An Ode to Black Money

Ever since I started focusing on economic issues, that is some 30 odd years back, black money has been in the news.While I was a student of economics, I was taught that bad money drives good money out of circulation. That is what Gresham law says. That may be true in the case of black money also; it must be driving the good money, the so called white money, out of its relevance. At this rate, this debate: How to tackle the menace of black money will continue in perpetuity in Indian context.

Why it is so? My simple answer is that nobody is interested in curbing the source of this money.  Political parties are giving only lip service to this issue. They need money during the election. An unofficial estimate put that black money in India is as big as white money. During the elections, they need it in plenty. Once accepted from a businessman or industrialist or people of that ilk, how can they hunt them out. I am told that in the last Maharahtra assembly elections, candidates who were reasonably sure of winning, were distributing Rs 900 per vote. For a constituency, there will be at least two candidates, who might think that they have a fighting chance. If they distribute Rs 900 each to a voter, each voter will get Rs 1800. it is a windfall and those who want to say no to that  windfall  are not fit enough to live in the market driven economy.

My limited point is that it leads to fair distribution of income. Rs 1800 will be higher  than the subsidy that the government is intending to credit to the accounts of the account holders from the vulnerable sections of the society as subsidy for gas or kerosene. it is enough to buy a bicycle. No politician or rich man will part with that amount when you ask them to do that. Here he or she has a purpose. If that purpose-good or bad-can lighten up the hope of a vast majority of the people, why to stop them. Also, this money can peak with every passing election, as if it were linked up with inflation index. Who knows by the next election comes, this amount also can double and the poor and vulnerable sections can hopefully get a quantum jump of money in return for their valuable votes. Also, it will deplete the stock of black money to that extent. Does the fiance minister listen to it?

Years back, if my memory is right, when Morarji Deasi was the union finance minister, he introduced the concept of expenditure tax and for that he invited an economist named Kaldore to study the Indian taxation system and to devise a system to plug the loopholes. A combination of income and expenditure tax was introduced. Expenditures in hotels and other places were taxed. There was a lobby which worked against it and the expenditure tax was abolished and now we have only Income Tax.

The clamor for abolition of  income  tax is there already. Dr. Subramania Swamy, who doubles as a politician and economist vehemently campaigns for abolition of Income Tax. Could this be tried in Indian situation? A new system of revenue generation should be evolved. Could we collect a one time  tax from people acquiring properties such as luxury villas, land, shopping complexes etc. since the investment is done mostly using the black money. This tax can be collected from both the seller and buyer, with reasonable exceptions for people from the underprivileged classes based  on strict scrutiny of their income based on aadhar.

Presently, there is a tendency to stash money in real estate. The efforts of the government to curb benami transactions did not meet with success on account of the hectic lobbying by the vested interests. What is important is to have a political will to curb the balck money and not singing different tunes, while you are in opposition and holding the power to govern. Let us stop this double talk and then we may have a reasonable chance to do away with black money.

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Today in Kerala is the day of Boozers

If yesterday was the day of the booze haters today belongs to the opposite camp. A bench of Kerala High Court stayed the order of the single judge regarding closure of bars in three and two star hotels. The stay is for one month till the double bench court decides on the issue. it has given the bar owners a short reprieve and some degree of confidence to fight out the case.

 The stay  of the order of th single bench which  allows  status qua, was immediately picked up by the Kerala Opposition (LDF) to lash out the ruling UDF. it is alleged that there was a politcal brinkmanship game over the closure of the bars, between the two factions of the ruling alliance, one led by the chief minister Ommen Chandy and the other VM Sudheeran, KPCC President, each claiming the ban as the victory of theirs.

One has to see how the game is going to be played out in future. The liquor lobby has considerable stake in the game since they stand to loose considerably if over 65o bars   are closed down. They will play all the games up in their sleeves to avoid that eventuality, or atleast delay it till the time they have to renew their licenses. The bar licenses are auctioned out and the licenses are pricey. Also, by that time they can exhaust their stock, which according to some unofficial report, run into several crores of rupees.

One possibility is that if the court decision is delayed by any case (if  the bar owners do not get the right decision from Kerala High Court, they will approach the Supreme Court and vice versa) the issue can be precipitated as an election issue. Importantly, Kerala is going to polls in 2016. Also, the ruling UDF will not be able to take credit for the liquor ban. Also, the powerful liquor lobby will trow their support to the LDF in anticipation of favoring them once they come into power.

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MGNREGA Connect

If  you ask me what is the lasting connect between governors and governed in India, I  would say it is the Mahatma Gandhi National Rural Employment Guarantee Scheme, popularly known by its acronym MGNREGA. Of course, I owe an explanation. Because, it is the only scheme that gives the employment cover for those who are willing to work. Though it guarantees work up to 100 man days in a year, in effect the total employment per year works out to an average close to 40 man days or so. Perhaps, this is the only time the government gives money directly to the person as a dole and a guarantee against unemployment. In developed countries, there are regular schemes to take care of the financial, educational and health needs of the unemployed and the people dependent  on them.  That cast a huge expenditure on their exchequer.

The thinking in the government to downsize the scheme is borne out of the fact that there are considerable pilferage in the scheme. Fictitious names are created to corner the benefits. In several instances, there are mismanagement and corruption. The other reason is said to be thin coverage of the scheme, which makes the impact too shallow. Therefore, they want to concentrate the program to such identified areas where poverty is predominant and make the scheme exclusively tailored to poverty alleviation.

To me all these alibis to cut short the scope and range of the program is myopic. Admittedly, there will be pilferage and it is the duty of the government to plug the loopholes that are leading to mismanagement of funds. One way of doing it is to link the scheme with Aaadhar so that only one person from a household can take advantage of the scheme. Secondly, the government with its huge infrastructure at its command can undertake a survey for mapping the beneficiaries and in identifying the pockets where the mismanagement is taking place. Stirct punitive action should be taken against the people involved in complicity. This will send strong signals across the country.

About restricting the coverage of the scheme to limited number of blocks, say 2500 blocks or so, where poverty is crucial, I believe is  against the tenets of justice, equity and fair play. That would mean only such clusters where there are higher incidence of poverty will be covered under the scheme. By import, a  family  living in abject poverty in an affluent area will be outside the purview of the scheme.

 There is a lot of gainsay in the opinion that only rich in India are protected and the poor are thrown to the vagaries of nature. Credit from the banks and financial institutions flow only to the rich, whatever may be the incidence of default in repayment. Big infrastructure companies are granted  something called bridge loans, which comes almost free. The nexus between politicians, businessmen and bureaucrats are known. The CAG has come out with documentary evidences  how the rich  and  mighty have stashed funds meant for the entire nation.

The successive governments are showing leniency  in protecting them. Political parties compete  with each other in protecting them. The recent stand on black money revelation is a case in point. How the views of the UPA and NDA converge with each other, though they had diametrically opposite views  earlier? How Finance Minister lashed out at the  CAG and exhorted them not to become activists and confine to  their responsibility as mere auditors? Paradoxically, he held a diametrically opposite view  as the leader of the opposition in the upper house a few months back.

My limited point is that one cannot ignore the rights of the poor and underprivileged just because they do not have the perquisites of lobbying and the scant attention that they get from the media. MGNREGA is their legitimate right, which should not be encroached upon by anybody. Ofcourse, the pilferage can be plugged and nobody is against it.  

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An Economy of Watering Holes

The Kerala High Court decision upholding the decision of the Kerala Government for closure of the bars in two and three star’s hotels in the state by today evening was on the expected lines. The lobby working for the closure of the bars was powerful and had built sentimental inroads into every person who abhors drinking, cutting across party lines. Its vociferous supporters were women and some activists. Now the Kerala Bar Owners’ Association has to approach the Supreme Court to challenge the verdict.

The Kerala population is divided sharply on the issue.  Those supporting the ban ferret out many reasons to lend credence to their argument. Foremost is the impact it will have on the house budget since, according to them, a sizeable chunk of the earning of the male members of the household is spent on the booze. Health hazards, law and order, domestic violence etc. are the other reasons that point out for supporting the ban.

On the other side of the spectrum, those who are against the ban point out that this measure is easier said than implemented. Even now, the general public can buy and store liquor. Moreover, many of them would start drinking in private places and the likelihood of brawls and fights will be more in such places, which are beyond the surveillance of the police authorities.  Also, illicit liquor brewing can become rampant, which are done on most unhygienic conditions.

An objective analysis of the restrictions on liquor trade ranging from –total ban in state like Gujarat, Tamil Nadu (withdrawn later on account of the widespread use of illicit liquor) and selective ban in states like North East did not augur well. Not only the state governments lost huge revenue, which they would have collected as taxes, there was heavy movement of people to states where liquor was available. Interestingly, people flock from one state to the other where liquor prices are low. For instance, in the 1980’s there were many people going from Delhi to Gurgaon or NOIDA the nearby satellite cities but in another state-Haryana-to quench their liquor thirst.

What is important is to educate the people about the pernicious effect of heavy drinking. Apart from boring holes in their pockets and putting family budget under strain, it will have harmful effect on their health. How about promoting social drinking? Put it in the context it would mean: drink moderately if you cannot avoid it totally. Is the message loud and clear?

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FDI in Construction: More Rhetoric and less Action

The decision taken by the Indian Government to relax the rules in the construction sector, presumably to bring in more FDI into the cash-starved sector, is at best a ploy to tinker with policy framework, which may not yield the desired result. By reducing the threshold of minimum amount of FDI, minimum floor area and other cosmetic changes will not suffice the purpose.

The reasons are not far too seek. Our construction sector including the road building is steeped in an opaque framework. Even the so called big builders are known for hiding facts from the buyers and the authorities, not to speak about the rampant scams and corruption charges leveled against the  builders. No  builder hands over the flats to the needy buyers in time. Sometimes, the delays are so long that the buyers have to wait for years together. Sometimes, the schemes are caught in lengthy court cases. There are occasions when the builder goes missing after collecting the money.  The government agency Delhi Development  Authority has not handed over promised plots to 25,000 people even after a lapse of 34 years and that too despite the directions of various courts including the Supreme Court of India

One need not have to go far searching for examples. How many housing societies in Delhi and NCR region are struck on account of these reasons. For instance, there are several dozens of societies in Dwraka which are still unoccupied on account of the court cases or lack of approval from DDA or other regulatory bodies.

In places like NOIDA, Greater Noida, Gurgaon, Sohna etc. advertisements are coming up every day inviting the public to invest in flats and other properties. The general public is scared of doing that because of the preponderance of bitter experiences, which are in the public domain.

 The government   should  clean up the system on an urgent basis. For this, the first thing to be made is setting up a strong regulatory body, which can evolve building bye-laws and implement them without looking into the parties involved in it.

Two, the regulatory body should be given powers to redress the grievances and take actions against erring parties.

Three, consider imposing hefty penalties on the erring parties immediately rather than allowing the case to be drifted in the lengthy court  procedures.

Four, impose a penalty clause on all construction activities in case the builder or contractor fails to deliver it in time. This money should go directly to the  buyer or buyers' organizations for common upkeep.

 Fifthly, create a standard and uniform rules and regulations for all states.

The botttom line is that if the government is wanting to bring more FDI in the construction, town ship building or creation of smart cities, mere rhetoric will not help. We have to have credible structures to ensure transparency and fairness to the stakeholders.  Enactment of foreclosure laws has protected the interest of the builders and lending agencies , against defaulting buyers . Should we have a similar law  to protect   the buyers as well, enacted and implemented.

That will signal the faith of the people in the system and will  create an atmosphere  for channelizing FDI into the country. Otherwise, the much touted housing for all will remain   as a pipe dream.   

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