CASHLESS ECONOMY: THE PANACEA FOR CORRUPTION, BLACK MONEY AND FAKE CURRENCY

On the evening of Tuesday, November 08, 2016, the Indian Prime Minister declared a historic decision in the path of India’s fight against corruption, black money and fake currency by demonetizing the higher denominations of Indian currency viz. Rs 500 and Rs 1000 with immediate effect. The move delivered an unexpected assault on all the black money holders and hawala traders in the country, who were holding the majority of their black money and fake currency as denominations of Rs 500 and Rs 1000. Looking at the merit of the move, one can safely say that the move will be successful in wiping out the fake currencies in circulation almost completely, but the same cannot be said about the black money. Though for a short run, the government has dealt a severe blow to all the black money holders, but this decision alone is not sufficient to completely eradicate the menace of parallel economy in India. The true panacea lies in demonetizing all paper currencies of the country and moving on to a cashless economy. Though at the outset this idea might sound highly impractical, shambolic and insane, it is something not really IMPOSSIBLE. It can be achieved if a well determined government move on a well thought out and systematic policy path. To achieve this we need a gradualistic and systematic approach. In this article I am attempting to share with the readers the outline of one such policy path that propped up from my thoughts. The objective of this article is to initiate a discussion on these policies and churn out a robust policy that could help in achieving the goal of a total eradication of the parallel economy not only in India, but around the world.

STEP ONE – FINANCIAL INCLUSION

The first step towards a cashless economy will be a comprehensive financial inclusion. Government should aggressively try to get each and every citizen of the country to be part of the financial system. Policy such as PM Jan Dhan Yojna is a welcome move in this direction. Each and every citizen of the country should have a bank account, with net banking, debit/credit card and mobile banking facility. Personal accounts, Salary accounts and student accounts must be made compulsory and should be linked to PAN.

STEP TWO – ICT INCLUSION

The second step will be information and communication technology inclusion. This includes popularizing mobile phones and internet among all people in the rural and urban. Slashing down internet usage tariff and tax of gadgets such as smart phones and computers shall be right move in this direction of popularizing ICT.

STEP THREE – TRAINING ON NEW GENERATION BANKING

Once the inclusion of all people in urban and rural with ICT is achieved, then the next step should be to impart training to the illiterate and less educated people in urban and rural, in association with the various banks in the country, on various techniques of new generation banking such as net banking, debit/credit cards, mobile banking, cash wallets etc. Such training can also be made part of all schools in the country. Such trained students can also be made volunteer trainers in their locality.

STEP FOUR – CREATION OF ONLINE MONEY WALLETS

All banks in the country should start Online Money Wallets. It should be a separate account other than the regular SB, Current, Recurring or Fixed Deposit account. Money held in this wallet should be highly liquid and shall be given no interest. The account holder can decide on what proportion of his SB money he wants to hold in his Online Money Wallet. Transactions from the Online Money Wallets should not be charged with transaction or service charge by the banks.

STEP FIVE – POPULARIZING QR CODE BASED COMMERCE

Once financial and ICT inclusion is achieved and online money wallets are opened, the banks should issue QR codes to all account holders. Shop keepers, taxi drivers and all others who cannot keep swiping machines for debit/credit cards, can use these QR codes of their bank account for getting their payment online.

STEP SIX – GOVERNMENT RUN E-COMMERCE WEBSITE/APP

The Union Government should start an e-commerce website/app with all the scheduled, non scheduled and cooperative banks as partners in it. Through this website/app similar to the Paytm, the Online Money Wallets held with these banks should be interconnected. The mobile app should be enabled with not only provisions for net banking but also QR code scanners. The government should ensure the safety of these networks from hackers by building impenetrable firewalls.

STEP SEVEN – POPULARIZING SMART CARDS

Public transportation, Petrol outlets, Shopping malls, Food joints etc should all issue smart cards that will be having money wallets to which customers can transfer money from their bank account through net banking or e-commerce website/app. Public transportation should introduce smart card system similar to that used in Metro Rails. This will end free rider issue in public services for ever.

CONCLUSION

The idea laid down here envisages an economy that runs on plastic money and online money. QR codes for commerce and e-commerce app can revolutionize the commerce sector and can play an important role in achieving this dream of a cashless economy. There will be zero chance of having fake currency, black money and corruption in this system as each and every penny are accountable. Every single transaction is recorded. The financial inclusion will make the monetary policy more effective and direct money transfers will bring about a more efficient distribution of public fund. This can also end age old social issues such as bribery, undervaluation of land, unaccounted binami assets etc. However I do acknowledge that it is not something that can be achieved overnight, but definitely something which we should be pursuing. As mentioned in the introduction, this is only a rough road map. The purpose of it is to ignite the minds and initiate discussions on this line to churn out a robust policy could help in achieving the goal of a total eradication of the parallel economy not only in India, but around the world. Now let the discussions begin. 

The Story of the Fallen Rupee

"The Governments blame all problems on external influences beyond their control.. but seldom shy in taking credit for any and all favorable developments and circumstances" 

- Milton Friedman

Pessimism was looming large and big ever since May 22, but what the markets feared turned out to be true on Wednesday, June 19, 2013, when Mr. Ben Bernanke finally dropped the bombshell confirming a gradual end to the U.S stimulus package, rattling all emerging markets.  The Bernanke effect was evident on the market since May 22, when he had first hinted at a reversal in policy stating that “a decision to scale back bond purchases could come at one of the next few meetings, if the economy looked set to maintain momentum”. The Indian stock market was in red ever since May 22 and the rupee was on a free fall, but it plunged to new abyss of 59.94 on June 19, on account of the confirmation on the reversal of the Fed policy from the Fed Chairman.

Why the Fall?

The overnight interest rates in U.S have been a near zero since December 2008 when the Fed initiated its 'Quantitative Easing' policy following the Recession. The Fed went on to purchase bonds and thereby  pumping in money to the system in order to provide stimulus to the recession hit economy. As a result of the ultra low interest rates and the abundant liquidity, the money started to flow out of the U.S to emerging countries like India, which had a high interest rate regime.  

But now the Fed has confirmed the reversal of the policy bringing an end to the QE policy owing to the revival of the U.S economy from the recession. This means that the interest rates in U.S will pick up and climate will get more conducive for doing business. Hence these FIIs that had flown into emerging economies will start to flow out, resulting in an unprecedented increase in the demand for Dollar resulting in the fall in the local currency.

Is it an India Specific Issue?

No it is not. The decision of Fed has hit not only the Indian Economy but the economies of all the emerging countries in the world. The table below shows the percentage of fall registered by the currencies of the  major emerging markets in the world since May 22, 2013.

                                          Courtesy: http://www.xe.com/

The table shows that excluding Chinese Yuan, currencies of all other emerging countries have taken a hit. In fact, Brazilian Real and South African Rand have fallen much more than the Indian Rupee. Hence it substantiates that the fall in the rupee is not an event in isolation but part of a global trend. The following figures show the movement of currency exchange rates in the emerging nations since May 22, 2013.

Courtesy: http://www.xe.com/

Has the FIIs caused the Fall of Rupee?

In India, following the QE policy,there was a surge in the FIIs owing to the higher interest rate in the country. The Foreign Institutional Investors (FIIs) had pumped in $22 billion last year and $14 billion so far this year, which had resulted in the strengthening of rupee. But since May 22, the economy witnessed a dramatic increase in the FII sales, leading to a negative FII Net. In order to check if the heavy sales existed in both Equity and Debt front, I went on to do a Paired t-test, the result of which is shown below. The data was taken from May 20, 2013 to June 18, 2013.

Paired Sample Test
Pair	t	Sig.
Equity Purchase – Equity Sales	1.645	.115
Debt Purchase – Debt Sales	- 4.073	.001

The results showed that the FII sales were prominent in the Debt market since May 20 and not that strong in the Equity market. So the flight of FIIs from India is happening more from the Debt market and not from the equity market. 

Now to investigate whether this flight of FIIs has resulted in the recent fall of rupee, I went on to do an OLS regression estimation with the  Rupee-$ exchange rate as the dependent and the FII Net as the independent variable. The data was taken from May 20, 2013 to June 18, 2013. The result of this estimation is provided below.

OLS Result
Variable	Coefficient	Prob.
C	56.38	.000
FII Net	- 0.000432	.000
R - Square	0.4965
Adj. R -Square	0.4714

The result showed that the reduction in the FII Net has a significant impact on the Rupee-$ Exchange rate and has been a major reason for the Rupee depreciation. The negative beta value shows that when the FII Net falls, the rupee value increases numerically that is from 53 to 55 or from 55 to 59, indicating the rupee depreciation. 

Thus it could be concluded from both the analysis that the Policy reversal decision of the Fed has resulted in a flight of FIIs from India, especially from the Debt market and it is this flight that has resulted in the historic fall in the Rupee we are witnessing now. 

The Way Forward

Though the current fall in the Indian rupee is a part of a global phenomenon following the Fed's policy reversal, but neither the Government of India nor the Economic Policy makers in this country can wash their hands off from the magnitude of the damaged caused. The over reliance of India on the QE money is one of the prime reason for this major setback today. The policy paralysis and scams along with the already existing business impediments in the form of red tapism and rigid outdated laws has gloomed the investment climate in this country, which is a reason why we are witnessing such a massive flight of capital out of the country. The requirement of this hour is for the Government to stand up and provide confidence to the investors by the means of swift and visionary policy declaration that could attract the investors and bring their confidence back on the Growth Story of India. The burgeoning CAD is another major reason behind this massive fall in Rupee. Government should come out with a realistic road map to peg the CAD. If the RBI is left with any firing power, it is now that they have to show it with some aggressive operations in the market. The Rupee has to be saved if not what lies ahead will be huge debts and high inflation. The common man in this country is no longer in a position to bear another petrol, diesel or LPG price hike or to fight a double digit food inflation. But the question is who will dive in the parachute and rescue the rupee before its dead.

GLOBALISATION AND RURAL WOMEN

Globalization is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. The term globalization has been increasingly used since the mid 1980s and especially since the mid 1990s. In 2000, the International Monetary Fund (IMF) identified trade and transactions, capital and investment movements, migration and movement of people and the dissemination of knowledge, as the four basic aspects of globalization. The growth in technology, spread of print and electronic media and growth of services like insurance, banking, health care etc are other aspects of Globalization.

The words Globalization, Privatization and Liberalization are used interchangeably in practice. But theoretically, these three concepts have different meaning. Globalization describes an ongoing process by which regional economies, societies and cultures have become integrated through globe spanning networks of exchange. It refers to the integration of national economies through trade, foreign direct investment, capital flows, migration and the spread of technologies. Privatization is the transfer of ownership of business, enterprise, agency or public service from public sector to the private sector. Liberalization refers to the relaxation of restrictions imposed by government through tariffs and laws over trade or business with other countries.

As far as the dismantling of barriers to international economic transactions is concerned, the first step in this direction was ‘trade liberalization’ which led to the unprecedented expansion of international trade between 1950s and 1970s. This was followed by the liberalization of regimes for foreign investments leading to a surge in international investment which began in the late 1960s. The restrictions on the capital movements were removed by world nations since 1970s and it was this dismantling of regulations and controls over finance which led to the Globalization of finance at an astounding rate since mid 1990s.

The impact of Globalization was felt on all walks of life, especially on the urban population. The coming of foreign investments increased the employment opportunities and the standard of living of the people. In the third world countries it led to the boom of I-T and Telecommunications. The advent of television, mobile phones, computers and internet changed the way of life of people in those countries.  Brand new cars and branded products became part of lifestyle for many. Globalization also had a serious impact on how people viewed their lives. It made even families more liberal. Women got opportunity to come to the fore front of the society and better education and job opportunities provided them with the social, economic and political empowerment which was denied to them for centuries. But the impact of Globalization was not all the same in rural areas as it was felt in urban areas. It led to the decline of agriculture which was the backbone of the rural economy. It led to the massive migration of men from rural to urban and in most cases, leaving their women and children behind. It is in this context we attempt to make a review on the impact of Liberalization, Privatization and Globalization on the lives of rural women.

Impacts of Globalization on Rural Women

The implications of Globalization for rural women are complex. For some women it presented with new opportunities that could drastically improve their lives, and for some others, it led to social exclusion and marginalization. On one hand majority of women in India and other developing countries find themselves stripped off the benefits of social security, government subsidy, protection of labour rights, and the safety nets. On the other hand, there were possibilities of better education facilities and opportunities at the transnational sense which are very attractive to the privileged few. The benefits have included increased off farm activities, including wage employment in non agricultural sectors and enhanced opportunities for participation in local decision making and networking which includes information and communication technologies.

One of the major outcomes of Globalization was that land became a highly marketable asset. This led to the privatization of land through titling and registration programmes and accompanying legislation. But women benefited less than men from these changes. The traditional attitudes and stereotypes regarding the role of women and men in the society gave men the control over land and the rights of women over land were ignored by the family and community members, particularly in the case of widowed and divorced women.

The deliberate expulsion of women from their rights on land, resulted in their limited access to credit facilities, because land is the major asset used as collateral to obtain rural credit. The increased privatization of financial sector made the access of credit even more difficult for women in rural areas. This situation led to the emergence of micro credit schemes for the empowerment of rural women in the decade post Globalization. However men maintained significant control over the credit brought by women into the household and the loans were used for purposes different from the ones applied for. The loans and the pressure for the repayment of it led to stress and to higher levels of domestic violence.

Privatization affects rural population in terms of their access to public goods such as water, fire woods and other free raw materials. This creates hardships for women in terms of time spend in collecting wood for fuel, water and other common property resources. As a result women’s aquaculture, horticulture and animal husbandry activities are jeopardized.

The spread of agro-industry and rural industrialization post-Globalization has increased the possibilities for women to access cash income through self employment or the setting up of rural enterprises. Wage employment allows women to get out of the relative isolation of the home and gain self esteem and confidence. But that did not change the status of women in the family. Even when they are earning wages, women retain the primary responsibility for domestic work. Men and boys in the family do not take on a greater share of responsibility for the household management and family care.

Inequalities in education and skill acquisition can explain the fact that women benefit less than men from economic opportunities. Globalization helped in creating improved access to training and education. But the benefits of these reached more the urban women and not the rural women. Gender inequalities in education are predominant in rural areas.  The increased working opportunities created by Globalization demanded increased labour from rural women and girls, which jeopardized their education and even resulted in their complete withdrawal from school.

Globalization has been accompanied by political changes in the form of decentralization and this opened up new space for women. In India, more than a million women are now at different levels of local governance in both rural and urban local bodies. This led to the political empowerment of women. The Women’s Reservation bill under the consideration of Indian Parliament could turn out to be landmark legislation in this regard, if passed.

Increased labour mobility as a result of Globalization has resulted in changes in household composition. Men are away on temporary or seasonal migration while continuing to maintain their decision making power. Lack of access to resources at home, particularly productive land, is one factor that contributes to women’s migration from rural areas complemented by the potential attraction of labour market opportunities. Apart from economic reasons, women also migrate in order to escape the hardships of rural life and the patriarchal social control. But these women are vulnerable to trafficking for the purpose of exploitation, including prostitution and forced labour, because they are uneducated and have limited knowledge about the world outside their rural areas.

Spread of Information and communication technologies were another outcome of Globalization. Effective access and use of information and communication technologies can improve rural women’s understanding of the society and participation in community and economic development activities. But this will be depending on infrastructure, such as roads and transport, education, training and economic resource. If these requirements improve in the rural areas, then multiple forms of media and communication technologies will reach more women in rural areas.

Conclusion

Globalization has had both positive and negative impact on the lives of rural women. But as of now it has to be accepted that the negatives outweigh the positives.  It has stripped off the benefits of social security, government subsidy, and protection of labour rights from the rural women. As land became a highly marketable asset, the rights of women over land were ignored by the family. The deliberate expulsion of women from their rights on land and the increased privatization of financial sector made the access of credit even more difficult for women in rural areas. The privatization of raw materials jeopardized aquaculture, horticulture and animal husbandry activities of rural women. Globalization resulted in changes in household composition. The temporary or seasonal migration of men increased the household burden of rural women. On the other hand, Globalization provided rural women with better education facilities and opportunities. It also resulted in increased off farm activities, including wage employment in non agricultural sectors and enhanced opportunities for participation in local decision making and networking which includes information and communication technologies.

We have come a long way since globalization and any debate on the virtue of the implementation of it is irrelevant now. Globalization is a reality we have to live with and is an irreversible process. But what the policy makers can now think of is how to how the negative impacts could be rectified. Policies should be adopted concentrating rural areas especially the rural women which will ensure their rights on property, education and work. Training programmes should be conducted that will introduce women to the latest information and communication technologies and infrastructures should be developed that will make these technologies reach every rural household. New innovations, research and development can be brought to the agriculture sector which could save it from further declining. Thus such concentrated efforts can turn the tide in favour of the rural areas and could result in the development of the villages as dreamt by the father of India – Mahatma Gandhi.

References

Bagchi, Amiya K. (1999), “Globalisation, Liberalisation and Vulnerability: India and Third World”, Economic and Political Weekly, Vol.34, No.45, pp 3219-3230.

Dasgupta, Kalpana(2003), “Globalisation and Indian Women: Problems, Possibilities and Information needs – An Overview”, World Library and Information Congress: 69^th IFLA General Conference and Council, IFLA Women’s Issues, Public Libraries and Information Science Journals Sections.

Ganguly-Scrase, Ruchira (2003), “Paradoxes of Globalization, Liberalization and Gender Equality: The Worldviews of the Lower Middle Class in West Bengal, India”, Gender and Society, Vol.17, No.4, pp 544-566.

John, Mary E. (2009), “Refraining Globalisation: Perspectives from the Women’s Movement”, Economic and Political Weekly, Vol.44, No.10, pp 46-49.

Maurya, R. D. (2005), “Impact of Globalization on Employment Generation for the Rural Poor in Contemporary India”, Think India Quarterly, Vol.8, No.2, pp 37-50.

Rani, Sandhya G. (2010), “Globalisation and Women”, Asia-Pacific Journal of Social Sciences, Special Issue No.1, pp 144-153.

United Nations General Assembly (2005), “Improvement of the Situation of Women in Rural Areas”, Report of the Secretary General, Sixtieth session, Second Committee, A/60/165.

THE UNION BUDGET 2013: PRAGMATIC OR VERBOSE?

In the morning of the penultimate day of February 2013, the Union Finance Minister Mr.P.Chidambaram presented to an anxious nation and a more anxious world, arguably one of the most anticipated Budgets in recent times. The road towards this Budget was in no way a smoother one for the FM as India was facing one of her toughest times since 1990. Low growth rate (5.5%), high retail inflation (10.79%), high fiscal deficit (5.7% of GDP) and a burgeoning Current Account Deficit (5.4% of GDP) clubbed with a potential threat of a downgrade of India's investment grade sovereign rating to junk by FITCH and S&P had created one of the most difficult pre-Budget situation for any FM in recent times. The political compulsions on the other hand, calling for a populist Budget with a view of the General Elections next year had made it even tougher. It was always going to be a ‘walk on a tight rope’ for the FM as he had to drive the country and its economy slowly, smoothly and steadily out of this difficult time. It will be in this context that the Budget 2013 will go down in the history of India, as it is rightly poised at that turning point which will decide future of India in World Politics.

The Budget – in Nutshell  

The mool mantra of this Budget was “higher growth leading to inclusive and sustainable growth”. For sustainable development, it required increased in all important sectors – Infrastructure, Education, Agriculture, Health Sector and Rural Development. For inclusive growth, it was important to have added attention towards the welfare of Minorities, Women and the SC-ST.

Infrastructure

The 12^th plan has called in for an investment to the tune of $1 trillion for the development of infrastructure in India. While 47% of the investment is envisaged to be shared by Private sector, the Government needed new and innovative instruments to mobilize funds to meet the rest of the investment share. The FM resorted to Infrastructure Debt Fund (IDF) under SEBI, Tax free Bonds, Assistance of World Bank and Asian Development Bank, the Rural Infrastructure Development Fund (RIDF) under NABARD to increase investment in Infrastructure. The FM also proposed to provide Credit enhancement to Infrastructure companies that wish to access the bond market to tap long term funds, through Indian Infrastructure Finance Corporation Ltd.(IIFCL) in order to attract them to bond market. The FM also proposed in the Budget to constitute a Road Regulatory Authority to address the issues of financial stress, enhanced construction risks and contract management issues in the road construction sector. He also proposed for a Cabinet Committee on Investment to monitor investment proposals as well as projects under implementation in the Industrial sector, especially manufacturing. The Budget also provided the Ministry of Rural Development with Rs.8,000 cr. for continuing the development activities in our villages.

Education

The Budget allocated Rs.65,867 cr. for the Ministry of Human Resource and Development for the FY 2013-’14. The FM also allocated Rs.27,258 cr. for Sarv Siksha Abhiyan and Rs.3,983 cr. for the Rashtriya Madhaymik Shiksha Abhiyan. He also allocated Rs.5,284 cr. to various Ministries for providing scholarships to students belonging to SC/ST, OBC, Minorities and girl children. The Budget also provided Rs.13,215 cr. for the Mid Day Meal Scheme. The FM also designed an ambitious project to motivate our youth to voluntarily join skill development programmes. Rs.1,000 cr. was allotted to the National Skill Development Corporation to set curriculum for training youth in different skills and for providing a reward of Rs.10,000 for each candidate who successfully completes the training.

Agriculture

The Budget allocated Rs.27,049 cr. for the Ministry of Agriculture, which was an increase of 22% over the Revised Estimates in the previous year. Of this, Rs.3,415 cr. was provided for Agricultural Research. The FM increased the Agriculture Credit target for the FY 2013-’14 to Rs.7 lakh cr. as compared to the Rs.5.75 lakh cr. in the previous year. He provided Rs.1000 cr. for continuing the Green Revolution happening in the Eastern India. The Rashtriya Krishi Vikas Yojana, the National Food Security Mission and the Integrated Watershed Programme were provided Rs.9,954 cr., Rs.2,250 cr. and Rs.5.387 cr.  respectively. The FM also proposed to open an Indian Institute of Agricultural Bio-technology at Ranchi and a National Livestock Mission in FY 2013-’14.  Rs.5,000 cr. was given to NABARD to finance construction of warehouses, godowns, silos and cold storage to store agricultural produce, both in Public sector and Private sector. The FM also set aside Rs.10,000 cr for the National Food Security Bill, if passed in the Parliament.

Health

The Budget allocated Rs.37,330 cr to the Ministry of Health and Family Welfare, of which Rs.21,239 cr. was given to the National Health Mission. The FM proposed to implement a National Programme for the Health Care of Elderly in 100 selected districts of 21 States and for this Rs.150 cr. was allocated. Rs. 1,069 cr. was allocated for Ayurveda, Unani, Siddha and Homeopathy sector and Rs. 4,727 cr. was given for medical education, training and research. Rs. 1,650 cr. was allocated to start hospitals in the six AIIMS-like institutions.

Minority, SC/ST and Women Welfare

The Budget allocated Rs.41,000 cr. for the SC welfare and Rs.28,500 cr. for the tribal welfare. Rs.3,511 cr. were allocated to the Department of Minority Affairs for the welfare of minorities in India. For women, the Budget 2013 provided two landmark gifts – i) India’s first Women’s Bank in the public sector and ii) the Nirbhaya Fund. The purpose of the Women’s Bank is to lend to women and women-run businesses, to support women SHGs and NHGs, to employ more women and to address the gender related aspects of empowerment and financial inclusion. The Nirbhaya Fund is designed to provide financial assistance to Government as well as non-government organizations that work for the safety and freedom of women in public space.

Defense, Science and Technology

Considering the tensions prevailing Eastern and Western fronts, the Defense allocation was increased to Rs.2,03,672 cr. The Budget also allocated Rs.6,275 cr to the Ministry of Science and Technology, Rs.5,615 cr. to the Department of Space and Rs.5,880 cr to the Department of Atomic Energy.

Finally, the all important Revenue, Finance and Capital

There were some important announcement and landmark proposals regarding the Financial, Capital market and Revenue were there in the Budget. The highlights are given below

• Inflation Indexed bonds will be introduced to protect the savings of people from inflation
• A Standing Council of Experts in the Ministry of Finance will be constituted to analyze the international competitiveness of Indian Financial sector, to periodically examine the transaction costs of doing business in Indian market and to provide inputs to Government for necessary actions.
•  SEBI Act will be amended to strengthen the regulator
• FIIs and FDIs were clearly distinguished. The investments of an investor with a stake of 10% or less in a company will be treated as FIIs and if the stake is more than10%, it will be treated as FDI.
• Insurance companies will be allowed to open branches in Tier-II cities and below, without the prior approval of IRDA
• All towns in India with a population of 10,000 or more will have and office of LIC and an office of at least one public sector general insurance company
• The income tax slabs were not revised
• Assuming 10% inflation, a tax credit of Rs.2000 allotted to every person who has a total income up to Rs. 5 lakh
• 10% surcharge on persons whose taxable income exceeds Rs.1 cr per annum for one FY
• 10% surcharge on domestic companies whose taxable income exceeds Rs.10 cr per annum for one FY
• 5% surcharge on the corporate tax of all Foreign Companies in India for one FY
• 10% surcharge on the dividend distribution tax or tax on distributed income for one FY
• Income tax on payments by the way of royalty and other fees for technical services to non-residents increased from 10% to 25%
• Reduction in the Securities Transaction Tax on Equity futures, MF/ETF redemptions and exchanges
• Commodities Transaction Tax (CTT) on non-agricultural commodities futures contracts
• Direct Tax Code (DTC) to be introduced in the FY 2013-‘14
• Modified GAAR will come in effect from 1/4/2016
• One time ‘Voluntary Compliance Encouragement Scheme’ will be introduced to promote truthful declaration of Service tax dues since 1/10/2007, in which case the interest, penalty and other consequences will be waived

• Mobile phones above Rs.2000, Imported Cars, Imported Bikes, Yachts, Cigarettes, A/C Restaurants, marbles, Setup boxes were taxed more
• Branded apparels, precious stones, leather products, Truck chassis etc were taxed less
• Duty free limit for Gold raised to Rs. 50,000 in case of a male passenger and Rs.1 lakh for female passengers

The Critique

Considering the present socio - economic and political situation, one can give Mr.P.Chidambaram credit for bringing out a good budget.  But then the question to be asked is who is responsible for this present situation. The Economic Survey 2013 point out that India’s economic malaise is as much home-grown as external. The Survey noted that “while India’s recent slowdown is partly rooted in external causes, domestic causes are also important.” It blamed the wrong policies and the policy paralysis of the UPA Government for the present situation Indian economy is in. The survey clearly holds that Pranab Mukherjee’s post-Lehman stimulus was too much and stayed on for too long. Instead of creating additional capacity in economy, we went into a model of stimulus induced consumption led growth. It was this High Inflation low growth model that got India into this present situation.

What we need now was significant investment activity especially from the side of foreign investors. The FM said in his Budget speech, “My greater worry is the Current Account Deficit. The CAD continues to be high mainly because of our excess dependence on oil imports, the high volume of coal imports, our passion for gold and the slowdown in exports…we have to find $75billion to finance the CAD. There are only three ways before us: FDI, FII or External Commercial Borrowing…What we can do is to encourage foreign investment that is consistent with our economic objectives.” But what we managed to do with our Budget was to confuse the foreign investors.

The retrospective changes suggested in Section 90A of the Income Tax Act relating to existing tax relief to foreign investments from countries having a Double Taxation Avoidance Agreement ( DTAA) with India and the proposal stating a tax residency certificate "shall be necessary but not a sufficient condition" to take advantage of double taxation avoidance agreements, created confusions among the foreign investors. Easing the registration process for foreign investors is a facilitator, but the game changer would have been a withholding tax cut across the board, which would have helped the current account deficit and the development of the onshore debt market. The 5% surcharge on the corporate tax of all Foreign Companies in India, also did not go well down with the foreign investors.

Both the Budget speech and the Economic Survey had highlighted that the higher demand for gold is one of the major reason for the increasing CAD. But surprisingly gold was exempted from higher duty, which would have otherwise reduced the demand for gold in the market. The omission of liquor, diamonds and platinum from higher taxes was also quite surprising. The Budget also lacked the vision on how to reduce oil consumption in India. In the Budget speech the FM had stated that “The battle against Inflation must be fought on all fronts”. But the policies in the Budget lacked the vision on how to achieve it.

The announcement of the Nation’s first Women’s Bank was indeed innovative but the question is was it the only way to do it?  Instead of creating a brand new Women’s Bank, we had the option of transforming branches of State Bank or other nationalized banks as women bank which would have reduced the establishment costs and would have help in achieving the same goals. Another worry is how the government is going to find money for all the expenditures announced in the Budget, as there is no was no attempt of widening the tax base in the budget and it will be difficult to finance these expenditures, without hurting the Fiscal deficit, unless the economy develops at a very high and unprecedented rates or we have a higher inflation.

Conclusion

The Union Budget 2013 can be rated as a good work of the FM Mr.P.Chidambaram, considering that it was his first budget as FM in UPA-II government. He was pragmatic in his approach and should be appreciated for not coming out with a populist budget with the General Elections next year in view. But the UPA has no right to claim it as a virtue, since the entire situation is a creation for their ill-governance and policy paralysis. The intent of the Budget was good but it lacks vision on some of the key issues and some of its policies goes self contradicting with its underlined notion. Certain recommendations in the Budget are vague and confusing. The Budget failed in providing a vivid road map to bring the economy out of its major threats i.e. Fiscal Deficit, CAD and Inflation. But at best what it has done is not to worsen the situation. Thus the Union Budget 2013, in spite of the best efforts of the FM, is verbose and nebulous. 

HIGGS BOSON :The God Particle that could redefine God

The quest to understand the origin of the universe had begun long time back. From the bright minds of James Clerk Maxwell, Hans Christian Oersted, Michael Faraday to the genius mind of Einstein, all searched and tried to understand and unveil the mystery behind the origin of universe, its existence and the fundamental particles that led to it. A major breakthrough that came in this quest was of course made by Albert Einstein, who combining the ideas of his predecessors brought together the concepts of light, the electro magnetism, gravity and space-time to bring out his four dimensional - Theory of Relativity and later a more philosophical proposition - the Unified field theory.

According to the current understanding of physics, forces are not transmitted directly between objects, but instead are described by intermediary entities called fields. All four of the known fundamental forces are mediated by fields, which in the Standard Model of particle physics result from exchange of gauge bosons. The four fundamental forces are - Strong interaction that exists between neutrons and protons , the Electromagnetic interaction, the Weak interaction responsible for the radio activity that act on electrons governed by the  W and Z bosons and the Gravitational interaction that occurs due to the postulated exchange particle named the graviton. But the Einsteinian theory came to a pause here and the proceeding further could have only occurred by understanding the initial moments of Big Bang. Thus all the research come to a convergence to understand the basic fundamental particles formed at the Big Bang, how they gained mass and how it led to the formation of the universe. 

It was the quest for understanding this basic fundamental particle responsible for the creation of the world, the Geneva based European Centre for Nuclear Research (CERN) had set up its most ambitious and expensive experiment using the world's largest and highest-energy particle accelerator – the Large Hadron Collider. The LHC was built to particularly prove or disprove the existence of the hypothesized Higgs boson. The Higgs boson or Higgs particle is an elementary particle in the Standard Model of particle physics, named after Peter Ware Higgs, the British theoretical physicist who proposed the existence and behavior of such a particle in 1964 and Prof. Satyendra Nath Bose, the Indian physicist who provided the foundation for Bose–Einstein statistics and the theory of the Bose–Einstein condensate. Bosons are those particles that are governed by Bose–Einstein statistics. In the Standard Model, the Higgs particle is a boson, a type of particle that allows multiple identical particles to exist in the same place in the same quantum state, with no spin, electric charge, or colour charge. It is also very unstable, decaying into other particles almost immediately.

The Experiment

An experiment of this magnitude, trying to understand what happened 13.7 billion years before, could only be conducted using a highly advanced and sophisticated apparatus. Therefore the CERN designed and built the Large Hadron Collider (LHC) in collaboration with over 10,000 scientists and engineers from over 100 countries from 1998 to 2008. It was created 574 ft beneath the ground of Franco-Swiss border near Geneva, Switzerland. As of 2012 the LHC remains one of the largest and most complex experimental facilities ever built. The protons from the nuclei were accelerated through 25m diameter concrete tunnel at a speed almost close to the speed of light(3 meters per second slower than the speed of light) and was made to collide with each other. The collision becomes an exact replica of what happened during the Big Bang, reproducing the elementary particles responsible for the creation of the universe and one among the several particles produced, was expected to be the God particle – the Higgs Boson. The Higgs Boson is called the God particle because it is extremely powerful and present everywhere, and not just that, it is also very hard to find because of its very small lifetime of 1.56×10⁻²² sec.  The several experiments done prior to the LHC experiment had suggested the mass of Higgs particle to be within a range of 114 GeV/c² to 160 GeV/c². The objective of the LHC experiment was therefore to further narrow down this range and provide a more precise estimation of the mass of Higgs Boson, if it really existed. Seven particle detector experiments were constructed at the Large Hadron Collider, namely ALICE, ATLAS, CMS, TOTEM, LHCb, LHCf and MoEDAL to search for the existence of Higgs Boson.

On 4 July 2012, the Compact Muon Solenoid (CMS) and the Toroidal LHC Apparatus (ATLAS) experimental teams at the Large Hadron Collider independently announced that they each confirmed the formal discovery of a previously unknown boson of mass between 125 and 127 GeV/c², whose behaviour so far has been consistent with a Standard Model Higgs boson with 99.99 percent accuracy. The LHC is further continuing its experiments so that the results could be revalidated and could be confirmed that the particle found is indeed the elusive Higgs boson. If confirmed, then the finding of Higgs boson will endorse the existence of the Higgs field that is supposed to be responsible for giving elementary particles their masses after the Big Bang, which gave shape to the universe as we know it today. If that happens, then the year 2012 will go down as the greatest year in the history of Sciences for providing the major breakthrough after Einstein, unraveling the mysteries of the creation and the existence of the Universe. Thus Higgs Boson could turn out to be the God particle that redefined God.

The Quagmire State of Indian Economy - A case of Economic Mismanagement and Policy Paralysis

".. During a recent breakfast with an investor visiting Mumbai from a large western fund, the conversation quickly turned to the question of the moment: what ails India?. “On every indicator we look at, there is a red flag,” he said, before adding with a wry smile: “This country is close to becoming the Greece of Asia.”.. " - James Crabtree, The Financial Times, May 15, 2012.

Ever since the Sovereign Debt Crisis in Europe, it has been difficult times for the Indian Economy. Dr. Kaushik Basu, the Chief Economic Advisor to the Government of India, in a recent interview with journalist Karan Thapar admitted that "Its not a pretty picture". A recent article that came in 'The Economist' said "Farewell to Incredible India" (June 9, 2012). The GDP has fallen to 5.3%, the IIP growth rate has slowed down to 0.1%, Inflation rate still lingering around 9%, the Rupee has fallen to 57 per $, the Unemployment is as high as 9.4%, the Net International liability at $244.8 billion (20% hike), Government borrowing as high as Rs. 53000 Crores, burgeoning Fiscal deficits and the declining FIIs to top it up, the picture is clearly not pretty. But are these the inevitable resultants of the Global Financial turmoil or are there any other possible angles to it?

I wish to discuss on three observations I had made on the recent events in our economy.

One, the prices of petrol was hiked overnight by Rs 8, there by crossing the Rs.70 mark, in the name of decreasing Fiscal deficit to the targeted 5.1% viz reducing subsidies. But on the other hand Government gave Customs duty exemptions on gold and diamonds. We have a 967 tonnes of gold imports in this country and  would mean that the Country is set to lose close to Rs 50000 cr from these tax exemptions. Not just that, if the CAG report has to be believed, Rs 80000 cr revenue was forgone from tax exemptions in corporate sector alone, out of the Rs. 1,60,000 cr tax forgone in the recent budget. Why the Government chose not to tax the Gold - Diamond merchants to help in achieving the Fiscal deficit target, but instead taxed the common man of this country taking money out of his already shrunk pocket? It could only be called as an economic paradox!

Two, at a time when the country was strangled with 9% inflation, last season, India harvested a bumper crop of grain, an all time record of 75 million tonnes. But food grains worth hundreds of crores of Rupees went rotting in the FCI godowns in Rajastan. The Supreme Court of India observed that, “In a country where admittedly people are starving, it is a crime to waste even a single grain” to which our Prime Minister had replied that Supreme Court should not interfere itself in the matter of policy decisions. I wonder what would have prevented The government of India from distributing the excess grains through the Public Distribution System (PDS) at BPL prices which would have brought the inflation rate down?

Three, in a country which has 1/3 of world's poor, where millions survive on less than $2 a day, where 41% population live below poverty line, 40 mn living in slums, 3 mn sex workers, 12.6 mn child labors, 72 mn children without primary education, 2nd largest population of mal-nutritioned children with 4 children dying every min prone to illness, 20 cr sleeping hungry every night, 18000 farmers committing suicides an year and 35% of population living without electricity - the Government of India spend $80 million on Chandrayaan 1 for collecting rock samples and to find traces of water on moon surface! Chandrayaan which was supposedly a two year project, had to be called off after a mere 312 days. I wish had the Government concentrated more on building basic infrastructure, like building more storage facility for food grains, building better roads, providing water supply facilities, rather than going to moon and search for the possibility of water traces, would have helped in the country and its poor majority people in these difficult times.

From the above three observations, it gets pretty clear that for the situation India is in now, the policies of the Government of India is equally responsible along with the unfortunate world economic situation. With no major reforms going on and those promised - The Banking,Pension & Insurance(BPI) Reforms Bill, the FDI in Retail, the Goods and Services Tax (GST), the General Tax Code (GTC) - still on hold, the Government is going through a severe policy paralysis. On top of this, the untimely announcement by the Government of India for the retrospective amendment of tax and General Anti - Avoidance Rule (GAAR) to prevent the entry of money through the Mauritius route, has lead to lack of confidence of investors on India and resulted in the flight of capital from India, which in turn has caused the unprecedented downfall of Rupee. If the words of Dr. Kaushik Basu could be believed then there is no scope for any big ticket policy measures from the UPA-II Government till 2014, which means things could go worse. Thus the dirty picture we are seeing of our Economy in the recent times cannot be solely blamed on the turbulance in the World Economy but is also a case of economic mismanagement and still on going policy paralysis of the UPA-II Government. Its time for the Government to wake up and invoke the 'animal spirits' in the Economy, through strong and credible policy decisions otherwise India's wonder story will be over before we even reach 2020.