Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand Forum

The current global crisis is potentially an inflection point that marks the transition from an Anglo-American dominance to an Asian dominance in world economic affairs.

Certainly, there is a startling turnaround in the fact that China holds $2 trillion in US Treasury securities and therefore lectures the Americans about running their economy -- it feels like only yesterday when the shoe was on the other foot.

Another indicator is China's aggressive fire-sale purchases of commodities, including oil, copper, iron ore, et cetera from all over the world. 'Have money, will buy' is China's mantra.

But where is India in this 'Asian century'? Alas, India has once again fumbled a golden opportunity to rise to economic superstardom.

Given the profligate spending of the United Progressive Alliance and its self-proclaimed galaxy of economic geniuses, India now sports perhaps the highest deficit of any country: about 13 per cent, a far cry from the 5 per cent that the UPA has been promising us all along.

Yet again, the Congress has successfully brought India back to the verge of the 'Nehruvian rate of growth' of 2-3 per cent, which is an economic crime against humanity, imposing abject poverty on 250 million people.

After sixty years of Congress misrule, India has most of the world's poor people, and some of the worst health and nutrition indicators, even worse than much poorer sub-Saharan Africa. This is truly a crime and a national shame.

It is evident that India's wonderful 'hybrid economy' gives the country the very worst of, both, capitalism and communism. For, when the world was going through a capitalistic feeding frenzy, India, not being sufficiently open to trade and capital flows, did not benefit. In contrast, China, taking full advantage of its World Trade Organisation accession, amassed a singular fortune, and uplifted large numbers of its poor.

So India didn't grab that opportunity. One would think, then, that the obverse would be positive -- that is, when the excess leverage hit the fan, isolated India would not be affected very much. To some extent this is true: since India is a tiny trading power (accounting for perhaps 1 per cent of world trade in goods), the precipitous decline in demand from the West has not affected India anywhere near as much as it has hit China.

That is India, a slow and steady tortoise to China's flashy hare. In fact, this is why commentators are crowing about the alleged virtues of the dirigiste Indian State and its (usually deadening) hand on the levers of the economy.

In comparison to the formerly-lionized-and-now-reviled Alan Greenspan's laissez-faire Federal Reserve in the United States, so the theory goes, the virtuous Reserve Bank of India has been able to protect India from Anglo-American buccaneer investment bankers.

If only that were more than a half-truth!

The reality is closer to the way Pay Commission reports are implemented in India -- only one half of the recommendations is implemented. Pay Commissions routinely suggest a) reducing headcount, b) increasing working hours, c) tying salary increments to productivity, and d) increasing base salaries substantially. Of course 'a', 'b', and 'c' are ignored, and only vote-winning 'd' is implemented at large cost to the taxpayer.

Similarly, it is true that Anglo-Americans were unable to dump toxic mortgages on the Indian banking system. Unfortunately, India's politicians, including an alleged 'Dream Team' of economics mavens, have done the dastardly deed entirely on their own through almost Rs 200,000 crore (Rs 2,000 billion) of deficit spending, which will result in crushing inflation with a vengeance in the near future.

This in the name of programmes for the 'common man': such as the NREGS (National Rural Employment Guarantee Scheme), the waiver of farm loans, and the windfall for bureaucrats.

Rs 70,000 crore (Rs 700 billion) for the NREGS, which, if we had truth-in-advertising, should be renamed 'National Employment Guarantee Scheme for Party Cadres', because 95 per cent of the funds ended up in their pockets (I quote Rajiv Gandhi who said 20 years ago that 90 per cent of the funds were pilfered en route, and surely they are more innovative now).

Rs 70,000 crore for the waiver of farm loans, most of which went to rich landlords already flush with untaxed agricultural income that has led to a boom in consumption in villages. Rs 30,000 crore (Rs 300 billion) spent on the corrupt, do-nothing bureaucracy. All this is money that the Congress printed out of thin air.

Not to speak of the billions-worth of counterfeit currency introduced by the friendly neighbourhood printing presses in Karachi.

One ocean-going container full of Rs 500 and Rs 1,000 notes from Pakistan -- by all accounts very good copies -- was seized at the Cochin port, which means hundreds of other containers could have gotten through.

Thus, even though there is a deflationary trend -- especially in real estate after the bubble burst, and it too had been propped up the same unaccounted-for money in the politician-civil servant-criminal nexus -- the long-term prospects are of raging inflation, as this Rs 200,000-plus crore chases limited goods.

Interestingly, the US is heading down the same path by announcing that it will inject $1 trillion in the system via Fed purchases of long-term Treasury securities. In other words, they too printed money. The reaction was swift -- the dollar tumbled, naturally.

Lost in all the hoopla about India's inflation coming down to 0.44 per cent recently is the fact that 12 per cent inflation for months has imposed a high-water-mark pricing on practically every manufactured good. Prices have gone up by 50 per cent in many cases; they have stubbornly remained there, and the chances of them coming down are nil.

In India, peculiarly, prices go up, but they never come down. This must be a 'feature' of the chimerical 'hybrid economy'. The only things that have come down are agricultural commodities like grain, and post-bubble real-estate.

Thus, once again, India has managed to snatch defeat from the jaws of victory. China will go on to make it the 'Chinese century', and India will always have unrealized potential.

India's curse, (noted economist) Jagdish Bhagwati once observed, is its clever economists. This has been proven with a vengeance in the last five years.

Rajeev Srinivasan

http://www.rediff.com/money/2009/mar/25upa-will-cost-india-economic-superstardom.htm

Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand Forum

Indian money stashed in the Swiss Bank has become a focal point of debate, especially after the Leader of Opposition and the Bharatiya Janata Party's prime ministerial candidate L K Advani raised the issue on Sunday. If elected, the BJP has vowed to bring the black money back home. Though the Congress dismissed the idea, the Swiss bank issue is slowly becoming a hot election issue.

In fact the BJP also plans to carry out a mock election across the country on April 6 where people will have to cast their vote indicating whether Indian money in Swiss banks should be brought back to India or not.

During his address, Advani said the BJP will form a task force comprising experts to prepare a strategic document for India to recommend ways to get back the national wealth stashed away illegally by corrupt politicians, businessmen and criminal overlords.

One of the names he mentioned in the task force is Professor R Vaidyanathan, Professor of Finance at the Indian Institute of Management, Bengaluru.

In this exclusive interview to rediff.com's Vicky Nanjappa, Vaidyanathan explains in detail the importance of bringing back the ill-gotten wealth and how the money got there in the first place.

Firstly how much Indian money do you think is stashed away in the Swiss Banks?

In 2006, the most recent Global Financial Integrity study, developing countries lost an estimated $858.6 billion (about Rs 43 lakh crore) to $1.06 trillion (abot Rs 51 lakh crore) in illicit financial outflows. Even at the lower end of the range of estimates, the volume of illicit financial flows coming out of developing countries increased at a compound rate of 18.2 percent over the five-year period analysed for the study. On average, for the five-year period of this study, Asia accounts for approximately 50 percent of overall illicit financial flows from all developing countries.

This report shows that the average amount stashed away from India annually during 2002-06 is $27.3 billion (about 136,466 crore). It means that during the five-year period the amount stashed away is 27.3x5=136.5 billion (about 692,328 crore). It is not that all these amounts went to Swiss banks. It has gone to different tax and secret shelters. The share of Swiss banks in dirty money being a third of the global aggregate, some $45 billion out of the 136.5 billion stashed away from India would have been hoarded in these years in Swiss banks.

The important point is that this is only for five years. More amounts were stashed away during the Nehruvian regime. So the loot for 55 years will be several times higher. In fact, in those days the rupee commanded a better value per dollar. So fewer rupee could get more dollars. So the estimation that the Indian money stashed away may be of the order of $1.4 trillion (about Rs 71 lakh crore).

On what basis have you come to this conclusion?

There is a lot of literature available as to how to estimate the illicit financial flow from developing countries. We find out what the nature of the flow is. I have also relied upon the study Illicit Financial Flows from Developing Countries: 2002-2006 Global Finanacial Intergrity authored by Dev Kar and Devon-Cartwright Smith, a project of the Ford Foundation. Financial flows in the context of this report includes the proceeds from both illicit activities such as corruption (bribery and embezzlement of national wealth), criminal activity, and the proceeds of ilicit business that become illicit when transported across borders in contravention of applicable laws and regulatory frameworks (most commonly in order to evade taxes).

Which are the various tax havens, where the ill-gotten wealth of Indian businessmen and politicians are stashed?

There are presumably more than 70 tax havens in the world. Indian wealth could be more in Switzerland and various British /US islands. At least 40 countries market themselves aggressively as tax havens [Source: Internal Revenue Service USA on Abusive Off-shore Tax Avoidance schemes Talking Points Jan 2008]. The well-known tax havens are Switzerland/ Liechtenstein/Luxemburg/ Channel Islands etc.

Could you elaborate and tell us how the money got there in the first place?

There are several methods/reasons. Under invoicing/over invoicing of exports and imports and getting the balance stored abroad. Kickbacks from major defense/civilian contracts. Not bringing the earnings abroad. In the old days smuggling of gold and illegal money. Transactions done abroad and not reported here. Hawala funds. Funds earned by artists/ entertainment industry /sports people and stashed abroad. When you want to indulge in adharma, hundreds of ways are open!

We would like to know the terror connection. Do you think even terrorists are stashing away cash and using the tax haven route to send across money all over the world, to finance their activities?

M K Narayanan, our National Security Advisor, has spoken about it in Berlin recently.

Advani says that it is important to bring this money back. How can the government go about it and what are the various ways in which India can get its money back?

Put it on the Global Agenda. Put it in G-20. Put it in the International Monetary Fund. Put it in Egmont Group. Also take a lead among all developing countries. Support US /German/French efforts.

If India decides to take the initiative, will the Swiss authorities cooperate?

It is not due to our pressure but that of US which will make them co-operate. When a family is in deep financial crisis then it tries to look at the small amount saved under the sugar jar by grandma. Same way developed economies are desperate for every dollar. Even if we do not act due to their efforts the list of crooks may be out, then we will be in a dangerous social situation since the who's who of India will be there. Instead we should get it and get the funds and decide on the steps to sterilise it. Otherwise, the world will laugh at us.

Politicians sure must be having a lot of money in Swiss Banks. Do you think this factor will deter the government from acting?

Public pressure will make them do it. Plus, the evolving global situation against tax havens. The money belongs to the poor farmers and unorganised workers of India. Also, Indian businessmen have a lot of their ill-gotten gains in these banks. The world situation is such that Indian businessman will want to bring it back now given the attractive returns in India.

Do you think that the Indian government should demand all the Indian black money in Swiss banks?

Of course. India should and must act. We are not a banana republic.

You wrote in your column that the German foreign intelligence agency BND got names of 1,400 clients of the Liechtenstein-based LTG bank who were supposed to be suspected tax evaders. Of the 1,400, 600 were supposed to be Germans. Do you think of the remaining there will be Indians as well? Has the Indian government approached the German government for the list?

Indian names will be there. Our tax evaders and crooks are like the omnipresent Maha Vishnu -- present in all continents and all tax havens. But our government has been lukewarm in this issue. It should have despatched immediately senior officials to get the names.

Isn't it important to tackle the issue of domestic black money?

It is definitely important. At least the domestic black money is used in our economy and to that extent it is productive. But the money kept in Swiss banks is neither useful to India nor does it benefit Indians.

What role should the media play?

The media has a very important role to play. At the moment it seems like most part of the media is more interested in the diet of an actress. Pressure by the media needs to be built up on this issue and remember that a lot of Indians don't just go to Switzerland to ski.

What about the names of these persons?

India must try and get the names. But more importantly should get the money back. It should be top on the agenda and India ought to take a moral lead in this issue.

Will the Indian economy improve if the money is brought back?

It will do phenomenally. India will be in the top five league if all the ill-gotten money is brought back. It will change the Indian scenario and I have been saying this since 1993.

Do you think that these people will now try and pull out the money since this issue has become a hot topic?

I don't think so. If they do then India should create an instrument and regulate frameworks to bring the money back.

What kind of punishment do you suggest for these persons?

Punishment is not the issue now. There is a need to create fear in them and follow what the international community does on this issue.

Lastly do you think this is becoming just another election issue?

The US and Germany took the lead and there is no election there. We should not treat this as an election issue. We have to take up this matter and if we don't then we will become a laughing stock of the entire world.

http://www.rediff.com///election/2009/mar/31inter-swiss-black-money-can-take-india-to-the-top.htm

Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand Forum | Jharkhand.org.in | Jharkhand Forum | Jharkhand Forum

Sheathing the sword that struck fear

The much-dreaded Foreign Exchange Regulation Act,1973 (FERA) is being finally laid to rest by the new enactment, ie, the Foreign Exchange Management Act,1999 (FEMA). The FEMA Bill was recently passed by both houses of parliament and is now awaiting the president's assent. Since India attained independence, the foreign exchange regulations have been the bane of Indian citizens and every resident Indian, whether an Indian citizen or not.

One vividly recalls the time when even a basic hospitality like offering a cup of tea or providing local conveyance to a non-resident guest on a visit to India could have landed an Indian resident directly into the net of the enforcement directorate. A mere dollar in the pocket was enough to invite the attention of the enforcement authorities. In fact, businessmen used to shudder at the very thought of the authority as they were well aware that once caught in the authority's net, rightly or wrongly, it would be extremely difficult to come out unscathed. It was not uncommon to find enforcement authorities using third degree methods to extract a confession from a suspect. Even highly respected persons like the late S L Kirloskar were humiliated by the authorities. FERA has been not just a bugbear for businessmen, it has also been a big slur on the country's polity. Fortunately, the powers that we have, at last realised the damage it has been causing to the country and have given it a not-so-quite burial.

FERA was so draconian in its approach that trade and industry were forced to unite and voice a serious concern about the government's intentions. Anybody could be arrested under FERA and put behind bars on mere suspicion. Such a legislation has no place in any civilised society. After much dilly-dallying the government finally managed to have the FEMA Bill passed in both houses. At the same time, to ensure that there are no hawala operations and money laundering, a separate enactment is on the anvil. At present, the Prevention of Money Laundering Bill is before the standing committee for its report.

At the outset, it should be remembered that though FERA will be replaced by FEMA, the authorities will still have power to invoke the provisions of FERA for another two years from the date of commencement of FEMA. In other words, according to Sec. 49(3) of FEMA, the courts and the adjudicating authorities have been given the power to take cognizance of contraventions under FERA for another two years. Hence, if any proceedings are initiated under FERA during the next two years, they shall be valid under the law. In such cases, to be really free from the clutches of FERA, it would take further two-three years after the commencement of the proceedings.

To ascertain the thrust of the enactment and the intention of the government it would be useful to compare the preamble of both the Acts. Under FERA, the thrust was on regulating payments and dealings in foreign exchange and also to conserve the foreign exchange resources of the country. In addition, the preamble also provided for the proper utilisation of the resources in the interest of the country's economic development. In other words, FERA's thrust was on regulation and control.

FEMA's preamble clearly mentions that the objective of the Act is to facilitate external trade and payments. In addition, the Act also seeks to promote the orderly development and maintenance of the Indian foreign exchange market.

As is apparent from the two preambles, the new law is positive in its approach and liberal in its content. There is no doubt on the government's intention if that the foreign exchange law should not act as an impediment for growth of exports nor should it be made a tool in the hands of government officials to browbeat innocent citizens.

One of the main reasons to fear FERA was, the unbridled power the enforcement authorities had, to arrest any person almost at their whim and fancy. Under Sec. 35 of FERA, any officer authorised by the Central government can arrest any person on mere suspicion of his having committed an offence under the Act. This is one of the most obnoxious and most misused provisions of FERA.

However, now Indians can breathe a sense of relief, as under FEMA, no enforcement officer or any other authorised person can arrest any person for suspected contravention of the provisions of the Act.. The only situation under which a person can be arrested is when he fails to pay the penalty levied on him under the Act. In this regard also, the law stipulates that even if the said person is arrested for non-payment of penalty, he shall be released forthwith on payment of the prescribed penalty. Consequently, the maximum that a guilty person shall have to face is payment of penalty and not imprisonment. Hence, for all practical purposes, it will be more like a civil offence resulting in payment of a fine.

Sec. 13 of FEMA provides that for any contravention of the Act, a maximum penalty upto three times the sum involved can be levied. However, where it is not possible to quantify the amount, a penalty of upto Rs 2,00,000 can be imposed by the adjudicating authority.

An important change has been effected in the definition of the term 'a person resident in India'. Earlier, under FERA, the definition of a 'person resident in India' depended on the intention of the concerned person, ie, whether the person had gone overseas for business or education or for an indefinite period, etc. However, now the definition is in consonance with the Income-Tax Act, 1961, by prescribing the criteria of resident ship in India for at least a period of 182 days during the course of the preceding financial year. Besides, the scope of the definition has been enlarged by specifying that the following categories shall also be deemed to be a person resident in India: (a) any person or body corporate registered or incorporated in India; (b) an office, branch or agency in India owned or controlled by a person resident outside India; (c) an office, branch or agency outside India and owned or controlled by a person resident in India.

So far as categories (a) and (b) are concerned, they only reiterate the existing position of law, but it is category (c) which needs to be understood carefully. The Indian corporate sector has been spreading its wings by setting up offices, branches and agencies outside India so as to enlarge markets and, in this task, support has been forthcoming from the Central government as well. In fact, during the recent years, the government has liberalised the rules relating to investment in wholly-owned subsidiaries and joint ventures abroad. In addition, exporters have also been encouraged to make forays into foreign markets, resulting in the opening up of offices abroad by several Indian exporters. By treating such an overseas office, branch or agency, owned or controlled by a person resident in India as an Indian resident under FEMA , it would be subject to all the limitations as are applicable to other residents in India. Indian companies, which are already having their establishments in foreign countries in the nature of an office, branch or an agency, will now have to reckon with the various constraints as a result of the new law. This is certainly not what the corporate sector would be happy to have and that too, at a time when the government is talking of opening up the economy further.

Another important change that has been effected in the new enactment is the widening of the scope of the Act. Under FERA, the thrust of the law so far as exports were concerned, related to goods but now under FEMA, even services have been included. Clause (2b) of Sec. 2 of FEMA provides the meaning of the term 'service' which is very wide in its ambit and virtually includes every kind of service relating to different activities. The term includes the provision of facilities in connection with banking, financing, insurance, medical assistance, legal assistance, chit fund, real estate, transport, processing, boarding/lodging, entertainment, amusement as well as supply of news/information.

As is apparent from the definition of the term 'service', all important activities have been included and any type of service or facility provided in relation to such an activity will attract the provisions of FEMA. However, there are two exemptions provided in the definition itself. The first relates to the rendering of free service without charging anything — either in cash or kind. The other exemption covers contracts for personal service.

The implication of this provision is that there will be additional responsibility on all professionals and others providing such services, as now they will have to comply with the requirements of FEMA and RBI, as may be applicable from time to time. Particularly, care will have to be taken to ensure timely payments from abroad for services rendered to foreign clients. Sec.7(3) of FEMA requires that every exporter of service will have to furnish a declaration in the prescribed form to RBI giving particulars relating to payment for such services.

With the new enactment in place, shortly, it should be possible for Indians to breathe more freely without having to worry too much about big brother watching from a distance. However, we have to wait for the law relating to prevention of money laundering which will take some time before it is passed by parliament.

-- by S D Israni

The writer is a member of the central council, Institute of Company Secretaries of India. The views expressed by the author are his own and not those of the ICSI. e-mail: sdisrani@usa.net