Cabinet Expansion-Gainers vs Losers

                     

In any reshuffle of the ministry, there will be some who will cheer, some suffer heartburn (they are not losers in the real sense). some who despise their fate being unlucky and a whole lot of people who are indifferent. I belong to the last category. I am indifferent for I feel that it will not make any difference to my existence. That is ture for all those in the last category.

A lot has been written in the media about  the cabinet expansion. Media also gave their own rating, good, bad, ugly and so on. I remember that once a seasoned journalist told me that Indian public is very emotional, sensitive and more importantly, has a short memory. Journalists  take advantage of these attributes in one way or the other. They criticize a person to the hilt, bring all his negative side before the public glare and all on a sudden, when he or she makes a grade, media laps it up. There are people in the expanded ministry, who have been pulled up by media for his vituperative utterances which created a lot of commotion and finally accommodated in the ministry. The only reason that I can figure out is that the state he represents will be going to polls next year and he can be a potential vote catcher.

I often wonder why our ministers are allowed to babble everything when it comes election. Should we have a law  that prevents any individual who takes oath in the name of the constitution from taking partisan stand? During the time he or she holds the constitutional power, that person should be debarred from electoral politics.  This will mean that the prime ministers, chief ministers, other ministers in the Center and states should not go for election campaign, during the incumbency of his or her office. It is a different matter they go for the campaign when the elections are announced. Such a time span between the announcement of election and the time the elections get over,he or she at best will be a part of the caretaker government. That way, they will not be able to take any decisions in the intervening time. Undoubtedly, such a measure will shore up the credibility of the government and the public will repose faith in them.

 The newly expanded the ministry, according to media reports, is slim, mean, experienced, has set to the caste equations and so on. I really do not understand the nuances of these adjectives. But one thing is very clear, as it was the case earlier, each aspirant was planting the stories in media  in ones  favorite newspaper to enhance his or her chances. Some of them have succeeded in their effort and good luck to those who could not succeed for next time.

 Coming to the kick start of the economy. Now that the finance minister can focus only on his portfolio. He need not have to oversee the complex ministry of defense, where there are myriad of challenges and issues. If hands on experience  is the criteria, General VK Singh would have fit the bill as defense minister. But he seems to be sidelined to an innocuous ministry of program implementation and statistics and the earlier portfolio of DONER has been taken out of him. Does it have anything to do with his performance?   

Now the ministers  holding the economic portfolios are the finance minister Arun Jaitley , Commerce & Industry Minister Nirmala Sitaraman, Railway Minister Suresh Prabhu, Aviation Minister Gajapati Raju and others holding chemicals, fertilizers, power, portfolios etc. Can they put together their act well. Only time will tell that. But one can forewarn them that not many months they will have the luxury of a favorable media. They have to establish themselves through their hard work, integrity and peoples' connect. otherwise, there will be many like Gowda's, VK Singh's and Javedkar's in the next reshuffle.

Business Economics & Services Team (BEST)

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Labor Reforms in India - What They Portend?

There is a lot of talk about labor reforms in India.  Many reports have come that it will be unveiled soon. But still it is not clear what will be those reforms. There are conjunctures and predilections. But on one knows exactly what these reforms are. Will the government openly discuss these reforms with the stakeholders and  political parties? Today, there is a news in Times of India that the President has approved the amendments to the labor laws  passed by the Rajas than Government. The report quoting the government officials, says that the move will open up  for deeper  changes in the archaic labor laws.

First of  all, let us face the fact that labor is a state subject  and one state passing it will not lead to its adoption in other states. Every state will have to move a similar legislation and get it approved by the state assembly.  Clearly, there is no consensus among the states to move towards such a legislation. Even if they go for it, there will be stiff resistance. And in some states like Kerala, West Bengal, etc it will be near impossible to have such a legislation. Even the BJP affiliated BMS, a trade union outfit has not made  its  mind clear in this regard nor the all powerful RSS, who have a sizable number of followers among the working class

In Indian situation, there are two types of labor laws operating. One for the IT companies, which almost all states having IT industry, have complied with. There is no restriction on night shifts for ladies, working hours, and almost all of them follow a policy of hire and fire. There is no union and therefore no resistance. In certain companies, there are advance warning systems to the under performers. In certain other companies, lay off and retrenchment of the efficient employees are resorted to as a policy of downsizing the labor force linked to general performance of the company. In some other companies, mostly, the multinational ones there are instances when the companies are closed down. And yet, there are no protests or resistance. It is because the people who are working in these companies are different from the people in factories or work sheds. When a worker in a knowledge company is fired or laid off, he or she gets another placement almost immediately or can hope to get a suitable position sooner or later. That is not  the case with the factory workers, whose skill sets are limited and scope for undoing whatever they had learned is very limited. He or she is going to join the backlog of millions of unemployed people  in  case of  unemployment.They will not have any safey net unlike in the developed countries.

I had extensive discussions with many owners of factories regarding the labor reforms. Significantly,   most of them are not looking for a hire and fire policy. They want less number of paper works and compliance. Presently,  I am told that  a company has to maintain close to 25 records about the employees. Some of them are trivial and unproductive exercises but non compliance attracts penal action.They want such silly restrictions and unnecessary paper works to go.

Admittedly, the number of strikes, go slows and things of that ilk have come down substantially. The employers' organizations are not talking about the man days lost on account of the strikes and go slows. They   want to have the rights to  rationalize the labor as and when they  require. It is a fact that the government could get rid of  millions of workers who were working with National Textile Corporation  without giving them any compensation or minimal packages, despite having the same rigid and archaic laws.

There are many private sector units which had pulled down their shutters without giving any notice to the workers. Their salaries are struck for a long time. Despite the promises, no government had come forward to help them.

Then why the talk about the great labor reforms? Let not the government be over enthusiastic about it since it will have a huge backlash. 

Business Economics & Services Team

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Circus of Retrospective Tax

The latest political controversy in the public domain is about the retrospective tax: to be precise whether the then fiance minister and the present President of India Pranab Mukherjee did consult the former Prime Minister Dr Manmohan Singh when the government wanted to go ahead withthe tax even after Supreme Court decision on Vofofone . The issue came up at a function: a book launch.  The finance minister of immediate past Mr. Chidambram, that, " .... I think, I think the matter was discussed at some level when the decision was taken...." When further probed, the canny lawyer turned politician ducked the question by telling  that he would reveal more when he writes his book. That wry humor is characteristic   of  Mr.Chidambram. 

The public wants to know more about the thinking of the government and it is their right. Why the government wanted to go beyond the apex court's decision? Why the then opposition party and now the ruling party, which criticized the government's decision at that time telling that it would affect the  flow of FDI  into the country , is now going soft on retrospective tax regime. The Budget proposal has mentioned only that the present administration will not go for any retrospective tax regime. What about the tax regime that existed before? What about the state and findings, if any  of the proposed empowered committee which would go into the whole issue and come out with their suggestions?  Will a decision come out soon or we have to wait until the presentation of the next budget?

There are myriad issues surrounding the retrospective tax regime and specifically on Vodafone case. If two parties buy and sell an underlying asset in a third country, the home country (third country) does not have any jurisdiction over it? What is the settled international law? Is it the  first case ever happened  in the world? If it is not happened for the first time, what  are  the procedures / decisions taken in other countries?

I would not have asked this question, if the last three successive finance ministers were not lawyers. The last two are eminent lawyers and the third is considered as a person having wide administrative experience (He also has a law degree).

Linking Vodofone case with flow of FDI, I think is stretching things too far. FDI is not an end in itself. It can at best supplement and complement the investment. I do not know precisely the ratio of  FDI to the total investment in the country for the 15 years or. My hunch is that it pales to insignificance as compared to the ratio to domestic investment. My last question: Is it fair to give that much importance to FDI at the  cost of  general public, who get enriched by more revenue realization by the governemnt?

 Business Economics and services Team (BEST)

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The Electronics Revolution in India

Everyone in India is talking about revolutions in many sectors be they  e-commerce, telecom (read 4G), health, education and the list goes on. But one sector that has  been less quoted in the run-up to revolutions is electronics. Let the facts speak for itself. By 2020, India needs  close to US$ 400 billion worth of electronics hardware. Gauged by the pace of domestic production, the production might perk up to US$ 100 billion. That leaves a gap of US$ 300 billion. At this rate, India's import bill on account of electronics will surpass that of the oil bill.

Economists and policy makers are wary of this trend. They believe that this single factor could widen the current account deficit (CAD)  of India, which already peaked up to dizzy heights mainly on account of the heavy imports of oil and, of late, gold. There is a talk of curbing gold imports after the festival season, where gold and gold ornaments are bought  as a matter of custom and ritual.

But India cannot curb the import of electronics, which is needed for its heavy automation undertaken across the spectrum of industries. The recent policy decisions like internet based jan dhan scheme (financial inclusion), Make in India, Swatch Bharat (Clean India) etc are going to push up the demand for electronics goods in India either for automation or creating infrastructure for enabling these schemes to work. 

The Government has already unveiled an electronics policy, which lays down considerable importance for upping the domestic production and making India a destination for manufacturing the stat-of-the art electronics goods. There was a time, when electronics industry thought that  their sector could catch up with the software sector, which made phenomenal progress in the last few decades. Their dreams were dashed when the domestic industry was thrown to cut throat competition from multinational giants. India signing the international protocol for bringing down the tariff to the zero level had witnessed the near extinct of this sector and dominance of the foreign players.

At one point of time, India had numerous players in television, automatic washing machines, refrigerators,air conditioners, radios, and several other electronic items. But most of them have bitten the dust. Barring a few, all those brands are extinct from the Indian scene. Later, the government  had embarked on hardware parks and one such park was set up in Sriperumbador near Chennai. That also proved to be a flop on account of  the bureaucratic hurdles and lack of  policy direction.

Now a new awareness is seeping through the corridors of power. Several hardware parks are waiting to be set up. One such park is going to be set up in Delhi. Another park n Bhiwadi in Haryana is about to be commissioned soon. In a few years time, many such parks will dot across the breadth and length of the country. This throws open unique investment opportunities  in  the country. As per the recent report, the hardware park in Bhiwadi already attracted investments from over 50 foreign companies. It is an 100 acre park, which will have employee hostel, manufacturers of components which go into the final electronic goods, facilities for treating e-waste, captive power units etc. Also, it boasts of easy sourcing of skilled manpower and reportedly flexible labor laws.

Admittedly, this experiment will be a game changer in India's march towards augmenting the domestic production in electronics. Undoubtedly, it will be a great opportunity   for the foreign companies  to set up their bases in India. For more details: Mail us: Business Economics and services team, E mail:jthac1234@gmail.com, jthac1234@yahoo.com

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An Ode to Black Money

Ever since I started focusing on economic issues, that is some 30 odd years back, black money has been in the news.While I was a student of economics, I was taught that bad money drives good money out of circulation. That is what Gresham law says. That may be true in the case of black money also; it must be driving the good money, the so called white money, out of its relevance. At this rate, this debate: How to tackle the menace of black money will continue in perpetuity in Indian context.

Why it is so? My simple answer is that nobody is interested in curbing the source of this money.  Political parties are giving only lip service to this issue. They need money during the election. An unofficial estimate put that black money in India is as big as white money. During the elections, they need it in plenty. Once accepted from a businessman or industrialist or people of that ilk, how can they hunt them out. I am told that in the last Maharahtra assembly elections, candidates who were reasonably sure of winning, were distributing Rs 900 per vote. For a constituency, there will be at least two candidates, who might think that they have a fighting chance. If they distribute Rs 900 each to a voter, each voter will get Rs 1800. it is a windfall and those who want to say no to that  windfall  are not fit enough to live in the market driven economy.

My limited point is that it leads to fair distribution of income. Rs 1800 will be higher  than the subsidy that the government is intending to credit to the accounts of the account holders from the vulnerable sections of the society as subsidy for gas or kerosene. it is enough to buy a bicycle. No politician or rich man will part with that amount when you ask them to do that. Here he or she has a purpose. If that purpose-good or bad-can lighten up the hope of a vast majority of the people, why to stop them. Also, this money can peak with every passing election, as if it were linked up with inflation index. Who knows by the next election comes, this amount also can double and the poor and vulnerable sections can hopefully get a quantum jump of money in return for their valuable votes. Also, it will deplete the stock of black money to that extent. Does the fiance minister listen to it?

Years back, if my memory is right, when Morarji Deasi was the union finance minister, he introduced the concept of expenditure tax and for that he invited an economist named Kaldore to study the Indian taxation system and to devise a system to plug the loopholes. A combination of income and expenditure tax was introduced. Expenditures in hotels and other places were taxed. There was a lobby which worked against it and the expenditure tax was abolished and now we have only Income Tax.

The clamor for abolition of  income  tax is there already. Dr. Subramania Swamy, who doubles as a politician and economist vehemently campaigns for abolition of Income Tax. Could this be tried in Indian situation? A new system of revenue generation should be evolved. Could we collect a one time  tax from people acquiring properties such as luxury villas, land, shopping complexes etc. since the investment is done mostly using the black money. This tax can be collected from both the seller and buyer, with reasonable exceptions for people from the underprivileged classes based  on strict scrutiny of their income based on aadhar.

Presently, there is a tendency to stash money in real estate. The efforts of the government to curb benami transactions did not meet with success on account of the hectic lobbying by the vested interests. What is important is to have a political will to curb the balck money and not singing different tunes, while you are in opposition and holding the power to govern. Let us stop this double talk and then we may have a reasonable chance to do away with black money.

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