A risky natural experiment



Source: By Niranjan Rajadhyaksha: Mint



The popular quip being circulated in social media is on the money: India has seen an exponential increase in the number of economists ever since Prime Minister Narendra Modi announced his decision to withdraw banknotes of high value. There has been a gush of commentary on the impact this will have on the economy. Some of the best economists have jumped into the fray. Meanwhile, the hardship borne by ordinary citizens is undeniable.


Professional economists have a good reason to keep a close watch on the evolving situation. The currency reform is a great example of what economists call a natural experiment—albeit risky one. It is a sudden exogenous shock that completely alters the way participants in an economy take decisions. Such natural experiments usually offer rare insights into the economic process. They are analysed using statistical techniques that are not used in more normal times. Hence, how this decision plays out over a longer period of time needs to be watched carefully rather than jumping to quick conclusions. Here are a few broad issues that deserve immediate attention.


First, the decision to withdraw old banknotes of high value has disrupted the monetary base in India. Currency in circulation accounted for 80% of the reserve money in India on 11 November. Some 86% of this currency in circulation was in notes of Rs500 and Rs1, 000. So, the withdrawn notes are around 69% of the monetary base (and not the entire base as some have written). Never before has there been such a deliberate monetary shock to a smoothly functioning economy.


Second, what matters in a modern economy based on bank credit is not the monetary base but some measure of broad money, which includes both cash and bank deposits. It is important to remember that money is not the same as cash, though at least one investment bank seems to have made this rather elementary error in its research report on the impact of the withdrawal of old notes on the economy. A quick look at Indian monetary statistics shows that currency with the public accounted for only 7.3% of the broad money in the economy. So, the impact on broad money is far less severe than the impact on base money. What is happening right now is a shift in the composition of broad money—from cash to bank deposits.


Third, the stock of broad money in India is more than five times the stock of base money. In other words, the money multiplier is around 5.6. This standard analytical tool in monetary economics is determined by three variables—the monetary base, the cash reserve ratio and the ratio of cash to bank deposits (C/D) in an economy. The second is a policy variable which the central bank tinkers with while the third is a behavioural variable. The C/D ratio is normally stable—but the currency reform could change it dramatically. A drop in the C/D ratio (or when people begin to hold more of their money in bank deposits rather than cash) will push up the money multiplier, as long as banks lend out the money pouring in. In other words, the behavioural shift towards bank deposits could lead to an unexpected expansion in money supply, and perhaps provide a cushion against the reduction in the monetary base.


Fourth, the big problem is that a large part of the Indian economy is still outside the banking system. So, the cash shortage will hurt the informal sector that does most of its transactions in cash. The distinction between money and cash hardly matters here. The problems in the informal sector will pinch the formal sector as well. The drop in biscuit sales at the local paanwala will eventually hurt companies that supply these biscuits. If one looks at the structure of employment in India, cash-based activities such as construction, transport, small retail and restaurants account for a big chunk of employment outside farms.


Fifth, one of the intense debates within monetary economics is on the rather technical question of how money is created. Is it created by the central bank through the expansion of its balance sheet? Or is it created through the expansion of bank credit that the central bank then accommodates? Is money exogenous or endogenous? The ongoing natural experiment in which money is first being destroyed and then created could offer some interesting insights into this tricky issue.


The point is that the currency reform is a game-changer in the true sense of the word. It is quite clear that the immediate impact on the economy will be negative. However, the massive expansion of bank deposits will bloat the contribution of financial services to the increase in gross domestic product in the third quarter, a statistical illusion that could downplay the real impact on economic growth. The real puzzle is what this means in the long run. Much depends on whether this exogenous shock alters citizen behaviour—in terms of whether less cash will be used in the future, whether the tax base will expand as more transactions are done through the formal financial system and if other policy measures restrict the creation of fresh black money.

There is a good reason why the attention of economists around the world is focused on India. This is a rare, and perhaps unprecedented, natural experiment whose deeper effects will be known well after the dust settles down.

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Making a case for demonetisation


Source: By Yogesh Pratap Singh: The Statesman


The legitimacy of demonetisation of high denomination bank notes is being questioned in legal and political circles. The Madras High Court dismissed a petition and observed that demonetisation was good for India. The PILs filed in the Karnataka High Court and Bombay High Court was too dismissed on similar grounds. While the Supreme Court refused to stay the government order, it asked the Centre to file a reply without formally issuing notice on the steps government had taken to reduce the trauma of common people. The decision of High Courts and the Supreme Court have been questioned for taking a hands-off approach when it comes to matters of economic and fiscal policy.

It is argued that the political executive, owing to the degeneration of the electoral process, normally acts out of political and electoral compulsions, and for that reason it may not act justly and independently. However, if the provision is made by the legislature, it will not only provide an opportunity for debate where several shades of opinion are represented but a balanced and unbiased decision free from the allurements of electoral gains is more likely to emerge.

It is pertinent to record at this juncture that demonetisation by law was done in 1978 by the High Denomination Bank Notes (Demonetisation) Act, 1978.  The constitutional validity of this Act was challenged in Jayantilal Ratanchad Shah v. Reserve Bank of India on grounds that it was violation of the right to carry out trade and commerce and it amounted to a compulsory acquisition of property without compensation by the Government.

The Constitution bench of the Supreme Court while rejecting these contentions held that demonetisation law was in the larger public interest. Control of the problem of “unaccounted money” in any way does not amount to a violation of the right of the petitioners.      

Section 26, sub-section (2) of the Reserve Bank of India Act, empowers the Union Government on the recommendation of Central Board to declare that “any notes issued by the Reserve Bank will no longer be legal tender.” The Union government on 8 November in exercise of this power passed the order demonetising Rs. 500 and Rs. 1000 currency notes. The decision was taken principally to curb the grave menace of unaccounted money which had resulted not only in affecting seriously the economy of the country but had also deprived the exchequer of vast amounts of its revenue.

Legislation on this issue may be ideal but under these circumstances the courts are not to see what is ideal or desirable but what is legal and constitutional. To what extent can the court intervene if an economic policy or measure directly impacts the fundamental rights of citizens?

The Supreme court in Balco Employees’ Union (Regd.) vs. Union of India and Ors. 2002(2) SCC 333 observed (vide paragraph 92 and 93):  “In a democracy, it is the prerogative of each elected Government to follow its own policy. Often a change in Government may result in the shift in focus or change in economic policies. Any such change may result in adversely affecting some vested interests. Unless any illegality is committed in the execution of the policy or the same is contrary to law or mala fide, a decision bringing about change cannot per se be interfered with by the court. Wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution. In other words, it is not for the courts to consider relative merits of different economic policies and consider whether a wiser or better one can be evolved."

In catena of other cases (Peerless General Finance and Investment Co. Ltd. v. RBI, (1992) 2 SCC 343; Pallavi Refactories v. Singareni Collieries Co. Ltd., (2005) 2 SCC 227) the court has dithered about indulging itself in the executive and the legislative domains. Thus, unless policy is clearly illegal or unconstitutional, the courts should not intervene. In a democracy, the Government is constituted by chosen representatives of the people. It is for them to determine what measures should be taken or not taken to advance the welfare of the people. If the Government in its wisdom has concluded that demonetisation tends to the welfare of the State, as it prima facie appears to be, then it is not for the Courts of law to sit in judgment upon that decision. Considering the degree of evil the alleged executive action sought to remedy, it cannot be said that it is not taken for a public purpose. A decision taken in the larger public interest cannot be arbitrary. 

The contention regarding violation of freedom of trade and commerce as stipulated under Article 19(1)(g) will also be a misconceived argument for the precise reason that this freedom unlike others under Article 19 is subject to complete restrictions in the interest of larger public. Another possible contention that “No person can be deprived of his property except by authority of law” may not be entertained because there is no deprivation of property. Accounted money of all the citizens will remain intact. Citizens may only be deprived of their unaccounted money because it is not legally acquired and that appears to be fair enough.    

Demonetisation by an enactment would have facilitated corrupt politicians, public and private servicemen, lawyers, doctors, businessmen, traders, temples, mosques, akhadas, Trusts, Societies, private universities, private schools and others involved in unaccounted money with sufficient time to deal with it. No one would deny the possibility of backdoor arrangements this time too but they would be fewer.

Nevertheless, the sudden ban on high denomination notes has for the first time shaken the underground economy. For the first time, honesty as a virtue has got a sense of satisfaction. Are honest (real or forced) tax-payers not entitled to this minimum return of mental serenity? To keep honesty alive and encourage tax-payers to keep on paying taxes, government needs to give such treatment at regular and planned intervals.  


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The inanity of it all



Source: By Prabhat Patnaik: The Telegraph



The time has come to call a spade a spade. The decision to demonetize with immediate effect 500 and 1,000 rupee notes is the most inane decision in the realm of economic policy that has ever been taken in post- Independence India. In fact, in calling the decision merely “inane", I am giving the government the benefit of the doubt that the inflicting of acute distress upon millions of common people was an outcome of this decision unanticipated by the government, that the government's flaw lay only in the realm of ideas, not intent.


There have been other momentous decisions with, in my view, serious adverse consequences for the people in the long run, such as the opening up of the economy to global financial flows, but these have been driven by class interests, not inanity. The inanity of the current measure is manifest at several different levels. Even if we accept every single argument put forward by the government in its defence, there is still no reason why these currency notes had to be demonetized with immediate effect. The government, as Abhijit Sen has argued, could have fixed the same deadline, December 30, for exchanging old notes for new as it has now done, but demonetized old notes only after that deadline; the panic and the distress would have been less in that case.


But the arguments advanced in defence of the move themselves betray inanity. They presume that “black money" consists simply of hoards of cash stashed away in pillowcases and trunks, which is absurd.


In fact, what we call " black money" is an inapposite reference to a whole range of activities in the economy that are undeclared, either because they are simply illegal ( such as drug running or supplying arms to terrorists) or because tax payments on them can be avoided thereby. They are, in short, businesses like any other, but undeclared; they constitute a flow, not a stock. Like other businesses, they entail holding stocks of goods and cash. Though the ratio of cash stocks in the hands of “black businessmen" to their turnover is likely to be somewhat higher than that of their “white" counterparts (since the former make less use of cheque transactions), it need not be very high. This is because the “black economy" is not an insulated one. It interpenetrates the white economy: the employees in the black economy use their cash earnings to go to the same grocery and barber shops as those of the white economy, and businessmen of the black economy use the same airlines to travel abroad as those of the white economy (if at all a distinction between the two types of businessmen can be made). Hence the belief that targeting cash stocks in the black economy is tantamount to destroying that economy is extraordinarily naïve.


There is an additional factor here. Whenever such a situation arises under capitalism, a new business opens up with some “entrepreneurs" offering to change old notes into new ones for a consideration.


Joseph Schumpeter, a great admirer of capitalism, called all such enterprises “innovations". We already have reports of intermediary agents offering to take Rs 1,000 notes in return for Rs 700 of current legal tender. Since such transactions are themselves black transactions, the government's move against the black economy is thus leading to a proliferation of the black economy. And in this case, any loss sustained by the existing black businessmen would lead only to a transfer of cash- wealth to the new black businessmen, those who exchange old notes for existing legal tender, with not an iota coming to the government.


Let us, however, ignore this proliferation, and imagine that the black economy suffers a net loss, and make a simple calculation on this basis. Let us assume, as the above example suggests, that the existing black operators experience a 30 per cent loss on their cash holdings because of the government's demonetization move. (Even if the black operators retrospectively declare their existing cash holdings as income and pay taxes on them, they would suffer a similar order of loss on these holdings). The government appears to have no idea of the magnitude of cash- holding in the possession of black operators that its demonetization move is targeting.


But the figure often mentioned by pro- government spokesmen is Rs 3, 50,000 crore. Let us accept this figure. If 30 per cent of this is lost to these operators, then the magnitude of this loss comes to about Rs 1, 00,000 crore. On a very conservative estimate, the black economy is a quarter of the white economy, which would place its size roughly at Rs 30 lakh crore. On this the share of profits would be around a half, which means Rs 15 lakh crore. The loss of cash- wealth owing to the government's demonetization move therefore would amount to no more than about 7 per cent of the annual profits of the black economy. Even under these favourable assumptions, the demonetization move, far from being an attack on the black economy, would merely be a pinprick, which this economy can take in its stride.


But, even for administering this pinprick, the entire economy is being severely destabilized, with around 85 per cent of the currency with the public (and around one eighth of the broad money supply) being suddenly destroyed. Even the other arguments advanced by the government, such as eliminating counterfeit currency, do not warrant this measure. Old notes could have been exchanged for new ones over a period of time, as they usually are, without inconveniencing people and still eliminating counterfeit notes. As regards the transition towards a cashless economy, an authoritarian imposition of such a traverse, instead of a spontaneous move towards it, can scarcely be defended.


The destruction of currency means simultaneously a destruction of purchasing power, especially in the hands of the poorer section of society in whose case the use of cash predominates. It has, therefore, a recessionary impact on the economy whose primary victims would be the petty producers, peasants, petty traders and all those employed by them or dependent upon them, as well as the vast army of self- employed persons. In particular, with the kharif harvest in, the peasants who were looking forward to selling it are suddenly finding themselves without buyers, or with buyers who are only offering them meagre prices in the context of the cash shortage. If the peasants hold on to their crops, then they face the prospect of loss owing to damage to the harvested and stored crops.


What the government has done is to cut off the noses of millions of common people in an attempt to spite the faces of a few black operators, and that too with little prospect of success. It is difficult to think of a precedent for the current denouement.


The demonetization of Rs 1,000, Rs 5,000 and Rs 10,000 notes in 1978 by the Morarji Desai government, while it scarcely had any noticeable impact on the “black economy", did not at least inconvenience the bulk of the people, unlike the current demonetization, since they had little access to such notes. Even the colonial government's demonetization of large notes in 1946 was not something that inconvenienced people, since these notes were held only by the super- rich. For a possible precedent, therefore, we have to go back even further in time, to a period shortly after the Battle of Plassey, when the “drain of wealth" from Bengal began. The shortage of specie that such “drain" caused had produced a severe recession in Bengal at the time, very much like the recession that we are currently facing, of which the fall in price being faced by the peasantry is a symptom.


When exactly normalcy will be restored in the economy is unclear. It now appears that it will take several weeks before this happens. The distress, meanwhile, will have been quite acute. What is more, this distress may not be only transitional: the disruption of activity for several weeks may even have an enduring impact on the economy. The peasants' inability to sell the kharif crop may have an adverse impact on their Rabi output as they might lack the requisite working capital for it.

Petty traders, who are forced to go out of business because of the absence of cash, may find it difficult to resume when the cash shortage is overcome, since the scale of credit required for doing so may have increased in the meantime, and also since they may have lost some customers in the interim, the relatively better off ones, to supermarkets, where credit card payments can be made. Indian economic bureaucracy has traditionally been of a high calibre. The inanity of the demonetization move, and the utter lack of preparedness for what could follow its introduction, underlines the degree to which it has fallen.

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Know thyself



Source: By Bibek Debroy: The Financial Express



The latest edition of Court News is for the period January-March 2016. For Supreme Court, this gives us a sanctioned strength of 31, a working strength of 26 and vacancies of 6.19% of the sanctioned strength. For high courts, there are 442 vacancies out of a sanctioned strength of 1,041—that’s 42.5%. For district and subordinate courts, there are 4,882 vacancies out of a sanctioned strength of 21,017, or 23.2%. The 2015 NJAC (National Judicial Appointments Commission) Act, before it was struck down, was about appointments and transfers of higher judiciary (Supreme Court, high courts). True, fewer vacancies increase the speed of dispute resolution. Who is responsible for vacancies in the district and subordinate courts? Culpability of state governments plays only a very small part in that, if at all. Failure to fill those vacancies is responsibility of judiciary. For higher judiciary, a lot of numbers float around in media on vacancies. Those numbers should be statistically controlled for two reasons. First, other than increase in Supreme Court in 2008, one needs to factor in increase in sanctioned strength for high courts, from 906 in 2015 to 1,056 in 2016. Second, while the Constitutional Bench of Supreme Court heard the NJAC case, say between April and November 2015, no appointments to higher judiciary could take place. Corrected for these, regardless of level of the court, there are vacancies of 30-35%.


That takes us to the collegium system, in existence since the Second Judges Case of 1993 and validated by the Special Reference of 1998, though the Constitution mentions no such collegium. Strictly speaking, there are two levels of the collegium, the high courts and Supreme Court. Recently, a judge of the Supreme Court said, “I have written a letter informing him (CJI) that I will not be participating in the collegium’s meetings henceforth. The system of selection of judges is not at all transparent. No reason, no opinion is recorded. Just two people decide the names and come back to the meeting and ask for a ‘yes’ or ‘no’. Can a judge of the SC or HC be selected in such a manner?” If Justice Chelameswar is forced to say this, the statement cannot be taken lightly. It therefore follows that the collegium system needs to become more transparent, especially in an environment where there is a drive towards transparency all around and courts have themselves urged rest of society to move towards transparency. Consider this. What percentage of names recommended by different HC collegiums is rejected by SC? Figures of between 30-35% float around. Since no one is seeking information about specific individual names, why can’t that aggregate information be published in Court News? Not the complete match between 30-35% rejection and 30-35% vacancy.


When does the collegium process, at either level, kick in? Unless it is truly in manus Dei , one knows in advance when there will be permanent vacancies. Does the collegium process kick in six months in advance? If there are a certain number of vacancies, does the HC collegium recommend exactly that number, or some multiple? On what basis are the selections made? “This legitimate expectation has relevance on the ground of longer experience on the Bench, and is a factor material for determining the suitability of the appointee, along with other factors, such as, proper representation of all sections of the people from all parts of the country, legitimate expectation of the suitable and equally meritorious Judges to be considered in their turn is a relevant factor for due consideration while making the choice of the most suitable and meritorious amongst them, the outweighing consideration being merit, to select the best available for the Apex Court.” This is from the 1993 judgement, quoted in 1998. Ipso facto, everything cannot be on the basis of seniority and there must be some attempt to gauge “merit”, not just from within the judiciary, but also from outside, such as the bar.


Any selection process, for anything, has a similar set of principles. True, everything cannot be reduced to a GPA. But that doesn’t mean everything must be left vague, indeterminate, subjective and non-transparent. In any organisation, the higher up the position, the more difficult it is to quantify performance. However, performance-based indicators aren’t impossible, even if those don’t become the sole determinant. Recently, Vidhi Centre for Legal Policy developed such a judicial performance evaluation system for judges of SC and HC. I have no intention of suggesting this is perfect. That perfection and tweaking should be done by insiders, judges themselves. Vidhi’s, or something like that, is no more than a suggested template. In the entire controversy over NJAC, I cannot fathom judiciary’s reluctance to accept performance indicators and impart transparency to the collegium process. While protecting independence of the judiciary, nor do I understand the reluctance to accept the help of a screening committee, especially in a situation where time for a heavily-burdened judiciary is at a premium. In several other instances, screening committees routinely exist as filters. They facilitate the work of selection committees and no more. The proposed memorandum of procedure (MOP) seems to be stuck now. I am reminded of something Benjamin Franklin wrote in Poor Richard’s

 “There are three Things extremely hard, Steel, a Diamond, and to know one’s self.” If the SC did the last, I think the steel of confrontation would disappear and a diamond would result.

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Women powering a clean future



Source: By Lakshmi Puri: Mint



India ratified the Paris Agreement last month on Gandhi Jayanti—the birth anniversary of M.K. Gandhi, one of the strongest proponents of living in harmony with nature and the environment. India committed to generating at least 40% of its electricity from non-fossil sources by 2030. Currently India accounts for 4.5% of global greenhouse gas emissions. Its efforts are key to achieving the goal of halting the effects of climate change by restricting the rise in global temperatures to 2 degrees Celsius above pre-industrial levels.


At the 22nd Conference of Parties (COP22) to the United Nations Framework Convention on Climate Change (UNFCCC) in Marrakech, Morocco, delegates from 200 nations declared that fighting climate change was “an urgent duty”. India’s increasing focus on expanding the use of clean energy is therefore critical. It is also a step towards the achievement of Sustainable Development Goal 7, which emphasizes universal access to affordable, reliable, sustainable and modern energy and increasing the share of renewables in the global energy mix.


In addition to the established avenues towards a cleaner future, it is becoming increasingly evident that women play an important role as agents of change in the transition to cleaner, affordable and sustainable energy. There is a clear link between energy access and women’s economic empowerment and well-being.


In India, for example, women still spend up to 5 hours a day collecting fuel for cooking, as part of their unpaid, unrecognized and unaccounted care work—work that restricts the opportunity for education, paid employment and economic advancement. Further, the use of biomass fuel causes severe and long-term health problems such as respiratory diseases. The World Health Organization reports in India 500,000 deaths occur every year due to unclean cooking fuels. The lack of access to clean and affordable energy also has a direct link to violence against women. Women often venture out to collect firewood in remote, isolated and difficult geographic terrains, and are therefore more vulnerable to violence. In addition, reliance on wood disrupts natural resilience buffers and produces vulnerabilities and even accelerates climate change.


Improving energy access would reduce the drudgery of women’s unpaid and care work, enable them to access education and employment options and enhance their livelihoods. Clean cooking fuels such as liquefied petroleum gas (LPG), biogas and other options such as solar energy could help eliminate the hazards of indoor air pollution in the nearly 140 million Indian households that rely on open fires and biomass for cooking. Access to energy for women also results in positive gains for the ecosystem. For example, the electrification of rural communities can result in a 9 percentage point’s increase in female employment, and a staggering 23% increase in the probability of rural women working outside the home. According to a recent study by the McKinsey Global Institute, empowering women to participate in India’s economy on an equal basis with men would add $3 trillion to the nation’s economy by 2025.

Enabling women’s access to energy also results in improvements to their social conditions. Women invest 90% of their income back into their families and their welfare—which has a positive knock-on effect, with lasting effects for generations to come. Investments in women’s access to energy are therefore critical. The government’s Ujjwala scheme, which provides LPG connections at reduced rates to women from Below Poverty Line households, is a useful example. The scheme will be bolstered by public investment in clean energy, incentives such as subsidies and taxes, and communities’ access to finance, awareness and education. Earlier this month, at a side event at COP22, UN Women unveiled its partnership with the ministry of new and renewable energy, government of India, and the United Nations Environment Programme (UNEP) to address barriers holding up women entrepreneurs, enable women’s participation and leadership in energy policies, and the productive use of sustainable energy. Launched last year, together with the ministry and UNEP, at COP21 in Paris, the new flagship programme on “Women’s Entrepreneurship for Sustainable Energy” is supported by the UK’s department for international development, and will be implemented in four states—Madhya Pradesh, Nagaland, Rajasthan and Uttar Pradesh—in 2017. It will have an impact on 100,000 disadvantaged women, by providing better access to sustainable energy. The flagship programme, which yokes together women’s economic empowerment and sustainable energy for all, is seen as a key means of implementation of the gender equality and women’s empowerment compact. The partnership is an example of a concrete commitment to achieving the Sustainable Development Goals, particularly Goal 5 on gender equality and women’s empowerment and Goal 7 on energy access. As we call on governments across the world to “Step It Up” for gender equality, this initiative by the Union government will set a standard for many other countries, and accelerate the momentum towards a more equal world, a Planet 50-50, by the year 2030.

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A cashless future



Source: By Govind Bhattacharjee: The Statesman



The demonetisation of the Rs.500 and Rs.1000 notes was indeed a surgical strike on black money, one that will change our economic landscape and correct the distortions. The resultant pain is associated with any surgery, but nowhere in the world have reforms been effected without the accompanying pain. But this reform can lead to a much bigger bout of reform by nudging India towards a cashless economy. If we are determined, in a few years’ time, we can transform ourselves into a cashless society.


Bank notes were first introduced in Sweden way back in 1661. Today, three and a half centuries later, most cities in Sweden don’t accept any cash. Public transport, small business enterprises, museums and even churches now accept only electronic payments through card-readers or digital wallets. Three out of four of Sweden’s largest banks are phasing out the manual handling of cash in their branches. As per the statistics of the Bank for International Settlements, an umbrella organization for the world’s central banks, the cash-GDP ratio in Sweden is down to only 3 per cent, compared to an average of 9 per cent in Eurozone, 7 per cent in the US and 12 per cent in India. The number of bank robberies in Sweden had plunged from 110 in 2008 to only 5 in 2012, because most Swedish banks simply don’t handle cash anymore.


Other Scandinavian countries are also not far behind. Most stores in Denmark had dumped their cash registers from January this year; only essential services, hospitals, pharmacies and post offices, still accept cash till such time as cashless transaction becomes law. Norway is also making a similar transition. Scandinavians today rely on cash for less than 6 per cent of all their payments, against an estimated 47 per cent in the US. They are discovering and benefiting from the advantages of reduced handling and transport costs, increased security and a drop in cash-robbery cases. Card frauds have increased though, the total card frauds in Europe reached a record value of $ 1.4 billion in 2013, eight per cent more than in 2012.


Many other countries are also making a move towards a cashless society across all continents. Canada, where electronic payments constitute 70 per cent of the total payments as against the world average of 40 per cent, has stopped printing new currency notes. By introducing a preferential VAT treatment for consumers who pay with cards, South Korea has significantly reduced the share of cash from 40 per cent to only 20 per cent in 10 years. Their central bank, Bank of Korea, is issuing less and less currency every year, and is moving towards a planned ‘cashless society’ by 2020. Australia, Singapore and even Nigeria are thinking of a cashless future.


In Africa, Kenyans are increasingly flocking to mobile money M-Pesa which has already registered 15 million subscribers in a population of 47 million. Even in Somaliland, an autonomous region of Somalia, one of Africa’s poorest countries, a mobile revolution has created an informal electronic banking system with more efficiency and convenience than in many developed countries. Cash is disappearing fast and credit cards are becoming redundant because even street vendors accept payments by mobile phones. A survey in 2012 found that the average customer makes 34 transactions per month on their mobile phones, higher than in almost every other country.


These are but a few examples of countries across the world which are moving resolutely towards cashless regimes and whose number is increasing because of the potential benefits. According to a McKinsey report, a cashless society has the potential to cut costs equivalent up to 1.1 per cent of GDP. In countries where total cash payments constitute below 50 per cent of total payments, the shadow economy can grow only up to 12 per cent of GDP, but where cash component exceeds 80 per cent of total payments, the shadow economy can surge up to 32 per cent of GDP. Apart from restricting the growth of the underground economy, becoming cashless may also help in the monetary policy domain. To stimulate the economy by encouraging spending, some countries may adopt minus interest rates, but it will not work in a cash economy. When cash becomes electronic, people will have to spend it to avoid losses from “minus interest rates”.


A cashless transaction is not an invention of the modern times; in fact, the origin can be traced to the medieval era. Ever since the birth of Christianity in Rome, devout Christians had wanted to visit Jerusalem, the Holy City, at least once in their lives. Even at the best of times, the journey from Europe to Jerusalem was hazardous, but the emergence of Islam in Europe increased the hazards manifold. Once Jerusalem had fallen to the Muslims in 637 AD, Christian pilgrims began to be harassed not only by the Muslim fanatics who massacred the infidels, but also by groups of ruthless bandits en route.


Starting in 1009, the Crusades spilled blood in the name of God for the next two centuries. In 1099, Christians recaptured Jerusalem and the Holy City would remain under their control for the next 130 years. In 1119, out of the Crusades emerged a mysterious order of the Knights Templars, an army of monks trained in warfare, to provide protection to pilgrims going to Jerusalem. They were fierce and fearless, willing to die for the Scriptures, and were among the most feared knights of their times. By 1120, they had entrenched themselves in Jerusalem, at the site of the Biblical Temple of Solomon, and had dug the area around to discover many holy relics and riches, as the legend goes, including the elusive Holy Grail. Templars attracted recruits from the wealthiest families of Europe and became immensely powerful and rich, not only from the wartime loot but also from donations of land and gold from nobles and kings of Europe. They acquired wealth beyond imagination, owned vast tracts of land, hundreds of castles and a full fleet of ships that traded goods and pilgrims across the Mediterranean. They became the first well-equipped standing army of Europe since the fall of the Roman Empire.


From 1150, they had, however, stopped guarding the road to Jerusalem physically, finding instead a much better and efficient way to protect the cash and valuables of the pilgrims, which attracted the bandits and imperilled their journey. They devised an ingenious arrangement by which pilgrims deposited a lump-sum amount in advance with the Templar Commandery nearest their homes and were given paper scrolls or vouchers in exchange that recorded in ciphers the amounts deposited. On their way to Jerusalem, at places where such commanderies were available ~ there were quite a few ~ they could draw cash against the note to defray expenditure incurred on the way, by paying a fee for the services rendered. This was the origin of the modern banking system and of the credit cards and travellers’ cheques of modern times.


Templars gradually became bankers to the European monarchs, and that brought their ultimate end. In 1307, Friday the 13th October, hundreds of Templars were arrested by King Philip IV of France who wanted their enormous treasure for his kingdom impoverished by his wars. They were charged with serious crimes, including desecration of the holy relics, were tortured by Inquisition and ultimately put to slow death by burning. But the treasures were never found, and many Templars had also escaped unscathed to the safety of Swiss villages deep in the Alps. Around this time in Switzerland, the farming communities were seen gradually transforming themselves into banking communities whose operations were covered by secrecy laws that replicated the secrecy surrounding the Knights Templars. They also proved to be transformed suddenly into a formidable fighting force, taking on foreign invaders successfully, unlike farmers elsewhere. It may not have been a mere coincidence that the Swiss flag incorporates the Templar Cross.


The cashless system was then devised to save the pilgrims from bandits. Today it can save us from a much larger bandit, the black economy. India has already taken the plunge in this. Like in many European countries, high-value cash transactions are disallowed in India, making it easier to track financial transactions and collect tax, and also curb high-value illegal transactions.

A recent joint report by Google and the Boston Consulting Group stated that the rise in smartphone penetration and adoption of mobile wallets by small offline merchants will increase the size of the digital payments market in India nearly ten-fold to $500 billion, or 15 per cent of the country’s GDP by 2020, when India’s internet user-base will reach 500 million. JAM (Jan Dhan-Aadhaar-Mobile) and United Payments Interface, Digital India and mobile wallets have already laid the foundation, and the recent demonetization can further facilitate the movement towards a cashless India. With a firm resolve, we can even become the first cashless country in the world.

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Marrakech fails to live up to the promise of Paris



Source: By Jayachandran: Mint



If Paris set the global agenda for fighting climate change last year, providing the over-arching political and procedural framework for the process, it was at Marrakech this past week that world leaders were expected to deliver at least part of the blueprint for achieving the lofty goals they had set for their respective countries. The core issue was climate finance: Who will pay for the project? Developed countries have pledged $100 billion by 2020 but developing nations, including India, want firm commitments and a clear road map for how and where the money will flow.


Last year in Paris, Prime Minister Narendra Modi risked an upgrade in New Delhi’s long-standing position on climate change, which others were decrying as obstructionist, and sought to craft a leadership position for India in the fight against climate change. While India, and indeed other developing countries, now actively seek to embrace renewable energy, developed countries must do their part by paying for these shifts and changes. It is only when developed countries put in the money they have promised that developing countries can realize their climate commitments. Once these commitments are on track to being fulfilled, it is likely to trigger higher ambition and bigger commitments which might just be enough to achieve the Paris objective of limiting temperature rise to 2 degrees Celsius above pre-industrial levels.


Climate finance, therefore, is the lynchpin that holds together the entire process. The Marrakech conference was supposed to offer some clarity in this regard but, unfortunately, there was only limited progress. The election of Donald Trump—who has described climate change as a “Chinese hoax” and made no bones about his disapproval of the Paris Agreement—to the US presidency immediately set a negative backdrop to the negotiations. The US has promised $3 billion in climate funding but even under president Barack Obama, who has placed the fight against climate change at the core of his legacy, the money flow has been uninspiring. Now, it is unclear how adversely a Trump presidency might have an impact on climate funding from the US. The US government may transfer an even greater share of its financial commitments to the private sector, and this will be just as problematic for developing countries as private funds are profit-driven and erratic.


One might even go so far as to argue that some of the gains registered by India and other developing countries at Paris came close to being rolled back in Marrakech. Take, for example, the report on climate finance prepared by the developed nations’ Organisation for Economic Cooperation and Development (OECD) that argued that developed nations are on track to fulfilling their financial commitments. But negotiators from developing nations have countered, and with good reason, that the report uses dubious accounting measures to “greenwash” the obligations of developed nations. A similar OECD report was presented at the Paris conference and subsequently trashed. That its 2016 version made headway in Marrakech and opened up a definite possibility that the norms and definitions set in the report may form the baseline for future negotiations was much to the disappointment of developing nations. Another setback for the developing world was that their funding requirements for adaptation measures failed to be adequately highlighted.


From India’s point of view, Marrakech was quite a dampener after the Paris high. Issues pushed by New Delhi, such as “climate justice” and “sustainable lifestyles”, were largely ignored. Only the international solar alliance, which was officially opened for sign-up, made some progress. Sure, there were some small victories such as the Marrakech Action Proclamation for Our Climate and Sustainable Development which was revised to finally reflect the concerns and aspirations of developing countries but, clearly, a long and arduous journey lies ahead.

Over the next two years, the “rule book” to implement the Paris Agreement will be finalized and it is imperative that India fight to protect its interests here. Apart from climate finance flows, the other big issue that will dominate the agenda is that of the “green regulations” currently being established across industries. India will have to negotiate keeping in mind its own domestic imperatives. The tug and pull was already evident in Kigali and Montreal as countries sought to set green standards for the air-conditioning and aviation industries, respectively. One can expect more such debates on regulatory issues such as climate disclosures, which are currently voluntary in India but fast becoming mandatory in the West.

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Choosing the side of oppressors



Source: By M Adil Khan: The Statesman



Another news outlet, Myanmar Observer has reported that Myanmar Army has rained rockets on Rohingya houses in Rakhine state killing scores, burning houses to ashes. When people started flee from their burning houses they were shot at, killing men, women and children.


Recently, London-based The Guardian reported that at the entrance to Thaungtan village in Myanmar’s Irrawaddy Delta a brandnew sign asserts, “No Muslims allowed to stay overnight. No Muslims allowed rent houses. No marriage with Muslims”. AlJazeera also reported similar rise in systematic eviction, rape, loot and arson of Rohingyas (the Muslims of Myanmar’s Rakhine State) by the military. Bangkok Post in another report highlights that soldiers in Shey Kya village in Rakhine State “raided their (Rohingya) homes, looted property and raped them at gun point.”


The UN envoy on human rights in Myanmar, confirmed “repeated allegations of arbitrary arrests as well as extrajudicial killings occurring within the context of the security operations conducted by the authorities in search of the alleged attackers”. These incidences indicate a clear pattern of ethnic cleansing. But the Myanmar Government neither denies nor confirms these acts of violence against Muslims in Myanmar. Instead it claims that some of the army actions are responses to ‘400 strong rebel actions’ of Rohingyas.


But this claim of ‘armed resistance with foreign support’ is yet to be verified by any credible source, nor has the Myanmar government named the “foreign” sponsor of Rohingya “insurgency.” Saddest part is this that while this is going on, the Nobel Laureate Aung San Suu Kyi, once the West’s poster-picture of freedom and democracy and once herself a victim of state persecution, and who now heads the Myanmar government has stayed away from saying or doing much. This is baffling especially not just because that as a Peace Nobel Laureate she ought to have stood for human rights but that as the head of the current Myanmar government she is morally bound and administratively enabled to do something about it.


Instead, she has chosen to remain deafeningly silent or worse, appallingly, evasive of the Muslim plight in her country. What is also quite tragic is that in recent times when a handful of conscientious Myanmar citizens condemned and protested in Yangon against these wellorganised acts of persecution of Muslims, Aung San Suu Kyi’s police batoncharged the protesters for ‘disturbing public order’ – a cliché often used to mask institutional suppression of freedom of people.


Aung San Suu Kyi is indifferent to this protracted tragedy in Myanmar mainly because she is but a captive of both dead conscience and naked opportunism for she fears that any show of favour to Myanmar Muslims could easily risk the position of comfort and glory that she currently enjoys and at the same time, many also argue that she also supports the military’s policy of disenfranchisement of Muslims in general and Rohingyas in particular.


The world in general and the West in particular are also not doing anything differently, for they are shackled by naked opportunism. In the emerging scenario of imperialist geopolitics the West has cosied up to the Myanmar government in their China containment strategy and therefore, the last thing they would do is condemn the Myanmar government (more precisely, its army) and put in jeopardy its anti-China containment chain that it believes it has laid by befriending an army that is known for its shrewdness and also its blatant human rights abuses. Principles are the first casualty of opportunism.


Closer to the theatre of tragedy, Bangladesh, Myanmar’s oppressed Muslims’ closest Muslim neighbour is also noticeably depressingly mute to the plights of its compatriots across the border and this may be due to its government’s policy framework that is utterly self-seeking and thus ethically incongruous.


This is sad. At an individual level and from his haloed position Bangladesh’s Nobel Peace Laureate, Professor Muhammad Yunus, who happens also to be ethnically, religiously and even spoken dialect-wise closest to the Rohingyas could easily bring the issue to the attention of the international community or at least to his Nobel Peace colleague, Aung San Suu Kyi to address, but has also chosen to look the other way for he is but a prisoner of fear. The world body of Muslims, the Organisation of Islamic Countries (OIC) simply has neither the gall nor the moral standing to do much about the issue either for its members are too busy killing and demonising each other – their own Muslims.


UN, the only body that can and has been raising its concerns from time to time is but a prisoner of its structural limitations that enables it to report but not regulate. In a situation where institutions and individuals that matter have failed the Myanmar’s Muslims, the only hope is conscientious people of the world who are not in millions but in billions that have the power to give voice to the oppressed.

They, therefore, must unite and protest in the strongest of terms, internationally and within their own countries through their senators, congressmen, parliamentarians whoever and get their governments to raise the issue of Myanmar’s Muslim persecution with Myanmar government loudly for if they don’t and choose to remain either silent or “neutral” they, by the words of Desmond Tutu, “have chosen the side of the oppressor!”

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Why some people hate Modi so much


Source: By Sunil Gupta: The Statesman


Prime Minister Narendra Modi, even after the so-called honeymoon period, continues to be very popular in India as well as abroad. According to a recent survey by Pew Research Center and published by Forbes in September this year, Modi’s popularity, even more than two years after he was swept to power in 2014, is pretty high at 81 per cent. Despite his sustaining approval among the public, he has created extremely powerful and very vocal enemies too.

Here, we are not referring to the legitimate political parties who think it is their duty to assail whatever is done by Modi and his government. The Prime Minister has antagonized certain segments such as tax evaders, real estate mafias, those who fund terror activities within India and abroad as well as those who have hoarded huge sums of unaccounted money (referred to as black money in India), including the hawala operators.

Hawala, which is also termed as hundi, refers to a traditional yet illegal system of transferring money through unofficial channels via a network of people in various countries. An agent collects money from the sender in the source country and his contacts in the other country pay to the recipient in local currency. Besides India and South Asia, the system is prevalent in West Asia, North Africa, and some other African countries.

The government’s surprise move on November 8 to demonetise high-denomination bank notes of Rs 500 and Rs 1000 has shocked these anti-social elements. Though it looked like a swift surgical strike, in hindsight we realize that the Union government had been doing the relevant groundwork for the past several months.

If you recall, the NDA government had urged everyone to get an Aadhar card without fail. It had also facilitated its acquisition by making the entire enrolment process easy and hassle-free for everyone. Then, it had directed banks to let everyone open zero-balance accounts. The government also gave an opportunity to tax evaders to declare their unaccounted wealth and come clean by paying proportionate income tax but without any penalty.

However, as usual, some sections of the people ignored all such advice and directives issued by the NDA government because they had become accustomed to finding a way out of any problem by resorting to some clandestine tactics. They thought they could manipulate the system and get out of any spot as they used to do in the past. But this time, they overlooked the fact that Modi means business.

Since these unscrupulous elements have now realized that they can no longer manipulate the system to their advantage, they hate Modi vehemently. For instance, a large section of the real estate mafia, who used to collect insane amounts of black money without having to issue any official receipts now finds that sacks full of high-denomination currency notes they have accumulated unofficially have lost their value overnight as they are not even worth the paper they are printed on.

Furthermore, they fear that if they try to officially exchange the demonetized currency notes at banks or other authorized centres, they may come under government scrutiny and the Income Tax department may initiate punitive action against them for evading taxes in the previous years. Real estate developers also realize that they won’t be in a position to collect black or unaccounted money from any of their customers in future.

The hawala trade has also suffered an unprecedented blow, and it has come to a grinding halt because of the currency purge. Stockpiles of high-value currency notes worth billions of rupees held by hawala operators have suddenly become worthless. According to media reports, some hawala operators have panicked and destroyed currency notes worth over Rs 500 crore. At any given moment, Rs 2,000 to Rs 3,000 crore worth of Indian rupees are supposed to have been collected from senders overseas and are in the pipeline for delivery. As the system works on trust, if the operators don’t make the payment, it will collapse.

Similarly, anti-national elements based overseas and organizations like Pakistan's premier intelligence agency, Inter-Services Intelligence (ISI), have been financing terrorist groups for launching terror attacks and suicide bombings in India. Such terror funding is tough to catch. Such organizations based across the border also use massive amounts of fake currency, primarily printed in Pakistan’s government presses. They employ similar paper and ink as used by India for its currency printing.

According to some estimates, ISI pushes at least Rs 70 crore worth of fake Indian currency notes (FICN) into the Indian economy to be distributed to home-grown radicals and other terrorists for anti-India operations. It has been eating into the vitals of the Indian economy and proving hard to catch. Modi’s surgical strike on black money has dealt a severe body blow to those fake currency notes and Pakistan’s diabolical operations. Because of this development, their pathological hatred for Modi now knows no bounds.

The Prime Minister’s bold action has also rendered the majority of the money launderers jobless at least for the time being. All these elements have climbed onto the hate-Modi bandwagon, which until now had been occupied by political opportunists who have now amplified their political rants by several notches. The Arvind Kejriwals, Mayawatis, Rahul Gandhis, Mulayam Singhs and Asaduddin Owaisis of the country know that their political future is under threat if the resulting benefits of all the developmental steps being taken by the Prime Minister reach the people of the country. However, they don’t seem to realize that people in our country are now becoming clever and can see through their machinations.

Likewise, immoral politicians, corrupt officials, and shady businesspersons, who have hoarded black money through deceitful means are also finding themselves in a similar predicament. Thus, all those unscrupulous elements that have accumulated ill-gotten wealth over the years and have stored this in the form of high-denomination notes of Rs 500 and Rs 1,000 have started hating Modi and begun to spread calumnies against him.


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Taxing entry



Source: By Mukesh Butani: The Financial Express



Last week, a nine-judge bench of the Supreme Court (SC) ruled on a vexed legal issue that has long haunted constitutional experts and trade alike: the interplay of taxes on entry of goods imposed by states vis-à-vis the freedom of trade and commerce across the territory of India enshrined under the Constitution. By a majority, the court, in its 900-page judgment, opined in favour of the states, holding that autonomy and sovereignty of states permit them greater latitude in the fiscal sphere. Reversing the legal position in vogue for decades, this decision (a) turns down the challenge (of tax-payers) to entry taxes, considered a constraint to a common-market across the country, and (b) upholds imposition of non-discriminatory entry taxes as permitted under the fiscal sphere of the states. The enormity of the challenge and complexity involved can be gauged from the fact that this is the second time in history that a nine-judge bench of the Supreme Court had to step in to determine a tax dispute. The last time a nine-judge bench ruled was on the principle of ‘unjust enrichment’ in the famous Mafatlal case. Such enunciation of the legal position in the sphere of tax jurisprudence is thus rare; given a large number of states were parties to the dispute.


The decision is significant on various counts. In terms of the earlier legal position, ‘compensatory test’ was employed to determine validity of entry taxes. It means that the states were obliged to factually establish that such levies were spent for the benefit of the subject-trade. This test has been ruled out as without any juristic basis by the court, which consequently also removes a conceptual anomaly between ‘taxes’ and ‘fees’. Traditionally, ‘taxes’ are considered compulsory exaction, whereas ‘fees’ are towards an identifiable benefit available to the payer. By the ‘compensatory test’, the justification of entry taxes was hedged between the two, i.e., while entry taxes were considered a tax, nonetheless the concerned state was obliged to exhibit the benefit accorded to one from whom the taxes were collected. The compensatory test was retained for decades, supposedly to balance the freedom of trade and commerce as also the rights of the states to impose entry taxes. Now, with the test gone, a state merely has to apply these taxes in a non-discriminatory fashion such that inter-state trade does not suffer. This reflects a significant movement from the earlier established position.


From a quantum perspective, consequent interest and penalties apart, it is expected that this ruling will result in tax liabilities to the extent of R30, 000 crore. This bench has decided the issues in-principle and validity of state laws will be examined on a case-to-case basis by regular benches of the SC, given the wording in each state law may differ. However, the test now being made applicable to uphold their validity having been stated in widest of terms by this verdict, there is little doubt that the challenges to the state legislations will stand largely repelled. In most disputes, the courts have granted interim protection to business as against levy of entry tax. Consequently, the pending assessments will be finalised, leading to cash-flow challenges to business. Further, the goods (on which the liability will now be crystalised) having already transferred title, industry may be required to absorb these outflows as costs rather than these being passed on to buyers.


Invariably, all states impose entry taxes. The impact of this decision will therefore be felt across all manufacturing and infrastructure (that use manufactured goods) sectors and businesses which deal in goods. In particular focus, however, will be the e-commerce industry. Seeking to leverage from the rise of inter-state sale of goods on online platforms, in recent past, a number of states have imposed entry taxes on goods traded by e-commerce. The controversy surrounding local body tax (LBT) on such transactions in Maharashtra reflects one such facet of the dispute. Even though some high courts have ruled against the levy on such transactions, with the nine-judge SC bench having upheld the wide powers of the state to levy entry taxes, the entire e-commerce trade will have to revisit its pricing-model and logistic-arrangement in the light of this decision.


Despite settling the legal position on a wide array of aspects, the decision of the nine-judge bench does not address trade nuances. For example, in terms of the constitutional entry, the court has held that tax can be imposed on ‘entry of goods into a local area for consumption, use or sale therein’. The resolution of the issues surrounding ‘local area’ has been a thorny issue for decades since state governments commenced legislating such ad-hoc taxes/levies, albeit, under the constitutional empowerment. Even amongst the nine judges, there are divergent opinions; one view being that local area cannot be equated with a state, and the other being “state as a compendium of local areas”. Though the levy of entry tax is no longer permitted with the forthcoming GST law, the fact that Constitution still permits levies by local bodies leaves the debate open. Even if the question of such similar levies in the GST era was not a question before the court, the SC could have dealt with it by way of an obiter. Since the question of states’ right under the Constitution in GST era is open, the government will, in the interest of trade and smooth roll-out of GST, do well by seeking an opinion from the SC by way of presidential reference, such that there are no unintended consequences. This is suggestive of India’s complex indirect tax system, which hopefully should get addressed with GST law, which seeks to subsume such levies.

From a constitutional perspective, it is heartening to note that the bulk of the reasoning of the nine-judge bench is the federal structure of Indian polity and an expressed need of securing a self-sustaining revenue model for the states. This decision, insofar as it furthers this tenet, is indeed laudable. Also appreciable is a linked fact that the decision stresses upon the essence of cooperative federalism. The successes of reforms such as GST are premised on this very foundation.

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Grave implications



Source: By P S M Rao: Deccan Herald



Close to 30% of the world's poor live in India as per a World Bank's recent report, 'Poverty and Shared Prosperity 2016'. India alone housed 224 million of the world's 767 m poor as of 2013. The report once again brings to focus India's dubious distinction of being the world's number one country in this respect, its disputable criterion to count the poor notwithstanding. The World Bank's poverty threshold is $1.90 a day per person. That is not at market exchange rate, which would translate to Rs 117.45 in 2013 at Rs 61.82 per dollar, but is at Purchasing Power Parity (PPP) which equals Rs 31.77 (at Rs 16.72 a dollar).


The PPP compares the values of currencies in relation to their purchasing power. For instance, just to explain it in simplest possible terms, if a cup of tea costs Rs 10 in India and $1 in the US, the value of one dollar equals Rs 10 whereas today's market exchange rate is much higher, at Rs 66.77 a dollar. So, the World Bank's poverty line threshold is no better than the much criticised Tendulkar norm. The Suresh Tendulkar Committee which submitted its report in 2009 fixed a daily spending per person of Rs 27.2 in rural areas and Rs 33.3 in urban to be the poverty line, resulting in 270 million poor.


Subsequently, the Rangarajan committee slightly revised these limits to Rs 32 and Rs 47, respectively, with the number increasing to 363 million. The Niti Aayog which is still undecided on the criterion is understood to have decided to set up a panel to again define the poverty. The World Bank's threshold definitely is not beyond a serious criticism and rebuttal. But it should be noted that any increase in the threshold, to correct the wrong, will surely increase the number of poor all over the world including India. That means India's number one position will remain unchanged. The country in the second position - Nigeria - has 86 million poor. Though it is a big number to that country, it is equal to just about 38% of India's numbers!


Besides the number of the poor, there are several other crucial presages that India can ill afford to ignore. The most disheartening thing is that the children under 18 accounted for half the global poor and the share of younger children, in the age group 0-14, is much more than their share in the world's population. Similar to its overall share in poverty, India is home for 30% of the world's poorest children. Another worrisome fact is that child poverty is heavily concentrated in rural areas with four out of five children in extreme poverty living there.


A United Nations Children's Fund (UNICEF) report adds that more number of children, 45%, are poor even at higher threshold $3.10 a day. Equally dreadful, India had the highest number of under-five deaths - as many as 1.4 million - in 2012 as per the UN Millennium Development Goal report 2014. The children's plight - their poverty, ill health and illiteracy - mirrors the future state of the country. Equally shocking is that the poverty is more among the farmers, the food givers to the society. While 80% of the world's poor live in rural areas 64% work in agriculture.


Another distressing thing, rather the cause for the persistent poverty, is the high inequality in the country. The income of top 1% of Indians is found to be increasing similar to what happening in some other countries like the Republic of Korea, South Africa, Taiwan, China and the United States. At another level, India is being projected to be not lagging much behind the world's rich. It is among the top 10 wealthiest countries. Its rank is seventh with $5,600 billion individual wealth (private wealth held by all the individuals, all their assets minus liabilities).


As per the report of the New World Wealth, India is ahead of even Canada ($4,700 billion), Australia ($4,500 billion) and Italy ($4,400 billion). Its GDP was $2.07 trillion in 2015, in PPP terms, $7.9 trillion. But this is a misleading hype because of its over 130 billion population. India ranks 170 with $1,590 per capita income in 2015; even in PPP $6,020 per capita it ranks 151.


Dubious distinction


Furthermore, the income distributed is highly unequal. The Gini index of India (which indicates inequality - higher the index value, more would be the inequality) has gone up from 45.18 in 1990 to 51.36 in 2013 - worse than Latin America's 43.69 - as per a recent International Monetary Fund (IMF) report. In fact, India has also earned further dubious distinction of being among the top rankers in inequality.


Although India has reduced the number of poor over years as per the official statistics, the other countries, for instance, China, Vietnam and Indonesia all started with higher poverty levels than India in 1990 and have been able to do better than India. While there is no marked improvement in the lives of the poor, the rich are undoubtedly becoming richer.

The income of high net worth individuals in India, numbering 1, 98,000, with incomes more than $1 million aggregates to $785 billion according to world wealth report 2015. According to Credit Suisse's report, the top 1% of India's population own 53% of the country's wealth; the top 5% own 68.6% and the top 10% own 76.3% whereas the bottom 50% of the people apportion only 4.1% of the wealth. So, the latest reports from World Bank and other sources should make the Indian government take the danger signals seriously and rework its plans to halt this deplorable course, before things move from bad to worse.

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The tokenism devil in Indian politics



Source: By Debasish Bhattacharyya: The Statesman



After a significant legal debate recently on curbing use of religion to seek votes, a seven-judge Constitution bench of the Supreme Court headed by Chief Justice T S Thakur said elections were a secular exercise and religion should be separated from the political process. The court also said it would offer a proper interpretation of the law that holds seeking votes on the grounds of religion and caste a corrupt practice.


The purpose of the petition filed, however, was to prevent the use of religious appeals for votes under the garb of ‘Hindutva’, which is defined not as a religion but a ‘way of life’. The timing seems important given the elections to five state legislative assemblies (Punjab, Uttar Pradesh, Uttarakhand, Manipur and Goa) to be held in 2017. The result of the UP and Punjab assembly elections in particular, as also the political ramifications that would follow the SC decision, will have a bearing on the 2019 general election. Looked at from this perspective, the Supreme Court’s observation is profound and pertinent.


Regardless of the SC ruling on this contentious matter, such debates are significant to highlight democratic deficit, if any, as also to plug the lacunae in the system, thereby bolstering the finer nuances of democratic processes. But I want this debate to broaden its scope to evaluate the critical role of political gestures and actions perceived as political tangibles and intangibles under the guise of democracy. Also, how do they feature in electoral politics? Put another way, let us explore the politics of tokenism that tends to influence minority communities and Muslims in particular. The ideation of the “Muslim vote bank” leading to politics of tokenism operates across the board, ostensibly with the tacit support of a section of the Muslim leadership. The issue assumes greater importance because out of 543 Lok Sabha seats, the Muslim vote can actually influence around 196 seats spread across UP, Bihar, West Bengal, Karnataka, Kerala, Maharashtra, Andhra Pradesh, Assam, Gujarat, as also Rajasthan.


The tangible elements of this concept are Islamic attire or ‘skull cap’, worn by non-Muslim political leaders, ‘Orhna’ (shawl) sported by non-Muslim  women leaders covering the head with ends tucked behind ears, speeches laced with political rhetoric, inflammatory advocacy of certain issues, publicity material, meals in Dalit homes, etc. Among the intangible elements, one can record things like the art of wooing minority voters, dissecting the inner working of divisive politics, etc., which exert an impact on the election outcome.


From Congress vice-president Rahul Gandhi to BJP’s Rajnath Singh to Madhya Pradesh Chief Minister Shivraj Singh Chouhan, Bihar Chief Minister Nitish Kumar to CPM’s Sitaram Yechury, Delhi Chief Minister Arvind Kejriwal to West Bengal Chief Minister Mamata Banerjee, all wear Islamic attire and are therefore guilty of tokenism. These leaders look up to Mahatma Gandhi for inspiration who never wore a skull cap and yet fasted for Muslims’ safety during the riots in Delhi and Bengal at the time of Partition. Freed of the constraints of condemnation and critical opprobrium, political tokenism in our country is not just tolerated but celebrated.


This leads me to my second question on why political parties and leaders who truly believe in entitlement and empowerment should resort to politics of tokenism. There is hardly any election manifesto talking about abolition of tokenism culture.  Instead, there is a conscious effort to institutionalise tokenism.


Victor Wallis, who teaches history and politics at Boston’s Berkeley College, writes in an article: “We all recognize tokenism as an excuse for inaction. It’s a way of declaring a problem settled while hardly even beginning to address it. What has not been so much noted, however, is the extent to which it pervades every dimension of politics in the United States. An important attribute of tokenism is that many who acquiesce to it have a sincere wish that the issue in question could be addressed at a deeper level. They recognize the token for what it is, but they reassure themselves with the thought that at least it’s a first step in the right direction - that it’s better than nothing.”


In our country, however, politics of tokenism continues to thrive on the thickening stench of false promises, illiteracy and poverty. The phenomenon of tokenism aimed towards building up a political base is not restricted to religion but also racial / caste tokenism and gender tokenism. Therefore, tokenism in its diverse design or the larger context in which it is put forward must be condemned as vigorously as we condemn lawlessness.


Wallis further writes: “Here is where we see the crowning expression of tokenism: the assumption that the current mode of selecting national political leadership can bring the changes needed in order to secure our collective long-term survival. Within this tokenistic scenario, a constant show is played out to absorb our attention, tap our political energies, and deplete the treasuries of our trade unions and community organizations.”


Developed nations that take pride in informed, effective, and responsible citizenry also turn to tokenism but to a limited extent. Iftar dinners initiated by former US president Bill Clinton, continued by George W Bush and Barack Obama and Obama hosting a Diwali celebration certainly smack of tokenism.


It seems the only element that can counter tokenism effectively is civic knowledge or strengthening education for all. The faster, deeper and wider the spread of education, the better is the outcome. The 2011 census paints a gloomy picture. At 42.7 per cent, Muslims have the highest percentage of illiterates, followed by 36.4 per cent for Hindus, 32.5 per cent for Sikhs, 28.2 per cent for Buddhists and 25.6 per cent for Christians. The overall percentage of illiterates is 36.9 for all communities.


There could well be many educated people, but it is this 36.9 per cent illiterate people that primarily fall prey to politics of tokenism. Political leaders and poll strategists target them to win the election by speaking in accents familiar to them, wearing their face and their arguments. The problem is not merely these leaders who fake or lie but the people for whom truth and fiction are meaningless abstractions. It raises a serious question: how long can democracy survive civic ignorance?

Many believe if democracy has survived in India, it is because of the judiciary - the Supreme Court. Now it’s again up to the apex court to rein in the deplorable practices of our political representatives indulging in tokenism that has sucked so much oxygen out of the political environment forcing real issues to get overlooked. The time is ripe to recognize that there is room for principled disagreement about just where the line should be drawn.

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Donlad Trump and Judgement day



Source: By Amitendu Palit: The Financial Express



The victory of Donald Trump in the US presidential elections, however unexpected, underlines the American and global policy elite’s long ignorance of the downsides of economic and cultural globalisation. Dismissing the result as a racial backlash would be the typical elite response and wouldn’t explain why Americans voted in large number for a president castigated widely for being crass, vulgar, inward-looking and temperamentally unsound to lead the most powerful country in the world.


As November 8 drew closer and opinion polls aired by television channels begun reflecting a tighter race, analysis across the media refused to give up on Hillary Clinton. While expressing surprise over the growing support for Trump, most discussions and experts maintained ‘good sense’ would ensure his defeat. As battleground states begun showing wider splits between choices, analysts kept dismissing them as ‘statistical’ blips and non-indicative of the majority voter sentiment. Interactions with voters aired on channels were mostly limited to those supporting Hillary Clinton. As is now evident, mainstream media had assumed that notwithstanding the unmistakable popular support, choice of Donald Trump would be Armageddon—an outcome that US voters would never permit.


The Trump victory is a setback for many major constituencies, including strategic and political experts, academics, corporates and the media. These constituencies are afraid of the conversation that would dominate the political and social narrative in a US ruled by Donald Trump. With conversation likely to shift from the US’s views and roles in global public policy issues such as climate change and international trade to narrower and sensitive domestic matters like immigration, race and healthcare, elites focused on globalisation and global issues are apprehensive of becoming irrelevant in the Trump era. A US focusing more on its own affairs than those of the rest of the world is inconceivable for many who have prospered from such an approach.


Along with the fear of irrelevance, the possibility of Trump descending hard on the corrupt and not shying away from persecution is also a prospect needling many. Trump’s victory is attributable to his campaign’s ability to bring together constituencies that have suffered from technological changes in labour markets and those uncomfortable with cultural globalisation. American manufacturing workers in the country’s vast ‘rust belt’ have been aggrieved for several years over loss of jobs. They and their families would hardly be receptive to an America becoming conspicuously multi-cultural by adding more job and social security-seeking immigrants. The anger of these workers and their families have been greatly enhanced by the fact that the entire elite conversation on globalisation has ignored their plight and emphasised immigration for national economic and social benefits.


The aggrieved has also been noticing how rent-seeking and greed has gone unpunished. The financial catastrophe of 2008 brought on by unchecked adventurism of banks and funds depleted ordinary household savings and assets and made the already poor even poorer. One of the biggest expectations from the Obama administration was that it would bring to book guilty fund managers and investment bankers. The hopes never materialised, as the powerful in the Wall Street stayed untroubled and unpunished while average households were left clueless on how to make ends meet.


The vote for Trump reflects the deep anger and frustration building up among many for months and years. Such frustration cannot be made to see the benefits of globalisation in the absence of adequate public policy responses for addressing the injured. Globalisation for the affected is a process for preserving and patronising the elite at the expense of the non-elite. The Trump campaign, much like the Brexit campaign, was able to capitalise on this deep-rooted anger by using language of the street and pointing fingers at all sections of the establishment. While elites coloured Trump as the worst that the world could have seen in modern times, Trump portrayed elites evil and Hillary Clinton as their representative. In the end, Trump turned out to be a more effective accuser as ‘shy’ Trump voters unwilling to reveal their preferences socially for fear of being ostracised, turned up in large numbers for venting their anger in the ballot boxes. The writing was on the wall in some of the opinions gathered on head-to-head comparisons of both candidates, which, while placing Hillary Clinton way ahead of Trump in temperamental suitability for the Oval Office, rated Trump less corrupt and more capable of creating new jobs. This surprised many who thought Trump’s non-disclosure on income tax returns would convince the electorate about his corrupt intentions. But the anti-establishment wrath of the Trump voters ensured him success notwithstanding such blemishes.

High office has its own ways of ‘mellowing’ individuals. Donald Trump, in his presidential avatar, might turn out different from the image he portrayed as a campaigner. He might well be far from the answer that the anti-establishment mandate is searching. But his victory indicates that judgement day for globalisation has arrived.

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Halting desertification



Source: By Sriroop Chaudhuri: Deccan Herald



In the last couple of decades, land degr-adation/desertification has grown into an appalling menace to sustainable human development, affecting billions around the world including India, leaving the authorities reeling over dire resource depletion/inadequacy. A major reason for it has been a lack of consensus over a precise definition of desertification.


As per the United Nations Convention for Combating Desertification (UNCCD), desertification is virtually any form of land degradation in the arid, semi-arid and dry sub-humid areas, resulting from a combination of climatic variations and 'unplanned' human expansion. Desertification, by newer definitions, is no more just about sand dunes and oasis. Today it means the collective damage caused to the world's dryland ecosystems.


In India, combating land degradation/ desertification has emerged as a top environmental priority to the authorities concerned. India is signatory to the UNCCD and intends to achieve land degradation neutral status by 2030. On 17 June 2016 on the occasion of "World Day to Combat Desertification" the Ministry of Environment, Forest & Climate Change (MoEF&CC), and Arid Zone Forest Research Institute (AFRI), jointly released desertification maps of the country. These maps, compiled by the Space Application Centre, Isro along with 19 partner instit-utes, for the 2003-05 and 2011-13 periods, have brought up some disturbing facts.


It appears that about 96.4 million hectares (Mha) land area (29.3% of total landmass) of the country is currently under land degradation/desertification, as compared to about 94.5 Mha (28.7%) during 2003-05. By far, Rajasthan appears to be the hot-seat of degradation/ desertification in the country followed by Maharashtra, Gujarat, Jammu & Kashmir, Karnataka, Jharkhand, Odisha, Madhya Pradesh and Telangana. Cumulatively, these nine states account for about 23% of the total land area under degradation/desertification in India.


But what bakes the cake really is the state-wise land area under degradation/ desertification. In Jharkhand (68.9%), Rajasthan (62.9%), Delhi (60.6%), Gujarat (52.2%) and Goa (52.1%), over half the land area is under intense threat of land degradation/desertification. To add further to the aggravation, in each on these states/UTs, land degradation/desertification has increased between 2003-05 and 2011-13 period with the 'worst' scenario apparent in Delhi, registering about 11% increase. Desertification/degradation is on steep gradients in the Northeast as well. In Tri-pura, land degradation/desertification increased by about 10.4% between 2003-05 and 2011-13, in Nagaland by 8.7% and Mizoram 4.3%. Overall, in 25 states/UTs, desertification appears to be on the rise.


But why the heck we care for desertification of the drylands? Here is what the drylands do: they constitute about 34% of world's total landmass and are major source of food, especially for the poor. One in three crops cultivated today, including oats, barley, tomatoes, potatoes, cabbage and saffron, originated from drylands. About half the world's livestock is concentrated in the drylands.


Recent UNCCD reports suggest that about 52% of world's agricultural land area is moderate to severely degraded. About 12 Mha of productive land are turning barren annually resulting from desertification/drought, toppling cha-nces of about 20 mt of food grains which acutely exacerbates global food crises. As added vice, desertified areas are noted for their long-range adversities on climate. For example, reduction in vegetation (frequently associated with desertification) cover elevates atmospheric aerosol/dust levels which affect cloud formation and rainfall patterns, carbon cycle, and biodiversity.


Visibility crises in Beijing, a well-known menace these days, are believed to have been caused by springtime dust storms originating in the Gobi Desert. "Yellow Dust" from China costs the Korean and Japanese economy huge revenue each year. It is also taken for US air quality deterioration in recent times. In China itself, desertification, leading to recurrent droughts and massive crop-losses, takes a nice bite of the country's annual GDP. Studies find that desertification can hugely magnify global warming in days ahead.


But putting aside the tangible issues regarding food/water shortage, and climate, there are others that do not meet naked eye. One such is forced migration. Desertification is destabilising large communities globally, turning them into migrants and homeless refugees.


Environmental migration


An estimated mob of 60 million will migrate from desertified areas in sub-Saharan Africa to North Africa and/or Europe by 2020. By 2050, about 200 million people will turn up as 'perman-ently displaced' environmental migrants. Governmental reports suggest that such displaced mob and forced migrants often take to radicalisation and extremism, inciting brutal resource-driven conflicts.


Environmental migration is largely triggering political instability, terrorist disturbances, and food/water riots across desertified areas, ultimately spilling over to neighbouring lands. So what can we do to halt desertification? Or shall we do anything at all? Monitoring for causes of desertification should be central any action plan. Aberrant climatic shifts are of course the major impaling factor. But other than climate, unleashed human expansion contributes a great deal to desertification:


a) Land covers change (due to urban sprawl): deforestation/logging beyond permissible limits; forest fires/encroachment into forest lands; conversion of native croplands


b) Land management protocol: inadequate soil conservation measures (soil erosion); improper crop rotation /shift in cultivation patterns; improper irrigation schemes (water-logging/leaching); indiscriminate use of agro-chemicals (soil salinisation)


c) Overexploitation of natural resources (overpopulation/demand): overgrazing; unplanned groundwater extraction; inequitable sharing


d) Lack of resources (tools/funds/ trained professionals) to: support innovative dryland agriculture; reclaim water-logged and/or saline soils

These days, climate change also is a ramified effect of human expansion (urbanisation/carbon emission/freshwater abstraction) only. A disturbing fact about desertification is, it is largely irreversible. So, may be its time we seriously gave in to the UN's recent plea "stop deserting the deserts". Other than building up holistic awareness among the common people, a major push should be to establish transnational partnerships to monitor, assess, re-assess and implement stringent actions plans.

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Cloud over gold monetisation



Source: By Nirupama Soundararajan: The Financial Express



Despite being one of the largest consumers of gold—next only to China—with an annual demand of close to 1,000 tonnes, India lacks an efficient gold ecosystem. The Indian gold market consists of several functional gaps, with significant variation in price and quality of gold across channels and point of sales. Jewellers prefer to buy certified gold from established agencies abroad because of which the country is heavily dependent on gold imports to meet its domestic demand. While the government continues its commendable effort towards gold monetisatiom, a rudimentary analysis suggests that the lack of transparency in dealings and in price is the biggest hurdle. What India needs is a formal trading platform that facilitates transparent buying and selling of gold. Such a platform can help in price discovery, remove price disparities and arbitrages, establish quality control, and enable integration with financial markets, thereby creating a better gold recycling process and in turn creating a robust gold ecosystem.


Ideally, a spot exchange would be tasked with the responsibility of transparent price discovery. This way the systemic problem of non-standardisation of pricing that arises because of a thriving informal over-the-counter (OTC) market for gold procurement can be quelled. Despite the fact that gold enters the country through formal channels, it soon flows out of the formal system into the informal market. The result of this has been poor price discovery for gold. For monetisation to truly work in India, transparent price discovery is imperative, but in the absence of a spot market, one must turn to the commodity exchanges in India to fulfil this responsibility.


In 2013-14, the then finance minister introduced a commodity transaction tax (CTT) on all non-agri commodity transactions. It was believed that trading in non-agri commodity futures is no different from trading in security derivatives except for the underlying asset. Hence, in order to bring parity and to allegedly counter the movement of volumes of trade from security derivatives to commodity derivatives, a 0.01% CTT was introduced on non-agri commodities. Agri commodities were exempted from CTT to encourage farmers to trade on commodity exchanges to hedge their risk. Another important consideration then was to increase revenue collections for the government. The security transaction tax (STT) in the place of long-term capital gains tax had fetched the government considerable revenue, without having a detrimental effect on volumes of trade. Unfortunately, the same could not be said of the commodity markets.


The aftermath of CTT resulted in commodity trading volumes shrinking by as much as 41% in the same financial year and 42% in the subsequent financial year. It also resulted in many traders abandoning trading on commodity markets in India as CTT increased cost of transactions substantially. Tax collections from CTT were less than 1% of STT collections. In fact, it could quite easily be argued that because of the reduction of trading volumes, the net result of CTT on revenue collections was negative rather than positive. Based on studies conducted by the Forward Market Commission (FMC), the erstwhile commodity regulator had recommended that CTT be withdrawn or significantly reduced to rekindle trading volumes. In 2015, the CTT exemption was extended from agri commodities to also agri-processing commodities. However, non-agri commodities received no respite.


Trading volumes across all commodities saw a significant drop in volumes. The drop in trading volumes of gold futures has deeper ramifications, especially in the present day objective of gold monetisation. Despite the fact that gold futures were delivery-based contracts, CTT was applicable. The average daily turnover for gold futures on MCX fell by as much as 65% within three quarters of CTT being imposed. Furthermore, before the imposition of CTT, there were as many as 4,00,000 unique clients trading in gold futures. Within a year, post the introduction of CTT, this declined by 50 per cent. The result of CTT has been two-fold. One, India has exported a large share of the gold futures market to other commodity exchanges, especially Dubai. The trading cost for 100 troy ounces of gold on Indian exchanges before CTT was R197 which increased to nearly R525. On the Dubai exchange, the cost was and remains around R65. India was never cost competitive when it came to gold futures trading. With CTT, the disparity only widened. Second, jewellers traded on the exchange to hedge price risks, moved to the over-the-counter informal market because the cost of hedging through an exchange was no longer feasible.

The incumbent government has been proactive in its approach towards monetising gold. If indeed the government is keen to ensure the success of gold monetisation, they must begin by removing CTT on gold futures. This move alone would induce many erstwhile traders, exporters, jewellers and their like to return to the exchange. Since gold futures contracts are all delivery based, the market is more likely to attract hedgers rather than pure speculators. A vibrant gold futures market is essential because it leads to transparent price discovery. It is only through transparent price discovery that consumer trust will be won and trust is most definitely a prerequisite for gold monetisation.

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