Sunday, 25 January 2015

Time to abolish service tax and ensure prosperity (Sunday Guardian)

MADHAV NALAPAT
ROOTS OF POWER
M.D Nalapat is the Editorial Director of The Sunday Guardian.

Those who expected the first Modi budget to reflect naya soch are now being hopeful that the next set of budget proposals will reflect the change.
When last checked, service tax accounted for a total collection of Rs 17,500 cr to the national exchequer, or what is being saved in less than two weeks because of the continuing fall in crude oil prices. To collect this relatively small amount, an army of 6,000 has been put to work, using the threat of prison, besides other bludgeons to force an army of professionals to pay what is essentially a surcharge on income beyond the usual taxes. Palaniappan Chidambaram should have gilded statues of his erected in each country whose companies compete with Indian corporates, for his stewardship of the Ministry of Finance resulted in a domestic reversal of mood, from optimism to despair.
Along with his close friend Kapil Sibal, the former Finance Minister was responsible for the criminalisation of a wide range of actions, few of which would have attracted even a small fine in any democracy having a civilised system of governance. Apart from such mindlessly sadistic measures as a levy on ATM withdrawals "to identify black money" or his taxing "fringe benefits" and thereby ensuring a disincentive to corporates to undertake productive activity, Chidambaram sharply widened the scope of service tax while instituting numerous penal provisions, exactly as he and Sibal had done in the case of many other sectors.
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The government would be able, through disinvestment, to mop up a sum much bigger than the Rs 17,500 cr foregone by the abolition of a tax.
After 10 years of the Prime Ministership of Manmohan Singh, the individual who in his previous avatar was hailed as the "father of liberalisation" in India, this country remains a democracy only in a very attenuated sense, for it is now unbelievably easy for the state to send an individual to prison. It helps that more than a few jurists regard prison as the first option for an offence, as witness reports of the black money SIT calling for mass jailings of those accused — and the word "accused" is repeated — of evading income tax. The distinguished former Supreme Court judges who head the SIT are perhaps unaware that in a country blighted by a colonial legal and administrative system, the income of a taxpayer is in effect what the income-tax officer declares it to be. Check the assessments of so many high net worth individuals, and how they shrink substantially after appeal to a tribunal (or after a few boxes of Swiss chocolates or Indian halwa are given to the ITO). Should Prime Minister Narendra Modi and Arun Jaitley, his closest associate within government (the other, Amit Shah, is BJP president) rely on the bureaucracy to come up with innovative ideas for the next Union Budget, that document is likely to be as big a disappointment as the first Modi budget. The reason is that officials look only to ways of increasing the percentage share of the exchequer in the "cake", forgetting that a lower proportion of a growing cake yields more — often much more — than a big proportion of a shrinking cake.
Thanks to its colonial traditions, the Ministry of Finance concerns itself primarily with squeezing out revenue from whichever source is at hand, rather than in ensuring that double digit growth follows as a consequence of its policies.
Those who expected the first Modi budget to reflect naya soch, but were disappointed, are nevertheless hopeful that the next set of budget proposals will reflect the comprehensive change in governance, which Candidate Modi promised the electorate that he would ensure. For that to happen, the focus needs to move away from a mechanistic grubbing for revenue to the formulation of proposals which would fire up the animal spirits of economic players and thereby generate double digit growth. Equally, North Block needs to focus on improving conditions for India's Main Street rather than New York's Wall Street, which is the focus of attention of the current leadership of the Reserve Bank of India.
Abolishing service tax would boost asset values by a large multiple of the sum lost as a consequence of this measure. The government would be able, through disinvestment, to mop up a sum much bigger than the Rs 17,500 cr foregone by the abolition of a tax, which has become a nightmare for hundreds of thousands of small businesspersons and professionals, many of whom voted for the BJP nine months ago. Add to the mix a reduction of income tax and a moving away from the present fetish about the Current Account Deficit towards high growth, and the economy will take off in the manner then regarded by voters as inevitable once Narendra Modi took charge of the Government of India.
http://www.sunday-guardian.com/analysis/time-to-abolish-service-tax-and-ensure-prosperity

Saturday, 24 January 2015

India and the US: It’s time to inhale (Sunday Guardian)

MADHAV NALAPAT  New Delhi | 24th Jan 2015
A worker places an American flag on a flag pole in New Delhi on Friday. US President Barack Obama is the first American president to attend India’s annual Republic Day festivities marked on 26 January. PTI
In a rainbow world, India's policymakers continue to view situations through a black or white prism. Although — or perhaps because — several within the decision-making fraternity in Lutyens' Delhi have children studying in the US, that country is viewed with suspicion and more than a tinge of exasperation. Some of the negativity is deserved. The US administration works tirelessly to smother India's generic medicines industry for the benefit of exactly six pharma giants located on both sides of the Atlantic, while it seeks immunity for US suppliers for any malfunction in the nuclear equipment supplied by them, thereby creating a perfect incentive for overseas nuclear power companies to make the 1.26 billion citizens of India guinea pigs for experiments in reactor design and safety.
What gets ignored in discussions in India is that such behaviour is in considerable part because of the refusal by successive regimes in Delhi to act as an ally rather than simply put up a smokescreen of talk. In 2003, then National Security Adviser Brajesh Mishra ensured that the Atal Behari Vajpayee government rejected Washington's request that a division of troops be posted in the Kurdish regions of Iraq. Indeed, Mishra spread the vicious smear that the small group of strategic experts calling for such participation were "CIA stooges", although he knew well that such a characterisation was unjust. Had the Prime Minister's Office complied with the request, not only the global profile of India, but this country's ability to ensure oil supplies (from the Kurdish regions) would have been significantly enhanced, but that was not to be. More recently, during Prime Minister Modi's visit to New York and Washington, there were indications that the Obama administration would welcome India's participation in the military campaign against the Islamic State going on in Syria and Iraq. Such a campaign could have been launched independently of NATO, for India could have acted in concert with the governments in place in Damascus and Baghdad than with Brussels, but here as well, any hint of tangible action on the ground to back up the flow of words against global terror was avoided, in a context where several of the countries now close to India geopolitically are already in the field. Clearly, the establishment in India, to use the phrase made popular by Bill Clinton, is willing to smoke but not to inhale.
The 25-27 January meetings between Prime Minister Narendra Modi and President Barack Obama have the potential to be as significant in world affairs as the 1972 meeting between President Richard Nixon and Chairman Mao Zedong. But for this, both the heads of government will need to go beyond the limits set by their respective bureaucracies. Modi will need to end the decade-long vacillation over signing the Communications Safety as well as the Logistics agreement, of course on reciprocal terms. Obama will have to defy the pharma and "Fortress America" lobbies in the US to ensure that the generic medicines industry in India becomes a component in his plan to render affordable universal healthcare in the US, an impossibility otherwise.
Should both challenge their naysayers and live up to the idealism they exuded on the campaign trail, the Modi-Obama meeting of the next three days could ensure what has the potential to be the transformational relationship of at least this half of the 21st century.
http://www.sunday-guardian.com/extra/india-and-the-us-its-time-to-inhale

ISIS volunteers in India cross a thousand (Sunday Guardian)

MADHAV NALAPAT  New Delhi | 24th Jan 2015
After months of soft-pedalling, intelligence agencies have finally accepted that ISIS is spreading across most of India, especially in Uttar Pradesh, Assam, West Bengal, Kerala, Seemandhra, Telangana and Maharashtra. In such a delay between fact and acceptance, they are following the same trajectory as their counterparts in the US, UK and France, who till late last year refused to take seriously reports that several hundred of their citizens were battling on behalf of the group in Iraq and Syria. Although an official estimate of Indian nationals who have joined ISIS is exactly a dozen (five from Mumbai and seven from Hyderabad), officials now admit that this number has crossed into the four-figure range. "Families are reluctant to admit that their sons have gone abroad to join ISIS, for fear of police harassment and/or ostracism," a senior official warned. He added that in several cases, such individuals may have returned after thorough indoctrination, so as to set up cells within the country. A Mumbai-based police officer pointed out that Arif Majeed, who was among the four youths from that metropolis who left as a group to join ISIS, made up a cover story of disenchantment with the group, which quickly fell apart under questioning, thereby leading to his incarceration on suspicion of having been sent back to organise attacks against targets chosen by the terror organisation.
Interestingly, a suggestion that India join the military coalition against ISIS, mooted informally during the 27 September-1 October 2014 US visit of Prime Minister Narendra Modi, was shot down by senior officials on the ground that such a move would result in young Indian Muslims joining ISIS. Clearly, a growing number are doing so, despite India thus far abjuring any action, other than making statements of support for the global anti-ISIS coalition. Some steps have indeed been taken by security agencies, such as blocking travel to Iraq of single males from a particular community, despite the fact that an intending recruit will most likely travel to Turkey, which has become as much of a safe haven for ISIS as Pakistan has been for the Taliban since the 1980s. However, thus far, no effort has been made to ensure that parents and guardians contact authorities in cases where they suspect that a member of the family may have been recruited into ISIS, nor is action being taken against the tens of thousands of individuals active on online internet sites justifying the actions of ISIS and calling for recruitment, except in a solitary case where the UK's Channel 4 outed a suspected ISIS operative, leaving agencies in India with no place to hide. The ISIS publication Dabiq has an estimated two hundred and seventy thousand regular viewers from India, although many of these would have been drawn by curiosity rather than sympathy for the group. "We are at the same stage that the US and the UK were in March 2014, and France in September of that year, which is not publicly acknowledging the magnitude of the problem and still trying to put in place trackers and correctives", a senior officer complained.
Intelligence agencies in India believed till very recently that ISIS would go the way of the Taliban and Al Qaeda, neither of whom were able to attract a following in India. However, it is clear that in contrast, ISIS has been attracting a significant number of youths, many with higher degrees. More than theology, it appears to be the chance of exercising mastery over slaves which is drawing in recruits. ISIS cadres have life and death power over the subject populations in territories occupied by it, especially if these be Yazidi, Shia or Christian. Across the Arab world and in nearby Turkey, youths are getting attracted to an ideology, which is as potent and poisonous as Nazism was in Germany during 1927-43, before it became clear that Adolf Hitler was losing the war against the Allied powers. Unfortunately, in its eagerness to protect the property of US and EU oil companies, NATO air-strikes against oil installations under the control of the terror group have thus far been avoided, with the result that as yet, ISIS remains in occupation of large tracts of land on the outskirts of Kirkuk, Tikrit and Erbil in Iraq, besides Ninwa and Anber on the Iraq-Syria border, besides more than a third of Syrian territory. Control over oil has given ISIS the funds needed to procure weapons and even to pay its staff. Because of NATO's policy of seeing both the Assad regime and ISIS in the same light, and refusing to join the former in battling the latter, a substantial part of Syria has become an incubation hub for ISIS volunteers. Interestingly, several members of the group have sent their families to Turkey and Jordan for safety, and themselves crossed over as the "moderate opposition", only to rejoin the group once funds and weapons have been secured from credulous regional powers and their NATO allies.
ISIS is systematically working on recruiting youths within the GCC (Gulf Cooperation Council), where more than six million Indian citizens work (thereby rendering them susceptible to indoctrination). Apart from creating an ISIS Fifth Column in India, the group may, over time, create the same chaos within some GCC states as is now being witnessed in Syria and Iraq, thereby affecting the $40 billion in remittances that this country gets annually from its nationals in the GCC, besides the bulk of its hydrocarbon imports. That ISIS is already at war with India is a detail, which seems to have escaped the attention of policymakers in India, who have thus far resisted advice to join the coalition against ISIS in ways more substantive than verbal volleys of support, such as by conducting air sorties against the group or training the Iraqi military in counter-terrorism tactics. While Prime Minister Narendra Modi is known to be enthusiastic about crafting a transformational relationship with the US, which is why he broke with tradition and invited US President Barack Obama to be the guest of honour at the Republic Day parade, key sections of the bureaucracy remain in thrall to the Nehruvian concept of "non-alignment" and to Nehru's corrosive distrust of and disdain for the military. Such a hands-off approach to a global security challenge neglects to factor in the reality that since 11 September 2001, the principal focus of the US has been security, more than commerce, and that if India wants to ensure game-changing commercial advantages from its interaction with the US, a good way of ensuring such an outcome would be to become a core partner in the global security matrix, rather than remain a bystander. India has joined China in staying away from the military campaign against ISIS, even as Russia participates indirectly, by boosting the capabilities of the regime in Damascus, which too is battling ISIS.
The accelerating spread of ISIS across India has given the lie to those who believed that staying away from action in the field would insure this country from the cancer which has settled across much of the globe. Which is why voices are multiplying, calling for bureaucratic caution to be overcome so that India can join the military campaign against ISIS before the problem becomes so big that the role of ostrich becomes untenable.
http://www.sunday-guardian.com/news/isis-volunteers-in-india-cross-a-thousand

Sunday, 18 January 2015

Jailing the corrupt is BJP’s best defence against AAP (Sunday Guardian)

MADHAV NALAPAT
ROOTS OF POWER
M.D Nalapat is the Editorial Director of The Sunday Guardian.

The Economic Information wing of the IB needs to be strengthened, as high-level corruption is as big a threat as the depredations of the ISI and its affiliates.
People gather to protest against corruption in UPA government at India Gate in New Delhi in 2011.
ecrecy ought to be the exception in a democracy, but in India it is the norm so far as official communications are concerned. After the AAP's feisty supremo Arvind Kejriwal took over as the Chief Minister of Delhi, the expectation was that he would de-classify government records, especially those relating to land transfers and bring to book dozens of errant officials. He did nothing of the kind, preferring instead to spend nights in the doubtful comfort of his car and his days on the pavement berating the Central government to television channels. Despite such an exhibition of his skills in drama, the odds favour Kejriwal's ambition of once again stepping into the CM's chair, principally because voters seem even more unhappy at the BJP's not coming through on the promise the party had made during the Lok Sabha campaign of bringing to book high-level perpetrators of fraud and ensuring transparency in the processes of governance. Each of the luminaries of the UPA period, who were the target of attack by BJP leaders, are as yet untouched by any hint of official accountability.
Not that proof is difficult to find. To take an example, contacts in Paris say that Air India paid nearly 40% extra than its nearest domestic competitor for 50 A320 aircraft that it purchased in a single order. Of course, the price paid by Air India was lower than the absurdly high "list" prices for such aircraft, thereby presumably satisfying auditors, who failed to ascertain what the other airlines had paid for similar aircraft. Finding out the cost of high-priced items to other purchasers across the globe and comparing them to the rates that were paid by companies in India ought to be child's play for the ED and the DRI, but as yet these organisations seem clueless about instances of over-invoicing of imports and under-invoicing of exports (which almost immediately get sold at derisory prices to paper entities located in tax havens, and almost immediately get sold by these bogus companies at much higher prices to genuine buyers). Indeed, Air India reached its present financially comatose state by buying multiple aircraft at prices which compare unfavourably with those paid by other airlines. Several of the carrier's aircraft were later sold to other airlines at a knock-down price.
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Prime Minister Narendra Modi has a global reputation for integrity and zero tolerance for corruption in high places. He needs to prevent future corruption, and to punish those who indulged in such frauds in the past.
Companies seldom go sick by accident. The best counter to the Aam Aadmi Party in the forthcoming Delhi polls would be to investigate the reasons why Air India became a terminally sick company during the UPA period, and take action against those responsible. Prime Minister Narendra Modi has a global reputation for integrity, and such a step would further burnish his reputation as a leader with zero tolerance for corruption in high places. After all, not only does he need to prevent future corruption, the imperative is also to punish those who indulged in such frauds in the past.
In the private sector as well, misfeasance is common. Unethical businesspersons get back the value of the money that they put into equity in their companies within a few years of operation by methods which ought to be well known to investigative agencies, but which seem to have been overlooked by the ED or the DRI. Small wonder that several companies get saddled with huge debts, mostly to public sector banks. After all, the loss of value of equity in a failed company means nothing to a promoter, who has got several times that figure in a clandestine manner. Again, the government should examine the lists of those who were appointed as bank directors during 2004-2014 and check on dodgy loans recommended by these worthies.
The Economic Information wing of the Intelligence Bureau needs to be strengthened, as high-level corruption is as big a threat to national interest as the depredations of the ISI and its terror affiliates. The BJP has made the Delhi Assembly elections a Modi vs Kejriwal battle, for reasons best known to that party. A defeat could, therefore, have significant repercussions on the atmosphere in which the party and the government function. However, the way to ensure that it is the BJP and not the AAP which gets 41 seats in the Delhi Assembly is to launch a full-court battle against instances of high-level graft indulged in during 2004-2014.
http://www.sunday-guardian.com/analysis/jailing-the-corrupt-is-bjps-best-defence-against-aap