It is now quite common to come across a fake currency note in course of our day-to-day lives. The estimated figures of fake currency in circulation in the country are mind-boggling – in lakhs of crores! We have a fair idea of who prints these notes, how they are smuggled into the country and then introduced into the market. Our law enforcement agencies regularly arrest and announce the ‘busting of fake currency rackets’. Unfortunately the problem refuses to go away.
Fake currency enables all kinds of criminal and terrorist activities. It creates a sense of distrust among the people and makes them avoid the banking system. Fake currency mostly circulates in the parallel economy and given the quantities involved, most certainly has a significant inflationary impact on the economy.
The authorities are at their wits end. They simply do not have a solution to this problem. We have all kinds of outlandish, impractical suggestions such as introducing plastic notes or even coming up with new designs and destroying currency notes regularly, say once in 2-3 years. However, the fact is that no matter what we make, it can be duplicated to a very high degree of accuracy.
So is there no solution? Of course there is a one – and it is the most flawless solution that has ever emerged for this problem.
29 Feb, 2012
The terrible impact of indirect taxes on our manufacturing industry needs no elaboration. Indirect taxes render our products uncompetitive in the marketplace. The forces of globalization are rapidly braking down trade barriers and many foreign players find it quite easy to compete with our industry even in our markets! Our exports are a tiny fraction of our potential – and will remain so till these indirect taxes and their cascading impact on pricing continues to exist. The simple conclusion is that we cannot export our taxes!
The government has admitted the total failure of our taxation system to address this concern, by adopting the concept of Special Economic Zones. Here it is proposed to create zones where the tax laws of the land will not apply, therefore the produce will become ‘exportable’. This is absolute proof of destructive effect of indirect taxes on the manufacturing sector.
It is high time for us to explore new means of raising revenue, which will not break the back of manufacturers and consumers. Taxation need not be painful and destructive. There is wonderful system of taxation which will ensure adequate revenues for the government, but at the same time, it will also bring down prices to such affordable and competitive levels.
29 Feb, 2012
Made in India
Apart from a handful of privately run colleges, the best and most reputed educational institutions such as the IIMs and IITs and several renowned universities.are government-run. This is perhaps due the simple fact that world class educational and research institutions require life-long support, large investments and a decent amount of regulation. The rest of the scene is crowded with the hundreds of private colleges mushrooming all over the country. These are mostly run by trusts run by politicians and sometimes even by people of dubious character, all out to make a fast buck. An overall lack of infrastructure and sub-standard faculty mark these colleges. Students pay huge donations to get in and are left with a degree which has very little standing in the job market.
As a result, over the last four decades, lakhs of bright students have gone abroad to study in foreign universities. Initially, the trend was largely for post-graduate and doctoral studies or research. However, these days, it is a common sight to see students from affluent families going abroad for under-graduate and even vocational courses!
The unfortunate fact implicit here is that a large number of these young Indians decide never to come back, and continue to stay and work abroad till they become citizens there. This phenomenon has several other effects too – it motivates more immigration, it propagates a negative impression of the Indian education system and environment as a whole.
Even existing institutions are perpetually starved for funds. For a population of 121 crores, it will be crucial to provide excellent education at home, at all levels. Can the Government have adequate funds to provide this infrastructure in the next decade?
29 Feb, 2012
Deep rooted corruption and the brute force of vested interests rule our lives. As a result, the common man has lost all faith in the political leadership and systems of governance.
It is therefore only natural that the immediate reaction to the Arthakranti proposal is ‘these people won’t let it happen’.
What we all need to understand is that ‘political power’ today is a mere shadow of its past. The world over, governments and politicians have degenerated into fronts for corporate cartels and hidden economic forces. Most of them are now mere puppets in the hands of powerful businesses and will do anything and everything to appease their masters.
Secondly, disruptive economic forces unleashed by globalization, international trade imbalances, financial and natural disasters will compel bureaucrats and political leaders of all hues to take decisions hitherto considered impossible.
It is no longer uncommon to see hardened politicians and bureaucrats pushing for liberalization – after having enjoyed the fruits of the ‘license – permit Raj’ for years! It is no longer surprising to see sworn Leftist governments wooing Industrialists, quietly swallowing all their anti-capitalist rhetoric. Similarly, leaders known as hard-core believers of ‘swadeshi’ are queuing up to sign deals with MNCs for large Industrial ventures in their states.
Arthakranti has to happen, and it will happen. The day politicians understand that their real long term interests lies only in ensuring welfare of the citizen, they will go all out and make it happen.
29 Feb, 2012
The western concept of ‘unfettered market economies’ and blind faith in the efficiency and pure motives of the private sector are not new to us. However, these thoughts have turned out to be a godsend for the perpetually cash-strapped governments of the world. It is now becoming increasingly convenient (or even essential) for the financial leadership to constantly hammer such concepts as if they were divine truths and absolve themselves from all responsibility for the economic disasters taking place around us.
For example, it is now most convenient to simply sign ‘deal’ after ‘deal’ with huge corporate consortiums for building basic civil infrastructure, where the government merely uses its authority to acquire land, hands it over to the corporate ‘partner’ and walks away. The corporate ‘partner’ then proceeds to build the said infrastructure, and then recovers toll from users for 30 or 40 years thereafter. The ignorant, unsuspecting public generously gives all credit to the political leadership of the day for ‘providing’ infrastructure and gets trapped into one more endless indirect tax.
A highly flawed taxation system has landed us in this vicious cycle – burdensome taxation, poor compliance, low revenues, financially weak government, poor infrastructure, PPP deals, more burden on the common citizen…
Ideally, the government should hire the best of experts in the private sector, build infrastructure as desired and pay them off once and for all. Thereafter, the infrastructure becomes property of the nation, for free and unlimited use by citizens. The very idea of contractors collecting toll for decades is unacceptable in a country with so many poor people…
Let us have a system of taxation which is simple, yet provides abundant revenue to the government…
29 Feb, 2012
Public Private Partnership
The annual budget has become a national spectacle in recent years, but is it really something to be proud of? The fact is that the ‘budget’ exercise is actually a shameful display of our scarcity of resources – respectfully referred to as the ‘fiscal deficit’!
The budget is an admission of the abject failure of our revenue generation, collection and distribution mechanism. Due to an extremely narrow direct tax base, the government resorts to heavy indirect taxation and burdens the very existence of the poor majority. After the event, all kinds of experts talk endlessly on TV shows and write articles explaining and justifying the ‘steps taken’ by the government – which is in effect, mere tinkering of the same old obsolete system. Year after year, the Government announces the budget, the experts make their post-mortem comments and the citizen scratches his head, bewildered, and goes back to his daily struggle for survival!
Instead of merely reacting, can we citizens be proactive and come up with an innovative model for taxation? Can this model be capable of generating abundant revenues so that one day there will be no more budgets, just expenditure plans? Can we make the transition from scarcity to abundance? How?
6 Mar, 2011
Every country – no matter how large, rich or powerful - has to face sudden, unforeseen calamities. These could be natural, like earthquakes, tsunamis, volcanic eruptions, floods, famine, epidemics and so on. Or they could be man-made – riots, civil wars, international wars, terrorist attacks etc. All these events lead to social shock and have huge financial impact. Relief operations are expensive and made more difficult because of the specific disaster. The only way to recover and restore normalcy to people’s lives is through large scale relief measures – which cost big money…
Charity has traditionally met a lot of such requirements, but the increasingly messy state of public finances of all erstwhile ‘donor’ nations puts a question mark on future disaster aid flows. It is also a fact that such foreign aid is rarely without strings and usually a political act rather than a purely humanitarian one…
The taxation system of a country should be capable of generating large amounts of funds with a small change in the tax rate (assuming there is only one rate!) in times of national emergency. This is in essence the ‘canon of elasticity’. The fact is, our taxation system has multiple rates and any further increases in tax rates will only lead to increased evasion rather than any increased revenue yield to meet the temporary need.
Can we have a system with only one tax, one tax rate and the ability to raise large funds almost instantly with a small change? Of course we can!
27 Feb, 2011
For the last four decades, the best and the brightest talent in our country has steadily migrated abroad to developed countries. Initially, this happened as a natural progression of higher education obtained in foreign universities. Gradually the focus has shifted from higher education to plain migration. Today, higher education abroad is a means to an end – foreign citizenship.
There is nothing wrong or unnatural about people migrating in search of better opportunities – it has been a universal phenomenon for centuries. However, it is sad that today it is seen as an ‘escape’ from the corrupt and inefficient system prevailing in our country. Given our poverty and numerous social and infrastructural challenges, the need for educated and talented youth working in the country is of paramount importance. Unfortunately, most middle class and affluent parents today actually push their children to study hard and run away abroad at any cost.
Fortunately, this ‘brain drain’ is a reversible phenomenon. If we have more high-quality educational institutions and research facilities, if we have enough employment opportunities, if we have a clean and transparent business environment which encourages and rewards honest entrepreneurship, there is no reason why we cannot retain local talent and attract global talent as well!The question is, how and when will this happen?
23 Feb, 2011
Whenever faced with public pressure about ‘unearthing black money’, our leaders usually start mumbling something about ‘amnesty’ schemes. Amnesty schemes evoke strong reactions (for and against), and finally the subject dies a natural death.
However, it is a fact that black money is primarily created as a response to an oppressive tax regime. Once created, it is used by the parallel economy for conducting unorganized (but legitimate) business, enabling bribery and corruption and funding all kinds of anti-social and even anti-national activity.
It does look like no matter what some people think, there is no option but to have some kind of amnesty scheme to bring back black money. After all, half the nation’s population cannot be possibly thrown in jail!
Amnesty schemes in the past have failed to make any substantial dent – out of fear of witch hunts, no doubt. But the main reason for failure of such schemes is that they are not accompanied by a change in the system which triggers creation of black money. As a result, black money continues to be created at a far greater pace than it can ever be mopped up.
What we need is an Amnesty together with a complete halt in creation of fresh black money thereafter.
13 Feb, 2011
Government servants have a very important responsibility in all civilized society. Unfortunately, today government officials have become brand ambassadors for corruption. Popular cinema and media at large reflect this reality, by consistently portraying government officials and policemen as incompetent or corrupt, or both.
There can surely be no justification for bribery at any level, but isn’t it true that the lower ranks in most government organizations are still terribly underpaid? It is very easy for us to criticize the humble constable for using his uniform to make the extra buck on the side, but do we even know his monthly salary? How many people have seen the squalor and broken down state of their quarter? Are they getting fair compensation for the long hours, unhygienic work conditions, risks and stresses, no holidays or any facilities that we take for granted? Are they even properly equipped to deal with today’s criminals?
There are many countries in the world where policemen and other government servants enjoy good respect and status in society – they are actually seen as efficient and trustworthy.Can the Indian scenario change for the better?
3 Feb, 2011
We have seen a lot of hue and cry in all media against black money in the past few weeks. The Supreme Court has asked the Government to come out with reports identifying the causes and sources of creation of black money. There is a lot of public pressure to expose the tax havens, so-called banks and intricate global network that enables hoarding and movement of black money.
The Government is taking the usual steps like appointing committees and consulting ‘experts’ and it is quite obvious that we will hear a lot of lip service in the days to come. The fact is that a Government which is unable to unearth the black money inside the country and bring it back into the mainstream, has absolutely no hopes of making a dent in the international black money establishment, assuming it has the political will!
The truth is that Black money – or any money for that matter – will naturally flow to places where it can move without fear of being taxed to death.
Can there be such an environment in our country – where all money comes into the national mainstream and moves around freely, without fear, and drives economic growth the way it is meant to? Can we actually attract the wealth hoarded abroad to come in of its own free will and use it for the nation’s development?
30 Jan, 2011
Bring back BLACK MONEY
The concept of ‘economy’ is very important when evaluating a system of taxation. How much money is spent to collect one rupee in taxes? It is common knowledge and an old matter of debate that the money collected through personal income tax is actually lesser than the cost of collecting it. If it is indeed so, is the system efficient? Don’t we deserve a better system?
Can we have a system that costs very little or zero for compliance and collection, requires absolutely no interaction between officials and citizens, and yet yields huge revenues?
14 Jan, 2011
The Canon of Economy
The deep rooted and widely accepted practice of cash transactions has several damaging effects on our economy. Perhaps the most devastating of these effects is the impact on credit expansion – the mechanism through which bank money is created and individual credibility is established.
Credit creation is the primary function of the banking system – akin to the creation of blood in the bone marrow. By dealing in cash, we are starving our formal economy of liquidity. Millions of Indians are operating outside the mainstream economy in cash, thus leaving the banking system in a permanent state of anemia.
For example - If I park my motorcycle strictly inside in my premises, it will only be used by me. If I agree to lend it to a friend (when I don’t need it) under some conditions (safety, insurance, return on demand etc) the same capital will be shared by two users. If my friend then lends it to another friend on the same terms for the time when both of us are not using the bike, the efficiency of the capital further increases, and so on…
How can problems like perpetual credit crunch, poor credit registration and hoarding of unaccounted wealth in cash be eradicated?
1 Jan, 2011
In our system, Direct taxes include Income tax (personal and corporate) and profession tax. A lot of our time and effort goes in calculation, manipulation and payment of these taxes, depending on whether we are employed or self employed or businessmen.
However, the thirty-odd different heads of Indirect taxes are easily overlooked – we don’t even notice these when we pay. It is like the difference between extortion and getting your pocket picked! The fact is, our payout through Indirect taxes is at least equal to if not more than Direct taxes.
Direct tax payout can be minimized by smart manipulation and use of exemptions etc., or falsifying records to understate income and evade taxes. But Indirect taxes simply cannot be evaded!
From the moment a human being is born to his last breath, he consumes – food, water, medicines, clothes, electricity, fuel, other commodities and services…Taxing consumption, a person has to pay tax to live, irrespective of capacity to pay...
This makes Indirect Taxes – indiscriminate, unfair and regressive! Can we get rid of all these indirect taxes?
Petrol prices have crossed an unprecedented Rs.60 per ltr.! Barely 20 years ago, petrol was available at Rs.8 per ltr. So what went wrong???
And to make matters worse, there is talk of hiking (and even deregulating) Diesel prices. Just think of the impact on the entire nation – the hike will be passed on down the line, cascading manifold and hitting the common citizen the hardest.
Yes, the Government earns a lot of revenue from Petroleum products, but after paying for its zooming import prices, what remains with it? And instead of working on public transport systems, we are encouraging sales of small cars – 450 new vehicles are added to Mumbai streets everyday!
Will the Government ever build and retain the capacity to subsidise Diesel prices so that prices of essential commodities are kept in control? Will the Government ever afford to build mass transport systems and so that people own less cars and burn less petrol?
19 Dec, 2010