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A cautious reshuffle
Law alone won’t help |
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MLA as PPSC head Keep politicians off this august body Since the Punjab Public Service Commission makes top state-level appointments, it is essential that its members and Chairman must be above reproach. They may be from any field but must be outstanding in their chosen work and known for unquestionable integrity so that the public in general and candidates seeking jobs in particular have faith in the fairness of selections.
China’s stake in Af-Pak
Blowing hot and very cold
THE SCOURGE OF BLACK MONEY
How to control black money
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A cautious reshuffle IF the intention of the reshuffle of the Union council of ministers effected by Prime Minister Manmohan Singh on Tuesday was to give a clear signal for change at a time when UPA-2 is beset by corruption scandals and charges of misgovernance, it has fallen well short of expectations. Surely, there are some changes for the better, but not enough to signify a dynamic push. While the top four ministers have been left untouched, the irrepressible Jairam Ramesh has been elevated to Cabinet status as Minister for Rural Development, while losing out the Environment and Forests portfolio in which he fuelled many a controversy. Sonia Gandhi loyalist Jayanti Natarajan has been rewarded with the Environment portfolio while the suave Salman Khursheed has been promoted as Law and Justice minister replacing Veerappa Moily who has evidently been punished for the manner in which the government had to cut a sorry figure before the Supreme Court several times. Milind Deora and Jitendra Prasad are the welcome mascots of the Rahul Gandhi youth brigade. It is a measure of the ascendancy of the Trinamool Congress that its nominee, Dinesh Trivedi, has been given Railways, with Cabinet rank. There is a clear message in this for Mukul Roy who as Minister of State for Railways had recently failed to visit the Assam train crash site despite the Prime Minister’s directive. The DMK, with its 18 members of Parliament, has lost out with no fresh induction in place of A. Raja and Dayanidhi Maran, both of whom were forced out of the Cabinet for their involvement in the 2G scam. While UP, which goes to the polls next year, has Salman Khursheed and Beni Prasad Verma with Cabinet rank, Punjab, which too is due for elections, has lost Cabinet rank minister M.S. Gill, who is one of seven ministers shown the door. Evidently, the reshuffle exercise in not complete with HRD Minister Kapil Sibal continuing to handle the additional responsibility of Telecom, Overseas Indian Affairs Minister Vayalar Ravi retaining additional charge of Civil Aviation, Anand Sharma holding on to Textiles and Pawan Bansal to Water Resources in addition to their other responsibilities. A lot would depend on what stance the DMK takes at its crucial meeting on July 23-24.
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Law alone won’t help
Stung badly by the doping scandal, Sports Minister Ajay Maken has announced that the government is planning to bring a new law to deal with the menace in the forthcoming monsoon session of Parliament, as if that is the panacea for the doping-hit Indian athletics. While the avowed display of firmness is welcome, it must be remembered that as far as the laws are concerned, there are enough of them for everything from terrorism to eve-teasing. But a plethora of rules has never solved a problem. What is needed is an iron-cast will to tackle an illegality, which, unfortunately is lacking. As badminton ace Saina Nehwal made it bold to point out, the widespread use of doping by athletes was an open secret but no one did anything about it. As long as the same set of people remains at the helm of affairs, it would not upset the applecart, laws or no laws. Indian athletes, plus weightlifters and boxers, comprised the rear on the world stage, till they found an easy way out. Medals and awards came in thick. The authorities preened over the “achievements” and looked the other way while syringes and other tell-tale marks of drug misuse lay strewn carelessly around such places as the NIS in Patiala. This gang, which includes not only players and coaches but also administrators and support staff, is unlikely to mend its ways just because there is a tougher law on the statute book. Only if firm action is taken against all guilty — even those at the top — will the right message sink home. There is also need to find out why athletes succumb to the temptation at all. First of all, they are not able to give off their best because of the shortage of infrastructure as well as that of doctors, dieticians and support staff. Secondly, it is their mentors themselves who put them on to drugs. Only when all such problems are addressed, would the country be justified in expecting them to be squeaking clean. |
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MLA as PPSC head
Since the Punjab Public Service Commission makes top state-level appointments, it is essential that its members and Chairman must be above reproach. They may be from any field but must be outstanding in their chosen work and known for unquestionable integrity so that the public in general and candidates seeking jobs in particular have faith in the fairness of selections. The PPSC credibility has got shaken in recent years, particularly after the Ravi Sidhu scandal. The latest controversy over the doctors’ recruitment shows it has not come out of the murk yet. Chief Minister Parkash Singh Badal, who faces elections in eight months, had a chance to refurbish the PPSC and bury its scandalous past. He has missed that opportunity. By handing over the top post of PPSC Chairman to a party MLA from Ludhiana, he has rewarded loyalty but disregarded public expectations. One need not pre-judge Harish Rai Tanda, but there is not much to say in his favour. He is known for little beyond recommending Capt Amarinder Singh’s expulsion from the state assembly which was later set aside by the Supreme Court. That was a motivated political act. It shows Dhanda may be good at doing the CM’s bidding, but this is not a qualification one looks for in a post as important as this. The PPSC is not a place for parking unemployed politicians. Both Mr Badal and Capt Amarinder Singh have filled this august constitutional body with loyalists. The Congress too had appointed a politician (Santosh Choudhry) as its Chairperson. Mr Badal has defended his choice with rustic logic he is known for: If a politician can become a Prime Minister or a Chief Minister, why not the PPSC Chairman? The sooner Mr Badal understands the fallacious nature of his argument, the better it would be for the PPSC and for the state. |
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You live and learn. At any rate, you live. — Douglas Adams
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China’s stake in Af-Pak
Withdrawal statements by great powers have always spelt retreat, whatever the gloss that imperialists have tried to put on them. President Obama’s announcement that 30,000 American troops will be withdrawn from Afghanistan by September 2012 is no exception. Instability could be exacerbated in Afghanistan itself and a new regional great game is on the cards. Indeed, the Taliban attack on the Intercontinental Hotel in Kabul on June 28 was just one indication that their terrorist habits die hard. The Taliban have never even accepted a ceasefire, let alone the Afghan constitution of 2003, international norms and obligations. They have vowed to avenge Osama bin Laden’s death — that means more extremist attacks — and insist that all foreign troops must leave Afghanistan. At the moment it is uncertain what the outcome of the preliminary contacts between the Taliban and the US will be. Despite President Karzai’s brave words about the Afghan National Army being able to defend Afghanistan (against whom — Pakistan? The Taliban?), many Afghans, including Abdullah Abdullah, Karzai’s defeated electoral challenger, and his former intelligence chief, Amanullah Saleh, are fearful of a Taliban comeback. True, the American military surge of 2009 did not force the Afghan Taliban and their Pakistani trainers to the negotiating table. Probably that is because NATO had not made enough headway, and any gains it had made were reversible. But Obama’s decision will not give either the extremists or Pakistan any incentive to make concessions and engage in dialogue, either with Karzai or the US. Regional powers — including Pakistan, Russia, China and India — have a stake in the political future of Afghanistan. Russia and India wanted NATO to stay the course. But NATO’s presence in Afghanistan has not been in Pakistan’s interest: the alliance has prevented the Taliban from returning to the Afghan helm. Now, the problematic question for New Delhi is whether the American retreat could give Pakistan the influence and strategic depth it seeks in Afghanistan against India. The country which is close to Pakistan is China. Both seek to contain Indian influence in South Asia. And China has provided Pakistan with arms and nuclear technology. In the aftermath of Osama bin Laden’s killing by American forces in his home in the Pakistani town of Abbottabad, China displayed its all-weather friendship for Pakistan. It was the first country to express support for Pakistan’s anti-extremist efforts. Even before American forces killed Bin Laden, strains in the US-Pakistani relationship were reflected in Prime Minister Yousuf Raza Gilani’s advice to President Hamid Karzai that Afghanistan should dump the US and instead look to Pakistan — and its Chinese ally — for help in making peace with the Taliban and rebuilding the economy. US officials played down the significance of the Pakistani proposal, noting that the idea of China playing the leading role in Afghanistan was fanciful at best. Instead, Washington warned Islamabad that if it did not crack down on Al-Qaida and Afghan Taliban extremists enjoying safe havens on its turf America might do the job. Pakistan was clearly displeased. In contrast, Pakistani leaders expressed gratitude for China’s support. But China would be concerned about the possible spread of extremism among its Muslim Uighurs in the western province of Xinjiang. More generally, China has a stake in a stable Afghanistan. It has invested $ 3.5 billion in the Aynak copper mine in Afghanistan, which is the country’s largest-ever infrastructure project and also in irrigation, communication and health projects. China is also potentially the largest foreign investor in Afghanistan. However, China has been unwilling to please the US to put pressure on Pakistan to eliminate extremists. This was largely because China has feared that NATO’s success would consolidate America’s position as the regional bully in South and Central Asia, and that its Asian rival, India, would benefit from a prolonged American presence in Afghanistan. But China has never made an unconditional commitment to Pakistan. And it recently disappointed Pakistan by refusing to build a naval base in the port of Gwadar. At another level, Sino-Pakistani trade exceeds US-Pakistani trade, but Beijing will not be able to replace the American largesse — more than $3 billion annually — to Pakistan. The fact that at least half of supplies to NATO still pass through Pakistan has given Islamabad a powerful bargaining chip with Washington. But Pakistan needs American aid badly, partly to fight extremists, partly to rescue its economy from the devastation triggered by last year’s summer floods and from misgovernance, which has failed to deliver essentials to ordinary people. Islamabad also has problems in repaying its international debts. Making life more difficult for NATO could cost Pakistan not only aid from the US — (post-Osama, some American legislators are already calling for cuts in aid; even to stop it altogether) — but also from international institutions like the IMF. It is unlikely, though, that China will join the US in putting pressure on Pakistan to accept Washington’s version — whatever that might be — of an Afghan peace settlement. For China must contend with the fact the US welcomes Indian reconstruction aid to Afghanistan, and that Russia and its Central Asian neighbours do not wish to see a Pakistani-steered Taliban in Kabul again. So, like Islamabad, Beijing clearly does not share all American ideas in the Af-Pak area. But in the aftermath of Obama’s withdrawal announcement and the changes in the regional environment that it augurs, there are signs that China wants to improve its relationship with India. Members of its Foreign Policy Advisory Group have opined that China should have the “same kind of relationship” that it has with Pakistan, and that Beijing does not wish to arouse Indian or Pakistani suspicions about China’s relationship with either country. Does that imply that China will discourage Islamabad from seeing its future ties with New Delhi as a zero-sum game and asking whether Beijing is India’s friend or Pakistan’s. It is too early to say this. If Beijing really wants to mend fences, reduce tension with India, and rebalance its ties with New Delhi and Islamabad, the latter’s reaction to any shift in China’s stance will be of interest. Pakistan’s stability — like Afghanistan’s — is of strategic and economic importance to China. The planned American withdrawal from Afghanistan threatens to increase regional tensions and extremist violence. Preventing that outcome should be in China’s interest, as it seeks to advance its economic progress. The unanswered question is whether China could persuade Pakistan - perhaps behind closed doors, rather than through an American-style war of words in the media — to refrain from living up to its reputation as being the epicentre of global
terrorism.
The writer is Visiting Professor, Centre for Peace and Conflict Resolution, New Delhi.
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Blowing hot and very cold
It is an established fact that the world blows hot and cold at us all the time. In the literal sense, those who live in India learn the meaning of ‘hot’ quite early in life. But it takes a ride on the Shatabdi Express to learn the meaning of ‘cold’! No journey on the Shatabdi is complete without the inescapable feeling that the North Pole has shifted somewhere in the vicinity of North India. Nowhere on the planet is the yearning for Eskimo-type clothing as intense as on the venerable train that runs from Chandigarh to Delhi. Try as one might one just cannot escape being frozen to the bone after a ride on this train. One could try to cajole the train officials into increasing the temperature; one could even try to meddle with the air-conditioning machinery when no one is looking. Whatever one does, the chances are that the super-cool treatment would surely continue after the shortest of breaks. The general excuse that is handed out to one is that people have paid extra money to travel on an air-conditioned train and that they would only get their money’s worth if Icelandic conditions are simulated for them. The one way in which one can avoid such a severe trial by ice is by wearing woollens and thermals, no matter if summer is at its peak. Thus the sight of experienced Shatabdi-goer clad in layer upon layer, complete with monkey-caps, does not surprise one. Some hotels and offices follow suit. The Chief Air-Conditioning Officers (CACO) of such establishments insist on keeping the room temperature at 18 degrees Celsius, thereby not paying any heed to the demands of energy conservation and environment protection. The resultant body aches and colds that AC-sufferers like us develop are of no consequence to them at all. One wonders if the previous experience of such CACOs included a stint aboard the Shatabdi Express. Even car drivers seem to have ganged up against us mortals these days. They feel extremely proud when the interiors of the car feel more like the insides of a refrigerator. And conversely, they feel extremely annoyed when one asks them to tone down or switch off the bone chilling action of the AC. Restaurant waiters too look at us askance when we ask them to spare us the extra chill so that we may enjoy our meal. ‘Chilling out’ may well be the mantra for today’s generation but for us old-timers the omnipresence of air-conditioning in the modern era is very off-putting. We would much rather feel the heat like most Indians do
anyway.
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THE SCOURGE OF BLACK MONEY THE issues of black income and corruption at high places have come to attract considerable attention from civil society at large. Some eminent social activists, including a yoga guru, have started serious campaigns for the eradication of this scourge. The demand for getting back money believed to be stacked in Swiss bank accounts has been getting louder by the day. Black income is a well-known and unfortunate reality of the Indian economy. Yet the accurate estimates of black money and income remain elusive, despite numerous studies conducted by economists since the early-fifties. We do not know precisely how much of black money is hoarded within the country, and what amount stands siphoned off to foreign bank accounts and other tax havens.
Amateur claims In this background, the claims like “a sum of $1500 billion (Rs 67,50,000 crore) Indian money is sitting in Swiss bank accounts alone, which if brought back is enough to pay Rs 1,00,000 to every poor in the country!” are amusing, to say the least. Naiveté of these claims and the people making them notwithstanding, even the apex court seems to have got influenced by amateur claims. Research on the subject enables us to draw several plausible conclusions about the magnitude of the illegality in the economy. It also provides fairly reliable estimates of the money illegally transferred to overseas. Even if we go by the lowest of the estimates, the magnitude is confounding. At least Rs 35,92,344 crore of black income is going to be generated during the current year alone! Similarly, the amount of money stashed away in tax havens and shell companies overseas is at least Rs 20,79,000 crore. This latter figure, though large in itself, is likely a gross under-estimate of the total illicit outflows. Since, it does not include funds transferred through illegal activities -- hawala, smuggling, drug-trafficking, among others -- on which data are unavailable. It will help to put the above terms and numbers in perspective. The black income is that part of the income which should be reported to the tax authorities but is not, including the earnings from illegal activities. This income, if unearthed and taxed, can generate an additional tax revenue of Rs 7,18,469 crore in the current year itself, and much more during the subsequent years. This additional revenue can enable the central government to avoid all borrowings, and simultaneously double the budged expenditure on infrastructure, rural development, agriculture, primary education and various social welfare schemes! Alternatively, it is sufficient to finance universal food, health, education, and employment programmes throughout the country. Similarly, a fraction of the black money transferred abroad is sufficient to liquidate all of India’s external debt. Apart from facilitating criminal and terrorist activities, black money inflicts huge damage to the legal part of the economy, and seriously harms the honest taxpayer. For instance, illicit financial flows across borders greatly add to the volatility of financial markets, at times endangering the growth and macroeconomic stability. Black money is the primary cause behind the continuous rise in the real estate prices in India. Due to the black money parked in the sector, the housing prices have risen almost ten-fold since 2000. Several commentators attribute the generation of black money to high income, corporates, high stamp duty and other tax rates. The illicit outflow of funds is also attributed to high Customs duty and trade restrictions in the past. True, the higher the tax rate, the greater are the benefits from its evasion and so lower is the incentive to report true income and transaction price. Curiously, black income has increased in direct proportion to the decline in tax rates (see the box). Similarly, two-thirds of the illegal outflows pertain to the post-liberalisation era, the period that has seen drastic cuts in the Custom duty and other restrictions on financial flows. Clearly, there is much to the issue than meets the eye. Real estate is the breeding ground for black income. Bribes and “informal” fees are said to increase the cost of housing projects by at least 25 to 30 per cent. Obviously, developers pass these costs on to the final buyers. However, they need to generate black money to pay bribes. They do so by understating their income and overstating expenses. Due to the unreasonably high prices, even the layman has incentives to generate black income to afford buying a house, wherever possible. Finally, to save on stamp-duty and other taxes, buyers and sellers in the property market leave 20-30 per cent of transaction unreported, further adding to the pool of black money. The service sector is also a leading source of black income. Services, by nature, are intangible and in most cases personalised. Therefore, there is tremendous scope for service providers to save taxes by manipulating bills and invoices. For some activities such as legal and medical services, transactions are cash-based and generally go unreported.
Corruption inflates costs Moreover, corruption in public procurement and contracting is also an ever-expending source of black money. The government and its agencies spend huge sums on the purchase of goods and services for various welfare programmes and also for their own use. In reality, substandard goods and services are procured, and only a part of the total spending concerns the actual cost; the rest is pocketed by corrupt officials and contractors. As to the government contracting, the example of 2G-specturm is enough to illustrate the extent of corruption and black money involved. The macro data also corroborates the inference that real estate, services and the public sector are the major sources of black income, though other sectors also contribute. Since 1991 the share of these sectors in the GDP has increased substantially and so has the size of black income and money. This period is also marked by increasing economic inequality between the haves and the have-nots. Plausibly, most of black money lies with rich realtors, professionals, bureaucrats and politicians. The people who can curb the illegal economy are also its beneficiaries. So is it really surprising that black income continues to grow bigger with each passing year?
The writer is a Professor,
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Several peculiar solutions have been proposed to eradicate black money: Declare the illegal funds, including those presumably stashed in Swiss bank accounts as national assets; impose jail terms and confiscate money if the owners do not declare or bring it back by a pre-announced date. These measures are useless, to say the least. Till date not a single property has been proved benami and confiscated, though there has been a law empowering the authorities to do so since 1988. The detection and confiscation of illegal funds is even harder. First, the crooks and their overseas banks are not waiting for the government to come and trawl through their account – unless criminality of money is established. Moreover, a large part of transferred funds does not go into bank accounts or does not stay there for long; it gets invested in shell (cover) companies through complex arrangements. For example, in the 18 Indian accounts traced with the LGT bank in Liechtenstein, only Rs 39.66 crore has been found to be deposited during 2002-04. The tax authorities are having a hard time in establishing the illegality of these funds. On top of it, offenders use their ill-gotten resources to scuttle the investigation. The Supreme Court is spot on in attributing the laggardly paced investigation to the nexus of the keeper and the breaker of the law. If the government and the SC constituted SIT are serious about eradicating the menace, they should target the corrupt practices in the reality sector – the mother source and reservoir of the black money. There is need to ensure time-bound and single-window clearances for projects. Applications should be received online. Details of official decisions on approval requests should be available publicly along with data on property transactions. These steps will help curtail the arbitrary powers of babus to extract pay-offs, thereby reducing the need to generate illegitimate funds. The scope of the goods and services tax (GST) should be expended to cover real estate and micro-services. The GST requires separate vouchers from sellers and buyers. So unilateral misreporting or non-reporting of transactions can be detected. Moreover, by granting input tax credit, it reduces the incentive to under-report transaction value. Also, there is need to bring objectivity and transparency in public procurement and contracting. As for the illegal outflow of funds, it is crucial to identify the ultimate beneficiary of international wired transactions. It will help to control terrorist and other criminal activities. Manipulated export and import accounts and the abusive transfer pricing (ATP) are the major conduits for illegal outflows of funds. The government should use the available data on international trade. Moreover, it should collect comprehensive real-time data on quantities and prices from exporters and importers independently. The enriched dataset can be used to detect trade mis-invoicing and the related parties’ transactions. Moreover, the use of tax havens and the double taxation avoidance agreements for money laundering should be stopped. The government should renegotiate all of 77 agreements to require the partner countries to share information on the reported profit and tax payments by Indian companies as well as MNCs. This measure, by detecting inconsistencies, can help reduce the scope of the ATP.
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How black money is generated
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