In the recently concluded session of Parliament, while some important Bills got passed, others had to be sent to parliamentary committees for further scrutiny.
Some of the delayed Bills were termed as ‘game changers’ and the stock market indices reacted negatively. The Bills were passed in the Lok Sabha but were stalled in the Rajya Sabha since the government did not have the numbers. Politics played an important role in all this but there are genuine reasons why a reconsideration of the stalled Bills may be beneficial for the country.
A paper tiger Let us start with the so-called “Black Money Bill” passed with ease in both Houses of Parliament. No party wanted to be seen opposing it given the prevalent anti-corruption climate in the country. Since the Bill seeks to bring back illegally stashed wealth from abroad, opposing it would have appeared to be anti-national. It also passed easily because most realise that it will do little to bring back the ‘treasure’! The views of the high-profile activists from within the ranks of the Bharatiya Janata Party (BJP), Ram Jethmalani and Subramanian Swamy, make it clear that the Bill is a paper tiger.
It provides for stringent punishment of those Indians who hold undisclosed wealth and/or earn undisclosed incomes abroad. Excluded from its purview are Non-Resident Indians (NRI) who are genuine holders of wealth abroad and can earn incomes there. They are not obliged to declare their assets or incomes to Indian authorities. So, Indians who are moneyed, work out an arrangement with NRIs to hold their wealth and show their incomes through legal arrangements.
Further, the provisions of the Bill will be applicable only if the government is able to detect incomes and wealth held abroad. The Bill has no mechanism for doing so. Hence, the draconian punishment — a jail term and 300 per cent fine — can hardly be implemented. An amnesty scheme is being offered to come clean. There will be no punishment if one discloses the assets and incomes abroad in the specified period and pays the taxes within six months. Thus, the inexperienced ones who had held illegal wealth abroad in their own names and earned incomes on them would have a chance to come clean. The HSBC list revealed that some Indians who did take out funds in their own names have now got caught. The ‘experienced’ ones would not have made the mistake of holding funds in their own names.
The process of “layering” has been available for a long time. It hides a person’s identity by using shell companies in tax havens to transfer funds. It is no surprise then that the Swiss government revealed that Indians hold only Rs.14,000 crore in Swiss banks. This is mostly legitimate money, of Indians, and in their own names. The black wealth of most ‘experienced’ Indians would be parked there via shell companies in tax havens and hence not be counted as Indian money. The largest amount of money in Swiss banks belongs to the British since they own the largest number of tax havens.
The loophole of amnesty The Bill contains no mechanism to identify funds going out or being held abroad. The government argues repeatedly that it will get information via the Double Taxation Avoidance Agreement (DTAA) or Tax Information Exchange (TIE) agreement with a number of governments. However, these agreements have been in place for more than two decades; it is ironic that under them, there has been no information on black wealth holders. Further, these agreements are about the declared incomes of individuals and not about their undisclosed wealth or incomes. Hence, this argument does not hold water.
The Bill does hold out a threat that if anyone is caught, the penalties will be harsher than for those with black wealth detected in India. There may be a deterrent effect but since the brief of clever lawyers, chartered accountants and bankers is to devise ways to hide incomes, it can only be a losing battle. Thus, the most significant aspect of the Bill is the amnesty to those to come clean who may have made the mistake in the past of putting money in their own names. It is no wonder then that the Bill was passed in Parliament.
A blow against corruption Then, there is the Whistleblowers Bill, crucial in exposing rampant corruption in the country. While it is difficult for people outside to unearth corruption in institutions, insiders are often in the know and can reveal its extent provided they have protection under the act. But the amendments proposed will make action on complaints by whistle-blowers more difficult, and they can face prosecution. Together, both these will dissuade people with information from coming forward to expose wrongdoing. Is this the intention of the government? Corruption works to the disadvantage of the vast majority of Indians and if the amendments to the Whistleblowers Bill are passed, they will be the sufferers.
Affecting the small sector The introduction of Goods and Services Tax (GST) in the country is being promoted as the biggest tax reform in India and a game changer. It is supposed to provide a seamless unified market for business, raise GDP growth by 1 per cent, tax-GDP ratio by 2 per cent, reduce the cost of indigenous goods by around 10 per cent and lead to the consolidation of manufacturing to reap economies of scale. However, the Bill proposing the constitution amendment to enable the implementation of this reform has been sent to a parliamentary committee, thus delaying its implementation. The United Progressive Alliance, which introduced this idea, has now backtracked since it does not wish to give the BJP-led National Democratic Alliance (NDA) an advantage. Opposing it on genuine grounds are the manufacturing States that are worried about loss of revenue.
However, the real problem with GST in India is not being addressed by any of the political parties. India has a large, unorganised sector employing 93 per cent of the workforce. The small and tiny units under it produce locally and sell locally. The unified market sought to be created is of little help to them. Actually, they will lose as large-scale production gains. This will slow down employment generation and aggravate underemployment and distress in the farm sector. Excess labour in farming typically gets absorbed in the unorganised sector; if that sector declines, rural distress can only increase.
The small-scale sector that would be outside the GST net would not be able to sell to the large-scale sector because it would not have receipts for payment of Value Added Tax. Further, the unorganised sector cannot afford computerisation of accounts to calculate the value addition and pay tax on it. That is why it is kept outside the GST, but that would now be to its disadvantage.
Finally, there are contradictions in the argument being made for GST. The tax-GDP ratio can only rise if more tax is collected but then prices will rise leading to a slowdown in demand so that GDP growth rate cannot rise as claimed. Further, if the GST tax rate is not raised to the revenue neutral rate (RNR), then tax collection will fall and the tax-GDP ratio cannot rise. Thus, the macro-level story shows that either way, there is a contradiction in the government’s argument. It is for this reason that the States are right to worry about a potential loss of revenue. Clearly, GST is being introduced for the benefit of large businesses and would work against the interest of the small-scale sector and the majority in the country.
Marginalising the farmer The Land Acquisition Bill is also to further the interests of big businesses and a part of creating the “ease of doing business”. In the process, the land owning-farming community is being sought to be marginalised. Farming is not just work but also a way of life and when the village community — with all its drawbacks — is broken up, then people are forced to give up a way of life. Many migrate to urban areas with few assets, to an alien and polluted slum environment and suffer a deterioration in their living conditions. Should these people not have the right to be consulted? In the past, excess land has been acquired cheap and has become an investment for big business.
In Gurgaon, land was acquired by big developers in the 1980s and developed for commercial and residential purposes rather than for essential purposes. The developers got advance information and acquired large parcels of land at a cheap rate in connivance with politicians. In fact, a Chief Minister got over a lakh acres of land notified for acquisition. But for the fall of the government this would have gone through at the expense of the farmers.
In brief, the Land Bill and the introduction of GST will further marginalise the already marginalised. The Black Money Bill and the proposed amendment to the Whistleblowers Bill will together make the task of unearthing black incomes in India or abroad more difficult, in turn adding to the difficulties of the common man. When the NDA came to power, the Finance Minister had argued that being pro-business is not being anti-poor, but the government’s actions seem to contradict that.
(Arun Kumar is the Sukhamoy Chakravarty Chair Professor at the Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University.)
