Budget 2017: Status Quo Maintained; Yet Another Opportunity Missed

The Modi government presented what had been widely pegged as the most important budget of its five year term on 1st February’17. Budget 2017 was considered to be extremely crucial for a number of reasons. One, because after nearly three years in office, the government has not been able to truly fulfil its poll promise of massive job creation and this budget was, perhaps, the last opportunity for the government before the next general election to make significant policy changes towards that direction; two, since the overall sentiment of the economy has been low because of the government’s surprise decision to ban high denomination currency notes, with both investment and consumption falling since the decision was taken and India’s economic forecast being downgraded by IMF, this budget was expected to be the government’s chance to lift up spirits and re-energise the economy with some path-breaking initiatives; and three, with the next round of state elections round the corner, the budget was expected to be politically appealing for the ruling party to pitch to the masses before going to polls.

After a perusal of the budget documents, one can safely say that the finance minister focused on achieving the third objective mentioned above and largely maintained the status quo on the other two while preparing the same.

The budget contains enough provisions for BJP’s political workers to boast about during the campaign trail in various state elections, especially in Uttar Pradesh. The party has been keen on propping up the anti-corruption image of the Prime Minister and the budget goes one step forward in doing just that. The policy of limiting cash donation to a political party to Rs. 2000, ostensibly aimed at cleaning up political funding, is one such illustration of the government trying to win over voters with a provision that can easily be evaded by political parties by simply limiting individual contribution to less than the mentioned amount. On the same lines, the policy of banning cash transactions above Rs. 3 Lakh would do little to halt the underground economy since businesses can easily evade scrutiny by simply issuing multiple bills of under Rs. 3 Lakh when undertaking a high value transaction. Even the proposed law on confiscating assets of loan absconders like Vijay Mallya and Lalit Modi is nothing but a sanctimonious attempt to remain on the good side of the public with respect to its promise of clean governance. Other provisions in the budget like cutting the rate of tax to half on income up to Rs. 5 Lakh and expanding the presumptive taxation scheme would provide much needed relief to the middle classes and maintain their political appeal for the next round of assembly elections later this year.

With respect to the post-demonetisation effects on the economy, I disagree with the notion that the government should have used the windfall gain to dole out freebies for Jan-Dhan account holders on the line of the Maternity Benefit Scheme wherein Rs. 6000 would be transferred directly to the bank accounts of eligible pregnant women. In my opinion, this would not achieve any discernible objective and would go against every principle held by this government under the leadership of PM Modi. One might say that the windfall received by post demonetisation allowed the government to double its lending target under the Mudra Yojna or perhaps, significantly increase allocation under various other existing schemes. That, was clearly a far more prudent and far-sighted step to have been taken by the government.

Notwithstanding the above, I would have liked to have seen a roadmap being presented directed at moving towards the Universal Basic Income (UBI) scheme as suggested by Dr. Arvind Subramanium, Chief Economic Advisor, in the Annual Economic Survey presented right before the budget. An action plan to rationalise redundant subsidies while moving towards a UBI scheme targeted at the most vulnerable sections of society is an idea worthy of merit that needs to be debated frequently going forward and possibly even explored in the coming future.

The real disappointment came from the macroeconomic provisions in the budget with the government choosing to stick to its variably successful mantra of incremental reforms and yet again, shying away from introducing any bold initiatives that would provide a fillip to the economy.

With regards to infusion of capital in public sector banks to solve the NPA problem, the government earmarked merely Rs. 10,000 crore for the current fiscal year. Although, the government has pledged more capital if need be, it might have been prudent to consider the idea recommended in the annual Economic Survey of a Public Sector Asset Rehabilitation Agency (PARA) or a ‘bad bank’ which would buy bad loans from state-run banks so that banks can be relieved of that problem and shift their focus on lending. PARA would then be responsible for maximising recoveries, now made simpler with the introduction of the bankruptcy code. Only such path breaking ideas can solve the twin balance sheet problem that India Inc. in currently facing and kick-start the investment cycle in the country, but, the status quoist instincts of the government haven’t allowed such proposals to pass through the planning stage.

The story is the same when it comes to other important economic issues like privatisation of public sector units (PSUs) and further liberalisation of the Foreign Direct Investment (FDI) regime.

In his budget speech, the Finance Minister declared that the government will move ahead with the listing of some railway PSUs like IRCTC, IRCON and IRFC. Although, this is a giant leap forward and might encourage greater investment in railways in the future, the comprehensive road-map with regards to privatisation of PSUs prepared by the Niti Aayog has quietly been put under the shelve so to not attract the ire of public sector workers. Even with regards to FDI liberalisation, the Finance Minister simply reiterated his commitment to the cause without making any concrete policy pledges. The decision to abolish the Foreign Investment Promotion Board (FIPB), hitherto the approving authority of the FDI proposals made by multinationals, can largely said to be redundant since 95% of the FDI coming into India is made through the automatic route.

Although there were some good proposals that were introduced in the budget, but they were few and far between. According infrastructure status to the low cost housing sector is one such proposal. This would lower borrowing costs for developers and would allow them undertake more projects, thereby achieving the ‘housing for all’ target set by the government. The reduction of the income rate from 30% to 25% for firms with turnover up to Rs. 50 crore would provide a major boost to start-ups and SMEs around the country, although an across the board tax cut would have been far more appreciated.

In conclusion, Budget 2017 was simply an extension of the government’s policies undertaken in the last two and a half years but fell desperately short of introducing any original gambit to reverse the fortunes of the country and bring about the much awaited ‘ache din’ to India. It remains to be seen whether the government would make course correction in the near future or face the wrath of the electorate in the next round of elections.

 

India Needs Some Radical Electoral/Political Reforms

Recently, a report in the Times of India said that the central government is planning to initiate an all party discussion on synchronizing Lok Sabha elections with the respective state assembly elections by 2019. If indeed implemented, this would be the first step towards rationalizing the currently dysfunctional political system that holds back India in more ways than one. More such bold reforms are needed, with a special focus on consensus building, a quality the Modi government clearly lacks, to usher in a new era in Indian politics and decision – making.

The committee set up by the government to look into this issue, the report mentions, says that in order to align the elections in 2019, the tenure of some assemblies would have to be curtailed while of some others would have to be extended. This would require serious intent on the part of the political parties, not simply because it would require some of them to cut short their term in office, but also because such a move, if enacted, could potentially transform the way elections are fought in this country.                                                 Presently, all political parties go an a charm offensive with their respective vote base right before their elections to ensure a victory, offering them freebies and announcing huge projects, which are seldom implemented when they actually get into power. But, a trend has emerged in Indian politics since the Lok Sabha election of 2014, or perhaps since the Gujarat Election of 2012, where electorates have increasingly started voting for development, not just on the caste or communal lines as preferred by political parties and have constantly busted the anti-incumbency myth by re-electing those leaders who have a proven record of ‘good governance’.                                                                                             Thus, in order to capitalize on that trend, simultaneous national and state elections is imperative since such a move would go a long way in diverging national issues from state level problems, thereby nurturing the much needed democratic maturity in the Indian electorate, the lack of which up till now has allowed vested interests to take advantage of them. But, as mentioned earlier, this group of vested interests would do whatever is in their power to stop such a development and it must be the responsibility of the Modi government, which constantly makes loud claims about its integrity, to make sure that such an important reform does not indefinitely remain in political limbo.

Notwithstanding the above, there are many such reforms in the political system which are needed urgently to unshackle India from socio-economic adversities. Although, one would like to see a cap on spending in elections or stricter regulation of political parties at large, such reforms are unlikely to happen given that all parties, including AAP, have many skeletons in their closets. That being said, one would like to see reforms which seek to divide the functions of the legislature and the judiciary as explicitly as possible. I am talking, of course, about the need to restrict the powers accorded to the upper house of parliament and to clearly define the role of the judiciary which constantly enters executive domain, leading to mis-governance.

Now, Rajya Sabha, the upper house of parliament referred above, is a touchy subject, with the central government being accused of bypassing it through constant ordinances or by introducing money bills like Aadhar, which do not require approval from the upper house. While some might argue that the government is indeed trying to sidestep the Rajya Sabha, I would argue that it does not have any other choice. This is because Rajya Sabha is a collection of unelected individuals whose job is nothing but to forward their party’s shallow agenda which often goes against the country’s interests. Although, the government might not be able to push through reforms that would limit its powers, given its record, it can think about using the ongoing cash-for-vote controversy in the Rajya Sabha elections to its advantage and attempt to introduce reforms that makes the upper house more accountable to the people of the country. This can be done either by initiating a discussion on turning Rajya Sabha into a Senate like body where its members are directly elected or by at least mandating the cancellation of elections if any foul-play is found.

Another area of concern for the political establishment of the country is the judiciary’s constant intervention in executive functions. Be it the diesel ban in Delhi or the shifting of matches in IPL or the formation of a drought management fund, the judiciary’s constant overreach into executive domain disturbs the balance of powers and creates further disruptions in the already dysfunctional system. Its argument is that it if the government did its job better, it wouldn’t need to interfere. Hard to argue against that. But this was the same judiciary which struck down the National Judicial Appointments Commission (NJAC) which aimed at giving the executive more power in appointing judges to the courts on the ground that government intervention would impact the independence of the judiciary. So, while it does not want the executive interfering in its workings, it finds no problem in directing the government on how to go about its job. Now, whether that is constitutional or not is best left to experts; what we must first realize that the judiciary is not perfect, simple because it does to the government what the government does to us. Such a situation creates a lot of confusion between the so called ‘three pillars’ of democracy and ultimately, it is the country which stands to lose. Thus, judicial reforms are an urgent need and the government must come up with comprehensive reforms to address the problems associated with the judiciary. Also, such reforms invite rare bipartisan support and government doesn’t stand to lose any political capital by coming up with the same.

In conclusion, there is long way to go before India can shred the tag of being a ‘Banana Republic’. Aligning central and state elections is a huge stride forward. But this would require all political parties to come on the same page vis-a-vis holding 32 elections in 2019. One can wonder in-numerous reasons why all parties would not agree to that, not the least of which is the fear of another Modi Wave!

Modi’s Foreign Policy @ 2

As Narendra Modi completes two years as Prime Minister and just ahead of his state visit to Washington in the first week of June where he will address a joint session of US Congress, I think this is the right time where we look back at the hits and misses of his global outreach & his foreign policy at large. In such a context, it would be prudent to discuss some of the issues in the foreign affairs sphere that could potentially have far-reaching implications on the destiny of India and I shall attempt to do the same in this blog.

The Prime Minister’s foreign policy essentially stands on four pillars: his ‘Neighborhood First’ policy, his East Asia & West Asia pivots, his increasingly cozy relationship with the great powers and of course, the all important China – Pakistan axis of evil. If we were to analyse the government’s policies vis-a-vis these four pillars, the best that can be said about them is that they remain a work-in-progress with some significant successes but equally significant failures which might have negative long term consequences on India’s position in the region or that in the world. Thus, it is imperative to look into some of the policies with respect to these pillars in greater detail and illustrate why they remain a work in progress.

Let us first start with India’s policy towards its immediate neighbors i.e. the countries which are part of the transnational group South Asian Association for Regional Cooperation (SAARC). To extend a hand of friendship towards SAARC members, PM Modi invited all SAARC heads of state to his oath taking ceremony right after winning the Lok Sabha elections in May 2014, thereby triggering a hope for a truly integrated South Asia, but his mismanagement of the constitutional crisis in Nepal and an ambiguous approach towards Pakistan has made sure that an integrated subcontinent remains nothing more than a pipe dream. Notwithstanding that, there has been some progress made with respect to India’s relationship with some of its neighbors, in particular Bangladesh and Afghanistan. The Land Boundary Agreement (LPA) signed between India and Bangladesh ushered in a new era of cooperation between the countries. India & Bangladesh have since concluded a nuclear agreement, a power sharing agreement and there have been talks of improving road connectivity between the two countries with Bangladesh being used as a conduit between India’s north eastern states and the mainland. As far as Afghanistan is concerned, the trilateral transit agreement it signed with India and Iran, would not just help in shoring its economy but would allow India to counter China which is exerting its influence in the region with massive investments in Pakistan, Sri Lanka and Nepal. Thus, it is advised that India continues to maintain its relations with these two countries while at the same time try to mend relations with Nepal, Bhutan & Sri Lanka, now that it is clear Pakistan is not a country it would like to place its bets on, at least in the long run.

In contrast, Modi’s relationship with both East Asia & West Asia has been incredibly productive, not least because countries therein realize that they have a lot to gain by having a good relationship with India. Many strides have been made by India in improving ties with countries in the Asian continent. A nuclear deal with Australia has been clinched, work is underway to create a 1400 k.m. highway linking India, Thailand and Myanmar which would go a long way in enhancing connectivity in the region & the all important Chabahar deal has been signed which would see India developing the strategically located port in South East Iran, thereby becoming India’s gateway to Central Asia and beyond. Both Japan on the East and Saudi Arabia in the west have increased their investments in India, with the former helping India to build its first bullet train and the latter investing heavily in the up and coming renewable energy sector. India must keep working on boosting ties with Western Asian economies that will help in energy security and keep advancing relations with East Asian economies to counter the common adversary of China in the region.

India’s engagement with the great powers has been successful on two fronts: one, in the last two years, Modi has been able to cultivate India’s image as a country open for investment which has led to India becoming the highest recipient of FDI in 2015-16 and two, Pakistan has been sidelined by the global power structure and is on the verge of complete isolation, if not for its ‘all weather friendship’ with China. However, on both fronts, enormous challenges remain. Firstly, many executives in the private sector, both domestic and foreign, have complained about the slow pace of reforms or the lack of farsightedness in the ones initiated. If Modi wants to indeed resurrect India’s manufacturing sector and create enough jobs for the millions of Indians entering the work force every year, he must not resort to protectionist tendencies characteristic of Indian policy makers and before time runs out, initiate all the ‘big-bang’ reforms that the world wants from him. Secondly, he must be very cautious while dealing with the China-Pakistan axis of evil. He must position India as a state which is open for Chinese investment but not at the expense of Chinese obstructionism with respect to its global ambitions. China has vowed block its bid for entry into the Nuclear Suppliers Group (NSG)  and has stonewalled its attempt to designate Masood Azhar, mastermind of 26/11 attacks, as a terrorist at the United Nations, both allegedly at the behest of its crucial ally Pakistan. Although, US has countered China on India’s eligibility as an entrant to the NSG and has also given India the status equal to that of its NATO allies, India must asserting itself boldly at the international level, thereby leaving no alternative for China but to accept India’s emerging power status.

In conclusion, India may not have become the superpower that the Prime Minister usually claims in his speeches, but, its engagement with the world has increased exponentially and perhaps, for the first time in history, the world looks at India with great hope for its future. However, this hope will be short-lived if Modi fails to deliver on his promises. So, from here on, the focus must be on scrupulous implementation of the various MOU’s and agreements signed by India which would help in closing the credibility gap that has haunted India’s foreign policy for decades. Modi has successfully laid the foundation for improving India’s stature in the world but whether that foundation would indeed transform into a concrete presence remains to be seen. India is Waiting.

 

 

 

 

What Can New Delhi Learn from London’s Mayoral Position

As London’s Mayoral elections draw to a close, all of us living in the capital city of India, New Delhi, must ask ourselves whether our Chief Minister’s office, currently head by the all to controversial Mr. Arvind Kejriwal, is as powerful as the Mayor’s office in London. The reason for such an introspection is that both London & New Delhi are densely populated metropolitan capital cities impacting millions of lives and the person responsible for governing those lives should have all the tools available to him in order to serve the people without any confrontation with the central government, a problem increasingly becoming routine in Delhi. So to the answer the question, no, Delhi’s Chief Minister is not quite as powerful as the Mayor Of London, the reasons for which I would attempt to dissect in this blog, while simultaneously arguing why it would be a good move to accede to Mr. Kejriwal’s demand of giving Delhi complete statehood status.

New Delhi and London – Key Differences

While the outgoing Mayor of London, Boris Johnson, has many a times complained that enough powers haven’t been granted to him, he would be surprised to know that his counterpart in Delhi is even more beleaguered than him. There are certain key differences between the two posts that one must take cognizance of, in order to understand the challenges faced by the Delhi government under the current status-quo.

Land Policy: While even the London Mayor has to exercise constraint over the housing policy adopted by him due to restrictions imposed by the central government, the Delhi Chief Minister has absolutely no jurisdiction over the same since the Delhi Development Authority (DDA), the body overseeing the state-sponsored housing & construction activities in the city, comes not under the control of the Delhi government but under the Ministry of Urban Development (MUD) of the Union Government, a decision that dates back to 1962 when Delhi wasn’t even a partial state. Any new project that requires government land needs to be first approved by the MUD, consequentially leaving the Delhi government with no real authority of the projects that see the light of day.

Police & Public Order: Every capital city needs proper security arrangements, not just for the VVIP’s therein, but more importantly, the vast population of people which reside in it. Unlike the Met Police in London which is governed by the Mayor’s office, the Delhi Police comes under the purview of the Ministry of Home Affairs (MOH) of the Union government. Confusion over who gets to govern the security personnel in the city not just inconveniences the ordinary lives of the people but ends up leaving lots of gaps over the pandemic security situation & general public order in the Capital.

Under the Constitution of India, Delhi is a union territory which is to be governed by a representative of the President, who has authority over the three aspects listed above. However, the current representative, Lieutenant Governor Najeeb Jung, is seen by many as a stooge of the central government who often crosses constitutional boundaries by interfering in the appointment of bureaucrats and the overall functioning of the state government. Thus, after taking cognizance of the above facts, one can argue that the Delhi Chief Minister ‘is in office but not in power.’

Full Statehood for Delhi – High Time?

We must recognize the fact that when it comes to urban cities like London or New Delhi, it is responsive & dynamic executive action that makes the difference & while some disagreements are bound to arise between two power centers, as I am sure they do in London, petty tussles like the ones in Delhi are just downright deplorable which end up depleting the quality of governance in the city. Delhi, which in my opinion is the finest city in the country, with such a rich history and unparalleled diversity, deserves better from its government. Delhi, like London, must have a Chief Minister who is responsible for all the aspects of the city and such a scenario is only possible if the Narendra Modi government grants full statehood rights to Delhi, bringing it at par with every other state in the country.

Granting full statehood to Delhi would not just be a gift to the people of the city but it would also be a politically significant move. It would not only put an end to the confrontational relationship between the Central & City government, but would also be a major image boost for the central government by pledging its adherence to democracy, amidst all the allegations that the its turning increasingly authoritarian. Statehood for Delhi is a movement that would likely gather steam over the next few years, given that the Chief Minister has made it abundantly clear that he does not accept the status-quo and the central government at the center would send a strong signal by accepting his demands without any political slug-fests.

However, one knows all too well that this is nothing more than a Utopian hope and it would take a long painstaking movement to achieve such a result. In the meantime, Delhiites would just have to keep tolerating an ultra-anarchist Chief Minister and an ultra-arrogant Prime Minister.

Budget Session Part 2: Crucial Times Ahead

The latter half of the Budget Session which would begin next week (25th April) is expected to be a crucial one, not only in terms of economic reforms but also for PM Modi’s re-election bid in the 2019 Lok Sabha Polls. The senior leadership of the Bhartiya Janata Party, in the cabinet & otherwise, must tone down the nationalism sentiment; keep the Hindutva moron brigade in check and instead focus solely on conducting critical legislation cleared in parliament, thereby kick-starting the economy & providing them with some talking points before the 2017 Uttar Pradesh & Gujarat Elections, the results of which would provide vital indications of the disposition of the electorate before the 2019 polls.

The spirits would be tense in the legislature with the questionable dismissal of the Uttarakhand government by the center, the access to Patankhot given to JIT from Pakistan, the never-ending confusion over the Provident Fund withdrawals, droughts in various parts of the country, amidst the  usual Dalit-Muslim vote-bank securing tactics of the opposition. The Prime Minister must drop his statesman-like silence on issues that dominate the news cycle & lead from the front in countering all possible attacks in parliament. He must not play into the traps set up by the opposition and  instead concentrate on highlighting the many successes of his government so far.

Inflation has been down ever since the NDA government came to power; highway construction is on an all time high of 28 km/day; there is tremendous focus on infrastructure augmentation with the Inland Waterways Bill or the Sagarmala Project; the focal point of Budget 2016 was resurrecting the rural economy & with the weather department predicting a better monsoon this time around, the agriculture sector is expected to turn around with assistance from the new crop insurance scheme, national agriculture market which aims to provide better market access to farmers or the RURBAN scheme which aims to modernize rural areas, thereby increasing economic activity around the area concerned. The Prime Minister’s foreign policy outreach is starting to bear results, the latest being Chabahar Deal which would give India access to Central Asian Markets or the Logistics Agreement signed with the United States, ostensibly to contain Chinese maritime influence in the region. The two biggest successes of the government have been responsive, efficient governance & cutting of red tape. Every minister in the cabinet is being lauded for the initiatives undertaken by their departments, a track record of which has been compiled by Swarajya magazine  (Oil Minister Dharmendra Pradhan is a notable exception in the above compilation).

But the job is far from over. The Banking sector is still in stress, due to inadequate debt recovery mechanisms & exports have been contracting for 18 months in a row, due to weak global demand. The latter can only improve with time but the former can largely be dealt with the Insolvency Code, one of the many important economic reforms currently stuck in parliament.

The Insolvency Code would expedite the process of debt recovery by creating an autonomous body to oversee the same & put a 180 day time limit on the process. The Goods & Services Tax would subsume the many indirect taxes currently imposed & turn India into a single market, a crucial reform to augment GDP growth. The Small Factories Bill would encourage small-medium size business to invest in the manufacturing industry by exempting them from various labour regulations. The Labour Ministry further plans to introduce four integrated labour codes which would replace the colonial era laws that currently operate in the domain. All the above are just few of the many other bills that are currently in the offing & which need to be passed urgently to unshackle the Indian economy.

The Prime Minister must not waste any more time in pushing through the above reforms in the upcoming parliament session, not the least because pushing pro-business reforms right before state assembly elections would be a major political miscalculation. The politics in this country has always been confrontational and would continue to remain so in the future, but its economics must not suffer as a consequence. The Prime Minister understands this all too well & he must play his cards right while dealing with the opposition. ‘Coz come 2019, he would be judged by the very standard he set for himself, SABKA SAATH, SABKA VIKAAS.

India Introduces Google Tax – An Analysis

Amidst all the hysteria over the contentious provisions (EPF Tax & 1% Excise on Jewellery) that were introduced in the Budget last month, another extremely important announcement went relatively unnoticed. This was the decision of imposing an ‘Equalization Levy’ on companies providing online advertising services to businesses, ostensibly to tap the tax avoiding tendencies of tech giants like Google, Facebook etc. In simple terms, any advertising income received by such companies would now be taxed at 6% from April 1st, 2016 i.e. the new financial year. In this post, I shall present my analysis on who exactly are the stakeholders with respect to this provision and how would they be impacted by it.

With Budget 2016, the Indian Revenue Department vowed its allegiance to the Base Erosion & Profit Shifting (BEPS) Action Plan; a series of proposals prepared by the Organisation for Economic Co-operation & Development (OECD) aimed at curbing profit shifting from high tax to low jurisdictions by multinational enterprises. Out of 15 Actions proposed, India announced three in the budget. One, the Country-by-Country (CbC) reporting structure which introduces a more robust compliance mechanism for MNE’s undertaking intra-group transactions across jurisdictions; two, the Patent Box Regime wherein income from patents developed & registered in India would be entitled to a tax benefit and three, a digital tax, so to speak, on income earned by online advertising service providers.

The third proposal presents an interesting case study. As we know, in the digital economy, establishing a strong internet presence is imperative for long term success and usually, the best way to do so is by advertising on a popular platform, thereby reaching millions of internet users. Yahoo, Google, Facebook are all examples of such platforms which provide space for online advertising. But, their global structure and until now, outdated tax legislation, has allowed them to escape taxation. The strategy is simple; the recipient of the advertising income is not the regional subsidiary that the concerned MNE may have in the jurisdiction where the payer is located (say, Google India) but usually  another subsidiary located in a tax haven (say, Google Cayaman Islands). That, along with Revenue Authorities’ reluctance to include digital presence while interpreting the meaning of Permanent Establishment (PE) in litigation, has the reason behind the continued subversion of the tax process by large internet companies. In response to this, BEPS Action Plan 1: Addressing the Challenges in a Digital Economy, the OECD has proposed either expanding the definition of PE to include digital presence or imposing an equalization levy on certain transactions, the latter being christened as ‘Google Tax’ by commentators in Britain which became the first country to introduce such a provision.

Out of the two options, India made the right choice by adopting the latter. This is because a flat-out tax would certainly be better administered than a broader PE definition since that might increase the risk of arbitration, thereby going against the PM Modi’s promise of ‘ease of doing business’. Also, the provision is introduced as a separate chapter in the Finance Bill and not as part of the Income Tax Act, the companies receiving such income would not be liable to file the complicated Income Tax Return (a separate return would be filled), thus making life a wee bit easier for the companies in question. Of course, the flip side to that is the non-availability of tax credit for the amount payed to the Indian exchequer and the government has made a wise move by keeping the rate at a low 6% so as to not frustrate the companies too much. Finally, limiting the levy to B2B transactions as well as imposing the annual monetary limit of INR 100,000 is indeed a step in the right direction thereby sparing small businesses from an additional compliance burden.

One can argue that such a legislation would hurt new businesses the most, who might find themselves being coerced by these large MNE’s to pay the taxes over and above the advertising bill. Thus, to that extent it goes against the spirit of the ‘Start Up India’ scheme launched by the Prime Minister a few months back.

But that being said, this is a crucial provision in terms of minimizing tax avoidance, while at the same time providing a predictable tax regime for MNE’s operating in India. How it manifests itself is yet to be seen.

 

What the Aadhar Bill is all about

Ever since the central government passed the Aadhar Act as a money bill in Lok Sabha, there have been critics voicing their concerns on certain provisions in the bill which they see as infringing privacy rights of the citizens. In this post, I shall try and dissect what exactly does the Act say & whether concerns expressed by critics have any merits attached to them.

The principal purpose of introducing The Aadhar (Targeted Delivery of Financial and Other Subsidies, Benefits & Services) Bill 2016 was to plug the endemic leakages in the delivery of various subsidies provided to different classes of citizens by the central government. The subsidies would be delivered to the more deserving citizens by linking their Jan Dhan Account with the unique social identity number under Aadhar. The Narendra Modi government would use the JAM (Jan Dhan, Aadhar, Mobile Payments) Trinity to cut corruption and thus save huge amounts of funds by directly delivering subsidies into the bank accounts of the citizens by using mobile payments, keeping in line with the Prime Minister’s vision of making India a cash-less economy. Already, a pet project of delivering LPG subsidies through Aadhar has saved the exchequer funds in excess of 15000 crore. One might think that a future where social security payments of every kind would be digitised and paid directly into the bank accounts of the recipients with as limited leakages as possible is something that would be desired for rather strongly.

But that does not seem to be the case. The opposition along with some ‘activists’ have expressed many of their concerns with the bill. One is the compulsory requirement of an Aadhar number to avail the subsidy, two, the biometric data collected under the Aadhar system would put the privacy of citizens at risk and three, foreign immigrants can obtain an Aadhar number and thus, have access to subsidies provided by the Indian government.

All the above concerns might appear genuine but provisions of the bill alongside other evidence render them completely debunked. For one, the the bill clearly specifies that if a citizen does not have an Aadhar number, the government would wait for him/her to apply for it and in the time being, use some other means for identification. Moreover, since 99% of the adult population is already enrolled under Aadhar, the argument against compulsory requirement is utterly misplaced. Two, the bill provides that Aadhar would not be used as a proof of citizenship and the concern that immigrants from, say Bangladesh, would become legitimate citizens by obtaining Aadhar, assuming that they are indeed able to obtain it, is disingenuous at best. Finally, the concern that the biometric information collected under Aadhar jeopardizes the privacy of citizens is based on a weak premise because the bill clearly states that the information would only be divulged in the interest of national security or under a court order. Also, there are strict provisions against any unauthorised access to the database. Thus, the argument on privacy concerns is political in nature and has very little merit to it.

The Aadhar Bill is a revolutionary step towards turning India into a more financially inclusive society & such a crucial piece of legislation needs to be backed by all sections of society without any political prejudices. The key, however, lies in implementation and given the available evidence, I would say that the future appears bright.