Sunday, November 16, 2014

1. Sunday, November 16, 2014

2. Vision Vasudhaiv Kutumbakam Need not click - Auto Run

3. Social Reality Our nation is like a huge ship sailing in the middle of the sea. Just when it looked like sailing smooth, it hits a hidden rock suffering damage causing water to rush into compartments from the bottom. The Unorganized Class at the bottom is in panic and is running around screaming for survival. The only way is to move upwards. The Organized Class sleeps behind closed doors, feeling secured with pensions, insurance and provident funds. They do hear an odd scream but pretend not. The rich and Elite Class – the blessed few are up enjoying the view. They do not even know that the ship is sinking. But this ignorance real or fake will not stop any of us from sinking in the worst scenario.

4. Economic Reality Let us say our economy is like a multi storied building. The overhead water tank on the roof is the Treasury. The floors from the top downwards are the various heads of government expenditure in order of priority. There are pipes leading water down from the overhead tank to the various levels - their taps are dry. On investigating, we realize that the overhead tank is only half filled – and the lower levels will not get any water unless the tank fills completely. This gap in the overhead tank is the Fiscal Deficit. We check the main reservoir on the ground floor and find that it does contain a lot of water. The pump is running at full speed. The pipes which lead this water up into the overhead tank – the taxation system - are so impossibly twisted, choked and corroded that they leak at many points. A lot of water is leaking out of these pipes and that is why the overhead tank does not ever get filled up!

5. Effects of Fiscal Deficit on Local Industry Social Insecurities Unemployment Uncompetitive Local Industry / Trade Reduced Rural Purchasing Power Policies Influenced by Foreign Interests Local Agriculture Rendered Uncompetitive Poor Infrastructure Subsidies Curbed Attract FDI Fiscal Deficit

6. Effects of Fiscal Deficit on Credit Cycle & Government Revenue Fiscal Deficit Uncompetitive Local Industry / Trade Deficit Budget Unemployment Inflation Social Insecurities Hard Credit Policy Purchasing Power Reduced Conservative Lending Inadequate Tax Revenue to Govt. NPA’s Increase Inadequate Capital Supply to Economy Low Demand / Recession GDP Growth Slows Down

7. Effects of Internal Borrowings on Fiscal Deficit Internal Borrowings Spent on Non-Developmental Activities Fiscal Deficit Inadequate Tax Revenue to Govt. GDP Growth Slows Down

8. Effects of Fiscal Policy & External Borrowings on Credit Policy & Banking System Threat to Local Banking System National Policies Influenced External Borrowings Fiscal Deficit Expensive Capital Tax Rebate + High Interest Rates on Savings Lending Rates Increase Bank Interest Rates Increase

9. Effects of Fiscal Deficit on Disinvestment Policies & Reduced Social Spending Threat to Organized Employment Fiscal Deficit Pressure to Disinvestment Reduced Social Spending Govt. Control Lost in Essential Commodities [e.g. Oil, Medicines etc.] Public - Private Partnership e.g. Toll Scope for market exploitation Cost Burden Passed onto Common Man Social Insecurities Severe Impact on Weaker Sections Purchasing Power Reduced

10. Effects of Fiscal Deficit on Anti-Social Industries Social Insecurities Increased Congestion, Accidents, Pollution Direct Ill Effects on Public Health Promoting Increased Use of Oil  Automobiles Lack of Infrastructure / Public Amenities (e.g. Public Transport System) Increase in Oil Import Losses (Subsidies) Promotion of State-Run Lottery Schemes Promotion of Liquor, Gutkha, Cigarettes Fiscal Deficit Inadvertent Promotion of Anti-Social Industries

11. Effects of Fiscal Deficit on Taxation System & High Denomination Currency Social Insecurities Uncompetitive Local Industry / Trade Fiscal Deficit Poor Governance Inadequate Tax Revenue to Government GDP Growth Slows Down Parallel Economy Corruption Tinkering of Taxation System Non-Traceable Transactions Black Money High Input Costs Inadequate Capital Supply to Economy Ease of Cash Transactions Tax Evasion Flawed Taxation System Expensive Capital Poor Credit / Capital Formation Large Denomination Notes Less Use of Banking System Fiscal Deficit Inflation

12. Effects of Fiscal Deficit on Credit Cycle & Farmers’ Suicides Farmers’ Suicides Social Unrest Fiscal Deficit Unjust Borrowings from Private Sources Deficit Budget Inflation Hard Credit Policy Low Credit Supply to Agriculture Individual’s Credibility NOT Established Poor Credit / Capital Formation Less Use of Banking System

13. Flawed Taxation System Narrow base and limited coverage of Direct Taxation Direct to Indirect tax ratio is 40:60 Inequitable and hence Regressive Non-Productive Uncertain Inelastic Uneconomical Complex nature of taxes Tax laws open for interpretation

14. Currency Denomination Highest Denomination Per Capita Income / Highest Denomination Per Capita Income Country USA 40,000 $ 100 $ 400 UK 20,000 £ 50 £ 400 40,00,000 ¥ 10,000 ¥ Japan 400 Rs. 37,000 India Rs. 1,000 37

16. Highest Three Denominations account for 91% of the total Currency Money while Per Day Income of 78% Population is Less than or Equal to Rs. 20

17. ArthaKranti Proposal Withdrawal of existing Taxation System completely (except Customs and Import Duties) Every Transaction routed through a bank will attract a certain deduction in appropriate percentage as Bank Transaction Tax i.e. Single Point Tax Deducted at Source (say 2 %) This deduction is to be effected on receiving/credit account only This deducted amount will be credited to different Government levels like Central, State and Local (as say, 0.7%, 0.6% and 0.35% respectively) Transacting Bank will also have a share in the deducted amount as it has to perform a key role (say 0.35%) Cash Transactions will not attract any tax Withdrawal of High Denomination Currency (above Rs. 50) Government should make legal provisions to restrict cash transactions up to a certain limit (say Rs. 2000)

18. Adequate Revenue to Government Effects of ArthaKranti Proposal Tax Revenue Increases by Orders of Magnitude Adequate Revenue to Government Increase in Banking Transactions High Value Cash Transactions Not Practical Legal Provision Made Restricting Cash Transactions up to a Certain Limit (say Rs. 2000) Bank Transaction Tax: the ONLY Tax, Deducted Automatically (say 2%) Existing Cash Deposited in Banks & Attracts BTT High Denomination Currency is Removed (say above Rs. 50)

19. Adequate Revenue to Government Anti-Social and Anti-National Elements Effectively Checked Effects of ArthaKranti Proposal Anti-Social and Anti-National Elements Effectively Checked Black Money Eliminated Opportunities for Corruption Eliminated Tax Collection is Simplified Fake Currency Eliminated Legal Provision Made Restricting Cash Transactions up to a Certain Limit (say Rs. 2000) Bank Transaction Tax: the ONLY Tax, Deducted Automatically (say 2%) Existing Cash Deposited in Banks & Attracts BTT High Denomination Currency is Removed (say above Rs. 50)

20. Anti-Social and Anti-National Elements Effectively Checked Adequate Revenue to Government Industry / Trade Supply Stimulated Effects of ArthaKranti Proposal Industry/Trade Supply Stimulated Purchasing Power of Society Increases Market Demand Boosted Increase in Banking Transactions Cheap and Easy Capital Net banking Revenue Increases Globally Competitive Interest Rates Part of BTT goes to Banks Legal Provision Made Restricting Cash Transactions up to a Certain Limit (say Rs. 2000) Bank Transaction Tax: the ONLY Tax, Deducted Automatically (say 2%) Existing Cash Deposited in Banks & Attracts BTT High Denomination Currency is Removed (say above Rs. 50)

21. Anti-social and anti-national elements effectively checked Anti-Social and Anti-National Elements Effectively Checked Adequate Revenue to Government Industry / Trade Supply Stimulated Effects of ArthaKranti Proposal Purchasing Power of Society Increases Cheap and Easy Capital Market Demand Boosted Prices Drop Focus Shifted to Innovation from Tax Manipulation Industry/Trade Supply Stimulated Commodities and Services are FREED from Tax Influence Legal Provision Made Restricting Cash Transactions up to a Certain Limit (say Rs. 2000) Bank Transaction Tax: the ONLY Tax, Deducted Automatically (say 2%) Existing Cash Deposited in Banks & Attracts BTT High Denomination Currency is Removed (say above Rs. 50)

22. Anti-Social and Anti-National Elements Effectively Checked Industry/Trade Supply Stimulated Adequate Revenue to Government Effects of ArthaKranti Proposal Industry/Trade Supply Stimulated Money Supply Regulated Adequate Revenue to Government SLR Revised Tax Revenue Increases by Orders of Magnitude Black Money is Converted into White Legal Provision Made Restricting Cash Transactions up to a Certain Limit (say Rs. 2000) Bank Transaction Tax: the ONLY Tax, Deducted Automatically (say 2%) Existing Cash Deposited in Banks & Attracts BTT High Denomination Currency is Removed (say above Rs. 50)

23. Effects of ArthaKranti Proposal Social Security Restored Industry/Trade Supply Stimulated Anti-Social and Anti-National Elements Effectively Checked Employment Opportunities Cleansed Political System Empowered Government Effective Governance Black Money Eliminated Budgetary Provision for Political System Globally Competent Agro-Segment Fiscal Deficit Recovered Govt. Debts Checked Adequate Revenue to Government Appropriate Subsidies Legal Provision Made Restricting Cash Transactions up to a Certain Limit (say Rs. 2000) Bank Transaction Tax: the ONLY Tax, Deducted Automatically (say 2%) Existing Cash Deposited in Banks & Attracts BTT High Denomination Currency is Removed (say above Rs. 50)

24. Anti-Social and Anti-National Elements Effectively Checked Decentralized Revenue Collection System Increased Purchasing Power Elimination of Black Money Building Individual’s Credibility Social Security Scheme EMPOWERED INDIA Cheap and Easy Credit Availability Industry/Trade Supply Stimulated Tax Burden Reduced with BTT Revenue for Banking Adequate Revenue to Run Govt. Programs Budgetary Provision for Political System Creativity FREED from tax Manipulation Elimination of Means & Motives for Corruption Legal Provision Made Restricting Cash Transactions up to a Certain Limit (say Rs. 2000) Bank Transaction Tax: the ONLY Tax, Deducted Automatically (say 2%) Existing Cash Deposited in Banks & Attracts BTT High Denomination Currency is Removed (say above Rs. 50)

26. Jai Hind!