The urban middle class, the rural folk and businessmen are all getting restive
Prime minister Narendra Modi’s personal popularity as well as the hopes and expectations from him continue to remain extremely high. He has just returned from a triumphant visit to three nations and the fawning adulation of the Indian diaspora. But, as his government gets set to mark a year in office, even his most vociferous supporters must admit to a sense of confusion about the government’s priorities that is conveyed through its actions and the negative narrative of the mainstream media.
Modi sarkar’s innings started with three major programmes. The first was JanDhan Yojana, which claims to have opened over 140 million bank accounts for un-banked people. It is expected that over 33 types of subsidies will eventually find their way into the JanDhan accounts, which come with a RuPay Card (with an inbuilt accident insurance cover paid for by the National Payments Corporation of India, so long as the Card is used at least once in 45 days), an overdraft facility of Rs5,000 and life insurance cover.
While JanDhan is touted as a major success, there is no clarity on how many new accounts were actually opened and how many will remain unique after eliminating duplicates. Bankers openly admit to intense pressure and impossible targets set by the finance ministry to report a large number of accounts opened. They admit that intermediaries took the same set of people from one bank to another to enable them to fulfil targets.
Some say that a large number of the defunct no-frills accounts (210 million) that were opened under the diktat of the Reserve Bank of India (RBI) in the past few years have been reactivated. This time around, they have been linked to the core banking system to enable the credit of government subsidies/benefits into them. But that is not enough. In rural India, where bank branches are few and far, transactions can only happen through banking correspondents.
This last-mile linkage between account-holders and the bank is yet to happen. Nobody is clear what shape this will take or the safety and security issues involved. More importantly, account-holders will be able to avail the proclaimed benefits of overdraft, insurance, Aadhaar linkage and RuPay Card only when this linkage happens. Before that, will the prime minister (PM) ask for a detailed audit and honest appraisal of JanDhan accounts and order the cancellation of multiple accounts? JanDhan accounts have been opened with minimal KYC (know your customer) checks and could easily become conduits for laundering black money.
Another important priority for Mr Modi was the Swachh Bharat Abhiyaan (Clean India Mission) which includes toilets for all. After the initial blaze of publicity blitz about its celebrity brand ambassadors, this campaign too has waned. Basic issues of sweeping and garbage disposal, which are the domain of local municipalities (including segregation and recycling), remain neglected in most parts of India. The Digital India Programme is the only major initiative launched by the PM, which is apparently moving with speed and efficiency; but the public knows little about this.
Interestingly, while three major initiatives of Narendra Modi sarkar have yet to impact the lives of ordinary people, a series of other actions, or failure to act, is agitating different segments of his support base.
The urban middle class, fed up of dealing with corrupt government, stifling red tape and crumbling infrastructure, was looking for Mr Modi to deliver growth and governance. The rural folk had hoped to see better markets for their produce and jobs. Business and Industry expected less of red tape, better labour laws, a stable tax regime and an end to taxtortion and retrospective actions. Today, there is creeping despair among all these stakeholders about the lack of action and direction.
The government would argue that it has set in motion processes that would eventually lead to achche din. But is the hurried launch of new institutions without a proper roadmap and shutting down failed relics the right way? The Planning Commission has transmogrified into Niti Aayog but nobody is quite sure about its role and whether it will fulfil the objective of being lean and effective. Debashis Basu, our editor, explained in his Business Standard column, how Mudra Bank had been hurriedly set up without touching dozens of legacy institutions and schemes that had failed in the very same objectives over the past decades. All of them continue live off taxpayers’ money.
If this were not enough, business is chafing at slow reforms, pursuit of retrospective taxation cases and the apparent intolerance of this government to criticism. Gung-ho foreign institutional investors (FIIs), who had driven the Sensex to all-time highs with a Rs2,80,000-crore net investment in 2014-15, have been badly hit with a massive minimum alternative tax (MAT) claim of Rs40,000 crore. Every expert, including those who have little to do with FIIs, finds the action outrageous; yet, finance minister Arun Jaitley stoutly defended the tax demand with a set of dodgy arguments. Is the government being badly misguided by its bureaucracy? Or, has the Modi government learnt nothing from the unfair targeting of Vodafone by the United Progressive Alliance (UPA) that cost us billions of dollars of foreign investment?
The new, longer income tax return (ITR) form requiring details of foreign travel and personal spending on such trips was withdrawn overnight after it sparked massive outrage over social media. Instead of targeting the most obvious founts of unaccounted money, the government’s Black Money Bill mainly seeks to arrogate more power to tax officials to harass and question people who have assets overseas. Whether it unearths any black money or not, the Bill is certain to unleash a wave of taxtortion. Why does the Modi sarkar continue to be led by the same abominable bureaucracy which has harassed law-abiding Indians for decades while lawbreakers escaped punishment? If the Congress is reduced to just 44 seats in parliament it is because of the massive loot by crony capitalists and a backlash against the government for creating a toxic environment for doing business in India.
Narendra Modi had won people’s hearts and votes by promising to change all this. People were hooked on to slogans like ‘India first’ and ‘minimum government, maximum governance’. He promised to reduce the number of permissions required to set up business; but the bureaucracy is working overtime to do the opposite.
Another mystery about the Modi government’s priorities is the decision to stake both goodwill and reputation on amending the Land Acquisition Bill. Since independence, our public sector companies and government regulators have amassed massive tracts of land and buildings that are extremely valuable today. Many are owned by loss-making institutions sustained by doles from the exchequer. The government could easily encash these assets and use the funds to revive public sector white elephants like Air India.
Wherever you are in India, especially in crowded urban centres like Mumbai, Delhi, Pune or Bengaluru, you will notice empty government buildings or large tracts of unused land owned by unknown institutions. Within a one-kilometre radius of our office in Mumbai, we have a training institute in crumbling disrepair on the arterial Veer Savarkar Marg. In a lane opposite it, is a huge Bankers’ Training Centre of RBI lying empty and a little further is the controversial Indu Mills, again in disrepair and ruin. Look around you and you will have plenty to report too.
But Modi sarkar had no time to look; it preferred to amend the Land Acquisition Bill when acquisition by industry has always been iniquitous to landowners and controversial. Did Modi sarkar forget the special economic zones (SEZs) scandal? Why is it unwilling to think out-of-the-box, as it was expected to?
So, the question is: Who is the government working for and why do its priorities seem so muddled?
(Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at email@example.com)
Dr Swamy replied to a volley of questions on a wide range of issues like black money, hawala, taxation, Rafale deal, real estate registration costs and politics with his characteristic humour and candour
Dr Subramanian Swamy, arguably India's most fearless politician and a renowned economist was at his best while replying to a volley of questions ranging from black money, taxation, hawala to politics. A packed audience comprising eminent lawyers, chartered accountants, senior consultants and citizens saluted his courage to be ‘politically incorrect’ by giving him a spontaneous standing ovation. He was speaking at a seminar on the Black Money Bill organised by Moneylife Foundation in Mumbai.
Here is a selection of questions from the audience and Dr Swamy’s replies.
Anil Harish (eminent lawyer, investment and taxation expert): India historically has very high income tax rates and that was perhaps the time when maximum amount of money went out of the country for two reasons. One to avoid tax here, what you call as evade tax, and second because foreign exchange regulations were so tight. So historically, the money had been going outside India. If one were to go through the measures you have suggested, do you not think that it will take a very long time since other countries also have voluntary disclosure schemes such as US has Fbar scheme. They are able to get in a lot of money there, I know, because many persons in the US, consulted us and they disclosed and paid the tax. Do you think the method that you have suggested will be more effective and practical than a law such as this, in terms of time and in terms of quantum of money? Because all of us are interested in the money coming back. It is much better for the country. Yet we have to find a most practical way.
Dr Swamy: Well, the practical way should not penalise honest taxpayer. There are large number of honest taxpayers in our country, who go through great deal of harassment but still continue to pay the tax. In a sense, what you are doing is rewarding those who had violated the law. And this is not even a plea bargain. They are only going to tell us who else has the black money, many of them know. They are only going to get relief. There is no assurance they would not do it again. The trigger is to do with the fact of high tax rates. Even today, the tax rates, in my opinion, are unacceptably high. We have a need to have a much higher savings and if you abolish income tax, there would less paperwork, which is there due to the exemptions. If you abolish the income tax, then you begin the new process where fresh generation of black money is going to be discouraged as a consequence.
Second is how much time did they take for Hosni Mubarak's accounts to be seized? They took seven months. Same thing with Gadhafi. In case of Marcos, it took a year and a half and that was 1991-92. Things have become much tougher because of this terrorist financing, and the US is very sensitive to this. Therefore, I think we should not go for a system where we are lenient to those who broke the law.
In India, we appear to be lenient to those who break the law to the extent that those who adhere to the law are found to be silly. It is imperative that India's black money be brought back and a big chunk of it should go into savings and investment in the Indian economy.
Black money is a severe problem and Indian can go to the extent of abolishing income tax to solve the black money problem.
Xerxes Dastur: The cost of tax collection is very high. The procedures are severe. Recently introduced 14-page Saral income tax return form (and taken back by the government for re-work/ re-design) is very complicated. The complete form for income tax return may be even more complicated. Will the government help the honest taxpayer by simplifying matters?
Dr Swamy: There should be a national demand from the public – a national movement – to abolish income tax. It taxes predominantly urban middle class and young professional class. In rural areas, agricultural income is not taxed. Rich people anyway have chartered accountants (aside – not like the chartered accountant, who is asking the question). The ordinary taxpayer is the one who goes through hell in adhering to the law. Abolition of income tax will have a salutary effect on the rate of savings and investment in the Indian economy. Britain had done so to encourage its Industrial Revolution during the period 1816-1842.
Ameet Patel (CA & Partner, Manohar Chowdhry & Associates): The Black Money Bill asks those with black money to come forward and disclose it. The filled declaration will be treated as information and not as evidence to prosecute. Why is Prevention of Money Laundering Act (PMLA) excluded from the list of laws for which it will not be used as evidence?
Dr Swamy: Black money, which violates the Act can lead to attachment of property under PMLA. This is a powerful deterrent against generation of black money.
Question: Since there seems to be a cartel amongst all the political parties in the country, is the Black Money Bill just fire and brimstone, or will there be any tangible action?
Dr Swamy: The Bharatiya Janata Party (BJP) is not in any cartel. There will be tangible action. Even when the 2G scam was being investigated, there was a fear that it would not lead to action. Justice Ganguly and Justice Singhvi changed the whole course of the country and there has been strict action on wrongdoers. However, in the case of black money, there is no need for a public interest litigation (PIL). PIL is sustainable in Court only if the government does not perform its statutory duty or if the policy itself is arbitrary or unreasonable. When the government is working on it, courts cannot intervene. There will be action taken by the government in the black money case.
Question: In the defence purchase plan, what will you be doing about the Rafale aircraft that are going to be purchased from France?
Dr Swamy: The government has immediately responded to what I have said. The old deal as envisaged is being scrapped. It was a deal between Sonia Gandhi and Nicolas Sarkozy (then President of France). No country was buying the old Rafale aircraft, as the radar was old and the fuel consumption too high. I met Defence Minister, Manohar Parrikar, and the old deal has been closed. The bribe taken in this regard may have to be returned by the Indian wrongdoers. In the new situation, India will buy 36 aircraft, which will be built in France. It will have a new radar. It will take two years for India to acquire the modern aircraft. There is no corruption now. There will be no PIL from my end. My work is done.
Question: What is your view on black money generated in the real estate sector?
Dr Swamy: This is the toughest question. In the real estate sector, there are problems of stamp duty, and registration fees, which are paid by the public at a lower value. Undervaluation of property for this is a problem. All these government fees/ duty should be abolished. The market should be operating freely for buying and selling. If there is a major overhaul, black money will not be generated in the real estate sector.
Question: Are you disappointed with the BJP government in its handling of the black money problem?
Dr Swamy: The BJP can do the work. It does not have any of the inherent problems of the Samajwadi Party or the Congress Party. There are four years to go for the BJP government and it will go to the extent of recovering the black money. I am not disappointed now. If I am invited again next year, I will let you know if I am disappointed at that stage.
Question: Are politicians themselves involved in generating black money? Are NGOs and trusts of politicians doing these things?
Dr Swamy: That is not correct. Politicians are not doing it. Where politicians are involved in commercial transactions, the government should see if there is any wrongdoing. Let us start by generating some enthusiasm. Income tax should be abolished. The public can even be asked to donate to run the government. If we work one-step at a time, corruption will go, and black money will not be generated.
If you ask me how many politicians, who are members of Parliament, are honest, the answer is 75%. During the elections, it is possible for money to be an issue. If the party leader gives money to the MP, at the time of election, it is a problem. If the party leader is corrupt, it is a problem. If we work on corruption and black money, the problem will be solved and honest people will be able to stand on their own feet.
Question: Is the current Finance Minister not doing enough and is he Congress-like?
Dr Swamy: The Finance Minister is a brilliant lawyer and he works hard with a different approach. The Reserve Bank of India (RBI) Governor should have been sacked for making the cost of capital so high that the manufacturing sector is affected adversely. RBI has increased interest rates to control inflation at too severe a level and this is not correct. If we say the patient’s temperature can be brought down by killing him, it is a severe approach. RBI’s inflation control measures have been severe. However, the Finance Minister is continuing with the same RBI Governor. The Finance Minister has no malafide intent and he is doing his best.
Question: Why is there no action taken against NDTV and P Chidambaram?
Dr Swamy: There is no tax evasion issue against NDTV. NDTV is not a severe case. P Chidambaram is also not being punished correctly. I have only 24 hours to work in a day. There are more severe cases like Aircel-Maxis and Swan-Etisalat deal.
Question: Has there been the hurried induction of a Judge in the SIT, who is close to Sonia Gandhi?
Dr Swamy: This is for the Supreme Court to decide. There can be custodial interrogation. The SC judges are receptive to my getting into the case. However, the court must decide. No comments from me.
Question: Is the underworld involved in the black money problem?
Dr Swamy: The underworld is not involved. There are hawala agents involved which is illegal. These agents can route the money abroad through Dubai. In Dubai, names of the Indians are revealed to banks abroad.
The Inter-Services Intelligence (ISI) of Pakistan is involved to the extent of having the information. Pakistan has an idea on which Indian politician and how much money and in which bank it is stored as black money abroad. This is dangerous to India.
The government must first arrest all the hawala agents. The government must work on the problem of money being sent abroad.
Question: There is a problem of black money within India and the government must deal with it first. What are your views?
Dr Swamy: I am outside the government. There are priorities in investment and this is because the rate of return of a business dealing in luxury items is high. On the contrary, an ordinary business generates a lower rate of return. This leads to wrong priorities and black money generation. The economic impact of black money is severe and the public must express its anger in a concrete way.
Question: Does the government need to go after the FIIs to solve the black money problem? Also, you views on the Hassan Ali case?
Dr Swamy: The answer is needed from the government and the Prime Minister. In the Hassan Ali case, the Supreme Court is looking into it. The outcome will not affect our party. It may affect friends in other parties. Is he fronting for somebody and for whom? I am not in a position to give an early response.
Question: Will there be Rs15 lakh more in everybody’s bank account, when the black money has been recovered?
Dr Swamy: This is just a joke. The Prime Minister (Narendra Modi) has not promised it. The next time I meet him, I will tell him. Two woman lawyers in the Supreme Court also asked me about this. As they were members of the Congress Party, I told them to get their share by asking Sonia Gandhi.
Question: Are co-operative banks also a part of the black money problem? Co-operative banks have dual regulation and are a common instrument in the hands of those who have black money. Many politicians have started their own co-operative bank.
Dr Swamy: Co-operative banks are a part of the problem and not the problem by themselves. When there is an epidemic, you have to go to the root of the problem. We just have a mental attitude that corruption is all right.
This Black Money Bill is not sufficient for elimination of black money.
Question: Are religious organisations and trusts also part of the black money problem?
Dr Swamy: I am a believer in the renaissance of the Hindu religion. So far, religious organisations and trusts are not a problem. Where there are exceptions, please write to the Special Investigation Team (SIT). If you write to me, I will look into it and send it to the SIT.