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BCAS Practice Management Survey 2015

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I. Prologue:
The Infotech & 4i Committee of the BCAS conducted a first of its kind practice management survey during June 2015 amongst its members to provide vital data points to the members to benchmark themselves with their peers and to make an objective assessment of their own practice and how they can scale up their practice. The survey results have been also compared with similar survey in the US where feasible, for further insight.

II. Data:
This being the first ever survey, the response from the members has been inadequate. At the same time, most response have been meaningful. Given below is the tabulated summary and analysis of the responses. We hope that this will induce many more firms to participate next time around. Rounding off and approximations have been used wherever data was incoherent to make it comparable.

III. Findings:

1) We stratified the responses into four categories: Firms having 1 proprietor-3 partners, 4-6 partners, 7-9 partners and 10 or more partners.

2) The tabulation of the responses for firms in INDIA is given below:

If we look at firms in USA for a comparison, here is a snapshot from a survey conducted by Rosenberg Associates:

3) The analysis of the responses is given below:

a) Respondents for firms with 7-9 partners were very few, and their data is skewed. Example: Average net revenue of such firms is Rs.1.51 crore, whereas the average of firms with 4-6 partners is Rs.2.46 crore. It is possible that the above data may not be a true representation of the real world firms having 7-9 partners.

b) Size:
i) Gross fee per partner is showing an upward trend; where larger the firm, larger is the gross fee per partner.

ii) Similarly, net profit per partner is showing an upward trend.

iii) Net revenues of the firms is showing a healthy upward trend, commensurate to the size of the firm.

c) % to Net revenues: Staff compensation is 32% of the net revenues, overheads (S, G & A) is 21% of the net revenues and partner net income is 45% of the net revenues of the surveyed firm. The staff compensation average in US is 42% which indicates that US firms pay more to their staff than Indian firms. It also conversely means that in India, partners take home ratio is more than their counterparts in USA, which may further indicate that US firms employ more qualified resources.

d) Net revenues of firms at Rs.62 lakh for a 1 proprietor-3 partner firm when compared to Rs.2 crore.

When one looks at US firms, the smallest of the firms have average revenues of Rs.8.8 crore, with the larger firms averaging Rs.45 crore and more. The per partner fees start at Rs.3.5 crore and go above Rs.7.8 crore on an average. Even the net profit per partner averages Rs.1.27 crore and goes to Rs.2.4 crore and beyond for larger firms.

Even discounting for purchasing power parity and professional market adjustments (developed market in US vs. emerging market in India) , Indian firms have a lot of catch up to do. They can bill so much more and partners take home significantly higher than what they currently do.

This strengthens the case for niche practices, for concentrated efforts of specialising in service areas, for commanding higher fees and developing higher per partner revenues. This reinforces the argument that CA firms in India need to come together, consolidate operations and become full service firms with partners focusing on specific service areas and sub-service areas.

IV. Epilogue:

The Infotech and 4i Committee hopes that this survey will be useful to our members, to plan for the future.

Please send your feedback and suggestions to gm@bcasonline.org mentioning “BCAS Practice Management Survey 2015” in the subject line.

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CWG Seam 2010 – Criminal Justice System in India – 03-09-2015.

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Five years after the scandal-ridden 19th Commonwealth Games were staged, a court in Delhi has convicted five people.

The convictions—for causing a loss of Rs.1.42 crore to the government—are the first related to alleged financial improprieties amounting to several hundred crores of rupees in the conduct of the 2010 Games.

What is disturbing is the long time it has taken for the first convictions in a scandal that shamed India.

This is not the end of the journey through the justice system for the convicts: an appeals process that can take many more years will ensure that the last word on the case won’t be heard anytime soon.

India cannot overturn its legal traditions and laws and resort to Chinese-style corruption trials. But this is a moment for our lawmakers and the judiciary to introspect—without greatly simplifying the procedural aspects of criminal law, the system will remain geared to the advantage of wrongdoers.

(Source: Quick Edit in Mint dated 03-09-2015.)

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Raghuram Rajan’s ideas should inform public discourse and policymaking

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In an interview to ET, RBI governor Raghuram Rajan made some points that should inform the public discourse, besides policy-making. One, India’s economic situation is relatively robust and not particularly vulnerable to turbulence sweeping across the world from its epicentre in China. Two, creating strong institutions and flexible markets is the best way to absorb shock; it would be silly to turn our back on the world. Three, macroeconomic stability, functional hedging mechanisms and their adoption by economic agents are the best guarantee of avoiding currency shocks. Four, sectoral remedies run the risk of shifting rather than solving a problem. Five, while fears in certain quarters about a secular stagnation across the world might be exaggerated, India should use their negative effect on commodity prices to consolidate its war on inflation and vanquish it.

While not totally ruling out an interest rate response to economic woes, Rajan’s preference is to kill inflation expectations rather than to prop up growth with negative rates of interest. He points to the quandary of those central bankers whose policy rates are already close to zero and cannot use rate cuts to boost growth to argue that the stimulus to growth has to come from other quarters. Introducing GST, labour reform and removing the obligation on mills to make 40% of the yarn they produce as hanks for use on handlooms are examples of such other boosts that he did not mention. And raising productivity is the surest response, as he argues, to the increased competition arising from imports made cheaper by a depreciating yuan. Rajan did not dwell on the added downward pressure on the rupee that would be exerted by an interestrate cut and the burden this would place on the economy.

What Rajan says is perfect economic sense. The trouble is to align this with political sense for those who have to worry about winning elections. This is possible when economic sense permeates the public discourse, so that political leaders find the courage to argue for it, even at the expense of short-term pain.

(Source: Editorial in The Economic Times dated 28-08-2015.)

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Being human: Will technology mean the end of work? That could be a good or a bad thing

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“If the shuttle would weave and the plectrum touch the lyre without a hand to guide them, chief workmen would not want servants, nor masters slaves” – that was Aristotle, anticipating a pleasant future of self-operating lutes and looms. That is a vision we have always nurtured. But with each big leap in technological progress, we have also worried about the economic and social disruption it could set off, the efficiency of machines and the impending obsolescence of being human.

With the digital revolution and its promise of self-driving cars, robots, machine intelligence and an Internet of Things, there is legitimate reason to worry about a jobless future. A recent Oxford study that analysed over 700 occupations concluded that 47% of these jobs – including in transport, logistics, office administration – could be automated out of existence in the coming decade. The advocates of tech claim that new opportunities are constantly being created. But what if they are wrong?

Tech entrepreneur Vivek Wadhwa is among the pessimists. He believes we are looking at a future where millions are permanently unemployed. This could be a dystopian future, with a tiny tech elite operating the machinery of civilisation while everybody else is dirt poor. Or it could be an arcadian one if, let us say, the government guarantees an income to everyone and we are liberated from the compulsion of having to slave away at work. In such a world work would be like a philanthropic vocation – engaged in only by those who have a yen for it. They might have de-addiction centres for workaholics even as the rest of us cultivate our hobbies. Don’t hand over everything to the machines, though. Masters may not require slaves but we could all be slaves of machines – which Aristotle did not reckon into his pretty picture.

(Source: Editorial in The Times Of India dated 23-07-2015.)

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Miles to go – Doing Business in India report card a much-needed reality check

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The business leaders, who met Prime Minister Narendra Modi last week,
would have been well served had the report entitled “Assessment of State
Implementation of Business Reforms” been released ahead of the meeting.
This exercise, conducted by the Department for Industrial Promotion and
Policy in collaboration with multilateral agencies, revealed in stark
terms the distance India’s states have to travel to create
business-friendly environments. The Centre deserves credit for
conceiving an exercise that highlights the gravity of the problem. That
India is a tough place to do business is no secret; it ranks 142 out of
189 in the World Bank’s Doing Business report of 2015. The Prime
Minister wants to place India within the top 50, and he has leveraged
his chief ministerial experience to convey the message that the
solutions for achieving this do not lie on Raisina Hill alone – the
states have to pull their weight. In a system as argumentative as
India’s it is to his administration’s credit that it managed to get the
states to agree on an exhaustive 98-point action plan last December to
improve the regulatory framework for doing business nationwide. India’s
disparate federation must become a united stakeholder in economic
reform.

It is noteworthy that National Democratic Alliance-ruled
or -allied states topped the overall results. But more pertinent is
that in terms of implementation of the 98-point action plan, no state
made it above 75 per cent, to qualify as a leader, and only seven states
made it to the “aspiring leader” category with scores between 50 and 75
per cent. The worrying factor is the 16 states that were grouped under
“Jump Start Needed” (no surprise, they cover Jammu & Kashmir and the
north-east). Worse, of the eight parameters, the highest score in three
is below 75 per cent. And in enforcing contracts, one of the key
concerns of any investor, the highest score is 55 per cent. The granular
nature of the action plan, grouped under eight broad parameters,
reveals the serious and basic nature of these gaps – more so since they
allow for none of the old alibis regarding step-motherly treatment from
the Centre. For instance, it is striking that no state has a full list
of all the licences, no-objection certificates and registrations
required by a business to set up and operate. Indeed, even states with
high growth rates, such as Maharashtra, cannot claim to offer great
business environments – Gujarat, for instance, scores just 33.3 per cent
in enforcing contracts, on par with Chhattisgarh.

The report is
right to acknowledge it does not take user opinion into account. Much
of the data underlying the indices are shallow, in the sense that
several of them focus on indicators that are not sufficiently
representative of the real problems hampering business. There is no
replacement, thus, for a comprehensive survey of the actual impediments
to business, and not just those reported by state governments. Including
some information on human development indicators – education,
availability of good schools and hospitals and so on – would have also
served as practical information for investors. Overall, however, it
represents a sensible beginning on the implementation of reform and
cooperative federalism.

(Source: Editorial in the Business Standard dated 16-09-2015.)

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Inflated Grades, Deflated Education

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College cutoffs are going up but our standing in innovation is going down.

There was a time when scoring 65% meant you were brilliant, and if you touched 70% then Einstein had better watch out! But today anything short of 100% in Higher Secondary does not guarantee admission to a department of choice in Delhi’s top colleges.

In economics, the GDP deflator is used to assess the imdipankapact of inflation on the pricing of goods and services. But what kind of deflator do we need to make sense of grade inflation in high school results?

Scoring 99% in English, once considered impossible, is not uncommon today. The question, therefore, is whether our kids are getting more skilled and more competitive, or whether awarding high marks is a clever way of concealing poor education.

It is comforting to imagine that India is intellectually rising because our school grades are getting better every year. However, all indications show that the reverse is actually true. While at one end, college cut offs keep going up, our international standing in science, technology and innovation keeps going down. In other words, scoring high marks does not necessarily mean learning well, at least in India.

Over the years our students are getting better and better grades on paper, but have these brilliant performances helped to push up our knowledge levels? According to the 2014 Global Innovation Index, 81% of patent applications are from China, the US, Japan, South Korea and the EU. While America leads in computer systems, South Korea has emerged as the new kid on the block. It has overwhelmed all of Europe and ranks second to the US in this very high-tech sphere.

But where is India? In terms of patent applications we cannot match up to any of the world leaders in the field. Curiously enough, patents submitted by Indians abroad are more in number than those that originate in our country. Once again, education here seems to have contributed little.

Worse, our school children fare very poorly when it comes to skills in reading, writing, mathematics and science. Globally we now stand 62nd on this measure, well behind even Jordan and Armenia.

It is bad manners to go on and on, but our famed IITs do not figure among the top 300 institutions of higher education in the world. There is so much pressure in India to win a place in these engineering colleges, so much envy against those who make the grade, yet globally these institutions are minor players.

It is not as if western universities are always on top. Peking University occupies the 48th position, Tsinghua the 49th and even lowly Fudan University, at rank number 193, is way above our best.

The reason why a grade deflator does not work like a GDP deflator does is because the quality of the product that is being accounted for is not the same. True, more and more students are getting higher and higher marks, but the standard of education is going in the opposite direction. There was a time when a first class meant something and one wore that distinction like a badge of honour. But today, those with 60% would happily throw a party if a lowly vocational school lets them in.

The principal reason for grade inflation in school results is the way teachers have traded in their sense of responsibility for comfort. Consequently, question papers have become more and more objective and the right answers are actually screaming in your face. At times it comes down to the presence of a certain word, or sentence, in an answer for a student to max the question.

On the other hand, if you try and be creative, your grades could slide all the way down. Examiners, in the main, do not want to be bothered by reading something new in the answer scripts. Listen up, people; tick the right boxes, say the right thing, take your marks and run.

It is not as if everybody is happy about this outcome; some teachers are actually chafing at the bit. Yet, the educational system is structured such that taking responsibility for quality teaching and marking can become job threatening. All of this suits mediocre instructors excellently; as long as the grades are good, there is little scrutiny and everybody is happy. The more generous the system of marking, the less pressure there is on teachers to perform.

It is not as if such an affliction only attacks schools. Even universities and institutions of higher education happily inflate grades. This is one of the reasons why good school teachers and professors are driven out by bad ones.

In some post graduate departments, it is hard for a student to score below a B plus. This depresses the urge to learn for high grades are like low hanging fruit. Is it surprising then that good marks at home are accompanied by poor performance on the world stage? So when our Higher Secondary grades climb even higher next year, and in every subsequent year, be prepared for a proportionate fall in educational standards.

But how high can these marks go? If 100% is not such a big deal any longer then will we see 105% soon? Or, perhaps even 110% before long?

(Source: Article by Mr. Dipankar Gupta in The Times Of India dated 22-06-2015. The writer is a social scientist.)

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Digital India – Wanted: A CTO for GoI.

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Digital India can be the prime mover to making a reality of this government’s promise of minimum government, maximum governance. Such a transformation requires technology to be firmly embedded into government, something that the Digital India project lists as one of its foremost objectives.

Embedding technology into governance processes will do three things: one, transform government and make it more transparent and efficient; two, transform the lives of citizens, especially those at the bottom of proverbial pyramid; three, make our economy more efficient and competitive. A 2014 McKinsey Global Institute report predicts that the large-scale adaptation of technology through Digital India positions India with the biggest opportunity yet to accelerate economic growth.

E-governance and technology in government is not a new idea. This has evolved over years from replacing typewriters with PCs and the process of ‘computerisation’ to a more complex, multi-functional, department-wide application of the concept. However, despite thousands of crores of rupees spent in the last decade in the name of e-governance and efficiency, there has been little change in government as a consequence of these investments.

This is because the process of embedding technology in government has been a bottom-up process. Individual departments and offices are undertaking this independent of each other. Thus, crores are being spent in systems and projects that are incompatible and don’t work with each other, defeating the purpose of e-governance.

Take the huge data collection exercises and databases. The Aadhaar database on biometrics has a different architecture and hardware from other similar large databases overseen by the finance and home ministries. Or the case of data servers and networks ” which have different security and architecture specifications in different departments ” leaving government agencies with differing levels of vulnerability to cyberattacks.

Further, embedding technology into limited silos makes data-driven, real-time analysis of governance and policy action impossible or, at best, inaccurate. This approach is also expensive and inefficient in terms of costs associated with procurement, obsolescence and administration. This silo-based or bottom-up approach to embedding tech also has another big failing: it doesn’t create the process reforms and efficiencies at the top-most levels of government decision-making where it is most required.

More mature democracies such as the US have beaten India in recognising the need for a chief technology officer (CTO ). President Barack Obama made this appointment a centre-point of his 2007 electoral campaign. Obama conceptualised the role of the CTO to be someone that would “focus on transparency” and ensure “that each arm of the federal government makes its records open and accessible as the e-Government Act requires”. India needs to take a similar approach and use this as a precedent while rolling out Digital India.

Government is a sum of various parts. Currently, some of these parts are efficient and technology-enabled while others are sub-optimally enabled or technologically bereft. So government’s efficiency as a whole is measured by its least efficient or least responsive departments, just as governments are known by their worst ministers and not their best.

A good CTO is essential to make the government function as a unified machinery that operates with consistent standards of efficiency, transparency and responsiveness. That is key to realising maximum governance, minimum government.

The focus of the CTO should be to design an architecture that achieves three broad goals: 1) enable easy, transparent access for citizens and business to and from government, 2) enable government departments to operate transparently and efficiently, 3) connect various departments to ensure that government and policymakers operate in a seamless, transparent, responsive and data-driven manner.

For this, the CTO should re-wire the government’s existing technology investment, connectivity and access mechanisms. The CTO can then help embed layers of applications, including security measures into the ecosystem that ensures that the government applies the same standards of responsiveness, transparency and access regardless of department, hierarchy or region. Creating such a standardised architecture will also save thousands of crores in procurement and administering efficiencies.

Digital India promises to ‘transform India into a digitallyempowered society and knowledge economy’. A CTO in the Modi government’s team can help the latter achieve its stated goals of minimum government, maximum governance.

(Source: Article by Mr. Rajeev Chandrasekhar, Rajya Sabha MP, in The Economic Times dated 03/07/2015.)

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Isn’t corruption everywhere?

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Auto union to protest against ‘test-track corruption’ on July 13
The auto union has alleged that there is large-scale corruption on the recalibration test tracks and has threatened a morcha to the legal metrology office in Bandra on 13th July in this connection.

Union leader Shashank Rao alleged that there were unscrupulous agents at the test tracks in the western suburbs, and they charged anywhere between Rs. 200 and Rs. 300 per driver to get the meters recalibrated. “We demand that such corrupt practices be nipped in the bud and the metrology controller should crack a whip on officials under whose connivance this is happening,” he said.

Legal metrology controller Sanjay Pandey said the allegations will be probed into and if he came across any unscrupulous agents, they will be handed over to the police.

Shobhaa De’s answer to question reported:
In the Times of India dated 05.07.2015

Q: Are all female political leaders in India corrupt?

We have been reading about four ladies who seem to have bent the rules recently.

A: No. No. No. Please don’t discriminate against Indian men! Gender equality is a matter of great national interest. Men cannot be left behind. We give equal opportunities to indulge in corruption to all politicians, on the basis of merit, not gender. Remember, we are a democracy.

Disproportionate Assets Cases:
Maharashtra ACB led by DG Praveen Dixit has found assets worth Rs. 7.97 crore till May this year in cases related to disproportionate assets.

The FIFA :
The FIFA corruption scandal escalated as one suspect told of World Cup bribes and another promised to reveal an ‘avalanche’ of secrets, including some about FIFA president Sepp Blatter. The storm went around the globe with South African police commencing an investigation into claims that money was paid to secure the 2010 World Cup.

Despite the best attempts of FIFA , the global governing body of soccer, to conduct its business without any real accountability, it has long been an open secret that the world’s most popular sport is also the most corrupt. On 27th May, the U.S. government charged 14 people, including nine current or former FIFA officials, with money laundering, racketeering and wire fraud.

Youth and Corruption:
The young are up against corruption. And they’re voicing it through social networking sites. This widespread anger at corruption finds a vent on the newly launched Facebook page of the state Anti-Corruption Bureau (ACB). Within six months of its launch, it has got 22,000 ‘likes’ and 68 people have come up with complaints of corruption on Facebook.

“Most importantly, among those who have commented and ‘liked’ are youngsters. While 30% of these are in the 18-24 age group, 44% are in the age group of 24-34 and only 13% of them are in the age group of 35-44 which shows that the young generation is more against corruption,” said director general of police (ACB) Praveen Dixit.

Dixit said that one can analyse the anger of the GenNext against corruption considering the number of people who have ‘liked’ and commented. He added that this is just the beginning and the number is expected to swell by the end of this year. Through Facebook, many members of the public are posting information of corruption in various departments. “Until now, 68 people have given information and complaints of corruption and one complaint on Facebook has turned into a FIR.” Added Dixit.

CALL to COMPLAIN:
To check corruption and embarrass offenders, ACB has launched a page on Facebook where it uploaded pictures of public servants accepting bribes. The page received 22,122 people likes.

If you wish to complain against corruption, call 24921212 or call ACB helpline numbers 1064 or 1800222021.

MANTRA against Corruption:
To check corruption, which threatens to affect the state’s Make-in-Maharashtra plans, government employees will be counseled to manage expenses within their salaries and not succumb to temptation.

The programme, which will cover all categories of state government employees, right from the Mantralaya officer to the taluka clerk and peon, will start in Nagpur this month and eventually spread across the state. The initiative is by the Maharashtra State Gazetted Officer’s Federation, an apex body of 70 government employee unions, which, despite the nomenclature, includes non-gazetted staff as well.

To ensure a graft-free state, government employees will be exhorted to:

  • Learn to meet expenses within salary
  • Work towards improving image by acting against redtapism, corruption and inefficiency
  • Not fall prey to ‘quick money and corrupt elements as they are damaging to one’s own, one’s family’s and the government’s reputation
  • Learn to do a good, legal side business involving family members if in need of money

Survey on bribery:
As many as 66% of businesses in the country believe that some form of bribery is acceptable, in spite of increased regulatory actions and public outcry against corruption, according to survey.

Around 80% believe that corruption is still wide-spread, with 52% saying offering gifts to win businesses is “justified to help a business survive”, 27% of the respondents justify cash payments, the survey on fraud and corruption by Ernst & Young said.

Interestingly, 35% of respondents also believe that “conformity to their organisation’s anti-bribery and anticorruption policies would harm their competitiveness in the market”.

Further, 57% said increased regulation “is augmenting challenges for the growth or success of their business”.

The survey team interviewed 3,800 people from 38 countries across Europe, the Middle East, India and Africa.

The findings revealed that 60% of Indian respondents agree that regulatory activity in their sector had a positive impact on ethical standards.

“The spurt of change being driven by regulators has undoubtedly made a positive impact on business environment,” said the survey.

P. Chidambaram writes:
Narendra Modi was most eloquent when he spoke on corruption and he warmed up to the subject, like no other, when it concerned the alleged corruption during the 10 years of the UPA government. The Prime Minister was the white knight on a silver steed who had come to Delhi to slay the demon of corruption. In his dictionary, “corruption” was a catch-all word that took within its fold impropriety, abuse of authority, conflict of interest, black money, bribes, disproportionate assets and virtually anything that carried a whiff of suspicion. In his book, anyone accused by the BJP of corruption was “presumed guilty until proven otherwise”.

Union Minister Venkaiah Naidu on the Lalit Modi controversy
Nobody is involved in corruption. No law has been flouted. No immoral activities have been undertaken by anyone in this government.

Power does not corrupt. Fear corrupts…..perhaps the fear of a loss of power.

—John Steinbeck
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Recent Developments in International Taxation

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Topic : Recent Developments in International Taxation

Speaker : M r. Pinakin Desai, Chartered Accountant

Date : 15th July, 2015

Venue : Jai Hind College Auditorium, Churchgate

Mr. Pinakin Desai commenced his talk by referring to the India-Mauritius DTAA and the fact that Mauritius has been quite popular among the Foreign Investors investing in India on account of the favourable provisions in the treaty. He mentioned that negotiations on India-Mauritius DTAA are under process and the renegotiated Treaty should be out in a couple of weeks’ time. There has been a lot of speculation around the changes which would be incorporated in the revised DTAA and looking at the same, he pointed out to a few provisions which could be a part of the new treaty. One such provision could be the insertion of LOB clause in the treaty. Other amendments could be on the lines of the India-Singapore DTAA which provides for an expenditure test for demonstrating commercial substance, a provision for insertion of a grandfather clause in regard to investments made prior to 2017. He then invited the attention to a news article which mentioned that under the revised DTAA , short term capital gains would be subject to capital gains tax under Income-tax Act, 1961.

The Speaker then commented upon the cumbersome reporting requirements contained in the amended section 195(6) of the ITA . Section 195(1) contains tax withholding obligations in case of payments made to a non-resident, provided the sum is chargeable to tax under ITA , whereas section 195(6) states that, irrespective of the sum being chargeable to tax, the person responsible for paying to a non-resident should furnish information about the same. The Speaker stressed upon the intention of the Income Tax Department of the amended section 195(6) which was to secure information about every remittance made outside India. The Speaker mentioned that though section 195(6) talks about all payments, whether chargeable to tax or not, provisions contained in Rule 37BB, the relevant rule for section 195(6), continues to talk about furnishing of information only relating to payments which are chargeable to tax under ITA . This has led to an anomalous situation and different views are taken by remitters. He mentioned that till new Rules are notified in this regard, problems would continue. However in his view, Form 15CB need to be obtained only in cases where income was chargeable to tax as mentioned in Rule 37BB and not for all remittances.

Mr. Pinakin Desai then dwelt on the provisions of the new Black Money Act and its far reaching implications. He cited a simple illustration wherein Mr. Kumar, an NRI, who was away for 5 years, comes back to India, and is now a Resident and Ordinarily Resident. While a non-resident, he claims to have acquired significant assets outside India and from FY 2015-16, Kumar will offer income from overseas assets to tax in India. Provisions of the Black Money Act empower an Assessing Officer to bring an undisclosed foreign asset to tax on the basis of FMV valuation in the year in which he receives information as to the ownership of the asset. Now in such a scenario, Mr. Kumar can have serious difficulties, if he has no records or evidence to correlate the source of investment with the items of investment.

The speaker then raised concerns about the impact of the Black Money Act on discretionary trusts set up outside India. In case of non-resident discretionary trusts where either the settlor or the trustees or the beneficiary is a Resident & Ordinarily Resident, provisions of BMA could apply. In case the Settlor is Resident in India, a question could arise as to whether he is under an obligation to make disclosures in his tax returns in relation to assets settled upon the discretionary trust set up outside India.The answer to this is possibly a ‘yes’. However, the Speaker further raised a question that, would the disclosure be required merely in the first year in which the Settlor is settling the property upon the trust or would the disclosure be required on a recurring basis in subsequent years? The Speaker discussed another scenario wherein the trustee of the discretionary trust is a ROR whereas the Settlor and the beneficiaries are non-residents. In this case too, the Speaker was of the view that the Trustee would be under an obligation to make disclosures in the tax returns since he is the holder of the assets on behalf of the beneficiaries. The speaker then referred to a person being ROR in India and is a beneficiary of the discretionary trust set up outside India. Highlighting the definition of the term ‘beneficiary’ as a person deriving benefit during the year, the Speaker commented that the beneficiary may not be required to make disclosure in this regard if he has not derived any benefit from the trust during the year.

The Speaker then drew attention to the disclosure requirements in the tax returns in case of an assessee holding a financial interest in an entity outside India. The Speaker raised a concern as to whether a beneficiary of a discretionary trust set up outside India, could be said to have a financial interest in that trust. In this regard, the Speaker was of the view that a beneficiary of a trust is merely a chance beneficiary depending upon the discretion of the trustees, and his right to the benefits of the trusts are not enforceable, and thus he may not be said to have a financial interest in the trust.

Thereafter, the Speaker commented upon applicability of BMA Act to expatriates in India. Referring to the FA Qs released by CBDT on Clarifications on Tax Compliance for Undisclosed Foreign Income and Assets, he mentioned that the expatriates who have come to India on a Student Visa, Business Visa or an Employment Visa, have been given a concession from reporting requirements in regard to assets situated outside India which do not yield any income, for example, a residential house which is not let out. However, no concession is granted to assets located outside India which yield income which is taxable under the ITA , for example, bank account or any other security yielding interest income. The Speaker raised a concern that if the spouse or the children accompany the expatriate to India, who do not come on a Student Visa or a Business Visa or an Employment Visa, theoretically no concession is available to them.

Thereafter, the Speaker discussed a few case studies relating to indirect transfers of capital assets read in conjunction with Circular 04/2015 issued by CBDT. By referring to the case studies, the Speaker conveyed that declaration of dividend by a foreign company outside India does not have the effect of transfer of any underlying assets located in India. The Circular 04/2015 has clarified that the dividends declared and paid by a foreign company outside India in respect of shares which derive their value substantially from assets situated in India would not be deemed to be income accruing or arising in India by virtue of section 9(1)(i) of ITA . The Speaker also cited an illustration highlighting the intricacies on determining the ‘Specified Date’ on which the value of a share deriving its value from assets located in India is computed.

The Speaker threw light upon deemed international transactions u/s. 92B(2). Referring to an illustration, the Speaker explained the provisions contained in section 92B(2) whereby a transaction between an enterprise with a person other than an associated enterprise would be deemed to be an international transaction if the terms and conditions of such a transaction are settled by the enterprise with its Associated Enterprise, where the enterprise or the associated enterprise or both of them are non-residents, irrespective of whether such other person is a non-resident or not.

The Speaker then shared his views on Corporate Residency in view of the amendment made by the Finance Act 2015. He mentioned that since many years, the test to determine the residential status of a Company in India was quite liberal and hence if some management decisions were taken outside India or if some directors were situated outside India, the Company was classified as a Non Resident. This had facilitated formation of shell companies which were effectively managed from India, however classified as Non Resident. To put an end to such practices, the Income Tax department has introduced the concept of ‘Place of Effective Management’ (POEM) as the test to determine the residential status of a Company. He mentioned that POEM is situated at the place where key commercial and management decisions of the Company are taken. He further mentioned that for a decision to be a key commercial or management, one would really have to look into the substance of the decision, the regularity at which the decisions are taken and the persons who are effectively making the decisions.

The Speaker then threw light on the various consequences which a Company might face if its POEM is in India. This would include taxation of its global income at the higher tax rate of 40% plus surcharge and education cess, obligation to withhold taxes u/s. 195 in respect of chargeable amounts, applicability of transfer pricing provisions, non-applicability of beneficial provisions u/ss. 44BB, 44BBB, 44BBA, since they apply only in case of non-residents, applicability of provisions of Black Money Act, etc.

The Speaker commented that in case of a US Company becoming a resident of India on account of POEM being situated in India, then the benefits under India USA DTAA will be lost, since the tie breaker test in such a situation cannot be invoked under the treaty and further there could be questions as to whether foreign tax credit would be available in respect of the transactions of the Company.

He mentioned that exchange of information is likely to be very active and relevant in the days to come and the BEPS provisions would also be having an impact. Exchange of information, multi-lateral treaty, and awareness on the part of all the foreign governments with regard to curbing of tax avoidance is going to be the order of the day.

The meeting ended with a vote of thanks to the speaker.

REPRESENTATI ON TO CBDT ON E-FILI NG OF WEALTH -TAX RETU RNS FOR A.Y. 2015-16

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20th August 2015

To

The Chairperson,
Central Board of Direct Taxes,
Government of India,
North Block, Vijay Chowk,
New Delhi 110 001.

Respected Madam,

Re: REPRESENTATI ON TO CBDT ON E-FILI NG OF WEALTH -TAX RETU RNS FOR A.Y. 2015-16

Your kind attention is invited to Notification 32/2014 dated 23rd June, 2014 (F.No.143/1/2014-TPL) wherein it was notified that wealth-tax returns are to be filed electronically for all categories of wealth-tax assessees. In the said Notification, certain amendments had been made to the Wealth-tax Rules, 1957. In particular, Rule 3 was substituted by a new Rule. The amended sub Rules (2) and (3) of the said Rule 3 are reproduced below for ready reference:

(2) Subject to the provisions of sub-rule (3), for the assessment year 2014-15 and any other subsequent assessment year, the return of net wealth referred to in sub-rule (1) shall be furnished electronically under digital signature.

(3) In case of individual or Hindu undivided family to whom the provisions of section 44AB of the Income-tax Act, 1961(43 of 1961) are not applicable, the return of net wealth referred to in sub-rule (1) may be furnished for assessment year 2014-15 in a paper form.

It may be noted from the above that in case of individuals and HUFs where tax audit was not applicable, the wealthtax returns could be filed electronically without the Digital Signature (DSC) for A.Y. 2014-15. However, now, for filing the wealth-tax returns for A.Y. 2015-16, even for such wealth tax assessees, it would be necessary to obtain and use the DSC for filing the wealth-tax return.

Assessment Year 2015-16 is the last year for which the Wealth-tax Act, 1957 is applicable. Thereafter, the question of filing wealth–tax returns will not arise.

It will therefore be appreciated that several tax payers will be put to great hardship as they will need to obtain a DSC only for the purpose of uploading the wealth-tax return for one last year i.e. A.Y. 2015-16.

On behalf of the taxpaying community, it is therefore humbly requested that the Rule 3(3) of the Wealth-tax Rules, 1957 be amended suitably to provide that the wealth-tax returns of individuals and HUFs who are not subject to tax audits can be filed electronically without using the DSC.

An early action in the matter would be greatly appreciated as the last date for filing the returns i.e. 31st August is fast approaching.

Thanking you.
Yours truly,
For Bombay Chartered Accountants’ Society

Raman H. Jokhakar
President

Ameet N.Patel
Co-Chairman, Taxation Committee

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Something More (Kuchh Aur)

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Pending Court Cases:
1. 376,604 (upto June 2015) are Pending Court Cases under different Laws/Acts, in Hon’ble Bombay High Court including its branches at Nagpur, Aurangabad, Panji-Goa

Hon’ble High Court has written many letters to the Govt of Maharashtra (GOM) for creation of additional 867 courts of various cadres of Judges in the State of Maharashtra. Hon’ble High Court has also written to GoM about funds for recurring and non-recurring expenditure for the said 867 courts.

2. 29.51 lakh (upto June 2015) are Pending Court Cases in District Judiciary (District & Subordinate Courts).

2,072 is the Sanctioned Strength and 1,784 is actual working Strength of Judicial Officers as on 1.1.2015 in the State of Maharashtra.

Sanctioned & Actual Strength of Hon’ble Judges in Hon’ble Bombay High Court. 94 is the Sanctioned Strength and 65 is the actual working Strength of the Hon’ble Judges in the Hon’ble Bombay High Court.

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How to tackle radical Islam: India can learn from the frankness of political discourse in the West

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Prime Minister David Cameron delivered a remarkable speech in Birmingham outlining a stepped up government campaign against Islamist extremism. India could learn a thing or two from him on how to address a sensitive subject without either flinching from the truth or carelessly tarring an entire community.

To be sure, Britain’s problems with Islamism (the drive to order all aspects of the state and society by sharia law) do not exactly mirror India’s. Nor are the two countries’ experiences with terrorism, Islamism’s most violent and visible manifestation, identical. Nonetheless, in the age of Lashkar-e-Taiba and the Islamic State, all pluralistic democracies face a challenge from an ideology that Cameron characterises as “hostile to basic liberal values such as democracy, freedom and sexual equality”.

This raises important questions. Which principles of confronting Islamism are equally applicable to London and Lucknow, Paris and Patna, Boston and Bangalore? How might you apply Cameron’s observations – a broad distillation of sensible centre-right discourse in the West – to an Indian context?

To begin with, the distinction between the ideology of Islamism and the faith of Islam cannot be made often enough. Bluntly put, Islamism is an exclusivist dogma that threatens non-Muslims, heterodox Muslims and secular Muslims alike. Islam is one of the world’s major faiths, practised by 1.6 billion people, most of whom are moderate. In India, the Left refuses to acknowledge the Islamist threat. The Right often fails to distinguish between Islamists and ordinary Muslims less interested in resurrecting a Caliphate than in simply getting on with their daily lives.

It follows that legitimate concerns about Islamism should not become an excuse to condone the excesses of the Hindu far Right. A politician or public intellectual ought to be able to condemn both West Bengal’s craven expulsion of dissident writer Taslima Nasreen and the poisonous ravings of Pravin Togadia of the Vishwa Hindu Parishad. In Birmingham, Cameron likened Islamist extremists to his country’s “despicable far right”. In India, unfortunately, the line between the responsible Right and the despicable Right is often blurry.

This is not to suggest a mindless equivalence. Every faith may have its share of extremists, but you have to be either blind or a member of the CPM politburo to ignore that the Islamic world is especially in turmoil today. Neither Cameron nor Barack Obama nor François Hollande need fret about their Hindu or Buddhist or Jewish compatriots boarding a plane to blow themselves up on a distant battlefield in search of paradise.

This brings us to another simple principle: Ideas matter. In both the West and India, apologists for Islamist extremism attempt to explain it away by blaming colonialism or Western foreign policy or poverty. But they can’t explain why formerly colonised Burmese and Cambodians aren’t strapping on suicide vests. Or why Islamist terrorists first tried to destroy New York’s World Trade Center in 1993 – long before George W Bush invaded Iraq. Or why so many prominent terrorists, from multimillionaire Osama bin Laden to Germaneducated 9/11 ringleader Mohammed Atta, weren’t exactly underprivileged.

Beyond the obvious counterterrorism component, what might a deeper Indian response to Islamism look like? For starters, people need to start paying more attention to ideology than to individual acts of terror. It’s no coincidence that Jamaate- Islami – along with Egypt’s Muslim Brotherhood, one of the world’s two main conveyor belts of Sunni extremism – birthed the Students Islamic Movement of India, which in turn spawned Indian Mujahideen.

These groups may differ in tactics. But they are bound by a shared belief that Islam is not merely a religion, but a complete way of life spanning everything from marriage to banking to politics. Many modern Islamists have grudgingly come to terms with democracy as a means to an end, but they ultimately agree that God’s law (sharia) is superior to man’s law (legislation).

Viewed against this backdrop, India’s failure to reform Muslim personal law in the 1950s at the same time that it undertook a sweeping modernisation of Hindu laws governing marriage, inheritance and adoption, must count among the republic’s most consequential blunders. Western democracies can defend themselves by drawing a clear line in the sand between democratic liberalism and the medieval practices enshrined in sharia. In India, the state itself ensures that Muslims follow sharia in civil matters.

Historical blunders notwithstanding, the media can do a lot more to even the playing field between extremist and moderate voices. In sum, what Cameron calls “the struggle of our generation” isn’t confined to a Britain roiled by homegrown Islamist extremism. It’s a global phenomenon whose lessons apply as much to India as to any other democracy.

(Source: Extracts from an Article by Mr. Sadanand Dhume in The Times Of India dated 23-07-2015. The writer is a resident fellow at the American Enterprise Institute in Washington, DC)

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Regulatory Emergency – Why India must act to improve its regulators

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The Food Safety and Standards Authority of India, or FSSAI, which is India’s apex food safety regulator, has not covered itself with glory of late. Its order to withdraw Nestle’s Maggi noodles from India’s grocery shelves has come under a cloud for several reasons. There is little doubt that Nestle deserves to be criticised for the manner in which it chose to handle the situation. But it now appears that the company had already decided to recall Maggi, and this spurred the FSSAI to action before additional reports had come in. The regulator has thus given the impression of acting in a bid to send out a message about its strictness rather than due consideration. Worse, Maggi noodles have now been cleared not just by laboratories in Singapore and Britain but also by FSSAI-approved domestic laboratories. This imbroglio is the climax of a period in which the FSSAI has gone after various puzzling but headline-grabbing targets – such as the world-famous Australian wine brand, Jacob’s Creek, for supposedly including tartaric acid, which gained the regulator an acid reproof from the Bombay High Court for an “adversarial” attitude. “Statutory authorities”, added the Court while overruling the FSSAI in this case, “must act in a manner that is fair, transparent and with a proper application of mind”. Certainly, these strictures appear deserved in the case of the FSSAI.

But the Court’s opinion sadly extends to many other regulators. India’s pharmaceutical regulator is a case in point. Following several controversial reports about lax standards in Indian companies – several of which wound up being banned from developed-country markets – the drug controller simply said, in effect, that American standards could not be applied to Indian pharma, because no drug would then get passed. The automobile sector is no better; Europe’s regulators tested five new Indian small cars in 2014 and found none met the safety standards. But that doesn’t matter for regulation back home. Then there’s aviation; India may be one of the world’s largest and fastest-growing airline markets, but the US Federal Aviation Authority in 2014 downgraded safety standards to its equivalent of junk status – because, the FAA said, the Indian aviation regulator didn’t have enough people to inspect all the planes they were supposed to.

This is an emergency – a public health, public safety, and economic emergency. India is the third-largest economy in the world (measured by its gross domestic product in terms of purchasing power parity), but it has one of the most tattered regulatory structures globally. It has laws that are so strict on paper that they become unmanageable. Then there is the problem of unconscionably lax application of these laws, which leads to Maggi-style discretion and controversy. Worse, fixing this does not appear to be on the government or business agenda. Instead, both the Centre and India Inc defend India’s lax regulation. Acting on pressure from domestic companies, India did not even participate in negotiations for the second-generation Information Technology Agreement, or ITA -II, for fear that freer trade would hurt. It insists on data-secure status in Europe for Indian companies without legislating basic privacy rights at home. This reveals a short-sighted lack of ambition in the Indian private sector; unless they push for updated regulation, they will never grow and become global giants. And the government must think of consumers – who have the right to global standards, to Maggi and to safer cars.

(Source: Editorial in the Business Standard dated 11-08-2015.)

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The Indian Dream – We desire modernity, moderation, a middle-income and well-managed society

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Is there an India Dream?

This is what a Japanese executive asked me at a talk that I was giving on India. In the midst of what I thought was quite an informative discussion on the homeland, he said: “Thank you for telling us where India is today. But where does it want to be tomorrow? What is the India Dream?”

While scratching my head in search of an answer, what came to mind fairly quickly was Prime Minister Narendra Modi’s “Make in India” dream, which is the idea that India is open for business, especially manufacturing. The Modi dream is a good one. Without a solid manufacturing base, the Indian economy cannot generate enough jobs for its growing, aspiring population.

My Japanese interlocutor was not terribly impressed by this answer. In his view “Make in India” could not be the sum total of the India Dream.

Reflecting on the matter, I suggested that in addition ,Indians dreamed of a modern India, a moderate India, a middleincome India and a well-managed India. This seemed to satisfy him better.

To say that most Indians want a modern India is quite a claim in a country where there are so many remnants of the medieval: child marriage, the dowry system, female infanticide and neglect, honour killings, purdah, caste discrimination, anti-rationalism, quackery in medicine, superstition, khap fatwas, and on and on.

Yet there is one clear, discernible, modern value that is spreading unstoppably, and that is the yearning everywhere in India for education. If there is one quintessential feature of a modern society, it is the desire to have every child going to school. For the first time in Indian history, all Indians dream of being educated. This is the greatest hope of India.

Indians want modernity, but they also want moderation — in personal and in social life. As far as I know, historically, there is no body of thought in India that encourages personal excess. A moderate life is widely regarded as a good life.

Indians also want social moderation. They want moderation in their political institutions and practices. In Nehru’s “Idea of India”, moderation meant constitutionalism, socialism, secularism, pluralism and non-alignment. Today, all these words are regarded as old-fashioned and somewhat misguided. But the idea of moderation is still a powerful one, and no Indian leader should forget this if he or she wants to prosper.

Indians have more material dreams too. They dream of India as a middle-income country. Most Indians are quite realistic about what their government, business executives, workers, farmers, professionals, intellectuals and civil society organisations can deliver. They are also aware of the limits of the natural world around them. Deep down they know that a rich, first-world India is neither feasible nor desirable in the next 20-30 years (perhaps ever). The majority of Indians will settle for a middle-income country, a country of say Thailand’s or Brazil’s per capita income and general prosperity over the next quarter of a century. Today, Thailand’s per capita GDP in purchasing power parity terms is roughly three times that of India, Brazil’s is roughly four times.

Finally, Indians dream of a well-managed country. Modi’s victory in the last general elections was engineered on the promise of good governance. India was fed up with illconceived, corrupt, chaotic, rudderless governance. The Prime minister still has a strong sense that Indians want clean, purposeful, efficient and effective administration. Whether he can deliver, is the great challenge.

There is an India Dream. It is not Amit Shah’s notion of a strutting “Vishwa guru”. Most Indians hold to a different dream — of a modern, moderate, middle-income and well-managed India, taking its modest place in the international society.

(Source: Extracts from an Article by Mr. Kanti Bajpai in The Times OF India dated 18-07-2015.)

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Deflation – The new dread-word

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The new dread-word is deflation. Google the term and you find it occurring several times in The Economist, Wall Street Journal, Forbes and elsewhere. Lawrence Summers has contributed to the growing chorus with a powerful article this week in Financial Times. Deflation is the opposite of inflation, and we have seen it over the past year in oil, metals, agricultural commodities and many other products. This has given India relief because it is a net importer of oil and metals, but it has knocked down the economies of commodity-exporting nations like Russia and Brazil, while West Asian oil exporters like Saudi Arabia are sweating it out. Those are the early victims.

The fear that has grown is that Europe is slipping into Japanese-style deflation – long years of little or no growth, along with prices continuing to fall. In nominal dollar terms, Japan’s GDP now is smaller than it was in the mid- 1990s, despite marginal growth in real terms. Europe got the shivers this past week when German exports were reported to have plunged suddenly in August. Already, most European economies have lower GDP (in dollar terms) than they did before the financial crisis of 2008. So: two lost decades for Japan, and one for Europe. China is still growing at a good clip, but it is slowing and beset by troubles. Among the giant economies, that leaves the United States, and its economists are ringing alarm bells.

Sustained deflation causes reduced economic activity. As the world slows down, the International Monetary Fund has been steadily reducing its growth forecasts. India’s exports have already seen a fall through 2015. The textbook response to deflation is for central banks to push for economic expansion by reducing interest rates, while governments use the lower interest rates to borrow more and turn on the spending tap. That raises government debt, but if growth is kick-started the increased debt stays affordable. This may not work if interest rates are already close to zero (10-year government bonds are at 0.5 per cent in Japan and 0.6 per cent in Germany, compared to 7.5 per cent in India), so that no monetary stimulus can work. And since government debt has grown sharply since 2008, countries worry about future vulnerabilities if they pile up yet more government debt – but there may be no other option. These dilemmas and difficulties have stirred the fevered debate by leading western economists in leading publications.

What does this mean for India? Consumers have enjoyed cheaper petrol, diesel and cooking gas, so they aren’t complaining. But exports have been falling, and it might be difficult to reverse that in a slowing world economy. Farmers who produce agricultural goods for export (cotton and sugar, tobacco and tea) will earn less, and some will be in distress. The makers of cars, garments, engineering goods, polished diamonds and leather goods, not to mention handicrafts like hand-made carpets will face the same trouble – and see jobs at risk. Global deflation also means cheaper and therefore more imports of items like steel, which could threaten domestic producers. The government can respond by raising protective tariffs, but then we move away from an open, competitive economy. Meanwhile, domestic producers of oil and gas have less incentive to explore and develop new oil and gas fields – thereby increasing import dependence for energy. Troubled industries translate into bank loans not getting repaid, and therefore more trouble for banks: the hit in the steel sector is yet to fully show up on bank balance sheets. In other words, sustained deflation is not good news for India either. There is little that the country can do about the global situation, but it can get ready to cope better with what may be coming. That is by improving efficiency and competitiveness through more serious economic reform than has been attempted over the past year.

(Source: Weekend Ruminations by T. N. Ninan in the Business Standard dated 10-10-2015.)

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Going beyond quick fixes – RBI governor’s reminder appropriate and timely

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In delivering the Fourth C. K. Prahalad Memorial Lecture in Mumbai last week, Reserve Bank of India Governor Raghuram Rajan made a substantial case for a deliberate, cautious and integrated approach to sustainable growth. He referred to the need to put a number of building blocks in place before a robust take-off could occur. This approach requires patience, persistence and, most importantly, a holistic view of the large number of fronts on which constraints to growth had to be tackled. He concluded his lecture by expressing concerns about the widespread use of jugaad by Indian businesses, which by providing shortterm and quick-fix solutions to problems, took attention and focus away from more robust and durable solutions. He felt that, instead of relying on jugaad, the business environment had to be improved through better policies, regulatory frameworks and implementation.

Not surprisingly, the media coverage of this speech pushed much of its substance into the background and gave headlines and column centimetres to the point about jugaad. Over the past several years, this term has transformed from a pejorative expression to one which connotes praise and appreciation for the people and businesses practising it successfully. Rather than paying attention to long-term viability, businesses seem to be getting attention for patchwork solutions and workarounds. Case studies and books have been written on jugaad innovation and these are presumably finding their way into business school curricula as an essential requirement for business success in India. Against this backdrop, Dr Rajan’s speech comes as a significant and timely warning that the road to economic greatness is paved not with jugaad but with solid institutions that are both durable and flexible. It is only such institutions that will create a business environment, which rewards long-term strategic approaches by companies rather than quick fixes.

This reminder also serves as a fitting tribute to Prahalad’s intellectual legacy. His analysis and dissemination of businesses that profitably serve the “bottom of the pyramid”, a phrase that he entrenched into the emerging market business lexicon, are actually a validation of the need to build strong organisational structures regardless of the nature of the product or service or the economic status of the clientele. The common message from all of his cases was that a robust business model emerged from putting the right mix of resources into a system characterised by formal and inviolate processes. Entrepreneurship certainly had a role in discovering the connection between a product and a client group, but after that, institutionalisation had to take over for the venture to have any chance of lasting success.

Dr Rajan’s lecture extends this fundamental point to the public sphere by suggesting that the government needs to focus on putting exactly these attributes in place into the policy and regulatory framework. Jugaad in business, however entertaining it might be, doesn’t do much for sustained productivity enhancement. Jugaad in government, however expedient, cannot substitute for building and nurturing institutions that will work towards creating the kind of environment in which businesses, whether they cater to the classes or the masses. He argues that growth acceleration on a weak and flimsy institutional foundation simply cannot be sustained. There are umpteen examples from recent history to support his point. But, then, jugaad is a response to extreme impatience.

(Source: Editorial in the Business Standard dated 21-09-2015.)

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Demographic transition-economic effects

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Background
In the 19th century, though the longevity of human beings was low, the world population was growing due to a high birth rate, inadequacy of birth control measures and family planning awareness. Inadequate development of life sciences and life saving drugs kept the death rate also high. Due to malnutrition and insufficient child care, infant mortality was high too. Diseases and epidemics were common and treatment thereof was not adequately effective. As a result, population growth remained under control and nature was keeping its balance. Then emerged an era of inventions across various science streams; and medical science developed rapidly. Research could conquer many of the dreaded diseases such as cholera, plague, small pox, leprosy, tuberculosis etc; which were some of the major causes of shortening of human life expectancy. They were the causes of mass scale deaths. Due to invention of various vaccines, the diseases could be immunized. Many of them could be cured by advanced medicines invented. Quality of healthcare improved and even medical infrastructure advanced significantly. This reduced the large scale human life destruction and life expectancy increased sharply. Currently, the highest life expectancy of 84 years is in Japan.

India and other countries
Similar phenomenon prevailed in India as well though the numbers were poor. The steady rise in the life expectancy rates in India can be visualised by the table below:-

Over the last few decades, some new epidemics/ contagious diseases such as swine flu, bird flu, dengue etc. have emerged causing danger to human life. Death tolls have also increased due to cancer and AIDS. However, modern research has substantially reduced their rigour and it is expected that soon some solutions will be invented to manage them, if not fully overcome them. Even after the emergence of new types of diseases, the life expectancy has increased decade after decade across the world and it is at the highest level as of now. Further, due to consumption of better quality food and water, supported by inventions in medical science, there is every possibility that life expectancy will continue to climb up. Many developed countries have a life expectancy of more than 80 years and even many developing countries have a life expectancy of more than 70 years.

Economic effect of longevity of life
The modern medicines and methods of treatment have increased the life expectancy but the working life of a human being has not increased proportionately. In many countries, on an average, a person starts working at the age of around 20 and retires at the age of around 60. In many developed countries, the working life is longer, and people work till the average age of 65 years. This is on account of shortage of labour and better health conditions due to less polluted environment and better quality food. The life of a human being after retirement, which is generally less productive, is becoming longer due to better life expectancy. Many retired senior citizens, though generally wealthier than others, especially in the developed countries; cannot meaningfully contribute to the GDP of their nation. However, many nations have to incur substantial costs for them by way of provision of social security, pension, free or subsidised medical facilities etc. A human being in a developed nation works and actively contributes to the GDP for about 45 years in his lifetime. With life expectancy advancing above 80 and the retirement age not advancing beyond 65 years, the proportionate working years in the life cycle of a person has reduced. In a country, certain people are not able to work because either they are handicapped or unwell. In many societies, women do not work for commercial consideration and many of them are off work due to pregnancy, child care or family issues. The longer life span of human beings is increasing the percentage of non-working population in many countries and especially in developed countries, which is becoming a matter of concern.

Working Population ratio
The following statistical data can be an eye opener as to what percentage of the population in a country is working to contribute to its GDP. The working population percentage is more in the developed countries, which has less young population as compared to the developing countries.

Developed countries are facing one more problem mainly due to the change in lifestyle emerging from economic development. In the modern developed society, the age for getting married is increasing. The educated new generation is getting married at a much later age than earlier. Many of them even prefer not to get married and stay single. While this is happening, human anatomy has not changed.

The fertile age of females has remained the same and therefore the reproductive years available after late marriage are getting reduced. Further, work related stress is causing frigidity and disorders. This is resulting in birth of less than two children per couple in many developed countries. As a result, the population of developed countries has started reducing. To make the position worse, a larger part of the population is ageing and is not able to contribute to the GDP of their country. The social welfare expenses are on the rise and have become a significant cost in developed economies. The young citizens need to bear a larger portion of the economic burden of the society. This is resulting in increase in taxes and tax rates, increase in borrowings of the nations and slowing down of their economic growth.

Stagnating GDP of developed countries
Japan is one of the major examples of this phenomenon in the world. Over the past 20 years, the population of Japan is not growing much. The life expectancy as well as average age of the Japanese population has increased year after year. The working population in that country is gradually shrinking. In spite of innovation, technology growth and other facilitators; the GDP of the country has stagnated and possibilities of its turnaround are nowhere in sight. A number of economic stimulants have been applied by that country but they are not able to provide the desired results. Inflation has remained very low as the domestic demand is not increasing adequately due to stagnation. Spending capacity of the population remains high but the overall spending is not growing much. Its currency has been gradually strengthening, reducing the competitiveness of its exports. As a result, the economy has stagnated and China has overtaken this economy pushing it to the third place.

Since the last recession in Europe, the developed countries therein are facing problems in gaining growth momentum. Their economies are stagnating and in spite of efforts by the European Central Bank, the required traction is not materialising. Quantitative Easing, which has been successful in reviving the US economy, is being applied in a larger dose in Europe and only time will tell how far can it be effective. The population in the European Union is also aging. The birth rates are low and they are much less than two children per couple. A birth rate of 2.1 per couple is needed to keep the population level intact and the European growth rate of 1.6 per couple can result in substantial reduction of population, unless sizable immigration from other countries is encouraged.

Migration
Due to added longevity, the percentage of working population in many countries in Europe is getting reduced. Though, of late, there is migration from Eastern Europe to the Western European countries, the overall effect is not very significant. Europe is not systematically adding population from countries across the world as is being done by the US, Australia, Canada and New Zealand. For an economy, which has a low or negative population growth, it is desirable to add on young population from other countries, who can keep the demographic balance in the current era of high life expectancy. In the absence of such an induction, the economy can stagnate as has happened in Japan. In this connection, the following tabulated data of various countries in 2013 can be an eye-opener.

After the last recession, the US has performed reasonably well and its turnaround has been one of the fastest amongst the developed countries. One of the reasons for the same is that the country is constantly taking in immigrants from all over the world. The immigrants accepted are mostly highly educated intellectuals. This has kept the country ahead of the rest of the world in research, technology, education and even entrepreneurship. Though the original population is aging, newly added immigrants are keeping the overall demographic balance and therefore the country is expected to remain on the growth path for the years to come.

Chinese Situation

The single child policy per couple, which was adopted in China since 1980, had initially given good dividends. The population pressure on the country has eased over a period of time. The economy grew well for a number of decades and the per capita income kept on rising. The affluence in the Chinese middle class increased substantially and the standard of living improved. However, the Government could have eased the policy atleast after 25 years of its implementation. The continuation of the policy longer has started showing its negative effects. As the birth rates dropped, the working population could not keep pace in the country. If the policy would not have been changed in 2013, it could have resulted in social and economic imbalance. Still, over the years, the low population growth has depleted the potential labour force of the country. It has started increasing the labour cost in China. This can disturb the manufacturing advantage of the country over the rest of the world and can further slowdown its growth rate. This demographic imbalance cannot be cured overnight and the Chinese Government realised the same probably a bit late. Easing of the one child policy will not yield any immediate results. The well educated and rich Chinese population is very likely to have negative growth due to the same syndrome as prevalent in many developed countries of the west. This may cause a serious threat to the Chinese dominance on global mass manufacturing. If balanced corrective actions are not taken by the country, it may even face economic stagnation like Japan after a couple of decades.

The Chinese population is developing one more peculiar problem. The working couples born in the one child policy regime need to take care of four of their aging parents. The Chinese culture being traditional, parents are actively looked after by their children to the best possible extent. The couples are ending up spending their considerable personal time with doctors, in hospitals and at homes of their parents to take care of their health issues. Each of these couples has only one child. The child has four grandparents. Their affection to the child is in a way pampering the child to undesirable levels, spoiling his habits. These children are quite likely to inherit considerable wealth from their parents and four grandparents. This fact makes their future secured but the initiative for hard work is being lost. The new generation in China is more educated and savvy. They are more competitive and ambitious. This has resulted in late marriages and a resultant large number of single population, which may further disturb the demographic balance. The one child policy and the social structure in China have also skewed the demography resulting in a higher male to female ratio, which is not a healthy sign. These developments are likely to affect the Chinese economy and its growth rate in the years to come. The great era of sustained growth may be over for that country mainly due to this demographic imbalance. The economy may continue to slow down causing concerns to it as well as to the overall global growth for the years to come.

Demographic dividend for India

Contrary to most of the other countries of the world, the demography of the Indian population is very much favourable. The current age group of population in India is as under:

It can be observed that India harbours a large young population, which will join the workforce in the next 20 years. India is spending a substantial amount on education and skill development and the allocation is expected to increase in the years to come. Therefore, more and more population joining the workforce will be skilled. India has already acquired a reputation for its ability to deliver high skill services. The Government is stressing on the importance of increase in export-oriented manufacturing in the country. If right types of reforms are carried out, this dream has a potential of materialising into a reality especially as China may be losing its edge. Availability of a large young population, which is undergoing various types of education and skill development, will complement this goal. The young and educated Indians can make the country grow at a faster rate than most of the other countries in the world. The country can even achieve double digit growth in the years to come. Though India had taken a lenient approach over population control which had a negative impact on per capita income and welfare of its subjects, its current demography can pay a rich dividend to the country, over the next couple of decades. That does not mean or imply that India should remain lax about population control. Overpopulation can create lot of negatives for an economy and imbalances which can take a long time to correct. However, the current population status and mix in India, appears to be favourable, as most of the developed world is facing problems of ageing population.

In the next twenty years, the skilled and semi-skilled population joining the workforce will make the GDP of India grow faster and her per capita income can soar. There is a considerable unsatiated demand in the country for goods and services. More money in the hands of the population will boost the demand and result in a robust domestic market. The opportunity is great and it can make India the third largest economy in the world over the next couple of decades. Though the domestic climate is conducive for growth, the future very much depends on Government initiatives. If adequate steps are taken to speed up reforms and controlled capitalism is well supported, a golden era for the country can usher. However, if there is any policy lag, it can result in large unemployed and underfed population. If jobs do not get created at the same speed at which the younger generation is aspiring and joining the workforce, it can create social unrest and economic problems.

Today is the time for great opportunities for India, but it is laden with inherent risk. The Government will need to handle the situation carefully with a result-oriented approach. The next two decades for India can be great and most of us may be fortunate to witness this era.

Welcome move on Bankruptcy Code – But why not have a US Chapter 11-equivalent in the bankruptcy code?

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The draft new bankruptcy code displayed on the website of the finance ministry is a welcome move. However, it lacks provisions equivalent to those of Chapter 11 of the u S bankruptcy law, which allow a voluntary appeal by a debtor to be given a chance for a turnaround that the bankruptcy court can grant, if the court finds it feasible, regardless of the creditors’ verdict.

The proposed law calls for a new breed of professionals in i ndia, who, it imagines, will be better placed to run a troubled company than its failed managers. Corporate salvage as in Satyam was done by professional managers, not any specialised cadre of insolvency professionals. i t is not obvious that every company will gain by the failed management being booted out and replaced with professional managers.

A key provision is a limited window of opportunity: 180/270 days, failing which the company is liquidated. This makes eminent sense as an indefinite respite, allowed now in i ndian laws, leads to misuse. t he draft Bill sets a clear process to identify financial distress early on and prescribes swift resolution. a majority of 75% of voting share of the financial creditors must approve the plan.

The final decision to accept or reject the insolvency resolution plan rests with the adjudicating authority: d ebt r ecovery t ribunals for individuals and unlimited liability partnership firms, and the National Company Law t ribunal for companies and limited liabilities. t he Bill allows only individuals to financially start afresh, but expeditious order of discharge to creditors will also facilitate fresh start for companies.

The national Company Law tribunal, that will replace the BIFR , will speed up winding up companies and ease the burden on high courts. t he government should remove the legal hurdles in the way of operationalisation of the tribunal, and set up benches fast. a functional legal system is an imperative necessity for the bankruptcy code to work. t he courts should not accept every petition challenging the order of an appellate authority, and make its ruling redundant.

Smart gadgets ke side effects mean they need constant updates – Tech-22 conundrum

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In a world where handheld smart devices are ubiquitous and life without them is unimaginable, one is wont to overlook the health-related side effects of such technology. Smartphones, tablets and e-readers increasingly come with bluer and brighter screens that impact the body’s ability to produce sleep inducing hormones. i n other words, if you are one of those people who surf on their smart devices late into the night, unable to get a wink of sleep, you may have your favourite toy to blame. But fear not 21st century insomniacs, help is at hand. a ll that one needs to get a good night’s sleep is for a ‘bed mode’ to be built into your smart devices.

This would simply involve making sure that smartphones and tablets shift from blue and green light emissions to yellow and red. t his in turn would ensure that one’s body is able to produce the natural amount of melatonin to bring on the sweet release of sleep. But isn’t technology supposed to make our lives easier rather than raise anxiety about health issues? too much typing on your smartphone can give you text claw. excessive exposure to Wi-Fi through devices such as laptops can lower men’s chances of becoming fathers. and social media addiction can actually make you more lonely and sad.

That said, it’s ridiculous to suggest that the tech genie be put back into the bottle. The solution to tech side- effects may be more tech. With concepts such as internet of t hings, our lives and physical surroundings are set to get increasingly wired. move over, smartphone – we could soon be living in houses that are fully automated, from smart bathroom showers to beds that hook into our sleeping patterns to maximise quality of life. however, such tech needs to be safe, necessitating constant evolution of smart devices. a nd that’s the t ech-22 situation we face.

The Trans-Pacific Partnership, which excludes India, highlights need to get the economy in order

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Even as Prime Minister Narendra Modi toured the world and talked up India’s trade interests, President Barack Obama may just have thrown him a one-two punch by concluding negotiations for the Trans-Pacific Partnership (TPP). Twelve countries on the Pacific Rim — encompassing 40% of the global economy — participated in the negotiations. Fragmentation of world trade into standalone blocs is not in India’s interest as we don’t get a say in determining the rules of the game. However, with trade deals at WTO hard to actualise — indeed, India has often played the role of spoiler here — TPP signals the advent of new trade challenges for India.

For example India will lose out to Vietnam, which is a member of TPP, when it comes to accessing the US market in job spinning sectors such as textiles, clothing and leather footwear. At a strategic level, TPP is being driven by a US determined to put its stamp on global trading rules. It is about enhancing the trade competitiveness of developed countries such as the US and Japan, with their emphasis on higher labour and environmental standards. TPP is not yet a done deal. Its detailed text has not yet been finalised and national legislatures of members have to approve it. But with the US already in talks with EU to conclude a Transatlantic Trade & Investment Partnership, continuing fragmentation is inevitable.

Where does that leave India? These trade deals do affect India — not only because they favour insiders as opposed to outsiders but also because they set general standards over which we have no say. Getting in can be a problem as well. For example, draconian rules for intellectual property protection would favour US and European Big Pharma, while crippling Indian pharma which is good at producing low-cost drugs.

There is no alternative to getting our economy in order. The size of India’s market is an advantage which needs to be leveraged by an environment in which economic activity is easier. NDA must push domestic reform, which has to be complemented by smarter tactics at ongoing trade talks. For instance, the government can bring in more domain experts laterally in negotiations over a Regional Comprehensive Economic Partnership (RCEP), where there will likely be demands for TPP-like rules. India needs to be seen as a country which comes to talks with ideas, without which we cannot secure national interests. TPP is a rude wake up call.

(Source: Editorial in The Times OF India dated 08-10- 2015)

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Now, Prepare for the Fed Rate Hike: The respite offered should not be frittered away

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From the story about the boy who cried wolf, the most commonly drawn lesson is that one should not raise an alarm about an unpleasant eventuality when it is not imminent. It is equally important to bear in mind that the wolf will eventually come, when you are least prepared for it. The US Fed rate lift-off has been like the wolf in the tale. It has not happened on a few past occasions when it could have. This does not mean that it will not happen, perhaps later this year itself. India would do well to use the respite offered by the Fed’s decision to hold its hand for the time being to prepare for when US policy rates will move up from 0-0.25 per cent. The Reserve Bank of India (RBI) cutting its policy rate is just one of those things.

The dollar has dropped against most currencies, after the decision to defer a rate hike. The rupee, too, has strengthened, against the dollar. Which means that it has extended its overvaluation against other major currencies, further hurting exports. This is as good a time as any to nudge the rupee lower. One way to do that is to lower the central bank’s policy rate, which would induce some foreign capital reallocation away from India. If much of the volatile capital leaves India before the Fed lifts rates, there would be little room for any violent impact on the markets. Consumer prices are rising again, if you leave aside the year-on-year figure and look at the sequential movement of the index month to month. This might inhibit the RBI from paring rates. Food price inflation in a year of deficient monsoon cannot be the yardstick for setting monetary policy. The government has been adopting supply-side measures to ease the pain and should do more, to ease the upward pressure on food prices.

The government has to clean up the act when it comes to de-clogging stalled payments to vendors and construction companies for their work done, for itself or for stateowned enterprises. If that happens, new work orders from the Railways and national highways will take off better, and give momentum to the economy in the short run, before the rate hike does make its appearance. Even three little pigs managed to best the wolf.

(Source: Editorial in The Economic Times dated 19-09-2015.)

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Trans Pacific Partnership – Domestic reform is key for membership

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The Trans-Pacific Partnership (TPP) is becoming a reality, threatening those outside the 12-country bloc with trade diversion and lost opportunity. The agreement, reached among Pacific Rim countries including the US and Japan but excluding China, shows up the World Trade Organization (WTO ) as an effete organisation that has not been able to secure a major deal since 1995 and is stuck with an economic framework that has been overtaken by the pace and nature of global integration. The TPP creates a new framework for trade that embraces not just low tariffs but also convergent safety standards, intellectual property rights, labour standards and environmental norms, and a dispute settlement mechanism for investment-related disputes.

How should India respond to the development? By acting simultaneously on three fronts: trying to join the Asia- Pacific Economic Cooperation as a necessary stepping stone to joining the TPP, taking a proactive role in making the multilateral WTO salient again and carrying out domestic reform, including by reducing import duties further. Trade in goods and services add up to roughly 50% of GDP (a little less in 2014-15). How competitive these are matters a lot to the entire economy. Countries like India stand to lose from being left out of dynamic trading blocs like TPP. China will probably become a member soon, though as someone who accepts the rules already set without having had a chance to contribute to the rule-making process. India, too, must join the group. The second task of reforming the working of the WTO is best accomplished by accepting the economic logic that opening up is good for India and abandoning the negotiating logic of diplomats, which holds that giving in is surrender.

India has to cut its tariffs, transit to a goods and services tax and remove infrastructure bottlenecks at the fastest pace, including clamping down on power theft and giveaways. Sectarian politics that creates social schism and violence will, however, make economic reform tough and beside the point.

(Source: Editorial in The Economic Times dated 12-10-2015.)

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Toxic food – Regulation of pesticide use in farming is too lax

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India’s food chain continues to suffer from excessive toxicity, brought
on by the rampant and unrestrained use of pesticides. Official data were
released last week that showed nearly 18.7 per cent of samples tested –
samples of commonly consumed foods like vegetables, fruits, milk,
pulses, meat and spices – contained pesticide residues in varying
degrees. In over 2.6 per cent of the samples, the toxicity level was
higher than the permissible limits. The incidence of toxicity seems to
have nearly doubled when compared to similar studies in the past. Nor is
the problem confined to big cities, although Delhi and Mumbai are among
the worst hit: samples from small urban centres too have failed to pass
the safety test.

Earlier studies had shown that even drinking
water, beverages and soft drinks were not totally free of hazardous
chemicals. Worst of all, traces of banned or unapproved pesticides have
been found in commonly consumed foodstuffs. Clearly, regulation has
failed to check the circulation of prohibited chemicals and spurious
insecticides – substances which can be far more hazardous than the
permitted pesticides. Many of these harmful chemicals are feared to be
carcinogenic besides being injurious to the central nervous systems and
liver. A joint parliamentary committee(JPC) was set up in 2003 to go
into the safety standards for soft drinks, fruit juices and other
beverages. The Food Safety and Standards Authority of India (FSSAI) came
into being after the report of this JPC. However, many of the useful
recommendations of this panel, including one concerning formulation of
standards for individual food items – rather than for vegetables, fruits
and others collectively as a group – have yet to be fully implemented.

The
problem is not that India uses too much pesticide. In fact, India’s
per-hectare consumption of plant protection chemicals is just a fraction
of that in developed countries. Yet the problem of toxicity is far more
serious here than elsewhere. The real cause is the improper and
indiscriminate use of pesticides by farmers. Most pesticide
manufacturers stress the necessary precautions to be observed while
using these hazardous chemicals; these include allowing a prescribed
time to elapse between spraying pesticide and harvesting the crop. This
is necessary to let the pesticide molecules degenerate. But these
essential precautions are often ignored by farmers in India. Many of
them, especially vegetable growers, dip their produce in chemical
solutions just before going to the wholesale markets – which they
believe will improve their appearance and assure them better prices. The
use of chemicals like calcium carbide to artificially ripen fruits like
bananas, papayas and mangoes also contaminates them. This can be curbed
only by educating India’s farmers on the safe use of pesticides.
Pesticide marketing also needs to be better regulated. Only registered
dealers who have some knowledge of pesticides and their safe use should
be allowed to do business. This is important because farmers usually
rely on the advice of pesticide sellers when it comes to plant
protection issues. The pesticide industry must be pushed to contribute
to this effort.

(Source: Editorial in Business Standard dated 08-10- 2015)

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Fortify Aadhaar with Privacy Protection

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It is welcome that the Supreme Court has referred the Aadhaar dispute to a larger bench that will also examine whether it violates privacy. The government must legislate an explicit law to protect privacy, and penalize its violation.

The absence of a defined right to privacy now gives credence to concerns over how Aadhaar can be abused, for example, by using the Aadhaar tag to collate information on a person’s history of, say, medical, financial and government transactions.

A robust privacy law will offer a shield. Use of Aadhaarseeded bank accounts for transferring government benefits to citizens will eliminate duplication, fraud and waste. Such a system will allow the government to abandon product subsidy, with its inherent potential for diversion and other malpractice, and replace it with transfer of the subsidy amount directly to the end-beneficiary.

This will not just overhaul India’s subsidy administration but also get rid of the ills of product subsidy, such as subsidized kerosene being used to adulterate unsubsidised diesel. That the court has not gone back on its earlier order allowing the use of Aadhaar for food and cooking gas subsidy delivery is recognition of Aadhaar’s potential.

There remains the question about whether Aadhaar is mandatory. Aadhaar must be used wherever administration of subsidy is involved. This would be onerous only if Aadhaar enrolment were difficult. The onus is on the government to ensure that no eligible welfare beneficiary is denied the unique identity number. A beneficiary cannot be denied an entitlement if she cannot obtain Aadhaar. However, if Aadhaar is made available, and the beneficiary chooses not to enroll, she should forgo the benefit. You do not have to have a passport, but if you want to travel abroad, you need one.

(Source: Editorial in The Economic Times dated 09-10- 2015.)

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The 2G case – CBI deliberately withheld crucial files, concealed facts: Trial court

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Withholding of crucial documents, concealment of important facts and contradiction in statements of prosecution witnesses led to collapse of CBIs case in the 2002 additional spectrum allocation scam case. Special CBI Judge O. P. Saini, who discharged former Telecom Secretary Shyamal Ghosh and three telecom firms –Bharti Cellular Ltd., Hutchison Max Pvt. Ltd. and Sterling Cellular Ltd. in the case, said that CBI totally failed to prove its allegations. The court said that various documents, which were dubbed as unrelied upon by CBI, were “most important documents” and the agency had deliberately rendered it as inconsequential. It added that the agency wanted to give the impression that a grave crime had been committed when none had been done by “fabricating facts”.

It pointed out that TRAI reports and many other relevant documents were not filed in the court, adding that these facts “did not even find mention in the statements of witnesses.” CBI’s conduct in “relegating these (TRAI and other relevant) documents to a distant stage by not making them part of documents initially filed with the chargesheet and then dubbing them as unrelied upon and not placing on record certain other documents having important bearing on the case” went totally against the agency.

CBI’s allegation that Department of Telecommunications (DoT) had not obtained the required recommendation from TRAI prior to allocation of additional spectrum, fell flat. “I find myself in agreement with the defence counsel that TRAI recommendations were already there and DoT was not required to ask for fresh recommendations,” the judge said. The court noted that the previous TRAI recommendations of June 23, 2000 and October 24, 2000 had covered both inadequacy of the existing spectrum to the existing operators and also need for additional spectrum and also the rate at which spectrum was to be charged.

There were also contradiction in statements of prosecution witnesses which proved that CBI’s allegations were not true. The court pointed out several discrepancies in the statements of then Deputy Director General of DoT J. R. Gupta and then Wireless Advisor P. K. Gupta on whether then Member Finance was consulted before allocation of additional spectrum. CBI had alleged that former Telecom Minister Pramod Mahajan had taken this “hasty decision” on recommendation of Ghosh without consulting relevant bodies. The court, however, trashed CBI’s version and said the decision was “well debated and discussed.”

The court lambasted CBI for “deliberately” concealing and “changing its stand” over certain documents. The court added that it was because of this confusion that it summoned Bharti Cellular Ltd. CMD Sunil Bharti Mittal, Essar Group promoter Ravi Ruia and Asim Ghosh, then Managing Director of accused firm Hutchison Max Telecom Pvt. Ltd. as “additional accused” in the case. These three were not chargesheeted as accused in the case but were summoned by the court on March 19,2013 which relied on some documents placed by CBI. However, CBI later declared that it was not relying on these documents.

“The unrelied upon documents are by and large considered to be of no use to the prosecution. In the instant case, on January 14, 2013 and also in the application dated January 30, 2013, the prosecution referred to documents as unrelied upon, but in the course of submission changed its stand that these documents may also be taken as relied upon one. This change of stand distracted the attention of the court from these documents. In a sense, these documents lost credibility,” the court observed. On January 9 this year, Supreme Court had set aside the special court’s order summoning Mittal and Ruia, who was then a Director in Sterling Cellular Ltd., as accused in the case.

In 2012, CBI had filed a chargesheet in the case alleging a scam during the NDA regime in 2002. It had named Ghosh, Hutchison Max (P) Ltd., Sterling Cellular Ltd. and Bharti Cellular Ltd. as accused, claiming that on account of the conspiracy between these accused, Department of Telecommunications (DoT) allocated additional spectrum that had allegedly led to a loss of Rs 846.44 crore to the exchequer. The chargesheet also named former Telecom Minister Pramod Mahajan as an accused and alleged criminality on his part. However, since Mahajan had passed away, the proceedings against him were abated. (Remarks: The credibility & reliability of CBI is so low & yet the Establishment goes on entrusting more & more cases to CBI !!!)

(Source: The Times of India dated 16-10-2015.)

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Mr. M and Mrs. G

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The more one thinks about it, the more one is inclined to compare Narendra Modi with Indira Gandhi. The original Mrs. G was the last Indian prime minister to create an emotional bond with the public. The crowds at her memorial are far greater than at the Nehru Museum, situated at the other end of Teen Murti Marg. Irrespective of the long-term damage she did to the economy, and however much she fostered corruption, the poor thought she stood for and by them. Narendra Modi is the first prime minister after Mrs. G to have created a comparable bond. Whatever happens in the future, he will always remain the “hriday samraat” for a lot of Hindus who consider him the first Indian prime minister who is truly their own.

As with Mrs. G, the more his critics sound off about him, the stronger will be the bond between Mr. Modi and his public. It happened in Gujarat, and it may be happening now across much of the country north of the Vindhyas. For Mr. Modi stands tall in a way that no one has since Mrs. G. Like her, he can and does reach out directly to voters, without the need for party intermediaries. His party needs him more than he needs it — imagine the BJP’s Bihar campaign without Mr. Modi.

When Mrs. G came to power, she was broadly acceptable to most people. In about three years, though, she had alienated much of the English language press, and a good part of the chattering classes (as they later came to be called). Something not entirely dissimilar has now happened with Mr. Modi. Even those who were willing to give him the chance of a fresh start as prime minister have decided that Mr. Modi is in fact the same as of old. He mostly ignores them and what they say, just as Mrs. G did. Like her, if he responds at all, it is at mass rallies. Like her, he has no regard for the media.

But here’s the thing: the chattering classes play the role sometimes of the canary in the cage, down a mine shaft. When they turn against a political leader, it is a political warning shot. It happened with Rajiv Gandhi and with V. P. Singh: the alienation of the chattering classes marked the beginning of political decline. In Mrs. G’s case, her downfall did not come because of the chattering classes, but she would have avoided crucial mistakes if she had listened to them. She nationalised the wholesale trade in foodgrain in the middle of a drought! Soaring food prices provoked student protests that blossomed into a broader movement against corruption. Her brutal crackdown on the railwaymen’s strike of 1974 alienated yet more people.

The Emergency was the culmination of poor economics, the undermining of institutions and the centralisation of power, and it led to her ouster.

Mr. Modi is the first prime minister after Mrs. G with the power and possibly the intention to change the Indian system. Mrs. G’s bid to perpetuate power carried with it no great economic or social agenda, only a personal one. She overstepped several Laxman Rekhas, and paid the price. Mr. Modi has an agenda that goes beyond himself, and he has decided that he will not rein in those pushing social and intellectual illiberalism. Just as it wasn’t certain at the time whether Mrs. G would succeed in her gambit, we don’t know how far Mr. Modi will go or stop short. The tea leaves suggest that we will see more Dadris, or its equivalents. So Mr. Modi wouldn’t harm himself if he paid some attention to his critics — he won’t get their votes, but they might prevent him from making mistakes.

(Source: Weekend Ruminitions by Mr.T. N. Ninan in Business Standard dated 17-10-2015.)

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NJAC overturned in judicial overreach – Supreme Court’s decision to revive system of judges appointing judges pits judiciary against executive

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The collective order by a five-judge Constitution Bench of the Supreme Court to strike down as “unconstitutional and void” the 99th Constitutional Amendment Act and the National Judicial Appointments Commission (NJAC) Act 2014 legislated to replace the two-decade old collegium system of judges appointing judges, draws a line under arguably the biggest flashpoint between the judiciary and the executive over the past two decades. But given the widespread consensus that the collegium system has failed, this is unlikely to be the end of the matter.

Ordering the revival of the collegium system which allowed judges to appoint new judges since 1993, the Bench rejected the government’s plea to refer the case to a larger Bench.The apex court has simultaneously invited suggestions to improve the collegium system, fixing November 3 for its hearing on the matter. The broader judicial message is crystal clear. As senior lawyer Harish Salve put it, “SC is giving a message that the power is with them.”

This sets the stage for the most serious face off between judiciary and executive in a generation. While senior lawyer Ram Jethmalani hailed the verdict as a “historic day for democracy”, Attorney General Mukul Rohatgi scathingly called it “a flawed judgment ignoring the unanimous will of the Parliament, half the state legislatures and the will of the people for transparency in judicial appointments”. Union law minister Sadanand Gowda too says he was “surprised” because the NJAC “had 100% support of the people”.

NJAC was indeed enacted after a broad political consensus which evolved after several commissions and parliamentary committees found flaws in the collegium system over the years. It was ratified by Parliament as well as 20 state legislatures. This is why a senior advocate like K. T. S. Tulsi, while expressing disappointment over the judgment, quoted parliamentarians talking of the “tyranny of the unelected over the elected”.

This paper has argued in favour of NJAC because it promised to end opacity in judicial appointments. Judges don’t have unbridled power to appoint judges in most other liberal democracies. For example, US Supreme Court judges are appointed by the president and ratified by the Senate. For the UK’s apex court, an independent committee makes candidate recommendations to the prime minister who makes a final recommendation to the queen.

The Constitution envisages separation of powers between legislature, executive and legislature – which means each branch of government should stay within its own remit. Under NJAC the commission to select judges is composed equally of judges and non-judges, which should prevent power vesting exclusively with either judges or the political class.

With all due respect, rulings cannot be based on institutionalised distrust of the political executive or legislature. By calling for further discussion on the collegium system, the apex court itself has accepted that there were flaws in the system. It must now fix them. The judiciary remains a bulwark of Indian democracy and while preserving its independence is crucial, what’s equally incumbent on it is to look within and reform.

(Remarks : In India, the credibility & goodwill of the Politicians have reached such a low point and the Parliament has become so dysfunctional that citizens trust the higher Judiciary more than the Political Establishment.)

(Source: Editorial in The Times of India dated 17-10- 2015)

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By questioning expanding reservations, Bhagwat and Prasada draw fire but point out the obvious

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RSS chief Mohan Bhagwat’s call for a non-political committee to examine and determine which categories require reservation benefits and for how long has stirred a political hornets’ nest. Coming ahead of Bihar assembly elections BJP’s opponents – particularly RJD supremo Lalu Prasad – had a field day slamming Bhagwat. Given the atmosphere in poll-bound Bihar where every party is trying to get its caste calculations right, BJP quickly issued a clarification.

But political calculations aside, Bhagwat’s take on the reservations system isn’t without merit. Few can argue against his assertion that reservations have been politicised and aren’t being implemented in the spirit of their original intention. In fact, only last week Congress’s Jitin Prasada asked his own party to rethink the reservations policy and urged it to champion a new mechanism for social justice that focusses on the most backward castes and the poor among upper castes. This is an implicit admission that quotas have come to be cornered by a few powerful OBC castes that dominate the administrative machinery.

With parties across the political spectrum rushing to legitimise the reservation demands of different caste groups in the hope of cultivating vote banks, they have kicked off a race to the bottom. As a result, even influential communities are demanding a share of the reservations pie. This is precisely what the recent Hardik Patel-led Patidar agitation in Gujarat represents. Besides touching off caste conflicts, the fallout of this great reservations game has been the slow strangulation of meritocracy. This in turn has disastrous consequences for administration. The Yadavisation of the UP police force, wherein one particular OBC caste has come to dominate that state’s law and order machinery even as crime rates soar and communal riots break out, exemplifies this point.

The need of the hour is not just to reimagine the reservations policy but also create a new paradigm for social justice. One of the reasons for the reservations rush is the lack of adequate job opportunities elsewhere which makes government postings extremely lucrative and highly prized. This clearly isn’t sustainable. Boosting job creation in the formal sector, and not just economic growth, will enlarge the pie for all communities. Economic reforms along with sufficient investments in quality school education will create a level playing field and mitigate the need for quotas. It’s time to enact policies that lift all boats.

(Source: Editorial in The Times of India dated 23-09-2015.)

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States abusing law – Time to reform colonial-era sedition law to prevent misuse

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The Tamil Nadu police arrested the folk singer S. Kovan on charges of sedition. The 52-year old Mr. Kovan had recorded hard-hitting songs pointing a finger at the chief minister of Tamil Nadu, J. Jayalalithaa – and her government, of the all India Anna Dravida Munnetra Kazagham or AIADMK – of profiting from the sale of liquor in the state’s chain of alcohol shops under the Tamil Nadu State Marketing Corporation, or TASMAC. There are about 6,800 state-run alcohol shops in Tamil Nadu, and TASMAC earned just under Rs. 24,000 crore a year in 2013-14. Mr. Kovan, an outspoken Dalit rights activist, has sympathised with other hot-button issues before the prohibition movement, but his songs on alcohol attacking Ms. Jayalalithaa have touched a particular nerve, with his supporters saying they have been seen over 400,000 times on You Tube. it is, however, entirely questionable as to whether they constitute sedition.

MORALITY OF A LAWYER’S ETHICS

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Morals are an emotive concept. Everyone has a view on what exactly it means and how exactly to live a morally right life. Like the story of the blind men and the elephant, it means different things to different people. This is even more pronounced when it comes to the practice of law. Every situation requires a judgement- what is the right thing to do and what would be wrong – “legally right” and “legally wrong”, one must hasten to add. That professional judgement is invariably also judged from the moral standpoint. That is when all hell can break loose.

Morals, Ethics and Law
Each of morals, ethics and laws, are about assessment of the right and the wrong. An individual’s own principles of right and wrong, constitutes his morals. Every human being has an innate sense of what is right and wrong to his mind – this dictates his “morals”. Ethics is about the rules of conduct that a community of individuals, formed on the basis of activity or even culture, writes for itself. Ethics have a clear link to character (“ethos”) of the section of society that follows it.

Law, binds an entire society, and evolves from the influence of morals and ethics. It is essentially a product of averaging the forces of morals and ethics and developing an acceptable minimum standard of conduct across society. All averages leave constituents unhappy – those above and below the average can always feel shortchanged. Therefore, despite doing the legally right thing, one can be perceived as morally wrong, and doing the something legally wrong too can get lauded as ethically sound.

Decline of morality: really?
First, let’s deal with the issue of morality. The refrain that “moral values are on the decline” is as old as the hills. It is something that could have been said in almost every phase of human history. It is quite like that oft-stated phrase: “we live in interesting times.” You can say it in every single conceivable situation. Examples abound of how societies would have said morals are on the decline. A society’s sense of morals can change with time. Jesus Christ devoted his short life to preaching his sense of morality. The society in which he preached believed that Christ was an assault on their moral values – in today’s moral compass, unthinkable. References to Shylock in The Merchant of Venice allude to how immoral the moneylender was in asserting his legal right to a pound of flesh. If that play were to be written today, Shakespeare would have been castigated for holding anti-semitic prejudices by referring to Shylock’s membership to the Jewish community.

Take the worst that man can do to man: slavery. When slave labour was being questioned by citizens in the northern parts of the United States, slave owners in the south argued that moral values were on the decline. They asserted how it was morally wrong to attack their legal right to own property that they had legally paid for. Indeed, slave owners would quote the Bible to convince their slaves that a life committed to slavery was Godendorsed. Today, it is revulsive to even think about it. Yet, those who indulge in slave labour today (yes, it is alive and kicking – and yes, it can even take the form of the domestic help in Mumbai households without any of the rights their employers would take for granted from their employers) surely convince themselves about the morality of their actions so that they get sleep at night.

One man’s soul-filling morality can be another man’s toxic poison. When the Indian Supreme Court refused to strike down law criminalizing homosexuality, a section of society argued that the court’s refusal to intervene is evidence that moral values were on the decline. The sections that went to the Supreme Court had argued that the Delhi High Court striking down that law was evidence that morality was on the decline. They wanted the Supreme Court to correct that. This moral bunch had representation from the ayatollahs of every faith that lives in India and whose fatwas, large sections of our society are accustomed to follow.

Even individuals who have given a lifetime of commitment to universal brotherhood and doggedly adhering to their sense of morality are not immune from attack of those who don’t accept that moral compass. Mahatma Gandhi was even killed. His killers would have developed a strong moral argument in their own minds to convince themselves that taking his life was the “right” thing to do. The Dalai Lama, a living idealist who uses scientific methods in his bid to emphasize that it is not extraordinary to be compassionate even with those who may inspire hate, is accused by some young-and-violent Tibetans of neglecting their interests with his peace-based approach to the universe. Some of them immolate themselves in protests – indicating that at least in their minds, they have the fullest moral conviction that their approach is right and the Dalai Lama’s practice is wrong.

Evolution of Law
Therefore, what is morally right and wrong is incapable of being tied down to the satisfaction of all. It can vary depending on the individual considering the question. For the same individual, it can vary with the time in which she considers the question. It could even vary if the context in which she considers the question varies, even if at the same time. When every individual in a society has a strong view on the right and the wrong, consensus is impossible. It is to grapple with this dilemma that societies need “law” – a minimum set of rules that everyone needs to conform to, across sections of society. It is enforced by the coercive power of the “State”.

What then should be the moral and ethical compass for a practitioner of law? By nature, human society is judgmental. One of my favourite questions in talks that I give on the rule of law is: “How many in this room believe Ajmal Kasab should have a trial?” I have not come across a single instance of a huge majority response that he indeed needs trial. The nature of audience has ranged from chartered accountants, businessmen, consultants, bureaucrats, and sadly, even lawyers.

It is this apathy that would come to bite when a chartered accountant, businessman, consultant, bureaucrat or lawyer stands accused and the popular voice of society is that she does not need a trial. Business and crime are being considered synonymous in the rising din of society and the same treatment that the educated professional class wants to mete out to Kasab is the treatment that the rest of society wants to mete out to this class.

The need for a trial to assess what actually happened in the eyes of law is a critical component of the rule of law. Our constitution guarantees protection to members of our society against incriminating themselves for a very sound reason. If there were no such protection, all it would need to “solve crime” would be to physically beat false confessions out of people. Therefore, even where someone confesses to a crime, the justice system is required to go into whether the confession is truthful and to see that justice is indeed done. How else does one prevent drivers owning up banging up cars they never drove, or for that matter, weak youngsters in a professional firm from being forced to confess to wrongs they never committed just to protect the erring partner in a professional negligence claim? What really transpired can only be found out by trial.

One is seeing increasing instances of assaults on lawyers agreeing to represent those accused of crimes that anger society. It can take varying forms. Physical assaults on potential lawyers for Kasab, tongue-lashing of Salman Khan’s lawyer, reputational  assault  on  amicus  curiae (a “friend of the court” appointed by the court to render assistance) in the Supreme Court appeal of Kasab’s sentence when he was reported to have said that the trial had not been fair. It is in this milieu that developing  a strong sense of adherence to a personal moral and ethical standard is critical to save society from the rule of the mob. What is that standard?

The  lawyer’s  Ethical  Standard a lawyer is required to dispassionately present facts and law to the judge, who required to dispassionately rule on matters before her without fear or favour and uncaring for consequences outside the realm of law and justice. Every lawyer is duty-bound to accept any brief at a fee consistent with his standing. That is the real ethic of a lawyer. That a brief can turn politically controversial or socially unpopular is not a ground for refusing a brief. A lawyer is obliged to use all fair, legitimate and honourable means to uphold his client’s interests regardless of his personal opinion as to the guilt. His loyalty is to the law.

Judging his client’s guilt is the court’s role. The lawyer is but one of the officers of that court.

Not too long ago, Kerala Congressmen were upset that party spokesman Abhishek Manu Singhvi represented a local lottery distributor. The Bharatiya Janata Party had once expelled Ram Jethmalani for representing convicts in the Indira Gandhi assassination case. Eventually, one of the accused was actually absolved in appeal. Both these politician-lawyers had  stood  their  ground.  But not all do so. They fall into the unethical trap of finding reasons to return briefs, or worse, even going on national television to argue how an accused like Kasab should never get trial. Such attitudes erode the objectivity and fearlessness critical for an effective run of the rule of law.

For a real professional, the foundational rule is not to judge. More importantly, not to be influenced by others’ judgements, in distraction from the facts and merits of the situation. It is the role of the judge to render judgement and not that of the professional. A lawyer refusing to take up representation despite having time on hand is identical to a doctor refusing to treat a patient because of his own moral judgments – say the dying patient is gay and the doctor is a homophobe.

Worse is taking up representation and deliberately jeopardizing the case. Sadly these are the kinds of suggestions one hears of in a charged up society. It is another matter that such suggestions would have been heard all through human history. It is akin to doctors injecting poison into Kasab in revenge  instead  of  saving his life. That would have been an insult to the efforts of those who gave up their lives in the process of apprehending Kasab.

The worst of all is to intimidate and attack those who do their job in conformity with their ethical standard. There can be nothing more immoral than questioning the morality of those who serve the cause of dispensation of justice on the ground that they are serving clients accused of crime.

The Consequences of Ultra Cheap Oil

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From $103 a barrel a year ago, the price of crude oil has crashed to $43, with no bottom in sight. What does this mean for geopolitics and its knock-on effects on India? Oil producing nations, such as Russia, Venezuela, Ecuador, Nigeria, Kuwait and Iraq — and even Saudi Arabia — are feeling the pinch. As oil revenues fall, these nations cut back on social security and government spending, leading to domestic unrest and lower demand for imports.

Two factors are responsible for the collapse of crude. First, production has outstripped demand by a wide margin. The US Energy Information Agency (EIA) reckons that global oil inventories grew by 2.5 million barrels per day during June-July, more than the 0.4 million barrels per day in the same period last year. Demand grew at a sluggish 1.1 million barrels per day, year on year. Iran will hike output from 2016, adding to supply. A slowdown in China and India could further depress demand and lower prices. Two, Saudi Arabia, with the lowest well-head cost of oil production in the world, is locked in a battle for energy supremacy with the US. The latter now needs no energy imports, thanks to shale oil and tar sands from Canada. Riyadh refuses to cut production to boost oil prices because it wants to drive high-cost domestic US oil out of business.

Energy importers like India, Japan and China ought to be happy: lower crude helps balance deficits and could temper inflation. A steady slide in the value of the rupee against the dollar erodes some of the gains from falling oil prices. India can do two things: one, pass on some of the gains from the oil price crash to consumers. Two, sign up long-term contracts with suppliers based on current low prices and the even lower rates projected for the future.

(Source: Editorial in the The Economic Times dated 28-08-2015.)

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Falling prices an opportunity for quick reforms in oil and gas

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Plunging crude oil prices aren’t just a boon for
corporate India and the consumer. They are an invaluable opportunity for
the government to push for faster reform of pricing and distribution
distortions in the oil and gassectors. The Indian basket of crude oil is
trading below $43 a barrel, a seven-month low and less than half the
price of July last year. At the start of the current financial year, the
Union government had prepared its oil economy budget after assuming the
crude oil price to be at $70 a barrel. So far the average price has
been $55 a barrel – and, with global prices slated to slip to $40 a
barrel, the savings for the rest of the year would be substantial.
Moreover, by all accounts the convergence of global factors that has
kept prices benign is likely to continue.

The beneficial effects
of recent reforms to fuel pricing are already visible. In June 2010,
petrol prices were deregulated. This was followed by an exercise to
convert the cooking gas subsidy to a direct benefit transfer scheme that
went all-India in January this year. And in October 2014, the diesel
prices were deregulated. The impact on the petroleum subsidy has been
significant: the budgetary outlay has more than halved in 2014-15. For
the state-controlled oil marketing companies, the savings on
under-recoveries – the difference between production costs and retail
price – have been dramatic too. Underrecoveries dropped from Rs 1,39,869
crore in 2013-14 to Rs 72,314 crore in 2014-15. The government should
now focus on the need to eliminate the remaining subsidies on petroleum
products. To begin with, the subsidy on kerosene should be discontinued.
Retaining subsidy on kerosene distributed through ration shops is
dangerously illogical; having deregulated open-market kerosene prices in
February this year, the temptation for arbitrage is high. The subsidy
on cooking gas, mostly used by the better off, should also end.

Apart
from the monetary gains, the elimination of subsidies has corrected the
imbalance between diesel and petrol consumption in the transport
sector, as is evident in lower sales of gas-guzzling sports utility
vehicles; and reduced the incidence of kerosene adulteration of diesel.
These advantages strengthen the case for the government to take reforms
one step further to gas pricing and distribution. In a country that
imports a third of its gas requirements outside the administered pricing
system and urgently needs to reduce its excessive dependence on coal, a
transparent and fair gas pricing regime is essential. Without it,
big-ticket foreign investment will stay out, and a host of power and
fertiliser plants will stay stalled. Cleaning up gas pricing might well
have a positive domino effect on power and fertiliser subsidies, with
which successive governments have struggled to cope. For an economy that
urgently needs to address the twin challenges of accelerating
investment and climate change, it makes little sense to continue with an
administrative regime that is distortionary in its impact, especially
when global and local factors converge to present a unique opportunity
to reform.

(Source: Editorial in the Business Standard dated 26-08- 2015.)

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Lessons to learn from the Land Bill fiasco – The Bulldozing does not work in a democracy

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The government has decided to let its Ordinance, which diluted clauses
of the UPA regime’s 2013 land acquisition Act, to lapse. The opposition
claims it as a victory over the government. The alliance fighting the
BJP in the upcoming Bihar elections touts it as a victory for every poor
farmer. The truth is more nuanced: state governments have primary
jurisdiction over land laws. After the Singur and Nandigram incidents in
Bengal where the state tried to forcefully snatch land from farmers for
industry, many states have adopted innovative methods to minimise
opposition to acquire land for development and other projects. Rather
than a one-time acquisition, they seek to make land sellers stakeholders
in future development. The Centre must allow states this flexibility
without discrimination.

Most recently, Andhra Pradesh has
acquired significant parcels by offering farmers a portion of land they
have given up, to develop residential and commercial projects once the
area is developed. This will increase their incomes hugely, possibly for
decades. Earlier, Uttar Pradesh under Mayawati and Haryana under
Bhupinder Singh Hooda had developed models that combined upfront
payments, annuities and return of a portion of the land to land sellers,
making them stakeholders in development. However, there are exceptional
cases, like developing dams or irrigation projects, where social gains
outweigh the losses of those affected directly by projects. In these
cases, states must have the flexibility to ease the terms of the consent
clause, or make returns far more generous to the few who give up land
for the benefit of many.

There is a political message for the
BJP here: the Modi regime must learn to talk to all parties, including
allies and the opposition, before undertaking major policy decisions. In
our parliamentary and federal system, one size never fits all:
unilateralism is not an option. Next time, say, while trying to roll out
the GST, the government must first listen, build consensus and stop
trying to use its majority in the Lok Sabha to bulldoze opponents.

(Source: Editorial in The Economic times dated 01-09-2015.)

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Government in Business – Misplaced priorities

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The Narendra Modi-led National Democratic Alliance came to power following a campaign during which several commentators, and many of the wider public, seized on to its catchy slogan of “minimum government, maximum governance”. Senior leaders of his administration continue to insist the phrase is one of the principles underlying current economic policy. However, if that is the case, then the administration’s decisions reflect misplaced priorities and a flawed understanding of the role and scope of government – and indeed its strengths and weaknesses. Unless those priorities are rectified, and soon, the thrust of current policy is likely to spend itself in futility and failure.

Economic history and economic theory both reveal that governments, including and especially in developing societies, do certain things well and do other things badly. What they do not do well is running enterprises. Being insulated from the discipline of the market means that state-run corporations fail especially in consumer-facing enterprises. They are also notable failures in sectors where lower-level decision-making is crucial, and any interference in such decisions – or even the absence of a focus on returns, a lack that characterises public enterprises – can lead to the build-up of costly errors. Yet the government continues to run a vast business empire, and Mr Modi seems to have no intention of letting this empire go. Air India, for example, seems to be a target for “revival” rather than sale even though it is bleeding passengers and pilots – 30 Dreamliner-trained pilots just quit and the once-dominant state-owned airline is now third in the sector, with a 16 per cent market share. The loss-making company has to borrow at the sort of premium that indicates what the financial sector thinks of its chances. Such examples are legion. The Union cabinet recently approved “financial incentives” for two state-owned telecom companies that are never likely to make money in a cut-throat sector. And the new revival plan for public-sector banks, announced with much fanfare, stopped short of the crucial measures that would allow for genuine independence from interference.

Meanwhile, there are indeed areas where more effective and expansive state participation is necessary. While private schools are often inexpensive and effective, without improving public education there is no hope of creating a better-educated society and a workforce with skills. Yet the government, including through the implementation of the Right to Education Act, seems to want to avoid the hard task of fixing the poor quality of state education. And then there is health. Nowhere in the world has private provision of health care with public financing worked – and in India it is a recipe for disaster. The new National Health Policy suggests that public spending will go up from one per cent of gross domestic product to 2.5 per cent soon. But how that is spent is crucial. Many within the government argue that private insurance and provision should be the bedrock of health policy. This also seems to underlie the recent push for expanding insurance. Here, at least, there seems to be sympathy for “minimum government”. But these are completely the wrong sectors for it; more effective government participation is needed. Instead, the government is focused on staying in business where there is no credible case for the public sector. “Minimum government, maximum governance” will only become real when the administration shows signs of understanding where and how it works.

(Source: Editorial in the Business Standard dated 04-09- 2015.)

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Global – Rising profits

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Global corporate profits have soared since 1980.

A new study by
McKinsey Global Institute (MGI) estimates that operating profits after
tax of the largest companies grew from $2 trillion to $7.2 trillion in
2013.

The reasons: corporate taxes were slashed across the
world, interest rates collapsed and labour costs stagnated after the
entry of millions of Chinese and Indian workers into the global economy.

MGI says large companies from emerging markets are driving
global revenue growth while profit rates are higher in developed
economies. The latter have more companies that create value from
intangibles like brands or technology while emerging markets still have
companies that make intensive use of their physical assets.

The
rise of emerging market corporate giants is one reason MGI expects
profits to fall as a proportion of the global economy in the coming
years.

(Source: Editorial in Quick Edit of Mint dated 10-09-2015.)

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End tax uncertainty – Govt must learn from the MAT controversy

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The Bharatiya Janata Party’s manifesto for the 2014 elections promised to end “tax terrorism”, and in his campaign speeches Narendra Modi likened the taxman’s role to the light touch of a honeybee harmlessly drawing nectar from a flower. More than a year later, however, the “flowers” are writhing in pain because of multiple taxationrelated stings, forcing the Modi government to spend an inordinate amount of time on damage control following a firestorm of protests from foreign investors. Consider the controversy over retrospective applicability of minimum alternate tax (MAT ) on foreign portfolio investors (FPIs). The Finance Bill 2015 amended the MAT provisions to exclude capital gains earned by FPIs from the ambit of MAT from April 1, 2015, but the tax department’s position has been that MAT applies to FPIs on all income (including capital gains) up to March 31, 2015 and to all income (other than capital gains) from April 1, 2015. Tax experts, however, say the noise over this absurd tax demand could have been easily avoided because as per the law, there cannot be provision for capital gains tax on FPIs which are resident in tax-treaty regimes where capital gains tax is not levied. Besides, MAT is supposed to apply to domestic companies which pay little or no tax because of the special incentives that the Income-Tax Act provides.

The controversy erupted when the tax department served notices on 68 foreign institutional investors (FII), demanding MAT dues. The notices were served after the Authority for Advance Rulings in 2012 had directed Mauritius-based investor Castleton to pay MAT on its book profits when the company transferred shares from a Mauritius entity to one in Singapore. What was surprising was that so much uncertainty over investments by FIIs was created even though the total value of the tax notices served eventually was just Rs 602 crore. The government got a committee headed by Law Commission Chairman A. P. Shah to look into this; but its report, submitted in July, was not made public because the Supreme Court was to hear a case that has a bearing on the matter filed by Castleton. As a result, uncertainty just increased. It is welcome that the government tried to make its intentions clear last week – especially as risk concerns return to global markets.

There is a lesson from all this. The government must douse such fires more swiftly. The tax department, meanwhile must be reined in. An overzealous pursuit of such cases is counterproductive to the larger cause of tax administration. It adds to the overall perception that India is arbitrary about taxes. The water has already been muddied by innumerable previous instances of conflict, notably those involving Vodafone and Cairn. In the MAT -FPI case, innumerable foreign investors had already got their prior tax returns audited by the tax department – without MAT ever being asserted. Investors have acquired and sold shares based upon share prices reflecting the understanding that the funds had no Indian tax exposure for portfolio securities sold after being held for the requisite long-term holding period. The harm to investor confidence – harm that is directly attributable to the sudden and unexpected MAT assertions – cannot be overstated.

(Source: Editorial in the Business Standard dated 24-08-2015)

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Nikesh Arora and Destructive Creation

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The dangers of too liberal startup funding

There is such a thing as too much of a good thing, asserts SoftBank president Nikesh Arora. Investors from around the world have ratcheted up valuations of Indian startups and this kills the discipline needed to run a sustainable business, says Arora. We agree. We would add that such open-fisted funding of startups has resulted in damaging brick-and-mortar businesses with which some of these web-based startups compete, often unfairly. Easy fortunes made on the basis of valuations that are yet to be validated by earnings create heroes and idols, attempting to imitate whom many aspiring entrepreneurs might shed their self-esteem and entrepreneurial energy, not because they fail to do business but because they do not see in the mirror the muscle-flexing, spandex-clad figure they adore and seek to become.

Of course, liberal startup funding has an upside. In a culture that bars society from taking on risk, save a few groups, forcing the majority to seek jobs rather than pur sue entrepreneurship, liberal funding prompts many more people to chase their dreams instead of chafing at their limiting roles in somebody else’s business. This is most welcome. But this cannot, by itself, offset the damage. Investors who give their investee companies the freedom to burn cash encourage organisational flab: Housing. com is preparing to sack 600. e-Commerce companies have created a huge delivery business, on the strength of orders prompted by steep discounts financed by liberal funders. Once the discounts dry up, as they have to, when investors in e-commerce start looking for returns, will the delivery business sustain with its present manpower? The longer the discounts continue, the greater the hurt to offline retailers who do not have investors who think in terms of `burn rates’ and valuation changes.

Joseph Schumpeter coined the term creative destruction, to describe capitalism’s inner dynamic that constantly revolutionises the production structure, destroying the old to create the new. Excess funding of startups probably deserves to be termed destructive creation.

(Source: Editorial in The Economic Times dated 11-08- 2015.)

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Phase Out, Not Ban, Participatory Notes

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As transparency norms rise, the supply will ebb. The Supreme
Court-appointed Special Investigation Team on black money has flagged
participatory notes (P-Notes) issued by foreign institutional investors
as a possible conduit for illegal funds in the capital market.
Transparency as to the identity of those investing in the market is
necessary. However, abrupt changes would be disruptive. The ideal
strategy is to lower the transaction cost of registering as an investor
in India, so as to encourage most investors to come in directly rather
than as part of a larger institutional investor, phase out most P-Notes
in a stipulated timeframe, while allowing a small category of entities
like university endowments, about whose credentials the regulator has
total comfort, to continue to invest via P-Notes.

Sebi, has
thoroughly revamped the disclosure requirements and eligibility
conditions for participation in the offshore derivative instruments, and
the rules now are far more stringent than before 2007, when Sebi, under
M. Damodaran, had banned them.

P-Notes returned, in the wake of
the financial crisis and capital flight, but with greater mandated
transparency. P-Notes can only be issued to entities from countries that
have signed a multilateral agreement to combat money laundering and for
exchange of information with the International Organisation of
Securities Commissions. Besides, the funds routed via P-Notes have
dropped substantially in recent years and now account for only about 11%
of the secondary market. So, there is no case for any abrupt regime
change.

However, for the sake of transparency, P-Notes are
entirely avoidable, and do need to be phased out in a timebound manner.
The new global rules in the making on transparency, complete with a
system of unique legal entity identifiers that would make beneficial
ownership visible at the end of even complex holding company chains,
would remove the virtue investors seek in P-Notes: anonymity. The supply
of P-Notes would come down, in other words. A time-bound plan to
phase-out P-Notes would make eminent sense.

(Source: Editorial in The Economic Times dated 29-07- 2015.)

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The Annual General Meeting

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The Annual General Meeting of the Society was held at the Walchand Hirachand Hall, Indian Merchant Chambers, Churchgate, Mumbai on Monday, 6th July 2015.

Mr. Nitin P. Shingala, President of the Society, took the Chair. Since the required quorum was present, he called the meeting in order. All business as per the agenda given in the notice were conducted, including adoption of accounts and appointment of auditors.

Mr. Narayan R. Pasari, Hon. Joint Secretary, announced the results of the election of the President, the Vice President, two Secretaries, the Treasurer and eight members of the Managing Committee for the year 2015-16. The names of members as elected unopposed for the year 2015-16 were announced.

The “Jal Erach Dastur Awards” for best feature and best article appearing in BCAS Journal during 2014-15 were announced. The winners were: C. N. Vaze, YogeshThar and Anjali Agrawal.

The Special Edition of the Journal dated July 2015 on “Ethics” was released at the hands of The Editor, Mr. Anil J. Sathe. He mentioned about the special issue articles on Ethics;Fundamental and Operational Ethics, Morality of a Lawyer’s Ethics, “Ethics” isn’t music for the entertainment world, “Ethics” in Architectural Professional Practice and Ethics in Media: A Depressing Scenario.

Thereafter, Ms. Purnima Sharma and Ms. Manju Joshi were felicitated with a plaque by Mr. Narayan Varma. Ms. Purnima Sharma was felicitated for her courage and outstanding efforts to become a Chartered Accountant and be an active citizen, inspite of having hearing and speaking challenges. Ms. Manju Joshi was felicitated for providing untiring assistance to Ms. Purnima Sharma and for motivating her to be an active citizen and helping her to become a Chartered Accountant.

New Publications were released at the Annual Day. Mr. Mihir Sheth spoke about the new book on “Thought Mailers- A Compendium” released in the hands of Mr. Narayan Varma.

“Namaskar Ki Bhet” was released in the hands of Mr. Pradeep Shah.

Three Lucky Winners of the Learn Share Grow, a contest conducted by Bombay Chartered Accountant Society were announced by Incoming President Mr. Raman Jokhakar.

Outgoing President Speech

Incoming President Raman, my colleagues – Mukesh, Narayan, Sunil, incoming VP Chetan, incoming Office bearer B. Manish, Respected Past Presidents, Seniors and Friends.

At the end of such a profound experience, I stand before you today with a mix of emotions:

  • gratitude for learning so much over the past many years that will stay with me forever
  • disappointment that some of the targeted accomplishments could not be achieved
  • sadness that the routine I have come to enjoy will now change
  • relief that the responsibilities come to an end.

I am humbled by the affection and honour bestowed upon me.

Let me begin by sharing my perspective of what’s happening around us. It is said that one cannot begin to comprehend the Future without understanding the Past. When it comes to dealing with the Present, we need to grasp the exponential rate of change that continues to accelerate. Rapid changes are sweeping not only the field of technology but also the areas of business, law and regulations and the human life itself.

Alvin Toffler, the celebrated author, in his book “Revolutionary Wealth” has given a magnificent metaphor for the rate of changes witnessed in various institutions in American society, in the chapter titled “Clash of Speeds”.

First at 100 mph, the fastest change agents are companies and business who drive many of the transformations of the rest of the society. They use technology to blast ahead and force suppliers and distributors to make parallel changes, all due to intense competition.

At 60 mph is the family that has morphed in the face of industrialisation where it shrank and abandoned the old values and inter-dependence.

Clocking at 30 mph is the labour movement slowed by the change of muscle work to mind work, from interchangeable skills to non-interchangeable skills and from blindly repetitional to innovational tasks.

Sputtering along in the slow lane are government bureaucracies and regulatory agencies running at 25 mph. Coming along at 10 mph are the school systems. Toffler bemoans the lack of competition and prevailing culture at the educational institutions that was designed to serve an outmoded factory-style industrial age.

At 3mph, Toffler tags political structures that are the American Congress, the White House and the political parties themselves.

Lastly, the tortoise speed of 1 mph is captured by the slowest changing institution, today’s legal system.

The above metaphor, I believe, would be equally applicable to the Indian landscape.

Toffler’s observations came about a decade ago. Today we find that even the laggard institutions are accelerating. Speaking last week, Mr. Mukesh Ambani commented that with Digital India, the government has moved faster, as an exception, than the industry. The Prime Minister’s vision of Digital India has the potential to transform fundamentally the lives of 1.2 billion Indians using the power of digital technology.

What do such external challenges arising from rapidly changing landscape mean for voluntary associations? I believe their importance will increase. Voluntary organisations will continue to act as a catalyst for intellectual synthesis, provide people to people connect and fill the void created by the technology. But it will require such organisations to innovate continuously to stay relevant and to adapt quickly.

I recall a discussion Raman and I had with Mr T. N. Manoharan during the ITF Conference in Chennai last year. He believes that to stay relevant and make an impact, we will require to build excellent research capabilities to bring value to the members and support recommendations and representations to the authorities with data and statistics.

Apart from external challenges, we also need to deal with the internal challenges which come from growing scale of operations as well as expectations. As I stated in my acceptance speech last year, the annual hours of education increased multi-fold over last two decades. We clocked 132,000 hours in 2013-14 as well as in 2014-15. At the same time, the volunteers, pressurised by professional and personal commitment,are unable to devote as much time as in the past.

To effectively face these challenges, we must transform the organisation radically by enhancing our infrastructure and services and by attracting and retaining quality staff.

I am glad to report that we have made some progress on these fronts. After several years of efforts, we have acquired additional office premises, under leave and licence, effectively from 1st July. I must express immense gratitude to Kishorbhai, Pranaybhai, Pradipbhai Kapasi, Shariq, Sanjeev and Naushad for guiding the OBs through this process. Now, Raman and team are working tirelessly to reorganise the two offices.

We have also brought on board new staff in key office management roles that will strengthen the administration. The process of evaluating their performance is being aligned to increase their quality and help reduce the burden on the volunteers.

Voice of Customer (VoC) has emerged as an important tool in the modern management. We have begun a process to seek structured feedback from our members and the participants through online surveys. I am sure this will provide valuable guidance to the office bearers, the staff and the organisers in improving our services.

The office admin management software – we call it OMS that was custom developed about 12 years ago is falling short of our growing needs. It was developed without any provision for imprest tracking and service tax and the numerous changes and patchworks have made it unstable. The work is already in progress to revamp or replace the outdated OMS.

On the academic front, we attempted several new programmes and innovative ideas. While the Annual Report and the Quarterly Core Group Newsletters provide these details, I am glad to report that our Committees continued to organise outstanding learning programmes and activities in keeping with our finest tradition. I thank all Chairmen, Co-Chairmen and Convenors for their tireless efforts. I must acknowledge the maiden work done by the newly set up Corporate and Securities Laws Committee. My thanks and compliments to Kanubhai for accepting my request to Chair this new Committee and giving us a strong opening in this field of growing importance.

Today is also the occasion to express my sincere gratitude and thanks to everyone for helping me sail through a satisfying year.

Our Past Presidents remain the pivots of our Society. I am grateful to each one of them for having guided me throughout,and gently nudging me back on track whenever I drifted.

The Managing Committee members have been a source of constant support and guidance. I am thankful to each one of them.

The Core Group has been and will always remain our heart. We opened an additional channel of communication on WhatsApp group for instant communication but of course we need to be disciplined in use of this channel. I am grateful to each and every Core Group Member for their dedication and sincerity.

My office bearer colleagues have supported me like solid rocks. Raman, Mukesh, Narayan and Sunil have worked round the clock and shared my burden in equal measure.

Ever young and zestful Raman with his forthright and quick action oriented approach moved shoulder to shoulder with me through the year. With the United Nations declaring India as having the world’s largest youth population, I am happy we have entrusted our leadership to an ever young leader.

My heartfelt thanks to everyone in our staff,including the office boys,for their hard work and wholehearted support! And also for coping up with the challenges brought by various changes during the year. During the year, Raman held several innovative sessions to coach them. We continued to push them to perform better. A major challenge for our staff remains in dealing with multiple bosses. I must compliment them for doing a super job and look forward to them keeping up the momentum.

We continued to receive excellent support from our sister organisations and organise various joint programmes. I am confident this tradition will continue and strengthen further. My sincere thanks the office bearers of the AIFTP, CTC,STPAM and WIRC of ICAI for their valuable co-operation.
My journey at the BCAS has enriched me tremendously:

  • made close friendship with my OB colleagues and other

    Core Group Members

  • acquired rich experience from leading many activities
  • learnt from the wisdom of the elders
  • learnt to remain objective and unbiased
  • found excellent motivation, guidance and support for upholding professional ethics and values
  • caught contagious passion and energy from Raman and various members of the youth group – including the  youngest member Narayanbhai.

One singular activity I relished the most throughout the year is writing the monthly column, “From the President’s Page”. It pushed me to research issues, stretch my thinking and articulate. I found this exercise greatly educative. In his keynote message to the advanced professional writing workshop, Bansibhai quoted a couplet from Manoj Khanderia’s poem. I find this stanza aptly expresses my sentiments. It reads:

The journey through the BCAS gives us opportunities tointeract, learn and get a feedback from a large body that includes seniors, peers and the youth. With mentoring and moulding from stalwarts, one grows from a member to an active volunteer, and finally rises as a leader. It is an amazingly enriching experience.

The challenge for us is to make such an awesome experience visible, specifically to the younger members. All of us have an obligation to encourage and push these younger members, to activey involve themselves and reap the tremendous benefits and contribute to the Society as well. I am sure Raman, Chetan and other successors will work ceaselessly to ensure that BCAS continues to fulfil this objective and thereby thrive to the eternity. Let me assure you Raman and Chetan, I will be around any time you need me. And don’t worry, I will not behave like a mother-in-law! My wife Trupti, daughter Parnasi, son Mohak and my parents have been the pillars of my strength. I could not have achieved this without their wholehearted support. It is not possible for me to express my gratitude to them in words.

At the end, I would like to quote Dr. Joseph Murray’s motto that is close to my heart. “Service to society is the rent we pay for living on this planet”. I see many stalwarts in our fraternity whose lives echo this motto. I hope to emulate their examples, at least to some degree.

Thank you.

Incoming President’s Speech

                
My story                
In  1998,  when  I  became  a member  of  the  BCAS  after passing the CA  examination, I never imagined that I will stand before you, at an AGM to carry on the torch of our Society as its 67th President.
                
As  a  proud  third  generation member of the Society, this is an important milestone for me and a moment of honour to carry on 66 years of legacy of LEARNING, SHARING and GROWING. When I passed my CA exams, the first instruction from my father, who is also a CA, was to become a BCAS life member. Since then, whenever I had to look for professional education, I turned to BCAS. So, I can say that I have GROWN UP in BCAS and therefore here I stand, humbled, grateful for your trust, and mindful of my responsibility!
                
The last year was an epic journey of learning and stepping up to serve the BCAS under Nitin’s leadership. He looked both outward for new initiatives and inward for strengthening the people, infrastructure and processes. We took decisions that had to be taken. As the VP works closely with the President, I was a witness to Nitin’s approach – quiet, firm, courageous and decisive. We shared a wonderful chemistry that I will relish for years to come.
                
BCAS credo                
BCAS is driven by its VOLUNTEERS – their spirit and generosity. Over the last several decades, so many people have GIVEN so freely – their time, knowledge, resources, connections, capabilities and much more. There are so many silent workers, behind the scenes volunteers, who matter to the Society. I cannot thank them enough, for all they have done and all they will do. BCAS Volunteers truly epitomises what Martin Luther King said: EVERYBODY CAN BE GREAT BECAUSE EVERYBODY CAN SERVE. I believe, that as a Society we just don’t print a Journal and Referencer, we don’t just create learning events, we help transform CAs to what they can be! We enable them to achieve their dreams through LEARNING, SHARING AND GROWING. We are not just an organisation from a legal – functional sense. We are a movement of partners, committed to the pursuit of knowledge that improves the profession, strives to make our laws and governance more humane and sensible, make our individuals shine with cutting edge knowledge and virtuosity and in that sense every BCAS volunteer makes our nation more wholesome.

Over the decades, the Society has set A STANDARD in professional education. When we went to Udaipur for the last RRC, members from outstation said – when BCAS says something, we derive a new meaning to what we already knew. People look up to our Exactitude and Care. This ecosystem of beliefs and actions is the soul of our existence and as volunteers we are delighted to live by it, in every possible way.

Another facet of the BCAS is – as CAs so many of us are competitors, yet we are sitting together, learning from one another, sharing our experience and knowledge and supporting one another! A number of lawyers who have come to our events have told me that, they do not have anything like this. Some are fascinated by the level of discussions at our events. One very eminent advocate, who spoke at one of the residential courses, shared that on his visits to Mumbai, he checks with BCAS to see if there is any event happening where he can participate and join the discussion. This spirit to LEARN, SHARE and GROW is precious and unique. This spirit had brought about the genesis of BCAS and is what we are committed to nurture.

The strength of the BCAS lies in its leadership, its committees which are decentralised DECISION CENTRES and the space it gives to individuals to express their creativity. This freedom results in a vibrant buzz that makes our events and initiatives so unique that many others emulate.

Lastly, a special mention is a must for the string of 66 Presidents, the enablers who made BCAS bigger than the sum of individual ambitions. I have seen and worked with a number of them. They are like Lighthouses – No matter what time it is, they have guided, supported and delivered always. I salute them all.

The challenge

Having said that, the landscape around us has changed and is changing faster than ever, since the early days of BCAS. – Professionals, whether participants to our events or faculty, have tremendous time pressures and other pressing exigencies. The freshly qualified have varying and different needs.

–    Add to that, the information overload. From numerous seminars, portals, organisations, study sessions, fast and frequent changes in laws and regulations and decisions. The quantum and complexity of all this is unprecedented.

Where does BCAS stand amidst all of this?

I have seen that BCAS continues to work with the same sense of purpose and passion it is known for. We just had the largest ever 9th Residential Study Course on Service Tax and VAT in June and we are looking at the largest ever International Tax and Finance Conference next month. Nearly 700 participants attend the 4 Flagship Residential Courses each year. In spite of challenges, the Committees have given their best.

How do we get to the next

Still, a great institution always faces greater challenges for it to become even greater. The most difficult part of success is that one is expected to succeed all the time. Also, once anything becomes large and notable, expectations rise.

WHERE DO WE GO FROM HERE?

HOW DO WE GET TO THE NEXT LEVEL?

As a Society, as the managing committee, as sub committees – we need to ponder on these questions!

I wish to share some of my thoughts and vision for BCAS:

1.    At a very fundamental level, we need to question all that we do. We will need to return to the WHY we continue to do what we do. Are we ALIGNED and RELEVANT to those who we seek to serve? Every committee will have to CHALLENGE THE STATUS QUO to see if there is another way? Do we stay the course or change the course?

Traditions have their place. Yet the traditions can also bind us, if not REFRESHED regularly. Let me tell you a story.

A Guru and his disciples meditated early morning in their ashram. The ashram cat started to come by and disturb them. The Guru said – “when you meditate, tie the cat to the pole”. So that’s what they did each morning. A few years later, the Guru passed away. Some years later the cat died too. Now, the disciples began to wonder, the Guru had told us “WHEN YOU MEDITATE, TIE THE CAT TO THE POLE”, so they went out and brought another cat and tied it to the pole for their morning meditations.

The story is symbolic. However, innovation is killed because of the cats like

“WE ALWAYS DO IT THIS WAY” “IT CAN’T BE DONE”

“WE DID IT LAST TIME AND IT DOESN’T WORK”.

As an organisation we will need to question

–    ARE WE REALLY DOING WHAT IS NEEDED?

–    ARE THERE OTHER WAYS TO DO WHAT WE NEED TO DO TO HAVE A BETTER OUTCOME?

–    ARE WE CHALLENGING THE STATUS QUO ENOUGH!
I have learnt this from my teacher, NO MATTER HOW GOOD IT GETS, IT CAN ALWAYS GET BETTER! ITS LIKE GOING FROM PEAK TO PEAK!

1.    GOING DIGITAL–
we need to reach the members –“TO MAKE AVAILABLE” what we have to offer. We started E Learning when the CA profession did not know about it. We launched the E Journal with 12+ years of material available with search features, a WEB TV that enables members to look at our events at their convenience. We will have to reach where the member is more and more. We aim to create a DIGITAL repository of knowledge. I am sure the Committees will think this way for each of their events.

2.    Thought Leadership – on crucial laws we need to build thought leadership. Can we go a step beyond representations, and say this is how it ideally should be? Collaborative thought leadership of the best minds around will make all the difference. As GST is on the Drawing Board, the Indirect Taxation Committee has been putting together material to see how we can do this. We have high expectation from this group.

3.    Another area I feel we can change is the way the Representations are done – with more economics, statistics, data and quantification, giving ranking to our reasoning and also correlate them with larger public policies. We will need to find a way to close the chain of getting our recommendations; grievances and representations reach the decision-makers and ensure they are considered. The technical committees, I am sure, will consider this afresh.

4.    To carry out ADVANCE WORKSHOPS that lead to improved technical skills and eventual revenue generation for our members. Some of our long duration courses are in vogue and well acclaimed and yet we need the NEXT LEVEL, something of a higher order, beyond the preliminary, more issue based and utterly current.

5.    One area that we tested was to have customised trainings for corporate members. I did try this a year ago and with a barrage of new changes coming, we will have more opportunities to do this again this year with the support of the technical committees.

6.    Work with Students – we touch the future when we work with students. There is a lot that BCAS can offer to the Students. The Students Day event was greatly successful. The DREAM TEAM has started to plan for the next year immediately. They are filled with enthusiasm and aspiration to learn. Just the last week, they contacted the RBI and we are having an interactive session at the RBI in the next week.

7.    Build Publications Rack – we would like to have shorter, easy to read and easy to publish books out. They can be short, deal with a topic and not the whole SUBJECT. Often there are incredible issues that come up at study circles, if we can capture them and build upon them we can have a crisp, short, pithy and useful publication quickly. Certain publications are perennial ones, but we run out of them. Say a Mandatory Accounting Standards book or Exploring FEMA or a book on DTAAs or Service Tax that was released in June. Each sub-committee will need to rank their publications into two – ones that are perennial – and others that are CURRENT and having a shelf life. We need to build this strategy clearly and keep it in our focus. We are exploring ways where this can be done and we will see a number of publications from a few committees.

8.    Like Nitin mentioned, we are going for a makeover of the current premises into a LEARNING CENTRE where members – CAs and Students – can come and study, learn, collaborate, and contribute. We got qualified staff, but we needed a better infrastructure for them to perform, more space, better space.

9.    Data driven – we have started surveys since last 6 months. I have always wanted this since my early days in the Journal Committee, to find out what do people really want? To know the preferences and expectations, and interact with the audience, we are using technology to get some solid data.

In all this, we do remember that we will always keep the vision of the BCAS at the forefront. In the words of Thomas Jefferson “IN MATTERS OF STYLE, SWIM WITH THE CURRENT, IN MATTERS OF PRINCIPLE, STAND LIKE A ROCK”. This credo has and will keep BCAS relevant and useful in times to come.

The next 5-10 years will be most exciting and transforming for our country. The government is refreshing, wanting to do something, the demographics are favourable to our nation, technology and innovation are peaking. We have to play our part.

Over the years, the President is expected to be the Chief Innovation Officer. He must innovate, enable, collaborate, invigorate, be the chief products officer and support the committees to run with speed and precision, engaging all the talents of our people, irrespective of title. I will do my best and with the blessings of the seniors, and cooperation of my colleagues in the MC, the Core Group and the BCAS staff.

However, I believe, one year is too short. Looking at the tasks ahead, I am reminded of 2 quotes:

One, that I read recently – THE MATH OF TIME IS SIMPLE: YOU HAVE LESS THAN YOU THINK AND NEED MORE THAN YOU KNOW.

And the other, my choir teacher told us – YOU GOT TO DO WHAT YOU NEED TO DO IN THE TIME YOU HAVE GOT.

We will strive to converge these two divergent looking set of words as we start.

THANK YOU!

67th Founding Day Lecture Meeting by Shri S. Gurumurthy, Chartered Accountant on 6th July, 2015: Shri S. Gurumurthy on India Transformation-Challenges & Opportunities

The 67th Founding Day lecture meeting was held at the Walchand Hirachand Hall, Indian Merchant Chambers, Churchgate, Mumbai. Shri S. Gurumurthy, Chartered Accountant addressed the gathering on India’s Transformation – Opportunities and Challenges.

Mr. Nitin P. Shingala commenced the event remembering Late Mr. Shailesh G. Kapadia, informing the audience about the Memorial Fund under whose auspices the new book “Securities Law – Relevant for Chartered Accountants” was launched. The book is authored by CA.Jayant Thakur. The book was inaugurated by the speaker Shri S. Gurumurthy.

Mr. Nitin Shingala, outgoing President, introduced the speaker as having an immense knowledge on the subject and that the speaker is an economist, a lawyer, professor and a columnist of great renown, over and above a Chartered Accountant.

Mr. Raman Jokhakar, Incoming President felicitated the speaker with a memento on behalf of the Society.

The speaker appreciated that Bombay Chartered Accountants’ Society has kept the flame of ethical and moral values burning and is continuously working towards maintaining it.

He commenced his address with the words of Swami Vivekanand, stating how he won the hearts of so many Americans in Chicago at that time with just 470 words. Shri Gurumurthy moved the audience by stating his limitation in covering the vast subject in such a short time. He mentioned that accidents in life make a person and so is the case for him. In his discourse, he shared his journey of life and how various situations made him what he is today.


Brief synopsis of his speech:

India is very vast with diverse cultural aspects and unless we understand the various aspects of this culture, we will not be in a position to understand India and its economic diversity. We cannot compare India to countries like US and UK. India should be looked at, keeping aside our own personal opinions, qualifications and perceptions about this country.

In the pre-globalization era, Indians were told to go into retailing and not manufacturing. The policy makers at that time encouraged Indians to be avid consumers, and promoted retailing and advertisements to a larger extent. However, these policy makers could not bring about any change in the savings habits of the individuals in this country.

The speaker shared his experience of the visits to various different clusters in India. He gave glimpses of various parts of the country where he had travelled to places like Tirupur, Ludhiana, Morbi in Gujarat and various other different clusters that he visited. He observed that the Indian society is a family based society. This Society operates on becoming self-sufficient through its savings patterns.

Through these small stretches of these small states where the level of education is not that high, people are self-sufficient and also doing large businesses of export and manufacturing goods. Our policy makers, journalists and media are unaware of this reality.

Analysis of GDP and the SENSEX numbers suggest that only 20% of corporates contribute to India’s GDP of which listed Corporates are only 5%. Our opinions are formed by the movement of the SENSEX which only shows the picture of these 20% contributors to the GDP. Morbi in Gujarat has the highest per capita income which is nowhere linked to these corporates contributing to the SENSEX. Morbi is a manufacturing hub of wall clocks, tiles, ceramics and out of the 2 lakh population, 1.5 lakh is employed. With this wide disparity of thought, Shri Gurumurthy made the audience to think, what we perceive of this country and what is told to us by the newspapers, media and the policy makers is way too different than what it actually is.

The Speaker through various statistical data and information, mesmerised the audience and sought to change the image they carry about India. He articulated the savings based pattern in our country and added that irrespective of our economic structure forcing to spend, Indians still encourage the savings pattern. He compared the Indian economy to China, Japan, Germany and other Asian countries whose economies are similar to ours unlike that of the US, UK or the western parts of the world.

Shri Gurumurthy shared his study of various economies. He articulated the thin line distinguishing an intellectual from an intelligent person. He stated that the former thinks for the country while the latter thinks only for himself. An intellectual transcends his thoughts for the benefit of the country and not only for himself.

Lawyers in India led the freedom movement in India because they were great intellectuals. They could do this as they understood the law, the constitution and the state society relationship. Chartered Accountants did not do so, at that time, because they were hooked to their clients and the traditional ways of doing things. Today’s economy has enhanced the scope of Chartered Accountants and they deal with a lot more than just numbers. India obtained its Political Independence from the western forces which was led by lawyers. India will now get its Economic Independence from the western forces which will be led by Chartered Accountants.

Indias’ transformation – Opportunities and Challenges, means setting the role of India vis-à-vis the whole world. The Speaker questioned the audience whether India is going to be rule acceptor or rule setters.He stated that India is not a rule acceptor and this is because it has started to question the world on various laws and policies. It was only after the nuclear blast in 1998 that the world started accepting India as a super power and all doors of economic investments opened to a larger extent. Indians believe in non-violence and our Army and Navy are the largest in the world. This clarity of thought of the speaker and his immense knowledge held the audience spellbound.

Finally, Shri Gurumurthy left the audience with a duty, a sense of responsibility to bring about a transformation which we all wished for and wanted to see. His perspective about India changed the thinking of many. He bestowed the Bombay Chartered Accountants’ Society with a task to bring about a change in the financial and economic study in this country. A study which is much needed in today’s scenario to change the thought process and opinion making process in this country. Till we do not make this change in our views, we cannot make changes in the policies and policy makers’ views at Delhi.

The lecture meeting concluded with Mr. Chetan Shah, Incoming Vice President proposing a vote of thanks to such a thoughtful and knowledgeable speaker, which was appreciated and received a loud applause.

27th June 2015 To Shri Eknath Kadse Minister for Revenue Government of Maharashtra, Mantralaya Mumbai-400032 Respected Sir,

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27th June 2015

To

Shri Eknath Kadse
Minister for Revenue
Government of Maharashtra,
Mantralaya
Mumbai-400032

Respected Sir,

Subject: Representation for Stamp Duty

This representation is with reference to the increase in stamp duty by the Maharashtra Stamp Act, by virtue of which a Power of Attorney for representation before the Tax authorities needs to be executed on Rs.500 stamp paper.

This increase would cause undue hardship to professionals and the clients as there could be several proceedings pending before the authorities each of which warrant a separate POA execution. Attached is a copy of our representation listing the issues and some suggestions for your kind attention.

We hope that our representation will receive due consideration.

Thanking you.

Bombay Chartered Accountants’ Society

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Furnishing of Information for Payments to Non-Residents & Rule 37BB

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28th May 2015

To

The Chairperson,
Central Board of Direct Taxes,
Ministry of Finance,
North Block,
New Delhi 110001.

Furnishing of Information for Payments to Non-Residents & Rule 37BB

Prior to the amendments made vide Finance Act, 2015, Section 195(6) required that a person responsible for paying any sum chargeable to tax under the Income Tax Act, 1961, to a non-resident should furnish the information relating to such payment vide form 15CA and 15CB to the Central Board of Direct Taxes.

After the amendment made vide the Finance Act, 2015, with effect from 1st June, 2015, “a person responsible for paying to a non-resident, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information ….”.

Thus, with effect from 1st June, 2015, every payment to a non-resident, including items such as a simple import of a commodity, will be required to be supported by Form 15CA and 15CB.

Further, simultaneously with the amendment to Section 195(6), a new Section 271-I has been inserted, providing for penalty of Rs. 1 lakh for failure to furnish such information or furnishing inaccurate information.

These amendments will considerably increase the number of certificates that would be required to be issued across the country many fold. A large number of such certificates would not result in any additional tax / revenue generation.

Professionals and accountants across the country would get engaged in unproductive work of repetitive nature, and resources of companies in terms of time and money would get deployed in such unproductive work, thereby draining valuable resources of the nation. This would certainly act as a deterrent to the “Make in India” concept, as well as to the ease of doing business.

The penalty prescribed causes further hardship and compulsion on the assessee.

On behalf of the thousands of affected persons across the country, and on behalf of our members who represent and advise such affected persons, we request that the following remittances be excluded from the purview of the amended requirements. For this purpose, a suitable amendment may be made to Rule 37BB, by adding the following items to the list of exclusions contained in explanation 2 to rule 37BB:

  • Payments for import of goods or machinery
  • Payments under Liberalised Remittance Scheme (LRS)
  • Payments by residents for maintenance of relatives abroad
  • Remittance of balances in NRE & FCNR(B) Accounts
  • Payments by residents for education expenses of their relatives
  • Payments for participating in exhibitions, fairs & events overseas [since such income is in any case exempt under domestic tax law under explanation 2 to section 9(1)(i)]
  • Repayment of principal of loans from overseas
  • Payments by credit card by individuals for personal purposes
  • Remittances to self outside India
Since the amended provisions come into effect from 1st June, 2015, considering the urgency of the matter, we request you to bring about the abovementioned amendments immediately so that genuine personal and business transactions which do not give rise to income chargeable to tax in India, are not adversely impacted.

Thanking you.
For Bombay Chartered Accountants’ Society

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Greece – A Tragedy is Averted, But Heed its Lessons

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Jean Paul Getty, in the 1950s the wealthiest person on the planet, said, “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” Shorn of jargon, that is the deal Europe made with Greece. Europe will pump in another €86 billion over time into Greece, in return for promises to reform. How exactly Greece will reform is unknown. It has a culture of high tax avoidance, low retirement age, lavish pensions and an oligarchy that controls much of its economy and media. It also has little or no industry and relies largely on tourism and farm exports to earn foreign exchange. Have you read a manufacturing label that says ‘Made in Greece’? Yet, for many reasons, it cannot be ejected from the eurozone. Greeks feel they have been dealt a bad hand by Europe and global capital. So they voted for a Left government led by Alexis Tsipras, who vowed an end of five years of ‘austerity’. Tsipras now has the tough task of selling ‘reform’ to his voters. Europe is hostage to Greece, whose economy is tiny but heritage is immense. Aristotle, Socrates and Plato taught it civilisation. Euclid is the father of geometry. Athens was the seat of culture; Sparta the nursery of warriors.

Yet, Greek culture cannot be a financial band-aid. The idea of a eurozone, where states have no monetary policy but only fiscal and other policy widgets, has been challenged. This time, Greece has stared down its bankers by Getty’s logic. The next time might be different. And policymakers in India, where the economy is slowing, consumption and investment lacklustre and banks are saddled with bad debt, should take note: Greek tragedies might overwhelm Kalidasa’s epic tales of love.

(Source: Editorial in The Economic Times dated 14-07-2015.)

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Black Money Law – I-T Professionals vs. IT Professionals – Software industry isn’t a laundering haven

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It appears that the taxman has turned his steely gaze towards Indian software professionals with retirement savings in the US. Stiff penalties under the ‘black money law’ are reportedly in the offing if investments are not disclosed. That is unfair. These professionals are not scheming cheats stashing their cash overseas. They pay taxes on their global income in India. Mobility is extremely high in India’s export-driven software industry. These professionals have foreign bank accounts, make social security contributions or contribute to US retirement savings such as the 401K plan, where the contribution is made out of pre-tax dollars and taxed only at the time of withdrawals. For this lot, to keep track of each and every deposit made in the bank account since it was opened is tough. Any inadvertent error in disclosure can lead to needless harassment. This will hold equally for those who have worked abroad on short stints.

True, government has now offered a voluntary compliance scheme that allows Indians with hidden assets overseas to come clean. However, once the compliance window is shut, anyone charged of wilful attempt to evade taxes will have to pay a stiff penalty and face prosecution. Should IT professionals also use the compliance window, especially since information on undisclosed assets of Indian taxpayers will be available later this year under the Foreign Account Tax Compliance Act? The US had passed the law in 2010 that requires US taxpayers and foreign financial institutions to report information on foreign accounts of US taxpayers. With the Indo-US accord, our tax authorities will secure details of financial accounts held by Indian taxpayers in the US. So, a clarification is in order.

Applying the draconian provisions of India’s black money law to Indian IT professionals is simply unjust. Instead, the government should go after the big fish who dodge the tax net. India certainly needs an IT-empowered, big data-crunching department that can tell a person how much tax she should have paid, instead of the taxpayer saying how much she earns.

(Source: Editorial in The Economic Times dated 14-07-2015.)

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Political Burden in the Banking System – Bad loans have their roots in rotten politics

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The Reserve Bank of India’s (RBI) financial stability report, released last Thursday, offers much scope for discomfort. It says, roughly, that bad bank loans — however or whatever you designate them — are growing and stateowned banks, with large exposures to lousy projects, are most vulnerable. Since the bulk of banking and project finance is done by state-owned banks, this is a grim picture.

Most private banks lend short-term, for working capital, leaving the public sector banks (PSBs) to do the heavy-lifting for large projects, including investment for infrastructure, which India sorely lacks. But here is a problem: key appointments at state-owned banks and their lending decisions tend to be stained by the illicit manner in which Indian politics funds itself — by the proceeds of corruption.

Given the political-bureaucratic connections at play, PSBs lend heavily to politically favoured promoters for their inflated investment proposals, and when these turn sour, are more than willing to ‘restructure’ their borrowings by taking haircuts on the money lent. The power sector is crippled by the bad politics that deems power an ideal giveaway. The end result, as the RBI points out succinctly, is to double the amount of bad debt that the banking system carries: from under 5% of total lending to over 11% today. Yet, these warnings from the central bank cannot solve the bigger problem that eats away at the heart of the economy: the rot in political funding.

In India, this is opaque and driven by illicit cash, stashed away by companies and paid in return for political favours, including bank credit, for dodgy projects ranging from infrastructure to mining. Equity investors have burned their fingers and have become risk averse; the RBI can help by deepening and widening the market for corporate bonds. But the most important reform, that should start at the top, is to clean up political funding: once that system becomes clean and transparent, much of the chain of graft leading from parties to babus, crony capitalists, bank officials and bad loans, will be broken.

(Source: Editorial in The Economic Times dated 30-06-2015.)

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By converting Professional Relationships into ‘Family’ ties, we create Conflict of Interest at all levels of Society

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From Donald Trump to Richard Branson, from Vijay Mallya to Lalit Modi, buccaneering, system-gaming, high living billionaires are the stuff of urban legend. The righteous scream for Modi’s head and secret admiration combusts with shrill jealous moralism that Modi is brazenly rich, boasts about his many connections and is seen partying with Paris Hilton and Naomi Campbell.

While thousands of Indians live in almost similar glass houses, dream of gaming the system and well-networked mini Modis proliferate across India, we are content that a public stoning of Prime Time’s Public Enemy No 1 is going to solve the deep-rooted problem. We hypocritically cling to the adage that to be rich and create fantastically successful cricket tournaments are criminal acts, yet we conveniently overlook the fact that conflict of interest at all levels of society is hardwired into our cultural and institutional DNA.

Extraditing Modi or securing the resignations of Sushma Swaraj and Vasundhara Raje may make for a neat end to the TV drama but unless we understand the institutional nature of the problem, the malaise will only grow. And the malaise is that as a cultural trait we Indians convert professional relationships into family bonds and thus create conflict of interest at all levels of society. How many times have you heard the phrase: Mr. VIP is like my own brother?

Modi has the whacky chutzpah needed to create a massively successful private sector property like the IPL. All the moralistic handwringing about cheerleaders being anti-Indian culture and pure cricket being replaced by casino cricket has been buried under the tidal wave of public enthusiasm for the inter-city tournament.

There is hardly anything morally wrong about big money coming into cricket, provided of course that the money is clean. Modi had the audacity to thumb his nose at UPA when he shifted the IPL to South Africa in 2009. He also has the audacity to openly declare his close relations with various politicians.

And here is where the problem lies. In our culture we too quickly transform public relationships into private ones and professional relationships into family bonds. For us anyone with whom we should have a close professional relationship is instead a feudal attachment of either ‘didi’ or ‘dada’ or ‘tau’ or ‘chacha’. Seeking to make public institutional relationships into private family relationships is the bane of our social life. The dada-didi, chacha-tau syndrome means that loyalty is always to the ‘family’ relationship and not to institutions.

Prurient moralists scream that Swaraj and Modi’s dinner at a London hotel is a criminal act when it emphatically is not. Where the conflict of interest comes is that Swaraj clearly acted on the belief that her ‘family’ ties with Modi and her loyalty to an old close relationship over-rode her institutional public responsibility as minister.

The same goes for Vasundhara Raje. There again a close ‘family’ relationship was seen as more important than her public and institutional role. In fact the dada-didi, chachatau syndrome proliferates across our public life; it is so widespread that we don’t even recognise this serious conflict of interest which is so culturally ingrained. After all, aren’t VIPs duty bound to look after their families well?

Politicians have meddled in the BCCI down the decades, realising the enormous wealth and influence at its command and have sought to enter the IPL, attracted not only by the big money but also because of their so-called penchant for cricket. But do Republican and Democrat politicians in the US also hold important positions on baseball leagues or soccer clubs? Are Labour and Tory politicians office bearers of the MCC?

In India businessmen and politicians are united in a boys club of big money and big power, all of it legitimised in the name of cricket. And if it’s not cricket, it’s real estate, it’s educational institutes, coal allotments and telecom licences where largesse is handed out. In this dance of cronies, the state itself becomes a family enterprise, the Il Familia of Don Corleone, where only individuals matter, not institutions.

There is thus hardly any incentive to clean up the system, hardly any incentive to bring in professional managers or enforce regulations or ensure that black money pitfalls are cleaned up, because all deals are in any case done on a personal basis. Louis XIV’s declaration, ‘I am the state’, echoes eerily with Indian democracy of the 21st century where many Sun Kings and Sun Queens have converted the public realm into their private families.

The privatisation of the public realm means that institutions that belong to the people to ensure the public good simply become the family property of individual politicians or businessmen and the state itself is parcelled out between gangs of politician-tycoons. In an odd twist, in the economic sphere, while massive public sector white elephants urgently await privatisation, it is public life instead which is being busily privatised by the netas. Swaraj and Vasundhara Raje see nothing wrong in extending favours to Modi in their official capacity, because after all he may either be their bhatija or bhaiya or chacha.

As a society we’re trapped in creating honorary brothers, sisters, uncles and aunts instead of establishing modern relationships on the basis of professional responsibility and merit. In western societies, strangers on the street are hardly called chacha or dada. While this may be a heart-warming desi trait for some, it creates a feudal mindset by which private bonds must be honoured at the cost of professional duty. Until we find systemic ways to stop the privatisation of the public realm, a syndrome in which Modi, Swaraj and Raje are all participants, conflict of interest will constantly occur. The Great Indian Parivar is a blessing but also a curse.

(Source: Extracts from an Article by Ms. Sagarika Ghose in The Times OF India dated 24-06-2015.)

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Swachh Bharat cess exemplifies how the Indian tax payer is taken for granted – Roll it back

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These are taxing times. Finance minister Arun Jaitley’s fiscal policy
this year has been characterised by a combination of higher tax rates,
removal of tax exemptions and a new tax. So successful has j aitley’s
strategy of enhancing the tax burden been that indirect taxes this
financial year have grown almost twice as fast as his original target in
an economy with muted demand. j aitley often promises foreign investors
a stable and rational tax regime. h e should consider extending the
same courtesy to i ndian tax payers.

India has an annual budget intended to raise revenues for carrying out basic public welfare functions such as education, health and sanitation. i f these have to be funded through additional cesses and surcharges, that raises the question whether normal budgetary revenues are being frittered away on sops to vested interests – exemplifying maximum government, minimum governance. t here has been a constant increase in collections through different kinds of cess and surcharge. t heir collections exceeded r s. 1 trillion in 2013-14, or 13.14% of gross tax revenue. A cess today is levied on an extraordinarily wide range of activities, from salt to “cine workers”.

The rationale for every additional cess gets more and more unconvincing – we need to cease taxation by stealth. a mong the problems with the Swachh Bharat cess is that it runs counter to the spirit of cooperative federalism as revenue raised through a cess or surcharge is excluded from the pool that is split between Centre and states. C a G has pointed out that there is inadequate transparency and incomplete reporting in government accounts of the manner in which the money is spent. Jaitley’s fiscal policy is also an example of schizophrenia in i ndia’s economic policymaking. t he government constantly urges r B i to cut interest rates to stimulate demand but also follows a tax policy which limits demand.

Given that it imposes an additional burden, a levy should need a powerful reason. a clean energy cess imposed specifically on dirty fossil fuels and ploughed back specifically into clean energy projects makes sense, as it improves our environment. But a cess to carry out a basic function such as sanitation is an example of taking people for granted. i t must be rolled back.
Indians provide the lion’s share of India’s savings and investment. t hey deserve the same consideration as foreign investors.

$3 trillion excess debt

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The IMF debt estimate can become a ticking bomb given the downturn in economic growth combined with the prospect of higher interest rates in US

Companies from emerging markets have been on a borrowing spree in recent years. Now the International Monetary Fund (IMF) has estimated that these companies have over-borrowed around $3 trillion, which can become a ticking bomb given the downturn in economic growth combined with the prospect of higher interest rates in the US. It is not usual for a top official at the multilateral lender to speak about the prospect of a “a vicious cycle of fire sales and volatility”.

Such chaos is definitely not inevitable, but the next year could yet see massive swings in asset prices—in case the most dire possibility becomes a reality. A sharp increase in risk premiums could push many over-leveraged companies from emerging markets over the edge. Indian policymakers will also have to figure out a way to manage the triad of risks that IMF has talked about in its new Global Financial Stability Report.

The upshot: there could be trouble round the corner. (Source: Quick Edit in Mint dated 09-10-2015.)

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Reduce Sulphur in diesel, First of All – Without clean fuel, vehicles cannot cut pollution

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Delhi must stop beating about the bush on air pollution and, instead, speedily reduce sulphur content in diesel to proactively improve environmental standards. Slapping an environmental cess on trucks entering Delhi might actually worsen pollution levels, with traffic choked at toll gates.

The Centre, in announcing last week India’s intended nationally determined contributions (INDCs) for climate action, said it aims to improve fuel standards “in the near future”.

India is not obliged to set out its actual target dates in a negotiating document. Yet, as the expert committee, headed by Saumitra Chaudhuri, then member, Planning Commission, noted last year, in the business-as-usual scenario, the deadline to improve fuel quality is 2025 “or even beyond”.

The panel stressed that reducing sulphur levels in diesel is essential to reduce tailpipe emissions, particulate matter and oxides of nitrogen. The government needs to speedily improve fuel quality nationally.

As the expert panel noted, Bharat Stage-III diesel, with sulphur in the range of 350-500 particles per million (ppm) is still supplied in much of the country. BS-IV (sulphur levels at 50 ppm) is now increasingly available in the major towns, but vehicles on long-distance routes are more likely to run on BS-III fuel. The expert report emphasised that BS-IV diesel is a must for pollution abatement devices like catalytic converters to function. It added that when sulphur content reduces to 10 ppm (BS-V), the efficiency and durability of the onboard pollution control devices improve. However, to move to ultra-low sulphur fuel requires capital investment of the order of Rs 80,000 crore in oil refineries. The report called for a 75 paise sulphur cess per litre of automotive fuel to reach BS-V by 2020, and BS-VI by 2024.

The report was submitted last May, before the slide in oil prices. The government needs to address the root cause of urban air pollution and, given the far softer oil prices, levy an appropriate charge on auto fuel sales to revamp refineries.

We must in the near future move to BS-V fuel norms and not wait to do so only by 2020.

(Source: Editorial in The Economic Times dated 09-10-2015.)

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Sahitya storm – Writers must stand up for intel – lectual freedom, returning awards may not be the best way

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A rising tide of writers are returning their Sahitya a kademi awards in protest against growing intolerance and restricted space for freedom of choice in the country, since nda governments came to power at the Centre in 2014 and subsequently in many states. Culture is an early warning sign, and BJP-led governments must take note of growing signs of disquiet. e ven as people are lynched on suspicion of consuming beef, three rationalists have been murdered in succession in m aharashtra and Karnataka – extremely un- i ndian acts that are being laid at the door of h indu extremists. they are usually followed by a stream of statements from high-ranking BJP leaders, which appear to condone heinous crimes and create a culture of impunity around them by trotting out the time-worn cliché of ‘hurt sentiments’.

If writers and intellectuals were to secede, it would seriously diminish i ndian soft power. But more importantly, they broach broader concerns. Poor people in the countryside are dependent on the cattle trade. Curtailing this due to the hysteria over beef will see a drop in their living standards at a time when the agricultural sector is already in crisis. moreover, youth have grown aspirational and will not take kindly to an atmosphere of restricted political and social freedoms. a ll this will hurt B j P in elections and make Prime minister Narendra Modi’s modernising agenda seem hollow.

At the same time, writers also need to reflect on the perhaps unintended irony of returning their Sahitya a kademi awards as a protest against the government. t his implicitly concedes that Sahitya a kademi is a government body, and thereby raises the question why they were content with government patronage and did not fight for an autonomous body that truly represents writers.

A related concern is whether writers have been as vocal about muslim fundamentalism, or of left-wing crackdowns on dissent, as they have been on hindu fundamentalism. Few writers protested, for example, when the Left stifled intellectual life in Bengal or when Taslima nasrin was drummed out of that state. a solution would be to have a robust, autonomous body of writers that is willing to speak out on assaults on freedom of expression, no matter what quarter the attack is coming from. the government, on its part, must note that leftwing intolerance does not justify right-wing intolerance; both will lead to the same sorry results. India can flourish only in a liberal atmosphere, which gives citizens the right to choose.

A new international tax regime – Govt must con – sult industry and implement BEPS project

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The recent unveiling of the final reports on 15 action plans by the Organisation for
Economic Cooperation and Development, or OECD , under its Base Erosion and Profit Sharing (BEPS) project will undoubtedly mean new and formidable challenges for many companies operating in india and abroad. No less formidable will be the challenge the BEPS project will pose for the Indian tax authorities, as they have to conform to a new regime of cross-border taxation even as they undertake fresh tax policy reforms at home. The BEPS measures, according to one estimate, will affect just under 200 large indian companies. to begin with, these companies will have to adhere to the country-by-country reporting standards for their operations in different tax jurisdictions. Globally, an estimated 9,000 companies will be impacted by the new measures, and each of them will have to reckon with the tax policies in vogue in different countries where they have business operations. t he numbers may not look too large at present. But there is no doubt that the manner in which the indian authorities ensure tax compliance by companies operating in india under the BEPS regime will determine to a great extent india’s reputation in providing the ease of doing business, and hence its attractiveness as a destination for new investments.

The BEPS project, led by the OECD and the Group of 20 (G20) countries, is a response to the 2008 global financial crisis, and is meant to lay the foundations of sustainable and long-term economic growth by avoiding policies that promote growth at the expense of other countries. it has been estimated that multinational businesses have often used a complex transaction structure to artificially reduce their outgo on corporate taxes by shifting to jurisdictions with lower taxation. according to OECD estimates, such tax avoidance has led to a global revenue loss of $100- 240 billion every year – as significantly large as four to 10 per cent of global corporate income-tax revenues. the 15 action plans approved under the BEPS project will help improve transparency for both businesses and governments by introducing commonly agreed minimum standards for tax administration across countries. they are focused on a large number of diverse and important issues including those pertaining to alignment of taxation with the location of economic activity and value creation, application of transfer pricing guidelines and taxation of digital enterprises like those engaged in e-commerce. of particular importance is the BEPS regime’s focus on reinforcing the limitation of benefits to companies to prevent what is commonly referred to as treaty-shopping, where a company uses a location of business with the sole purpose of taking advantage of a tax benefit available under a bilateral tax agreement.

The challenges for both Indian tax policy makers and the companies are, therefore, huge. Indian companies expected to come under the purview of BEPS will have to increase their awareness of the new regime and start preparing to comply with the new regulations that are likely to be in place from 2017. Without losing much time, they have to bring their accounting systems up to date, improve their compliance mechanisms, particularly with regard to country-by-country reporting standards and transfer pricing rules, and upgrade the manner in which they report data. of some concern will be the way the BEPS regime will bring digital economy enterprises like start-ups and e-commerce ventures under the tax net. For the Indian tax authorities, the tasks are even more onerous. they have to start a process of consulting industry players on the BEPS regime and how they intend to bring their taxation system in line with the mandated international standards. this cannot be allowed to be a new source of irritation for industry or a cause for rising cost of compliance. there has to be a healthy balance between ensuring compliance without adversely affecting India Inc’s competitiveness.

Jaitley’s Gambit – Piecemeal tax reforms only act as a palliative, it’s time to revive direct tax code

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Finance minister Arun Jaitley has constituted a committee of experts to suggest changes to income tax law with the aim of simplifying it, providing a stable environment and reducing the incidence of litigation through removal of ambiguities. The aims are unexceptionable but the approach is puzzling. during his budget speech, Jaitley said he saw no merit in pursuing a new direct tax law. But controversies since then over the law’s interpretation forced him to engage in firefighting, which has now culminated in the expert committee. i ndia needs a new direct tax code underpinned by an integrated approach to reform, rather than piecemeal change.

The last six years have seen three finance ministers struggle to reform the direct tax code. The first draft in 2009 was the most comprehensive attempt to change the code, but it wasn’t fully implemented. i n the interim, problems multiplied as the law was not in sync with structural changes in the economy. Litigation has grown. a t the end of 2013-14, Rs.2.59 trillion of direct taxes claimed was under dispute. Problems aren’t going away as the recent controversy over MAT on foreign portfolio investors showed.

Jaitley should restart the exercise of a comprehensive new direct tax code. experience suggests that piecemeal reform merely works as apalliative. Not long after an effort at piecemeal reform, a controversy erupts and the fallout spills over to other areas of the economy. t he only way for Jaitley to avoid frequent bouts of crisis management is to completely overhaul the existing law. Blueprints of earlier attempts make it easier to get started and exclusive central control of direct tax means that the legislative process for a new law will be easier.

MAT on FPIs – Fickle Tax Laws hurt Foreign In – vestors

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It is absurd that foreign portfolio investors (FPIs) are facing fresh income-tax queries after the government granted them a retrospective exemption from the minimum alternate tax ( mat ), based on the recommendations of the justice A . P. Shah panel. however, FPIs will now reportedly have to convince tax authorities that they do not have a permanent establishment
 (PE) here to escape the tax.

Foreign institutional investors, now FPIs, have been in relentless fear that tax authorities could construe their domestic custodian as a PE in India, making them liable to pay tax. The government must come out with a clear communiqué on what constitutes a P E , and not leave it to interpretation. Waffling on the promise to scrap MAT on FPIs could create mayhem on the markets, needlessly. do servers, for example, create a permanent presence?
In the OECD’s view, a server i fixed, automated equipment that can perform important and essential business functions – may be sufficient to create a PE at the equipment location without the presence of human beings. Conflicting rulings by the authority of advance rulings have only added to uncertainty in this area of taxation. t he government should clear the air to mitigate investor concerns.

In this case, FPIs have approached the Dispute r esolution m echanism ( DR. P). t he need is to ensure its robust functioning – the DR. P has a pool of dedicated tax officers. India has slipped in the World Bank’s latest ease of doing business index in terms of paying taxes, and mounting disputes could be a major reason. t he country’s tax regime must be reformed to minimise disputes. o ur tax officers should be better trained to deal with complex transactions as India globalises. Predictability of tax conduct is on par with simplicity of the law.

Moody’s is right to warn that belligerent com – munal rhetoric could ruin India’s economic pros – pects

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Prime Minister Narendra Modi has gone all out to pitch i ndia as a global business destination. But the research arm of international ratings agency Moody’s has injected a timely note of warning on domestic actions that might scupper this bid. in a report titled ‘ India outlook: Searching for Potential’, moody’s a nalytics has said unequivocally that unless m odi reins in BJP members making controversial statements, i ndia runs the risk of losing domestic and global credibility.

President Pranab Mukherjee, addressing the Delhi high court on its golden jubilee, pitched yet again for pluralism and tolerance. and RBI governor Raghuram Rajan devoted a good part of his IIT Delhi convocation speech to explicating why tolerance is essential for i ndia’s economic progress. While tolerance allows the best ideas to come forward and compete, in an intolerant regime the worst ideas can’t be questioned. in place of the false opposition between tolerance and nationalism that hyper-nationalists within BJP presume tolerance, as r ajan proposes, should be deemed a patriotic service.

As the Moody’s report points out, there are two interrelated ways that religious majoritarianism and the spreading culture of bans and intolerance can hold up economic progress. First, rising ethnic tensions will discourage investors who have a host of international destinations to choose from. Second, the political debate in the country will turn away from development to more divisive issues, creating stiffer opposition to the government in Parliament and holding up the passage of reform measures key to turning around a sagging economy – such as GST, relaxed labour laws and land acquisition norms. Modi needs to lay down the ‘ sabka saath sabka vikas ’ line more firmly within his own party and government by telling his hardline colleagues they can’t have the cake and eat it too: it’s either economic progress or the religious agenda.

Ease of doing business in India – From 130 to 50 – Long road to genuinely improving business en – vironment

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The World Bank’s Doing Business 2016 report, which evaluates the ease of doing business across the world, has said that i ndia is the 130th toughest nation in the world in which to do business. t his is four ranks higher than it was in 2015, in which its rank has been recalculated to be 134 instead of 142. t he n arendra m odi-led government’s stated aim, to drag i ndia into the top 50 before its term is over, at present, looks distant. e ven this improvement underlines, in fact, how deep and wide-ranging reform will have to be just to improve on paper, let alone in fact and in the eyes of entrepreneurs and investors. t he improvement in the national ranking comes from, essentially, a few procedural changes in how d elhi’s power distribution company BS e S gets new connections to customers in south, east and west d elhi. t he number of inspectors has been reduced from two to one and the number of steps to the process reduced. a nd, the reason why i ndia has jumped many steps in the new method of evaluating ranks is because “reliability” of power supply is now a criterion, which it wasn’t in the old method used till 2015. o f course, power supply in d elhi and m umbai, the only locations the World Bank considers, is reliable – but, in the rest of the country, that is not always the case. Far deeper and broader reform will be needed, and it would be risky to be content with such improvements. Coincidentally, the government has also announced a committee, led by a retired judge, to look into how to redraft the income-tax law. t his is a valuable effort; by making the language clearer and less ambiguous, the number of disputes between the taxman and companies or individuals could theoretically be reduced. t he number of tax cases has gone up in the past decade, and several thousands of complex legal cases block up i ndia’s courts. o f course a well-drafted law might conceivably help settle cases quicker. But without a better-administered income- tax department, one that is not incentivised to chase down targets, a well-drafted law will make only a limited impact in tackling the current problems. n or will a better-drafted law help settle outstanding or frivolous cases quicker in the absence of judicial capacity at every level.

Finally, the quality of drafting of the tax law is not its only constraint on the ease of doing business – India ranked 157th in the world in terms of the ease of paying taxes. according to the report, 243 hours a year are devoted by business to paying taxes, which they have to do as many as 33 times, at an effective tax rate of close to 60 per cent of profits. In other words, the tax system needs to be overhauled not just in terms of legal but also economic effectiveness. And this is not a difficult task either. The finance ministry has in its possession a series of reports on taxation reforms, which have outlined a detailed action plan on how to make India’s tax system less adversarial, more friendly to the tax-payer and less prone to litigation. i t is time the ministry took a closer look at those recommendations for overhauling the tax system. a shallow effort will not work.

[Comment: Without a change in the mindset of the Bureaucracy, Revenue officials & the Regulators, it would be an impossible aspiration !]

Keeping abreast – Judiciary needs to keep up with economic knowledge

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Do senior judges and regulators who have to increasingly deliver pronouncements and findings on complex technical and economic issues have a chance to keep abreast with the rapid changes taking place to knowledge? r ecently the Bombay h igh Court delivered a verdict on taxation issues relating to Vodafone, a telecom service provider, and the Competition Commission of i ndia pronounced on the conduct of sugar mills. i n such instances the judicial or quasi-judicial authority needs to have a knowledge of not just the law but also have some grounding in the imperatives governing market-driven economies and ground realities in particular industries. t he latter keep changing rapidly with technological developments altering the rules of the game even as the number of regulators with specific economic jurisdictions keeps going up.

There is already some institutional support in this endeavour. t he National Judicial a cademy, a training institute for judicial officers, has established the “national judicial education strategy” which holds programmes for high court judges and district judges. But the training usually pertains to matters like correct legal procedure and evaluating evidence. t his does not sufficiently help a judge when dealing with scientific evidence in judging, say, an intellectual property dispute in pharmaceuticals or information technology software. Consider the differences with senior i ndian civil servants who can, for instance under the Colombo Plan, attend courses in internationally reputable institutions to acquaint themselves with the latest developments in economic thinking and public administration.

Given the increasing calls being made upon the judiciary to freely and fairly determine contentious issues which are grounded in the latest technology and economic principles, senior judges and regulators would benefit from refreshing their knowledge beyond the domain of law. t here is a need, therefore to formalise a system whereby senior judges and regulators can expand their knowledge base in keeping with the changing needs of society. the cost of even the best such training has been substantially reduced by the rapidly expanding fields of e-learning and e-tutoring. modules can be prepared keeping the needs of judges in mind and they can pursue them interactively, with guidance from remotely placed experts. the process can be topped up with a course or residential seminar at a reputed institution. a ll professionals – not just civil servants or doctors – need to keep abreast with the new knowledge of the day and there is an urgent need to set in place a system to deliver this to judges.

Aadhaar – Govt should now bring forth an effec – tive privacy law

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The Supreme Court’s modification of its order on Aadhaar, expanding the use of the unique identification system to four additional welfare schemes – provident funds and pensions, the
Mahatma Gandhi National Rural Employment Guarantee Scheme and Jan Dhan Yojana – is a welcome step. t he court’s earlier decision this summer limiting Aadhaar to the public food distribution system and fuel subsidies had thrown authorities like the Ministry of Rural
Development and the Election Commission into confusion. t hey were reported to be pulling back from using the biometric system as it was feared they would be seen to be in contempt of court. t he earlier order ruled that Aadhaar could be used for food and fuel subsidies but not for other purposes, limiting the use of this potent tool to contain subsidies leakage. Aadhaar is best understood as a technology foundation upon which i ndia can build a better, more-targeted and less-leaky subsidies system – food and fuel subsidies have been grossly misdirected over the past several decades. It can also help achieve radically higher rates of financial inclusion. In Bengaluru, efforts by a non-governmental organisation has seen construction labourers, among others, open bank accounts late at night at small grocery stores and remit money to their families in rural India. By being able to do so without paying onerous commissions of as much as Rs. 100 for a remittance of Rs.1,000 has made them eager adopters of a financial inclusion effort that uses Aadhaar as a backbone. Aadhaar thus enjoys support at both ends of the policy spectrum: the poor without bank accounts, who are delighted to have access to services that are often elusive, and policymakers, who see larger goals such as reducing the fiscal deficit and wasteful expenditure. n ot surprisingly, the judgment last week was welcomed by both the central bank governor and the finance minister. Chief Justice H L Dattu put forward an elemental question: if Aadhaar was to be used for the public distribution system and cooking gas supplies, “why not extend it to other activities?

The thorny question of whether Aadhaar is a threat to privacy and indeed whether privacy is a fundamental right has again been referred to a larger bench to adjudicate. m any observers have criticised the government for muddling the issue of using Aadhaar by arguing that there was no fundamental right to privacy. indeed, the government might not have had to embark on this long and tortuous road of protracted legal challenges to a adhaar if it had legislated adequate laws to protect privacy. Aadhaar has been something of a case study in enrolment – some 920 million indians have an Aadhaar identity – but its safeguards and benefits are poorly understood by many in the middle class. t he use of it for a “know your customer”, for instance, stays within the banking system. When an authentication is done, the system does not know the purpose for which it was done. n o system this large is immune from, say, a hacker, but what it replaces was riddled with abuse. But that is no excuse for not putting in place a privacy law to prevent anybody from misusing individual data. t he court’s decision allowing a wider use of Aadhaar should ensure improved governance that is both more humane and pragmatic in dispensing welfare benefits. The government should now urgently get down to the task of framing an effective privacy law to address all doubts and concerns over data security.

Whose India is it? – Today’s intolerant hordes would do well to read the Constitution, plus Vi – vekananda

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Clouds are gathering over the idea of India, threatening to shut out the sun of liberal democracy. t he light of liberalism opens minds. It shines on debate and diversity. It radiates tolerance. t hat is how the founding fathers of the nation saw it. So, they wanted India to be liberal and tolerant. t hey wrote a Constitution proclaiming ‘liberty of thought, expression, belief, faith and worship’ as a founding principle of this republic. today, there’s a growing anxiety in the air, an anxiety about the life of that principle. People in India, as well as in other parts of the world, have begun to wonder: i s India tolerant? i s it safe to live or travel in those swathes of the country where the beast of intolerance prowls? is it safe to dine in public if you eat meat and fish? i s it a safe home for a Christian or a Muslim or a Buddhist or an atheist or even a Hindu of any shade different from the one declared as exclusively authentic by the marauding mobs of Hindutva? Will it turn into a Pakistan, where if you don’t surrender to an exclusive brand of Islam as defined by the radicals, being a Muslim by faith is no longer enough to ensure safety? ask a Shia or an Ahmadiyya or a liberal. Jinnah himself won’t qualify to be Islamic in today’s Pakistan.

Just as Gandhi and Tagore and, yes, even Vivekananda would blink in disbelief at the kind of India demanded by today’s intolerant hordes. i t won’t be possible to enter into a detailed discussion in this space but here are two thoughts for consideration: one, India is not a Hindu nation, not even a ‘ Hindu-Majority’ country in constitutional terms. two, Hinduism can be seen as a way of life or a portmanteau term to describe a civilisation. it’s not a single-faith dogma.

On Point one, the framers of the secular Constitution were careful to avoid any reference to Hinduism as a requirement for citizenship. article 25 assures citizens ‘freedom of conscience and free profession, practice and propagation of religion’, which means any religion. Sub-clause 2(b) mentions hindu religious institutions only in the context of the state’s ability to provide ‘for social welfare and reform’ and explains ‘ Hindus’ here to mean also Sikhs, Jains and Buddhists.

Clearly, the founding fathers were determined to ensure that india would not be a Pakistan, which had been created solely as a home for Muslims. India would be a democratic, secular entity in which people of any faith or no faith would be able to pursue their preferred way of life or religion. Unless there is any highly unlikely move to throw out the Constitution and rewrite its basic tenets, it would remain totally unconstitutional to call India a Hindu nation.

Although the census might say that India contains a majority of persons who describe themselves as hindu, it remains a constitutionally secular republic which does not officially recognise any religious identity as a defining characteristic of an Indian. in fact, among those who say they are hindu by faith or custom there exists such a range of belief and practice that, in a sense, every single religious sect, caste and ethnic group can be considered a ‘minority’ in a secular India which does not recognise any section of its diverse population as dominant. the Jains and the Sikhs saw this as a door to get minority status. others, like dalits, can as well.

Point two. Indians have just two secular faiths in which all communities, castes and ethnic groups believe: Bollywood and cricket. the religious picture, especially of Hinduism, reflects myriad realities. Even Diwali, assumed to be the quintessentially hindu festival, is an occasion when Bengalis and eastern i ndians worship a blood- drunk Kali, not sweet Lakshmi. Navratri in Gujarat has little connection with Dussehra in north India even as they happen at the same time.

And, vegetarianism is not, repeat not, a required h indu practice. Going by available surveys, a minority of i ndians are vegetarian, including a minority of h indus. not even Hindu Brahmins are all Vegetarian. Kashmiri and eastern Indian brahmins eat meat and fish. And ancient Hindus merrily ate beef after sacrificing bulls way back then.

If you don’t believe me, read the literature. For spiritual endorsement, read Vivekananda.

On Religious Tolerance – Dr. Rajan has displayed candour and courage rare in India’s public servants.

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In the current public discourse on religious tolerance, reserve Bank of India Governor
Raghuram Rajan’s convocation address to the students of the Indian Institute of Technology
( iit ) delhi on Saturday, delivered an unmistakable if nuanced critique of the ideological underpinnings of this government and their outward manifestation. d rawing on the work of nobel Laureates robert Solow and richard Feynman and using the example of india’s global it achievements to make his point, D R. Rajan linked the importance of ideas to a nation’s progress and highlighted the need to “foster competition in the marketplace for ideas” as a prerequisite for delivering economic growth. a chieving this, he argued, required “the right to question and challenge, the right to behave differently so long as it does not hurt others seriously”. When someone of d r. r ajan’s stature and authority adds his voice to the growing avalanche of criticism from a broad range of civil society, the importance of the message cannot be underestimated. It is especially impactful because he addressed precisely the age cohort that the current regime targets with its message of religious nationalism with all its deceptive certainties.

In leveraging the functional independence of his job as central bank governor to comment on issues that are, strictly, outside his official remit, Dr. Rajan has displayed candour and courage rare in i ndia’s public servants. h owever, there may be unintended repercussions to the institution he heads. To be sure, this is not the first time he has publicly expressed dissatisfaction with the government’s non-monetary policy actions and it is unlikely to be the last. i n this, he is perhaps following the precedents set by central bankers like Ben Bernanke and janet yellen of the u S Federal reserve and m ark Carney of the Bank of england. But they work within developed democracies where standards of debate are reasonably mature. d r. r ajan raised this point in his speech. ” t olerance means not being so insecure about one’s ideas that one cannot subject them to challenge – it implies a degree of detachment that is absolutely necessary for mature debate.” unfortunately, this is manifestly not the case in india, so it is unlikely that his remarks will be received in the spirit in which they were made.

Indeed, the manner in which senior ruling party functionaries are fiercely dismissing all criticism as politically motivated is a case in point – though President Pranab

Mukherjee’s repeated reference to intolerance in quick succession admittedly makes that point hard to refute. d r. r ajan’s criticism should also be set against the growing pressure – as much by the last regime as this one – to curtail the RBI governor’s room for independent action and the proclivity to establish unequivocal control over institutions. i t could encourage the government to take that short step towards appointing governors who may lack the expertise and understanding that consistently marked past appointees – and who is thus amenable to doing the government’s bidding. it is a dangerous prospect.

Reducing vulnerabilities crucial for emerging economies: RBI Governor Rajan

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Emerging economies like India have to work towards reducing vulnerabilities in their economies, said Reserve Bank of India (RBI) Governor Raghuram Rajan.

Lower interest rates and tax incentives can boost investments, he said, but consumer demand holds the key for economic growth.

“Emerging economies have to work to reduce vulnerabilities in their economies, to get to the point where, like Australia or Canada, they can allow exchange rate flexibility to do much of the adjustment for them to capital inflows,” said Rajan in his speech to the Economic Club of New York.

However, it takes time to develop the required institutions. In the meantime, the difficulty for emerging markets in absorbing large amounts of capital quickly and in a stable way should be seen as a constraint, much like the zero lower bound, rather than something that can be altered quickly, said the RBI governor. Due to this, he said, even while resisting the temptation of absorbing flows, emerging markets will look for safety nets. In the past, India has been attracting large foreign flows in domestic markets.

“We also need better international safety nets. And each one of us has to work hard in our own countries to develop a consensus for free trade, open markets, and responsible global citizenry. If we can achieve all this even as the recent economic events make us more parochial and inward-looking, we will truly have set the stage for the strong sustainable growth we all desperately need,” Rajan said.

Rajan also nudged international organisations like the International Monetary Fund to re-examine the “rules of the game” for a responsible policy. “No matter what a central bank’s domestic mandate, international responsibilities should not be ignored. The IMF should analyse each new unconventional monetary policy (including sustained unidirectional exchange rate intervention), and based on their effects and the agreed rules of the game, declare them in- or out-of-bound,” he added.

According to Rajan, the current non-system in international monetary policy is a source of substantial risk, both to sustainable growth and to the financial sector. “It is not an industrial country problem, nor an emerging market problem, it is a problem of collective action. We are being pushed towards competitive monetary easing and musical crises.” There is a need for stronger well-capitalised multilateral institutions with widespread legitimacy, some of which can provide patient capital and others that can monitor new rules of the game, said Rajan. The governor said industrial countries should export to emerging markets as a way to bolster growth. This is because they have done so in the past, too.

(Source: Article by Mr. Raghuram Rajan, RBI Governor, in ‘Business Standard’ dated 19-05-2015.)

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Bad asset blues -Government cannot continue to ignore non-performing assets.

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Last week, Reserve Bank of India Governor Raghuram Rajan indicated that the non-performing asset (NPA) problems of the Indian banking system were far from over. While widely perceived to be the case, the governor’s acknowledgement of the problem brings it on to centre stage as a potential crisis. Even as the economy is showing some signs of recovery, the capacity of the banking system to support the process should raise serious questions. A recent report by CRISIL lays out the magnitude of the problem. It estimates that gross NPAs will rise by almost 20 per cent to Rs 4 lakh crore during the current fiscal year. As a ratio to total assets, they will increase by about 20 basis points to 4.5 per cent. The report also estimates that “weak” assets, which include NPAs as well as some proportion of restructured assets, will come in at Rs 5.3 lakh crore during the year, about six per cent of total assets. Overall, it presents a rather gloomy picture of the state of the country’s banking system, aggravated by the fact that these negative trends are expected to prevail in a generally improving macroeconomic environment. Within the sector, public sector banks are generally worse off than private sector ones.

There is little mystery about why the problem is so acute. The primary cause of bad assets is the massive burden of infrastructure projects that are stalled and, therefore, unable to service their due obligations to banks. While the government has expressed good intentions about improving conditions in the sector, it has yet to implement any meaningful strategy. Unless a concerted effort is made to revive activity in these projects, so that banks can look for exit opportunities, the problem is not likely to go away. While carrying the burden, banks are, quite logically, constrained from taking on any additional risk, which means that they are reluctant to lend to even their conventional customer segments. The steady deceleration in bank credit is a pointer to this constraint and, as indicated above, poses a significant risk to any revival in economic growth.

There are no easy solutions to this problem. Re-capitalising banks has been proposed and may be part of a composite approach, but by itself it really only means throwing good money after bad. More and more capital will be consumed by provisioning against bad assets rather than by credit expansion. The pressure is compounded by the mandate to achieve Basel-III capital adequacy benchmarks over the next four years. Not only will internal accruals be woefully inadequate, external investors will be extremely wary of providing funds to banks whose asset portfolio will remain fragile for some time to come. A strategic response to the problem needs to be in two phases. The first phase will involve the unloading of a significant chunk of the bad assets in infrastructure from the books of banks on to a special purpose vehicle – a “bad bank” as some call it. The second phase can then focus on re-capitalising public sector banks, with a combination of public and private funds. Given the government’s decision to be selective in channelling funds to banks based on financial health, this may also require consolidation. Time is of essence.

(Source: Editorial in the ‘Business Standard’ dated 18-05-2015).

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Technological disruption – How to ride out the apocalypse – IT services firms are facing fatal disruption. They need to be utterly committed to the shift.

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Kodak. Digital Equipment. Sun Microsystems. Nokia. Blackberry. These are but a small sample of once-great companies devastated by technological disruption. Even mighty Microsoft and Intel are struggling to reinvent themselves and stay relevant in a phone-first world. There are vital lessons in these stories for India’s vaunted IT services companies.

It is easy — and wrong — to assume that the companies that get disrupted were poorly managed. Disruptive changes are like big storms. They build up slowly and then break with terrifying ferocity.

So it’s quite easy to spot the brewing disruption. Take Kodak. Kodak developed the world’s first digital camera in 1975. It held all the most important patents pertaining to digital imaging. It realised the potential impact digital photography would have on its enormously lucrative film franchise. In 2005, Kodak was the leader in digital cameras. But they failed to ride the tiger and eventually failed.

The story is similar with Nokia, which launched one of the world’s first smartphones, the N Series Communicator in 1995, but understood too late that with the iPhone, the game shifted from devices to competition between ecosystems. These companies had market leadership, enormous resources, most of the technology and many smart managers. They saw the approaching disruption, yet failed to cross the chasm.

One factor why companies find it hard to navigate industry disruptions is complacence, even arrogance. When a company is sitting on billions of dollars of cash, fat margins and a good market share, it’s hard to create a sense of urgency in the organisation and with its shareholders.

Another factor is the ‘gravitational pull’ of the current or legacy business. The need to deliver quarterly earnings, serve existing customers, maintain profit margins, manage the many daily operational challenges, all consume the majority of resources and senior management attention. Too little focus goes towards embracing the brewing disruption.

A third reason is the fear of cannibalisation. The new model is, at least initially, much less profitable than the current business and so there is a big fear of margin dilution.

Microsoft’s cloud services, for instance, have nowhere near the profitability of its old Windows and Office businesses. However, some margin is much better than zero margin.

The new business model usually requires a very different mindset and new capabilities. In the IT services business, for example, success requires the ability to hold a proactive conversation with CEOs and CXOs about the digital transformation of their business, rather than simply responding to project requests for proposals (RFPs) issued by the IT department. Building these capabilities is nontrivial and time-consuming. Finally, there is governance. Though the boards of good companies are populated by accomplished leaders, few boards have independent directors with a visceral grasp of the magnitude of impending changes. It is all too easy then to remain focused on revenue growth and earnings per share until it’s too late.

One obvious sign of this is to look at how the CEO is compensated. All too often, it is based on the financial performance of the legacy business rather than the momentum of the future business model.

Until, of course, it is too late. India’s extraordinary IT services companies face just such a transition today. What can be done? First and foremost, strategic transformation must be the top priority of the boards of companies facing disruption. Strategy cannot simply be left to the CEO and management.

It has to be a collaborative endeavour. Second, make it clear that the CEO’s top priority is the strategic transformation, not merely delivering the quarter and align compensation accordingly.

Third, realise that there are two kinds of risk: the risk of omission, or doing nothing versus the risk of commission, or trying something different. The risk of commission is better than doing nothing and the urgency and consequences of failure are such that there should be no half-measures.

A significant reason why Kodak and others failed is because their responses to disruption were halfhearted or anaemic. This won’t work. To succeed, companies have to be ‘all-in’ or utterly committed to the shift.

This may mean making significant acquisitions, or bringing in very different talent, even though these moves have major risk and can blow up too. In nature, it is not the strongest species that survive, nor the most intelligent, but the ones most adaptable to change.

(Source: Article by Mr Ravi Venkatesan in ‘The Economic Times’ dated 19-05-2015. The writer is a member of the board of Infosys and former chairman, Microsoft India)

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Optimism – Choose: Mud or the stars?

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Optimism is not a deep, complicated philosophy or a school of thought. It is more a matter of our general attitude to life. We find that some people always look at the bright side of things while there are some others who always see the bad, dark side of things. To an optimist, every cloud has a silver lining. A pessimist, on the other hand, misses the silver lining and sees only the cloud.
Frederick Langbridge sums it up, “Two men look out through the same bars: one sees the mud, and one the stars”. One Sunday morning, when William Dean Howells and Mark Twain came out of the church, it started raining heavily. “Do you think it will stop?” asked Howells. “It always has,” replied Twain. An optimist hopes for the best. Optimism nurtures two things most: hope and cheerfulness. Alexander regarded hope as the greatest possession of mankind. He held that if you destroy ‘hope’, you destroy ‘future’. Hope strengthens will to survive calamities, so that we never give way to despair. It helps us count our blessings, and hope persistently goads us to ‘go on’. It is rightly said that “an optimist sees an opportunity in every calamity; a pessimist sees a calamity in every opportunity”.

An optimist reacts to situations differently. He thinks and acts in a positive manner. Urdu poet Asar Lakhnavi wrote, when I do not succeed in achieving my aim, I think of attaining it through a different approach, and so I try again.

(Source: Editorial by Niti Paul Mehta in ‘The Economic Times’ dated 22.05.2015).

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Gold Monetisation Scheme – Needs more polish

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On paper, the draft gold monetisation scheme has something for everyone. It also looks like being an improvement over the existing gold deposit scheme. For individuals, the entry barrier has been reduced to 30 grammes of gold instead of the existing 500 grammes. Also, banks are free to decide on the interest rate, which is good for competition as well as depositors. And like the earlier scheme, there may not be any income or capital gains tax. Banks, which did not see much return on investment and therefore only sporadically promoted the 1999 scheme, have been allowed numerous options this time round. They can sell gold to raise foreign currency that can be used to lend to exporters and importers, convert it into coins and sell it, or lend it to jewellers. And if the Reserve Bank of India agrees, banks can use gold as part of their cash reserve ratio and statutory liquidity ratio requirements.

Indian households and temple trusts may hold as much as 22,000 tonnes of gold. So, for the government, even if the scheme’s success rate is less than 1 per cent, or 100- 200 tonnes annually in the next few years, the import bill can go down by 10 to 20 per cent, according to Nomura. India imported 967 tonnes of gold in 2014-15 and the import bill was $34.4 billion.

If the scheme succeeds, it will address both domestic demand and investment demand. The main benefit for jewellers and consequently, to customers will be the fall in the price of gold as the recycling of domestic gold will be without any import duty – currently at 10 per cent. The government has been under pressure from industry for some time to bring down the import duty.

So far, so good. But several problems may arise. For one, despite reduction of the minimum limit, individuals would be worried that if they pledge a significant amount of gold with banks, the income-tax department may want to know the source of that gold. Experts feel that the government should clarify the amount that can be pledged without income-tax scrutiny and possible harassment. Another big hindrance will be the tax on conversion of physical gold into the gold deposit scheme. That is, if the gold was bought at Rs 1,000 per 10 gramme and converted into a gold deposit scheme at Rs 25,000 per 10 grammes, there will be a capital gains tax of 20 per cent with indexation. If the date of acquiring is not known, April 1, 1984 will be used as the base year. Experts believe that the tax should only be imposed when gold is being sold and not when it is being converted like it is done in case of other asset classes like property or debt. To attract domestic gold, the government will have to address some of these issues if it has to avoid the fate of the 1999 gold deposit scheme – which attracted only 15 tonnes in the past 16 years.

(Source: Editorial in ‘Business Standard’ dated 21-05- 2015).

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Win hearts and minds

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The art of persuading by winning hearts is about connecting people emotionally to your idea or position. In any persuasive dialogue, you need to connect with others to some degree. This approach is highly effective in circumstances such as introducing a new idea and trying to pique interest; gaining support for a decision already been made; raising the bar on performance or commitment; leading a team struggling with discord or conflict; aligning with creative colleagues, like those in design or marketing.

The best method of persuasion in these circumstances is to connect with people on a very personal level. This is often referred to as a ‘hook’. Use vivid descriptions and metaphors to draw others into your vision. Share personal stories and experiences to demonstrate that what you’re suggesting is the right choice. Make sure you highlight what’s in it for them personally if they adopt your perspective or make a change.

What fears can you address to build trust and cultivate a feeling of safety in supporting your position? What motivations can you tap into to create alignment? Where can you find common ground to unite viewpoints? You are at your most convincing when you first appeal to the perspective, fear or motivation of your audience. Your goal in winning hearts is to make whatever you have to say matter on a personal level.…

The science of persuasion lies in winning minds with logical, well-articulated positioning and analysis in favour of your idea. To win minds, you have to do your homework. You certainly need a logical argument to support your perspective. Start by describing a situation everyone can agree is worth discussing, including both what it is and why it warrants attention.

(Extracts from “Focus on Winning Either Hearts or Minds” by Ms Lisa Lai in The Economic Times dated 22-05- 2015.)

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Ethics in Media: A Depressing Scenario

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`We are the Establishment`
This is how Vineet Jain replied to a question in an interview. Vineet is one of the Jain brothers, who own Bennet Coleman & Company, which controls the Times of India Media Group comprising of Newspapers, TV Channels, FM Radio Stations, Websites etc. The question was asked to Vineet Jain by `The New Yorker’ a prestigious weekly magazine published from USA. The magazine had published a story titled `Citizen Jain` in which this interview appeared. The title was synonymous with a famous Hollywood movie of yesteryears called `Citizen Kane`. The movie was based on the life of William Randolph Hearst, a newspaper tycoon (in those times there was no MEDIA) whose influence and power spread across US polity, society & economy. Orson Welles depicted the role of Hearst and was acclaimed for this performance.

The `New Yorker` cover story was titled `Citizen Jain`, to indicate that Jain brothers are wielding similar influence in India. The reply of Vineet Jain to interviewer’s question showed that the Jain Brothers also realise the power that they have and their willingness to use it whenever they want and for whatever purpose they need to use it.

How enormous this POWER is and how the ESTABLISHMENT flaunts it and uses it to crystallise the public opinion in whichever way it wants, can just be gauged by taking a cursory look at the events of the past 3-4 years.

And thereby hangs the tale of ETHICS IN MEDIA
Let us just take the example of agitation of `India Against Corruption’ for setting up LOKPAL. The agitation was led by Anna Hazare in which the present Chief Minister of Delhi, Arvind Kejriwal, his present political rival and BJP candidate for Chief Minister’s post during Delhi election Kiran Bedi, Prashant Bhushan & Yogendra Yadav were leading participants. The fast by Anna Hazare on the Ramlila grounds in New Delhi and the agitation lasted for nearly eight days. The Media—particularly News Channels—gave a saturation coverage to this agitation. The economics of Media demands a certain percentage of advertisement per hour of telecast. This mandates that for any half hour slot of telecast, there should be at least 12-15 minutes of advertisements. In fact, this rule is so mandatory that many important news programmes are cut short for telecasting advertisements. In spite of this, we would find that during those days of Anna Hazare’s agitation, the News Channels deliberately gave up about 600 crores of advertisement revenue by giving coverage to Hazare’s agitation without a advertisement break. Most of the News Channels, barring one or two, are in complete financial mess. In such a dire financial situation, how could these channels afford to lose so much revenue? The answer is that the Media companies which telecast these channels were promised that their loss would be compensated. Who could have given such a promise? The parties who were thinking of getting political benefit from the agitation and were aware of the power of Media to influence public opinion. How could a political party muster such a huge financial resource is a question which would naturally arise. Again, the answer would be that ties–or to use the cliché ‘nexus’—that have bonded together the political parties and corporate as well as other financial lobbies over a period of the last few decades. Of course, all these details are in the realm of speculation as nobody would be ready to provide upfront details about Media groups’ real financial dealing other than the statutory requirements. Still the fact remains that during Anna Hazare’s agitation, all the News Channels gave a saturation coverage without advertisement breaks and willingly gave up revenue.

Immediately after this agitation there were a series of exposes by almost all News Channels, major Newspapers as well as News magazines about various scams and the focus of the coverage was generally one sided. It depicted the then UPA government as a villain and branded most of the prominent ministers in the government as mired in corruption and nepotism without being factually objective. That created a general impression across the society that the government is anti-people and is not really interested in protecting as well as furthering the interests of common people and national interests. This helped the opposition to crystallise the public opinion against the then government. The campaign during 2014 Lok Sabha elections showed the reliance of political parties on Media and their attempts of using the Media as a tool to influence the public opinion. The latest example is that of various scandals about ministers in Central and Maharashtra as well as some other state governments. All of a sudden in second half of June all these scams are getting surfaced in the Media. Why this is happening and how could this have happened are the questions and if we try to find out the answers of these questions by relating this present scenario with the events during UPA period, it will lead us to the conclusion that these SCAMS are coming under the Media glare due to a definite design. The designer who may have sketched the design seems to be a section of influential corporate lobby which perceives that the present political set up has not been really beneficial for them. The scenario before May 2014 was crafted by the corporate and other business and commercial interest coming together with a firm view that the then government was detrimental to their interests and should not be allowed to come again to power. These lobbies funded the Media campaign before and during the 2014 Lok Sabha elections.

The same process of using Media to corner the present political set up seems to have been initiated. Otherwise, the sudden spurt of scams being revealed does not have any logical explanation.

All the above examples indicate the POWER of the ESTABLISHMENT and how this ESTABLISHMENT can become a tool in the hands of moneybags to be used in whatever way they want to influence the public opinion or to tarnish any ones image and credibility. How this POWER of the ESTABLISHMENT can destroy the careers and reputations of prominent people was displayed when transcripts of Radia Tapes were published

In such a scenario, business interests have dominated the functioning of Media groups rather than any Ethical framework. In a classical definition, PRESS is the FOURTH PILLAR of Democracy. All other three pillars of Democracy do not have any connection with BUSINESS. Though the PRESS has been termed as a FOURTH PILLAR, it is primarily a business venture. This uniqueness of PRESS (and now MEDIA) bestows on it a huge responsibility to perform the ideal role assigned to it. This puts a burden on PRESS to perform its function ethically. As per these ideals, newspapers (and Media in contemporary times) should be a watchdog to protect people’s interests, rights and freedoms. It should act objectively without any fear and favour and should not show any bias or inclination towards any particular group, section or community. Objectivity and adherence to truth should be the only guiding factor for any journalist working in print, electronic or web Media. Of course, these ideals are easy to preach and very hard to observe.

Evolution of the press
This would become clear as we look back on the evolution of PRESS in India. The evolution of Indian Press had a background of Freedom Struggle. Most of the regional languages as well as English Newspapers (barring newspapers such as Times of India or Statesman, which were owned by British) of those times were the vehicles of nationalist propaganda and their main objective was to project nationalistic viewpoint. Therefore, they had less `NEWS` and more `VIEWS`. The Newspapers really began to evolve as an INDUSTRY after Independence. The competition increased. So revenue earning became much more important. This could happen only  with  more advertisement. If a product is to be advertised in a particular Newspaper, then the producer would obviously be interested in finding out the readership profile of the Newspaper to gauge whether that section of people would be in a position to buy his product. If the readership profile does not match with the profile of the product, then advertising in that particular newspaper will be of no use for the producer. As the competition increased, there was a scramble to corner the advertisement revenue. This tilted the balance in favour of advertiser. This was the point at which the editorial control over the Newspapers started loosening and Advertising and Marketing departments became much more dominant. The advertiser started dictating terms and initiating process to demand the change in readership profile so as to suit the needs of    a particular product. For example, if any Newspaper wanted an advertisement from FMCG company then it was asked to prove that the readership has a economic capacity to purchase such products. If the Newspaper had no compatible readership profile and still it asked for the advertisement, then the company started demanding that it should change the readership profile by publishing news items liked and usually read by the consumers who are likely to purchase those products. So step by step, the `CONTENTS` of the Newspapers started getting managed by the Advertisement & Marketing departments on the cue given by the advertising agencies. This slide back acquired much speed after the 1991 economic liberalisation an opening up of various sectors of economy. New technology came into the industry. The Newspaper and magazines became much more colourful, sleek and glitzy. Then, satellite TV made its entry. Later on followed by News Channels. Now PRESS became MEDIA. The leading Media group like the Times of India declared itself as an ENTERTAINMENT GROUP. MEDIA became much more a business than a FOURTH PILLAR of DEMOCRACY.

The Paid News controversy which rocked the Media world was inevitable in such a scenario. Since a long time, political parties used to influence reporters and other journalistic staff to get a favourable news coverage. In the race to garner more and more revenue—in short to make more money—the owners of Newspapers decided to strike a deal with political parties themselves. That is how the NEWS became PAID.

Ethical FPAMEWORK
And in such a situation, it is no surprise that the Ethical Framework in the functioning of any MEDIA GROUP has been put on back burner. This framework has not been demolished, but it is very rarely followed and only invoked when a gross indecent and sensational reportage is published or telecast. The readership and viewership numbers dominate the discourse about Media now a days. TRP reigns supreme in electronic Media and to increase TRP ratings day by day the News  Channels are becoming more and more sensational and predatory. Obviously it has become much more easier for Corporate and Financial moneybags to influence the Media discourse with a carrot of easy finance as well  as  increase  in TRP ratings.

Still there are a number of enterprising and intrepid journalists, in both print and electronic Media, who are inspired by the ideals and who adhere to the ethical framework.  Unfortunately  the  space  in  the  Media  for such journalists is shrinking day by day,  as  the work culture gets  degraded  by  unethical  influences of money and muscle power  and  the  reluctance  of the ESTABLISHMENT to step in to clean up. In fact many a times the ESTABLISHMENT itself encourages these influences and allows them a free rein. The recent events of attack on Journalists in Uttar Pradesh an  Madhya  Pradesh  are  indicators  of  this  trend.   Of course, it must not be overlooked that access potential of a journalist and disproportionate influence wielded by even a small district Newspaper or a Video Channel encourages many unwanted elements in this profession, whose main aim is earning money be using blackmailing technique.

A statutory body like the Press Council of India or professional set up like Editors Guild have now become redundant institutions. They do not have any legal teeth and they can only admonish a recalcitrant Media group or an individual or a group of Journalists. Therefore, these institutions are not taken seriously. The electronic Media has set up an Ombudsman. But his observations and orders on complaints made are more than often overlooked. The associations or organisations of working journalists are prone to be more active on the issues of pecuniary and other benefits rather than about issues of ethical functioning.

Conclusion
Overall it  is  a  depressing  scenario  and  therein  lies  a danger to the freedom of Media. The sensational, predatory, unethical functioning is creating revulsion across the society against  the  Media.  This  has  started impinging on the credibility of the Media. This opens up a space for the powers that be to step and introduce some measures to curb the freedom in the name of putting an end to sensationalism of the Media. To guard against this danger, Media professionals must proactively initiate a process for internal discussion and debate to evolve a mechanism for enforcing ethical functioning. A collective action may be able to convince or at least force the ESTABLISHMENT to step in and help the professionals to rein in the predatory and sensational tendencies.

ETHICS IN ARCHITECTURAL PROFESSIONAL PRACTICE

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Preamble
We, the Indians, inherit various scriptures that
were transcended from generations, from father to son. We have naturally
cultivated our lifestyle conducive to the best practices required to
keep our body, mind and soul in a fit and fine mode. The philosophy we
adopted was in four Universal Brahma Sentences.

In every
profession, there are Rules and Regulations which each and every
professional is bound to abide by while performing his duties.
Architects are not taught, but are made aware of the subject. The idea
is that freedom of expression should not be stifled but should be given a
free hand. Each and every individual is encouraged to create his own
unique design which would really influence culture.

It is said
that Doctors’ mistakes are buried below the earth and Architects’
mistakes are for the world to see. The test of a good Architectural
design is that it needs to be functional and aesthetically appealing.

What is architecture?
As
architects, we are expected constantly to dwell upon the creative
aspect of design. Since architecture is not mathematics, designs cannot
be judged as right or wrong. What matters is the context, concept and
shape which then decides whether design is functional or wonderful or
awesome.

Architecture is basically the Art and Science of
designing spaces and providing services to multifunctional activities
for all human beings. This is the only discipline which encompasses the
major fields of human endeavour: Humanity, Science, Art, and Technology.

Architecture is the matrix of human civilisation, an authentic
measure of the social status and an evocative expression of ethos of an
era. When conserved it is a heritage and when ruined it becomes
archeology. Architecture has generated specialisation. City planning,
landscape and interior architecture, retro fitting of buildings,
architectural conservation, construction management have also lately
emerged as specialisation. Each of these compliments and supports each
other.

Architectural Design essentially is a product of an
individual mind but realised through association of experts from allied
fields who contribute in the process of construction with mutual respect
and understanding and work, assuring high quality of end product.

Regulation of the profession
The
practice of architectural profession is regulated by the Architects
Act, 1972 and Regulations framed there under. The Council of
Architecture has prescribed the conditions of engagement and scale of
charges under the Architects (Professional Conduct) Regulations, 1989.
The documents prescribed, stipulate the parameters within which the
architect is required to function. These define the responsibilities,
the scope of work and services and also prescribe the mandatory minimum
scale of professional charges with a view to make the client fully aware
of the architect. The professional services required by the client may
not be comprehensive in scope in all cases and accordingly, clear understanding between the two must be arrived at. The
Council of Architecture has prescribed the conditions of engagement
based on general practices to all registered architects and such
architects who have specialised in areas such as Structural Design,
Urban Design, City Planning, Landscape Architecture, Interior
Architecture and Architectural Conservation.

Scope of Services
Generally,
architects are required to provide following services, and these
services are called comprehensive services. However, client can also opt
for partial services as per mutual agreement.

a. Taking Client’s instructions and preparation of design in brief.
b. Site evaluation, analysis and impact of existing/or proposed development on its immediate environs.
c. Design and site development.
d. Structural design.
e. Sanitary, plumbing, drainage, water supply and sewerage design.
f. Electrical, electronics, communication systems and design.
g. Heating, ventilation and air conditioning design (HVAC) and other mechanical systems.
h. Elevators, escalators etc.
i. Fire detection, fire protection and security systems etc.
j. Periodic inspection and evaluation of construction work.

The
Architect shall, after taking instructions from the client, render the
following services as described below in various stages:

Stage 1: Concept Design
Take
instructions of client to ascertain the requirements and study the
environs. Prepare report, conceptual design and submit to the client for
approval.

Stage 2: Preliminary Design and Drawings
Modification of conceptual design.

Stage 3: Drawings for Clients and Obtaining Statutory Approvals
Prepare drawings for clients and obtaining statutory approvals from Competent Authorities, if required.

Stage 4: Working Drawings and Tender Documents
Prepare
working drawings and tender documents which cover the mode of
measurements, method of payments, quality control procedures on
materials and works and other conditions of contract.

Stage 5: Appointment of Contractors
Invite, receive and analyse tenders. Also advise the client on appointment of contractor.

Stage 6: Construction
Prepare and issue working drawings and details for proper execution of works during construction.

Approve samples of various elements and components.

Check and approve shop drawings submitted by contractor/ vendors.

Visit
site periodically at intervals agreed mutually, to inspect and evaluate
the construction works. Clarify decisions, interpret
drawings/specifications, attend meetings to ensure that the project
progresses generally in accordance with the conditions of contract and
also to keep the client informed and render advice on actions, if
required.

In order to ensure that the work at site progresses in
accordance with conditions of contract, the day to day supervision will
be carried out by a construction manager (clerk of works/site
supervisor/or construction management agency in case of large and
complex project), who shall work under guidance and direction of the
Architect and shall be appointed and paid by Client. Issue Certificate
of Virtual Completion.

Stage 7: Completion
Prepare
and submit completion reports and drawings for the project as required
and assist the client in obtaining “Completion/Occupation Certificate”
from Statutory authorities, wherever required.

Other aspects
include schedule of payment of professional fees based on stage-wise
completion of contract, documentation and communication charges and
reimbursable expenses.

Architects are supposed to work as per the conditions of engagement, scope of work as well as scale of charges.

Professional Conduct and selfregulation
Further, Council of Architecture in exercise of the powers conferred by the Architects Act, 1972 (Act No. 20 of 1972),read with clause (i) of sub
section (2) of section 45 with approval of the central government, made
the Architects (Professional Conduct) Regulation, 1989 to promote the
standard of professional conduct and self – discipline required of an
Architect, as detailed below:

(1) Every architect, either in
practice or employment, subject to the provisions of the Central Civil
Services (Conduct) Rules, 1964 or any other similar rules applicable to
an architect shall:

(i) Ensure that his professional activities
do not conflict with his general responsibility to contribute to the
quality of the environment and future welfare of society,

(ii)    Apply his skill to the creative, responsible and economic development of his country,

(iii)    Provide professional services of a high standard, to the best of his ability,

(iv)    If in private practice, inform his client of the conditions of engagement and scale of charges and  agree that these conditions shall be on the basis of the appointment,

(v)    Not   sub   –   commission   to   another   architect or architects the work for which he has been commissioned without prior agreement of his client,

(vi)    Not give or take discount, commissions, gift or other inducements for the introduction of clients or of work,

(vii)    Act with fairness and impartiality when administering a building contract.

(viii)    Maintain a high standard of integrity,

(ix)    Promote the advancement of Architecture, standards of Architectural education, research, training and practice,
(x)    Conduct himself in a manner which is not derogatory to his professional character, nor likely to lessen the confidence of the public in the profession, nor bring Architects into disrepute,

(xi)    Compete fairly with other Architects,

(xii)    Observe and uphold the Council’s conditions of engagement and scale of charges,
(xiii)    Not supplant or attempt to supplant another Architect,

(xiv)    Not to prepare designs in competition with other Architects for a client without payment or for reduced fee (except in a competition conducted in accordance with the Architectural competition guidelines approved by the Council),

(xv)    Not attempt to obtain, offer to undertake or accept a commission for which he knows another Architect has been selected or employed until he has evidence that the selection, employment or agreement has been terminated and he has given the previous Architect written notice that he is so doing, provided that in the preliminary stages of work, the Client may consult, in order to select the architect, as many architects as he wants, provided he makes payment of charges to each of the architects so consulted,

(xvi)    Comply with Council’s guidelines for architectural competitions and inform the Council of his appointment as assessor for an architectural competition,

(xvii)    When working in other countries, observe the requirements of codes of conduct applicable to the place where he is working,

(xviii)    Not have or take as partner in his firm any person who is disqualified for registration  by  reason  of  the fact that his name has been removed from the Register under section 29 or 30 of the Architects Act 1972,

(xix)    Provide their employees with suitable working environment, compensate them fairly and facilitate their professional development,
(xx)    Recognise and respect the professional contribution of his employees,

(xxi)    Provide their associates with suitable working environment, compensate them fairly and facilitate their professional development,

(xxii)    Recognise and respect the professional contribution of his associates,

(xxiii)    Recognise and respect the professional contribution of the consultants,

(xxiv)    Enter into agreement with them defining their scope of work, responsibilities, functions, fees and mode of payment,

(xxv)    Shall not advertise his professional services nor shall he allow his name to be included in advertisement or to be used for publicity purpose except for certain prescribed situations

(2)    In a partnership firm of architects, every partner shall ensure that such partnership firm complies with the provisions of sub–regulation (1).

In view of above, we are supposed to adopt best practices in architecture, based on guidelines prepared by the Council of Architecture.

Ethical values in our profession
In my practice of the profession, I have faced some ethical and moral challenges on a number of occasions. I am narrating some of those situations

1)    I was working with one of the leading Architectural Consulting firm during my tenure of service from 1993 to 2002. During the service, I was elevated from Assistant Architect to a very responsible post and was responsible for each & every aspect of decision-making with respect to approvals to occupation certificates.

I was handling almost 30 projects at a time. Of course that was peak time for us in real estate during 1995 – 1999.

It had so happened that in one of our projects some documents were missing, rather, with regard to certain assertions, there was a misrepresentation by the client himself. We were shocked to know that the client had made a blunder. My employer was about to tender his resignation as architect. I was of the opinion that we should not tender our resignation at this stage, and I insisted that the client disclose the correct facts. Not doing so would be shirking our social responsibility. He agreed with my views. We pursued the matter with our client and got him to place on record the valid correct document which was necessary and then proceeded with further work.

If we had ignored the misrepresentation, it would have benefitted the client. If we had taken the decision of resigning from the project, we would have lost trust of the officers of the corporation. We chose the ethical path.
2)    In one of the projects, I was appointed as an architect. Due to large size of land parcel, a layout was required to be approved. However, it was pointed out by the client that the same had already been submitted by another architect in the past. The client also provided the so called Xerox copy of his letter, which I did not believe to be a proper copy and therefore I did not certify the same.

The case came up for hearing in front of municipal officers and I was shocked to know that the previous Architect had not even given his resignation. On knowing that, despite the fact that my effort would go unrewarded I did not continue the project as an architect and was also saved because I had not certified that purported letter of resignation of the previous architect.

    Architect’s professional liability
Professionals are required to discharge their obligations and commitments diligently and befitting with quality and standards of service. The Council of  Architecture  being the regulator of Architectural Education and Profession throughout the country formulates guidelines on architect’s liability.

“Architects Professional Liability” has been approved by Council of Architecture at its 40th meeting.

  •     Professional Duties of Architect

1.    service:
The relationship between the architect and the client is that of a service provider and recipient. The professional services rendered by the architect are pursuant to the conditions of engagement and scale of charges entered into between the architect and the client.

  •     Competence: An architect being a professional shall possess the required knowledge and skill, proficiency and competence for discharging his professional duties and functions.

  •     Duty of Care: It means duty to exercise utmost skill and care.

  •    Duties: The duties that  are  required  to be performed  by an architect for various  types  of  projects  have been prescribed by Council of Architecture under the Conditions of Engagement and Scale of Charges for respective areas in the field of architecture.

2.    Professional Conduct:
An architect shall comply with the standards of professional conduct and etiquette and a Code of Ethics set out in clauses
(i)    To (xxv),read with exceptions covered by sub-clauses (a) to (h) of sub- regulation (1) of Regulation 2 of the Architects (Professional Conduct) Regulations, 1989. Violation of any of the provisions of sub-regulation (1) shall constitute a Professional misconduct.

3.    Duties and responsibilities of clients/ owners and occupants:

The client/owner shall discharge all his obligations connected with the project and engagement of the architect in accordance with the Conditions of Agreement as agreed upon. Further, the client (s)/owner (s) and Occupant(s), upon completion of the building shall maintain it properly to safeguard and preserve the longevity of the building.

4.    professional negligence:

4.1    Negligence: “Negligence” of an architect means failure to take reasonable degree of care in the course of his engagement for rendering professional services.

4.2    Deficient service:

4.2.1    “Deficiency”, as defined under section 2(1)(g) of the Consumer Protection Act, 1986 means any fault, imperfection, shortcoming or inadequacy in the quality, nature of performance which is required  to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.

4.2.2    An Architect is required to observe and uphold the Council’s  Conditions  of  Engagement  and   Scale of Charges while rendering architectural service/ services that is/are necessary for discharge of his duties and functions for the project for which he has been engaged, amount to deficient service.

a)    Use of Building for the purpose other than for which it has been designed.

b)    Any changes/modifications to the building carried out by the owner(s)/occupant (s) without the consent or approval of the Architect who designed and/or supervised the construction of the building.

c)    Any changes / alterations / modifications carried out by consulting another architect without the knowledge and consent of erstwhile architect or without obtaining No Objection Certificate of the building.

d)    Illegal / unauthorised changes / alterations / renovations / modifications carried out by the owner
(s) / occupant (s).

e)    Any compromise with the safety norms by the owner(s)/occupants(s).

f)    Distress due to leakage from terrace, toilet, water logging within the vicinity of the building and that would affect the strength /stability of the structure or general wellbeing.

g)    Lack of periodical maintenance or inadequate maintenance by owner(s)/occupant(s).

h)    Damages caused due to any reasons arising out of specialised consultant’s deficient services with regard to design and supervision of the work entrusted to them, who were appointed /engaged in consultation with the client.

i)    Damages caused to the building for the reasons beyond the control of the architects.

5.    Professional Negligence and Deficiency in services -professional Misconduct

If any person is aggrieved by the professional negligence and/or deficiency in services provided by  the  architect,  the matter shall be referred to the Council of Architecture under Rule 35 of the Council of Architecture Rules,  1973 to adjudicate whether the architect is guilty of professional misconduct or not.

6.    Professional Liabilities

6.1    Indemnity Insurance: The architect is required to indemnify the client against losses and damages incurred by the client through the acts of the Architect and shall take out and maintain a Professional Indemnity Insurance Policy, as may be mutually agreed between the  architect  and  the  client,  with a Nationalized Insurance Company or any other recognized Insurance Company by paying the requisite premium.

Maintenance of record: The  architect  is  required to maintain all records related to the project for a minimum period of 4 years after the issuance of Certificate of Virtual Completion.
6.3    Duration: – The architect’s liability shall be limited to  a maximum period of three years after the building is handed over to / occupied by the owner, whichever is earlier.

7.    Nature of liability:
An architect is liable for the negligent act which he committed in the performance of his duties. The action against an architect can be initiated by the client on satisfying the following conditions:

(a)    There must exist a duty to take care, which is owed by an architect to his clients.
(b)    There must be failure on the part of an architect to attain that standard of care prescribed by law, thereby committed breach of such duty.
(c)    The client must have suffered damage due to such breach of duty.

Disciplinary Action under The Architect Act, 1972
:
If an architect is found guilty of professional misconduct, he is liable for disciplinary action by the Council of Architecture under section 30 of the Architects Act, 1972, Civil and Criminal action in the Courts of Law.

The disciplinary action taken by the Council of Architect against the architect who has been found guilty of professional misconduct does not absolve him of his liabilities under the Code of Civil Procedure, 1908 and the Code of Criminal Procedure, 1973, if any.

Some of the relevant laws include The Law of Torts, The Consumer Protection Act, 1986 and The Indian Penal Code, 1860 etc.

Case Studies
Prof. Madhav Deobhakta in his book “Architectural Practice in India” illustrated some cases:

1)    Not taking action on their own about area of plot:
There were 13 complaints lodged by civic authorities against Architects in Mumbai. These related to certifying larger area of Land than the actual area. The disciplinary committee after investigations reported that 4 out of 13 be called before the Council. These 4 Architects admitted that they had not surveyed the lands in question; but relied upon the area certificates obtained by their clients. When questioned, they admitted that the area shown in the certificates was much more than the actual area. Further, these four Architects admitted that they did not take any steps to re-survey the plots from City Survey Office.

Council reprimanded these four architects for failure to take action on their own while discharging their professional duties.

2)    Wrong certification of condition of Building: The Architect was requested by one of the tenants to give a report on the condition of the building for a court matter. He reported that the condition of the building was sound. At the time of joint inspection under Court’s order, he admitted that the condition of the building was not sound. When questioned at the time of the appearance before the Bar of the Council, he said when he inspected the building at time of making report it was in sound condition; but the owner was responsible for its sudden deterioration.

Council after considering all facts came to the conclusion that the architect did not act in a responsible manner and decided to reprimand him for professional misconduct.

Conclusion:
The main purpose of the Architects Act, 1972 is to protect the general public from unqualified persons working as architects and to ensure the professional conduct of the practicing Architects.

There are cases of action taken against and for Architects. By and large, professional ethics are generally observed by Architects who work with integrity, responsibility and trust as they consider their profession as the first priority in life.

While regulations are indeed necessary, one has to be ethical in spirit and not only in letter. In life one has to set the ethical bar high enough. It is only then that one can lead life with the head held high!

“Ethics” isn’t music for the entertainment world

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Introduction
I have spent 20 years in the music industry.
People often envy me thinking that I am lucky to have my hobby as my
profession. In comparison, the field of Chartered Accountancy appears
rather bland. Hence,I was pleasantly surprised when the editor of the
BCA Journal asked me to write about Ethics in my profession. Chartered
Accountancy is a highly regulated profession with challenging entrance
tests and a grueling curriculum. In music, the classical art-forms
(dance & music) are very demanding with hours of training and riyaz
required to get perfection. However, entry into film-music is open to
any and every person who has basic music skills. Due to the explosion of
the electronic media, anything related to films has glamour attached to
it. Untrained wannabes come to Mumbai to try their luck in the music
world equipped with just a dream in their eyes. The stakes are high and
musicmaking is big business. There are often compromises with ethical
standards.The only regulator is one’s conscience and moral values. The
number of people who stand up for ethics is a minority. Being an
‘entertainment professional’, here’s my attempt to analyse the ethical
scenario prevailing in the field of Hindi film-music.

Hindi Film Music
The
Hindi mainstream film music industry has come of age over the last 70
years. It is now a professional set up. My mother tells me that in her
times, singing for films was looked down upon. Today, we have
enthusiastic parents sending their children to train in music as well as
to compete on television. Music training schools are today big
business. There are institutes training students in every field,vocal,
instrumental, Hindustani classical, Carnatic, Westernmusic, staff
notations, sound recording, playback recording techniques etc.
Technology has undergone a transformation and with the commercial stakes
very high, the pressures to succeed at any cost often lead to ethical
compromises. From Naushad to Rehman and Rafi to Sonu the parameters of
excellence have remained high. However the audience’s thoughtless
acceptance of anything that the media promotes, often results in ethical
compromises and a deterioration of standards.

There was Naushad
sahab who tirelessly advocated Indian classical music and would insist
on purity. Today, plagiarism is rampant. One finds popular foreign songs
being copied brazenly note to note. It is often the producers who force
the composers to do this. Certain highly successful music directors
have been exposed on the internet with the list of songs they have
copied along with their source.

Many talented singers these days
approach commercially successful composers with their demo songs. These
are often their own compositions. The singer is forced to release the
song under the composer’s credits.

An inspiring exception is A.
K. Rehman who has taken Hindi music to a world platform completely on
his terms and merit. Rehman is known to keep music rights with himself.
He makes sure his music is not misused by producers. If Rehman
collaborates with say Sukhwinder, the latter is given due credit. Other
talented composers like Shankar Mahadevan strive to make soulful songs.

Creation of monopolies and monopolistic situations
In
the yesteryears, one has heard stories of attempts by established
singers to monopolise the singing scene. Today, the market has opened up
with several singers aggressively marketing their skills. However there
are still instances of producers getting songs dubbed by established
singers even though they have been competently sung by lesser known
artistes.

Awareness of rights
In the era gone by,
artistes, and particularly singers were not aware of their rights. They
performed for the love of art, and were seldom concerned with commercial
aspects of their profession. The term intellectual property rights, was
unknown to them. Today, there is much awareness about royalties and
copyrights with artistes, composers, lyricists actively campaigning for
their rights, and zealously protecting them. Associations like the
Indian performing rights society regulate the use of their songs in
public places, radio, TV channels, live shows etc.

Falling standards in quality of lyrics
In
the 50s and 60s film music saw the poetic quality of lyrics scaling
great heights. There was Saahir who wrote sensitive, philosophical songs
like ‘yeh mehlon yeh takhton yeh taajon ki duniya’, ‘allah tero naam’,
‘aye meri zohrajabeen tu abhi tak hai haseen” and ‘laga chunri mein
daag’. Pt Narendra Sharma wrote chaste Hindi songs like ‘jyoti kalash
zhalke’, ‘satyam shivam sundaram’. Bharat Vyas wrote Nature poetry like
‘yeh koun chitrakar hai’ and kuhukuhu bole koyaliya. Kavi Pradeep penned
patriotic poetry like ‘aao bachhon tumhe sikhaye’,’aye mere vatan ke
logon’. Gulzar wrote aesthetic, songs with high literary value like ‘iss
mode se jaate hain’, ‘humko manki shakti dena’,’tujhse naraz nahin
zindagi’.

The new millennium saw the nation gyrating to
nonsensical lyrics and those with sexual innuendos. One could cite
several such examples but the content is so offensive that I would
rather not smudge the pages of a professional journal with such trash.
The point is that it is the ethical responsibility of producers and
lyricists not to stoop to such levels for commercial success.

People
believe that double meaning lyrics in the garb of ‘folk’, sex object
portrayal of women, and puerile nursery rhyme like songs fetch instant
success. So ethics and values are trashed. Once I was asked to sing a
‘laavni’ with double entendre. I fired the hell out of the guy and made
him change the lyrics.

I think lyrics are the fabric of any
song. They reflect an ideology and thought process. An ethical lyricist
is one who would uphold secular, humanist, socialist and feminist
values. I notice that earlier most films had atleast one spiritual song.
Now it is the norm to have atleast one ‘item’ song.

Commitment to quality and standing by what one believes in
As
far as I am concerned, I come from a classical music grooming and a
literary background at home. I am committed to singing meaningful lyrics
and intellectually stimulating melodies. In my live shows I select
songs that have meaningful poetry and raag based tunes that have scope
for gaayki.

I find that in mainstream songs, the requirement for
gaayki has waned. Tunes and lyrics are often juvenile. I feel committed
to writing and composing deeper, meaningful stuff. This too is a form
of ethics I feel.

I have composed about 50 tracks for the
YouTube devotional channel Rajshrisoul. Each composition displays a
commitment to the music I believe in. Hence both in my recordings and
live shows I standby what I believe is quality.

In my live shows
I am often under pressure to sing “fast”, “dancing numbers”. I do not
encourage this. As I believe I am not a DJ. Unless I stand up for my
beliefs, I will be made to dance to any tune.

Short and quick is not necessarily good / Technology cannot replace the original
Over the years, the ‘mehfil’ culture has eroded. Attention span of listeners has shortened. For the youth music is equal to something you dance to. Lyrics, gaayki, melody has no significance. This has led to monotonous tunes, repetitive lyrics, and same interlude music pieces. Today music is in the pubs and less in mehfils. The ‘gaayki’ in film music has been muted and the requirement for trained vocals is redundant. ‘Anyone’ including actors themselves sing songs. Added to this technical innovations enable voices to be tuned. The earlier face of film music had intricate gaayki, every stanza different tune etc. In my recordings I make it a point to retake my lines if not in perfect sur. I discourage enthusiastic recordists who say ’we will tune the notes using the Antares software’. I feel it is unethical to let technology modulate your performance. Your audiences pay to hear you perform and your rendition and not the skill of the software programmer or technician. I must give my best and not leave it to a machine.

Women   and   Their   Exploitation In live music shows, you often see background dancer girls. Unless it is a pure classical dance form, women are portrayed as subordinate,exploitative. Attention is to the body and not the soul. I find such actions totally unethical. Hence I am particular that the role of women in whatever I produce represents talent, soul  expression  rather  than body.

I have faced situations where I have refused to sing in live shows with loud noisy orchestration and where organisers are interested in suggesting what outfit I should wear.

I have often lost out on recordings due to the patriarchal equation. Even to this day most music directors are male. Being single and fairly attractive I often encountered men pursuing me for all the wrong reasons. The fixation with males is immense. Recently, while recording an aarti there was a line “baanjhan ko putra deyt nirdhan ko chhaya “.  I insisted on changing it to the earlier version, ”bannjhan ko garbh deyt” as I believe that it perpetuates the Indian patriarchial mentality that insists on the male child and kills the girl child. Once I gave a successful composer my demo audio. He kept calling me up asking to meet over a ‘cup of coffee’ for almost a month. When I finally did meet him, I was shocked to see that he had simply not listened to my recording even once. I was just a pretty woman  for him. Ever since then I politely refuse ‘coffee invites” for ethical reasons. Things have changed for the better now with singers having personal managers and talent management agencies to represent them. These shield mischief makers from the artist.

But these experiences got me thinking and I stumbled upon Meerabai.

When I started translating Meera, it dawned on me that she’s a big star! Her songs are sung a good 500 years after her time. We remember Meera like a fragrant flower. Not as a sexy body. I realised that every woman needs to assert her soul identity. If every woman who steps out for a career, especially in the glamour industry, sends out strong signals of “My talent is my sole identity’, this power game will become redundant. I yearn for the day women would be able to express themselves uninhibitedly and not be guilty for it.

Respect The Performers and give Them Their Due
The music industry all over the world has been plagued by piracy. Today music is available free on the internet. The days of cd sales are declining as cds can be instantly copied. Hardly any non-film music albums are made. Only film music (backed by massive publicity budgets) sells in the form of caller ringtones, number of hits and ads on YouTube.

I do know of some highly ethical people who will only buy original DVDsand recordingsoftware. But by and large people buy pirated Windows, Nuendo/Cubase/Protools recording software. Most rip music from youtube.

Let Children be Children, Do Not Corrupt Them With The ways of The Commercial World.

Television talent shows are the in thing today. TV channels rake in the big bucks by aggressive marketing techniques. Amongst these are sob stories, dramatic behind the scene stories, emotional appeals and children. Channels woo viewers with little champs, junior idols etc. I am the first ever winner of a talent show in the history of Indian TV, to have got a film playback break. I won the Hindi Saregama in 1995. I remember there was an immensely talented 7 year old Pushparani from Assam who sang Lata songs to perfection. She vanished. There was ten year old Prashant too. I remember Prashant’s mother doing the rounds of music directors for the big break. It never came. Prashant works in a bank in Mira Road today, bitter about fading into oblivion. Once someone introduced me to a flamboyantly dressed little boy from Marathi saregama. He was most offended because I did not know of him. I vividly remember children crying on camera when they lost out to competition. Viewers cried too. Channels sold their emotions and made money. Often there is manipulation in who is to win. Is this really what children should go through? Children are superb mimics. Hence they copy and replicate what they hear. That is what the channels cash in on. Two years down the line public memory fades and no one remembers these children and their two month fame. They go through the pain of rejection and dejection. The channels make further money through live shows with these children.

I feel children competing on TV must be stopped on ethical grounds as it amounts to child labour. Why don’t we have child nurses, doctors, CAs engineers? If they can sing, they can practice too. It is unethical to make children work. Children should take training in classical music, polish their skills, enjoy childhood and then get professional as adults.

Conclusion
I am aware that the above close circuit view of ethics in my profession can have counter views. Every person’s experience differs and nothing is black and white.  Where one sets the ethical bar is one’s own choice.        I would set it at just within practical reach though aiming to pitch higher.

2ND YOU TH RESIDENTIAL REFRESHER COURSE (YRRC ) OF BCAS HELD AT THE BYKE RESORT, GOA FEBRUARY 19-22, 2015

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The 2nd YRRC of BCAS was organized under the aegis of the Membership and Public Relations (MPR) Committee in the young and beautiful city of Goa. The young chartered accountants attending the YRRC constituted a mix of practicing and industrybased chartered accountants. The diversity of work backgrounds and geographical affinities of the participants coupled with the informal locale added fresh colours to the YRRC.

Designed with the intent to share knowledge in an unconventional manner using a youth-friendly approach, the YRRC was a mix of interactive workshops, group discussions, presentations, networking and entertainment spread over a wide range of topics of professional interest. While the days were filled with technical sessions, evenings provided opportunities to unwind by the beach with music, networking, singing and dancing.

Most of all, the YRRC provided a platform to its participants to learn from an elite group of speakers in a rather closed and personal setting and to interact and network with them at an informal level.

Summarised below is a snapshot of the technical sessions.

DAY 1 Thursday, 19th February 2015

Inauguration Session by Chairman of the MPR Committee – Mr. Naushad Panjwani

Chairman, Mr. Naushad Panjwani, inaugurated the YRRC by extending a warm welcome to all the participants and set the tone and momentum for the 4 days of the event.

SESSION 1
INTERACTIVE WORKSHOP – CLIENT PITCHING

Speaker: Mr. Vaibhav Manek

Mr. Manek, author of the book ‘CA Firm of the Future’, explained in detail concepts such as mission, vision and values of a CA firm, clients development process, marketing strategies, balanced scorecard, marketing funnel, etc. He carried out exercises with the participants to demonstrate how to have effective marketing strategies and how to prepare for client presentations.

SESSION 2 PRESENTATION – MAKE YOUR MONEY WORK FOR YOU

Speaker: Mr. Sunil Jhaveri

Mr. Jhaveri, an expert at financial planning, explained the various investment avenues which young professionals could avail of to get into the habit of investing early and investing smart. He shared the mantras to make goal-oriented investments.

DAY 2 Friday, 20th February 2015

Session 1 – group discussion – rea l estate , reits and aifs – issues in accountin g, taxation & fema
Speaker: Mr. Anup Shah


During the group discussion led by Ms. Kinjal Bhuta, the participants discussed the posers raised by the Paper Writer, Mr. Anup Shah. The discussion revolved around the relatively newer concepts of REITs and AIFs and the various taxation and accounting issues in the subject. The speaker delved deep into the concepts of REITs and AIFs. He highlighted the controversies in accounting and taxation of these instruments and spoke about his expectations from the Budget on the subject. All the participants’ queries were satisfactorily answered.

SESSION 2 – PRESENTATION – OPPORTUNITIES IN MULTI-CHANNEL RETAIL
Speaker: Mr. Kumar Rajagopalan

Mr. Rajagopalan, CEO of the Retailers Association of India, spoke on career opportunities for CAs in the multichannel retail segment. His detailed analysis of the retail segment in India provided great insights to participants to the retail business world. He highlighted the various stages in the retail industry which a CA can service. He also brought to light some of the niche areas where a CA’s professional expertise could be put to use. Newer exciting career avenues for practicing as well as industry-based CAs were brought to the fore.

SESSION 3 – INTERATIVE WORKSHOP – BUSINESS ETIQUETTES
Speaker: Ms. Shital Kakkar

Ms. Kakkar, one of India’s best known corporate etiquettes trainer, spoke to the participants about the musthave etiquettes in a business environment. In a world which is getting increasingly polished by the day, proper professional behavior and courtesies go a long way in making good first impression and retaining it for the longer term. Through activities and exercises, she brought out the tricks to making good impressions and to avoid a business faux pas.

DAY 3 Saturday, 21st February 2015

SESSION 1 – BASE EROSION AND PROFIT SHIFTING
Speaker: Mr. Tilokchand P. Ostwal

Well renowned in the world of international taxation and transfer pricing, Mr. Ostwal explained to the participants about the upcoming Base Erosion and Profit Shifting project of the OECD and its impact on India. He shared some of the more commonly arising issues for India, his views of the same and the Governments’ actions/inactions to resolve. This was a great opportunity for the young CAs to get introduced to a project which the world has its spotlight on.

Sight-seeing, dinner & entertainment

Post the afternoon siesta, participants embarked on the Goa sight-seeing trip organised by BCAS to explore the bounties Goa had to offer.

DAY 4 Sunday, 22nd February 2015

SESSION 1 – PRACTICAL ASPECTS OF DUE DILIGENCE
Speaker: Mr. Akshay Kapur

Mr. Kapur discussed different types of due diligence that exist in a business scenario. Mr. Kapur took the participants through the process flow in the life cycle of a deal and stage at which due diligence has a role to play. He explained with examples how a due diligence finding could make or break a deal. He discussed case studies based on issues he had come across during the course of his career in the field.

SESSION 2 – BUSINESS OF MOVIES & OPPORTUNITIES FOR CAs
Speaker: Mr. Komal Nahta


Mr. Nahta, editor and publisher of “Film Information” and a television show host, joined the participants for the last session of the YRRC to share insights into the glitzy and glamour world of the movie business. He explained how the movie industry trades and the revenue models peculiar to the industry. Mr. Nahta shared some ideas as to how a young CA could make headway in seeking clients from the movie industry.

The YRRC ended on a happy note with vote of thanks to the organisers and the participants.

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FEMA – Pricing – Put & Call Options – A Needless Curb on Doing Business – Stalled Tata-Docomo deal betrays timidity

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The objection to Tata Sons buying out its joint venture partner NTT Docomo’s stake in Tata Teleservices at a predetermined price is a needless restriction on doing business. True, the transaction runs foul of the Foreign Exchange Management Act, which prohibits such stake purchases at a price wholly out of line with the current fair value. The intent of the law is, evidently, to prohibit siphoning off of capital. But to meet that goal, should India adopt a blunt instrument that invalidates all foreign investment in India with put and call options that specify a price that could well be at variance with future fair value? Clearly not. Sometimes, intelligent discretion is better than a rule. The government and the RBI should allow the transaction to go ahead. And prevent a turmoil in the insurance industry, where use of put and call options was rife when foreign insurance companies took a 26% stake, anticipating a hike in the ceiling later.

Two issues are at stake. One, how companies source capital. Hesitant foreign capital could be persuaded to enter the country by offering it guaranteed exit options that minimise or quantify the possible loss it could make. Should India say no to such capital? Should all equity investments that come with put/call options automatically be deemed suspect? The answer is a resounding ‘No!’ The second issue is how to prevent a liberal view on put/ call options at the time of entry of foreign capital being misused by Indian companies to siphon capital out.

The way out is to check if the bathwater contains a baby or not, before throwing it out. This calls for use of judgement and intelligence. Scam-scarred policymakers in India are too scared to allow themselves to use discretion, and want to go by the rule book, regardless of whether it meets the larger goal, to subserve which the rules were framed. The signal a stalled Tata-NTT Docomo deal would send out to the world is that India continues in the grip of political timidity, leaving passing the buck the only game in town, even in these, post-UPA, post-policy-paralysis, so-called good times.

(Source: Editorial in The Economic Times dated 26-03- 2015.)

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Stacked against ourselves: Foreign capital gets better tax treatment at the cost of its domestic counterpart

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Mumbai aspires to be a financial hub on the lines of New York, London, Hong Kong and Singapore. For that to happen, a good ecosystem with availability of talent, ease of regulations, a conducive tax environment and an ability to attract global capital is a prerequisite. No country has created a global financial centre without also creating a vibrant domestic fund business. Unfortunately, the current regulatory environment in India has created aplaying field that is stacked heavily against the domestic industry.

Globally, private equity and hedge funds have assets under management of over $3.5 trillion and $2.5 trillion respectively. In India, the domestically domiciled Alternate Investment Funds (AIF) have total commitments of less than Rs 25,000 crore (roughly $4 billion), with the actual inflows just a fraction of the commitments. By any measure, the AIF industry in India is sub-scale and not commensurate with the size of a $2-trillion economy.

Foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) route their investments via Mauritius and other tax havens with double taxation-avoidance agreements and pay zero tax on their business income and capital gains and a maximum 10% withholding tax on their interest income in India. Also, all securities held by FIIs/FPIs including derivatives were reclassified as capital assets in last year’s Budget.

With pass-throughs denied for AIF Category 3 funds, the investors in these funds see even their equity returns classified as business income, if there is any interest income or other income from derivatives, and all income taxed at maximum marginal rates. AIF Category 2 fund investors, even with the benefit of pass-throughs, still have their derivative income classified as business income.

The result of the perverse tax rules is that while even equity returns of investors in AIF Category 3 funds get re-characterised as business income resulting in higher tax liability, for foreign investors, what was previously business income now gets re-characterised as capital gains, enabling them to enjoy lower or nil taxes.

A large global top-tier hedge fund like AQR, DE Shaw or Renaissance Technologies that deploys quantitative strategies and invests in Indian equities and derivatives via the Mauritius route pays zero tax, while a domestic AIF Category 3 fund deploying similar investment pays peak marginal rates. The very business case for incorporating an AIF Category 3 fund in India becomes questionable.

Domestic funds are further handicapped by Sebi regulations that restrict leverage and prohibit them from investing in commodities and forex markets. This handicap reduces the amount of capital that can be deployed and returns earned. It creates a unique situation where both an individual investor with limited capital and a corporate house from a non-financial services industry with large treasury operations enjoy far more leverage and risk-taking ability than a professionally-managed fund deploying sophisticated risk capital.

The underdeveloped nature of the debt markets in India also means that domestic funds are restricted to equity markets alone. Foreign funds, on the other hand, can invest in multiple asset categories globally and have lower leverage restrictions. This enables foreign funds to outperform domestic funds while taking lesser overall risks.

It is more attractive to incorporate outside India and invest in India via the FII/FPI route, or in rupee-denominated assets in foreign markets, rather than get an AIF licence and invest in local markets. This results in export of capital and underdeveloped capital markets in India. A significant chunk of the rupee-denominated securities and currency markets has already moved out to Singapore and Dubai and investment capital continues to move out of India to foreign fund managers.

To mitigate the handicaps the fledgling local industry faces, these steps should be immediately taken:

1. Remove the leverage restrictions on AIF Category 3 funds and subject them to the same exchange-based risk management and margin rules that all categories of investors are subject to.

2. Allow domestic funds to invest in commodities and foreign exchange markets starting with non-agricultural commodities.

3. Include investments made by the local AIFs in Section 2(14) of the Income-Tax Act, thereby giving capital asset classification to those investments as was done for FIIs/FPIs.

4. Grant pass-throughs to AIF Category 3 funds as was done for AIF Category 1 and 2 fund assets immediately as an interim measure.

5. Over the longer term, a mutual fund-like regulatory regime for AIFs where the funds are not taxed but the unit holders pay capital gains tax on their units, would be a solution to the current discriminatory regime.

In every country, domestic and foreign capital are treated at par, while in India, foreign capital continues to get far better terms and tax treatment and domestic capital is discriminated against. The time has come for the ‘Make in India’ concept to be also applied to the domestic AIF industry to create a vibrant ecosystem, enabling India to achieve the objective of having a global financial centre located here.

(Source: Extracts from an Article by Mr T V Mohandas Pai, ex-CFO, Infosys and Mr V Balkrishnan, Chairman, Exfinity Venture Partners.)

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PSUs – Crown Jewels Or Bleeding Ulcers

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Here is a comment from early September 2002: “Of the 240 central public sector undertakings (PSUs), half were operating at a loss. Out of 1,040 state-government run PSUs, 90 per cent were in the red. Taxpayer’s money was invested in loss-making commercial enterprises where the private sector had invested in a big way.” This was Arun Jaitley, then general secretary of the Bharatiya Janata Party. Around the same time, Arun Shourie, disinvestment minister, said this about PSUs: “These are not crown jewels, these are bleeding ulcers.”

13 years later, with Mr Jaitley as finance minister, came the news that the Prime Minister’s Office (PMO) is “concerned” over the overall health of Air India. Air India has a debt of Rs 40,000 crore, while the losses stand at a huge Rs 38,000 crore. It is surviving on a bailout package, under which the government is committed to inject Rs 30,000 crore of our money into it in a staggered manner till 2021-22.

Narendra Modi came to power on the promise of a “development agenda”, which would mean “minimum government, maximum governance”. Nobody is still clear what this slogan means. In fact, it seems that this government is committed to the same path of maximum government that all previous governments had taken. What illustrates this well is the strongman approach to “fixing” the loss-making PSUs like Air India.

PSUs came to dominate India’s industrial economy since the fateful Industrial Policy Resolution of April 6, 1948, that conferred monopoly on the state for six basic industries. Jawaharlal Nehru called them “temples of modern India”. The Left calls them family silver. They were expanded further through the Industrial Policy Resolution of 1956 and Industrial Policy Statement of 1973. Many politicians, the media, some businessmen and managers tended to believe that government-owned companies were gems that needed to be polished and they would dazzle us.

Most PSUs were hardly gems whether dead or alive. In May 2000, a youthful and enthusiastic Mr Jaitley announced that more than Rs. 2 lakh crore was stuck in government units, asserting that the actual value of these assets was “several times more” and, if realised, could pay off the government’s debt. Mr Jaitley is the finance minister now. Can he walk his own talk?

PSUs are overstaffed, capital-guzzlers, tied to the apron strings of ministers and secretaries, who have their own commercial/political agenda of exploiting them. The boards are stuffed with people who are there for the loaves and fish of office, social status or influencepeddling, not to contribute to efficiency. Some people say that the magic wand of autonomy will turn them from frogs into princes, but autonomy without accountability will be even worse, as the government banks have shown.

Meanwhile, tens of thousands of crores have been wasted in keeping loss-making PSUs alive.

It has been clear since the mid-1970s that PSUs were a drain on the exchequer and so the Industrial Policy Statement in July 1980 talked of “revival” of PSUs through a “time-bound programme” in a country where people, events and programmes were always late. Since then, PSU reform has had many well-meaning heroes.

From a fresh-faced and naive Rajiv Gandhi to a shrewd, dyed-in-the-wool politician like Mr Modi, every leader big and small talked of revival (the only exception was Mr Shourie). Surprisingly, the bleeding hearts hand-picked by Sonia Gandhi as members of the National Advisory Council under Manmohan Singh’s government wanted to direct more money towards the poor, but took no interest in the loot and waste in PSUs.

If Mr Modi truly wants to redeem his pledge of minimum government, his best bet is to start with PSUs. PSUs run businesses. Businesses have only one objective — earn a return on capital that is a few points higher than risk-free return on capital. This is impossible to achieve through a minister-secretary-chairman-cum-managing director combine with lots of interference from the sides. The options are clear: to sell off controlling stakes through competitive bidding for the profit-making ones; and to close down the non-functioning units and sell off their assets, including the enormous land value that many are sitting on. And while doing this, to shrink the ministries that have been overseeing them.

If Mr Modi tries to fix PSUs, he may prove a point, but he will keep a false economic thinking alive that has contributed to our economic backwardness.

(Source: Extracts from an Article by Mr Debashis Basu, editor of www.moneylife.in, in Business Standard dated 23-03-2015.)

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Income-tax Return of Professionals – Issues related to Tax Credit (TDS) Mismatch

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The Editor
Bombay Chartered Accountant Journal
Mumbai
23rd May 2015

Re: Income-tax Return of Professionals – Issues related to Tax Credit (TDS) Mismatch

As
you are aware, most Individual Taxpayers, particularly various
Professionals, maintain their books of account on Cash Basis and
accordingly account for professional fees received on cash basis.

Accordingly,
while filing the Return of Income, credit for TDS deducted by the
payers u/s 194J is claimed in the year in which the relevant
professional income is accounted/ received and offered for tax on
receipt basis, in accordance with the provisions of section 199 of the
Income-tax Act, 1961 which provides that “Any Deduction made in
accordance with provisions of section 192………. 194J ………. and paid to the
Central Government, shall be treated as payment of tax on behalf of the
person from whose income the deduction was made …. and credit shall be
given to him for the amount so deducted, on the production of the
Certificate furnished u/s. 203 in the assessment made under this Act for
the assessment year for which such income is assessable”.

Thus,
whereas the Payers deduct TDS in Year 1 on accrual basis, particularly
various types of Professional fees at the end of the Financial Year as
on 31st March, the Recipient Professionals claim credit for the TDS in
Year 2, upon actual receipt, resulting in TDS Credit mismatch.

Prior
to AY 2014-15, there was no proper disclosure mechanism in the Returns
of Income filed by the Individual Professional Tax Payers for AY 2012-13
and AY 2013- 14 and earlier years. The CPC Bangalore does not give
credit/ has not given credit for TDS in such cases i.e. TDS deducted in
Year 1 but credit whereof is claimed in Year 2, resulting in huge demand
for tax and interest and causing huge mental agony and anxiety to the
taxpayers.

There is no clear, effective and speedy redressal
mechanism in such cases and one has to run from Pillar to Post upon
receipt of Intimation u/s 143(1), reflecting a huge demand on account of
such Tax Credit mismatch.

Through the medium of BCAS’s
prestigious Journal, I wish to highlight this issue faced by thousands
of Individual Professionals, to the attention of High Revenue Officials
in CBDT and CPC Bangalore, requesting them to issue clear guidelines and
establish speedy and effective remedial mechanism.

Regards,
Tarun Singhal

The Editor
Bombay Chartered Accountant Journal

Sir,
Apropos
your editorial captioned “A GOOD BEGINNING” [April 2015 issue] wherein
you have made very important observation about black money lying within
the country and which reads as ” If income or assets on which tax has
been evaded lie within the country, normally they circulate through
distribution channels albeit unofficial…………. must be grossly
unequal. Consequently, to an extent, such moneys gives a fillip to economic activity.”
I fully endorse your view . Black money does play positive role in the
economy.To my mind it is not tax evaders but tax “predators” who cause
immense damage to the economy. Tax predators are those who eat away
taxes paid by taxpayers.They squander taxes in the name of cost of
governance, development and helping poorest of poor. Mindless use of
taxes is as dangerous as tax evasion. Any government be it Congress or
BJP, is interested in finding ways and means for collecting more and
more taxes, [knowing fully well] that this adds to inflationary
conditions in the economy. I am sorry to say, any new legislation
enacted, whatever be its noble objectives, means a new area/era of
litigation, even if it begins well.

Regards

Avinash Rajopadhye
Chartered Accountant

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Serve from India – Growth in IT may be faltering, India must diversify its basket of services exports

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India’s information technology revolution happened on its own and we can’t expect it to go on forever. Infosys last week unveiled lacklustre financial results for the March quarter, in line with the trend seen among top-tier IT companies. While it may be too early to reach a definitive conclusion on the scale of challenges confronting the IT sector and its capacity to overcome them, the financial results should serve as a wake-up call to India’s economic policy makers. It’s time to diversify our basket of services exports instead of just firing on one or two cylinders. India should look to match its greatest wealth, its human potential, with the latent global demand that exists across a range of services beyond IT.

A vigorous emphasis on services will dovetail nicely with the thrust on manufacturing through ‘Make in India’. In the wake of technological changes, boundaries between manufacturing and services have begun to blur. Consequently, ‘Make in India’ can be complemented by ‘Do in India’. Two building blocks are needed to harness the potential of services exports. The protectionist thrust of trade policy must be discarded. Unless India opens up its services sector, opportunities to be part of a global network can never be exploited in full measure. If there is a lesson to be learnt from the success of IT, it is that openness leads to job creation.

The lowering of barriers must also encompass the education sector, which needs to welcome rather than run scared from participation of foreign universities. Raising India’s abysmal standard of education is critical to tapping opportunities in services. Under present HRD minister Smriti Irani, counterproductive micromanagement of institutions seems to be the preferred approach to education policy. This must end and a new era of competition, diversity, growth facilitation and quality enhancement begin.

Prime Minister Narendra Modi is a votary of expanding services. His government has shown willingness to act on this conviction. Gujarat International Finance Tec-City (GIFT) was launched this month with the aim of becoming an international financial centre. In a similar manner, India can piggyback on homegrown talent to be a part of the global network in areas such as entertainment, tourism, legal and accounting services. It is time to junk existing shibboleths and show some ambition.

(Source: Editorial in The Times Of India dated 28-04-2015.)

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Modern Arthashashtra—Waging a War on the Economy.

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Russia’s market capitalization is currently about $495 billion. It’s down about 68% from the peak in January 2008. But in local currency, it is down about only 13% in the same period (about 10% of the fall has been in the last quarter). This means that the entire country is valued at less than three quarters of Apple Inc. Russia has a gross domestic product (GDP) in excess of $2 trillion; foreign exchange reserves in excess of $355 billion; and 12.5% of world’s land mass along with abundant natural resources, especially related to energy. And yet it is valued lower than a company that makes iPhones and iPads.

This is surprising because the Russian economy has, in fact, done well over the years. It is the 10th largest economy in the world by nominal GDP and the seventh largest by purchasing power parity (PPP). It has enjoyed fiscal surplus for most of the past decade, except marginal deficits in past five years. Its fiscal deficit in 2014 was just 0.5% of GDP. Government debt to GDP ratio was one of the lowest in the world, at under 14%. Current account was in surplus at 1.5% of GDP. With a GDP per capita at $6,923 (in 2013), Russians are better off than many of their emerging market peers.

From the time when its economy had hit rock bottom in 1998, after the collapse of the USSR, unemployment and poverty have been reduced significantly. While oil and gas remain a substantial part of the country’s exports and its economy, the talent pool it has in the field of space and engineering remains enviable.

But still many aspects show weakness. From the third largest forex reserves globally in 2008, in excess of $590 billion then, there has been a decline of more than 40%. The Russian equity index saw a correction of about 53% between June and December of 2014. The Russian ruble went down from about 34 to a dollar in June 2014 to 67 per dollar in December 2014, before recovering to around 52 to a dollar currently. Russian credit spread expanded from 173 basis points (bps) to 590 bps in the same period, before recovering to 360 bps currently. (One basis point is one-hundredth of a percentage point.) Russian overnight implied forwards moved from 8.5% in June 2014 to 31% in December 2014 before recovering to 15% currently. The Russian overnight repo rate went from 8.5% to 18% during the same period before recovering to 15% at present.

The impact of the turmoil witnessed by the Russian economy can be seen when its equity markets are down by about 5% in local currency terms but 53% in dollar terms, forex reserves are down by 18% and overnight repo rate up by 211%.

This devastation has been caused by a combination of many factors—drop in crude prices, sanctions on Russia due to Ukraine engagement, raw material-heavy export basket in a period of falling commodity prices, and more. But the volatility witnessed in the markets was much more than what the fundamentals suggest. It was not as if Russian equities came from a bubble valuation to warrant such a large correction. The damage witnessed by Russia was nothing short of what a physical war could have caused.

Is this evidence of the world having moved from physical warfare to financial warfare? Do analysts and fund managers now do what soldiers used to do earlier? While in the long term fundamentals will prevail, can the markets be influenced in the short term with such devastating effect on fundamentals? Can the short-term trends be accentuated to cripple markets, and consequently, economies?

One doesn’t know the answers convincingly but it is possible that a short- to medium-term trend of falling crude oil and gas prices was accentuated to create a turmoil in Russian markets.

Integrated debt, currency and equity markets, and the presence of offshore markets allow fund managers to make the effect the cause for further adverse effects. Presence of offshore markets, which are beyond the regulatory oversight and reach of the target country, availability of leverage at near zero interest rates, ability to use the media to push one set of views, ability to influence independent opinion makers such as rating agencies, economists, columnists, policy advisers, and global watchdogs in terms of data interpretation and forecasting can magnify the effects of a small shift in fundamentals. In addition, the adverse effect can be increased manifold if the opposite side does not have financially savvy decision makers; open and liberal markets that allow free flow of capital across debt, equity, commodity and currency markets; deep local markets; and large and nimble domestic institutions that can face the battle. If the perpetrators are able to get financial as well as nonfinancial support from sovereign organizations, then the target country becomes even more vulnerable. Malaysian leader Mahathir Mohamad hinted at such a scenario during the Asian crisis of 1997-98.

It is important for India to safeguard against a black swan event like this where the presence of offshore markets and open access to equity, fixed income and currency markets is used to destabilize Indian markets, and consequently, the Indian economy. Superior macros along with low inflation, balanced budget, manageable current account, adequate forex reserves and higher growth is the best way to keep a global investor’s interest. Development of large domestic institutional investors and increasing the depth of the domestic market is critical to maintain equilibrium. Most importantly, regulators and policymakers will have to be prepared with a deeper understanding of the market, quicker decision-making and having the ability to take unconventional steps such as the Hong Kong monetary authority’s intervention in equity during the Asian crisis. While the probability of such an event taking place is low, it is better to be safe than sorry.

(Source: Article in Mint by Nilesh Shah, chief executive officer, Kotak Mahindra Asset Management Co. Ltd, dated 23-04-2015.)

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Reservation for small enterprises has ended.

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The National Democratic Alliance (NDA) government deserves to be congratulated wholeheartedly for at long last bringing to an end one of the most pernicious vestiges of the licence-permit Raj. Early this week, a notification was issued taking the last 20 products off the “reservation list” – the list of products that can legally be made only by small and medium enterprises, or SMEs. While this last step is welcome, it is worth noting exactly how long it has taken to end this counter-productive restriction. After all, industrial policy was freed up in 1991; only now, 24 years on, has this forced stunting of certain sectors come to an end. The dangers of “gradualism” in reform are revealed here for all to see. Indeed, while the government deserves full credit for taking the last bold step, it is worth noting that the notification took almost six months to be issued, since the committee that decides such matters under the Industries Act of 1951 had recommended the delisting of the final 20 items as long ago as last October. This is more than a symbolic step. These are not marginal, unimportant items that were still on the SME list. In all these sectors, new large-scale enterprises were forbidden. Is it any surprise that almost every lock in Indian markets is made in big, efficient Chinese factories? Once, in the mid-1980s, there were as many as 873 items on this list. From 2002 to 2009, under the first NDA and the first United Progressive Alliance governments, about 790 of these items were removed – including such things as garments. Is it surprising that, with garments on this list, India failed to reach its potential as a garment exporter in spite of ample human resources? The average size of a garment factory in India is about a tenth of their competitors in Bangladesh.

Typically for such economic restrictions, this reservation for SMEs was counter-productive in more than one way. Not only did it stunt the sector, but it ensured the perpetuation of monopolies. After all, when the restrictions were first introduced, existing companies were granted what were called “carry-on business” licences. Thus Bata could continue to make footwear in-house if it chose, but no large Indian competitors could come up to challenge it. One other aspect of this gradualism is worth noting: that, even if there is no will to reform domestically, openness to the world economy can force the government’s hand. After all, if Indian SMEs are competing with large-scale enterprises from China under free trade, why not with large-scale enterprises from India?

Finally, it is worth noting that the biggest beneficiary of this reservation will likely be SMEs themselves. For ‘Make in India’ to thrive and for India to become a genuine manufacturing hub, growth must be driven by SMEs that become big companies. By ending the reservation policy, the government has helped make that possible.

(Source: Article in Business Standard dated 16-04-2015.)

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Make it easy for experts to come to India to teach: Narayana Murthy

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India should make it easy for foreign intellectuals and experts to come here says the Infosys founder N.R. Narayana Murthy.Speaking at the launch of N R Narayana Murthy Distinguished Chair in Computational Brain Research, set up by Infosys co-founder Kris Gopalakrishnan and the Indian Institute of Technology, Madras in the campus, Murthy said: “The aspiration for us has to be how can our Institutes of higher learning emulate those great institutes. I am positive that the students and faculty of these institutes have the competence and inclination for that.Therefore, it is the task of our society, government, political leaders, bureaucrats, and the alumni of the institutes to make life easy for these people to achieve what they want.

That is where I believe enhanced interaction with leading researchers, ability of our students to go to those places, and the ability of those people to travel easily to India at short notices, the ability of our students to attend conferences, perhaps exchange students. . . these things become extremely important.I only hope that this nation, outside this ecosystem of the institutes, will cooperate with all these people to make our dream worthwhile and to ensure that India too receives its rightful place in the threshold of research in these areas,” he added.

According to Murthy, there should be more scholarships to Indian students to go abroad and study there. While it’s easy for Indians to get Visas from any developed countries, Murthy said, many of his friends outside India had told him that getting Visa to visit India is not that easy. He said the country should change that perception.“It should not take more than 24 hours to get the Visas,” he said.

Murthy noted that the brain research activities initiated in IIT Madras, along with other overseas institute, would put India on the map of leading edge ideas in brain research. (Source: Business Standard dated 20-04-2015.)

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48TH RESIDENTIAL REFRESHER COURSE (RRC ) OF BOMBAY CHARTERED ACCOUN TANTS SOCIETY (BCAS)

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Venue: Hotel Ananta Spa and Resort, Udaipur Dates: 8th January, 2015 to 11th January, 2015

The Residential Refresher Course is one of the flagship events of the BCAS. This year, the 48th RRC was held at Udaipur aptly called the city of lakes. More than 200 delegates from all over India converted Hotel Ananta for 4 days into a knowledge club. The Resort, nestled between the majestic Aravalli Mountains, dotted with flowering trees visited by birds of bright hues, crisp cool weather and mouth-watering cuisine, was a perfect backdrop for learning and networking.

DAY 1

Group Discussion of Mr. Sunil B. Gabhawalla’s paper titled “Issues in CENVAT Credit and Reverse Charge Mechanism under Service Tax”. The group leaders were Mr. Ganesh Prabhu Balkrishnan, Ms. Manju L. Navandar, Mr. Saurabh P. Shah, Mr. Rajesh R. Shah and Mr. Manmohan Sharma. Case Studies in Directors remuneration, Reimbursement of expenses to consultants, Sponsorships and Live Telecasts, Housekeeping services, Security services and the like, were heatedly discussed and consensus was sought to be reached for the answers in the groups.

This was followed by the Inauguration of the RRC by lighting of the lamp at the hands of chief guest, Dr. Adish C. Aggarwala. He also gave the key note address. Dr. Adish C. Aggarwala is also a Government Counsel in the Supreme Court and Delhi High Court. He was joined on the dais by the Chairman of the Seminar Committee Mr. Rajesh S. Shah, President Mr. Nitin P. Shingala, Vice President Mr. Raman H. Jokhakar along with the two Convenors, Mr. Bharat K. Oza and Mr. Salil B. Lodha.

The first technical session was by Mr. Khusroo Panthaky. He made a brilliant presentation on the topic “Companies Act, 2013- Provisions related to Accounts, Audit & Auditors – Issues and Implementation Challenges”. His presentation was peppered with humour and factual cases. He expressed concern of falling standards of audit and justified the statutory limit of signing 20 audits per signatory, which he advised must be adhered to not only in letter but also in spirit. This session was chaired by Mr. Nitin Shingala, President of the Society

DAY 2

Group Discussion of Mr. Pradip Kapasi’s paper on “Taxation of Some Entity Related Issues (Private Trust, HUF, AOP, Firm, Succession, Company). The group leaders had a tough time touching on all the issues in the paper and moreover, as often the group was divided on their opinions. The group leaders were Mr. Chintan J. Shah, Ms. Meghna Sarang, Mr. Pankaj Agarwal, Mr. Phalgune K. Enukondla, Mr. Sidhartha B.Karani and Mr. Vinod Kumar Jain.

Mr. Sunil Gabhawalla, in the second technical session, gave answers to the posers in his paper on reverse charge mechanism and cenvat credit. He replied to all the queries put to him by the group leaders who had compiled them after the group discussions. This session was chaired by Mr. Udaya V. Satahye, Past President of the Society

Mr. Pradip Kapasi in the third technical session, replied to the queries raised from the group discussion of his paper. In his inimitable style, he expained the complex provisions of Trusts, HUF, AOP, BOI, Business Trusts etc. This session was chaired by Mr. Ameet Patel, Past President of the Society.

The participants visited Nathdwara for Shreenathji Darshan that evening. The excellent arrangements made by BCAS for special Darshan gladdened the hearts of all those who felt they would always remember this 48th RRC for this wonderful experience.

DAY 3

Group Discussion of Mr. Milin Mehta’s paper on “Concept of deemed income and deemed gains -u/s. 56(2) (vii), (viia) and (viib), s. 69, s. 43CA & s. 50C”. The topic was very relevant and generated vibrant discussions in the groups. The Group Leaders were Mr. Bhavin R. Shah, Mr. Bipin K. Karani, Mr. Chetan Dhabalia, Mr. Neelesh Vithalani and Mr. Nimesh K. Chotani.

During the fourth Technical Session, Mr. Bhagirat Merchant presented his paper on ‘Strategic intent on Mergers and Acquisitions’. Being a Past President of the Bombay Stock Exchange, the highlight of his presentation was the

candid analysis of the recent M & A activities. His depth of hands-on knowledge and long standing experience with the Indian capital market made the presentation very interesting and thought provoking. His view that to ensure success in M & A activity, one has to look beyond accounting, legal and financial issues and consider corporate culture was an eye opener to all the participants. This session was chaired by Mr. K. C. Narang, Past President of the Society.

Thereafter, in the fifth technical session, Mr. Milin Mehta replied to all the queries raised by the participants during the group discussions. The paper writer’s exposure and his in-depth analysis made his talk very useful and interesting to the participants. He referred to various court decisions and explained the grey areas to the satisfaction of all. This session was chaired by Mr. Anil J. Sathe, Past President of the Society.

Later, the participants went for a city tour of Udaipur, visiting several places of interest of this heritage city.

In the evening, an entertainment program was organised for the participants. Rajasthani folk artists charmed all the delegates with their great music and breathtaking performances and the delegates were treated to a mouth watering traditional Rajasthani cuisine for dinner.

DAY 4

The final day had the Brain Trust Meeting with two stalwarts, Senior Advocate Mr. Saurabh Soparkar and Mr. Rajan Vora on Critical Income Tax issues including of Domestic and International Taxation. Mr. Ashok K. Dhere, Past President of the Society, chaired this technical session. Both the trustees very ably dealt with all the questions raised. They started by explaining the case study, questions arising, probable answers and court cases that could be relied upon.

They also explained controversies surrounding some issues, conflicting judgments and giving their interpretation of the same. Trustees gave a holistic view of various provisions and willingly shared their knowledge and expertise with the participants.

In the concluding session, the Chairman of the Seminar Committee Mr. Rajesh S. Shah thanked the delegates for their co-operation and active participation. He thanked the paper writers, brain trustees and BCAS staff. He specially thanked the President for his wholehearted support. He also thanked all the Group Leaders whose efforts were one of the key drivers for success of the conference. The Chairman thanked all the agencies especially the Resort management and the staff, for their help and support for the success of this RRC. A few first time participants and out-station participants expressed their thoughts, experience and suggestions about RRC. The President of the Society, Mr. Nitin Shingala thanked everybody for making this RRC memorable. He also thanked Chairman of the Seminar Committee Mr. Rajesh S. Shah and his team for carrying out this herculean task successfully.

Participants departed after lunch to their respective destinations by cherishing the memories of the 48th RRC and with a promise to meet again next year at the 49th RRC.

For more photoghraphs of the 48th RRC, Udaipur, please visit bcasglobal facebook page.

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A Clarion Call for Cohesive Growth, Amity – PM Narendra Modi outlines coherent vision, ambition at ET Global Business Summit

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Narendra Modi has always been good at making speeches to which his audience swoons, but his performance at the Airtel Economic Times Global Business Summit last Friday was a class apart. Eloquence was not the main thing. He dreamed big, envisioning an Indian economy 10 times as large as today’s. He presented a cogent economic philosophy, radiated the confidence that he would be able to execute the strategy flowing from this vision and called upon everyone, particularly businessmen and entrepreneurs, to join a mass movement of development that would embrace everyone and enrich everyone, while the government provides succour to empower the poor and the vulnerable. Most notably, he called for social peace and cohesion, calling them prerequisites of growth, almost as if responding to his critics on this score.

Vaulting Reasonableness on Growth
Modi’s invocation of a $20-trillion Indian economy might sound like ambition gone berserk: the figure is 25 per cent bigger than the world’s biggest economy today, while the Indian economy is less than $2 trillion. But consider: a real growth of 9 per cent, which India had reached comfortably before the crisis, along with inflation of 5 per cent, means a 14 per cent rate of nominal growth. At that pace, the economy would double in five years, quadruple in 10, be eight times as large in 15, and be more than 10 times as large in less than 18 years. At high income levels, economies tend to slow down, but India’s demographic dividend would sustain for two decades more and productivity gains would more than offset inflation differentials with the US. A $20-trillion economy is, thus, quite a reasonable target. But no leader has till now shown the gumption to articulate such vaulting reasonableness, to fire the ambition of the country’s youth.

Modi elaborated, for the first time, what precisely he means by minimum government, maximum governance. The government has no business to be in business, he said, but should do five things: provide public goods, manage externalities — whether negative ones like pollution or positive ones such as the productivity gains from mass education and skilling — control market power of companies, fill information gaps and provide welfare to those on the margins. Technology would enable the government to be competent, non-corrupt and efficient. Digital India would also advance education, healthcare and financial inclusion.

Growth for Jobs, Welfare

The objective of reform is welfare. Some reform would be driven from the top, others from below, through popular adoption of innovation. Both are important. The state can incentivise an additional 20,000 MW of generation capacity, but an equal impact can be made by people willingly saving power. Cleaning the Ganga, Swachh Bharat and a vibrant tourism industry are campaigns that feed into one another, and can succeed only with mass participation that lives out the principle that Small is Beautiful. The state has to abandon its mindset of command and control and empower the people.

Talk is cheap, and walking the talk is the tough part. It is indeed welcome that PM Modi has committed himself to nurturing education and healthcare, uplift of the downtrodden and social cohesion. This would address concerns that his big business orientation would hurt social development and welfare. Most vitally, identifying social peace as a precondition for prosperity offers a foil to the spirit of schism embodied in the words and deeds of the larger Sangh Parivar on whose shoulders Modi rode to Raisina Hill. They have to heed the PM’s call for social cohesion, if India is to attain its potential as an economy and civilisation. The point is to uphold, not vitiate, India’s tradition of unity in diversity.

(Source: The Economic Times, dated 19-01-2015)

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Indian literary classics made accessible

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At a time when there is raucous debate on India’s real and imagined past, a library of rare ancient Indian classics – one going as far back as 3 BCE – has been launched. A philanthropic initiative of Rohan Murty, the literary project is spearheaded by noted Sanskrit scholar Sheldon Pollock and published by the Harvard University Press.

The first set of books ranging from Bulle Shah’s works in Gurmukhi and the Akbarnama in Persian to Surdas’ poetry and Manucharitramu in Telugu was released by eminent economist Amartya Sen. Over the next seven years, the series, named the Murty Classical Library of India, will publish 48 volumes of these classic works, translated from around 14 Indian languages, including Sanskrit and near extinct vernacular forms.

“India has the single most complex and continuous tradition of multi-lingual literature in the world and a lot of it is inaccessible. MCLI will make this literature available in the best possible way for the general reader as well as students and scholars,” said Pollock. These books have the original script as well as an English translation on the facing page.

The library was meant to reiterate the fact that Indians have been storytellers to the world for centuries, and to redefine the idea of a “classic”.

Murty said he represented the general Indian reader who was curious about ancient India but had access to very few literary sources. “What was life like in ancient India? How did people live, die? What was its astronomy, maths, science like? There is so little discussion on any of these in our schools and colleges,” he said. “This literature will hopefully offer an exposure.”

The next set of translations will include Kamba Ramayanam, Ramcharitmanas, Ghalib’s poetry and 6 AD Sanskrit scholar’s work Kiratarjuniya and Bharatchandra’s Annada Mangal. The big plan is to have 500 books on the MCLI shelves.

Among the most riveting is Therigatha, Poems of the First Buddhist Women which is in Pali and composed by theris, the elder Buddhist nuns. They speak in touchingly honest verse of their spiritual struggles.

Murty promises a digital version of the library sometime soon, low cost or even free to access. “As a tech dreamer, I envision an MCLI with a button you can press and read Bulle Shah in Gurmukhi, Devnagari…a day will come when the communal politics of script will be resolved with the click of a button,” said Pollock.

(Source: Times of India – dated 16-01-2015)

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To Make in India, give a break to our tech & talent

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Prime Minister Modi boldly called for ‘Make in India’. The question is: How to Make in India? What will be the roadmap for Make in India? And, how do we go beyond Make in India — to research, design, develop, produce and thus truly ‘Create in India’?

In our opinion, the answer rests on five pillars.
Human Resource: India’s key advantage is its 500 million youth. By 2016, every fourth skilled worker added globally will be an Indian. But it is imperative to ensure employability of this human resource. As many as 82% of our fresh engineers are deemed to be “unemployable”. Unless the quality issue is addressed, Make in India will yield only low-cost, low-return employment for India. Research needs to be promoted to create new skill sets. This would require significantly higher spending on research from the current $36 billion (in terms of purchasing-power parity), less than 1% of GDP. In 2012, China spent $296 billion on R&D (2%) and the US $405 billion (2.7%).

Capital & Incubation: India incubates around 500 startups a year, China over 8,000. With little investor support and the banking system ill-equipped to assess these businesses, startups are like stepchildren in India. This runs against the global trend of funding innovative startups that rely on a few core competencies to invent products, a phenomenon called innovation capitalism.

We have to be ready to let go of old shackles before we realise new dreams. The Make in India campaign needs to plant and nurture homegrown enterprises than merely become an exclusive fishing zone for large MNCs. People should be encouraged to fund the campaign. Indian households hold gold worth $1,160 billion, more than half our GDP. Gold bonds linked to Make in India enterprises could be an option to explore.

Tech Infusion: Technology provides developing economies the ability to leapfrog certain stages of development. Our mobile phone revolution, for instance, leapfrogged the landline stage, growing from a million mobile connections in 1999 to over 700 million by 2013.

We need to build collaborations across nations based on technological abilities. A shining example is the BrahMos (Brahmaputra-Moscow) Cruise Missile co-developed by India and Russia. While India brought its knowledge in developing the targeting mechanism, Russia contributed with the propulsion system. It gave both nations the capability to develop and produce perhaps the best cruise missile system in the world, with a business volume of about $7 billion.

Today, India has world-class ability in IT, communication, pharmaceuticals and space — let us find collaborations for them. What do we need to leapfrog here? The stage of environmental degradation associated with manufacturing. Make in India, Make it Green.

Building the Ecosystem: Large telecom penetration is not good enough. Manufacturing requires infrastructure: it needs roads on which large trucks can run, it needs ports, and it needs a system that operates all this without hassles — and without corruption. As a democracy India is most conducive to breeding new innovations, but is hindered by the lack of proper intellectual property rights. Indians’ contribution to patents filed globally is less than 1%; Chinese account for 32%.

Domestic Consumer Leverage: Our vast consumer base has to be used as an incentive, to create collaborations with foreign companies. The untapped market is in the villages, with 70% of India’s population. Can it be the opportunity to propel Make in India?

Many people question, how can India — with its dreaded red tape and corruption — truly be a manufacturing powerhouse. The answer is perhaps still evolving. However, necessity is the mother of invention. Remember the beryllium diaphragm.

(Source: Extract from an article in the Times of India dated 18-01-2015 by Shri A.P.J. Abdul Kalam, former President of India & Srijan Pal Singh who heads 3-Billion Initiative, an NGO for sustainable development)

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Lectures Meeting

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Topic : I nternational & Domestic Transfer
Pricing Recent Developments
Speaker : T. P. Ostwal, Chartered Accountant
Date : 5th November 2014
Venue : Walchand Hirachand Hall, Indian
Merchants Chamber

Mr. T. P. Ostwal gave a brief introduction about the evolution of transfer pricing regulations. TP provisions, as introduced in India in the year 2001, have their origin in OECD Guidelines issued in 2001. Though the 1922 Act had certain transfer pricing provisions, it has gained importance only after introduction of section 92 by the Finance Act, 2001.

Highlighting the recent trends, he mentioned that the Income Tax department made transfer pricing adjustments of Rs. 70,000 crore in 2012-13, which reduced to Rs. 65,000 crore in 2012-13. The speaker expressed a hope that with the new government coming in, the scenario would change for the better.

The speaker welcomed the recent Vodafone transfer pricing decision by the Bombay High Court. In his view, the $ 490 Million tax dispute was based on a stand which was illegal from the beginning i.e. application of transfer pricing provisions relating to computation of income to issue of equity share capital, which is a capital transaction. This was a case of issue of equity shares by an Indian subsidiary to its holding company at a premium as per DCF valuation methodology prescribed under FEMA.

However, as per the TPO and DRP, the equity shares ought to have been valued at a much higher value. As per the tax authorities, the consequence of issue of shares by Vodafone India to its holding company at a lower premium resulted in subsidising the price payable by the holding company, which difference was sought to be taxed. Besides, this deficit was treated as a loan extended by Vodafone India to its holding company and periodical interest thereon was sought to be charged to tax as interest income as a secondary adjustment.

The speaker reiterated the fact that transfer pricing provisions cannot apply to issue of equity shares. Bombay High Court rightly held that Chapter X is a machinery provision to arrive at ALP of a transaction and not a computation provision. Since the issue of shares at a premium by Vodafone India to its nonresident holding company did not give rise to any income from an International Transaction, there could be no occasion to apply the transfer pricing provisions to adjust the income. Many other such cases, including Shell India, are pending. He hoped that the Government would accept the Bombay High Court order.

The speaker also referred to another case of Tops Security, wherein a similar stand has been taken by the tax authorities in a reverse situation, in respect of shares subscribed to by an Indian company in an overseas subsidiary, where the shortfall in valuation of shares of the subsidiary subscribed to has been sought to be taxed as income, besides being treated as a loan, and interest thereon sought to be taxed.

Mr. Ostwal was of the view that the secondary adjustments made by the Transfer Pricing Officers are not permissible, as there is no provision for such secondary adjustments under the law.

Thereafter, the learned speaker invited the attention to the amendments to section 92B(2), has deeming certain domestic transactions as international transactions. A transaction entered into by an enterprise with a person other than an AE will be deemed to be an international transaction if there exists a prior agreement in relation to the relevant transaction between such other person and the AE or the terms of the relevant transaction are determined in substance between them. For an international transaction, section 92B(1) provides that at least one of the parties has to be a non-resident. The amendment provides that section 92B(2) would irrespective of whether such other person, with whom the transaction takes place, is a non-resident or not. This amendment has overridden the decisions of the Mumbai Tribunal in the case of Kodak India Pvt. Ltd. andthe Hyderabad Tribunal in the case of Swarnadhara IJMII Integrated Township Development Co. Pvt Ltd.

The speaker referred to the Finance Minister’s speech proposing to permit use of multiple year data and interquartile range. The law had not yet been amended in this regard. This had the potential to reduce more than half of the transfer pricing litigation. He explained the logic in considering multiple year data while benchmarking and the issues faced at the time of assessments. The Tax department has been of the view that an average of multiple year data cannot be taken, and the determination of ALP should be based on single year data. Further, he explained the practice followed by other countries wherein inter quartile range is accepted by the respective countries.

He mentioned that even Advanced Pricing Agreement (‘APA’) has not been a success on account of various imperfections. There are 2 types of APAs – (1) Unilateral (2) Bilateral. Till now, only 4 to 5 APAs have been cleared by the department and all of them have been Unilateral APAs. Bilateral APAs would be more beneficial to the taxpayer as that would be approved by competent authorities of both the countries, with full tax credit in relation to the income in the other country. The new amendment in regard to rollback mechanisms in APA looks interesting and beneficial to the tax payer; however there is no clarity as to how it would practically work. What would be its effect on the existing litigation matters pending before the Tribunal or the DRP or the AO or on completed assessments?

The speaker commented that Safe Harbour Rules have been ineffective as the profit margins notified by the department in this regard are too high.

The learned speaker highlighted an important issue as to whether corporate guarantee qualify as an international transaction for transfer pricing purposes. Whether guarantees include letter of credit? In this regard, he pointed out to an important ruling of Delhi Tribunal in the case of Bharti Airtel, wherein it was held that corporate guarantee would have no bearing on profits, incomes, losses or assets and is hence not an international transaction. Provision of corporate guarantee is a shareholders function, and would therefore be on capital account.

The speaker touched upon certain amendments hoped for in the field of Domestic Transfer Pricing. He informed that safe harbour rules are expected for DTP. Besides, payments made by one company to another wherein both the companies are paying taxes at the same rates might be exempted from the regulations. This would certainly relax the rigours of domestic transfer pricing provisions.

In conclusion, the speaker pointed out that transfer pricing provisions have also now crept into the Companies Act 2013 (section 188) and Clause 49 of the Listing Regulations, in respect of related party transactions, which are required to be on an arms length basis.

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Oil at $60 isn’t all positive

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The global implications of falling oil prices are largely positive – but that doesn’t mean that there aren’t some risks, too

Everyone
is busy celebrating collapsing oil prices, and the huge positives this
will bring to the global economy. From mid-June, prices are down by more
than 40 per cent, with Brent now falling to below $65 a barrel. There
are many highly credible commentators calling for a continued price
spiral, with price forecasts of $50-55 a barrel by mid-2015 not
uncommon. Where prices ultimately settle and for how long is obviously
anyone’s guess, but this is a huge move with global implications both
politically and economically. Is such a large move in so short a time
unambiguously positive for the global economy, as almost everyone seems
to believe? Is it a massive tax cut and more or less a free lunch as
most want to believe?

The decline in oil prices is simply a
transfer of purchasing power from the producer of oil to its consumer.
From the global economy perspective, there is no additional wealth
created

The obvious positive is that this transfer of wealth
from the oil producers to the consumers/importers should lead to a boost
in consumption. A $40-a-barrel decline in prices will lead to a
transfer of $1.3 trillion a year. It is widely accepted that this will
lead to a boost in global gross domestic product (GDP), as the
propensity of the oil importer to consume is greater than the propensity
of the oil producer to spend.

Markets also cheer as the
importers are the European Union, Japan, China, India and even the
United States, all far more relevant for global financial markets than
Russia, Venezuela, Iran or Nigeria (the worst hit by the decline in
prices). While this is a short-term positive for global growth, as
consumers spend and consumption accelerates it will imply a decline in
global savings, which may have longer-term consequences on financial
markets and interest rates. Ultimately, the oil producers were not just
sitting on their oil revenues, they were invested in some financial
asset, somewhere in the world. This investment will stop as consumption
picks up. There are other implications on global financial markets, not
all of which are positive. As the folks at Gavekal point out, nobody
seems to be thinking of the inventory and liquidity effects of such a
steep decline in oil prices. Assume the world consumes about 92 million
barrels of oil daily and carries about 100 days of inventory. When oil
was trading at $100, $920 billion was stuck in inventories, held by
someone in the system and financed by someone else. If the price of oil
settles at $60, the financing needs will drop to $552 billion. Almost
$400 billion of liquidity will get released into the global system. This
is a positive and will only add to the excess liquidity sloshing around
global financial markets. Such a capital release can fundamentally
alter the economics of many players in the value chain.

However,
somebody will also have to take the near $400-billion loss on existing
inventories as prices for all end products adjust immediately. Some of
the inventories will be held in sovereign strategic reserves, and these
losses will be absorbed or camouflaged in national accounts. However,
there will be collateral damage to the whole petroleum value chain, and
somebody will be on the hook for these inventory losses. It is not clear
where the losses will surface, and the absorptive capacity of the
losers. One cannot rule out some nasty surprises. During the last big
decline in oil prices, starting in 1985, large parts of the Texas
banking system went under, and it was also arguably a catalyst for the
eventual demise of the Soviet Union. Losses of $400 billion can stress
any financial system or counterparty.

Over the past few years,
we have seen a massive buildout of non-Organization of the Petroleum
Exporting Countries oil production capacity, largely in shale and tar
sands in North America. Many of these assets are unviable below $60-65 a
barrel, and the question then becomes: how was this rapid production
build-out financed? Clearly, the producers were not generating
sufficient cash flow to self- finance the production/drilling surge. It
was debt – either high-yield bonds or bank lending – that has financed
the majority of the infrastructure needed to sustain the production
surge we have seen in North America over the past five years. But at $60
oil, much of this debt can no longer be serviced.

This has
already thrown the high-yield market into a bit of a tizzy, as energy
was the highest share of the market and spreads for energy issuers have
surged. Most players in the sector have no ability to access new
high-yield issuance. If losses are significant, it may impact access to
high-yield debt for all sectors of the economy. At a minimum high-yield
spreads will rise. Either way, either access or cost of debt will be
negatively impacted for many sectors of the global economy that need
capital the most.

If banks are left holding the can, the
problems may be even bigger. The losses incurred by the banks on this
lending could erode their capital base and earnings power, further
weakening their ability and willingness to lend. If banks do not want to
lend, that has obvious implications for the pace and sustainability of
any economic upturn.

The other obvious negative of declining oil
prices is the impact it has on the relative attractiveness of
alternative energy and renewables. It will make the world economy more
carbon-intensive and less energy-efficient. Just when solar was nearly
at grid parity, the bar has moved downwards.

In a world fighting
deflation, lower oil prices do not really help the central banks. By
putting downward pressure on headline inflation, already low inflation
expectations may get further entrenched or blindside the central banks
to any pick-up in underlying inflationary pressures.

The simple
point is that there is no free lunch, and one should not ignore the
negative repercussions of such a sharp and quick move in a critical
global commodity. There will be both losers and gainers, and it is
important to think this through and not be caught with the losers.

(Source: Business Standard dated 12-12-2014)

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Sanskrit, taught well, can be as rewarding as economics

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Discovering one’s past helps to nourish those roots, instilling a quiet self-confidence as one travels through life. Losing that memory risks losing a sense of the self.

With this conviction I decided to read Sanskrit a few years ago I wanted to read the Mahabharata. Mine was not a religious or political project but a literary one. I wanted to approach the text with full consciousness of the present, making it relevant to my life. I searched for a pundit or a shastri but none shared my desire to ‘interrogate’ the text so that it would speak to me. Thus, I ended up at the University of Chicago.

I had to go abroad to study Sanskrit because it is too often a soul-killing experience in India. Although we have dozens of Sanskrit university departments, our better students do not become Sanskrit teachers. Partly it is middle-class insecurities over jobs, but Sanskrit is not taught with an open, enquiring, analytical mind. According to the renowned Sanskritist, Sheldon Pollock, India had at Independence a wealth of world-class scholars such as Hiriyanna, Kane, Radhakrishnan, Sukthankar, and more. Today we have none.

The current controversy about teaching Sanskrit in our schools is not the debate we should be having. The primary purpose of education is not to teach a language or pump facts into us but to foster our ability to think — to question, interpret and develop our cognitive capabilities. A second reason is to inspire and instill passion. Only a passionate person achieves anything in life and realizes the full human potential. And this needs passionate teachers, which is at the heart of the problem.

Too many believe that education is only about ‘making a living’ when, in fact, it is also about ‘making a life.’ Yes, later education should prepare one for a career, but early education should instill the self-confidence to think for ourselves, to imagine and dream about something we absolutely must do in life. A proper teaching of Sanskrit can help in fostering a sense of self-assuredness and humanity, much in the way that reading Latin and Greek did for generations of Europeans when they searched for their roots in classical Rome and Greece.

This is the answer to the bright young person who asks, ‘Why should I invest in learning a difficult language like Sanskrit when I could enhance my life chances by studying economics or commerce?’ Sanskrit can, in fact, boost one’s life chances. A rigorous training in Panini’s grammar rules can reward us with the ability to formulate and express ideas that are uncommon in our languages of everyday life. Its literature opens up ‘another human consciousness and another way to be human’, according to Pollock.

Teaching Sanskrit under the ‘three-language formula’ has failed because of poor teachers and curriculum. But the debate is also about choice. Those who would make teaching Sanskrit compulsory in school are wrong. We should foster excellence in Sanskrit teaching rather than shove it down children’s throats.

The lack of civility in the present debate is only matched by ignorance and zealotry on both sides. The Hindu right makes grandiose claims about airplanes and stem cell research in ancient India and this undermines the real achievements of Sanskrit. The anti-brahmin, Marxist, post-colonial attack reduces the genuine achievements of Orientalist scholars to ‘false consciousness’. Those who defend Sanskrit lack the open-mindedness that led, ironically, to the great burst of creative works by their ancestors. In the end, the present controversy might be a good thing if it helps to foster excellence in teaching Sanskrit in India.

(Source: Extracts from an Article by Shri Gurucharan Das in Times of India, dated 14-12-2014)

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Technological Unemployment – Job prospects are grim today, as humans and organisations aren’t keeping up with the pace of technology

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At an informal meeting of some wise men of Mumbai’s financial world, the conversation focused on the rapid automation of more and more work once done by humans and whether it will lead to “technological unemployment” – a phrase coined by John Maynard Keynes, who in 1930 had talked about a “new disease”, which is the inability of the economy to create new jobs faster than jobs are lost to automation.

One of the participants in the informal meeting gave some food for thought for the new government – after jobless growth and jobless mini-recession, will it be a case of jobless recovery? Going by the drift of the conversation, it was apparent no one knew the answer to that question. Technological change over the last generation has wiped out many low- and middle-skill jobs. Just think about the big army of secretaries, typists, telephone and computer operators and payroll clerks who occupied vast office space in earlier years? There are examples galore.

If this was the past, consider the future, and here the news isn’t too good for even some of the most skilled jobs. Though spoken in a different context, McKinsey Inc CEO Dominic Barton told The Economic Times last week, “If you are a heart surgeon in the US today, you better be worried about driverless cars because most of the heart transplants come from car accidents and car accidents are going to drop dramatically with driverless cars”.

If heart surgeons have reasons to feel worried about driverless cars, imagine the plight of truck and taxi drivers when computers start driving more safely than humans. And it’s not a remote possibility. In April 2014, the Google team working on the project announced that their driverless vehicles have now logged nearly 1.1 million km.

If you find all this talk about machines taking away jobs a little outdated, you could do what one of the participants in the informal meeting suggested – read a 75-page e-book, Race Against the Machine, by Massachusetts Institute of Technology’s Erik Brynjolfsson and Andrew McAfee. The authors have brought together a range of statistics and examples to show how technological progress has deep consequences for skills, wages and jobs. Faster, cheaper computers and increasingly clever software are giving machines capabilities that were once thought to be distinctively human – like understanding speech, translating from one language to another and recognising patterns. So automation is rapidly moving beyond factories to areas that provide most jobs in the economy. The e-book makes the case that employment prospects are grim for many today, as humans and our organisations aren’t keeping up with the pace of technology. Is it time to re-imagine the Skill India mission?

(Source: Article by Shyamal Majumdar in Business Standard dated 5th December, 2014)

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Throwaway culture

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Unlike earlier days when things were made to last, today everything is disposable

We’ve
had to get rid of our TV set, which was eight years old, and was acting
up. Can’t you repair it? i asked the technician. He looked at me as
though i’d morphed into a Martian. You don’t repair eight-year-old TVs;
you throw them away, he said.

So we got rid of it at a literally
throwaway price, a small fraction of what we’d paid for it. Now, as i
sit and look at the new TV we’ve bought to replace the old one, i can’t
help but think of its impending demise a few short years from now.

It’s
not just TV sets that belong to what could be called the throwaway
culture. Cars, computers, mobile phones, anything you care to name seems
to be made so as to ensure that it will self-destruct, or be rendered
useless, within a relatively short span of time. And that short span of
time seems to be getting shorter and shorter.

No sooner have you
got the very latest smartphone/ music system/ iPad/ electric nostril
hair clipper when a NEW! IMPROVED! UPDATED version of the darn thing is
launched and you find yourself saddled with the old model which your
raddiwala might have to be cajoled into carting away.

It’s
called ‘built-in obsolescence’, designing devices in such a way as to
make them disposable almost as soon as you’ve bought them. What are
known as ‘consumer durables’ should more appropriately be called
‘consumer disposables’ in today’s transient technology where yesterday’s
new is today’s old.

In earlier times, people didn’t merely buy
durable goods like cars, or refrigerators; they developed a relationship
with them. They weren’t just mechanical devices; they were part of the
family, and like other family members they often developed all manner of
idiosyncratic behaviour – rattles, wheezing, sudden stops and starts –
as they grew older, endearing traits that humanised them.

Instead
of being ashamed of their age, people were proud of how old their car
was, or their fridge, or their music system. It showed how well they’d
been looked after, like aging relatives whom one cherished.

Those
days are dim memories in today’s disposable culture of inbuilt
obsolescence. To which India boasts one notable exception: the
never-say-die neta who successfully defers all attempts to be put out to
pasture and comes with a genuinely lifetime guarantee.

(Source: Times of India, dated 03-12-2014)

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Rajan sings a different tune, pitches for ‘Make for India

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As the Narendra Modi government goes on an overdrive in its ‘Make in India’ campaign, there is a word of advice from Reserve Bank of India (RBI) Governor Raghuram Rajan.

Amid the slowing of the world economy, Rajan on Friday cautioned the government against too much focus on merchandise export-led growth through this campaign and advised to supplement it with ‘Make for India’.

However, since domestic demand tends to get overstimulated, the government will have to frame suitable fiscal policies and RBI itself will have to ensure inflation remains low, Rajan said in his Bharat Ram Memorial Lecture here.

He said the path of disinflation may not be as steep in India as in industrialised nations and disclosed that RBI will talk to the government on the timeline beyond 2016 to keep inflation at four per cent, plus-minus two per cent.

To finance domestic demand responsibly, he advised that it be financed primarily through internal sources and suggested some more budgetary benefits for savings in this regard.

“The world is unlikely to be able to accommodate another export-led China,” Rajan said in his address, organised by industry body Ficci, in New Delhi on Friday.

Clarifying he was not suggesting pessimism for exports, he said, “I am counselling against an export-led strategy that involves subsidising exporters with cheap inputs, as well as an undervalued exchange rate, simply because it is unlikely to be very effective at this juncture.”

Rajan, formerl chief economic advisor in the finance ministry, said India would have to compete with China, which still has some surplus agricultural labour to draw on, when it decided to push manufacturing exports. “Export-led growth will not be as easy as it was for the Asian economies that took that path before us.”

Besides, industrial countries had themselves been improving capital-intensive flexible manufacturing, so much so that some manufacturing activity was being “reshored”, he said. “Any emerging market wanting to export manufacturing goods will have to contend with this new phenomenon.”

If external demand growth is likely to be muted, India has to produce for the internal market. “This means we have to work on creating the strongest sustainable unified market we can which requires a reduction in transaction costs of buying and selling across the country,” the governor said. Improvements in the physical transportation network would help but so would fewer, but more efficient and competitive intermediaries in the supply chain from the producer to consumer, he said.

At a time when the Centre is struggling to evolve a consensus with states on the issue of a national goods & services tax (GST), Rajan said: “A well designed GST Bill, by reducing state border taxes, will have the important consequence of creating a truly national market for goods and services, which will be critical for our growth in years to come.”

He also said the government would have to frame suitable fiscal policies and RBI itself would have to ensure inflation remained low, since domestic demand tends to get overstimulated.

He further pointed out that the path of disinflation might not be as steep in India as in developed nations and the glide path as advocated by the Urjit Patel committee suited the country.

“Our banking system is undergoing some stress. Our banks have to learn from past mistakes in project evaluation and structuring, as they finance the immense needs of the economy,” he advised. They (banks) would also have to improve their efficiency as they compete with new players like the recently licensed universal banks, as well as the soon-to-be licensed payment and small finance banks.

“At the same time, we should not make their task harder by creating impediments in the process of turning around, or recovering, stressed assets. RBI, the government, as well as courts have considerable work to do here,” Rajan said, pitching for financial inclusion and some Budget sops to boost savings.

“The income tax benefits for an individual to save were largely fixed in nominal terms until the recent Budget; this means the real value of the benefits has eroded. Some budgetary incentives for household savings could help ensure the country’s investment is largely financed from domestic savings,” he said.

Rajan said it was worth debating whether India needed more institutions to ensure deficits stayed within control and the quality of Budgets remained high.

“A number of countries have independent Budget offices and committees that opine on Budgets. These offices are especially important in scoring budgetary estimates, including unfunded long-term liabilities that industrial countries have shown are so easy to contract in times of growth, and hard to actually deliver.”

In addition to inflation, he said, a central bank had to pay attention to financial stability. This was a secondary objective but might become central if the economy entered a low-inflation credit and asset-price boom. “Financial stability sometimes means regulators, including the central bank, have to go against popular sentiment.”

The role of regulators was not to boost the Sensex but to ensure the underlying fundamentals of the economy and its financial system were sound enough for sustainable growth, he said. “Any positive consequences to the Sensex are welcome but are only a collateral benefit, not the objective.”

While emphasising on policies to attract foreign direct investment to fund the country’s current account deficit, Rajan said policies should not compromise India’s interests.

In this regard, Rajan said, the requirements to patent a medicine in India were perfectly reasonable, no matter what international drug companies said. He also said policies should not focus only on FDI but promote young entrepreneurs, arguing “if we make it easier for young Indian companies to do business, we will also make it easier for foreign companies to invest, for both are outsiders to the system”.

This meant a transparent and quick legal process to deal with contractual disputes, and a proper system of bankruptcy to deal with distress — both issues the government had taken on, he said.

Noting that India did not belong to any power bloc, Rajan advised it, besides other emerging countries, to not only ensure quota reforms in the International Monetary Fund and the World Bank but inject new agenda, new ideas and new thinking into the global arena. “No longer will it suffice for India to simply object to industrial countries’ proposals; it will have to put some of its own on the table.”

(Source: The Economic Times dated 13-12-2014)

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On Crony Capitalism

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In his 2012 book, Breakout Nations, Ruchir Sharma said that any country that produces too many billionaires, relative to its size, is in all likelihood off balance. “If the average billionaire of a country has amassed too much wealth, not just billions but tens of billions, the lack of balance can lead to stagnation,” said he. At that time, he had said that “many of India’s super rich still inspire national pride, not resentment, and they can travel the country with no fear for their safety”, but this “genial state of affairs could change quickly.”

That point may well have been reached. Reserve Bank of India (RBI) Governor Raghuram Rajan on Monday came down heavily on crony capitalism – the nexus between “corrupt businessmen” and “venal” and “corrupt politicians” – which, he said, is “killing transparency and competition” and is “harmful to free enterprise, opportunity and economic growth.” The issue of cronyism had played out in full during the recent general elections. “If the debate during the elections is any pointer, this is a very real concern of the public in India today,” Mr Rajan added. Some argue that the charges of cronyism hurled at Narendra Modi during the election campaign, especially his closeness to Mukesh Ambani and Gautam Adani, did not stick; otherwise, how would his party, the Bharatiya Janata Party, have gained a majority in the Lok Sabha? In this narrative, the fear of cronyism is exaggerated.

One school of thought says that Japan and South Korea progressed rapidly because a handful of their companies were singled out for special treatment by the government, and they delivered the results. Most of them have become global conglomerates. That may be true but the Indian experience inspires no confidence. What did telecom companies do when the government gave them inexpensive spectrum? Some of them sold stakes to foreigners at a huge premium. It was only after the Comptroller and Auditor General quantified the loss – it could be up to Rs 1.76 lakh crore, it said – that the people got to know of the extent of the scam. Similarly, the special economic zones became an opportunity for land grabbing. And coal blocks were bagged to lay hands on an undervalued natural resource.
These instances shouldn’t surprise anybody because cronyism has been an integral part of Indian business. In the pre-liberalisation age, many business houses got industrial licences and just sat on them in order to create a scarcity that would keep prices high. Most worked behind the scenes to ensure that rivals were denied licences. “An important issue in the recent election was whether we had substituted crony socialism of the past with crony capitalism, where the rich and the influential are alleged to have received land, natural resources and spectrum in return for pay-offs to venal politicians,” RBI Governor Rajan said.

Cronyism acts as a significant entry barrier into regulated businesses. It is not easy to take on entrenched players who have decision makers in their pockets. If they can cause ministers to be shunted out, imagine the damage they can inflict on newcomers. That’s why most young entrepreneurs these days are happy to confine themselves to unregulated sectors such as information technology. One way to end cronyism in the allocation of natural resources is to move to transparent auctions, like it has happened in spectrum. So far, it seems to have worked well. There is no reason why it can’t be replicated in other sectors. The government needs to put in place safeguards that will ensure that there is no collusion between bidders.

So strong is popular resentment at cronyism and privatesector corruption that nobody has dared to name a businessman for the Bharat Ratna this year.

(Source: Extracts from an article by Mr. Bhupesh Bhandari in Business Standard dated 15-08-2014)

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NJAC: Govt. in a hurry has missed two important checks

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The Constitution (121st Amendment) Bill, 2014, passed by the Parliament has proposed the establishment of a National Judicial Appointments Commission (NJAC). The NJAC will replace the collegium of judges, which is currently responsible for appointments to the Supreme Court of India and the High Courts.

The idea of such a constitutional commission is a sensible one, especially given the increasing dissatisfaction with the opaque functioning of the judicial collegium.

But the Parliament ought to have been careful not to throw the baby out with the bathwater. Despite its many faults, the collegium has been widely credited with protecting judicial independence, its raison d’etre and a fundamental prerequisite of the rule of law. In the two decades since, while other deficiencies have plagued the collegium, unbridled executive interference has not been one of them. In its collective anxiety to replace the collegium, the Parliament has failed to incorporate the collegium’s key safeguard against an erosion of judicial independence, i.e., a predominant voice for the judiciary in appointments. Experience demonstrates that a failure to give the judiciary preponderance in judicial appointments, especially in India’s constitutional democracy where the judiciary is the only real check on the legislature and executive, is prejudicial to judicial independence. As Nani Palkhivala powerfully described it, executive dominance immediately prior to and during the Emergency left our Constitution, specifically the judiciary, ‘defaced and defiled.’ For the nation to be once bitten and not twice shy is to take a blinkered view of this history.

However, in incorporating judicial preponderance, the cabal-like functioning that the collegium has often been accused of must not be replicated. Two checks are necessary: first, the NJAC must have a seventh member who is a retired Supreme Court judge for Supreme Court appointments and transfers between High Courts. For appointments to a high court, this seventh member should be a retired judge of the concerned high court. The former must be appointed by the Prime Minister, leader of the opposition in the Lok Sabha and the Chief Justice of India whereas the latter must analogously be appointed by the Chief Minister of the state, leader of the opposition in that state and the chief justice of the high court. This proposal will ensure that appointments to high courts are not entirely dictated by the Centre. It deserves the consideration of state governments to whom the constitutional amendment will now be sent for ratification. Secondly, a key modification is necessary to the appointment procedure. The exercise of a veto by any NJAC member must be accompanied by reasons, which must be publicly disclosed. Currently , this is not provided for. A failure to disclose reasons will allow pernicious prejudices that have often prevented fine judicial minds from being elevated to the Supreme Court to persist. Transparency, a key leitmotif of the reform of the appointments process, demands such disclosure. It is also imperative that the criteria for selecting judges, and other key regulations, are carefully formulated by the NJAC itself and not left to the executive.

Judges have been appointed to the Supreme Court who have not delivered any significant judgments during their high court tenures. This is not peculiar to collegium appointments but happened during the period of executive dominance too. For elevation of judges, the NJAC must ascertain the number of judgments delivered, undertake an assessment of their quality and the judges’ adherence to values of judicial life. For assessing lawyers and jurists, the extent and quality of their practice or academic work and probity of conduct must be gauged. The NJAC would do well to study the workings of Judicial Performance Evaluation programmes in several states in the US and establish well-defined criteria to assess potential adjudicative ability.

Without such criteria being incorporated and publicly known, the establishment of the NJAC is meaningless. Worse still, without judicial preponderance, its very existence has the ominous potential of setting the clock back on the nation’s long quest of rescuing the judiciary from the clutches of executive caprice. No matter how noble the professed intention of the government in proposing this amendment, and Parliament in passing it, the undue haste with which the bills were piloted through, the lack of meaning full public debate and the complete absence of genuine parliamentary scrutiny, suggest otherwise. They demonstrate a powerful government in an inexplicable hurry, and a lame-duck Parliament seemingly failing to grasp the magnitude of its actions, the effects of which will far outlive its members’ tenures. If the NJAC is to be a genuine third way for judicial appointments, let it be a way that is underpinned by respect for the judiciary, pervaded by transparency and alive to the lessons from India’s chequered history of judicial independence.

(Source: An article by Ms. Ruma Pal and Mr. Arghya Sengupta in Times of India dated 17-08-2014).

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Representation seeking deferment of new Tax Audit Report or extension of time for filing the Return of Income for Assessment Year 2014-15 to 30th November 2014

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25th August 2014

The Chairman
Central Board of Excise & Customs
Government of India,
North Block, Vijay Chowk,
New Delhi 110 001.

Hon’ble Sir,

Re: Representation seeking deferment of new Tax Audit Report or extension of time
for filing the Return of Income for Assessment Year 2014-15 to 30th November 2014

The Central Board of Direct Taxes (“CBDT”) vide Order dated 20th August under section 119 of the Act, has extended the due date for obtaining and furnishing of the report of audit under section 44AB of the Act for Assessment Year 2014-15 in case of assessees who are not required to furnish report under section 92E of the Act from 30th September, 2014 to 30th November, 2014. However the Order is silent on the extension of due date for filing the Return of Income.

The CBDT vide Notification No.33 dated July 25, 2014 has notified new Form No. 3CA, Form No. 3CB and Form No. 3CD for furnishing Audit Report u/s 44AB of the Income Tax Act, 1961 [Tax Audit Report]. Various new clauses have been added while many others have been amended. The new clauses and the amended clauses require auditor to certify the correctness of figures having a direct impact on the total income of the assesse.

The Tax Audit report is the basis of computation of income. Various deductions and disallowances are quantified in the Tax Audit Report to be included in the return of income.

It is respectfully submitted that the relief sought to be provided by the CBDT by granting extension of time for filing the Tax Audit Report without a corresponding extension of due date for filing the Return of Income would not serve the desired purpose. It will actually necessitate filing of the Return of Income without audited figures in respect of various deductions and disallowances being available.

Considering the substantial changes made in the new Form 3CD, in principle and to be fair and just, the new requirement should not have been made retrospectively applicable to the Financial Year 2013-2014 [Asst. Year 2014-2015] as that causes severe hardship to the assessees as well as the auditors. Instead of deferring this to Financial Year 2014-2015 [Asst.Year 2015-2016], only the date of obtaining and furnishing Tax Audit Report has been extended and that too, without making consequential extension in the due date of furnishing the Return of Income for the Asst.Year 2014-2015 [Financial Year 2013-2014] and hence, this extension is effectively meaningless.

As such, the extension granted for obtaining and furnishing of the report of audit under section 44AB would not provide relief to the assessees and the hardships faced would continue. In fact, many returns may not have correct figures and the return of income filed without audited figures being available may need to be revised after obtaining the Tax Audit Report, particularly in case of non-corporate assessees. This would lead to avoidable duplication of work as well as additional time and costs to be incurred by assesses as well as the Department (having to process a large number of revised returns).

Hence to provide the desired relief to assessees, it is earnestly requested that either the applicability of new form of Tax Audit Report should be deferred to the next year [Financial Year 2014-2015] to avoid it’s retrospective applicability [which is the just and fair thing to do] or atleast, the due date for filing the return of income for the Assessment Year 2014-15 for all assessees (other than assessees who are required to furnish report under section 92E of the Act) liable to Tax Audit should be extended to 30th November 2014 i.e. the date upto which extension has been granted to obtain and furnish the Tax Audit Report.

We trust you would find merit in our above genuine request and accede to the same.Your early action in the matter will be highly appreciated.

Thanking you.

Yours Sincerely

Bombay Chartered Accountant Society

Nitin Shingala President,

Kishor B. Karia Chairman Taxation Committee

Sanjeev R. Pandit Co-Chairman

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Extension of due date of deposit of Service Tax and TDS in October 2014 due to Public Holidays

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6th August 2014

The Chairman
Central Board of Excise & Customs
North Block,
Rashtrapati Bhavan,
Defence Headquarters.
New Delhi 110 001

The Chairman
Central Board of Direct Taxes
Government of India
North Block
Parliamentary Street
New Delhi 110 001

Respected Sirs,

Sub: Extension of due date of deposit of Service Tax and TDS in October 2014
due to Public Holidays

This is to bring to your notice that there will be a series of public holidays in the first week of October 2014 as mentioned below:

In view thereof, it will be very difficult for the taxpayers to make payment of Service Tax/Excise Duty and TDS by their due dates being the 6th and the 7th of the month respectively. You are therefore requested to consider extension of the due dates for payments of Service Tax/Excise Duty and the TDS from 6th October 2014 and 7th October 2014 respectively to 10th October 2014.

Your early action in this regard will help in easing undue hardships to the taxpayers and will be highly appreciated.

Thanking you.

Yours faithfully

Bombay Chartered Accountant Society

Nitin Shingala President,

Kishor B. Karia Chairman Taxation Committee

Sanjeev R. Pandit Co-Chairman

Govind G. Goyal   Chairman Indirect Taxes & Allied Laws Committee

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India’s antiquated law on contempt of court restricts personal liberty and must be overhauled

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After having raised the issue of whether the clubby and secretive collegium system actually preserves the independence of the judiciary former Supreme Court judge, Justice Markandey Katju, has now trained his guns on India’s antiquated contempt of court law. He has made the valid point, that judicial supremacy cannot be based on the law of kings in a democracy. Is interference or disruption of the due course of judicial proceedings or the administration of justice contempt of court? Or, does criticism of a judgment or a judge constitute sufficient ground for invocation of the dreaded law? While it ought to be the former in India it’s often understood as the latter, as the contempt law has been employed when judges were made targets of personal attacks or to silence criticism of judgments. But criticising a judge or a judgment perceived to be flawed cannot be seen to be an illegitimate act that scandalises the court or seriously undermines public confidence in the administration of justice. In the UK and US, where both civil and criminal contempt laws are in operation, substantial amendments have constrained the powers of judges who might otherwise have acted to vindicate their authority, pomp and majesty which are anathema to a democratic institution.

The Indian contempt Act of 1971 has evolved over time to incorporate amendments that delineated what does not constitute contempt and framed rules to regulate contempt proceedings, yet inconsistencies remain. In 2006, an important amendment to the 1971 Act provided for truth as a valid defence in contempt proceedings, especially because the law was considered a threat to the fundamental rights to personal liberty and freedom of expression. Not just the doctrine of truth but public interest must be the cornerstones on which the law must be based. The judiciary, executive and legislature must ensure there are enough safeguards against arbitrary exercise of the power for contempt of court

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Labour law overhaul must happen at the centre

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Reform of India’s archaic and restrictive labour laws are central to any reform programme. This is a wellunderstood fact now; that the unfortunate stunting of India’s manufacturing sector, particularly in labourintensive industries, can largely be laid at the feet of these statist laws is undeniable. Not only do they provide bureaucrats with a reason to harass entrepreneurs, and place an excessive and unfair burden on small and medium enterprises, but they have signally failed to protect India’s workers. The fact that every employer wishes to avoid the incidence of these laws has led to widespread casualisation of the workforce. As a consequence, over 90 per cent of Indians work in the unorganised sector. Any comprehensive approach to restarting the economy from the new government will need to include a complete overhaul of labour law.

It is unfortunate, therefore, that the new government has shown little interest in pushing the envelope as far as this essential reform is concerned. Instead, the Bharatiya Janata Party (BJP), which leads the National Democratic Alliance government, has stressed that the Rajasthan government – which it also runs – is conducting labour law reform. The Rajasthan government will alter the application of related central laws: for example, raising the threshold of the number of employees who can be laid off without government permission from 100 to 300, and applying the Contract Labour (Regulation and Abolition) Act only to companies with more than 50 workers, compared with 20 now. Similar labour law changes are being contemplated in Madhya Pradesh, also ruled by the BJP, and even Haryana, which is ruled by the Congress. These are certainly welcome developments, indicating that labour law changes as necessary reforms to revive the manufacturing sector have begun to gain wider acceptance in many states.

(Source: Business Standard, dated 23-07-2014)

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Supreme Court feels slighted snaps at Centre on National tax tribunal

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The Supreme Court reacted sharply to the Centre’s stand that the purpose behind creation of National Tax Tribunal (NTT) was to associate domain experts in deciding taxation disputes as it was often felt that judges lacked expertise in specialized fields.

A five-judge constitution bench comprising Chief Justice R M Lodha and Justices J S Khehar, J Chelameswar, A K Sikri and R F Nariman wondered why the government rushed to the judges whenever they faced a problem.

“Judges may not be experts. But whenever there is a problem, they come to the judges by way of courts or commissions,” the bench said before reserving its order on a petition filed by Madras Bar Association challenging the National Tax Tribunal Act.

The petitioner had alleged that these tribunals could not have been empowered to decide questions of law, which exclusively fell within the courts’ domain. It said the government, by constituting NTTs and providing appeal against their orders directly to the Supreme Court, had denuded the jurisdiction of high courts.

The inclusion of chartered accountants and company secretaries on NTTs and allowing them to decide questions of law did not go down well with the apex court. “How can a CA or CS help determine the question of law involved in a taxation dispute,” the bench asked.

Appearing for an association of chartered accountants and company secretaries, senior advocate K V Vishwanathan said the CA and CS courses involved study of taxation laws.

The bench said, “These days, Class VIII and IX students also study about Constitution. That does not mean they have knowledge of law. The taxation experts may be able to help a judicial member understand the complexities involved in a dispute but how will they determine a question of law?”

In a lighter vein it said, “Many clerks and stenographers after long association with lawyers know the provisions of law quite well. Can they be said to have knowledge enough to decide questions of law. A CA or a CS would be studying taxation law from the angle of tax purposes only and not for understanding the questions of law that would arise in a dispute.”

Appearing for the petitioner, senior advocate Arvind Datar said NTT experimentation was dangerous for the judiciary as slowly, the government would take away expert subjects – disputes relating to company law, trademark and intellectual property – from the high court’s jurisdiction by creating separate tribunals in the name of infusing experts into the dispute redressal mechanism.

NTT, instead of supplementing the judiciary, was supplanting the court’s jurisdiction, Datar said.

The bench asked solicitor general Ranjit Kumar whether NTTs enjoyed any autonomy at all. “The NTT chairman does not even have power to set up benches. This power is vested with the central government. What is the autonomy we are talking about,” it asked.

(Source: Times of India, dated 24-07-2014)

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Judicial appointments need transparency

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Amid growing concerns about political pressure on the appointment or extension of judges, the government has indicated that it intends to move quicker on creating a judicial appointments commission. This immediately follows the revelation of a series of events from 2005 which, although the facts continue to be disputed, nevertheless raise serious concerns. Former Supreme Court judge, and current chairman of the Press Council of India, Markandey Katju recently said that a judge of the Madras High Court was granted an extension although a report by the Intelligence Bureau had said that he was corrupt. Mr. Katju said that the collegium that appoints judges, then headed by the erstwhile chief justice of India, R C Lahoti, had given in to pressure from the government. Mr. Katju said that the ex-prime minister, Manmohan Singh, was put under pressure from a coalition partner – who could only be the Dravida Munnetra Kazagham(DMK) from Tamil Nadu – to protect the judge, and a senior minister pressured the collegium on behalf of the government. Then law minister, H R Bhardwaj, subsequently claimed that extensions to the judge were solely the collegium’s decision. It has now emerged, in a report by The Times of India, that the Prime Minister’s Office had, in fact, lobbied in favour of making the judge in question a permanent member of the Madras High Court bench.

On one level, this is a reminder of the bad old days of coalition politics under the United Progressive Alliance (UPA). The DMK proved itself to be a difficult and bullying ally, and often used its pivotal numbers in the parliamentary coalition to dubious ends. Whether it is in the reported arm-twisting of Ratan Tata by the telecom ministry it controlled; or its insistence that A Raja be retained as a minister in 2009; or in the doubtful Maxis- Aircel deal, the DMK bears a great deal of responsibility for the downfall of the UPA . If these latest allegations are true, however, then it becomes clear that Dr Singh himself had no intention, right from the start, of standing up to this ally. It is no surprise, then, that the UPA failed to manage its coalition.

However, the larger point that must be made is on the nature of judges’ appointments. The incumbent government has already been accused of intervening unduly in judicial appointments, by refraining from returning the nomination of eminent lawyer Gopal Subramanium to the collegium. With each such report, there are more holes in the existing justification for the collegium, that it is immune to political pressure. However, the answer is not to simply replace it with another opaque system. The appointment of judges must be made in the open, and transparently. The executive must be given a greater, but circumscribed, say in the choice of judges, certainly. However, if accusations of corruption or bias are going to be thrown around in this manner, then it is clear that the process requires clarity and light in order to preserve the aura of the judicial system. The proposed judicial appointments commission should, thus, not be a closed and opaque body.

(Source: Business Standard, dated 24-07-2014)

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Another market crash in the offing?

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Reserve Bank of India governor Raghuram Rajan has added his voice to a steadily rising chorus warning of the heightened risks of a global market crash. Specifically, he says there’s a disconnect between the state of the economy and asset prices; that excessively accommodative monetary policy in the developed economies has led to asset bubbles; that competitive monetary easing is leading to beggar-thy-neighbour policies reminiscent of the Great Depression in the 1930s; that the recent low volatility masks many of the risks; and that not enough is being done in terms of improved regulation.

Rajan should know. He was one of those who predicted the financial crisis. At that time, he had said that among the reasons for the crisis were the skewed incentives for fund managers that led to excessive risk-taking. That hasn’t changed. Nor has the pervasive inequality in the US. Several economists have argued that the lack of growth in real wages was the underlying reason for the explosion of private sector debt that led to the financial crisis, as debt was substituted for income. The International Monetary Fund has warned that housing markets are once again getting overheated in several countries.

There have been half-hearted attempts at regulation, but it’s far from enough. The attempt has been to get back to business as usual, by papering over the cracks with money. As the Bank for International Settlements pointed out in its annual report last year, the role of accommodative monetary policy was to buy time to put reforms in place. Instead, it warned, “The time has not been well used, as continued low interest rates and unconventional policies have made it easy for the private sector to postpone deleveraging, easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system. After all, cheap money makes it easier to borrow than to save, easier to spend than to tax, easier to remain the same than to change.”

The worry is the bubbles seem to be getting larger and larger and we are still to recover from the bursting of the last one. And after using up all available ammunition on tackling the current crisis, how will the world deal with another bust?

Will the central banks be able to engineer a soft landing? The history of serial booms and busts casts serious doubts about that. Indeed, if history is any guide, the Chinese Communist Party’s record of steering its economy to a soft landing is much better than that of Western governments and central banks, although whether they will be able to handle their current crisis remains to be seen. The silver lining, if one may call it that, is that there is often a gap between the first warnings and the final bursting of a bubble. For instance, some had cautioned as early as 2004 that a bubble was in the making. And Raghuram Rajan’s famous warning at Jackson Hole was made in August 2005, two years before the crisis hit.

(Source: Extracts from an Article by Mr. Manas Chakravarty in the Mint Newspaper dated 11-08-2014)

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BUSINESS CASE FOR ANTICORRUPTION

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Efforts on anti-corruption has taken a front seat
for the past couple of years. The beginning of 1990s saw several
international organisations introducing anti-corruption instruments to
make the functioning of businesses clean. With globalisation and
business opportunities spread across the globe, companies have to follow
the norms of several countries. Strong anti-corruption rules of USA and
Britain has led many companies to introduce anti-graft initiatives in
their working. However, India still lags behind.

In the recently
published Ease for Business Index (2014) constituted by the World Bank,
India ranked 134 amongst 189 nations in the world (the lower bottom),
indicating that India is an investment / business averse country. Ease
for Business Index takes into account, procedures of obtaining licenses,
permits, tax regulations and infrastructure facilities. Lack of
transparency and accountability shrouds all the above procedures.

Though
India is trying to address the issue of corruption by making
legislative changes, ratifying international conventions and adopting
technology in its administrative functioning, merely rules and
regulations will not address the issue. It is important that the
business stakeholders are committed and come together to participate in
the fight against corruption.

Business Case for Anti-corruption

A
recent report of Price Waterhouse Coopers (PWC), a leading consultancy
firm, mentions that increasingly companies have recognised “corruption”
as a major threat to their business.

• 63% of the companies indicate that they have experienced corruption.

• 39% of the businesses have lost important bids due to corrupt officers.


Corruption leads to the damage of the brand name. Correspondingly,
companies have reported that having an anti-graft programme has a great
chance of enhancing the brand name.

• The report goes as far as
mentioning that the total money that a company spends on legal,
financial and regulatory suits due to corruption is much less compared
to the reputational damage (brand) which is done to the organisation.

• 43% of the companies do not enter a particular market which is highly vulnerable to corruption.

Risks of not engaging in the anti-corruption initiatives
• Criminal prosecution (heavy cost to the company)
• Exclusion from bidding processes
• No legal remedies in case the company increases the
cost of the materials
• Damage to reputation, brand and share price
• Regulatory censure
• Cost of corrective action
• Demotivated employees
• Uneven market, loss of business opportunities
• Policy-makers responding by adopting tougher and more rigid laws and regulations (domestic, national and international)

Benefits of introducing anti-corruption initiatives in the companies:


With strong anti-corruption mechanism in a company, the organisation
saves on legal suits. Further, it also attracts new companies through
rigorous business integrity policies.
• Business attracts investments from ethically oriented investors.
• Employee retention and morale of the employee increases as hard work will be the key criteria for progress of the employees.
• Increase productivity by means of a motivated workforce.
• Business can obtain a competitive advantage of becoming a preferred choice of customers, through positive branding.
• Together, businesses can create a level playing field.
• Business collaboration on anti-corruption initiatives influences positive rules and regulations.

Global
Compact Network India, is one of the local networks of UN Global
Compact; a strategic policy initiative for businesses that are committed
to aligning their operations and strategies with ten universally
accepted principles in the area of Human Rights, Labour, Environment and
Anti-Corruption. The 10th principle of UNGC is holistically dedicated
to fight against Anti-corruption in all its form. Furthering the 10th
principle Collective Action Project India provided a platform for
anti-corruption dialogue between private and public sector and
incentivise ethical behavior of businesses. The project in a phased out
manner has taken up pressing corruption issues in the Indian context, in
the spheres of public procurement, bribery and fraud, and supply chain
transparency and sustainability in India.

In the past three
years, since Collective Action was launched in India in 2011, one of the
significant achievements of GCNI has been creation of a platform for
dialogue and deliberation; with an equal number of participants from
public sector, private sector, business associations and SMEs. GCNI has
also been successful in making the businesses take notice about the
merits of adoption of international instruments, one of them being
Integrity Pact (to achieve transparency in procurement). From a time
when discussing corruption was a taboo to a time when talking and
tackling corruption is seen as a sign of sustainable business, GCNI, in a
short duration, has achieved much more than its anticipated goal of
creating awareness about graft.

In its first series of pan-India
consultation conducted during 2010-2011 titled Ethical Business for
profitability, GCNI partnered with academicians, civil society, chambers
of commerce, international business councils to share their best
practices which are being followed in various sectors. Mr. J. F. Ribeiro,
former Supercop, speaking at the Seminar in Mumbai pointed out the
importance of the topic and highlighted the need to understand and
analyse the different ethical dilemmas that companies face today,
especially with relation to corruption. Mr. N. Vittal, Former
Central Vigilance Commissioner delivering the keynote address in Chennai
emphasised that policies based on ethics, of any business, would mean
that they are legal, fair and open to public scrutiny. Any company which
does not practice such a policy is most likely to face contempt and
ridicule at some point or the other. Seminar participants in all four
cities (Mumbai, Chennai, Delhi, Kolkatta) unanimously confirmed that
business can attract and retain talent if they are branded as an ethical
business today.

In the second series of pan-India consultation
conducted between 2011-2012 titled Turning Down the Demand and Cutting
off the Supply saw increased participation from private sector and small
and medium sector enterprises (SMEs). The main aim of second series of
consultations was to know about innovated ways in which corruption could
be tackled and some of the ground realities which are not factored in
while constructing Anti-Corruption policies. Corporate Fraud triangle
was explored so that efforts could be made at all levels through
Collective Action.

In
conclusion, ‘Collective Action’ is a collaborative and sustained
process of cooperation among stakeholders. It increases the impact and
credibility of individual action, brings vulnerable individual players
into an alliance of likeminded organisations and levels the playing
field between competitors. Collective action besides representing big
private and public sector organisations also leverage equal
representation to the Medium/Small scale enterprises who despite being
major contributor to the Nation’s income fail to convey the issues and
challenges faced by them and thus become more prone to corrupt
practices.

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President’s Page – Readers Respond

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We have had the privilege of going through the ‘President’s Page’ before it is published in the journal.

This year, the year of Naushad Panjwani’s ‘President’s Page’, amazed us with the style and contents thereof. The write-ups were extremely relevant and well put together, especially the last one of June, 2014. In regard to the ‘President’s Page,’ many readers have sent in words of appreciation. It is not possible to publish all of them. As a farewell to him, we are publishing a few responses.

We, at the editorial board, have always welcomed feedback whatever its nature. We welcome the bouquets but are prepared to receive the brickbats as well.

We hope this will encourage readers to respond to the journal.

Anil Sathe                                                                                                Narayan Varma Editor                                                                                                               Publisher

September 2013
You have echoed our thoughts and what generally a common literate Indian feels these days. We don’t feel any special on 15th August every year. But as you rightly said, we are no less patriotic even. However, the general political scenario has brought this apathy towards the nation and its governing people. And there seem to be no ray of hope in the near future for a desired change. But there is another side! There are our youth, our young generation, our young intelligent Indian minds residing abroad and in India who certainly have a different view of the things, of the national problems. The need of the hour is somebody to lead this revolution. The intelligent, good, conscientious people are doing wonders where they are standing. The ‘do good’ effect has to be consolidated and brought forward/in front, so that the others could be inspired. Let us do our bit and hope to build a nation. Thanks for reminding.

— Shubha Gupta


OCTOBER 2013

That was a lovely message. I would like to add that these days, sorry is less accepted. It is better to be safe than sorry, since in certain circumstances, sorry may or may not fetch forgiveness. Also, where deadlines are to be met, it is ‘do or die’ or ‘perform to meet deadline or pay interest and penalty and sometimes may attract even prosecution.” We need to look into such drastic laws and give better justice by giving the defendant a chance to get waiver of penalty and prosecution. We are heading for non compassionate and inhuman treatment. Can the BCAS do something to reverse the harsh impact of changes in laws?

— Gracy Mendes

NOVEMBER 2013
All together a new way of looking into age old issues – very interesting. The thought process was developing in a very intriguing but positive manner. But the end was sort of very pessimistic, doomed. You suggested a solution which you yourself have ruled out. Can we not find a shrewed way out using some ‘chanayak niti’? Being a leader, there should be a more concrete end to the discussion. The questions should not be left hanging I suppose… may be encouraged for further debate! That’s my view

— Shubha Gupta

JANUARY 2014, February 2014
Liked your message as President of BCAS. Your thoughts penned are aligned well with your love for Hindi movies. I do agree that it has been a utter chaos in last three years as far as policymaking is concerned. However, an appeal to our countrymen and especially the young voting class that you mentioned, to keep virtues and values of Indian Culture in mind disguise of rational thinking. I may not be as good as you, but the best way to express myself in form of a hindi movie sher from a ghazal from the movie Umrao Jaan:

“Maana ke doston ko nahin dosti ka paas
Lekin yeh kya keg air ka ehsaan lijiye
Wishing you all the success.”
— Prakash Udeshi

MARCH 2014
A positive note. I am sure, over time, new dishes will surface from A. P. and Telangana to add to your list of favourites. And before the bifurcation takes effect sometime in June, let BCAS host a programme which will include a united A. P. meal. If required, my daughter who is possibly a foodie like you, will assist you in organising such a dinner .

— Puloma/Dushyant Dalal

APRIL 2014
You have given a beautiful and inspiring article to students appearing for the exams. My son is appearing for the CA Final and there is lot of stress and anxiety. This article comes at a right time and will provide a tonic for him. We all have gone through the same phase and now know the value of it. Thanks again.

— Sudhir Avhad

MAY 2014
Naushad, in the current dispensation, I am with the SC. When the Parliament does not function (since the Bofors days), executive has no regard for law and the PM is dysfunctional for a decade, SC’s activism is justified. People are happy with Sahara developments. Our top judicial brains are defending him without answering from where he got the money to repay and how can one repay 20K without recording in the books?

All the cream of our society has made India a ‘Banana republic.’ They now fear only the SC; they don’t fear God!

— Tarunkumar Singhal


JUNE 2014

An excellent piece to be read by every citizen of this country. Beautiful parting speech. Words fail to compliment you. Wish you good luck

— K. Sankaranarayanan

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TAXATION PRINCIPLES AND APPLICATIONS

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TAXATION
PRINCIPLES AND APPLICATIONS
A Compendium
Author: Dr. Parthsarathi Shome
Publisher: LexisNexis
Price Rs. 1,495.00

All of us as Chartered Accountants are busy with the interpretation and application of Revenue Legislations. We do not normally make a contribution in the Legislative Tax Policy and Planning, except at the time of presenting the pre-budget or post-budget memorandum. Dr. Parthsarathi Shome’s latest book, however, takes us even a step prior to Revenue Legislation and the thought process behind Taxation Policy and Planning.

Dr. Shome has rich experience as an internationally acclaimed Research Scholar in the Fiscal Policy and planning and during his illustrious career spanning four decades, has made several research studies and given presentations at various international forums. The present book is a selective compendium of his work in the field. As a result, what we come across in the book is a progressively changing thought on Fiscal Legislation.

Divided into seven main chapters, the book starts with an overview of Taxation system from earliest days of Ramayana and Mahabharata, and later on, Kautilya. The early economic principles from Mahabharata and Ramayana depict the social responsibility of the King. One finds that even after many centuries, these principles are even valid today. Dr. Shome in his research has touched upon these principles, of course with changing trends.

In the later chapters, he has analysed in depth the incidence and distribution effects of Taxation, efficiency effects of Taxation, an overview of VAT , GST and customs duty. In the entire analysis, GST appears to be the darling of the policy makers and scholars and Dr. Shome is no exception. In the process, he has also touched upon some innovative schemes of taxation such as Financial Transaction Taxes, Global Carbon Tax, cash flow tax, asset base of tax popularly known at many places as MAT , the much criticised and later on jettisoned from our country, the Fringe Benefit Tax etc. He has examined these innovative measures both from the point of view of policy framing and administration. Before the general elections in our country early this year, there was a talk of abolishing all taxes and in its place imposition of only one Banking Transaction Tax. A theoretical analysis of the said measure of taxation also finds a place in his book. He has of course not forgotten the problems of small and medium size taxpayers from both the sides.

The book also contains the country’s and regional experiences in the process and his analysis mainly concentrates on Latin America and Asia, because of the traditional tag of developing and underdeveloping economies in these regions.

The last chapter of his book is devoted to the exclusive study of Tax Administration, concentrating on the process of a discussion on countering tax evasion, including the famous, tedious TDS. The use of information technology in tax management and administration also finds a place towards the end, but it is touched on the surface. Perhaps, in his next compendium, Dr. Shome may be making a reference to Tax Administrative Reform Commission, which he is chairing at the moment. As we all know, the Government of India had set up the TAR C in August, 2013. In its first report, TARC has suggested radical changes in tax administration. The key suggestion, if implemented in its true spirit, the taxpayer may be treated as a valued customer. Such a radical change will require a drastic change in attitude. The ingrained attitude of arrogance on the part of revenue officials needs to be deeply buried.

Dr. Shome has made a very valid and valuable reference to Spengler’s Contemporary hypothesis, which is reproduced below because of its importance, “ Increasing political stimulation of man’s wants beyond his capacity to supply them has generated forms of disorders. Wants generated by political means are bound to outstrip a community’s economic capacity to satisfy such wants and hence must give rise to increasing frustration of man’s expectations. This ascendance of political over economic want-generation, together with the disorder, which comes in its wake, may be numbered among the progeny of the two Pelopennesian wars which sundered the world of European civilisation and polity between 1914 and 1945.” (p 7).

In today’s world, the people’s Kings have taken the places of hereditary Kings. A continuous aspiration to become the people’s King is reflected by a group known as the political party. Politics, therefore, demands a continuous show of moon to the public at large, thereby increasing the actual and perceived wants in geometrical proportion. This necessitates a need for continuous higher tax collection since it is a main source of revenue for governance. This relationship of economics of tax policy and planning and political necessity for faster and increased collection through such a policy has given rise to political dominance over economic principles. This has given rise to complex economic policies for generating tax revenue.

Although the book avoids reference to political overtones, it describes in detail various complex and multiple models of Source vs. Residence, DTAA issues, Transfer pricing, base for taxation whether expenditure or income, final destination points of taxation. The policy and planning is therefore truly complex. Dr. Shome has through his writing skills tried hard to soften the complexity. Since it is a compendium, there is repetition at some points because the thoughts have been expressed at various times and various places, but in the context of the book it appears to be unavoidable.

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The Menace of Corruption

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“I got used to it by not getting used to it.” said Thomas Mann. This in a nutshell sums up our approach to corruption.

India suffered losses of Rs. 36,400 crores due to corruption in the 12 months preceding September, 2013, says a survey by EY (Ernst and Young) and FICCI, excluding large corruption scandals – 2G, CWG etc.

Chetan Bhagat mentions five areas towards which the new Government’s effort should be focused. One of them is Corruption. He says, “Go after corruption. It bothers Indians and needs to be fixed. However at present it also churns the wheels of our economic system. Draconian measures or finger pointing will solve nothing. It might bring the country to a halt. You don’t solve a blood contamination disease by cutting of the arteries of the heart. You make the blood pure again, one small transfusion at a time.”

To combat the cancer, we require chemotherapy which is given in small doses and is calibrated. To overcome the menace of this national termite which has rendered us hollow; we need to have clear thinking and appropriate strategy.

Corruption is of two types: meat eating and grass eating. The meat-eating corruption is almost always collusive and one transaction is enough to last a couple of generations. It is silent, stealthy and insidious!

Unaccountable wealth or better known as black money, (attained by illegal means and/or remaining outside the purview of the tax laws), remains within the calculated comfort of its owner. This includes money generated through arms deals, gun running, smuggling, drugs and narcotics, illicit trade, real estate transactions et al; and is major contributors to the tax havens abroad

Grass-eating corruption extorts millions of our countrymen in their day to day activities. Obtaining a post-mortem report, death certificate, donation in cash for admissions to school, caste verification certificate, lodging of FIRs, pre-condition for recruitment in govt. jobs at subordinate cutting edge levels levels etc. etc. This is extortionist in nature and is demanded when one is under already duress. This form of corruption is petty in scale and alienates the belief of lay public in the government . Anna Hazare lead the movement “India Against Corruption” that later significantly contributed to the electoral decimation of the Congress led UPA government.

The NDA government shall have to tackle the grass-eating variety through massive education of public opinion to say NO to corruption of this form. Every school, college and other training/professional institutions should be giving lessons inculcating values. Though a long exercise, but can give credible and sustainable results in couple of years. Incidentally the Honk Kong government faced the same menace and they started working through schools and in couple of years, the change became manifest to the relief of suffering populace. It had a tremendous impact on the states effort to combat the menace.

Manoje Nath – a former Director–General of Police, Bihar, brilliantly sums up people’s response to the menace by saying that the response of people at large is even more ambiguous because it is rooted in the fact that they are themselves “half victims, half accomplice, like everyone.” People’s lack of combativeness, venom and extraordinary passivity stems from the fact that they tend to be comfortable with the idea that corruption is an inescapable fact of governance and political morality. Nath explains;

“The ambiguity in the public attitude towards ill-gotten money is the result of our peculiar situation. Our economy is half white and half black, half over-ground and half underground. We condemn black money but deal in it, nevertheless. Under our very eyes, criminals and gangsters acquire wealth, then political power, then more wealth and with it acceptability and social esteem. Political banditry as a mode of creation of surplus value has long been accepted as a legitimate vocation. To displace the awareness of these contradictions, we have devised various overt and covert strategies to acknowledge and accommodate the criminality within our midst. Lawyers, chartered accountants, investment advisors, honestly work for the legitimization of dishonest earnings by politicians, government officials, corporate CEOs, etc. Dirty money courses through our formal and informal financial system in different ways, with different consequences. We do not seek to know hard enough about the offshore funds being routed in our economy for fear of discovering their actual provenance. We are so enamoured, even over awed with power and manipulation that we tend to ignore what David Bell calls “the economic fulcrum underneath.”

The decision to constitute a Special Investigation Team, under the chairmanship of Justice M. B. Shah, to investigate the cases of black money stashed away in foreign banks, will prove to be an acid test for the new government. It calls for a equally strong political will to fight this ever growing threat to national economy.

To combat crime, we need to have two pronged strategy: prevention and detection. Many a crime are prevented when the preponderance of probability lies in that these would become manifest at any given moment. A reasonable certainty of apprehension and conviction deters criminals. Crime swells when there is an assurance that it would not be easily detected and that in the unlikely event of getting so detected, the law as it exists, could be subverted first at the level of cognizance and subsequently during investigation, prosecution and/or adjudication. Organized crime syndicates prosper on this philosophy.

“Ideas spur crimes. A psychological, people-oriented counter strategy and approach while it is certainly not a panacea, empowers the individual citizen who ceases to ask what is there in the state system for him and instead begins to introspect on what he can do for the society/ state system given his new found status as a stakeholder,” says Prateep Phillip.

The power syndrome is that when we do not share power, the power have-nots hate us with a passion, when we share power through such a power sharing mechanism we are loved with an equal passion.

Corruption permeates at the top and it becomes a corporate activity. We shall have to put upright and competent officers at the top – selected on merit – and mind you we have plenty of them. All such officials have now been marginalised and wasted in non-sensitive departments/ assignments.

Clearly laid out policies with irreducible minimum discretion, with the help of technology to take speedy decisions, will go a long way to cut on avoidable delays, famous breeding grounds of corruption.

Creation and existence of a credible mechanism where information can be received and is welcomed, with privacy of the informer kept in absolute secrecy, will make the masses feel participants in unearthing diverse forms of unaccounted/illicit wealth. All such information leading to successful prosecution may be rewarded with tempting percentage of such money unearthed. The RT I Act has significantly contributed to lifting of veil of confidentiality from public records maintained by the government. It’s time we take a call whether we should continue to maintain confidentiality of income and assets of all those who seem to be living in a life style disproportionate to their know sources irrespective whether they are public servants or not.

Hoederer’s admonition to Hugo (who refuses to “dirty” his hands) in Jean Paul Sartre’s play Dirty Hands would induce a curious sense of déjà vu in those of us who have tried to take a stand against the contemporary wisdom:

“You cling so tightly to your purity, my lad! How terrified you are of sullying your hands.
Well, go ahead then, stay pure! What good will it do, and why even bother coming here among us? Purity
is a concept of fakirs and
friars. But you, the intellectuals, the bourgeois anarchists, you invoke
purity as your rationalisation for doing nothing. Do nothing, don’t move, and wrap your arms tight around
your body, put on your gloves. As
for myself, my hands are dirty. I have plunged my arms up to the elbows in
excrement and blood. And what else should one do? Do you suppose that it is
possible to govern innocently?”

Towards a healthy India

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“Ache din aane waale hai”

Well,
that’s what I believe anyway. India used to be known as the ‘sone ki
chidiya’ – the Golden Bird, but that sadly is a thing of the past.
Corrupt officials, ineffective governance, ridiculous policies (both
foreign and national) and high level yes-men, have rendered this once
great nation, a laughing stock not only to the world, but also to its
very own residents. Having such a massive population, second only to
China, should have helped propel us forward, but it has been more of a
burden, dragging us behind. Restlessness and discontent was strife
against the current regime. A huge shake-up of the government, from top
to bottom, was massively required. And that is exactly what has
happened. A wave of change has swept over our country bringing with it
billions of hopes and expectations. And it is we, the youth, who stand
at the centre of this change.

Ten years from now, I see India as a
global superpower. I see us as a country at the pinnacle of
development, be it the economy, education, infrastructure or even the
health care sector. Yes, the health care sector! And this is where, as a
medical intern at Sion Hospital, I would like to give my not-so-expert
opinion.

According to me, the health care sector is one of the
most neglected fields in our country. And that, for a country with a
population exceeding a billion, is simply unacceptable. There is a lack
of availability of even the most basic of medical supplies, at the
primary health care level. For example, when I was doing my rural
rotation, the health centre I was posted at did not even have stock of
isosorbide dinitrate (simply called nitrate), a basic drug which is
critically important in the emergency management of myocardial
infarction, commonly known as a heart attack. Lack of such basic
supplies will hinder even the best doctor’s attempts at treating his
patients. The WHO guidelines dictate that there should be at least one
doctor for a population of 1,000 people. But the sad reality is that
this ratio currently stands at around 1:2,000 in our country. This
prevents people from availing even the most basic facilities, especially
at the primary level.

However, these problems are not just
limited to the rural level. They are also prevalent in the urban areas,
specifically the government-run hospitals. Most of these hospitals are
severely understaffed. Doctors are unable to give their complete
attention to every single patient, which results in them not getting the
appropriate medical treatment. Most of these hospitals are grossly
mismanaged, which results in the patient not getting timely, and in
certain cases, lifesaving medical care.

But it is not only the
patients who suffer. Doctors are in fact, the major victims of this poor
management of the health care sector. The ‘resident’ doctors, i.e., the
postgraduate student, are probably the ones who are the most affected.
These doctors are the ones who practically run the whole hospital. Along
with that, they have to battle a host of other problems such as
inhumane working hours (most of them don’t sleep more then 30-35 hours a
week), poor and unhygienic living conditions which predispose them to
various illnesses such as tuberculosis, abysmally low salaries, and
handling aggressive patients and their relatives, each of whom demand
the best treatment for themselves. Even after treating the patient to
the best of their abilities, there is always that nagging fear of
getting beaten up even if one miniscule thing goes wrong. In the private
set-up, although there are no problems of staffing or overcrowding as
such, it is the huge cost of treatment which acts as a deterrent, which
pushes people towards the public hospitals.

All these issues are
correctable, if the government shows the required desire, understanding
and dedication. The most obvious solution would be to increase the
number of doctors at all public hospitals. This increase should not only
be at the senior level, but should start from the grass roots, at the
undergraduate level. The number of seats at both UG (Undergraduate) and
PG (Postgraduate) level should be increased, which would results in an
increase in doctors at all levels. As of now, there are approximately
20,000 PG seats in government-run medical colleges throughout India.
This is totally inexcusable for a country with such a massive
population. Establishing new medical colleges and hospitals would go a
long way in providing better health services. It would reduce the
workload on already overburdened doctors. The aim of the government
should be to have at least a 100 new, tertiary hospitals in India in the
next 10 years. This would make a massive difference in ensuring quality
health care.The government must take steps to ensure better, sanitary
living conditions for resident doctors. Offering attractive
remunerations and financial packages would draw more doctors to take up
jobs at government hospitals. Another crucial decision should be to
increase the strength of the para-medical staff at all hospitals. These
include the nurses, ward boys, technicians etc. These people play a
critical role in the day to day efficient running of a hospital, without
whom, things would just come to a grinding halt. There should also be
an increased focus on infrastructure and basic facilities. For tertiary
health centres such as the big hospitals, providing them with the latest
technology, modern equipments and the best lab facilities, would go a
long way in enabling them to provide the best medical care that they
possibly can. For example, there are currently many hospital across
india which do not even have a CT scan! Primary health care as a whole
has been grossly neglected and steps must be taken to ensure that such
centers have access to basic, life-saving medications as well as simple
investigative equipment like x-ray machines. Our aim should not be to
provide medical care on par with the Western countries, but to provide
better care than them, simply because we have the resources to do so.

I
have a very limited knowledge of the budget and the constraints faced,
but I do know that expenses on health care were cut down by 10% for the
2014-15 budget. The most obvious solution would be increase the
allocation, and the subsequent expenditure, on health care. However, if
that is not possible, judicious and carefully planned use of the
resources should be made. There should be increased focus on certain
areas which require them the most, such as the primary health care
sector. Conducting increased number of health camps, with the assistance
of NGOs, would go a long way in tackling health problems in rural
areas. Special departments should be set up within the health ministry,
each given their exclusive objectives and asked specifically to focus on
them.

Ten years down the line, I would like to see every person, whether rich or poor, have the opportunity to access the best medical care and facilities. I would like to see India at the forefront of health care services. An India, where peo- ple from abroad come to access OUR health services, not the other way around. An India where our doctors get the respect and facilities they deserve, and are not vulnerable to the very diseases they are supposed to treat. An India where basic medicines are available throughout, such that not one single person should die from simple, preventable diseases like tuberculosis or malaria. All in all, I would like to see India achieve its tremendous potential, become the country that we know we can, and command awe and respect from the rest of the world. Bold claims maybe, but I firmly believe, with the current government in place, all of this is eminently achievable with the required will and hard work.

In the words of Martin Luther King Jr.,”I have a  dream…”