Hafiz Saeed's expected release

Hafiz Saeed's expected release should not come as a surprise. What can the courts in Pakistan do, if their government did not pursue the matter seriously? Lakhvi, another key player who orchestrated the Mumbai attacks, was given all facilities in jail, including conjugal rights.

One needs to be reminded of the response of the then Foreign Secretary of Pakistan Mr. Salman Bashir, to our dossiers submitted. He trashed them as "piece of literature".

American and Israeli citizens were also targeted in those attacks, and now it is high time that we join efforts with Israel and US to isolate Pakistan globally on the issue of terrorism. Wonder, how long can Pakistan's chief patron China, keep shielding Pak based terrorists at the UNSC?

India needs to play a key back channel diplomacy in ensuring the relations between US and Iran are back on track. If that is accomplished, then India could facilitate the supplies to US troops in Afghanistan via Chabahar port in Iran, thereby effectively denting a key advantage which Pakistan has vis-a-vis US now, and that is, of providing routes via its soil for supplies to US troops in Afghanistan.

Demonetization Exercise

One can debate endlessly on the merits and demerits of demonetization exercise. The key factor would lie in having credible information on the jobs created in the informal sector, which was hit badly last year due to cash crunch.

The government must make all out efforts to identify those badly hit, extent of job losses, and dole out loans on soft terms to such entities so that they are able to stand back on their feet, with greater vigor and energy, besides creating many more jobs than what were lost.

Perhaps, the gains made by RBI via decrease in its liabilities on account of those notes which have not entered the banking system as yet, as well as from the unaccounted cash seized from various bank accounts or other sources, could part finance such an initiative.

SC Order on Dry Highways

Reference to order of the Hon'ble Supreme Court, which banned the sale of alcoholic beverages at establishments located within 500 meters of state and national highways, and included hotels, pubs and bars as well within its ambit, while allowing a partial modification reducing the limit to 220 meters in areas with a population of less than 20.000.

Some thoughts on above: :

a   1.  The said order from the Hon'ble Supreme Court court is based on the premise,  Drunk driving is a potent cause of fatalities and injuries in road accidents. The Constitution preserves and protects right to life as on over-arching constitutional value.

There can be no doubt about the validity of this premise by the bench of the Hon'ble Supreme Court, which delivered the said verdict yesterday. But then, can drunk driving not emanate from the residential units as well, situated along the prescribed limits off highways? Is there any empirical evidence to support the contention that only the impacted bars, pubs, and hotels located within such prescribed limits are responsible for drunk driving?

Secondly, should the resident guests in the impacted hotels, and guests in valet driven cars who visit such impacted bars, or pubs etc  not be permitted to consume liquor within such premises, as they do not cause drunk driving?

b   2. To quote from page no. 8 of today’s Hindustan Times (New Delhi/Metro edition): 
h     
       The  fresh ruling virtually rejected Attorney General Rohtagi’s legal opinion to Kerala and Haryana, that the verdict was not meant for restaurants, bars, and hotels.  “As the object of the direction is to prevent drunk driving, making any such relaxation will defeat its purpose”, the bench said.

But then, can’t drunk driving emanate from other bars, pubs, clubs, and hotels as well, which are off the prescribed limits, and do not come with the ambit of such prescribed limits as defined in the said judgement? Also, what about the residential units from where drunk driving can emanate, irrespective of where those are located?

It needs to be noted that as the Attorney General is the Chief Judicial Officer of the Union Government, his legal opinion to Kerala and Haryana, should represent the views of the Union Government as well.

In case of a clash between the Judiciary and the Executive, where interpretation of laws are concerned, the Executive can have an upper hand by promulgating an ordinance, to set aside the ruling of the Judiciary.

     

    3  To quote from page no. 8 of today’s Hindustan Times (New Delhi/Metro edition): 

       The Attorney General Mukul Rohtagi appearing for Tamil Nadu, argued that the order required rectification because the court had “transgressed its limitations” by interfering with the state’s right to prescribe distance. His argument, did not find favour with the court.

This implies that the Hon'ble Supreme Court has perhaps stepped on the rights of the states where this particular ruling is concerned. 

d  4. To quote from the front page of today’s Economic Times (New Delhi/Gurgaon edition),

      However, the bench did not relax the norm for hotels and restaurants, which risk losing their liquor licenses unless civic authorities re-designate highways as municipal roads.” As a parallel move, the state and the Union governments need to look afresh the existing highways, and evolve parameters to clearly define municipal roads and highways.  
     
          As a parallel move, the State and the Union governments need to look afresh the existing highways, and evolve parameters to clearly define municipal roads and highways.       

According to Google: 

A highway is a main road, or thoroughfare, such a street, boulevard, or parkway, available to the public for use for travel or transportation. The nature of public way is determinable from its origin, as well as the intention and plans of the appropriate authorities and the use to which it has been put.  If a particular road or highway is designated as private, its character will not be altered if it is actually a public road or a highway.

Private roads are intended for use by a few private individuals,as distinguished from highways that are for public use.      

                The said definition of Highway, if applied in the current ruling, would imply virtual prohibition in the country.

Trouble at Infosys

Just as we were coming to terms with the possibility, that the events at Tata group, which have been making news for all the wrong reasons since September last, were an aberration where corporate governance at such sanctified organizations are concerned, we were delivered with another bombshell today, through Economic Times.

The front page headline had an icon of IT industry, Shri N.R. Narayana Murthy, blasting the existing governance standards at Infosys, and fondly remembering the practices when he was at the helm of affairs.

Turning to another page in ET today, we saw another headline where Infosys CEO Vishal Sikka, telling his staff to " Ignore all speculation about governance." Then next to it, is yet another headline wherein the third largest institutional investor in Infosys, Oppenheimer Funds, openly backing Sikka, and has advising the non-executive founders that they need to come to grips with the reality that this is a public listed company, and no longer their firm.

Well, to begin with, before zeroing in on CEO Vishal Sikka, it is reasonable to expect that an organization like Infosys, which is a benchmark by itself in the IT sector, and highly respected internationally as well, had its procedures and standards to select a CEO well laid out and followed.

The board of directors too had their responsibilities well laid out and followed to ensure that the legacy of Infosys, which had been so painfully established over the past two decades had to be further strengthened, especially in face of the emerging challenges confronting the industry as a whole.

If there have been questionable practices with regard to compensation such as the 100% variable component in severance pay, as claimed by Shri Murthy, then was this not addressed by him with the board of directors and CEO Sikka?

Without doubting the convictions of Shri Murthy on such sensitive issues, if the board of directors and CEO Sikka who are now running the show, have their strong convictions behind the same,then whose opinion should prevail? Certainly, those who are running he show.

But, if there is a genuine cause for concern at the existing culture at Infosys, then who is to take a call? Assuming that there is a commonality of interests between the current board of directors, CEO Sikka, and the founders who are now relegated to non-executive roles, is it unreasonable to expect that all they need to do is to come together to brainstorm the ideas, and arrive at a consensus on the future course of action, that best serves the brand image of Infosys?

Today's edition of Economic Times, has alerted us to a fact that the real challenge to 'Make in India' initiative, lies at the boardrooms of such iconic organizations like Tata group and Infosys.

Challenges Ahead for Mr. Chandrasekaran

Without doubting the credentials of the incoming Chairman of Tata Sons, Mr. Chandrasekaran, some thoughts that merit attention are:

a) He has spent his entire career so far in TCS, regarded as the 'cash cow' of Tata Sons. But the Tata empire ranges from 'salt to software' businesses. Would he not need to understand the complexities of each of these businesses, and how would he be bench-marking himself vis-a-vis the heads of each Tata company, where job knowledge is concerned?

b) Would the boards of each Tata company have sufficient autonomy to take bold business decisions, or would they be subservient to their holding company, that is Tata Sons?

c) Would any bold decision by the board of Tata Sons regarding any of its loss making company, be taken and implemented only after running the same through the board of the respective companies and its shareholders, or would be just forced upon the same?

d) How would he go about reviving the fortunes of Tata Steel, and Indian Hotels, without having to take bold measures such as selling off those businesses to groups that are just focused on such businesses, and are not a diversified conglomerate like the Tata group?

e) And above all, how would he perform the much needed balancing act, which perhaps his predecessor could not manage? And that is, balancing the expectations of the biggest stakeholder in Tata Sons, which is Tata Trusts on one hand, and the board of Tata Sons, along-with the boards of each constituent Tata companies?

The Contract Theory

Having majored in Economics in college, I took keen interest in the subject for which this year's Nobel Prize in Economics was awarded.

The Contract Theory, while highlighting the basic essentials of commercial transactions in our economic system, does not really fit well within the realm of Economic Sciences. It actually pertains to Law, for which there is no Nobel Prize.

Secondly, while contracts spell out the broad contours of a commercial relationship, yet the key factor governing lasting commercial relationships now, is relationships, which need to go beyond the 'ifs' and 'buts' as spelled out in contracts.

Thirdly, one of the key assumptions of Economic Theory is 'Rationality', that is, the key participants in an economic system, be it a consumer, or a producer/firm, etc try to maximize their utility (satisfaction), or profit etc. Now, while negotiating contracts, the entities in question may not be able to act rationally, but may have to compromise over a 'satisfying' outcome, as elaborated in the particular contract, due to factors such as hidden limitations of the entities concerned.

My objective here is just to highlight some other aspects of Contracts, and certainly not to challenge the decision of the learned jury, which decided the coveted Prize.

Goods and Services Tax – Some Thoughts

The Constitutional Amendment Bill enabling Goods and Services Tax (GST), which was passed by our Parliament, is indeed a milestone, as it truly represents the biggest economic reform post the economic liberalization of 1991.

The basic idea of ‘one country, one market, and one tax’ is now set to become  a reality.

That it would eventually see the light of the day is a foregone conclusion. But some thoughts that need to be considered are:

1. In the pristine world of textbooks unsullied by demands of politics, a good tax rate is one that is low and covers the widest possible base. However, states have already negotiated for a number of exemptions on items such as petroleum, electricity duties, alcohol, and on stamp duties on property.

One way of looking at it is that let the process begin, and gradually, as benefits of GST become visible to all the stakeholders, such exemptions can be gradually withdrawn and brought under the fold of GST. But, a reality of Indian states is that, the development needs and the financing needs vary from states to state. Local levies on alcohol, petroleum, electricity, and stamp duties on property are among the common sources of revenue for the states. The challenge of eventually financing the development needs only with the resource mobilization through GST leaving central grants aside, would be a herculean one,

Furthermore, these are heavy hitters on revenue front, and excluding them from the taxable pool need not push up the rate that will ensure that the transition from the current to the new regime keeps revenues neutral. This is possible provided both the centre and the states, are transparent in the total revenues being currently realized from different categories of goods and services

2. Two case studies which have been quoted in the newspapers include that of New Zealand and Canada. New Zealand introduced GST in 1986 that followed the copy book model with low GST rate and minimum exemptions. This led to a quick pop in the GDP growth and revenue buoyancy. The other case study pertains to Canada which introduced GST in 1991, and was riddled with exemptions and riders. Canada saw a sustained dip in GDP growth right after that.

Our tryst with GST appears to be akin to the Canadian experiment, and it is only prudent for the GST council comprising of :  the Union Finance Minister (as Chairman),  the Union Minister of State in charge of Revenue or Finance, and the Minister in charge of Finance or Taxation or any other, nominated by each state government. to deliberate upon the Canadian experiment to iron out possible problem areas, which could have have a negative impact on our GDP in the initial phases. Similarly, it would also be worthwhile to identify the factors which contributed to the GDP growth in the case of New Zealand. One possible factor that comes to mind here is a robust structure and backbone to implement GST in its intended letter and spirit, backed by an equally robust administrative machinery that acted as a catalyst to facilitate  the ease of doing business  by reducing the number of disputes with private citizens and businesses to the extent possible. Thus they were left with more time and motivation to concentrate on their respective businesses, rather than devoting most of their energies in manipulating the system and disputes resolution,

3. Besides the fact that the Modi government would be facing the electorate in three years from now, the fact remains that currently we badly need to focus on employment generation via investments by the private sector. Hence, the GST rate structure initially has be such that facilitates such macro objective of the government. Revenue losses for the states will be compensated by the centre, and the Finance Minister will have to ask the states to take a leap of faith along-with him.

Now, assuming that there is complete transparency by the states in declaring their revenue losses, and the Centre with all its noble intentions decides to compensate the states in their revenue losses, then what are the sources of finance available to it besides the collections from the GST? Furthermore, what would be the relevance of the Finance Commission? This commission acts as an instrument to divide proceeds of divisible taxes between the states and the Union government, or in cases of taxes that are collected by the centre but the proceeds of which are allocated between the states, to determine the principles of such allocation,

4. To quote Swaminomics which appeared in Times of India dated 7^th August, “ Trucks in India average just 270 kms a day against 800 kms a day in the US, because of check-post delays at the borders, and GST could slash these. Economic optimists hope GDP will improve by over Rs. 100,000 crores.” 

Removal of delays at the check-posts due to the implementation of GST can certainly lead to quicker turnaround times for order fulfillments, but this would be only one of the key factors in improving the GDP by a phenomenal Rs. 1 lakh crores. The other key factors would be the overall macro environment of the country, speedier decision making not only at the political level, but also at the bureaucratic level to translate the vision of the political leadership to reality without any dilution,                

5. Then to quote Swaminomics again, “The slogan ‘one India, one tax, and market’ sounds terrific but may mislead non-experts. GST does not provide for one rate across India. Different committees have suggested different tax bands for different sets of goods and services. Chief Economic Advisor Arvind Subramanian headed one such committee, which suggested four tax bands – zero for essentials, 12% for merit items, 17-18% as the standard rate for other items, and 40% for luxuries. The GST council could set completely different bands. Besides alcohol and petroleum products are outside GST with each state free to set its own rate.                                                                

                                                                   

While it is expected that the committee headed by the Chief Economic Advisor has indeed deliberated upon the definitions of “essentials, merit items, and luxuries”, besides specifying the various goods and services which would fall  in each of these categories, it is up-to the GST Council to arrive at a unanimity on the same,

6. To quote another eminent personality Swapan Dasgupta in Times of India dated 7^th August, “Politically however, the suggestion that this will force the pace of economic centralization is a half truth. In his speech, finance minister Jaitley referred to “pooled sovereignty”. What these catchy phrase implies is that both the centre and the states have agreed to shed some of their own sovereign powers over revenue mobilization. However, both entities have simultaneously acquired exta-territorial rights. Once GST comes into force, the Centre’s rights to determine the rate of national taxes will cease to be absolute. The proposed GST Council, in which the states together have two- thirds voting rights, will now have a direct say in the rates of taxation. In effect, this implies that the states have a potential veto on the centre’s powers of taxation.”

The keyword above is “potential veto”because notwithstanding the two-thirds voting rights, the scale in GST Council can tilt in favor of the Centre, if more than half of our states are ruled by the coalition partners which are part of the central government

7. To quote Swapan Dasgupta again, “Once the GST rate is set, then changing it would be a herculean task. This would imply that Union Budgets from 2018 onwards would lose the paramount importance they now enjoy. The FMs principal task would be reduced to determining the pattern of government expenditure. Revenue generation would be by and large run on on auto.”

Now, would the revenue and fiscal deficit be well under control? Perhaps, alongside it would make sense for the Union Government to introduce Zero based budgeting, where each expenditure made in the previous budget is evaluated in terms of the outcomes. Going further, ahead, it would make more sense for the Union Government to undertake a mid year review of all major expenditures earmarked in the budget to determine if the same needs to be continued or the resources need to be reallocated elsewhere.

8.  And finally, GST covers only the indirect taxes. Would that leave the direct taxes vulnerable to the whims and fancies of the Union Finance Ministers to indulge in populism as the general elections draw near?

But notwithstanding these thoughts, there can be no doubt about the fact that the idea of ‘one country, one market, and one tax’ was long overdue, and our respected parliamentarians cutting across their respective political affiliations, certainly deserve a standing ovation from all of us, to have undertaken the first major step in enabling its realization.

Now, one can count upon other key stakeholders such as state assemblies to ratify the same at the earliest, so that the intended deadline of 1^st April 2017 can be met.

Yes, teething troubles post 1^st April 2017, are only to be expected, but nothing can come in way of a steely resolve by all to meet such challenges and ensuring that India is a role model where GST implementation is concerned.