Arthakranti is an interesting take on the Indian economy. However, informed discussions and revision are required to take India forward
Innovation is the key to development. A country with 67 years of democratic rule, experimented with several economic policies with not much success. The proposals of Arthakranti awaken fresh thinking but many proposals need informed discussion and revision.
Monthly allowance to politicians in the place of already ill-spent annual grant of Rs2 crore for each Member of Parliament (MP) and all the legislators. There is no social audit for such expenditures. In fact, there is a case for removal of this extravaganza that is hurting the poor by depriving them of the subsidy or insurance.
Instead, I would prefer tax-exempt donation from all corporate, annually, to an electoral fund to be maintained by the Election Commission. Election expenditure can be given out of this pool three months prior to the tentative period of elections. The release should be related to the size of the electorate and the geographical space to be covered, with the type of terrain to be factored into it.
'Irrespective of the party to which one belongs, every person who stands for elections could be given this, with a cap on the number of candidates applying for the release. The Election Commission can disqualify candidates with criminal record, apart from those who are mentally retarded and other existing disqualifying criteria on record.
This would help some of the intellectuals joining the Electoral College to establish cleaner political system. Any corporate entity representative in the upper house should be able to fund for himself/ herself and not depend upon the fund. The criteria for release should be transparent and can even be legalised through a constitutional amendment.
Rather than seeking urbanisation as this (urbanisation) is a continuing process and is happening all through at an accelerated pace, we should provide amenities to rural areas. We would have achieved urbanisation—good schools; good hospitals, good roads, safe drinking water, drainage and sewerage system and private latrines, and so on. The resources should be drawn preferably from sub-regional fiscal allocations – i.e. the panchayats and blocks/mandals. For the assessment of needs, it can best happen at the village level and not at the district and State levels. Therefore, there is need for insisting on a transparent mechanism of sub-regional allocations and releases of the resources.
The ability of the villages to levy taxes and cess just does not exist; and even if it existed, it has to be integrated with the regional resource pool. For example, property taxes, drinking water cess or drainage cess can be collected at the village level and their deployment for effective maintenance can be ensured through a decentralized monitoring mechanism that should include professional surveillance and social audit. The Fifteenth Finance Commission could be working a way out on this front.
Fiscal deficit is bound to exist to some degree or the other as the State has a constitutional responsibility to ensure welfare, safety and security of all the citizens. National calamities, defense, and high quality research shall be the domain of Central government.
Black Money and Parallel Economy
As Anil Bokil rightly investigates, we have excess money in circulation than the goods and services produced – the raison d’etre for persisting inflation and deceleration in growth. The window is higher denominations, especially Rs500 and Rs1,000. All the currency seizures by the Anti-Corruption Bureau (ACB) and Central Bureau of Investigation (CBI) raids were precisely in these currencies. All the money stashed in foreign accounts of Indians through hawala deal is hidden.
While the monetarists and currency managers argue over the rising costs of commodities, the average monthly consumption goes only in multiples of these higher denomination currencies. Second, ATM usage also demands feeds in higher denomination.
Despite protection, plastic money is likely to be pushed fast by the Reserve Bank of India (RBI) to increase penetration. If a merchant refuses to accept the debit or credit card and demands additional 3%-5% for its acceptance, there is no law to penalize such merchandise establishments. Likewise, if somebody does not accept the legal tender like a Rs5 denomination note, there is no law by which you can punish them. The latest move of the RBI to siphon out pre-2005 currency would significantly snuff out black money and should be considered the best move in currency management the central bank ever thought of.
There are other areas that get missed out from calculating the gross domestic product (GDP). All the wealth generated by the garbage pickers, waste dealers, scrap dealers, timber transactions and retail jewelers are cash-based transactions. They may or may not have even individual bank accounts. It is unlikely that they will accept cheques. They do not pay any income tax or value added tax (VAT) or service tax. This area generates lot of black money that the country failed to curb for decades.
If the financial inclusion efforts with technology infusion bear fruit and all the villagers are banked, currency management by the central bank and fiscal management by the Central and State governments has tremendous scope to improve.
Incentives for investments
Incentives should come from the growth rather than through the exemptions and fiscal management. There are certain conceptual aspects that need to be kept in mind while discussing tax reforms—incidence and impact of taxes, constitutional obligations; Center-State and State--Sub-State relations vis-a-vis the obligations to citizens towards development and welfare. The other important areas are equity and justice.
One of the fundamental principles of taxation is that it should be progressive at higher income levels and regressive at lower levels. The Direct Tax Code (DTC) takes cognizance of this. It is not unlikely that as the system matures and cash economy gets smaller, the tax rates would be further rationalized from the existing three slabs of 10%, 20% and 30% of the taxable income. All exemptions shall be withdrawn.
Some of the limitations imposed by the Indian Constitution would need to be kept in mind for any tax reforms:
Payments and settlements
Annual Report 2011-12 of the RBI has this interesting data:
Systemically Important Payment Systems (SIPS) that include Real-time Gross Settlements (RTGS) increased in volumes from 33.2 million in 2009-10 to 55 million in 2011-12—with corresponding value of Rs322.8 lakh crore on and Rs484.9 lakh crore, respectively.
Cheque clearing transactions covered 1400 million in 2009-10 with a value of Rs114 lakh crore and these has remained almost stable in 2011-12.
Electronic clearing significantly moved up between 2009-10 and 2011-12: from 313.7 million to 512.3 million with corresponding values of Rs6 lakh crore and Rs20.6 lakh crore, respectively.
These figures no doubt reveal that the role of technology in circulating high volumes of transactions.
There is enough evidence today that growth led to reduction in poverty. Prof SS Bhalla has proved, in a piece in Inclusion, that during the 21-year period (1984-2005) growth was around 55% and poverty decline was about 2% per annum (in log terms). In the five year period since 2004-05, as the growth increased the pace of poverty decline also more than doubled to 4.7% per annum.
In fact, I would venture to suggest that the best way to reduce imbalance and ensure growth is through increasing share transaction tax from 0.15% to 1% at both the ends. There will be a hue and cry immediately after such increase but the dust would settle down eventually. The philosophy behind is that the buyer sells for a future gain and the seller sells for avoiding immediate loss (a loss of expected surplus). In a way, both are gainers. The tax is paid out of only the surplus. The tax is not going to be regressive just because it is done at both ends of the transaction. It has least administrative and surveillance costs and, on top of it, the tax is collected instantly and made available to the Government for investment in either social expenditure or for addressing the natural calamities concerns. Actually, to this extent even the corporate tax structure can be rationalised in subsequent years. This would help the Fiscal Responsibility Budget Management significantly.
(B Yerram Raju (is an economist and risk management professional)
A California man says his insurer rolled him into a new plan and deducted money from his bank account without his approval. Insurers have promised refunds, but he hasn’t received one yet
When California pharmacist Kevin Kingma received a letter last fall notifying him that his high-deductible health plan was being cancelled because of the Affordable Care Act, he logged into his state’s health insurance exchange and chose another plan beginning Jan. 1.
Thanks to a subsidy, Kingma’s monthly premium went down, from about $300 to $175, and his benefits improved.
But this month, Kingma logged into his bank’s website and saw that his old insurer, Anthem Blue Cross, had deducted $587.40 from his account and had enrolled him in another of its insurance products for this year -- he says without permission.
Hundreds of other consumers are caught in the same predicament, insurers acknowledge. And the California Department of Insurance said it is exploring whether any laws were broken when insurance companies withdrew money from consumers’ accounts for plans they didn’t select.
Here’s what happened to Kingma and others: When they received letters last fall, they were informed that their plans had been cancelled. But within the letter, it also said that if they did nothing, they would be switched over to a different plan and if they had set up their payment to autodraft from their account, it would continue to do so.
Kingma said he didn’t read the whole letter, just enough of it to know his old plan was being cancelled.
Once he noticed the withdrawals from his account this month, Kingma said he tried calling Anthem’s customer service hotline but couldn’t reach anyone because of “high call volume.” Dozens of consumers have reported long phone waits trying to reach Anthem.
Kingma then repeatedly faxed and contacted the insurer through its website. An Anthem representative first told him that he may only receive reimbursement for about half of January, until the date he actually cancelled the new policy. Since then, it appears the insurer cancelled his policy at the end of 2013. But as of Friday afternoon, it hadn’t refunded Kingma’s money, he said.
“I and a number of other former Anthem policy holders are stuck in Anthem's Kafkaesque nightmare as part of healthcare reform,” Kingma, 57, wrote to me in an email.
Darrel Ng, a spokesman for Anthem Blue Cross, said in an email that insurers across California had moved members from cancelled plans to new ones that comply with the law “and that transition retained their payment preference.
“In cases where members neglected to inform insurers that they had selected a new plan or informed insurers too late that they had selected a new plan, members are receiving a full refund for any amount paid.”
Kaiser Permanente spokesman Chris Stenrud confirmed that his insurer has also found cases similar to Kingma’s.
“Unfortunately, about 500 of our existing members in California who had automatic payment set up for their current plans were inadvertently charged before our systems recognized their enrolment in new plans through Covered California,” the state’s exchange, he wrote in an email. “We have identified the affected members and are in the process of contacting them to make them aware of the mistake, and of course, our commitment to refund the extra charge.
“We take this seriously, and want to assure our members that we will make them whole,” he wrote.
These actions may not fully satisfy the California Department of Insurance. Janice Rocco, deputy commissioner for health policy and reform, wrote in an email that insurers have cooperated with her agency and refunded premiums when questions arose, so “we hadn’t been focused on what the potential legal violations might be.”
She said insurers may have violated the law in two ways by deducting funds from customers’ bank accounts electronically. “Moving a policyholder from one product to another would be considered a ‘material change’ that would trigger a requirement in law to provide information about how to cancel the electronic funds transfer agreement. We did not see any notice of how to cancel an electronic transfer of funds in the policy cancellation notices, so there may be some violations of law in this regard.”
Beyond that, Rocco said, some of the new products used by two health insurers were technically “sold by one of the insurer’s affiliated companies with which that policyholder had no prior electronic funds transfer agreement, so that might be another area of potential legal violations,” she wrote.
It isn’t known whether similar complaints have been lodged outside of California. But insurers in a number of states sent consumers letters saying they would be moved to new plans unless they said otherwise. (This letter was posted online by Politifact.) The Associated Press reported last month that at least 4.7 million people were told their old health plans were going away because they didn’t meet the coverage standards of the Affordable Care Act.
In the meantime, consumers have taken to Twitter to voice their frustration. Here’s a sampling of their tweets (ProPublica has not verified their claims):
Kingma said the whole situation has left him frustrated.
“No business conducts fair business that way,” he said in an interview. “In December, they should be telling customers, this is the plan you will be converted into, this is the cost. I don’t put anything past large corporations.”
Has your insurance been canceled? Have you tried signing up for coverage through the new exchanges? Help us cover the Affordable Care Act by sharing your insurance story.
Any action that prevents the mining operation in Odisha will greatly hamper the country's export and the domestic market
Justice MB Shah Commission's report on the illegal mining activities going on in Odisha, submitted recently, has been put on the backburner, for the time being, as the Cabinet has decided to refer the matter to a Committee of Secretaries.
The full report has not been made public and only leaked versions have appeared in the press. From these, it appears that 94 miners had carried out mining operations without the mandatory clearance under the Environment Protection Act, 1972. According to information available, there are 192 mining leases in Odisha; 176 of them are located in dense forest areas, and 94 of them were actually operating without environment clearances.
Of the 94 leases, 53 mines were extracting iron ore and 25 were mining manganese. Out of the 192 mining leases it was found that 75 lessees had mined more iron ore than what they were permitted to do, and now the Ministry of Environment and Forest (MoEF) "intends" to ask the State to act against illegal mining, and to tell these miners "not to dig the mine illegally in the future".
Such large scale violations have been going on since 1994-95 and most of the mining lease holders violated the rules in some form or other, with impunity. All these are not possible without the active collusion of officials and now the MoEF will seek a report from the State to take suitable action against the offenders. The Shah Commission points out that, at present, the MoEF has ordered violators of forest regulations to plant more trees as a "penal compensation" or pay extra penal funds as "net present value" of forest land used. This practice has no legal basis and violators should be charged under the provisions of the law, leading to jail terms, according to the Commission.
All this means a great loss of revenue for the State and this illegal mining has been estimated to be worth about Rs60,000 crore by the Shah Commission, which holds both the Centre and the State responsible for this mess and it has directed Odisha government to recover over Rs59,203 crore from the miners concerned. When the Action Taken Report is submitted by the Committee of Secretaries, the report is likely to be tabled in the parliament.
The list of firms involved in these activities would be too long to reproduce. Suffice to say, such organisations like SAIL, Tata Steel, Aditya Birla group, Essel Mining and Odisha Mining coporations are among the 70 firms who appear to have violated environmental and forest clearance as per Shah Commissions Report.
In the meantime, in order to ensure that the visit of South Korean President Park Geun-hye goes well, the MoEF, hurriedly cleared and gave POSCO steel plant (not the captive port, mind you) the green nod, as this steel plant is scheduled to initially make 10 million tonnes of steel, which will be increased to 12 million in due course, when their own captive iron ore and coal mines start operating, though, again, they will be basing on imported coal for the time being. POSCO project is estimated to bring in the country's largest foreign direct investment (FDI) of Rs52,000 crore.
Moneylife readers are aware of the recent coverage on President Park's visit to India and the growing importance of trade with that country. It is therefore gratifying to note that MoEF acted, under the leadership of Veerappa Moily as minister, cleared the pending issues of POSCO steel plant, though there are some objections by a section of the people down there.
Odisha is India's largest producer of iron ore, mining about 45% of the143 million tonnes. Due to the Supreme Court's directive, mining is totally banned in Goa, while it has been recently lifted, conditionally, in Karnataka, where it has just restarted. For lack of iron ore, the domestic industry has suffered, displacing the livelihood of 100,000 people or more in Goa. A similar strong action in Odisha will also result in untold misery to the miners.
As the situation becomes serious in Odisha, the MoEF proposes to amend the rules to make compensatory afforestation legal and promises to amend the regulations to make initiation of action against violators mandatory, and the States concerned will have to act promptly and efficiently on such matters. As for as Odisha is concerned, according to the Shah Commission, good quality iron ore in the State will only last for 30 years, provided it is extracted at the rate permitted by the Indian Bureau of Mines and the MoEF. Illegal mining has to be stopped at all costs, and mining to be done only by legitimate lease holders bearing in mind their responsibility to safeguard the environment concerns.
It must be noted that fall in production of iron ore has not only affected our own domestic steel industry, but has given the required impetus for suppliers, our competitors, like Brazil, Australia to take the export market. The current ban on iron mining, for instance, in Goa has meant the loss of export of more than 100 million tonnes, estimated to cost $6 billion and any action that prevents the mining operation in Odisha will greatly hamper the country's export and the domestic market. This does not mean that the government must close the eye and permit reckless mining anywhere in the country, but strict regulations need to be set so that work does not suffer.
India's known mineral resources are large, with untapped and unknown and unexplored resources all over the country. Mining operations and regulations to protect environment effectively are needed so that we have something concrete left for our future generations.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)