal. A recent report in the Quint, says that the printing of the new Rs 500 note has come to a near-halt at the government’s Nashik and Dewas mints.

The report, which quoted RBI sources, attributes a series of errors on the new Rs 500 notes and the low printing capacity of Nashik and Dewas presses as the reason that promoted the RBI and the government to call off printing of Rs 500 notes. Firstpost hasn’t verified this information independently. But, if indeed this report is true, we are looking at even more delay for the Rs 500 notes coming in sufficient numbers to the rescue of common man. But one need to wait and watch how the scenario unfolds.

“The situation is pretty bad. It shall take 5-6 six months before we reach normalcy,” former RBI deputy governor KC Chakrabarty told Firstpost.

Indeed, the government’s hurry to print the stock of Rs 500 notes and the lack of preparedness while doing so was evident when two versions of Rs 500 notes appeared in the public. There were printing errors on certain features like the shadow of Mahatma Gandhi’s picture, placement of the national emblem, colour shade and border size. This shows noting but lack of preparedness by the central bank as far as Rs 500 notes are concerned.

Salary rush and hoarding

In the coming days, the scenario could turn even tougher for banks given that salaries will get credited to employee accounts and to draw this money, there could be long queues before ATMs and bank branches.

Evidently, there isn’t enough lower denomination notes to go around, which means some of the state governments will find it tough to give salaries. One example is Kerala government, which has already written to the RBI citing the lack of availability of currency to give salaries. The state has sought about Rs 1,200 crore worth notes to give salaries and pensions from the RBI, according to reports in local newspapers.

What will likely add to the pain is the hoarding tendency of people till the time cash withdrawal limits stay. As of now, there is a weekly withdrawal limit of Rs 24,000 at branches and Rs 2,500 daily limits at ATMs. Even Jan Dhan account withdrawals have been capped at Rs 10,000 a month, as a temporary measure. All this would mean that the public who draw cash at ATMs and bank branches would be hesitant to spend it except for basic necessities. When the speed of the circulation of the money is slow, that will add to an artificial cash shortage. That is even the money printed out of mints wouldn’t return to the system fast.

This, in other words means, banks will struggle to fill up their ATMs and permit higher withdrawals. Even now, most banks are seeking the KYC details of their own customers who come to the counter to withdraw money, to ensure the person is the account holder and the need is genuine. But, beyond a point, banker at the counter cannot keep doing this. Until the government presses churn out sufficient number of cash units into the system, the RBI would not be in a position to remove withdrawal restrictions for public. More withdrawal restrictions, such the current one on Jan Dhan accounts, signal danger to the common man and tell him the problem persists and he needs to be cautious with the cash in hand.

For now, the most optimistic assessments show the cash situation to turn normal only by March at the earliest, that is if the four government printing presses work in full capacity in three shifts. Until the time Rs 500 notes are available in plenty, there is an issue. The Rs 2,000 notes repel the average user as there is no change out there. One should hope that the RBI and the government prove these predictions wrong.

First Published On : Nov 30, 2016 13:59 IST

Demonetisation: Why RBI, Urjit Patel owe an explanation on cash-condition, flip-flops

On Monday, a late night press release from the Reserve Bank of India (RBI) took everyone by surprise. The release read thus: “As it is impeding active circulation of currency notes, it has been decided, on careful consideration, to allow withdrawals of deposits made in current legal tender notes on or after November 29, 2016 beyond the current limits; preferably, available higher denominations bank notes of Rs 2000 and Rs 500 are to be issued for such withdrawals”. To put it in simple words, if you deposit money in ‘acceptable’ currency denominations, you can withdraw beyond the current weekly withdrawal limit of Rs 24,000.

RBI Governor Urjit Patel. File photo. PTIRBI Governor Urjit Patel. File photo. PTI

RBI Governor Urjit Patel. File photo. PTI

Legal tender
Now, what are the legal tenders currently?

Going by the 8 November televised speech of Prime Minister Narendra Modi, old notes of Rs 500, Rs 1,000 notes ceased to be legal tender from midnight. “To break the grip of corruption and black money, we have decided that the 500 rupee and 1,000 rupee currency notes presently in use will no longer be legal tender from midnight tonight that is 8th November 2016,” the PM said announcing one of the biggest demonetisation exercises in the country since the 1978 crackdown by Morarji Desai government.

But, the Rs 500, Rs 1,000 notes are banned only from transactions but are still ‘legal’ enough to be accepted at bank counters in the form of deposits till 30 December. The question is, Will such deposits too qualify for higher withdrawal limits or does the RBI notification refer to only deposits made in currency denominations that are in use (denominations of Rs 100 and below and new Rs 200, Rs 500 currency notes). There needs to be clarity on this aspect. Reason: If the latter is the case, the RBI is treating customers differently based on the type of notes they deposit, even though both set carries the same promise to the bearer as offered by the constitution. One customer who deposits his old currencies faces restrictions on withdrawal and the other with new currency notes gets unlimited withdrawal facility. Is that the case here? An email sent to the RBI spokesperson seeking clarity on the press release remained unanswered at the time of writing this piece.

There are two logical questions that arise:

First, at a time when currency in existing lower denominations (Rs 100, Rs 50 and Rs 10) is a luxury and the new ones (Rs 2,000, Rs 500 new notes) a rarity, why would someone deposit cash in these denominations in a bank. Those who have the first lot will preserve it for use and the second lot — who acquired them after standing for hours in long queues will be very cautious with it. Even otherwise, there are withdrawal restrictions on new currency from ATMs and bank branches. There are still many ATMs even today that have shut shop. Someone should have to be out of their minds to deposit “hard earned” money back to the bank in these times. Even those who get salary in cash (mostly low-income workers or small traders) would rather keep the cash in hand than deposit it it in the current scenario.

Second, at a time when bank branches are struggling and ATMs are gasping for cash despite the restricted withdrawals since 8 November, how can the RBI expect banks to offer unlimited withdrawal (which is what the line beyond the current limits; preferably, available higher denominations bank notes of Rs 2,000 and Rs 500) suggests. An email sent to the RBI spokesperson seeking clarity on the press release remained unanswered at the time of writing.

So far, given the withdrawal restrictions, only a fourth of the money deposited in bank branches have gone out of banks as withdrawals. Since 10 November up to 27 November, 2016 banks have received deposits of Rs 8,11,033 crore, while exchanges amounted to Rs 33,948 crore, taking the total figure to around Rs 8.4 lakh crore. As against this, the amount withdrawn by the public is Rs 2,16,617 crore from their accounts either over the counter or through ATMs.

RBI-finmin disconnect
PM Modi and economic affairs secretary, Shaktikanta Das have been dominating the demonetization episode from the beginning, not RBI governor Urjit Patel. Theoretically, the central bank is the authority on currency management and hence the governor should have played an active role by taking the public into confidence and push ahead the demonetization exercise. This is despite the fact that demonetization was primarily a political decision, not an RBI job. But, it would have been far better if the execution of the plan was effectively communicated to the public by the central bank governor, rather than a government bureaucrat. But, Patel has been behind the scenes from the beginning.

Also, there has been a serious disconnect between the RBI and the government on the implementation of demonetisation. Frequent changes in rules and broken promises have become the norm since the 8 November announcement that points to absence of coordination. In a 11 November press release, the RBI had said, “The facility for exchanging the withdrawn denominations of Rs 500 and Rs 1,000 is available for nearly 50 days. The Reserve Bank appeals to members of public to be patient and urges them to exchange their old notes at their convenience, any time before December 30, 2016.” This promise of the central bank to the public to give time till 30 December was broken when the Finance Ministry said on 24 November that beginning midnight, the exchange of old Rs 500, Rs 1,000 currency notes at bank counters would be stopped.

The Opposition parties have criticized Urjit Patel for compromising the central bank’s autonomy for his silence on the cash-crisis for over two weeks. Since then Patel has spoken to a few media houses but except for his assurances that the cash situation is under control (which is not reflected on the ground though), the central bank governor hasn’t addressed the media to offer more clarity to the public on the actual liquidity position of the banking system and how soon will the currency-crunch last.

The ball is in Patel’s court now. The governor would do well coming out of the shadows of the finance ministry and be his own man to address the public. Else, the demonetization episode will also be remembered as an event when RBI, an institution of impeccable record, compromised its functional autonomy.

First Published On : Nov 29, 2016 13:24 IST

Demonetisation: SBI bulk deposit rate cut needn’t worry you; it has some good news too

State Bank of India (SBI), the country’s largest lender by assets, has cut interest rates on its different maturity bulk term deposit rates by an unusual 1.29 percent to 1.9 percent on Wednesday evening. But, this rate cut on deposits shouldn’t worry the common retail customer.

Bulk deposits are typically deposits above Rs1 crore and, primarily, companies or high net worth individuals make such deposits. They stand to lose on their returns.

ReutersReuters

Reuters

But, the broader signal for the retail borrower is positive since the trend on deposit rates shows lending rates too have to come down soon. SBI had cut its retail deposit rates too recently, albeit in smaller quantum, by 0.15 percent in select maturities. These deposit rate cuts will work in favor of the borrower when the bank revises its marginal cost of funds based lending rate (MCLR) soon.

Since MCLR is linked to deposit rates, once cost of deposits goes down for the bank, cost of advances too has to come down. Hence, the good news for the common man in the SBI deposit rate cut spree is that, his loan rates are set to fall. Now why did SBI go for massive cut in deposit rates?

The answer is obvious from the kind of deposit inflow it has seen post the demonetization announcement by Prime Minister, Narendra Modi on 8 November. SBI alone has seen an additional deposit inflow of Rs one lakh crore between November 10 and November 22 in current and savings accounts. Bulk of this is in savings accounts.

Remember this figure is net of withdrawals, which means the bank is now flush with deposits whereas the options to deploy this fund in loans is limited on account of poor demand from individuals and corporates on account of slow growth in economy. Hence, the bank would want to disincentivise further deposit inflow by making it less attractive.

The deposit bonanza is not specific to SBI alone. The banking industry, as a whole, has seen heavy mobilisation of deposits post the demonetisation announcement. To put it in numbers, the banking industry received Rs 5,44,571 crore in deposits (this includes deposits made through old currency notes) until 18 November, going by the Reserve Bank of India (RBI) data. This includes deposits of Rs 5,11,565 crore and exchanged currency notes of Rs 33,006 crore. Thus, other banks too have started slashing their deposit rates, with ICICI Bank and HDFC Bank already cutting deposit rates by up to 0.25 percent. They lenders too may cut their lending rates eventually.

But savers to take hit

But, this would also mean that retail savers will take a hit, while the rate benefit for the borrower may not be huge. For instance, SBI is now offering a rate of 6.90 percent on term deposit of 1 year to 455 days compared with 7.05 percent earlier. The rate of return is increasingly becoming unattractive compared with other savings schemes.

The Kisan Vikas Patra is giving a return of 7.7 percent for a 2-year deposit. Senior citizens deposit scheme will now fetch 8.5 percent. There is a likely shift to other savings schemes from bank deposits. That’s because bank deposits will become ever more unattractive for the common man and may prompt some to move to other fixed income schemes that yield higher, such as mutual funds.

Seen against this, the benefit on account of likely small lending rate cuts may not be significant too. SBI and other banks might announce a quarter percentage point or less reduction in its loan rates once the MCLR is revised that will lower the EMI burden for the common borrower by a few hundred rupees.

Directionally, interest rates in the economy are set to come down now with the inflation cooling down and economic activities are yet to show any significant pick-up, as shown by the industrial production numbers and core sector data. This will put more pressure on Reserve Bank of India (RBI) governor Urjit Patel to lower central bank’s key rates even further to support the economy. The short point here is that demonetisation brings some good news borrowers and bad news for savers.

First Published On : Nov 24, 2016 08:19 IST

Demonetisation: Modi must act soon or historic move will become ‘historic blunder’

Just like the important role he played in building political and economic consensus among warring parties for the Goods and Services Tax (GST) roll out, Finance Minister, Arun Jaitley is doing his best to allay concerns of the aam aadmi during the demonetisation exercise. The FM did this again on Tuesday when he said the government will focus on rural areas in the next few weeks to make new currency available and ease the pain of farmers in the upcoming Rabi season.

Prime minister Narendra Modi. PTIPrime minister Narendra Modi. PTI

Prime minister Narendra Modi. PTI

Demonetisation is a ‘historic step’ taken by the Prime Minister Modi to bring a ‘new normal’ to the Indian economy, the FM said. True, the Modi-government’s move will, once the short-term pain is over, contribute to transforming the economy in long-term, though demonetisation itself isn’t enough to achieve this objective. This needs to be followed up with a series of steps including bringing awareness to the citizen about cashless payments, addressing corruption at grassroot level, generating jobs and bringing in private investments. PM Modi too made an emotional speech on two occasions defending his government’s decision.

But, what the government shouldn’t miss here is the point that there is a large economic consequence of the current cash crunch, if it prolongs beyond this point. Unless the government urgently address certain areas of economy besides the agriculture, the ‘historic step’ could very well turn out to be a historic ‘blunder’ for PM Modi by impeding the economic growth momentum and taking the economy back to few notches below.

To be sure, Jaitley is right in identifying agriculture as a priority area for making currency available. The Rabi season is approaching and the farmer on the field needs cash, not just to buy seeds and farming equipment but also to take care of his family’s basic needs. The small farmer doesn’t earn a monthly salary, nor has any major savings. The Kisan credit cards offered to him enables him draw money, but only if bank or ATM dispenses cash.

But so are urban workers in the construction sector. The shortage of cash has impacted thousands of labourers who draw wages in cash on daily basis. If these labourers stop work, the construction activities can suffer which will have an immediate drag on broader economy. All other related segments—cement production and electricity will feel the heat. Hence the government should think of ways to make cash available to the urban worker too.

This argument holds for our vegetable vendors, meat sellers, small food stall owners, taxiwallas, hundreds of cooperative banks across the country and thousands of small and medium enterprises and start-ups. These segments too are key contributors to the economy by way of spending and contributing to the production chain. Much of these segments operate in cash economy and the sudden withdrawal of currencies and withdrawal restrictions have hit them hard. Even the spending by the salaried segment would have likely come down on account of cash shortage. To add to the problems, even people with cash in their hands will be hesitant or reduce spending thinking of cash shortage ahead. All this suggests that the economy on the ground will suffer if the problem persists.

International agencies have already begun warning on the likely slowdown to the economy post demonetisation. “While leading indicators point to a stabilisation in the first quarter of 2017, demonetisation is likely to exacerbate the near-term slowdown due to temporary cash shortage. Pre-demonetisation data suggest activity is likely to stabilise in the first quarter,” Japanese brokerage Nomura said in a note today, adding that consumption is the “brightest spot” for the economy. Due to a temporary cash shortage, we see a risk that GDP growth could slow to 6.5 percent in the fourth quarter,” Japanese brokerage, Nomura, said in its research report on Monday.

The cascading impact of slow-spending slow-production can actually cause a drag in the economic recovery process. In an interview given to Economic Times, development economist Jean Drèze said demonetisation is “Demonetisation in a booming economy is like shooting at the tyres of a racing car.”

“Demonetisation on this scale is a huge gamble with the economy. The full consequences are difficult to predict. The best-case scenario is that the economy will stay the course, after the initial disruption, and that significant sums of black money will be neutralised. The worst-case scenario is a prolonged economic slowdown, with very little result in terms of preventing illegal activity,” Drèze said.

Even the intended result of the demonetisation exercise is disputed by the likes of globally renowned economist, Larry Summers, a former chief economist of the World Bank and ex-economic advisor to the US President, who said the move is unlikely to have any lasting benefits to the economy.

What should be done to ease the cash crunch in the system? As Shankkar Aiyar suggests in this new Indian Express column, the government can think of innovative ways to ease the cash crunch, such as asking retailers to use their vast network of outlets for cash disbursements, promote online Payments and incentivise point of sales machines. If printing notes domestically is beyond the capacity of government mints in short time, the government can also plan outsourcing printing like in 1997-98, Aiyar writes.

The bottomline is this: If the current cash crunch translates to a prolonged subdued spending and production slowdown, the ripple-effects in the economy will have a serious bearing on the growth momentum. If the government manages to find ways to tackle the printing and supply issues of currency and make things normal at the earliest, it can regain the lost glory of this bold reform move. Else, one shouldn’t be surprised if the historic step is termed by some as a ‘historic blunder’.

First Published On : Nov 22, 2016 15:14 IST

Demonetisation: Narendra Modi risks too much by triggering a crisis for cooperative banks

If there is any immediate casualty to Prime Minister Narendra Modi’s demonetisation exercise, announced on 8 November, that will be country’s cooperative banks, which are struggling to stay afloat. Besides damaging the health of this sector, PM Modi also risks losing political goodwill if he chooses to let these institutions die as they primarily deal with people at the bottom of the pyramid.

Representational image. PTIRepresentational image. PTI

Representational image. PTI

Though inefficient, cooperative banks are still critical for the last mile in rural India. This will continue for at least the next 5-10 years till larger banks/payment banks/small finance banks take firm hold in rural India.

Cooperative banks are particularly important for farmers and lower income groups who want small ticket loans in less time in relation to larger banks. Their banking correspondents (BCs) system hasn’t worked well so far though. Banking correspondents are agents of banks who operate in areas where there are no bank branches. The BCs collect deposits and offer loan products on behalf of the banks.

Post demonetisation, the cooperative banking sector is gasping for breath on account of a severe liquidity crisis. Soon after the demonetization announcement, cooperative banks were asked not to accept the old Rs 500, Rs 1,000 currency note deposits or exchange those notes with the new currency notes. This meant that these lenders could only deal with permissible denominations of Rs 100 and below or take deposits in new currencies that are hardly available in the system.

This has effectively left many smaller cooperative banks with a few thousand rupees of funds. “There is practically no business in the bank for last one week or so. It is going to be tough,” said an official with one of the primary cooperative banks in Kerala, a state where cooperative banks play a crucial role in taking the banking services to the last mile.

According to data from Nabard, there are 32 state cooperative banks, 370 district central cooperative banks as on 31 March 2015. The number of primary agricultural credit societies (PACS), the smaller ones, as on 31 March 2014, stood at 93042, as per the latest data available.

Why cooperative banks were restricted?

There are a couple of reasons why the government and the Reserve Bank of India (RBI) did not allow cooperative banks to accept or exchange old notes for the new currency.

First, the checks and balances at these banks aren’t perceived to be strong enough to counter efforts to push black money into the banking system. Staffers, too, aren’t trained well. These banks aren’t as tightly regulated as scheduled commercial banks. Most of these banks are indirectly controlled by politicians or local businessmen. Hence, there is, of course, reason to worry to let these banks participate in such a massive exercise.

But, by choking funds to cooperative banks and prolonging the crisis (it has already been more than 10 days), can inflict significant damage to the health of several cooperative banks, which are already on the verge of closure. The tiny ones are more vulnerable.

Why cooperative banks should matter to us?
Cooperative banks have been the trusted centres to bank for millions of farmers and middle, low-income people for long. Despite all their negative sides, these institutions are known to offer them easier loan and deposit products and hence is the favourite institution for the poor. Restricting them to conduct business, as happened post-demonetization, will have major impacts on these banks: It damages the business of cooperative banks and their financial health.

The cooperative sector has largely been a failure on account of the accumulated losses, etc, but that situation is beginning to change after an overhaul initiated by the RBI and NABARD in 2010. Many inefficient corrupt banks have been shut and the remaining are good enough to continue.

Consider this: State cooperative banks across the country have deposits to the tune of Rs 1,02859 crore as on 31 March 2015 as against Rs 1,04369 crore as on 31 March 2014. They have a total loan outstanding of Rs 1,14545 crore as on 31 March 2015 with an impressive loan recovery percentage almost 95 percent.

On the profitability front too, the sector has done relatively well, of late. Of the total, 29 state cooperative banks posted total profit of Rs 1,105 crore during 2014-15 as against Rs 926 crore by 27 state cooperative banks during 2013-14. Their NPAs stood at 5.02 percent of their total loans and advances outstanding as on 31 March 2015 as compared to 5.53 percent as on 31 March 2014.

In absolute terms, their NPAs stood at Rs 5,746 crore during 2014-15 as against Rs5699 crore during 2013-14. Also, these banks’ accumulated losses decreased to Rs 617 crore as on 31 March 2015 from Rs 696 crore as on 31 March 2014.

Similarly, primary agriculture credit societies (PACS) too have an impressive record of deposit-lending operations, at least in recent years. Total members of PACS as on 31 March 2014 aggregated Rs 13.01 crore of which, borrowing members at Rs 4.81 crore constituted around 39 percent. On the deposit side, these banks mobilized Rs 81,895 crore as on 31 March 2014, indicating a growth rate of 34 percent over the previous year. Currently, all these banks are under stress on account of severe cash crunch and most of them are not functioning.

As mentioned earlier, following restrictions, there has been hardly any business in cooperative banks across the country. Also, since there are no new funds, their lending operations and even ATM services have been it hard. Even large multi-state cooperative banks, like Mumbai-based Saraswat cooperative bank are struggling to get funds for routine transactions of normal customers. The bank sent a text message to its customers on Friday saying, Dear Customer, There is an inadequate supply of currency notes. Hence, we may not be able to allow cash withdrawals in part or full depending on the availability of cash at a particular branch. The situation is likely to improve soon. We request your kind co-operation – Saraswat Bank.

Second, the whole chaos will takes away the trust of common man from cooperative banks. Customers will think twice again before depositing their hard-earned money or taking a loan against their property from a local cooperative bank.

The question is: What does Narendra Modi-government want to do with these banks and how does it plan to restore normalcy in the sector? The current cash crunch in the sector will likely continue for at least a few weeks, if not months since the government is struggling to execute demonetization even within the commercial banking sector. Or is that the government just does not care about the crisis in cooperative sector triggered by its own policy action?

In states like Kerala, there have been massive protests already. Besides giving a major jolt to the cooperative banking sector, the PM will also risk the wrath of millions of common people – customers, who have deposited money in these banks.

As far as the crisis is concerned, the situation is precarious since most of these banks (especially PACS)  are left with very few funds in acceptable denominations.  Their credibility has also taken a hit since people will now be scared to park their money in future in these banks due to uncertainty.The current crisis could take the shape of a permanent impairment if cash crunch continues for a few months. It will take a long time for them to recover.

First Published On : Nov 19, 2016 10:43 IST

Demonetisation: Two numbers show how currency ban treats India’s rich and poor

In the chaotic days after the surprise announcement by Prime Minister Narendra Modi, two figures have caught public attention nationwide (at least at this stage). The first is 47 and the second 550.

What are these numbers?

Well, 47 is the latest count of reported deaths across India that have been linked to the demonetisation chaos — mostly, it was elderly people died waiting in the queues to draw money from their own bank accounts, or to exchange their own old Rs 500, Rs 1,000 notes. The actual death count may be higher or lower since there is no accurate estimate other than media reports.

The second number, 550, refers to the fancy figure of Rs 550 crore.

That’s the amount Karnataka-based politician and mining baron, G Janardhana Reddy, spent to arrange the wedding spectacle for his only daughter, Bramhani, on Wednesday — a wedding attended by politicians from both the BJP and the Congress. Reddy recreated a palace to surprise his daughter.

There aren’t any examples better than these two numbers to depict how the rich and poor in this society have been treated by Modi’s historic demonetisation exercise. Those 47 who died from exhaustion and trauma in long queues and the Reddy wedding are two ends of this society in which we live. These figures tell us how the ‘rich and the powerful’ couldn’t care less about the cash crunch and how it is the common man, the janata janardhan, who is the actual sacrificial goat.

File image of G Janardhana Reddy. PTI

File image of G Janardhana Reddy. PTI

Reddy is only a symbol of a club of the rich and politically-powerful in this country, who are immune to the general rules that apply to the janata in this country. This club never bothered about Modi’s currency ban.

The Reddy show

How did Reddy manage Rs 550 crore for his daughter’s marriage extravaganza? If this entire sum was plastic currency or electronic currency, Reddy holds the answer to how to turn India’s deeply-locked cash economy into a cashless one in a matter of days — he should be made the Union finance minister or Reserve Bank of India (RBI) governor, as the incumbents in these positions are struggling to achieve this goal.

Or else, even if a fifth of the money Reddy spent was in cash and if we assume that all of these aren’t Rs 100, Rs 50 and Rs 10 notes that Reddy had stored in his secret chamber before the currency ban, then the following question arises: How did Reddy manage to get new currency (to the tune of Rs 100 crore or more when common man is forced to  stand in queues for hours before so much as a glimpse of new currency notes or even the old Rs 100 note?

Did some banker or a childhood friend in the government help Reddy to get what was required to pay for the Rs 550-crore wedding gala?

The answer should come from the Income Tax Department, the police, the financial intelligence unit and ultimately, the Narendra Modi government. And it isn’t limited only to Reddy; all similar cases should be identified and investigated. The guilty should be brought before the law of the land.

It’s true that Reddy is known for the abundance of his wealth. He has every right to conduct the wedding ceremony in whichever way he wants. Nobody has any right to sneak into an individual’s private life and then analyse his personal affairs. But the current scenario warrants a closer look.

All of us — the salaried, the small traders, the vegetable vendors, the safaiwallahs, the chaiwallahs, the school teachers, the bank clerks and the taxiwallahs — have money in our bank accounts, although the figures may not be even a fraction of Reddy’s fortune.

But, logic says that the difficulties that apply to the common man should apply to Reddy as well, if the rules are same for every citizen. Right?

If that is the case, we need the government to tell us how the ‘pain of child birth’ is so different for two ends of society? Yes, all of us are eagerly waiting to see the baby and still curious to know why the double standard?

What the two figures — 47 and 550 — tell us is that the ones who are supposed to be taken care by the political establishment — the aam aadmi — are left to die near ATMs and bank branches, while life is much the same as before for the highly privileged in society.

The Reddy wedding is a case that needs to be investigated thoroughly. But, the big irony is the failure of the Modi government in governing the whole exercise. It’s ironic because the government itself agrees that it was planning the demonetisation exercise for some six months. That’s a lot of time to plan and make the contingency measures ready.

But, still the super-brains in the government couldn’t visualise what would happen to the order of life among the majority of common people, when the decision was finally rolled out. Perhaps they expected an ideal situation whenin every citizen practiced self-discipline and drew only the bare minimum from ATMs. But, what the government failed to understand was mob psychology.

Representational image. PTI

Representational image. PTI

The government should have thought through the process and realised that that people would withdraw the maximum possible amount each time (Rs 2,500 as of now in certain ATMs) and the machines would run dry in matter of hours, if not minutes. It failed to see that people will hoard their own legitimate money anticipating bad days ahead, further complicating the matter.

There are people still, mainly senior citizens, office-goers and housewives, who haven’t been able to withdraw money in the past eight days and have cut short their expenditure to the maximum extent possible, while on the other hand the wealthy like Reddy still have a magic wand to get their cash and spend it for their ‘humble’ needs.  Just to understand the picture let’s assume that a bank fills around Rs 2 lakh in an ATM at a time.

The amount Reddy spent — Rs 550 crore — would fill 27,500 ATMs across the country. While the Reddy gala took place in Karnataka, there were many fathers who committed suicide across the country, as they couldn’t buy groceries or to meet other expenses for their daughters’ weddings. The loss of lives cannot be treated as a temporary pain; the issue is very serious.

A death count of 47 or so — as is being reported — happens only when there is a natural calamity or a vehicle mishap or a bomb blast, not when a “well thought-out” economic reform gets implemented by a government. No matter the long-term benefits of the demonetisation exercise, the Modi government is answerable for the difficulties and loss of lives the common man has faced in the days since the announcement.

The two figures — 47 and 550 — should be an eye opener to Modi and his ministers.

First Published On : Nov 17, 2016 12:04 IST

Zakir Naik saga: IRF ban marks end of an eventful story for Dongri preacher

Not many people outside the Muslim community knew Zakir Naik before he came under the scanner of security agencies and the media in the wake of the 1 July attacks in Dhaka. It may be recalled that on that day, terrorists killed 22 civilians and two police officers before five of them were killed. Immediately after the attack, a report appeared in one of the Bangladesh dailies that some off the terrorists, who participated in the attack, were inspired by Naik’s preaching. The paper later backtracked from its statement, but the controversy it triggered did not die down.

This created waves in India.

The media took this case up in a major way. Naik began appearing in national headlines almost on a daily basis and mostly for the wrong reasons. Even religious leaders from the Muslim community stood up against Naik and asked their members to refrain from listening to his speeches, saying his talks encourage violence and hostility towards non-Muslims. Some supported him too. The media frenzy continued and has not died down since then. Fearing arrest, Naik refused to return to India even when his father passed away recently.

On Tuesday, when the Narendra Modi government banned his NGO, Islamic Research Foundation (IRF) for five years, Naik’s eventful story of the past two decades seemingly came to an end.

File image of Zakir Naik. Screen grab from YouTube

File image of Zakir Naik. Screen grab from YouTube

How did it all begin?

The son of a physician and educationalist, Abdul Karim Naik, Zakir Naik too is a qualified medical practitioner, who never really practiced medicine.

Instead, his interest was in religious preaching from the very beginning. Naik called himself a student and an expert of ‘comparative religion’ but most of his speeches advocated the supremacy of Islam over other religions. Naik loved to play with words by selectively picking and interpreting religious scriptures to establish how Islam is one true religion and the remaining set of beliefs aren’t pure.

During his several speeches in India and abroad, he justified war against Islam’s enemies and in one instance, even ‘suicide bombing’, saying if there is a need to defend the religion from its enemies, there is no harm in self-sacrifice. The preacher also used his television channel, Peace TV to air his speeches. Naik exhorted that Muslims love their country more than anyone and will follow the law of the land, as long as it doesn’t come in the way of the law of creator. Thus, he put the idea of religion above the idea of patriotism and constitutional responsibility of every citizen to his country.

A closer look at previous speeches by the 51-year old showed certain dangers to the religious harmony of the country.

Naik’s illogical arguments about the relation between religion and the idea of a secular nation are flawed but convincing enough to those who believe in Islam’s supremacy. In a February 2012 video, addressing a large crowd, Naik implored Muslims to ‘fight for Islam’ and ‘disobey the law of the land if it goes against the law of the creator’. Saying “Vante Mataram”, Naik said, is not desirable not just for Muslims, even Hindus. Why? Because, Hinduism, Naik says, speaks against the concept of idol worship and hence, it is wrong to bow to the land.

In another, Naik endorsed Osama Bin Laden and Taliban as fighters of Islam and argued why Taliban and Bin Laden were not necessarily damaging the Islam. In one his videos, Naik says:

If he (Osama Bin Laden) is fighting the enemies of Islam, I’m for him. I don’t now what he is doing. I’m not in touch with him. I don’t know him personally. I read newspapers. If he is terrorising America, the terrorist, biggest terrorist, I’m with him. Every Muslim should be a terrorist. The thing is that if he is terrorising the terrorist, he is following Islam. Whether he is or not, I don’t know. Now don’t go around outside saying Zakir Naik is for Osama Bin Laden. If he is terrorising the terrorist I’m with him. I don’t know what he is. I cannot base my judgment only on news. But, you as Muslims, without checking up laying allegations is also wrong. I’m with those people who are holding the Quran. Even the full world is against them, I’m with them (sic)”

In short, Naik has been clever in his speeches not to get trapped by investigators by playing with words. But, ultimately, he couldn’t convince the investigators as evidenced by the Modi government’s action.

To be sure, Naik has been preaching for more than two decades. The content of his speeches has been pretty much the same all along. But, there was no investigation against him till recently. As Firstpost has noted before, during UPA rule, in 2013, a communication had gone to the Ministry of Home Affairs from the then prime minister Manmohan Singh about the potential threat caused by Naik’s speeches. This was based on a complaint submitted to the PMO. But, the matter ended there.

It took the Dhaka attacks for the Indian government to wake up to the problem (possibly due to media pressure) and initiate action against the Islamic preacher.

The deeper problems

But, it weren’t just his speeches that got Naik into trouble. The alleged links between his organisation IRF and terrorist activities in the country intensified the scrutiny of investigators on Naik and his organisation’s activities. Naik’s name was linked to cases in Kerala in which youths have been brainwashed to join the Islamic State. The Kerala Police has claimed that Arshi Qureshi, guest relations officer of the Mumbai-based Islamic Research Foundation, has links with the Islamic State. This raised questions on the way Naik’s NGO has been using funds, especially money coming from abroad in the form of donations. Early this months, the government banned foreign funding for Naik’s organisations. Naik has so far refused to return to the country and has addressed the media only through web conferences and television interviews.

It is unlikely that he’ll return to the country in the near future since that could lead to his immediate arrest.

The story, however, isn’t quite over yet. Banning Naik’s IRF will not undo the messages he has preached to youth all these years. There is a need to keep continuous vigil. Following the government’s five-year ban, reports suggests that Naik’s lawyers will seek legal recourse against the government’s decision. But, this won’t be easy since government action against the NGO is under the under the Unlawful Activities Prevention Act. Naik might be planning his next moves sitting in Dubai, where he is currently believed to be.

But, the government’s action puts an end to the Naik episode, for now at least.

First Published On : Nov 16, 2016 14:02 IST

Demonetisation: Indelible ink mark for cash swap is a bad idea, relic of war-time rationing

The Narendra Modi-government now wants to ink-mark everyone who goes to the bank counter to swap his or her old Rs 500, Rs 1,000 currency notes up to the permissible one-time limit of Rs 4,500, for new notes. The idea is to stop a person from doing this more than once over the counter since the very purpose of this facility was to offer cash for the immediate needs of the common man. Others can always use the deposit and withdrawal facility anytime. Prima facie, the plan is good to ensure people don’t misuse the emergency facility.

Representational imageRepresentational image

Representational image

The message is clear: If someone wishes to behave less obedient in this process, the law will instill discipline in them. It does not matter whether they are drawing their own money.

Only thing is that this is an idea that has come a bit late and yet again points to the inefficiency of the government to think through the whole process in the beginning itself.

There are two questions that would logically arise in the mind of a common man.

One, why didn’t the government foresee the situation that people with multiple bank accounts would do multiple cash swaps and would even use other people’s accounts to do even more such transactions. Already, eight days have passed since the demonetisation announcement.

Those who wanted to get more notes exchanged against their old currency (black or white) would have done it already in Rs 4,500 lots. They can do it using their own multiple accounts (most of us have 3-4 bank accounts and each of these could have been used for exchange in the last 5 days. Isn’t it?) or using other’s accounts. (One friend told this writer that his electrician offered to exchange notes for him for a commission)

Two, has the government thought about the trauma a citizen can experience while ink-marked for exchanging his own hard earned money. Come on, not all citizens are crooks and holders of unaccounted cash. Imagine the plight of a citizen standing in the queue in a bank branch and get ink marked to withdraw his or her own money? For the last one week already, withdrawing cash for one’s daily needs has been a pain. This will only add to that.

But, yes, one could always argue that the citizens shouldn’t be too perturbed to cooperate in this massive exercise to ward off the evil of black money and fake currency in the system. But, even then there is a limit to harass the common man.

Ink-marking people to avail what is already due to them, to confirm identity and avoid repetition, only happens during war times rationing. Are we facing a war-time situation here? Or is it just that things are going out of hand for the government on the implementation front?

Thirdly, the ink-marking will affect the honest people most. It is naïve to imagine that the crooks with tonnes of unaccounted cash will queue with Rs 4,500 to get ink marked for new notes. He would be , instead, striving to hide it in some other assets (where taxmen can’t trace it). Or, even if he wants to make this money white, he would deposit it in several Rs 2.5 lakh lots and employ an army of dalals to make it legit without making a noise, not swap for Rs 4,500.

Who would queue up before bank counters? It is the office-goer who would be taking half day off from workplace to get some exchange to buy his grocery and pay his children’s school fees. It will be the daily labourer who would want money to buy food for his family because he is scared of the idea of using a debit card, till now. It will be the pensioner who would need money for his simple needs. All of them will be ready to get ink-marked to draw their own hard earned money. The big crooks wouldn’t want to get inked.

The idea of raising this point is not to undermine the massive, bold reform initiated by the Narendra Modi-government to cleanse the economy from the evils of black money and fake currency nexus. No one disputes the intention of the government behind the exercise. The political will to initiate an unpopular step needs to be respected.

That is rarely seen in India’s political leadership. Modi deserves kudos for the biggest currency crackdown after a similar exercise initiated by the Morarji Desai government in 1978. Every citizen needs to support the government in its fight against black money, no doubt.

But, the point is none of this offer any excuses for the poor planning and in the process putting the lives of millions of people in misery. The government should have thought through the process well. It is a classic case of poor planning and execution of a brilliant idea.

First Published On : Nov 16, 2016 12:17 IST

Demonetisation: Narendra Modi should admit that govt failed in execution

Prime Minister Narendra Modi made a pathetic analogy comparing the cash drought prevailing in India now after the midnight ban of Rs 500 and Rs 1,000 notes to the chaos prevailed in Japan in the aftermath of the 2011 earthquake. “People stood in line for four hours, six hours but accepted the decision in national interest the way people of Japan tackled the aftermath of the 2011 disaster,” Modi said speaking to an Indian gathering at Kobe, Japan.

The chaos that follows a natural disaster and the willpower of a society to withstand the difficult days is one thing while the chaos and disruption of normal life in a society post a “well-thought-out decision” planned months in advance by the government is another. The fact is that the Modi government has miserably failed to design the implementation in the days after the demonitisation announcement, though no one is questioning the intention of the very exercise. Every honest citizen wants his country to be free of the evil of fake currencies and black money. But while doing so, the government should have foreseen what is going to happen in the hours and days after the announcement.

Narendra Modi PTI

Narendra Modi PTI

Obviously, the mob psychology works in full swing on such occasions. And that psychology would drive the common man into a panic mode, telling him to run fast to the nearest bank branches and ATMs to withdraw maximum possible amount permissible (as of now Rs 2,000 per day), even if he doesn’t need that amount. He would need to pay to the vegetable vendor, milkman, cablewallah, newspaperwallah, and cabby, a majority of whom still live in the cash economy, for whom PoS terminals, plastic money, PayTm are all still fancy words. While in metros like Mumbai and Delhi, people still have the possibility to use plastic money to meet most of the daily needs, in the semi-urban areas and villages, life will turn hell when ATMs dry out of money in few hours, daily labourers are denied wages because their employer doesn’t have cash and kirana wallah frowns when asks for credit yet another day.

Modi should remember that the people standing in long queues certainly don’t have the mindset of a soldier fighting a national cause but only have curse words for the government for turning their lives into a nightmare

Modi must have acknowledged this state of affairs, the failure of the government on execution front and promised to resolve the issue as early as possible. Instead, he warned about further measures post 30 December, when the deadline to exchange old Rs 500, Rs 1,000 currency notes expire. This will only add to the panic since people would start speculating that what the next blow is going to be. Already, Union Finance Minister Arun Jaitley has hinted that it might take at least three weeks before normalcy sets in. Three weeks is a long time for the cash shortage to continue. By then, the problem can go totally out of hand for the government.

Where did the government go wrong? 

In the months prior to announcing the currency ban, the government should have taken the following steps:

One, the government should have printed sufficient number of lower denomination notes of Rs 500 and Rs 1,000 in the government mints, instead of pushing the fancy not-so-useful Rs 2,000 notes into the market. The Rs 2,000 note is a hard nut for the public and not more than a showcase item, for now. You can boast of having one, but if you walk into the town with this, there won’t be too many takers since there is very little cash in the system to offer change. The guy who gave the wonderful idea to the government of introducing the Rs 2,000 notes first against the ban of Rs 1,000 and Rs 500 currency notes should be sacked.

The fact is that even though the government claims it has been planning the move for last six months, the new Rs 2,000 notes have been printed only in the last two months — the precise reason why these notes carry new RBI governor, Urjit Patel’s signature

Secondly, it should have equipped the ATM network to deliver the new currency notes. As of now, ATMs aren’t equipped to deliver anything other than the Rs 100 notes. To equip the machine to accommodate the new series of notes will take a long time — a process which will further delay the functioning of ATMs. Already there are bigger queues than one typically sees in front of beverage shops. How on earth government plans to rewire the ATM network within such a short time? The government should have asked the banks to rework the machines well in advance while keeping the secrecy of the move.

Third, the government should have thought of mechanisms to make the process seamless by providing additional facilities for note withdrawal, other than ATMs and bank branches. It could have set up currency kiosks adjacent to bank branches for, say initial 10 days, rather than directing the entire crowd to the ATMs and bank branches.

To sum up, the Modi-government absolutely failed to think ahead. It, perhaps, thought of an ideal situation where people of all stature laud the government for the government and put their personal miseries behind the larger cause of patriotism. But, the golden rule of – don’t preach the scriptures to someone who is hungry – was forgotten.

Presently, the situation is not in control of the government. The long queues before ATMs and bank branches can soon take the shape of street protests against the government. Opposition parties can soon taste blood and jump into the streets too. Delhi CM Arvind Kejriwal has already entered the ring, Congress vice-president Rahul Gandhi has already joined the ATM queues. It is not long before regional satraps smell an opportunity. The good intention behind the currency ban and the long-term benefits it will bring to the economy will then be forgotten and Modi will run the risk a strong the anti-incumbency wave, if the cash drought continues and remedial measures are not brought into place. Better watch out for a bigger storm than the 2011 Japan earthquake Narendra Modi.

First Published On : Nov 13, 2016 14:37 IST

US election 2016: Why Donald Trump’s ‘American Manus’ politics will worry Indo-Americans

What does Donald Trump has common with Maharashtra MNS chief Raj Thackeray or PM Narendra Modi? Not much, except that Trump is the proponent of the American version of certain ideals and vision both Thackeray and Modi have stood for long — ‘Marathi manus’ politics and the idea of ‘Make in India’.

Donald Trump. ReutersDonald Trump. Reuters

Donald Trump. Reuters

In the US, Trump is Thackeray’s counterpart of ‘American Manus’ politics and is the Modi of ‘Make in America’ campaign. Trump despises anything other than American and has so far played inflammatory politics projecting his ‘American Manus’ stand, calling out to make ‘America great again’ and save jobs and private investments for locals, no matter what happens to the immigrant worker.

Trump wants, at least he says so, to put an end to the cross-border outflow of jobs and wouldn’t hesitate to accuse even IBM of shutting jobs in the US and shifting some to India.

Trump is a great admirer of ‘Make in America campaign’ much like Modi’s ‘Make in India’ programme. He wants people to make things in America, using Americans workers and for American people.

In this backdrop, for Indo-Americans in US and other non-American workers, Donald Trump should symbolise everything that they should fear about — further restrictions on work permits and policies such as massive tax deductions favouring the local businesses that would logically put Indians there at a disadvantage.

“We don’t really know what is going on in his mind,” said Anshul Prakash, associate partner at Khaitan & Co, who is an expert in labour law. “Anyway, it can’t be good for Indians given his stated policies.
Even there, he has conflicting views and the core idea seems to be protecting the local Americans,” Prakash said.

Hence, the choice shouldn’t be difficult for Indo-Americans between Hillary Clinton and Trump. While Clinton is considered to have better chances to emerge victoriously, any upset by Trump would mean an uncertain, worrying future for not just Americans, the Indian professionals in that country too.

Trump’s victory would mean nothing short of a disaster for Indian professionals in the US, especially with regard to his planned policies on H1-B Visa restrictions. Even companies, including Indian firms, need to fear Trump if he comes to power for he has openly declared that the Trump administration will make it difficult for them to move out of America.

“If a company wants to leave Minnesota, fire their workers and move to another country and then ship their products back into the United States, we will make them pay a 35 percent tax,” Trump said in his recent speech at Minnesota state.

Trump seems to have no mercy for those who compete for American jobs and companies which take jobs out of US. He even calls them thieves. As Firstpost noted in a recent article, just the other day, Trump blamed India and China for the ‘greatest job theft’ in US.

“America has lost 70,000 factories since China entered the World Trade Organisation, another Bill and Hillary backed disaster. We are living through the greatest jobs theft in the history of the world,” Trump said in Tampa, Florida on Monday.

“Goodrich Lighting Systems laid off 255 workers and moved their jobs to India. Baxter Health Care Corporation laid off 199 workers and moved their jobs to Singapore. Essilor Laboratories laid off 181 workers and moved their jobs, surprise, to Mexico. It’s getting worse and worse and worse,” Trump said.

Trump is a bigger fan of the ‘son of the soil’ politics Thackeray practices here and is even more passionate about his ‘Make in America’ plan much like Modi admirers his ‘Make in India’ movement.

If Trump becomes the next president of world’s largest economy, eight times bigger than that of India, it will be no good news for the Indo-Americans. Hence a choice shouldn’t be difficult for them today.

Kerala’s U-turn on Sabarimala: Why Pinarayi Vijayan should leave faith to the devout, not court

The Kerala government’s U-turn in the Supreme Court on the issue of women’s entry to Sabarimala brings an old debate back to the table: How the law should deal with what is essentially a matter of faith.

The obvious and easy-to-accept argument would be that faith should be questioned from time-to-time by the law and the people, as a society progresses and turns more liberal. They would cite examples of how we stopped Sati, child marriage and untouchability in Indian society, when society dared to question centuries old social evils. Their argument is very valid.

But, the Sabarimala issue is slightly different and shouldn’t be seen in the same context. To understand this, let’s take a look at what has happened here. All women, regardless of their age, should be allowed to enter Kerala’s Sabarimala temple, the LDF government told the Supreme Court on Monday. That’s a reversal from the stand of the previous Congress-led UDF government on the issue, but not from the Left’s own view on this mattter.

The Left’s stand on this issue has been consistent since 2007.

File image of Hindu pilgrims queueing outside the Sabarimala Temple. Reuters

File image of Hindu pilgrims queueing outside the Sabarimala Temple. Reuters

The then LDF government had said that all women should be allowed to enter Sabarimala. The state government’s stance changed when the UDF came to power, which argued otherwise. The LDF has yet again returned to its old stance now.The basic question in the ongoing Sabrimala controversy is this: Should the judiciary or the government be indulging in a matter that has to do with faith and tradition?

They shouldn’t.

The reason: Sabarimala is not a case of caste or colour-based oppression or ostracisation of any particular community from the mainstream. It is also not an institution that has upheld any social evil like Sati or child marriage. The reason why for centuries, the temple has not encouraged women in the age group of 10-50, to enter within its walls is an age-old faith that has been the cornerstone of the very existence of temple.

Faith says that the deity of the temple, Lord Ayyappa, is a brahmachari (a celibate God) and he is averse to the presence of women of the menstruating age group. Women outside this age group can enter the temple and that has been always so.

There is another female deity in the temple called ‘Malikappuram Devi’. As per the centuries-old belief, Lord Ayyappa will marry ‘Malikappuram Devi’ the year in which there are no ‘kanni‘ ayyappans (first-time visitors to the temple). But, such a scenario doesn’t occur in reality since every year there are thousands of new devotees thronging Sabarimala.

Although the story of Lord Ayyappan and the associated faith may sound silly to the proponents of gender equality and social reform, the fact is that the very existence of the hill-temple and its relevance is based on this. Sabarimala wasn’t created by an Act of the Kerala state Assembly, Parliament or by an order of court, but on the grounds of faith. If faith is not respected, there isn’t Sabarimala as we see it today.

There is no end to this debate. But, in the case of Sabarimala, it is better to leave matter of faith to the people who have faith.

The Supreme Court can, of course, pass an order based on the state government’s recommendation and let the Sabarimala temple open to all women, but that would ridicule the very faith of people for whom the centre of worship matters. Of course, the world will not end if women enter Sabarimala. But, Sabarimala will then become another tourist-pilgrim centre like many other places, where faith may not have much importance.

In fact, Sabarimala has been one of the most liberal institutions of worship in the country. It doesn’t differentiate between people of various religions. Any man (or women outside the 15-50 age group) can enter the temple. There is also no differentiation between people belonging to upper and lower castes. Even the restriction on women has not been necessarily seen as an act of oppression but the willingness of female devotees to respect a faith.

There is no end to the debate around what extent the government and judiciary should intervene in matters of faith, unless there is an angle involving social injustice, oppression or denial or natural justice. Some time ago, a Bihar court had heard a case against Lord Rama on the alleged cruelty towards his wife Sita. The petitioner wondered how in the world a man, a king, known to be just and merciful could be unjust to his own wife that too based on hearsay. (There wasn’t any proof for Sita’s alleged infidelity when she was sent on ‘vanvas). But, finally when the judge heard the case, the case was dismissed on account of the absence of eyewitnesses and confusion about who should be punished even if Rama was found guilty.

This is precisely what happens when judiciary bids to weigh an issue of faith using tools of modern day justice. This incident is narrated here only as a context to the Sabarimala case. If the SC lets women enter Sabarimala that’ll be celebrated a victory by feminists and equal-right activists after Shani Shingnapur and Haji Ali. But what’s next? There is no end to things one can ask for in all religions if faith is ignored and law steers the act of devotion.

The Pope can no longer insist then that women can’t be Roman Catholic priests like he said a few days ago or the Muslim community cannot insist that women cannot enter mosques. The next will be entry of non-Hindus to temples. As of now, a majority of Kerala temples don’t allow non-Hindus to enter — again a matter of faith.

All these acts of faith can be and will be challenged one by one. But, what social reform will we achieve out of all this by breaking a set of rules set and practiced by the devotees?

This will take us back to the very basic question of what is the purpose of religion and centres of worship in religions. These are just mere facilitators to follow certain practices and discipline in those groups cemented by the idea of faith. Till the time these practices aren’t anti-social activities or a form of social evil (like Sati), the law shouldn’t have a problem with these.

The fact is that besides hurting those people who keep a certain faith and respect their age old practices, judiciary’s encroachment into matters of faith won’t do any help to raise the status of women in the society. In the case of Kerala’s LDF-government, there is a good chance that its move on the Sabarimala issue in the Supreme Court will backfire, even among the non-Hindus in the state.

It is better to leave faith to the devout.

Kerala govt’s U-turn on Sabarimala: Why it is better to leave faith to the devout

All women, regardless of their age, should be allowed to enter Kerala’s Sabarimala temple, the LDF government told the Supreme Court on Monday. That’s a reversal from the stand of the previous Congress-led UDF government on the issue.

The Left’s stand has been consistent since 2007. The then LDF government had said that all women should be allowed to enter Sabarimala. The state government’s stance changed when the UDF came to power, which argued otherwise. The LDF has yet again returned to its old stance now.

Let’s examine this issue a bit closer.

Sabarimala. ReutersSabarimala. Reuters

Sabarimala. Reuters

The basic question in the ongoing Sabrimala controversy is this: Should the judiciary or the government be indulging in a matter that has to do with faith and tradition?

They shouldn’t.

Reason: Sabarimala is not a case of caste or color-based oppression or ostracising of any particular community. It is also not an institution that has upheld any social evil like Sati or child marriage. The reason why for centuries, the temple has not encouraged women in the age group of 10-50, to enter within its walls is an age-old faith that has been the corner stone of the very existence of temple.

The faith says that the deity of the temple, Lord Ayyappa, is a brahmachari (a celibate God) and he is averse to the presence of women of the menstruating age group. Women outside this age group can enter the temple and that has been always so.

There is another female deity in the temple called ‘Malikappuram Devi’. As per the centuries-old belief, Lord Ayyappa will marry ‘Malikappuram Devi’ the year in which there are no ‘kanni’ ayyappans (first-time visitors to the temple). But, such a scenario doesn’t happen in reality since every year there are thousands of new devotees thronging Sabarimala.

Though the story of Lord Ayyappan and the associated faith may sound silly to the proponents of gender equality and the social reforms, the fact is that the very existence of the hill-temple and its relevance is based on this. Sabarimala wasn’t created by an Act of the Kerala state assembly, Parliament or by an order of court, but on faith. If faith is not respected, there isn’t Sabarimala as we see it today.

There is no end to the debate on whether law of the land should dictate institutions of religion. But, it’s better to leave matter of faith to the people who have faith. The Supreme Court can, of course, pass an order based on the state government’s recommendation and let the Sabarimala temple open to all women, but that would ridicule the very faith of people for whom the centre of worship matters.

Of course, the sky wouldn’t fall or the world will end if women enter Sabarimala. But, Sabarimala will then become another tourist-pilgrim centre like many other places, where faith may not have much importance.

In fact, Sabarimala has been one of the most liberal institutions of worship in the country. It doesn’t differentiate between people of various religions. Anyone can enter. There is also no differentiation between people belonging to upper and lower castes. Even the restriction on women has not been necessarily seen as an act of oppression but the willingness of female devotees to respect a faith.

There is no end to the debate that to what extent the government and judiciary should intervene in matters of faith, unless there is an angle involving social injustice, oppression or denial or natural justice. Some time back, a Bihar court had heard a case against Lord Rama on the alleged cruelty towards his wife Sita. The petitioner wondered how in the world a man, a king, known to be just and merciful could be unjust to his own wife that too based on hearsay. (There wasn’t any proof for Sita’s alleged infidelity when she was sent to ‘Vanvas’). But, finally when the judge heard the case, the case was dismissed on account of absence of eyewitnesses and the confusion that who should be punished even if Rama is found guilty.

This is precisely what happens when judiciary bids to weigh an issue of faith using tools of modern day justice. This incident is narrated here only as a context to the Sabarimala case.

If the SC lets women enter Sabarimala that’ll be celebrated a victory by feminists and equal-right activists after Shani Shingnapur and Haji Ali. But what’s next? There is no end to things one can ask for in all religions if faith is ignored and law steers the act of devotion.

The Pope can no longer insist then that women can’t be Roman catholic priests like he did a few days ago or the Muslim community cannot insist that women aren’t allowed in mosques.

Majority of Kerala temples don’t allow non-Hindus to enter — again a matter of faith. All these centuries old practices can be and will be challenged one by one. There isn’t any end to this.

Besides hurting those people who keep a certain faith and respect their age old practices, judiciary’s encroachment into matters of faith won’t do any help to raise the status of women in the society. It is better to leave faith to those who keep and practice it.

OROP suicide: Rahul Gandhi, Arvind Kejriwal ruckus shows our politicians are living a lie

Make no mistake. Had the alleged suicide of Subedar Ram Kishan Grewal happened at his village, Bhiwani in Haryana, the high drama staged on Wednesday at RML hospital compound in Delhi would not have happened in this magnitude. But, the retired solider chose to end his life at the heart of the national capital, only a few minutes of drive for OB vans of most television channels. That changed the whole narrative. The grief of the family of the dead solider and the difficulties faced by scores of other patients at the hospital were overshadowed by the political ruckus.

For politicians, it was an irresistible opportunity to score a brownie point by ensuring their images were adequately captured in television cameras at the expense of the dead solider. For them, it didn’t really matter whether their entourage created chaos at the hospital premises, disrupted its functions and caused difficulties to patients. Going by reports, it would have been difficult for any patient or their aides to make their way in or out of the hospital for most part of the day.

All that mattered for the politicians was to wind up their day on a strong note (read marking their presence on TV screens). No one can blame the Delhi police if they resorted to detain Congress Vice-President Rahul Gandhi, Delhi CM Kejriwal or his deputy Manish Sisodia. The commotion and ruckus created by the politicians there was such. Like the politician on the prowl, the policeman too has to do what he has to do.

New Delhi: Congress party Vice President Rahul Gandhi being carried in a police bus from Parliament Street Police Station in New Delhi on Wednesday. Gandhi was earlier detained after he tried to meet family members of a retired army soldier who allegedly committed suicide over One Rank, One Pension scheme. PTI Photo by Manvender Vashist (PTI11_2_2016_000276B)New Delhi: Congress party Vice President Rahul Gandhi being carried in a police bus from Parliament Street Police Station in New Delhi on Wednesday. Gandhi was earlier detained after he tried to meet family members of a retired army soldier who allegedly committed suicide over One Rank, One Pension scheme. PTI Photo by Manvender Vashist (PTI11_2_2016_000276B)

Congress Vice-President Rahul Gandhi in a police bus. PTI

In the first place, one wonders why Grewal resorted to the extreme step. The reported reason for Grewal’s act was that he wasn’t yet given the increased pension amount under the One Rank One Pension (OROP) scheme. But, the subsequent clarification, going by reports from the government, shows that Grewal’s pension had not been held back. “The problem arose at the bank end,” government sources said, adding that of more than 20 lakh pensioners, only one lakh are still to get full disbursement of funds. If this statement is true, i.e. if the delay to transfer the increased pension amount was on account of a procedural delay at the bank end, there wasn’t reason for the retired solider to terminate his life in this manner.

One could only wish that Grewal had approached the relevant organisations or courts to seek justice, instead of terminating his life in a manner not befitting a veteran solider. Of course, the actual reasons that prompted him to take this extreme step and whether there was anyone who encouraged him with political motives, need to be investigated.

But the political circus that followed Grewal’s alleged suicide was even more deplorable. The likes of Gandhi and Kejriwal could have waited for a few more hours till the body of the dead former solider was taken out of the hospital compound to avoid creating difficulties for other patients in the hospital. (In fact, certain reports say Grewal’s body had already been moved to another hospital by the time politicians reached RML and the entire drama unfolded.) A symbolic gesture to offer their condolences like making a phone call to Grewal’s family or using social media would have sufficed. This would have also spared the family the torture of being deprived their privacy.

But, the political meter doesn’t detect human emotions, only political opportunities, even at the cost of a soldier’s life. It was a golden opportunity for opposition parties to make a move against the political rivals, hence the commotion.

Even a kid would understand that the long queue of high-profile politicians outside RML wasn’t prompted by their heartfelt sorrow post the soldier’s demise. We don’t normally see any national-level politician visiting the families of soldiers, who are killed by enemy fire almost every month while guarding the border or killed during terrorist attacks. Aren’t their sacrifices important enough for a visit to the family? Instead, the solider is often used for political gains, for which we have a recent example in the aftermath of the 29 September surgical attacks across LoC, when the sacrifice of the solider who staked his life in the enemy soil was politicised heavily to win voters in poll bound states.

This is not to say that the dead soldier’s family didn’t deserve any sympathy from political leaders, be it of any political party. But, had there been any sincerity in the approach of our politicians to solve the concerns of the retired soldiers, they would not have been forced to take their protests to the streets in the first place. The soldier who has spent his entire life guarding the nation deserved to be treated with dignity. Also, in the case of Grewal, political leaders should have respected the privacy and grief of the surviving members of the family, instead of doubling their pain with the ruckus. According to reports, some family members of Grewal too were detained by the police, following the ruckus and Grewal’s family has alleged that the cops beat them up when they emerged from the hospital. Of course, the police confronted with a situation of breach of order wouldn’t care to see to which side the people before them belonged. The onus here undoubtedly lies on the politicians, not the police.

As mentioned above, the real reasons and circumstances that led to Grewal’s suicide needs to be probed, including the source of the poison he allegedly consumed and the fact that whether he was pushed by anyone to commit this act. Nevertheless, the political drama unveiled at RML on Wednesday was unwarranted. It served no purpose other than adding to the pain of the family of the dead solider and only tells us that our politicians live a big lie.

S&P’s decision to not upgrade India should be eye-opener for Modi govt, not frustrate it

Global rater Standard and Poor’s decision to retain India’s sovereign ratings at BBB- and the agency’s comment that any rating upgrade is unlikely in at least two years hasn’t clearly gone down well with the Narendra Modi government.

At a presser on Wednesday in Delhi, economic affairs secretary Shaktikanta Das didn’t hide his disappointment. Das said S&P should do an “introspection” for not upgrading India’s sovereign rating, despite unparalleled reforms anywhere in world.

“I’m not questioning anybody’s methodology. We value their comments. And they will be taken into consideration. (But) Investors agree that India is under rated. They (rating agencies) should do some introspection (on why they haven’t upped the India rating,” said Das responding to questions at the presser.

s&ps&p

Reuters

In September, another global rating agency, Moody’s too had retained India ratings saying it would wait for at least two years to see ‘tangible’ results of reforms on the ground before thinking about a rating upgrade.

Das’s frustration is understandable given that the Modi government has been desperate to get credit for its work on the reform front in the last two years and show the voters that the government’s work is indeed showing results. When things don’t happen in the desired speed, it’s quite logical the political leadership gets disappointed. This was so even when the recent World Bank’s ranking of countries based on ease of doing business, came in October, showed only a marginal improvement for India (one rank up to 130 of 190 economies).

Even the political enemies of Modi wouldn’t deny the reform intent of this government. Ever since the NDA government took charge in May 2014 it has made notable progress on pushing certain key bills in Parliament including insurance, coal, Aadhhar and the crucial bankruptcy law besides managing to build the political consensus to initiate the rollout of the crucial Goods and Services Tax (GST) regime. Also, the government’s initiatives on subsidy reforms, rural infrastructure and its efforts to give a leg-up to the small industries have helped to improve sentiments.

A look at the S&P note shows that the agency has indeed acknowledged that the positive changes in the economy. “India’s governing parties have made progress in building consensus on a passage of laws to address long-standing impediments to the country’s growth…we believe these measures, supported by India’s well-entrenched democracy, will promote greater economic flexibility and help redress public finances over time,” S&P has said.

Then why is the rater reluctant to up the sovereign rating? S&P has highlighted two key reasons, “vulnerabilities stemming from its low per capita income and weak public finances”.

“The outlook indicates that we do not expect to change our rating on India this year or next, based on our current set of forecasts,” S&P has said.

In September, Moody’s too had highlighted weak private investment scenario in the country as a hurdle for a rating upgrade. The agency had listed a six-point agenda on the list of pending reforms — the land acquisition Bill, labour law reforms, significant infrastructure investment, tangible benefit from Make in India initiative, tax administration and PSU bank reforms.

These are precisely areas where the Modi government has so far failed to make significant progress. Absence of revival in private investments remains a big concern. According to data from the Centre for Monitoring Indian economy (CMIE), private investments have fallen sharply ever since the Modi government took over. The share of private investments in projects under implementation has fallen from 52.8 percent in 2013-14 to 47.7 percent in 2015-16, whereas during the same period, the government’s share of investments increased from 47.2 percent to 52.3 percent.

The growth in private investments between 2013-14 and 2015-16 rose by mere 1.1 percent, whereas that in the public investments grew by 24 percent. In short, private investments have been painfully low.

The bottom line is this: Crying foul at rating agencies for not delivering the expected rating would hardly help. Instead, these indications should act as an eye opener to understand the problems and move ahead to solve them.

Zakir Naik case: Why Modi govt shouldn’t let the Salafis preacher play the Muslim card

The Narendra Modi-government’s move to choke funds for the two NGOs run by the controversial preacher, Zakir Naik is an action long overdue, undoubtedly.

As Firstpost has noted before, much caution needs to be exercised on any individual or organisation seeking to promote the idea of religious supremacy in a secular society.

This government is seemingly convinced that Naik’s speeches and the functions of his two NGOs — Islamic Research Foundation (IRF) and IRF Educational Trust — are detrimental to country’s religious harmony and an inspiration to terror elements, hence the action.

Naik’s style of preaching, which is centered around the supremacy of the 7th-century religion and his clandestine calls to wage war against the ‘enemies of Islam’ have allegedly inspired terror elements both in India and abroad.
Two questions arise at this juncture.

File photo of Zakir Naik. Photo: News18File photo of Zakir Naik. Photo: News18

File photo of Zakir Naik. Image courtesy: News18

First, why did the Indian government took so long to acknowledge that Naik is a threat and initiate actions? Going by Naik’s own claims, he has been doing it for some 25 years and the content of his speeches have been pretty much same all along. As this website has reported before, during the UPA-rule, in 2013, a communication had gone to the ministry of home affairs from the then Prime Minister, Manmohan Singh, about the potential threat caused by Naik’s speeches. This was based on a complaint submitted at the PMO. But, the matter ended there.

It took the July 2016 Dhaka attacks for the Indian government to wake up to the problem (possibly due to media pressure) and initiate actions against the Islamic preacher. Naik is now a bird flown far away from the cage and is unlikely to return anytime soon. The preacher has even avoided attending his father’s funeral ceremony early this week, fearing arrest. As of now, he is out of reach of Indian agencies.

Also, Naik’s name has been linked not just to Dhaka attacks but even to the cases in Kerala where youth have been brainwashed to join the Islamic State of Iraq and Syria. Kerala police has claimed that Arshi Qureshi, guest relations officer of Mumbai-based Islamic Research Foundation, had indeed links with the Islamic State. For years, Naik’s NGOs have been receiving foreign aid. Given the findings of the Police, it is quite possible that these funds have been used for such acts. Only a detailed investigation on the money trail can reveal how this money has been utilised.

But, the point here is that had the investigative agencies acted well in advance, things wouldn’t have worsened to this level. This shows how our surveillance mechanisms are still grappling with problem of sheer inefficiency.

The second question is how prepared is the government to proceed from here in this sensitive case. Since the very beginning, Naik has been playing the victim card. He has termed the actions against him as attacks on Muslim community.

True, India’s larger Muslim community (about 172 million of them as per Census 2011 data), except in certain pockets, do not approve his radical, religious fundamental ideas and the idea of religious supremacy. But even then, a failure from the part of the government to corner Naik with a convincing, foolproof case could result in the preacher yet again shielding himself keeping the community in the front. Then, it could lead to more communal issues like one seen in other Muslim dominated areas of the country and could thus become a bigger headache for the Modi-government, which is already facing flak for its alleged pro-Hindu, pro-RSS ideology. It is in this context that the government should send a strong message that extremist elements, be it of any religious background, will be dealt with iron hand like it is currently doing with Naik.

Zakir Naik’s case is a classic example of government and investigators acting too late. And it is too sensitive a case for Modi-government to handle now. In an open letter he released in September, 2016, Naik had warned that if he and his organisation IRF are banned in India, he would be welcomed by other Muslim countries with a “red carpet” and such an action will be the “biggest jolt to the country’s democracy in recent times”. This language is that of a clear warning to the Indian authorities. The government would do well exercising caution while cornering the Salafi preacher.

Brics summit live: PM Modi, Vladimir Putin begin closed-door bilateral meeting

Make no mistake. From an economic perspective, China matters to Pakistan much more than India does. Yes, India is a hard to ignore constituent among the South Asian countries, both for political and geographical reasons. And as we saw recently, India has shown its clout in the Saarc grouping, by isolating Pakistan. To a certain extent, Pakistan too needs India to keep its relations with other Saarc members on good terms and, for water.

The reason why it is making panic remarks in the international fora against India’s proposed move to cut the water supply to Pakistan under Indus Waters Treaty (IWT), is nothing else. Agriculture is one of the main pillars of Pakistan’s economy, which constitutes 19.8 percent of its GDP and is the largest employer (42.3 percent of the country’s total labour force), according to the latest data from the Pakistan government. If India acts on this front, upping its strategic offensive, there will be severe economic repercussions within Pakistan, which isn’t easy for Nawaz Sharif government to handle. For political reasons, Pakistan’s political leadership and army need to show India as a perennial enemy, but the irony is its economy can’t sustain without India.

(From left) Brazil's President Dilma Rousseff, PM Narendra Modi, Russian President Vladimir Putin, Chinese President Xi Jinping and South African President Jacob Zuma. Reuters

(From left) Brazil’s President Dilma Rousseff, PM Narendra Modi, Russian President Vladimir Putin, Chinese President Xi Jinping and South African President Jacob Zuma. Reuters

But, China commands a bigger place in Pakistan’s strategic circles. The Chinese are the biggest trade partner of Pakistan. For 2014-15, the total trade between the two countries was recorded at $12. 299 billion out of which Pakistan’s exports were $2. 126 billion and imports were $10. 17 billion, according to a report in The Nation.

Pakistan exports cotton yarn/fabric, rice, raw hides and skins, chemical material, fish and fish preparations and crude mineral to China and imports machinery (all sorts) and its parts, fertiliser, chemical element, yarn and thread of synthetic fibre, iron and steels, chemical material and product, vegetable and synthetic textile fibre, road vehicles and their parts, non-ferrous metals, tyres and tubes of rubber, the report said. With India, Pakistan’s trade is a minuscule, even after India awarding Most Favoured Nation (MFN) status to that country. In 2015-16, out of India’s total merchandise trade of $641 billion that to Pakistan stood at a mere $2.67 billion.

Reasons for Chinese interest in Pakistan isn’t easy to understand. China needs Pakistan to check India’s influence in the region, and Pakistan needs India for the same reason. India’s relations with Pakistan is seemingly beyond revival at this stage and that with China has always been murky.

China’s clout in Pakistan isn’t just about trade. The dragon has been slowly and steadily increasing its stake in Pakistan’s real economy over years. The biggest example of Pakistan economy’s dependence on China to improve its fortunes through $46-billion China-Pakistan Economic Corridor (CPEC) projects. The value of this ‘economic cooperation’ is so high that a recent World Bank report warned that Pakistan’s prospects of growing even at modest five percent a year are at risk due to delays in the implementation of the CPEC projects. Should India be worried about CPEC? Yes. Because the China-Pakistan economic corridor is passing through Pak-occupied Kashmir. India has raised its concerns on this already.

Even when signals emerged from India that it might curtail water supply to Pakistan under IWT, Pakistan threatened to take up this issue internationally put pressure on India — mainly with China. Besides trade and economic cooperation, China also plays a major role in aiding military support to Pakistan over a period. Pakistan has returned the favour saying it too will offer full military support to China on a boarder scale to assure safety to the China-Pak economic corridor. In short, there is a bonhomie getting stronger between the two countries that India cannot ignore.

It is in this context, Prime Minister Narendra Modi will have to approach the Brics summit in Goa. As Firstpost noted in an article, the Brics meet this time is even more significant for India in the context of the growing threat of terrorism originating from Pakistan and its impact on rest of the world. India, which managed to completely isolate Pakistan from the Saarc countries in the aftermath of a series of border terrorist attacks by Pakistan-based elements (the latest being Uri), will most likely take up the issue of the Pakistan factor in the Brics meeting. Can India call Pakistan’s bluff on aiding terrorism at BRICS is a question.

As the Brics summit kicks off on Saturday, one of the major things to watch is how India will approach to the growing Pakistan-China bonhomie. A friendship is mutually beneficial for Pakistan and China to check India’s influence in the region. But, it is a concern for India. How India will plan its moves to check this perceived, obvious threat at the Brics is a big question.

Brics summit: PM Modi must plan India’s moves to check Pakistan-China bonhomie

Make no mistake. From an economic perspective, China matters to Pakistan much more than India does. Yes, India is a hard to ignore constituent among the South Asian countries, both for political and geographical reasons. And as we saw recently, India has shown its clout in the Saarc grouping, by isolating Pakistan. To a certain extent, Pakistan too needs India to keep its relations with other Saarc members on good terms and, for water.

The reason why it is making panic remarks in the international fora against India’s proposed move to cut the water supply to Pakistan under Indus Waters Treaty (IWT), is nothing else. Agriculture is one of the main pillars of Pakistan’s economy, which constitutes 19.8 percent of its GDP and is the largest employer (42.3 percent of the country’s total labour force), according to the latest data from the Pakistan government. If India acts on this front, upping its strategic offensive, there will be severe economic repercussions within Pakistan, which isn’t easy for Nawaz Sharif government to handle. For political reasons, Pakistan’s political leadership and army need to show India as a perennial enemy, but the irony is its economy can’t sustain without India.

(From left) Brazil's President Dilma Rousseff, PM Narendra Modi, Russian President Vladimir Putin, Chinese President Xi Jinping and South African President Jacob Zuma. Reuters

(From left) Brazil’s President Dilma Rousseff, PM Narendra Modi, Russian President Vladimir Putin, Chinese President Xi Jinping and South African President Jacob Zuma. Reuters

But, China commands a bigger place in Pakistan’s strategic circles. The Chinese are the biggest trade partner of Pakistan. For 2014-15, the total trade between the two countries was recorded at $12. 299 billion out of which Pakistan’s exports were $2. 126 billion and imports were $10. 17 billion, according to a report in The Nation.

Pakistan exports cotton yarn/fabric, rice, raw hides and skins, chemical material, fish and fish preparations and crude mineral to China and imports machinery (all sorts) and its parts, fertiliser, chemical element, yarn and thread of synthetic fibre, iron and steels, chemical material and product, vegetable and synthetic textile fibre, road vehicles and their parts, non-ferrous metals, tyres and tubes of rubber, the report said. With India, Pakistan’s trade is a minuscule, even after India awarding Most Favoured Nation (MFN) status to that country. In 2015-16, out of India’s total merchandise trade of $641 billion that to Pakistan stood at a mere $2.67 billion.

Reasons for Chinese interest in Pakistan isn’t easy to understand. China needs Pakistan to check India’s influence in the region, and Pakistan needs India for the same reason. India’s relations with Pakistan is seemingly beyond revival at this stage and that with China has always been murky.

China’s clout in Pakistan isn’t just about trade. The dragon has been slowly and steadily increasing its stake in Pakistan’s real economy over years. The biggest example of Pakistan economy’s dependence on China to improve its fortunes through $46-billion China-Pakistan Economic Corridor (CPEC) projects. The value of this ‘economic cooperation’ is so high that a recent World Bank report warned that Pakistan’s prospects of growing even at modest five percent a year are at risk due to delays in the implementation of the CPEC projects. Should India be worried about CPEC? Yes. Because the China-Pakistan economic corridor is passing through Pak-occupied Kashmir. India has raised its concerns on this already.

Even when signals emerged from India that it might curtail water supply to Pakistan under IWT, Pakistan threatened to take up this issue internationally put pressure on India — mainly with China. Besides trade and economic cooperation, China also plays a major role in aiding military support to Pakistan over a period. Pakistan has returned the favour saying it too will offer full military support to China on a boarder scale to assure safety to the China-Pak economic corridor. In short, there is a bonhomie getting stronger between the two countries that India cannot ignore.

It is in this context, Prime Minister Narendra Modi will have to approach the Brics summit in Goa. As Firstpost noted in an article, the Brics meet this time is even more significant for India in the context of the growing threat of terrorism originating from Pakistan and its impact on rest of the world. India, which managed to completely isolate Pakistan from the Saarc countries in the aftermath of a series of border terrorist attacks by Pakistan-based elements (the latest being Uri), will most likely take up the issue of the Pakistan factor in the Brics meeting. Can India call Pakistan’s bluff on aiding terrorism at BRICS is a question.

As the Brics summit kicks off on Saturday, one of the major things to watch is how India will approach to the growing Pakistan-China bonhomie. A friendship is mutually beneficial for Pakistan and China to check India’s influence in the region. But, it is a concern for India. How India will plan its moves to check this perceived, obvious threat at the Brics is a big question.

Brics meet in Goa: Can India call Pakistan’s bluff on terrorism and win over world opinion?

Ever since Jim O’Neill, former chairman of Goldman Sachs asset management, coined the term Bric for four powerful economies — Brazil, Russia, India and China — in their 2001 paper, The World Needs Better Economic BRICs, the regional grouping has caught the world’s attention. With South Africa joining the club in 2010, BRICS commanded an even bigger influence. It soon evolved into a group with a significant say over the political-economic affairs of the world. Take a look at what Brics means to the world today.

(from left) Michel Temer, Narendra Modi, Xi Jinping, Vladimir Putin and Jacob Zuma ahead of the 8th Brics Summit. Twitter @BRICS2016(from left) Michel Temer, Narendra Modi, Xi Jinping, Vladimir Putin and Jacob Zuma ahead of the 8th Brics Summit. Twitter @BRICS2016

(from left) Michel Temer, Narendra Modi, Xi Jinping, Vladimir Putin and Jacob Zuma ahead of the 8th Brics Summit. Twitter @BRICS2016

According to certain estimates, Brics constitutes nearly half of the world population, one-third of the world’s GDP and close to one-fifth of the world’s trade. The grouping has three heavyweights — China, Russia and India, that practically controls the region, both politically and economically and is seen as an Eastern power centre. The point of highlighting these statistic is to say how critical is the summit slated to be held in Goa on 15, 16 October to the region and the Western world.

In the recent past, Brics has gradually begun to set the stage for a new world economic order.

The formation of the New Development Bank (NDB), also known as BRICS development bank is a big example. Set up in 2014, the NDB sent a signal to the world that the region wants an institution that can eventually offer an alternative to existing multilateral agencies such as International Monetary Fund (IMF), World Bank and Asian Development Bank (ADB) and that the new body will be more sensitive to the needs of region.

Going by the initial contours, the NDB will have a corpus of $50 billion divided equally between its five founding members, with an initial total of $10 billion in cash put over seven years and $40 billion in guarantees. Another $50 billion is expected to come from other members who join in later. Besides, there will be a currency chest of $100 billion to help member countries meet their emergency cash requirements. China will contribute the largest share of $41 billion to the reserve. Russia, India and Brazil will contribute $18 billion each, while South Africa will contribute $5 billion. One Indian—K V Kamath, former chairman ICICI Bank—is the first chief of BRICS bank. The Goa meet will be looked closely to know how the grouping wants to grow the BRICS development bank from here.

Second, according to reports, the Brics countries are now considering forming a new global credit rating agency for emerging markets to challenge the dominance of western credit rating agencies like Moody’s, Standard and Poor’s and Fitch, whose observations and rating decisions have often come under heavy criticism by some of the developing markets including India. For instance, India has, in the past, challenged the methodology followed by rating agency Moody’s saying the agency has ignored the reforms initiated by the government and it should not wait “till infinity” for them to take root before upgrading the country’s sovereign rating. Presently, there are no alternatives for the eastern world to challenge the dominance of the ‘big three’ of the West. Here again, the Brics meet this weekend will be watched for clues.

Besides the economic factors, the Brics meet this time assumes even more significance in the context of the growing threat of terrorism originating from Pakistan and its impact on rest of the world. India, which managed to completely isolate Pakistan from the Saarc countries in the aftermath of a series of border terrorist attacks by Pakistan-based elements (the latest being Uri), will most likely take up the issue of the Pakistan factor in the Brics meeting. India has already raised concerns on Russia’s suspicious bonhomie with Pakistan, though Russia has openly expressed its willingness to support India’s fight against terrorism.

Similarly, China’s growing influence in Pakistan and China’s economic aid to that country is a matter of concern for India. As Firstpost has noted before, Pakistan economy’s dependence on China to improve its fortunes is so high that a recent World Bank report warned that Pakistan’s prospects of growing even at at modest five percent a year are at risk due to delays in the implementation of the $46-billion China-Pakistan Economic Corridor (CPEC) projects. India is looking at this progress closely, given that it sees potential threats from China. There is a possibility that India will raise its concerns to Brics partners about the danger of extending economic and military aid to Pakistan. Whether India manages to convince the Brics partners about its stance on Pakistan and the need to isolate the country in the larger interest of the region, needs to be seen.

In this backdrop, the Goa meet of Brics isn’t just another event for the world, the region and India, in particular. The meet has crucial, unprecedented significance. Beyond the regional issues, the Goa meet will be watched by the world to gauge how the regional group is silently building a new world order brick by brick that the West can’t ignore any longer.

Data contributed by Kishor Kadam

Kerala’s political terrorism: 7 killings so far in RSS-CPM clashes; where is Pinarayi Vijayan govt?

Pinarayi is the name of a village in Kerala’s Kannur district (old Malabar region).

The village is the birth place and falls in the Dharmadom constituency of chief minister Pinarayi Vijayan. But, the place is in now in the news for brutal political killings.

It was here 26-year-old Remith, a Rashtriya Swayamsevak Sangh (RSS)-Bhartiya Janata Party (BJP) worker, was hacked to death on Wednesday morning around 10 am near a petrol pump when he was returning home.

Pinarayi Vijayan. PTIPinarayi Vijayan. PTI

Pinarayi Vijayan. PTI

Remith was found in a pool of blood, said reports in local dailies. He was lying unattended, with blood oozing out of deep cuts on his face, neck and limbs, until the time he was taken to a hospital by a vehicle of the excise department. Remith met his fate 14 years after his father, Uthaman (also an RSS worker), was killed almost in the same manner – dragged out of a bus and hacked until he died.

Remith was killed to retaliate the murder of K Mohanan, CPI(M)’s branch secretary, at Koothuparambu, not far from Pinarayi.

This, according to the local media reports, marks the seventh such political killing so far this year. The BJP is observing a state-wide hartal to mark their protest on Remith’s killing.

Kerala’s political killings

The beginning of political killings in the state dates back to 70s, when Hindu-Muslim conflicts used to happen in Malabar. This gradually turned to RSS-Left conflicts on behalf of both communities and time to time, both parties kept taking lives on both side to keep the tally equal.

Scores of heads have been plucked out of torsos since then. Enormous amount of blood were shed on the roads, party offices, campuses and even within the perceived safety of homes right in front of family members. Gradually, such incidents became routine and ceased to become news. There is no accurate official estimates of how many lives have been terminated. The reasons for such killings are often local issues, sometime as silly as placing one party’s hoarding on one spot, which was used by the other party last year, or to put it more simply, just to equal the tally.

Why is the state, known as God’s own country and takes pride in its high literacy level, fast turning into a hell hole?

The reason, according to political analysts, is the renewed vigour among the RSS and BJP units following the show of strength of the party at the national level and the counter measures of CPM in the state to retain their territory.

“There is a feeling among the local BJP workers that there is support from above,” said M N Karassery, a well-known political analyst in the state. “On the other hand, the CPM workers in the state too feel that they have the silent support of the LDF-government to retaliate,” said Karassery.

Karassery is probably right.

According to a report in The Indian Express, the CPM’s state secretary Kodiyeri Balakrishnan urged the party workers to retaliate at political rivals physically.

“Every region should have a system to counter the attack from rivals. We should ensure that those who come to attack us do not return from our region. For this, the party should gain strength in every region. Young men and women should be given necessary physical training,” The Indian Express reported.

Though chief minister Vijayan is an admirer of Narendra Modi and the Centre, the left-hardliners and foot soldiers of the party on the ground doesn’t seem to share the admiration. And the only language they understand, especially in the northern part of the state like Kannur, is that of violence.

“All political parties keep quotation teams (goons) to use when needed. This is nothing but political terrorism, which happens when political parties run out of ideas to fight with but only weapons. That’s what terrorists also do.”

Rise of RSS-BJP

The rise of RSS-BJP clout in Kerala post May 2014 when Narendra Modi government came to power bolstered the local BJP-RSS units to take on the rivals. This was subsequently boosted by BJP’s improved performance in votsehare in 2015 local body polls and 2016 May state assembly polls. Withstanding the strong Left wave that swept through the state, the lone lotus bloomed in Nemam marking the first victory for the party in Kerala Assembly elections. The party has indeed begun to make strong inroads to the bipolar political landscape of the state.

In the Assembly elections this year, BJP’s vote share rose to10.5 percent as compared to the 6 percent in 2011 Assembly elections, but it has remained flat when compared with the 10.2 percent it scored in 2014 Lok Sabha polls.

Seen together with its ambitious ally, Bhartiya Dharma Jana Sena (BDJS), the vote share is about 14 percent as compared to the 16 percent the alliance clocked in local body polls last year. The BDJS contested in 37 seats and garnered 3.9 percent total vote share while BJP finished with 10.5 percent.

The fact that BJP government is in power at centre and the party’s new found strength in the state emboldened the state unit. Particularly, it caused more aggression among the “party villages” in northern side of Kerala, such as Kannur and Kasaragod districts.

On the other hand, the left parties too became increasingly aware about the rising threat posed by the RSS-BJP in the state and hence they too started reacting aggressively to any provokation from the RSS camp, often resorting to violent retaliations, with the silent support of Vijayan government.

The bigger question is the silence of chief minister Vijayan, who is also holding the home ministry. “Had Vijayan acted on time, none of this would have happened. What is the need to deploy party workers to avenge the murder of CPM workers, when you can do so through due legal process seeking the help of state police and judiciary,” Karassery asked.

From a national perspective, Kerala is now passing through a phase of political transition. The RSS-BJP is gaining muscle, the Congress-led UDF front is facing an existential crisis and the left is trying to hard not to lose its hard-won dominant position in the state using all possible means, including that of violence.

One needn’t be surprised if more heads roll in the days ahead. That, if the Vijayan government continues to remain a mute spectator to the situation on the ground and succumbing to party’s hardliners.

For now, the state is far from being the God’s own country.

Welcome to India, world’s fastest growing economy where 39% children are stunted

Prime minister Narendra Modi took a jibe at India’s perennially hostile neighbour Pakistan at his Kozhikode speech, just a few days ahead of the ‘surgical attacks’ conducted by army’s special forces at LoC. The Prime Minister said India is ready for a war with Pakistan, but a war on poverty, unemployment and malnutrition. Modi’s ‘war cry’ resonated well even in the Pakistani media. It seems we, Indians, are indeed at war with Pakistan on poverty and malnutrition.

As this Mint report notes, among Asian countries India and Pakistan are at the bottom of the rankings in the Global Hunger Index (GHI) report released by US-based International Food Policy Research Institute (IFPRI).

AFPAFP

AFP

In the 2016 rankings of 118 countries, India is at 97th position and Pakistan at 107. All other Asian neighbours of India are doing relatively better — China (29), Nepal (72), Myanmar (75), Sri Lanka (84) and Bangladesh (90), the report showed, adding India’s GHI score of 28.5 is worse than the developing country average score of 21.3.

Brazil and Argentina have a GHI score of less than 5 and are ranked the best among developing nations, while countries like Chad and Central African Republic come at the bottom with a score of 44.3 and 46.1, respectively, the report says.

GHI is a multidimensional statistical tool used to describe the state of countries’ hunger situation. Updated once a year, it gauges the progress and failures in the global fight against hunger.

Take a look at the specifics. The IFPRI thinks we have a “serious” hunger problem with 15.2 percent of Indians undernourished and 38.7 percent of children under the age of five stunted on account of malnutrition.

One can always argue on the efficacy of such surveys in portraying the accurate picture with a decent amount of skepticism. But, facts are facts and the more you ignore it, a bigger joke you make out of yourself. The hunger index numbers indeed throw some serious questions on the course of ongoing government programmes to alleviate poverty and malnutrition in the country, and whether we have prioritised this problem the way it should be.

For a layman on the street, a logical question arises. With one in every 15 Indians facing near starvation and close to 40 percent below-5 children stunted for want of minimum nutritious food, what sort of China-beating economic growth and India’s emergence into world central stage are our politicians boasting of?

Yes, India has been struggling to cut down poverty. The level of poverty and malnutrition have come down over the past decade, but somewhere we are missing the sense of urgency when it comes to address the people at the bottom of the pyramid.

The IFPRI report isn’t a one-off.

Going by a United Nations annual report for 2014-15 released last year, India has the world’s highest number of hungry people in the world. Ironically, we have beaten China here too. India has 194.6 million hungry people compared with 133.8 million in China, of the total of 795 million people in the world. In other words, one-fourth of the world’s hungry population is in India. What does being the citizens of the world’s fastest growing economy mean to them?

Jobless economic growth

When we talk about poverty and malnutrition, it is necessary to look at what education and job market are doing to elevate India’s poor from the deadly grips of poverty. Since independence, India has progressed remarkably on giving basic education to the children. Though the quality of higher education offered in our universities is still a matter of debate, India continues to be one of the biggest exporter of human talent across sectors to the developed world.

That takes us to the next problem — joblessness in our country and why we continue to see a period of high growth but less number of jobs being generated (mechanisation and efficiency cannot be the sole excuses). The problem for the poor is lack of employment opportunities.

For a larger section of people at the bottom of pyramid, a 7.6 percent GDP growth is a mere number on the morning newspapers considering lack of employment opportunities. Even if one looks at the job data, the picture is disappointing. There has been no corresponding increase in the number of jobs in the economy to align with what the headline GDP numbers indicate.

Let’s revisit briefly a recent Firstpost article, which highlighted the unemployment problem in the country.

According to the Labour Bureau data, the country’s unemployment rate has shot up to a 5-year high of 5 percent in 2015-16. This figure is significantly higher, at 8.7 percent, for women as compared to 4.3 percent for men. About 77 percent of Indian households do not have regular wage/salaried person.
India’s unemployment rate was 4.9 percent in 2013-14, 4.7 percent in 2012-13, 3.8 percent in 2011-12 and 9.3 percent in 2009-10. There was no report from Labour Bureau in 2014-15. And the situation is not looking better going ahead.

A World Bank research has showed that automation threatens 69 percent of the jobs in India. With the use of more technology, the pattern of traditional economic path in developing countries could be fundamentally disrupted, the report noted.

That’s not all.

Asia-Pacific Human Development Report released by the United Nations Development Programme (UNDP) this year gives a strong warning on the level of unemployment in the country. According to the report between 1991 and 2013 India could provide employment only to less than half of the new entrants into the job market.

“The the size of the working-age population increased by 300 million (during the period), while the number of employed people increased by only 140 million — the economy absorbed less than half the new entrants into the labour market. A wider gap in India than China suggests a more limited capacity to generate employment — a serious challenge given the continued expansion of the workforce in India over the next 35 years,” the report said.

The bottomline is this: It’s perhaps time our politicians stopped weighing India’s economic growth only in GDP percentage figures and go for a broader set of parameters that reflect the actual growth of the economy/ real situation on the ground — something which depicts the level of poverty, unemployment and malnutrition rate, not just a measure crunching the domestic produce numbers.

IIP contracts again: Modi govt is dealing with a problem, not just a statistical illusion

The factory output data released on Monday evening wouldn’t be comforting set of numbers to the Narendra Modi government.

There are two ways to look at the second consecutive month of contraction in the Index of Industrial Production (IIP) by negative 0.7 percent in August compared with negative 2.5 percent in the preceding month.

First, one can argue that the IIP numbers are largely irrelevant because of the outdated base (2004-05) and IIP numbers need to be taken seriously only after changing the base to 2011-12 as is the case for GDP calculation.

Second, to acknowledge that there is indeed a problem particularly with regard to the visible absence of private investments. This has been the core reason that has dragged the broader factory output to negative arena all along.

This sceneario is not different in the August IIP numbers too. The question arises: Is the consecutive contraction of factory output on account of the second reason, rather than the first or is there a deeper issue? Take a look at the numbers a bit more closer to understand this.

ReutersReuters

Reuters

All the nine components that constitute the industrial production index have clearly continued to disappoint in August. The poor performance is more visible on three critical areas — manufacturing, capital goods and electricity. The manufacturing segment has shown a contraction of 0.3 percent and capital goods 22.2 percent, while electricity witnessed a growth of 0.1 percent.

Of these three, note the capital goods part, which is the actual indicator of investment activity on the ground. In July, this component had contracted close to 30 percent. This month, there is a slight improvement, but still in the negative. This is the crux of the problem.

“Production trends yet so far this fiscal year have disappointed, pointing to an extended lull phase for the private sector investments. Expectations are that positive demand impulses in the pipeline, including high public sector wages, normal monsoon and an accommodative monetary policy will be the key domestic catalysts for factory output, as external demand flatlines. Meanwhile, markets will look for a rebased industrial production series due late-2016 or early next year, to update the data series and bring it in line with the rebased GDP dataset,” said Radhika Rao, economist at Singapore based DBS Bank.

As Rao says, when the base year is corrected, the IIP numbers might show a marked improvement, the same way the GDP numbers jumped when the method of calculation was changed beginning 2013-14. But, will that solve the problem.

It is difficult to believe that it will. Reason, a host of other indicators too point to the problem of scarce private investments acting as a major drag in the economic recovery process.

This is something Firstpost had highlighted when the GDP numbers showed high growth. Much of the growth was generated by consumption and certain technical reasons (discrepancies component) not on account of a revival in private investments. When the growth is hanging solely on the consumption push and not fresh capital generation, economists tend to develop skepticism on the sustainable nature of the recovery process.

Now, take a look at the bank credit growth. The bank lending to overall industries have been almost nil in the recent years. Banks have been largely looking at the safer retail loan portfolio to growth their books. Here, one can argue that companies are crowding the money markets and banks are investing in their papers, hence bank lending data is irrelevant. But, that is a weak argument.

This is because only top rated companies have the luxury to tap the bond market. What about the small and medium sized firms for which bank counters are still a no-go area? Banks will reason with you that theer NPAs are high and unless these firms improve their balance sheet health, they won’t get fresh loans. Companies would say unless banks restart the lending process their financial health wouldn’t improve. This creates a chicken and egg situation. But, the point here is that bank lending data too correlate with lacklustre core sector growth.

Thirdly, one should also note what are the rating agencies talking about corporate health. A recent note released by Icra says in the first half of fiscal year 2017, it upgraded the ratings of 287 entities and downgraded 314, in relation to a total of around 7,000 entities whose ratings were outstanding at the beginning of the fiscal year. The Credit Ratio, or the ratio of upgrades to downgrades, remained at 0.9 time, similar to the ratio in same period last year.

What this basically suggests is that “a meaningful improvement in the credit quality of Indian entities is not apparent yet”.

“Overall, broad-based recovery in credit quality not on the horizon yet. This is contrary to the perception that credit quality has recovered in the first half of the current fiscal,” the agency said.

This means there is a problem beyond the base year calculation in the downward trend on IIP, a problem of lack of private investments and continuing poor corporate health.

Now, what should be done?

Clearly, there is no magic wand with finance minister Arun Jaitley to make the problems vanish in a moment. But, he could engage with the private sector more actively to put money on the table. Also, the public spending that acted as a major catalyst needs to continue with pace. Despite the hype over the Modi government’s investment focus, the fact remains that there has not been a substantial jump in private investment to support growth. The government needs to acknowledge the problem and see what can be done to crack it.

The continuing drag on the core sector growth, which constitutes 38 percent of the factory output, will put more pressure on the Monetary Policy Committee to cut rates even further. One shouldn’t be surprised if RBI governor Urjit Patel announces one more rate cut in December and make a comment that growth is a bigger concern now than inflation.

(Data from Kishor Kadam)

Unemployment at 5-year high: Why a jobless GDP growth could spoil Narendra Modi’s 2019 run

Union finance minister Arun Jaitley now exercises more caution when he speaks about India’s economic performance during foreign trips. The ‘we-are-the-best-and-everything-is-fine-here’ tone has changed to the we-are-better-than-others-but-have-issues-to-sort-out tone, a more real and mature one.

At Washington, where he is leading a high-power Indian delegation to the annual fall meeting of the International Monetary Fund and the World Bank, Jaitley said,”More than even before we are at the centre stage. That you would have to admit. But, I would put a caveat. India has become far more aspirational than ever before. So compared to the rest of the world, we are doing much better. Compared to our own yardstick, we feel, this is not enough.”

Budget_2015_Jobs3Budget_2015_Jobs3

The rising unemployment is a disturbing trend

“We can do still better, which in a sense is not a bad thing to happen. To be restless, to be impatient is a sign of wanting to do better.”

Indeed there is a buzz around India internationally.

With the projected 7.6 percent annual GDP growth in the next two years, India is the fastest growing major economy in the world.

Benefitting from oil price crash and internal adjustments, the government’s finances are in a much better shape now, consumer inflation is lower than what it used to be three years back (thanks to a vigilant RBI) and on the reforms front, after a long period of inaction, things are looking up (Credit certainly goes to PM Narendra Modi and team).

The government, which came to power with a landslide majority in the 2014 general elections, has indeed reversed the pessimistic mood in the economy prevailed during the UPA days. Structural reforms, with respect to indirect taxation and financial sector, subsidy reforms and efforts to revive industries, offer hope for a change on the ground.

But, what is disturbing to note is the trend in unemployment.

This is an area about which the Modi government typically talks less, and painfully so. According to various estimates, about 10 lakhs young citizens are entering the country’s job market every month. That’s 1.2 crore every year. It’s a huge number. Modi doesn’t seem to have a plan to how to face this young crowd.

india-china-jobsindia-china-jobs

A reccent PTI report, which cited a survey by Labour Bureau, said country’s unemployment rate has shot up to a 5-year high of 5 percent in 2015-16. This figure is significantly higher, at 8.7 percent, for women as compared to 4.3 percent for men. About 77 percent of Indian households do not have regular wage/salaried person.

Here, one needs to look at the previous years’ numbers to understand how serious is the 2015-16 figure. India’s unemployment rate was 4.9 percent in 2013-14, 4.7 percent in 2012-13), 3.8 percent in 2011-12 and 9.3 percent in 2009-10. There was no report from Labour Bureau in 2014-15.

And the situation is not looking better going ahead.

A World Bank research has showed that automation threatens 69 percent of the jobs in India. With the use of more technology, the pattern of traditional economic path in developing countries could be fundamentally disrupted, the report noted.

That’s not all.

Asia-Pacific Human Development Report released by the United Nations Development Programme (UNDP) this year gives a strong warning on the level of unemployment in the country. According to the report between 1991 and 2013 India could provide employment only to less than half of the new entrants into the job market. “The the size of the working-age population increased by 300 million (during the period), while the number of employed people increased by only 140 million — the economy absorbed less than half the new entrants into the labour market. A wider gap in India than China suggests a more limited capacity to generate employment — a serious challenge given the continued expansion of the workforce in India over the next 35 years,” the report said.

The increasing unemployment rate, as seen in the above mentioned numbers, thus raises questions on the quality of GDP growth India, Modi and his ministers often talk about. This has been the case in the recent years.
Why such high rate of joblessness? Lack of private investments to set up new factories and small-scale companies could be one reason. Increasing mechanisation and companies focusing more on higher efficiency as a measure to increase output, without hiring new staff, could be second. India’s archaic labour laws could be acting as a major turn off for the employers to hire new staff could be the third.

One thing is evident. Much of the GDP growth India has seen has come from consumption, rather than fresh private investments. This takes away the sheen from the GDP growth. That a jobless economic growth doesn’t really contribute to the country’s prosperity is something most economists agree. The big question before the government therefore is does it have a plan to accommodate the younger workforce? The efficacy of various initiatives launched by the Modi government since 2014, to name a few, Make in India, Start Up India, Skill India, needs to be introspected. Have these schemes begun to contribute to job creation in a significant way? If not, why?

The current scenario of unemployment cannot sustain.

India is one of the best sources of quality human resources to the world. Higher education isn’t scarce, jobs are. Lakhs of engineers, doctors and other professionals who flow in need to be accommodated in the workforce. The overburdened public sector system certainly cannot solely absorb the new work force. The private sector needs to play a major role.

The short point here is that all these figures tell us why the hoopla over the 7.6 percent growth figure and the status of world’s fastest growing economy status makes not much sense to most of India’s 125 crore people, who are the aspiring middle class, migrating to urban centres from India’s villages hoping better jobs and income.

Till the time higher growth doesn’t translate into higher number of jobs and better income for the aspiring middle class, China-beating economic growth or India being the centre-stage of the world are merely feel-good ideas on the paper for majority of India’s aam aadmi. This can eventually lead to unrest and negative sentiments. A jobless economic growth could thus, potentially, spoil Narendra Modi‘s dream run in 2019.

India vs Pakistan: Nawaz Sharif has good reason not to mess with Narendra Modi

Pakistan’s 195 million people should be praying that a recent Dawn report that spoke of Prime Minister Nawaz Sharif issuing an ultimatum to the powerful military to stop shielding terror elements, is true to every word, even as Sharif’s office later discarded the report as a work of fiction. We don’t know the truth behind the Dawn report, but for Pakistan, it’s better if there is an element of truth to it.

File image of Nawaz Sharif. AFP

File image of Nawaz Sharif. AFP

The reason: Only a course correction can save the Pakistani economy from falling into deeper economic troubles.

There is a strong economic rationale for Pakistan to live on good terms with its neighbour and not escalate tensions with the Modi government. Engaging in a full-fledged war with India that could deeply damage its already-fragile economy will result in the exacerbation of deeper socio-economic issues of poverty and unemployment. Sharif probably knows this well as someone who is obliged to deal with the country’s worsening balance sheet and growing international unease. For him, the only way to save the country from crashing is to make a clear statement that the government doesn’t support terror outfits on its soil.

Until now, Sharif has failed to make such an impression before the international community. Remember his Burhan Wani comment? According to the Dawn report, Sharif has conveyed two crucial messages to the army: Not to intervene in law enforcement’s actions against militants and to “conclude the Pathankot investigation and restart the stalled Mumbai attacks-related trials in a Rawalpindi anti-terrorism court”.

He is believed to have warned that a failure to do so could result in Pakistan’s isolation internationally. Sharif’s new-found realisation, assuming that there is some truth in the Dawn report, must have emerged from his reading that Pakistan might be walking straight into a deadly pit, if it antagonises India beyond this point.

To understand this, one needs to first take a close look at both economies.

Although Pakistan poses itself as no less than India, the truth is that only its rumoured nuclear prowess is worthy of any comparison with India. Pakistan’s economy is a pygmy compared with that of India, and it is facing a tough phase. Pakistan’s foreign exchange reserves were at $23.6 billion in September compared with India’s $371 billion reserves at the same time. Total merchandise exports of India currently sit at $262 billion, while those of Pakistan are a mere $21 billion. India’s external debt to GDP ratio is now at 23.7 percent, while that of Pakistan is at a high 64.8 percent.

In short, Pakistan is a small neighbouring country for India, seven times smaller and with much weaker economic credentials.

India vs Paksitan eco indicators

A full-fledged war with India could greatly damage Pakistan’s economy. The country would not be able to withstand the immediate economic impact, while India is in a much better position economically. Sharif’s ability to face such a scenario — an economic emergency — is a great doubt. In fact, the country is already is fighting a crisis with near-empty coffers. A 15 February Bloomberg report said Pakistan is fighting an external payment crisis. “About 40 percent of Pakistan’s outstanding debt — both local and foreign — is due to mature in 2016, according to data compiled by Bloomberg. That’s roughly $45 billion, of which about 4.3 trillion rupees ($41 billion) is in local currency,” the report said, adding that 77 percent of Pakistan’s budget is meant for debt-servicing.

Sharif took a $6.6-billion International Monetary Fund loan in 2013, which pushed up Pakistan’s external debt by 79 per cent. This debt is up for repayment by the end of this year. Already, Pakistan has seen a visible decline it foreign remittances. According to a 22 September editorial published in The Express Tribune, “exports are on a continuous downward slide and remittances have started to slow down with foreign direct investments down 53 percent in the two-month period of July and August over the previous year.” So, that’s the Pakistan economy in a nutshell.

Now, what are the repercussions of messing with India beyond this point given Pakistan’s current economic state? The immediate jolt will be international isolation — both economic and political — and that will leave Pakistan heavily reliant on China, its only major partner at this stage. But, it is no secret that the Chinese have clear interests in increasing their economic hold in that country to strengthen its own regional position. International isolation isn’t just a theory any longer for Pakistan. It is already happening. The strong evidence for this is warning from the US to Pakistan supporting India’s stance against terror originating in Pakistan. The US is one of the biggest merchandise-exporters and arms-suppliers to Pakistan — perhaps, second only to China. International isolation, including among South Asian countries, would mean China will have a dominant position in Pakistan’s economy. If the US joins the Pakistan isolation camp, it wouldn’t be long before others join.

Pakistan economy’s dependence on China to improve its fortunes is so high that a recent World Bank report warned that Pakistan’s prospects of growing even at at modest five percent a year are at risk due to delays in the implementation of the $46-billion China-Pakistan Economic Corridor (CPEC) projects. Also, the decision of a majority of Saarc countries to pull out of the Islamabad meet, expressing solidarity with India, is a major signal. Within Saarc, Pakistan will have no friends given India’s dominant position as an economic power. Sharif probably knows the potential downsides of this scenario.

Geographically too, Pakistan cannot survive on its own if India resorts to extreme measures such as cutting short river water supply to Pakistan, thereby diluting the spirit of the 1960 Indus Waters Treaty. This issue is something Firstpost highlighted in an earlier article. Three rivers under the IWT pact in the Nehruvian era, whose rights went to Pakistan — Indus, Chenab and Jhelum — are the life energy for the Indus region, which, according to various estimates, supports 90 percent of the Pakistan’s agriculture. It is the backbone of Pakistan’s agricultural economy, which constitutes 19.8 percent of that country’s GDP and is the largest employer (42.3 percent of the country’s total labour force), according to the latest data from the Pakistan government. If India acts on this front, upping its strategic offensive, there will be severe economic repercussions within Pakistan, which isn’t easy for the Sharif government to handle.

Over the years, a series of terrorist attacks on Indian soil, including the Mumbai terror attacks, Pathankot and Uri have exposed the existence of non-state actors thriving on Pakistani soil with the active aid of the Pakistani military. They have also demonstrated the inability of the State to keep such elements. The political leadership under Sharif probably realises that if it doesn’t act now, the State will find itself in a deeper mess in a future that isn’t too distant. If Sharif manages to convince the army of the dangers in continuing to aid terrorists on Pak soil, he’ll be remembered as the prime minister who dragged the failing State back from the precipice of an economic disaster.

With data support from Kishor Kadam

Indian Army’s surgical strikes: How Modi government began well and then lost the plot

In the wee hours of 29 September, the Indian army conducted a ‘surgical strike’ on terror launch pads ‘along’ the LoC, announced DGMO Ranbir Singh, reading out from a prepared statement at a presser. He was accompanied by Ministry of External Affairs spokesperson Vikas Swarup. This operation was in response to the terrorist strikes on Indian soil, including the ones in Poonch and Uri on 11 and 18 of September respectively, Singh said.

The DGMO’s announcement triggered a euphoric phase among Indians who were desperately seeking vengeance for the killings of jawans and wanting a clear message sent to Pakistan. Everyone — the Opposition parties, bureaucrats, industry and the aam aadmi — lauded the Narendra Modi government’s political will. Every Indian felt exalted by the reinvigorated feeling of patriotism that united everyone against our one sure common threat: Pakistan.

At the presser, the DGMO said the action was limited to militant camps and not Pakistani Army outposts, adding that India doesn’t plan any more such attacks unless provoked. This was said with the idea of not escalating the tension between India and Pakistan and also to offer a face-saver to Nawaz Sharif and the Pakistani Army.

Representational image. PTI

Representational image. PTI

Jingoism all around

But, what followed were days of jingoism and chest-thumping. BJP leaders across the country celebrated as if the Modi government had just won a full-fledged war over Pakistan. They narrated stories of how Modi’s unprecedented determination and political will made something finally possible that was seemingly unthinkable in the past. Social media patriots worked overnight from their living rooms to escalate a cyber war with their Pakistani counterparts.

The magnitude of hype and hoopla over the “surgical strikes” was such that some BJP leaders even projected this — a matter of national security — as the party’s trump card for the state elections. Posters put up by the BJP and its on-off ally Shiv Sena in UP and Punjab after the army’s surgical strikes portrayed Modi as Lord Ram, aiming his weapon at Nawaz Sharif, Raavan. The soldier who actually fought this fight couldn’t find a place on the poster though.

Then there was a comment from Defence Minister Manohar Parikar. “Indian troops were like Hanuman who did not quite know their prowess before the surgical strikes,” Parrikar said.
What was supposed to be an important covert military operation suddenly found itself morphed into a political tool. What worsened the situation was the excessive jingoism on TV news channels. Some TV anchors appeared to wage a war across the LoC from their air-conditioned studios.

Often, they appointed themselves as new age icons of patriotic, nationalistic ideals. The media — that should be a dispassionate observer — started increasingly using words like ‘martyred’ instead of ‘killed’ for soldiers in its reports and often constructed ‘stories’ that weren’t true to the facts. The excessive jingoism turned into rather imaginative — rather than fact-based — reporting. Thus, we saw tweets and reports about how over “50 Pakistanis were killed during the surgical strikes across LoC” and how “two terrorists” were ‘neutralised’ at Baramulla even as the soldiers shooting into the darkness themselves didn’t have a clue about what was happening on the ground.

There was no official confirmation for any of these killings that supposedly took place during the media surgical operations. But it is always easy to pull out a ticker flashing at the bottom of a TV screen or to delete a tweet. Various arms of the media also vied with each other to take the army’s Special Forces as far as they possibly could — from just across the LoC to two or three kilometres into PoK. A combination of jingoism and poorly-sourced reports followed.

But the result of all this high drama and political over-hype on a subject of national security took matters to such an extent that the army operation became the subject of unwarranted scrutiny. The fact that the DGMO presser and subsequent comments from the government offered no details of the surgical operation to media provided fodder to speculation. One cannot rule out selective leaks of information from army or government sources to the media, but most of these were self-contradictory.

Things changed dramatically since then.

The aam aadmi on the street and in front of TV screens didn’t know where these details emerged from. This changed the initial euphoria among the aam aadmi about the surgical strike to a state of confusion and, later, doubt. Modi-haters on social media soon jumped into action on the theory that the surgical strikes were yet another case of ‘Modi jhumla‘. When the TV channels too ran out of ‘patriotic’ angles, they shifted the core focus to the truth of the claim — whether the surgical strikes took place or not. The idea was to keep the viewer glued to the TV screen somehow. Even as the army maintained its dignified silence, the season of denials and counter-claims over what was originally a matter of national security, kicked off in its political courts and TV shows.

How the government lost the plot

By letting the DGMO announce the military’s surgical strike and totally staying away from the scene, the Modi government started the Uri payback episode on a strong note with calculated moves. The political decision to use the army only to strike at specific ‘terror launch pads’ without inflicting damage to the Pakistani military establishment, communicating the details of the strike in an official capacity to the Pakistani Army and giving a clear message that India isn’t a war-hungry nation, but wouldn’t tolerate acts of terror on its soil, sent out strong signals to the world that India is a responsible democracy and a strong state.

Will it be an exaggeration to say that from a heroic act by the Indian Army, the ‘surgical’ strikes’ suddenly became the butt of jokes for social media warriors and political blame-gamers?

But the government lost the plot subsequently in two stages:

First, when it absolutely failed to keep a check on the vague — often contradictory — information going out in the media from ‘sources’ and through possible selective leaks. When jingoistic folks started coming up with a new narrative every other day on behalf of the army, the Modi government found itself caught in a dilemma. It didn’t know how to handle the situation. There were two sides to this problem of multiple narratives and later, denials. The political repercussions soon forced the aam aadmi to do a rethink on the whole mission who was initially euphoric about Modi’s ‘Uri revenge’.  Next, the world too began to murmur about the exact nature of India’s surgical strikes, although it was not put on public domain citing strategic concerns.

The second stage came when the government failed to face the questions on surgical strikes from politicians with maturity and tactics and, instead, let its ministers attack the questioners with aggression and bitterness. As noted in an earlier article, when the likes of Sanjay Nirupam, Arvind Kejriwal and former Congress minister P Chidambaram raised questions on the veracity of the surgical strikes, the government and the BJP political leadership failed to face those with balance (or even to simply ignore them), instead resorting to jingoism using hyperbole. Take a look at Union minister Uma Bharti‘s response to this:

Those leaders who say that if Pakistan is demanding evidence about the surgical strike, they should be given the evidence; such people should take the citizenship of Pakistan,” Bharti told reporters in Pune.

Here was where they made a mistake: When the Pakistani Army went into denial mode from the first day on India’s claims of surgical strikes, it was an expected reaction. That’s because everyone knows what Pakistan is. But that wasn’t the case when questions were raised in a democracy with a multipolar political setup. The questions were not on whether the strikes took place, but on the political narrative that followed. The entire operation was portrayed by BJP leaders as the first-of-its-kind in the Indian Army’s history, while former generals and a former home minister said that wasn’t the case.

When the media jumped in to follow-up comments from the Kejriwals and Nirupams, their questions undoubtedly gained more legitimacy. The crux of the discussions suddenly changed to “Did the surgical attacks take place?” from “How India smartly responded to Uri” or “What should be done with Pakistan next?”. The growing group of naysayers forced the army to finally share the video of the surgical strikes with the government, something it needn’t have done.

Will it be an exaggeration to say that from a heroic act by the Indian Army, the ‘surgical’ strikes’ suddenly became the butt of jokes for social media warriors and political blame-gamers? Clearly, the government shouldn’t have let the situation degrade to this level and should have dealt with its own ministers on chest-thumping as well as naysayers more carefully by explaining what it can reveal on the operations and what it cannot for reasons of national security.

Modi entered the scene quite late when he warned leaders in his party leaders not to thump their chests so loudly over the surgical attacks.

But it was too late by then.

The damage was already done.

Surgical strikes: Modi govt must handle unpleasant questions with maturity, not rancour

So, what if Sanjay Nirupam, Arvind Kejriwal or any ‘aam aadmi‘ raises questions on the surgical strikes conducted by the Indian Army on 29 September?

Raising questions is the privilege a democracy offers to its citizens: The promise of free speech, not an anti-national activity, certainly (in this case) not disrespectful to our jawans who put their lives at risk at every moment of their lives, not just during surgical strikes. Every citizen of India has an absolute right to ask questions to the elected government, and guess what, even the unpleasant ones.

File image of Congress leader Sanjay Nirupam. AFP

File image of Congress leader Sanjay Nirupam. AFP

That’s what differentiates this country from a fake republic in our neighborhood where the government works by remote control.

Let’s get one thing clear. By making a big controversy out of such questions on an issue of national interest, we are making ourselves an object of ridicule and thus, belittling a brave act by our jawans. That is precisely what Union minister Uma Bharti did when she said in Pune that politicians who “doubt the army’s surgical strike should take Pakistani citizenship”.

“Those leaders who say that if Pakistan is demanding evidence about the surgical strike, they should be given the evidence; such people should take the citizenship of Pakistan,” Bharti told reporters in Pune.

Now, this isn’t the way to silence critics and questioners. The world is watching how the largest democracy in the world deals with criticism. We don’t want to send signal that we do so by awarding Pakistan citizenship to the questioners. There are two facts worth mentioning here that tells us why the Narendra Modi government needs to respond to questions on the surgical strikes.

First, that this wasn’t the first instance of across-the-LoC surgical attacks is something security experts have said on multiple platforms. Even during the time of the UPA government, there were cross-border raids. Former Congress minister P Chidambaram has gone on record as saying that the army had conducted major surgical strikes across the LoC in 2013.  It’s just that those operations were not announced to the world by the then government. The army was always vigilant and always did its job, whether or not its actions were publicised.

Second, no one can deny that for the Modi government, the recent surgical strike has been a major face-saver, after the Uri attack. Emotions were riding high and every Indian craved Pakistani blood — war or otherwise. Modi had good political reasons to walk the talk and show the world that the glory of his 56-inch chest isn’t a myth. If he failed to act, the inaction would have backfired badly.

If we don’t behave as a democracy in its true spirit, we are no different than them

War isn’t an option for either India or Pakistan; the government knew this well. The alternative, besides the diplomatic efforts, was to conduct an army strike in selective areas without escalating tensions beyond a point. This was particularly important ahead of the crucial state elections next year, and to justify his merit and present himself as the nation’s best political choice in the 2019 General Elections, which aren’t far.

Note that the announcement of the surgical strikes was done by the DGMO, not the defence minister. This was designed to give credibility to the entire exercise by letting the army say it in its own words. But that doesn’t mean the government isn’t answerable to the counter-questions on this subject. The simple reason is the obvious political gain for Modi and his government. This is evident from the way the BJP used this army operation to score a political point.

File image of P Chidambaram. PTI

File image of P Chidambaram. PTI

The jawan who risked his life in the darkness of 29 September doesn’t expect any congratulatory words or rewards. He does his duty silently and doesn’t need to explain this to anyone. The onus, obviously, lies with the elected government to answer the questions.

Nirupam and Kejriwal asked for proof of the action. Whether this question — doubting an army operation — is warranted or not is a matter of larger debate.

The question that should be asked is not whether the surgical attacks took place, but whether the attacks were over-hyped by the Modi government for political reasons. Whether or not this was the first-of-its-kind is a different issue. The narrative is what should be scrutinised. But the larger point here is how the government has dealt with the unpleasant questions.

In a multipolar political set up, political parties that are not in power are relevant only because they can question the ruling party’s actions on behalf of the people. The questions can be unpleasant and tough. If we start branding Kejriwal and Nirupam, or for that matter anyone, ‘anti-national’ for questioning the actual nature of surgical strikes, we are certainly not acting in the right spirit of democracy. The very idea that patriotism is a patented privilege only for those who toe the government line is flawed, if not alarming for a country that boasts the virtues of its democratic setup.

The Modi government should deal with such questions with maturity and a sense of responsibility (to the extent national security permits), instead of letting its ministers award Pakistani citizenship to questioners using the measure of patriotism. Creating an unnecessary controversy, we are making us and our army an object of ridicule. The Pakistani government and the anti-India elements (the real enemies of the State) they nurture, will be having a lot of fun watching the government suppressing questions with contempt, because that’s what they do in their country.

If we don’t behave as a democracy in its true spirit, we are no different than them.

Rs 65,250 crore black money haul: A relief to Modi govt; now it’s time for final crackdown

At the end of Narendra Modi-government’s black money declaration scheme, the taxmen has amassed Rs 65,250 crore from 64,275 declarations. This means about Rs 30,000 crore will flow into the government’s tax kitty based on 45 percent tax requirement. The figure is a clear relief to the Modi-government, which has been facing questions on its poll promises on the black money.

PTIPTI

PTI

The credit should go to the political will shown by the government and tax men’s hard work. With the deadline over now, it is time for final crackdown on persistent tax evaders, which is necessary to send a signal to the honest taxpayer that the government will walk the talk on tough action on the guilty.

Going by the reports so far, most of the declaration has happened in the last minute rush, when the realization gripped black money holders that, post the deadline, things may not be easy going ahead, particularly so when the Goods and Services Tax (GST) regime kicks in next year.

The art of tax evasion will be much more difficult then. This is because at all stages, transactions will be recorded in the GST infrastructure. Considering this, it’s pretty clear that fear of being caught than the intent of complying with rules made the scheme successful. Also, the black money holders had a good reason to disclose their ill-gotten wealth since the government had offered relaxed payment terms for them than ever.

Consider this: Those who declared black money under the scheme can pay the 45 percent tax in three easy installments — 25 percent by 30 November, another 25 percent by 31 March 2017 and the balance amount by 30 September 2017. The 45 percent penalty black money holders need to pay include tax, surcharge and penalty. If someone with unaccounted money hasn’t used such easy installment scheme, he is either a fool or someone who knows to fool the taxmen for the rest of his life. The four-month black money scheme was announced by Jaitley in the Union Budget 2016. The government never called it an amnesty, but in principle, it was nothing but an amnesty offered to the tax evaders.

At the press conference on Saturday, Jaitley said the money will go to the consolidated fund of India and will be used for public welfare. But, the FM refused to give any more specifics of the scheme’s findings, including the states which have contributed most and the size of the black money collected for individuals, citing the confidentiality promised in the scheme. It is also not clear how many of these declarants are total non-tax payers or the sectors they do business.

But, ultimately, the tax department should now have a good sense about all these details that’ll guide their future actions. This is the second such scheme for black money holders announced by the Indian government in the recent years. The first was in 1997, during the Congress-led government, when P Chidambaram was the finance minister (when the government collected close to Rs 10,000 crore).

Besides that, after Modi government came to power, it announced a 90 days amnesty-like window for foreign black money holders charging them 60 percent tax. A total of Rs 4,147 crore of undeclared wealth was declared and the government garnered Rs 2,500 crore from the whole exercise, a paltry sum considering the kind of black money stashed abroad.

This time, the window is open for both resident and non-resident black money holders. Hunting down black money has been one of the biggest election promises of Modi in 2014. Ever since he came to power, the NDA-government has indeed acted on multiple fronts to recover black money both from India and abroad. This includes renegotiating bilateral treaties and information sharing with tax havens.

While the government has indeed progressed on black money hunt to a larger extent, the bigger point here is that the government should now crack-down on the guilty with all might, besides making it clear that such schemes are not going to be a continuous exercise. Else, this can send a wrong signal to the honest taxpayers, something experts have warned in the past.

For instance, both the justice K N Wanchoo Committee in 1971 and the Shankar Acharya Committee in 1985 had pointed out the ill-effects of announcing black money voluntary declaration schemes unless there is a compelling reason to do so. “Resorting to such a measure during normal times and that too frequently, would only shake the confidence of the honest taxpayers in the capacity of the government to deal with the law breakers and would invite contempt for its enforcement machinery,” the Wanchoo panel had said in 1971.

Let this be the last such scheme for those with ill-gotten wealth. Now is the time to go for final crackdown.

A letter Narendra Modi DID NOT write to a Pakistani terrorist still dreaming of Jannat

Dear Pakistan-based, Pakistan-trained, India-bound terrorist apprentice,

I trust things aren’t really going well at your end! I would have tweeted but, you know, I’m a busy man. Actually governing a country — as opposed to appearing to govern a country — is a time-consuming exercise. But enough digs at you, because by now, I hope you and your senior colleagues have learned a lesson.

If you get the chance to read this letter in this life or the afterlife (which is what you will experience should you attempt another adventure on the LoC), know how stupendously your late senior colleagues — who lost their lives at the hands of the Indian Army on Wednesday night — proved that they did not have minds of their own. All they had were minds filled by your political leaders with anti-India hatred and filled with an eternal false dream by your handlers: The proverbial Jannat and the 72 virgins waiting there.

File image of Prime Minister Narendra Modi. PTI

File image of Prime Minister Narendra Modi. PTI

After the Uri attack on 18 September, when the forces on both sides of LoC were on high alert — India expecting further infiltration/terror attempts and Pakistan gearing for an Indian retaliation any moment, I do not understand why your late colleagues committed the blunder of exposing themselves to the obvious danger. They moved closer to the LoC to face an alert, aggressive and provoked Indian Army. So, by planning your infiltration expedition across the border a month after the Uri attack, your colleagues have proven that they weren’t really thinking straight.

And for what? You and your late friends don’t even exist in the records kept by your government, but are willing to dance to the whims of its army and ISI, all while singing the glory of the Islamic State. I strongly recommend that you cut short your apprenticeship at this very moment and seek some other — preferably, gainful — employment, if you have some thoughts of your own in that well-indoctrinated mind of yours.

Only my government, the Indian Special Forces and your former colleagues know the exact nature of what really happened on Wednesday night — whether it was a first-of-its-kind surgical strike that is rumoured to have killed around 40 of your lot or one of the many such surgical attacks the army has been conducting periodically to neutralise terrorists at the LoC. But no one will dare to ask questions on specifics. Not, when emotions are flying so high and every Indian is revelling in a sense of having achieved vengeance.

I don’t expect you to understand the compulsions of politics — whether for me or for my one-time friend Nawaz Sharif. We have to speak and act according to the will of the people of our respective countries. I am someone, who unlike my predecessor, happens to have a 56-inch chest and, logically, the burden to show that it isn’t a myth. I had to prove that all that talk about a tough stance on terrorism wasn’t just meant to be on paper. Now I can say that we have broken the past of the depressing ‘self-restraint’ approach to your kind and we have done what was needed.

A measure of payback for Uri has been achieved.

I’m sure you and your handlers were living in a fool’s world listening to my Kozhikode speech, where I said I would only wage war with you on poverty, unemployment and human rights violations. Your people failed to read my lips. I did talk to Pakistani people directly from Kozhikode to make them understand what was in store. I had warned you that Uri would be avenged, and in a befitting manner.

And yet, what was it you were all fixated on? Kashmir?

You should know that your handlers know fully well that Kashmir is not the issue your country should be fighting for. Pakistan is shattered — both economically and politically. Your leaders must be joking when they say there are ready for a war with India. Pakistan is already is fighting a crisis with its near-empty coffers. Already, 77 percent of Pakistan’s budget is meant for debt-servicing. A $6.6 billion loan your prime minister took from the International Monetary Fund in 2013 — which pushed up Pakistan’s external debt by 79 percent — is up for repayment by the end of this year. How do you expect to wage a war against us? Armed with a handful of IOUs?

I strongly recommend that you cut short your apprenticeship at this very moment and seek some other — preferably, gainful — employment, if you have some thoughts of your own in that well-indoctrinated mind of yours

Don’t worry about this so-called war, but remember that the surgical strikes aren’t the end of this matter.

Next, we are going to put an end to whatever little trade we have with your country by withdrawing the Most Favoured Nation (MFN) status and ostracising you from Saarc. That’ll also mark the beginning of a new regional equation that sees India working with like-minded South Asian friends. Perhaps, your political bosses should rethink ordering your lot to cross the border in the name of Kashmir yet again.

Unfortunately for you, this isn’t the India you know — the one that only responds with appeals, tears and candlelight marches every time you and your pals enter our country and take innocent lives. The ever-tolerant India that perpetually lives in passivity, treats terrorists with kid gloves and lives in the hope that your political leaders actually see terrorism as a bad thing was left behind in 2014. We know that.

Here’s hoping you also know that.

Yours sincerely,

Narendra Modi

India jumps 16 ranks in WEF global competitiveness Index, thanks to PM Modi’s reforms and cheap oil

India’s sharp jump in World Economic Forum’s Global Competitiveness Index (GCI) ranking by 16 places to 39 couldn’t have come at a better time for the Narendra Modi-government. With crucial state-polls round the corner and pressure mounting on the government to show major progress in its final performance report card ahead of the 2019 elections, the GCI ranking is a trophy PM Modi could flash in his future foreign trips and political rallies. The Modi-camp, in that sense, would be excited to see the GCI ranking. Logically, the government didn’t waste any time to claim the credit, evident from finance minister Arun Jaitley’s presser on Wednesday evening.

PM Narendra Modi. PTIPM Narendra Modi. PTI

PM Narendra Modi. PTI

On a closer look, the GCI ranking is the result of a mix of factors including cheaper crude oil prices (reflected in improved macroeconomic fundamentals), a slew of reform initiatives initiated by the Modi-government to unclog the system, efforts to bring in investments and reforms in the financial sector. Cheaper crude oil has played a big role in bringing down fiscal deficit to less than 4 per cent and contain inflation.

Of the 15 segments assessed, India has shown improvement in all categories except in health and primary education. The country’s ranking has gone up in infrastructure and labour market efficiency—areas where the government has faced criticism in the past. This could be also because of a perception change though this improvement may be questioned by some on the ground.

For instance, let’s look at infrastructure segment. The GCI rankings for India has gone up here from 81 in 2015-16 to 68 in 2016-17. The nine parameters GCI has used to assess the improvement in infrastructure segment include quality of rails and roads and port infrastructure and that of electricity supply. This can be questioned on the ground if one looks at the country‘s still flood-prone cities, poor quality urban roads and timely availability of electricity across the country (remember Nagla Fatela).

Similarly, on labour market efficiency, the country’s ranking has improved to 84 from 103, again a claim that can be disputed if looks closer. So far, during Modi’s term, there haven’t been significant progress on overhauling the labour laws. Archaic labour rules continue to act as turn off for investors who look at India for investments. The parameters used by GCI on this segment include cooperation among labour and employer relations, flexibility of wage determination, hiring and firing practices, pay and productivity linkages and country’s capacity to hire and fire talent.

WEF Global competitive index ranking tableWEF Global competitive index ranking table“The improvement in rankings in such surveys is primarily because of a change in perceptions. Of course, this government is making efforts change labour practices, so is the private sector. But as far as legal reforms are concerned, there haven’t been much progress,” said Anshul Prakash, associate partner at Khaitan & Co. Land acquisition too continues to be difficult exercise for government.

But, overall, clear improvement is visible. This is particularly due to country’s macroeconomic fundamentals and the financial markets reforms. India is in a much better macroeconomic condition now than it was in the UPA days, with fiscal deficit improving (3.5 percent targeted this year), inflation easing (around 5 percent now) and growth (GDP expected to grow at 7.6 percent) beginning to pick up pace. Similarly, passage of Goods and Services Tax constitutional amendment in Parliament’s monsoon session (expected to be rolled out by April, 2017) , passage of bankruptcy code and Aadhaar Bills have given fresh hopes on the large-ticket reform front.

As far as the banking sector reforms go, the government should thank the Reserve Bank of India, during the Raghuram Rajan era, for initiating critical steps to overhaul the sector (new banks and changes in bad loan recognition rules). However, the high chunk of bad loans in the banking sector continues to be a pain. The GCI report points out areas where the government should focus. “Improvement has been slow in recent years and further investment will be necessary, especially to connect rural areas and make sure they can equally benefit from and contribute to the country’s development,” the report said.

Broadly, GCI has given reasons to cheer for the Modi government, but not without giving a strong reminder that time is running out on the implementation-front and to attract private investments.

Data contribution by Kishor Kadam

Sushma Swaraj’s UN speech: Pakistan does not deserve MFN status, deserves isolation

The core message of External affairs minister, Sushma Swaraj’s emotional, yet mature speech at the UN general assembly on Monday evening was India’s demand to the world to isolate Pakistan in the world map as a terror-aiding country.

Without mincing words, Swaraj named and shamed Pakistan, India’s perennial problem since 1947 as a supporter of terrorism, but not without a convincing argument that India, as a mature democracy, has been doing everything on its part to build piece with its hostile neighbour — only to be reciprocated with acts of terrorism.

In many ways, Swaraj’s speech carried the design of Narendra Modi’s recent Kozhikode speech, where the PM chose to calm down war mongers, who were expecting that he would declare war on Pakistan in his first public speech post Uri. Modi, instead, devoted most of his time to speak on poverty alleviation, development, unemployment and human rights violations in the neighbouring country, but with a clear warning that India wouldn’t forget the massacre of 18-soliders in Uri attacks reportedly orchestrated from Pakistan.

Sushma Swaraj delivering her address at UNGA. APSushma Swaraj delivering her address at UNGA. AP

Sushma Swaraj delivering her address at UNGA. AP

Swaraj’s speech too was largely on the similar lines. In the initial part of her speech, the minister stayed clear of the Pakistan issue talking about larger challenges such as poverty, India’s development-agenda and need for a peaceful world and international energy security. The minister’s emotional, but firm words, resonated the tone of the Modi-government’s stance on Pakistan issue — calibrated moves not panic-reactions that will only help in escalating tension.

To an observer, it’s unwise to deduce the action plan of a government from one or two speeches, but the larger approach seems to be diplomatically ostracising Pakistan internationally on the terror-issue, kill its morale, rather than its people and mount pressure to fall in line. Swaraj made it clear that India’s repeated attempts to develop peace and mutual cooperation with Pakistan has been rewarded with acts of terror. “We have in fact attempted a paradigm of friendship in the last two years which is without precedent. We conveyed Eid greetings to the Prime Minister of Pakistan, wished success to his cricket team, extended good wishes for his health and well-being. Did all this come with pre-conditions attached? And what did we get in return? Pathankot, Bahadur Ali, and Uri,” Swaraj asked.

But, the point here is that India isn’t engaged in a fair game with Pakistan. We are dealing with an opponent who doesn’t follow the rules of the game and often engages in foul play. This approach of Pakistan is manifested on innumerable occasions in the past. There are several recent examples — Pathankot, Burhan Wani, Bahadur Ali and now Uri. The state then remains in perpetual denial and derives it energy from the subsequent blame game.

The logical questions every Indian would ask the Modi-government would be these: 1) To a country, which has its democratic and economic fundamentals shattered and overshadowed by the peril of terrorist elements, how much of this sermons work? 2) Can India afford to keep sacrificing lives to the whims of a rogue neighbour forever? 3) If a war isn’t an option, what are the alternatives?

The Modi-government has a made a smart move by revisiting the Indus Waters Treaty. A meeting of the PM with his ministers on IWT on Monday didn’t give much clues on what the government intend to though beyond a statement that India will exercise its right under the IWT. But, the point is if India is determined to isolate Pakistan for promoting terrorism, it should first set an example by doing so before asking the world, both diplomatically and economically.

The MFN status

One example is the tag of Most Favoured Nation (MFN) that India accorded to Pakistan in 1996. This was according to the commitments under the World Trade Organization (WTO), according to which the member countries should treat all other trade partners equally. “Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members” WTO says. But despite several commitments, Pakistan hasn’t reciprocated with MFN status to India.

But, as this article in The Hindu points out, trade experts have said that India could invoke the ‘security exception’ clause in WTO’s General Agreement on Tariffs and Trade (GATT) to re-examine the MFN status given to Pakistan and bring in certain trade restrictions, given the present tensions.

“This is because Article 21(b)(iii) of GATT states that ‘Nothing in this Agreement shall be construed to prevent any contracting party (including India in this case) from taking any action which it considers necessary for the protection of its essential security interests taken in time of war or other emergency in international relations’,” the report says.

Even with MFN, India doesn’t have any major trade with Pakistan, with only $2.6 billion bilateral trade in 2015-16, constituting only 0.4 percent of India’s total goods trade. In other words, revoking the MFN status with Pakistan wouldn’t mean much for India but is an important signal to the world about the intent. India can justify its action before WTO citing the issue of national security.

Secondly, by naming Pakistan in her UN speech, Swaraj gives clear evidence that India has officially acknowledged Pakistan as a state supporting terrorism.

“In our midst, there are nations that still speak the language of terrorism, that nurture it, peddle it, and export it. To shelter terrorists has become their calling card. We must identify these nations and hold them to account. These nations, in which UN designated terrorists roam freely, lead processions and deliver their poisonous sermons of hate with impunity, are as culpable as the very terrorists they harbour. Such countries should have no place in the comity of nations,” Swaraj said. Given this stance, why India isn’t yet officially tagging Pakistan as a terrorist state, especially when it wants the world to do so?

The bottomline is: Beyond emotional speeches and rhetoric, perhaps, its time for us to take tangible steps to isolate Pakistan in the global map. There is no reason why Pakistan should continue to be India’s MFN.

Indus Waters Treaty: Pakistan must fear Modi’s water war more than Indian military

Pakistan’s fragile economy and its 195 million people should fear a water war with India more than the one fought with weapons. If that happens, Uri will find place in Pakistan’s history records as, perhaps, the biggest price it paid for state-sponsored terrorism. Reason: it could inflict deeper cuts in Pakistan’s psyche damaging its only major source of water available for irrigation, power generation and even for drinking.

Such an action from Prime Minister Narendra Modi cannot be ruled out. An embattled PM, facing severe pressure to avenge Uri, is reportedly weighing alternative options to military strike, including scrapping the 1960 Indus Water Treaty (IWT).  Given that Modi wouldn’t want risk his own hard-won image of a matured diplomat internationally choosing a full-fledged war, strategic options such as re-looking at IWT seem possible.

Why should Pakistan fear about IWT? Three rivers under the IWT pact in the Nehruvian era, whose rights went to Pakistan— Indus, Chenab and Jhelum — are the life energy for the Indus region, which, according to various estimates, supports 90 per cent of the Pakistan’s agriculture. It is the backbone of Pakistan’s agricultural economy, which constitutes 19.8 percent of that country’s GDP and is the largest employer (42.3 percent of the country’s total labour force), according to latest data from the Pakistan government.

Narendra Modi. AFP.Narendra Modi. AFP.

Narendra Modi. AFP.

According to 2015-16 Pakistan economic survey, “agriculture sector is a vital component of Pakistan’s economy as it provides the raw materials to down the line industries and helps in poverty alleviation impact.” In the last year, the farm sector contracted by -0.19 percent mainly due to decrease in production of cotton, rice and maize, the survey says. In other words closing the water tap, even partially, could result in famine and agrarian economic crisis for Pakistan that can lead to internal unrest. Pakistan government won’t be needing Indian military then to fight with.

Already, the textile sector—one of the largest employers in Pakistan is facing one of the gravest crises in its history. According to a 21 September, Bloomberg report, which quoted Saleem Saleh, acting secretary general of All Pakistan Textile Mills Association, about 100 member factories in Pakistan have shut down and at least 500,000 people have lost jobs in the past two years alone, on account of power scarcity and buyers shifting to other markets.

Of course, this is also due to Pakistan’s infamous image of being a terror prone area, which makes foreigners scared to land in Karachi, which isn’t the case with other markets such as India, as the reports says. But, the point to note here is that here again, the Indus region’s role in contributing to Pakistan’s Hydro-electric power projects is crucial.

Pakistan’s agricultural output, as that country’s economic survey points out, is closely linked with the availability of irrigation water (logically from Indus region). The situation is already bad. This is what the survey says:

During 2015-16, the availability  of water for Kharif 2015 stood at 65.5 million acre feet (MAF) showing a decrease of 5.5 percent over Kharif 2014 and 2.4 percent less than the normal supplies of 67.1 MAF. During Rabi season 2015-16, the water availability remained at 32.9 MAF, which is 0.6 percent less than Rabi 2014-15 and 9.6 percent less than the normal availability of 36.4 MAF.

Presently, a third of Pakistan’s population is already reeling under severe poverty. According to a report in Pakistan daily, Dawn, which quoted the government data, 60 million Pakistanis are living under the poverty line. The report, which quoted a 2013-14 survey, said the number of poor households in the crisis-ridden country is at 6.8-7.6 million.

An economy in distress

The fact is that the Pakistan economy is in perils. A war, of any sort, could reduce that country to a pile of debris and yet another symbol of poverty and anarchy to the world. The ability of Nawaz Sharif government to face an economic emergency is doubtful. It is already is fighting a crisis with near-empty coffers. According to 15 February Bloomberg report, Pakistan is fighting an external payment crisis. “About 40 percent of Pakistan’s outstanding debt — both local and foreign — is due to mature in 2016, according to data compiled by Bloomberg. That’s roughly $45 billion, of which about 4.3 trillion rupees ($41 billion) is in local currency,” the report said, adding already 77 per cent of Pakistan’s budget is for debt servicing. Sharif took a $6.6 billion International Monetary Fund loan in 2013, which pushed up Pakistan’s external debt by 79 per cent. This debt is coming up for repayment by end of this year.

For Pakistan’s fragile economy, Modi’s water warfare will be tough to deal with even though it might still avoid a full-fledged war flashing its nuclear warheads. Having said this, it wouldn’t be easy for India to tinker with the IWT since it will raise questions on the fate of other international water treaties, mainly with China. It will be hard call for Modi to take, but not an impossible one if the PM convinces the world that his action is a necessary, unavoidable outcome of Pakistan’s continuing hostility on the Indian soil. Modi’s action on IWT will be justified then. But, that’ll push the country, born out of contempt in 1947, to the corner.

One can only guess the ultimate consequences then.

Loan waiver in 10 days of power, Kisan budget: Dear Rahul, this isn’t even funny as ‘cot vanishing act’

Congress vice-president Rahul Gandhi ended the first phase of his Kisan Yatra in poll bound Uttar Pradesh demanding a ‘Kisan budget’ from the Narendra Modi government and promising (read here) that loans of UP farmers will be waived off within 10 days of forming the government in the state. Rahul cited the government’s recent move to merge railway budget with general budget, as reason to think of a Kisan budget.

He is wrong on both counts — as a poll strategy and the idea of helping the farmer. Both these ideas are going to help neither him win votes in UP, nor the farmers.

Rahul Gandhi. PTIRahul Gandhi. PTI

Rahul Gandhi. PTI

To begin with, assuming that a separate ‘kisan budget’ will help the farmer to get better prices for his crop is a foolish idea. The farmer already occupies a good part of the existing budget document. A different budget will be only a change in the documentation and process. The solution for better pricing for farm produce lies in creating the market mechanism to save the small farmer from the grips of the middle men and enabling real time information available on the price trends. Rahul should next work on making technology-based real time innovation available to small farmers in UP to improve their yield and lessen the dependence on seasonal rains for irrigation.

Also, funding is the last thing farmers would complain about ever. Consider this.

The total loan outstanding of Indian banks to agriculture and allied activities, is currently at Rs 8,82,900 crore, probably only second to loans to industries at the end of September. There has been a sharp growth in bank lending to farm sector over years. The figure was Rs 4,15,700 crore in 2009-10.

In other words, the loan outstanding has more than doubled in the five-year period as the UPA government and the subsequent NDA government has been pushing state-run banks to lend more and more to farmers by increasing the agriculture credit target every year. This apart, farm loan waivers (2008) and loan melas and financial aid through various schemes of nodal agencies like Nabard has targeted farmers. If money could have solved the problem, why our farmers are still starving and ending their life even today? So, dear Rahul, the issue is something else, which politicians like you should probe with honesty.

Secondly, farmers are prone to over-indebtedness. Because of his lack of financial literacy, knowledge and the idea that nothing will happen even if he doesn’t pay back money to sarkari banks, he happily accepts any fresh loans, farm loan waiver offers with both hands, only to repent later.

When farmer is a habitual defaulter on the books of banks, the bank would prefer to avoid taking further exposure to him and thus push him effectively back to the hands of private money lender. This is where the real plight of the farmer starts.

Unable to service the high rate of interest and recover the pledged property from the private lender, the farmer eventually comes face to face with the dangers of debt trap and, in some cases, ends his life, as we have seen in the past. The point here is pushing the farmer to draw debt far beyond his capacity is the biggest evil one could do to him and the banks (which takes a huge hit on the credit culture.

This is precisely what politicians, in this case Rahul, are doing to them. It is a classic case of bad politics dominating good economics in the society. Gandhi has been quoted as saying economists have told him that loan waivers have helped the ‘overall economy of the country and not just farmers’. It’s not clear which economist told him that, but perhaps Rahul should seriously rethink taking advise from those economists.

Rahul’s Gandhi’s rhetoric exposes his lack of understanding about the core issues farmers face, beyond ‘loan waivers’ and his failure to learn from the past. He needs to think only this, if loan waivers helped, why does the Congress party’s seat count still linger in lower single digits in states like UP even after the mega waiver in 2008? Rahul would do well pondering over these questions. Firstpost has argued strongly against the idea of loan waivers in an earlier article (read here) explaining how it destroys the credit culture of the farmers almost immediately after such announcements.

“The very announcement of loan waivers destroys the credit culture of the borrowers and has a wider cascading impact across that particular region. Past experience shows this begins to happen on Day One of the announcement. Even the honest borrowers, who have been paying his dues diligently, will feel fooled and stop paying back, waiting for the waiver to happen at some point. Such deterioration in the credit culture will immediately punch holes in the agriculture loan portfolio of banks, in turn, making them stop all fresh funding to everyone who have defaulted on payments,” the article said.

Already, farm loan NPAs (non-performing assets) are a big chunk of bad loans for many banks. According to senior bankers, this has happened when the UPA announced Rs 70,000 crore loan waiver in 2008 and when the Andhra, Telangana governments announced loan waivers to farmers in 2014. Thus ultimately, it harms both the bank and the borrower. It takes years to clear the mess and reinstate the trust between the two.

Rahul’s loan waiver promises and the idea of ‘kisan budget’ show that he is doing anything but executing a well thought out election plan addressing the real issues of the targeted vote bank and improve the Congress party’s fortunes in that state. It only shows the scarcity of intellect in the Congress’ strategy chamber. Ideas like ‘Kisan budget’ and ‘loan waiver in 10 days of coming to power’ are not even funny as the now famous ‘cot vanishing act’ seen in Rahul’s ‘Khat sabhas’.

Cabinet nod for Budget overhaul: Why Modi govt wouldn’t want to meddle with Railways’ autonomy

The decision of the government to announce the Union Budget early (probably the first day of February every year) and merge the Railway Budget with the general budget has been welcomed by most economists. It’s big break from the past.

ReutersReuters

Reuters

It was in 1924, during British raj, that the Railways began to have a separate budget. The British attached tremendous importance to the Railways as it was crucial to move their goods and forces. The practice continued for long also because of the substantial size of the Railways budget in relation to the total budget expenditure. But that scenario has changed.

The political and economic rationale that warranted a separate Railway budget during the British raj has lost its relevance long back and it was only a matter of time before we revisited this practice and brought in reforms in the way budget is presented.

Secondly, the day for the general budget presentation has been the last day in February every year since 1948-49, after Independence. Advancing it will help to take decisions early and follow the process faster to get on to the implementation stage.

The government also wants to do away with the distinction of plan and non-plan expenditure, which too is a logical move given that Planning Commission itself is non-existent now and Five Year Plans are being replaced. Thus, prima facie, all the three changes —merging the railway and general budget, plan/non-plan expenditures and advancing the general budget presentation date–are small but significant reforms steps which may not have major tangible impacts on any stakeholder, but will give more clarity on tax proposals and expenditure.

This is because the Finance Bill will be approved in the first half of the budget session itself, not towards the end after the recess as is the case now. This will mean the government and the private sector can plan the new fiscal year a bit early and not in the middle of the fiscal year. Presently, the Finance Bill is approved towards the end of the budget session. The proposed changes in presentation will ease the time lag in the budget process and subsequent decision-making by government departments and the private sector.

It is wrong, however, to term these as reforms that can do wonders in the economy. “Beyond the fact that general budget is going to be bigger (post Railway budget merger) and the entire process is going to start early with the budget advancing, there aren’t much changes expected due to the budget overhaul in the economy,” said Devendra Pant, chief economist at India Ratings and Research.

As Union Finance Minister Arun Jaitley said in the presser post the cabinet meeting on Wednesday, the government will seek GDP data for budget preparation from the Central Statistical Office (CSO) in January itself, instead of 7 February, for Budget preparation. Early presentation of Budget would mean that the entire exercise is over by March 31, and expenditure as well as tax proposals come into effect right from the beginning of the new fiscal, thereby ensuring better implementation.

Railways’ autonomy under threat?
Let’s look at the Railways budget merger specifically. The brighter side of the change is that there will now be presentation of a single Appropriation Bill, including the estimates of Ministry of Railways, thereby saving precious time of Parliament by not having to hold a separate consideration and passing of two Appropriation Bills, Jaitley said.

But it also raises obvious questions.

The first is: Will the Railways, which enjoyed a special autonomy and financial independence compared with other ministries for nearly a century, continue to have functional autonomy? Or will it end up just as another department of the government?

Former railway minister Nitish Kumar (read here ) and former finance minister, Yashwant Sinha (read here ) have flagged this issue.

Look at the numbers. In terms of size, the Railways is the third biggest budget (Rs 1.71 lakh crore in 2016-17) after defence (Rs 2.49 lakh crore) and infrastructure (Rs 2.21 lakh crore). The carrier, which runs around 11,000 trains everyday, of which 7,000 are passenger trains, has pegged a capital expenditure of Rs 1.21 lakh crore in 2016-17, most of which is planned through joint ventures with states and PPP model. For years, Railways has its own independent planning and strategy.

The public carrier’s operations are too critical and sensitive (both passenger and freight movements) for the government to mess with. So far, the Railways had financial autonomy on account of its separate budget. Can the government afford to kill its operational autonomy in the first place? It will be too risky for the Modi-government to do and it wouldn’t want to interfere, too.

The signal from Jaitley’s presser too was that the government wouldn’t want to meddle with the Railway’s functions.

Consider these comments from Jaitley:

One, the government doesn’t intend to supersede the functional autonomy of the Railways but will only present its accounts in the budget, the FM said.

Two, even on the issue of fare and freight rates too, Jaitley said, the decisions will continue to be taken by the Railways.

Three, the government has also promised to hold a separate discussion on Railways expenditure every year.

Four, Railways fund its expenses (employee salaries, pensions) from its revenues and also draws government subsidies. All these will continue to be the same except that accounting will be different.

If one takes these comments at face value, the Railways will not end up as just another department of the government at the mercy of the Finance Ministry.

The bottomline is this: The fear that the country’s largest public carrier will lose its autonomy post the budget merger is unlikely to come true. The government cannot afford to experiment with the Railways’ functions.

(Data support from Kishor Kadam)

Narendra Modi’s 100 smart cities: Who put money on table? What will happen to urban poor?

On the paper, Prime Minister Narendra Modi’s 100 smart cities plan has impressed everyone from the very beginning. The announcement of 27 new smart cities, on Tuesday afternoon, takes the total number of smart cities announced so far to 60.

The latest round includes Modi’s constituency, Varanasi. The Modi government’s plan to make 100 smart cities with a total state-funding of Rs 1.45 lakh crore, is ambitious in every sense, for the reason that it carries the potential to kick off the private investment cycle in India’s urban infrastructure and, if succeeds, set an example for other aspiring cities.

gujarat-smartcity-reutersgujarat-smartcity-reuters

A file photo of GIFT city in Gujarat. Reuters

Let’s look at what is a smart city. The website of Ministry of Urban Development, “the objective is to promote cities that provide core infrastructure and give a decent quality of life to its citizens, a clean and sustainable environment and application of ‘Smart’ Solutions. The focus is on sustainable and inclusive development and the idea is to look at compact areas, create a replicable model which will act like a light house to other aspiring cities.”

It’s an ambitious plan indeed, even though political parties have been questioning Modi’s smart city scheme with respect to the choice of cities and the fate of existing cities. What one should note is that most experts agree that, at least on paper, Modi’s smart city project is a much better version of what has been experimented in the past to improve housing and infrastructure facilities in India.

The Congress-led UPA government’s years have seen schemes such as the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Rajiv Awas Yojana, which were later renamed later after Atal Bihari Vajpayee and Sardar Patel. Smart cities are next level of taking this experiment ahead. There is no harm in the repackaging and renaming exercise as long as the job is done in a better way.

But, the problem is on implementation and how the government will handle the socio-economic-jurisdiction issues ‘smart’ cities will bring in. The past experience, beginning with the PURA (Providing Urban Amenities to Rural Areas) scheme in 1990s, should make one cautious while embarking on a fresh housing infrastructure revolution.

Consider these points:

For one, the biggest challenge for Modi’s smart city dream is securing the capital from domestic private investors and foreigners. This isn’t easy since profit-hungry private investors will be worried about the returns from the Day One, which should ultimately come from the user fees. As per the current plan, each new smart city will receive Rs 200 crore in the first year and the Rs 300 crore over the next three years. The state governments and local bodies which will have partnership in the special purpose vehicles (SPVs) at city level will match the center’s contribution. But, the contribution from the state will only account for only a fifth of the total fund requirement needed by the five-year plan.

According to Deloitte the 100 smart cities mission will require an investment of over $150 billion over the next few years with private sector contributing $120 billion. In other words, one fifth of the total investments in smart cities need to come from private sector.

The rest of the money should come from the private sector. “The government funding cannot be sufficient,” said Devendra Pant, chief economist at India Ratings and Research. “And it is a big challenge to get private investments. When you talk about urban infra projects, recovery will not be immediate. You should find out alternate way of revenue generation. Can private sector investor get returns to his investments? Nobody will come for charity.”

Though big cities still have a better chance to get funds, but the smaller ones in the list of hundred, will have to struggle, Pant says.

If one goes by the recent reports, the signals so far is that foreign investors, who are supposedly enthused about the prospects of investing in smart cities, haven’t really put money on the table. A 1 September Hindu Business Line article, which cited an RTI query, said no investment has come from foreign investors ever since Modi embarked on the 100-cities smart city journey some two years back. What does this mean? Foreigners aren’t as thrilled as us on India’s smart cities and are still skeptical to put money on the table.

Secondly, how will the SPVs raise funds is a question. The government has clarified that the Centre’s contribution to smart cities will be strictly in the form of grant and the ULB is exercising its own discretion in utilising these funds as its equity contribution to the SPV. The SPV can access funds from other sources including debt and loans besides user charges.

But, raising money from bond issuances will not be easy for SPVs considering the experience of municipal bond issuances in the past, said Pant of India Ratings. “What will be the revenue model of that SPV? Till now, response to municipal bonds has been lukewarm. Not much money has been raised. It will be a test whether these SPVs will be able to leverage the grants given by central and state governments and raise money in the debt market.”

Third, there is a likelihood of new smart city plans clashing with the existing limited infrastructure of cities. In cities where already there is chaos on account of inadequate infrastructure, such as congested roads and land scarcity, how the designers of the new smart cities will prepare ground for world-class infrastructure is a question. So is the question on how will these cities accommodate the urban poor and migrant unskilled workers. One of the ways for the investors to recover the money they invest in such smart cities is through charging inhabitants for better services. This can make smart cities a costlier option for a large section of urban poor and can lead to social imbalance.

The bottom line is this: There aren’t two thoughts on the potential of the 100 -smart city plan. It is an idea that deserves attention. But, convincing investors to put in money in these new cities will be a huge challenge. Much of its success will lie in in execution. And even if that happens, the government will have to find out the answer for how the new world of smart cities will mean to the urban poor.

(Data support from Kishor Kadam)

Narendra Modi’s 100 smart cities: Who will put money on table? What it means for urban poor?

On the paper, Prime Minister Narendra Modi’s 100 smart cities plan has impressed everyone from the very beginning. The announcement of 27 new smart cities, on Tuesday afternoon, takes the total number of smart cities announced so far to 60.

The latest round includes Modi’s constituency, Varanasi. The Modi government’s plan to make 100 smart cities with a total state-funding of Rs 1.45 lakh crore, is ambitious in every sense, for the reason that it carries the potential to kick off the private investment cycle in India’s urban infrastructure and, if succeeds, set an example for other aspiring cities.

gujarat-smartcity-reutersgujarat-smartcity-reuters

A file photo of GIFT city in Gujarat. Reuters

Let’s look at what is a smart city. The website of Ministry of Urban Development, “the objective is to promote cities that provide core infrastructure and give a decent quality of life to its citizens, a clean and sustainable environment and application of ‘Smart’ Solutions. The focus is on sustainable and inclusive development and the idea is to look at compact areas, create a replicable model which will act like a light house to other aspiring cities.”

It’s an ambitious plan indeed, even though political parties have been questioning Modi’s smart city scheme with respect to the choice of cities and the fate of existing cities. What one should note is that most experts agree that, at least on paper, Modi’s smart city project is a much better version of what has been experimented in the past to improve housing and infrastructure facilities in India.

The Congress-led UPA government’s years have seen schemes such as the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Rajiv Awas Yojana, which were later renamed later after Atal Bihari Vajpayee and Sardar Patel. Smart cities are next level of taking this experiment ahead. There is no harm in the repackaging and renaming exercise as long as the job is done in a better way.

But, the problem is on implementation and how the government will handle the socio-economic-jurisdiction issues ‘smart’ cities will bring in. The past experience, beginning with the PURA (Providing Urban Amenities to Rural Areas) scheme in 1990s, should make one cautious while embarking on a fresh housing infrastructure revolution.

Consider these points:

For one, the biggest challenge for Modi’s smart city dream is securing the capital from domestic private investors and foreigners. This isn’t easy since profit-hungry private investors will be worried about the returns from the Day One, which should ultimately come from the user fees. As per the current plan, each new smart city will receive Rs 200 crore in the first year and the Rs 300 crore over the next three years. The state governments and local bodies which will have partnership in the special purpose vehicles (SPVs) at city level will match the center’s contribution. But, the contribution from the state will only account for only a fifth of the total fund requirement needed by the five-year plan.

According to Deloitte the 100 smart cities mission will require an investment of over $150 billion over the next few years with private sector contributing $120 billion. In other words, one fifth of the total investments in smart cities need to come from private sector.

The rest of the money should come from the private sector. “The government funding cannot be sufficient,” said Devendra Pant, chief economist at India Ratings and Research. “And it is a big challenge to get private investments. When you talk about urban infra projects, recovery will not be immediate. You should find out alternate way of revenue generation. Can private sector investor get returns to his investments? Nobody will come for charity.”

Though big cities still have a better chance to get funds, but the smaller ones in the list of hundred, will have to struggle, Pant says.

If one goes by the recent reports, the signals so far is that foreign investors, who are supposedly enthused about the prospects of investing in smart cities, haven’t really put money on the table. A 1 September Hindu Business Line article, which cited an RTI query, said no investment has come from foreign investors ever since Modi embarked on the 100-cities smart city journey some two years back. What does this mean? Foreigners aren’t as thrilled as us on India’s smart cities and are still skeptical to put money on the table.

Secondly, how will the SPVs raise funds is a question. The government has clarified that the Centre’s contribution to smart cities will be strictly in the form of grant and the ULB is exercising its own discretion in utilising these funds as its equity contribution to the SPV. The SPV can access funds from other sources including debt and loans besides user charges.

But, raising money from bond issuances will not be easy for SPVs considering the experience of municipal bond issuances in the past, said Pant of India Ratings. “What will be the revenue model of that SPV? Till now, response to municipal bonds has been lukewarm. Not much money has been raised. It will be a test whether these SPVs will be able to leverage the grants given by central and state governments and raise money in the debt market.

Third, there is a likelihood of new smart city plans clashing with the existing limited infrastructure of cities. In cities where already there is chaos on account of inadequate infrastructure, such as a congested roads and land scarcity, how the designers of the new smart cities will prepare ground for world-class infrastructure is a question. So is how will smart cities accommodate the urban poor and migrant unskilled workers. One of the ways for the investors to recover the money they invest in such smart cities is through charging inhabitants for better services. This can make smart cities a costlier option for a large section of urban poor and can lead to social imbalance.

The bottom line is this: There aren’t two thoughts on the potential of the 100 -smart city plan. It is an idea that deserves attention. But, convincing investors to put in money in these new cities will be a huge challenge. Much of its success will lie in in execution. And even if that happens, the government will have to find out the answer for how the new world of smart cities will mean to the urban poor.

(Data support from Kishor Kadam)

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