India and its Barstool Tax Policy

In India, we have often talked about, debated upon the tax policy we have in India and what are its ramifications on the taxpayers. To me, our tax policy relates very much to a story of 10 friends who go out for beer. The bill for all ten comes to Rs.1000. If they paid their bill the way we pay our taxes, it would go something like this:

The first four (the poorest) would pay nothing.
The fifth would pay Rs.10
The sixth would pay Rs.30
The seventh would pay Rs.60
The eighth would pay Rs.130
The ninth would pay Rs.170
The tenth (the richest) would pay Rs.600. 

The ten friends drank in the bar every day and are happy with this arrangement, until one day, the owner threw them to rejig. "Since you are all such good customers, I reduce the cost of your daily beer by Rs.200." This meant that drinks for the ten would now cost just Rs.800.

The group still wanted to pay their bill the way we pay our taxes so the first four were unaffected. They would still drink for free. But what about the other six paying customers? How could they divide the Rs.200 so that everyone would get his 'fair share?' They realized that Rs.200 divided by six is Rs.33.3. But if they subtracted that from everybody's share, then the fifth and the sixth friend would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each one's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:

The fifth fiend, like the first four, now paid nothing (100% savings).
The sixth now paid Rs.20 instead of Rs.30 (~33%savings).
The seventh now pay Rs.40 instead of Rs.60 (~28%savings).
The eighth now paid Rs.100 instead of Rs.130 (~25% savings).
The ninth now paid Rs.130 instead of Rs.170 (~22% savings).
The tenth now paid Rs.510 instead of Rs.600 (~15% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men started comparing their savings. 
"I only got a dollar out of the Rs.200," said the sixth friend. He pointed to the tenth friend," but he got Rs.90!" 
"Yeah, that's right," exclaimed the fifth friend. "I only saved a dollar, too. It's unfair that he got nine times more than I!"
"That's true!" shouted the seventh. "Why should he get Rs.90 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four in unison. "We didn't get anything at all. The system exploits the poor!"

The nine friends surrounded the tenth man (the richest) and beat him up. The next night the tenth friend did not come for drinks, so the other nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have even half the money to pay the bill!

And that, is how our tax system works! The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Bringing Reforms in India - Work that needs to be in progress

Global investors worldwide are critic of India's attempt to address key issues like tax evasion via retrospective tax-related measures. A lot of investors were dissatisfied with this and started withdrawing dollars from Indian market. As a result of this, Finance Ministry of India has put GAAR on hold amid pressure from investors. This step I believe to be as positive even though we are yet to debate on this issue which is far from being resolved.

Corruption is another pinching subject which is related to tax-evasion. In fact, both developed and developing nations are facing this menace which tends to negate investment growth and demoralize investors confidence. The positive side however is corrupt practices cannot stay in the back-end for a longer time thanks to the information technology era. Social media in particular has put the policy markers under radar to address issues because people of the nation are watching and reporting it to the entire world. Corruption charges over last few years in particular has put India under hammer and the steps taken to stop this is watching worldwide.

Bring the Change

To be honest, I feel India needs a lot of reforms today, but I am equally optimistic that the nation will find its way out of these tough times. Have no doubts, India has huge potential for its long-term investors as well as people of India. Not to be influenced by some shocking headlines, the fact remains that all of the BRIC nations still have a have a better economic outlook than many of the developed nations, who still bear the burden of slow growth and debt.

Last couple of years has seen outraged protests happening across India which has made corruption a top priority agenda for policymakers. Activism obviously is one of the primary steps to highlight this issue. While anti-corruption activists are finding support from people, there is also this power of social and electronic media which can influence the system. States here have a key role to play and hence, the protests must also be inline with the actions at state level on the large.

A lot of national assets are misused by people who are in power and India is not a sole case. With series of scams and revenue losses exposed in last couple of years in India, indulging into easy corruption is not that easy as it was 10-15 years ago. Though the existing lot of politicians and bureaucrats are highly unlikely to reform the system, one can only hope that the next breed of politicians are more cautious in dealing with this.

The Way Forward...

The road ahead at the onset of these exposure of scams is that impetus for change needs to be provide. The Media power, the RTI increasing use of information technology in private and public sectors/services should help to play more than useful role in reducing corruption practices. 

• Opening up the economy and creating surpluses is one way to reduce corruption which otherwise tends to grow rampantly due to shortage of surpluses in the economy. 
• More clarity in law always helps the Indian judiciary to better consolidate what is right and wrong. Indian judiciary's support to put citizen and nation interests first and some of recent interventions by Indian higher courts is a fitting example of that. 
• An independent investigative body which is free from any government or ministerial influence is a key to have investigations come to its factual and logical conclusions.
• Having clearly defined telecom licensing and mining rights is a key.

One does feel there is a hug scope of improvement where India needs to enact measures to show that it has started to adopt the right path. 

A lot of India's state-owned companies are gradually opening up following 'integrity pacts' developments. Over 40+ companies are now implementing integrity pacts with Transparency International, India. With such active participation, the procurement processes are surely going to be more transparent.

It is so easy to get discouraged by crores of scams and quite rightly so, but there is not an iota of doubt that India continues to be a destination of investment and growth moving ahead. The nation's trends of a growing middle-class people, GDP growth and its domestic consumption for consumer goods are a key to its increasing opportunities at offer seen by investors, both local and global investors. 

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Source:
http://www.transparencyindia.org/

http://www.ft.com/cms/s/0/f3a7bafc-7437-11e1-9951-00144feab49a.html#axzz1vllHUfal
http://en.wikipedia.org/wiki/Right_to_Information_Act,_2005
Transparency International, India - A coalation against corruption Press release [PDF]

Politics with Corruption recipe - A Zillion Dollar Frittata made of rotten eggs?

Corruption has never been a stranger when it comes to Politics. But the recent fallout cases of CWG 2010, Army Land scams, the 2G scam; all which come under central government fence has nothing but revealed the depth of corruption spread. There is a huge debate going on in media these days on whether the term ‘Lobbyist’ should be legalized and more transparent which I had also talked in my previous blog, but that’s a different point altogether. But when a Lobbyist have the influential capacity to appoint ministers in the government to compromise democracy, then I think there’s more serious thought that needs to be looked into.

I remember during Obama’s recent visit to India where he said that India is not emerging but has emerged, the statement couldn't have sounded more comical and embarrassing after the recent scams. It is absolutely clear that corruption in the recent cases are because of Political Leadership and Government and the entire system is to blame for.

With such huge scams revelations coming every few days, the talks of India’s economic growth of 8.5% to 9% sometimes just worries me a lot of the nature of this growth and the consequences to follow. Government is increasing its spending on real estate, mining and infrastructure & construction projects and corruption is playing a big part in the growth numbers as well. I am not an expert with the numbers, but if I recollect correctly, Govt. budget was Rs. 10 lakh crores for this year. Out of every Rupee, only 15 paise actually reaches people (this is Late Rajiv Gandhi’s analysis by the way!) and if is this is the case then the money loss or leakage would be around Rs. 850,00,000 crores; of which, Rs. 1.76 lakh crores goes just to Raja! Hmmm... the term 'leakage' for 850,00,000 crores sound so generous isn't it!

A former economist (IMF) and currently an Advisor to our hon. PM Dr. Manmohan Singh has pointed, and rightly so; a very real issue that most of the billionaires in India do create their money due to their closeness with the politicians and the politics as a whole. I have observed a very significant thing that when it comes to billionaires of India, most of them have come from the real estate, mining and infrastructure sectors; much to the coincidence, heavily influenced by Government. A real-case example of this is India’s Satyam Raju who is just moving from hotels and hospitals to bails unlike Bernard Madnoff of US, who was charged of financial fraud and is currently serving jail sentence of 150 years.  What an irony and tragedy in India! (Both of these were arrested during similar period)

Apart from the embarrassment and the shameful scenes going in our political system, I know a lot of us do feel angry about it and for those who don’t, it’s better they start getting angry about it. I just hope the govt. doesn’t get distracted and takes steps in forward direction till the changes happen which we need them to…

Transparency in Lobbying for clean policymaking?

Recent revelations on the conversations between a powerful PR consultant and media journalists has created quite a stir as to how could lobbyists and journalists influence the governments in India. Though there has been continuous denials by the journalists on these allegations, the larger issue what I see is whether we are clear with the 'Lobbying' word and is the media actually playing the role of a powerbroker here? I think the answer could well be beyond YES or NO. 

Lobbying is a medium that a civil society does use to influence public decisionmaking.  Infact many businesses, labour and private organisations do exploit it to varying degrees. Interested groups will always look to seek to influence govt. decision-making and this is a reality in democracies these days. Lobbying can also yield valuable information and data for a better and accurately informed decision-making. Most of the countries in the West are case-study examples of this. But the fear remains since lobbying happens only on the sidelines of a democratic process more often than not, it does bring huge risks of distortion of policies and undermine larger public interests. This is where I believe lies the loophole as far as India goes. Lobbying always has to be transparent, accountable and reasonable enough for a 'step-up' policy making...

Whats going 'gaga' on media channels these days are the recent transcripts of conversations between well-known journalists and powerful Corporate lobbyist working as agents and orchestrating the distribution of portfolios among one of the allies of the ruling government. It is not just the morality or the integrity of an individual which has to be questioned and debated on, but the basic idea of 'lobbying' itself and its purpose is what will make-or-break the ice for a better and cleaner policy making in a democracy!

Thats my take on the subject... Its debatable and I think its fair enough to do it here than just the 'so-called' debates going on in media full of sensationalism; most of them, if not all! :)

Taking Social Networking Seriously!

In this internet world, users; both generic and professional are looking to reach out to more people for personal and professional needs. Social Networking sites are becoming popular among users as they can expand their network and enables them to exchange ideas. The very basic idea of social networking is connecting group of individuals via network to gather and share data. Be it on a entertaining side like emails, chat, blogs, messages or the business side like marketing, job search, promoting, revenue generating apps, etc. With websites like 'facebook', 'twitter' offer building interpersonal relationships, sites like 'linkedin' are used by corporates for recruitments, offering solutions and even sharing business ideas. The 'Social Networking' is gradually moving from just email exchanges and chats and have opened avenues from a business perspective.

The Social Networking phenomenon is adding business value in a big way for obvious reasons:
1. Expanding Network - People from different parts of the world can now gather and share information on similar subjects which is impossible to do on one-2-one basis. Expanding network helps to enable like-minded individuals to come under one domain and share and exchange solutions; not just at personal level but also professionally.
2. Building Interpersonal Relationships - Social networking sites these days is an easy medium to build a personal relationship with people around as you are in a better understanding of the needs and requirements of that individual. By offering solutions to the queries, you develop a sense of trust which in turn gets communicated to their friends and there is this buiding relationship of trust. Some social networking sites also enables people like celebrities, bureaucrats to communicate with their followers and remain connected. 'Twitter' is a site which is used by celebrities at large to share updates with users following them.
3. Low Cost Marketing - Companies are using social networking sites to provide information on their products and services alsong with the business value it offers. This is one of the lowest cost to market your product and keeping the website updated. 

Social networking today, is a critical tool that most business heads use and continue to generate business in terms of both value and revenue.