INDIA DREAM CALLS FOR REMO 2020 UNDER PM MODI

crisis goes straight into the accounts of those who need them most, and not stick en route to the fingers of corrupt officials. The Prime Minister needs to make an example of those few who are evil enough to create fake Jan Dhan accounts to drain bailout money and who commit other acts cheating the public. Rather than emulate the example of the US and crowd the jails at the expense of the exchequer, a hefty financial penalty needs to be levied on such officials, who should be put to community work for extended periods of time in locations where such activities are desperately needed. of the economy and multiple households was later permitted to retire, albeit with both his reputation as well as that of the institution he led during the Demo period in tatters. The fact that only a little over 6% of “black” wealth (defined in India as any asset that avoided the taxes due) were in the form of domestic currency. Almost 94% of “black wealth” had been converted into physical assets in India and abroad and much of the moneys were parked in offshore banks. 94% of black money therefore needed measures other than that taken on 8 November 2016. While the main goal of Demo was clearly to bring unaccounted currency hoards into the banking system and this succeeded, at the same time the RBI ought to have ensured that much of the economy was not starved of liquidity as a consequence. Eight out of ten workers function in the unorganised sector, which mainly runs on cash, as does much of the rural economy. There needs to be a difference in approach towards Black Money, which should be defined as currency and assets that are the result of serious criminal actions and all terror-related activity, and Unaccounted Money, which is moneys earned in legitimate occupations but which has not been declared to the tax authorities. Had it been implemented in a proper manner, Demo would have ensured that such a leakage of resources to the exchequer got considerably reduced. This would have been the case had the move been accompanied by action from North Block to effect sharp cuts in tax rates for those below the top 10% of income levels in the country, as well as on small (which should be defined as units below Rs 100 crore annual turnover) and medium (defined as units with annual turnover below Rs 500 crore). Any unit with an annual turnover below Rs 100 crore should be classified as “tiny” businesses and be subject to nominal tax and compliance methods. Given that entire lines of business operated in India on the basis of currency, it was incumbent on the RBI Governor to ensure that new currency notes were instantly made available to those seeking them from 9 November 2016 onwards, whereas in actuality there was a currency note famine for nearly a year. Not just Prime Minister Modi but the entire country was let down by the manner in which the 2016 demonetization was carried out in practice by elements of the governance mechanism.

Another essential reform was GST. Unlike PM Manmohan Singh, PM Modi was able to get GST adopted across the country. But bureaucratic lack of direct knowledge of the needs and functions of the economy resulted in multiple and often high rates (including a confusing array of levies on products made up of different components), together with the arbitrary adoption of specific rates to selected items and ambiguity in the compliance process. Indeed, in some situations, GST gets paid even when no income has accrued to the taxpayer, or is likely to ever be accrued. While the overall approach (which was not unlike the Gandhian economics favoured by the late Shriman Narayan) was certainly idealistic, Young India in particular is an aspirational society that seeks not increased austerity (there is already enough of that) but material betterment. Items that are middle class commonplaces were taxed heavily as “luxuries”, in a manner which implied that the ideal lifestyle citizens should follow was the Spartan lifestyle of Mahatma Gandhi. Those who designed GST, in their haste to ensure “revenueneutral” outcomes, also failed to factor in the sharp rise in government revenue that would result from the faster growth created by a simpler and less high tax system. The GST matrix brought into operation in India has ensured that lawyers and chartered accountants are needed in matters of compliance even for businesses that cannot afford such services. “Saral” ought to have been the watchword in compliance, rather than the nightmare that the system became in practice to many. It took substantial effort by the PMO over 2018-19 to ensure that glitches in ease of compliance as well and even in ensuring seamless online access of the GST payments mechanism got reduced. Such fine-tuning remains a work in progress for a needed reform which came into force on 1 July 2017. The good news is that the Ministry of Finance during Modi 2.0 gives indications of being much more “Modi-fied” than was the case in the past. Now it is time for the Agriculture Ministry to inter alia reverse the Upaera situation where cultivators get low prices, consumers pay high prices and middlemen (which are usually large companies and commodity speculators) make extortionate profits. In particular, food grains need to be bought after harvest, rather than have cultivators face a situation of excess stocks with them. At the same time, food grains need to be regularly handed over to the poor, something that is at last being done, at least for three months. Vultures, who cheat the farmer and the consumer, need to be made to suffer financial and penal consequences rather than laugh all the way to offshore banks.

Sonia-manmohan bailout in India and the Bush-pelosi bailout in the US shovelled taxpayer cash in the hands of those who already had immense wealth, rather than be directed to the genuinely needy, who were offered only flowery language. The 2020 Covid-19 bailout needs to be directed towards employees and workers rather than land up in the pockets of the wealthy. FM Nirmala Sitharaman announced a spend of Rs 170,000 crore on alleviating some of the needs of the poor. This needs to be followed not just by a moratorium on interest but the giving of interest-free loans to SMES and MSMES and even cashstrapped elements of large industry. Such loans should have a repayment period of 3-5 years. This is the time that it will take for such units to get back to health after the shocks they have previously suffered. Credit lines have to be opened for large industry as well, especially those sectors employing large numbers of people. Ideally, while there needs to be a Joint Session of Parliament called to get passed legislation on matters such as land and labour reform to promote income, investment and output, at the least a supplementary budget needs to get passed, the way the Federal Republic of Germany did. Chancellor Merkel got such a budget unanimously passed in the Bundestag amounting to more than 40% of the outlay of the regular budget. In the UK, 350 billion pounds have been set aside by Chancellor of the Exchequer, Rishi Sunak to pay production units 2,500 pounds per month per worker, so as to prevent layoffs caused by the pressing of the economic pause button because of the spread of Covid-19. In Germany, social security payments take care to ensure that layoffs be avoided, while in the US as well, a similar scheme has been accepted by President Donald Trump that would reimburse the salaries of employees forced to remain idle because of the need to remain at home during the course of the epidemic. It was expected that the rupee would return to the Rs 45 per dollar rate that prevailed when the UPA took charge. It had fallen to around Rs 61 per dollar around the period Prime Minister Modi took charge, but instead of rising in value, the rupee plummeted to Rs 75 per dollar, the lowest rate in the history of the currency. Expectedly, the value rose immediately after the Finance Minister announced her Rs 170,000 crore plan, thereby proving wrong those vulture fund managers who have long been advising North Block to be parsimonious where the common man in India is concerned, while urging it to remain generous to FII interests. Coming to monetary policy, the RBI leadership has long argued that increasing money supply will lead to a fall in the value of the rupee when the massive increases in money supply by the US Federal Reserve ($4 trillion in Quantitative Easing over and above the $2 trillion approved by Trump) has in fact led to a rise in the value of the dollar vis-a-vis the rupee. A lower rupee benefits foreigners and those with foreign accounts, while penalising Indians holding rupees and a domestic economy where commerce is more tilted towards imports than exports. Much of the recent fall in the value of the rupee has been caused by speculators and currency manipulators who seem confident that the RBI will do nothing to prop up the currency it is tasked to defend. Thus far, despite the cosy interaction between FIIS and top officials in North Block and the RBI, no senior official or market punter to speak of has been held accountable for insider trading. This is in contrast to the US, where several such persons are (or were) in prison. Given corruption in the bureaucracy, it has been child’s play for crooked crony capitalists to get their business rivals enmeshed in criminal cases based on manufactured charges of technical breaches of the myriad laws that get passed in this country the way raindrops fall during the monsoon. A businessman based in Bangalore made a stray remark about a crony capitalist at a party, and was immediately warned by an official present that he would soon pay for such effrontery. A little over two weeks later, his establishment was raided by a posse of tax officials. The same crony capitalist has in the past often used the machinery of government to persecute and paralyse business and personal enemies, and he is not alone. The good news is that such misuse of bureaucratic power has been sharply reduced during Modi 2.0.

It is, therefore, not surprising that monetary policy in India has usually served to promote foreign currencies and interests at the cost of domestic industry and the rupee. It is time for the RBI to change its adherence to Fii-centric policies at a time when substantial Quantitative Easing needs to get carried out so as to keep the Indian economy from seizing up. A possible method would be for the RBI to offer to buy gold from the public at a premium on the market price, paying for the same in currency freshly printed for the purpose. Such gold could be accepted on a “no questions asked” basis as to source, with the money going into bank accounts that will have only a 15% income tax levied on the amount and an assurance that there will be no prosecution unless it can be shown (through electronic and other intelligence) that the individual concerned has been involved in activities related to terror. The people of India are estimated to hold more than a third of the total private stock of gold in the world, and the RBI can become a major holder of gold (just as China with its estimated 12,000 tons of official gold stock is), while at the same time pumping in liquidity into the economy. Seeking to get control of privately held gold in anything other than a wholly voluntary way may be the favoured method of a colonial-minded bureaucratic apparatus, but to do so would be a disaster. Apart from the economic consequences, which would be severe, the way Finance Minister Morarji Desai’s disastrous Gold Control Order was. Creating additional cash in private hands through purchase of gold at a premium by the RBI would be a painless method of ensuring a much bigger gold reserve for the RBI at a period when gold increasingly seems on the verge of a comeback visa-vis the dollar as the reserve asset of a central bank. Had North Block shaken itself off from the “Police Constable” or PC mentality of the Chidambaram era and adopted realistic measures rather than the draconian Black Money Disclosure Scheme of 2016, 12 to 15 times more than the Rs 65,000 crore garnered by the scheme would have resulted. North Block has for long favoured the carrot where foreign interests are concerned, but usually the stick where domestic interests are concerned. Such a colonial-era bias needs to change. Most, in fact almost all, the unaccounted cash in the system has been generated through otherwise lawful businesses, and such “brown coloured” money needs to be dealt with differently than what should alone get classed as “black money” i.e. the monetary proceeds of serious crime and terror. “White money” is money which has been fully declared and taxed. The less onerous the tax system, the more “brown” money will be converted into “white”. The stick has to be the last resort and should always be used for transparently fair reasons, in a world where capital can move with ease to other countries and leave India with less jobs and income than would otherwise have been the case.