Tag Archives: India

Circa 2019?

It is already May 2017 and exactly 3 years in to the new regime. Another 2 years to go when the country will be ready again to witness the ritual of selecting the Government at the centre. Whether BJP and Modi was able to fulfil the promises that they had made to the larger public or whether it was just a seasoned politician canvassing or perhaps was it bluster of an extremely confident and knowledgable man, it is a point that was being, is being and will be debated. Another important aspect that will come up for discussion in the various debates in numerous channels will be – Will he get the mandate in 2019? It is anybody’s call but there is something that has a good chance of happening, which is well within the Government’s purview if not the outcome of the elections i.e. when the elections are called. There is a good chance that it will not be a 2019 mandate but more of a May-August 2018 mandate. In all probability, BJP might look to advance the elections by a good 9-12 months. Why would BJP do such a thing? Why advance the elections by a good year or so? More so, when there has been a recent example of what happened to Theresa May and her party’s poor performance at the hustings?
First and foremost, the polity in India is such that whenever the incumbent is looking to get re-elected, it necessarily tends to fall in the abyss of appeasement. It is a foregone conclusion that the Government in power is expected to bring out doles in the form of tax sops, subsidies, loan waivers, favourable policies etc in order to woo the larger public. In effect, the Government in power gets transformed to lame duck, by default, for the last year, running up towards the elections. Knowing Modi and his aversion for benefit-spraying he will look to pre-empt this idea of being a lame duck. Modi comes across a person who doesn’t believe in being passive with issues and looks to take problems head on. Additionally, it just doesn’t suit the personality of a no-nonsense strong leadership to recede being in a lame-duck environment. Thus, by advancing the elections by a good year and by springing a surprise on everybody, he and others in the Government will be able to do their job.
There is another upshot of this idea. It is a clear as daylight that the opposition doesn’t stand a chance in the General Elections, if they fight separately. If the opposition were to fight under separate banners, it is without doubt BJP’s elections to lose. But, if the opposition were to unite under a single banner, then there is a good chance they might put up a stiff resistance to the BJP juggernaut never mind the thought of who will head the Government, if at all and when they are likely to get a majority. This ‘bringing together’ of the opposition would require a lot of prep-work, as there are some very many egotistical, fief-holders in the fray, who just cannot stand each other i.e. Congress can’t stand AAP, BSP and SP can’t see eye to eye and Trinamool and CPI will necessarily look to be on the opposite sides of the political spectrum. Thus, to bring such diverse and diametrically opposite personalities together will require a fair bit of time. A lot of time would be required perhaps to firm up the PM candidate – Will Rahul Gandhi fit the bill? If somebody else gets more seats then will Congress have the upper hand? So on and so forth. Alternatively, it works in BJP’s favour if the opposition remains opposed to each other. The opposition fights against each other, the votes get divided and BJP candidate goes through. By advancing the elections, BJP would again pre-empt this possibility. When the opposition is still sussing each other out – perhaps a year earlier to May 2019 – to form coalitions, BJP might just drop the General Elections bomb. The kind of personalities, acrimony and issues that the opposition has within itself would be difficult to overcome in a short span of time.
Lastly but definitely not the least of the reasons is that whenever a Government is looking to get re-elected, it tends to get on the defensive. So, if an incumbent is looking to get re-elected close to the re-election date i.e. May 2019, the narrative that the opposition tends to arrange is that of – What has the government done? Has the common man’s life improved? Are the citizens better of? Consequently, the narrative from the incumbent is in the defensive tone i.e. looking to answer most of the questions that are put through. But if an elected incumbent is looking to advance the election, it somehow is able to set a narrative around which the election can be fought. An assertive narrative of accomplishments, issues management, non-corruption etc can be arranged which then the opposition will have to counter. It is clearly pre-empting and turning the tables, so to speak in the narrative that gets out to the common man. It also tends to put the incumbent or perhaps creates a perception of the incumbent on a sure footing. A view that the incumbent can express is that why would they advance if they were so afraid to lose the elections. The act would also burnish the leadership qualities of Modi as an assured and a confident leader.
So perhaps, instead of a Circa 2019, it would well be a 2018 General Elections year.

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Act II – Money Legally Laundered – Distribution of Wealth

So this is a corollary to the earlier post ‘ Money Legally Laundered’.

So what will the Government of India do with the such a big booty that they have received due to the stashed black money that would be extinguished (in all probability we are looking at a figure of around 3 lac crores).

The best scenario that comes to mind and am quite sure more than a few of experts are also thinking on those lines – remit the amount directly to the bank accounts of the poor. This is truly the plank on which Modi had fought the General Elections in 2014 – the fact that there is so much of black money sloshing around in the system and if he comes to power, each Indian will have around 15,000 in his bank account. Well, now is the time to put one’s mouth where the money is, literally speaking.

Without doubt that was the reason why every poor person in the country was made to open Jan Dhan Accounts, perhaps this was the idea to crimp the rich off his black money and seed it to the Jan Dhan Accounts.

So as of 9th November 2016, there are near about 25,51,16,805 Jan Dhan Accounts that have been opened (according the Pradhan Mantri Jan Dhan Yojana website). Assuming that the Government gets a windfall of 3 lac crore (notwithstanding how does RBI transfer the amount to Government’s Statement of Accounts) it is highly likely that Narendra Modi is looking to seed each of these Jan Dhan Accounts with this windfall booty.

It is a great opportunity for him to walk his talk and put in some amount in to each of these Jan Dhan Accounts. Depending upon the amount that doesn’t come back to the system and needs to be extinguished, it is a goodish chance that a lion share of the amount, roughly around 2.5 lac crores, will be legally laundered and deposited in these accounts (round about 10,000 per account).

That is truly the levelling the playing field and being the consummate Robin Hood – pinching the rich and distributing in to the poor – the proverbial distribution of wealth, tried numerous times but hitherto never truly brought in to action ever.

Money Legally Laundered

November 8th, roughly around 8 pm, the Indian PM Narendra Modi is addressing the nation via the electronic media. The conversation is veering towards a general statement with the tone and manner of fighting corruption and the black money and bringing transparency in to the system. Most of us will admit that we have heard Mr. Modi speak about this and we are kind of used to the drift of the address – general statement, a bit of banality and nothing in specific. But then those statements were building up to the operative theme of his address – Rs. 500/Rs. 1,000 would cease to be legal tender from November 9th 12.00 am onwards. There were just 4 hours given to anybody who was a somebody to do what he can choose to.

These two currencies are estimated to make up about 85% of the entire cash in the system amounting to around 15 lac crores. By abolishing them, Mr. Modi had sucked out bulk of the cash from the system and the black marketeers or cash hoarders were left to fend for their ill-gotten wealth. It is estimated that in those 4 hours (so to speak) the amount of gold (jewellery or units) sold was much higher than what was sold on Dhanteras 2016. The ‘so to speak’ is essential since there would have been more than a few jewellers who would have sold their wares by back-dating the invoices. Now there have been numerous articles in the newspapers saying that this demonetisation is not going to help much since everybody who is anybody and has a stash of black money doesn’t necessarily keep it in paper. He invariably looks to hedge and pick up either real estate, foreign currency or gold. This might be true but then there is strong complementary benefit of demonetisation even though we are not able to get our hands on the supposed black money hoarders or their ‘invested’ stash. The biggest complementary benefit that would accrue to India is that the cash has come back home to issuer i.e. the money – black or white has come back to the system.

That is one hell of a complementary benefit for the action. Perhaps, the complementary benefit was the main reason why the action was taken in the first place. The Modi Government is well aware of the wherewithal of the black money hoarders and the ingenuity and ‘jugaad’ with which they would hanker to save their ill-gotten cash. So the main objective would never have been to net these black marketeers but to net the cash that is swishing around outside the formal system. So even if a black money hoarder bought gold on the 8th of November, the jeweller who chose to sell him will have to declare the money, since him not choosing to do so makes the cash he holds invalid and illegal and so is the case with a real estate developer. Let all and sundry accept the ‘illegal’ tender after the 8th of November, but it has to somewhere surface in the system in one form or the other or else it is just worthless piece of paper. It is a foregone conclusion that the Income Tax for the quarter till December is going to see a serious bump up.

Perhaps the black marketeer feels that he doesn’t want to buy gold and then look to carry the commodity on him (adding another dimension that will be discussed a bit later). He is confident enough to game the system and deposit the cash in the bank – either via money mules, mother/daughter deposit, extra sales in the on-going financial year or Jan Dhan Accounts – yet the complementary benefit holds true. The amount that was hitherto out of the formal system has come back to it. It is another issue whether the money was unaccounted for and the Government has the option of hounding the person and hauling him on live coals if he is detected. So, if we take a very conservative estimate of 20% being the unaccounted money (some experts estimate it to as big as 35-40%) of the total amount of 15 lac crores held in 500/1000 notes then we are looking at a figure of some where close to 3 lac crores. 3 lac crores or about more than 50% of the fiscal deficit of India for FY 2016-2017. There are a whole host of attendant benefits – the Government will have to borrow less thus not crowding out the private sector, has the wriggle room to spend more and to add to it there is the strong possibility of the banks reducing interest rates due to they being flush with money. Let us not even dwell on the fact that the liability side of RBI will be extinguished proportional to the amount of cash not returning back to the system and an equal amount could be transferred to the reserves and thus adding a hefty dividend to the Government. There are various opinions on the do’s and dont’s or the modality of this transaction and the most vociferous of that lot is a former FM who is supposedly trying to bring the negative view of other world central bankers if such a transaction were to take place. Anyways it is again a foregone conclusion that the Government of the day is going to use this bonanza to reduce it’s fiscal deficit – no two ways about it. There might be any form of balance sheet trickery or statement of accounts skull duggery that could be employed but the Government is going to take that money under its fold – let all economists or finance ministers or eminent personnel wail and cry foul as much as they want.

One more upshot of all this is and it is clear that the Government will not stop at this. There is more to follow. It is going to be a pincer attack on the black money – in all forms. There is going to be a crackdown on benami property transactions – it is already being touted as the next move by the PM. There is another aspect that is yet unfurled but could be in the offing. The Government in due course will come out with a notification that it will be mandatory to operate the bank lockers in the presence of a revenue officer or an IT person. There is a goodish chance that this will come out post 30th December when every body has had the chance of changing, depositing the old legal tender. Perhaps, a bit later around February/March 2017, when most of them have been lulled in to no action on the bank lockers front. All the black money that has been used to buy gold or has been bought up until now has to be accounted for somehow and that is the other dimension in purchasing gold that was spoken about earlier. A certain leeway on the amount of gold that a person holds would be allowed and for the rest, receipts and the income trail would be expected.

Thus, the black money crackdown is expected to come half circle i.e. cash, real estate and gold. The other half is of course the political funding that is hitherto unscrubbed and untouched. The PM did mention about state funding of elections but then it is to be seen if and ever such a move would take place.