DERAILED: Like the trains which keep going of the track, the Indian economy under Prime Minister Narendra Modi seems to be moving backwards
Between demonetisation and GST, Narendra Modi and Arun Jaitley have converted sabka vikas into sabka satyanash. There are no signs of achhe din. There is no hope at the end of the tunnel. Which gives the opposition a good chance to send Modi home in the 2019 Parliamentary elections
By Rajan Narayan
WHEN Narendra Modi came to power in 2014 the slogan which gave him such a huge majority was sabke sath sabka vikas. The earlier Congress government of Manmohan Singh had been paralysed for almost its entire term of five years. There were scandals after scandals which did not permit the government to work. There was the telecom scam in which the government was accused of favouring some telecom companies. The eco continues with the Modi government targeting Kartik the son of the former Chief Minister. The telecom Minister himself spent a long time in jail.
There were other scams like the illegal extraction of iron ore. Particularly in Karnataka and Goa. Senior members of the BJP cabinet were indicted in the ore scam in Karnataka. What made it worst for BJP was that Janardan Reddy of Bellary who was the main accused was considered very close to the now foreign affairs minister Sushma Swaraj. It
may be recall that Swaraj fought the parliamentary election against the late Indira Gandhi from Bellary. The iron ore scam in which the Shah commission indicted the entire mining industry in Goa paralysed the state and plunged it into to debt. The state has yet to recover from the suspension of mining in 2013 though it has now been lifted. Recently the Chief Minister Manohar Parrikar admitted that mining now contributed less than 10 per cent of the revenue of the state.
The biggest setback for the highly respected Sardar Manmohan Singh was the coal scam. It was alleged that huge blocks of coal were allotted to big industrialists including the Birlas, the TATAs and the Jindals at a very low price. Goa was indirectly affected as the Jindals expanded their coal handling facility at the MPT to be able to supply the coal to their steel plant in neighbouring Karnataka. Unfortunately the then Prime Minister Manmohan Singh was himself accused in the coal mining scam. He was holding temporary charge of the mining portfolio, which included coal, when the scam broke out. It was established that his office was involved in sanctioning out of turn allotment of coal. The man who was responsible for introducing economic reforms way back in the early ‘90s and made India the fastest growing economy in the world left in disgrace.
THE result of the policy paralysis of the Congress government was that very few jobs were generated during the five years or rather ten years of Congress rule. The expectation was that if Narendra Modi with his slogan of sabka vikas became the Prime Minister a huge number of jobs would be generated. That the economic and decision making paralysis would end and there would be an revival of economic growth which had come down from the peak of over 10 per cent to less than 7 per cent when the Congress suffered the biggest defeat in its history and Modi became the Prime Minister. The people of India did not vote for the BJP. They did not vote for the Sangh Parivar. They voted for the chaiwala from Gujarat in the expectation that he would create millions of jobs for the unemployed youth in the country.
Unfortunately it has not happened. The first mistake that Narendra Modi made was demonetisation. To fulfil his promise of cracking down on black money and bringing back all the black money stashed abroad, Modi unleashed demonetisation. Modi had said during his 2014 election campaign that when all the black money was recovered ever Indian would benefit to the tune of `15 lakhs. It may be recalled that Modi had asked banks to open billions of accounts with zero balance with the aim of bringing every Indian under the banking system. Most of these Jan Dhan account do not have money. Some banks ask their employees to deposits at least `10 each to avoid being labelled anti poor. There was of course no sign of the promised 15 lakhs.
SUDDENLY Modi announced on Sunday that from the next day onwards `1,000 notes and `500 notes would seized to
be legal currency. Modi scrapped the `500 and `1,000 notes, which accounted for 80 per cent of the currency in circulation, in the belief that most of the black money was hoarded in high denomination notes. Unfortunately enough preparation had not been made for exchanging the scrapped notes for new notes. Not enough new notes were printed. And the new notes were not the same size as existing ATM feeder trays. So there was panic among particularly the poor people in the rural areas. Most poor people in India do not have much faith in banks. They prefer keeping their savings in their home lockers or even under their pillow. When they went to exchange their notes which their earned through very hard work they found that the banks did not have money. To add insult to injury the banks offered them brand new `2,000 notes in exchange which nobody would accept. The ATMs ran dry partly because they were not re-wired to accept the new `2,000 notes. Faith in the chaiwala was shattered among the common people who had to wait in long queues for days to get their own money.
Demonetisation was expected to eliminate black money. The logic was that people who had stored their money in `500 and `1000 notes would be not willing to exchange them as they would have to explain how they got the money. That black money traditionally was stored in `500 and `1000 notes was very well known to politicians. It was the Gandhi note which they distributed during elections to buy votes. The expectation was that if not 50 per cent, at least 20 per cent of the `1000 and `500 notes which was illegally stored because no tax had been paid on them would not come back. There was a new story — that the government would be depositing `10,000 in every zero balance Jan Dhan account. The government was depending on this black money to make good its promise of depositing `10,000 in every Jan Dhan account.
BUT Modi despite been chatur baniya under estimated his fellow baniyas. They deposited money into accounts opened by their unquestioning workers, they hired labour to stand for them in the queues to exchange their black money. They bribed bank managers so that they could deposit and exchange large amounts of money through the back door. They converted hundreds and thousands of crores of black money into jewellery and super luxury cars and bikes. The jewellers and the auto dealers claimed that the Mercedes and the diamond jewellery costing crores was bought before the ban on `1,000 and `500 notes.
The result was that 99 per cent of the `1,000 and `500 notes of which of large part was black money came back to the bank. The chatur baniyas had out smarted the baniya from Gujarat who had become the Prime Minister and thought he was smarter than them. So demonetisation did not manage to catch even one black money holder. All the people who had black money managed to convert it into white, while old widows in villages who had stored their hard-earned money in their homes or buried their lifetime savings so that their drunk husbands would not know they had money, were the ultimate losers.
In the meanwhile all the small people cursed Narendra Modi for other reasons also. The kirana or grocery shops saw a big drop in business because nobody had any cash to buy anything and unlike big shopping centres they did not have swipe machines. Vegetable shops suffered a big loss because people did not have change to pay for vegetables. The only notes available were the pink `2,000 notes. Construction workers did not get their salaries as there was a desperate shortage of `100 notes. This was true of all daily wage workers — whether they were farm labour or weavers or women who made papad and pickles. Indeed among the worst affected were lakhs of women who rolled bidis for a income. For them and for millions of poor workers acche din had turned into bure din.
Recent revelations that the governor of the RBI Rajan had warned the Prime Minister against demonetisation only make the whole fiasco more incomprehensible.
DEMONETISATION was bad enough in destroying the economy. Much worse was to come in the form of the goods and services tax (GST). The concept of GST, like demonetisation, was very good. There were hundreds of taxes to be paid by every businessman and industrialist in the country. There was the excise tax charged by the Centre and the state governments. There was the customs duty charged by the customs department on all imports into the country. There was the entry tax called octroi which was charged by every civic body. There was the entrance tax which was charged by the Goa government. There was the luxury tax which was charged not only by the five star hotels but even the top restaurants. The central government had its own taxes. The state government imposed further taxes. The municipality added to the tax burden. Even the Panchayats started levying taxes on collection of garbage and for granting licenses. In addition there was the stamp fee to be paid whenever you prepared a legal document or registered a house or bought or sold property.
The idea behind the GST was to substitute the hundreds of taxes with a single tax. A single tax which would be levied by the Central government. Unlike in the past when a truck carrying cars manufactured in Punjab had to spent hours at every toll booth on a bridge or while entering or passing through a city which resulted in a delay of days, now they have to pay only one tax. There were of course different rates of tax on different goods from salt to gold. In their wisdom the Centre did not want to include petrol, which is their major source of revenue, in GST. When a new minister was asked why the price had crossed `70 in many states of the country, his insensitive reply was that people who owned two wheelers and cars were not starving so they could effort to pay extra tax. The minister does not realised that even people with very low incomes are forced to buy two wheelers in many places, including Goa, because there is extremely poor public transport. The buses are horrors on four wheels and in any case stop at 8 pm and to the villages the last bus is around 7 pm. So anyone who wants a night life or even has an emergency has to depend on the taxi mafia.
TO GET back to the GST it was a great idea. The logic was that your tax would be considered or could be offset as expenditure by the suppliers of the commodity. My GST became the expense of the suppliers. Similarly the GST he paid could be set of. It was similar to the tax deduction and source. When any individual or a company deducts tax or pays TDS on its bills it can claim a rebate to that extent from income tax. To give an example the GST that I pay my printer can be booked as an expense for which I get credit in my income tax. Even a cup of tea or a dinner in a five star hotel, or a taxi fare, however high it may be, can be claimed as a business expenditure if you can prove that you undertook the expense for promoting your business.
Unfortunately for Modi GST has only made the condition of the poorest of the poorer even worse. This is because the road to hell is paved with good intentions which do not come through in practice. GST has been introduced like demonetisation without any preparation.
GST is worse than demonetisation because unlike demonetisation where you could go to the bank and exchange the scrapped notes for new notes, GST is totally digital. Which means that if you are computer illiterate you cannot even get a GSTN number. Being computer literate does not mean knowing how to use a mobile phone. It does not mean buying a smartphone on instalment and buying a cheap internet pack so you can see movie or porn. GST requires much high levels of computer skills. To apply for GST online you have to provide a photograph of yourself, the registration of your company, your balance sheet, your director’s identity, your digital signature etc etc. No problem you might think. But there is limited space made available for each item on the server. So you have to reduce the size of the document or photograph to the size demanded by the server or it won’t accept it. So to get a GST number you not only need a computer or a smartphone but an internet connection and knowledge of photoshop or some software to reduce file sizes of documents as required.
But that is not the big worry. The big worry is that if you do not have a GST number nobody will do business with you. As a newspaper I cannot get ads, which are the life blood of a paper, if I do not have a GSTN number. This is because the money a company spends on ads has to be shown as marketing expenditure for them to get tax credit under the GST system. Most small people like those who have cottage industries making food items like chips or brooms do not have computers or smart phones to get GSTN numbers.
The foreign exchange rules of the country stipulate that big foreign companies can invest in India under the ‘make-
in-India’ scheme only if they outsourced at least 50 per cent to small and tiny units. But the small and tiny units cannot benefit as they have no GSTN number. Which is why you’ll find supermarkets have stop selling pickles and papads made by self-help groups and housewives as without a GSTN number the supermarket will not get offset credit for their purchases from these small vendors. Which is why, as in the case of demonetisation, the small traders, who were the backbone of the BJP and the Sangh Parivar, are cursing Narendra Modi.
THE impact of demonetisation and GST is that not only has the growth rate fallen but no fresh jobs are being created. There is total confusion in industry and trade as they struggle to cope with GST after the shock of demonetisation. What are companies to do with stocks of bikes and cars that were purchased before July 1 when GST became effective? The same concerns apply to every product during the country from pressure cookers to shoes to ready-made clothes to chocolates.
To make matters worse the server which has been put up by Infosys keeps breaking down. This of course is partly because the traders and the manufacturers wait till the last day to file the returns. However, when designing a system you have to be prepared for such eventualities. Apart from the normal human tendency to procrastinate, here we have a complex new process introduced — it is natural that many people will take the maximum allotted time to follow the process. So much so, that the server which was expecting ten lakh returns a day suddenly found itself having to deal with ten crore returns on September 10, which was the last date of filing returns. But even apart from this last day pressure, the fact remains that the server has been making life miserable for the business community.
Between demonetisation and GST, manufacturing is paralysed. The rate of growth of industrial production is -5 per cent compared to +7 per cent last year. Which means that big companies like L&T and TATAs are asking staff to resign, instead of hiring new staff. Traders are in a mess. Shopkeepers are not getting enough stocks from their suppliers because somewhere along the chain either a party has not got its GSTN number or filed its returns.
The returns are the babus paradise and a nightmare for industry and trade. Every manufacturer and trader has to file as many as 36 returns online for every product he or she manufactures. If you manufactured shirts, pants, under clothes, handkerchiefs, salwars, suits and jeans, you will have to file 36 separate returns for each product. Not only the manufacturer but the wholesaler and the retailer will also have to file returns. So you can imagine the amount of paper work that is strangling the Indian industry and trade. And all this is resulting in less and less job and more and more frustration.
A senior BJP leader Yashwant Sinha, former finance minister in the Vajpayee government, has pointed out that Modi is a big zero when it comes to economic development and that the finance minister Jaitley does not know how to bring acche din and is only adding to the misery of the common man. The only people who are becoming richer and richer in Modi raj are the Adanis and the Ambanis.
The rich are getting much richer. The poor are getting even poorer. Which is why farmers are committing suicide, which is why Dalits, affected by the ban on cow slaughter, are so angry, which is why all those who expected sabka vikas are now talking about sabka satyanash. Acche din have not come. They have turned into bure din. This is because the economy is in the hands of a chaiwala and a lawyer instead of an expert economist like Manmohan Singh or even the BJP’s own senior leader, Yashwant Sinha.