IASbaba’s Daily Current Affairs – 2nd December, 2016
General Studies 3
Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
General Studies 2
Government policies and interventions for development in various sectors and issues arising out of their design and implementation
Demonetisation: Impact till now and what next?
Demonetisation has come as a shock for all as it eliminated 86% of the value of the currency with the public. The government called it ‘short term pain for long term gain’. But now it needs to be seen as to what is gained and what pains had to be suffered.
The long term objective is to cleanse the system of corruption, tax evasion and the generation of black income.
Demonetisation only targets that part of existing black wealth which is held in cash.
It does not affect the continuous flow of black income and the corruption/tax evasion which generates it, which in many ways is the core of the corruption problem.
Demonetisation effect so far
It has considerably caused inconvenience to people as people with legitimate quantities of old notes of Rs500 and Rs1,000 have to queue up at banks to exchange them into new notes.
Tragically, many reports have also surfaced of people standing in queues.
Also, the shortage of cash has also disrupted business in the cash-based informal sector, which is where the majority of the population is employed.
Farmers, fishermen, vegetable sellers, small shopkeepers without card readers or Paytm, taxi drivers, truckers, etc., have all been affected with loss of livelihood which may be irretrievable in some cases.
For example: loss of daily wages for casual labour, or lower sales for vegetable vendors.
Real estate sector is expected to be badly affected because it is heavily cash-dependent, having long been a favourite asset for holding black wealth.
Other sectors like hotels, restaurants, catering, the fashion garments industry, etc. funded by cash from black income will also be affected.
In short run, the downstream income flows in the form of wages to construction labour, purchases of cement and other construction materials will be disrupted.
It has been reported that given the capacity constraints at the two printing presses which can print the high-value notes, it will take until May 2017 to replace all notes.
It will not be possible to replace all notes because:
there will be some switching to digital payments, which is desirable
some of the cash hoards will be cancelled in any case on 30 December
The negative impact on the various sectors of the economy is bound to produce lower growth
GDP growth estimates for FY17 from financial analysts vary from a low of 3.5% to a range of 5.5-6.5%.
More importantly, it will also remain subdued next year. Moreover, much depends on what happens to the investment climate.
Since the slowdown will be concentrated in sectors which are more employment-intensive, the impact on low-end employment will be greater than on overall GDP.
This raises the issue whether the slowdown should be offset by counter-cyclical additional expenditure on road construction and railways.
Though such intervention will breach the fiscal-deficit target but a temporary deviation can be justified in the face of the negative-demand shock of the demonetisation.
Better management was needed
If the plan was two months old, building up a larger stock of new notes in advance would certainly have avoided some of the inconvenience and the associated cash shortage.
Considering the sowing and marriage season, the provisions for weddings and farmers, could have been anticipated.
Also, ministry of agriculture’s request regarding an exemption for farmers purchasing seeds and other inputs during the sowing season to avoid disruption in sowing, should also have been addressed promptly, rather than after several days.
There should have been flexibility in usage of demonetised notes. old notes are allowed to be used in public-sector hospitals but not private hospitals, and farmers are allowed to use them for purchase of seeds from public-sector agencies but not private agencies.
The most important flexibility is to allow cooperative banks to accept old notes. Their presence in rural areas is much larger than that of commercial banks, and they are all regulated entities.
Does demonetisation affect black wealth held in cash?
Much of enthusiasm with public is that those with hoards of cash will not be able to exchange it in the banks for new notes, and will therefore lose their ill-gotten money.
This group includes businessmen, or politicians (either on their own behalf or on behalf of political parties), or bribe-taking bureaucrats.
However, much of this may be laundered. Since the notes will be valueless after 30 December, holders of undeclarable cash will be willing to offer 30-40% commission, or even more.
Intermediaries will organize large numbers of individuals who can take smaller “explainable” amounts of cash to the banks for deposit.
Since farm income is free of tax, large numbers of people claiming to be farmers, could make deposits in banks, technically even exceeding Rs2.5 lakh with impunity.
Black wealth held in cash can also be laundered by purchase of gold and hawala transactions. Some of this has already happened as evidenced by the sharp rise in gold prices and also the hawala rate for the dollar.
Thus, black money is cash will still find ways to be secured and thus not affected much.
Will black money be controlled?
Demonetisation is for this but it doesn’t yet address it. What is needed are steps that will discourage fresh black income from being generated in future through continued corruption. It can be as follows:
Reducing discretion in both the Central and state governments and increasing transparency and accountability especially where the financial amounts involved are large. Example: areas related to land and land use.
Tax administration reforms including reorganizing, strengthening and modernizing the Central Board of Excise and Customs/Central Board of Direct Taxes.
The goods and services tax (GST) to be introduced shortly was an ideal opportunity, but the proposal finally approved by the GST council has far too many rates and exemptions. Thus, there is need to lower tax rates and simplify tax system to improve compliance.
Lowering the corporate tax rate to 25% at one go with exemptions eliminated in the next budget. The present rate is much higher than in most other jurisdictions.
Persuading states to drastically lower the stamp duty for real estate sales as high rates of stamp duty are a major reason to perpetuate real estate transactions in black money.
Pursuing some high-profile corruption cases to a successful conclusion to send a message to both business and the bureaucracy that corruption will not be tolerated.
To start making serious effort at reforming the system of electoral funding, including introducing transparency in party finances.
Demonetisation can be a part of comprehensive strategy to tackle corruption and generation of black income. As it is likely to impose substantial pain because of the adverse effect on GDP and low-end employment, the more important next step is to attack from various directions on the source of corruption and black money. The PM has begun this by asking his partymen to submit their bank account details.
Progress on these would make a real contribution to reducing the long- term gain of reducing the generation of black income over time.
Connecting the dots:
What do you understand by demonetisation? How does it affect the lives of people and economy? Examine.
Critically analyse the effect of demonetisation on black money and corruption.
TOPIC:General Studies 2
Separation of powers between various organs
Structure, organization and functioning of the Executive and the Judiciary
A case of forced patriotism and judicial over-reach
In news: SC’s interim directions to play national anthem in cinemas prior to the exhibition of movies has evoked strong reactions.
In August 1986, a Supreme Court bench granted protection to three children of the Jehovah’s Witness sect, who stood up respectfully but didn’t join in the singing of the national anthem at their school. The court held that forcing the children to sing the anthem violated their fundamental right to religion.
Art 51 A (a) states that citizen of India should abide by the Constitution and respect its ideals and institutions, the National Flag and the National Anthem. There is no provision of law which obliges anyone to sing the national anthem. So, even if the person stands respectfully and doesn’t sing is not showing disrespect to national symbol.
Also, Art 25 is an article of faith which incorporates that real test of democracy is the ability of even an insignificant minority to find its identity under the country’s Constitution. Hence, no one should be harassed in name of display of patriotism.
Recently, a writ petition was filed under Art 32 of constitution of India which said that national anthem has to be given utmost respect when it is played, recited or sung.
Playing the national anthem in theatres at the end of the film was given up some three decades ago in most parts of the country, largely as a result of the tendency of a section of the audience to walk out.
Judicial directives and its overreach
In the recent interim directives by SC, it is a clear case of judicial over-reach where judiciary is claiming an extra-constitutional power.
There shall be no commercial exploitation to give financial advantage or any kind of benefit
This is an ambiguous sentence which is difficult to interpret as to how one would derive benefit from national anthem in an unfair manner inviting judiciary involvement.
This is open to interpretation which will create more doubts. Does this mean that all copyrights of artists performing national anthem become automatically void?
No place in films
The next directive says that no film, drama or show of any sort can have national anthem as its part.
The publication of copy of national anthem or even specific words is prohibited.
This is followed by the directive which says that national anthem or any of its part should not be printed on an object or displayed in a manner which may be disgraceful to its status and amount to disrespect. It is associated with the concept of the protocol associated with it has its inherent roots in national identity, national integrity and constitutional patriotism’.
Theatres as nationalist symbols
The next directive is a clear cut one proclaiming that all theatres must play national anthem before the feature film starts. However it doesn’t say how it expects to enforce this direction.
This directive gives an idea about how the court is intending to make its citizens ‘patriotic’ no matter how old, infirm, physically challenged or just tired citizens they are.
It has also directed that entry and exit doors be closed while national anthem is being played. Here, it has ignored its own judgement in Uphaar cinema case where it held that under no circumstances doors to cinema shall be shut.
The executive role
After playing the role of legislator, the judiciary plays the role of executive by ordering that national anthem be played only with the image of national flag on screen.
Whether it is to be a static flag or waving flag has not been clarified.
The original version
The last directive says that abridged version of national anthem will not be played.
There is no reason to justify as to why the judiciary had to frame such rules in a space which is for personal entertainment and choice.
Don’t force patriotism
Today, patriotism is largely becoming a visible value where it has to be frequently publicly demonstrated. Sometime, such is the demonstration and enforcement of patriotism that a dissenter feels threatened for his right to dissenting. There seems to be an emerging market of instilling and teaching patriotism in India.
During the demonetisation effect, even if anyone complained about standing in long queues outside banks and ATMs, there were many who reminded them of soldiers protecting us standing at borders. Thus, standing in queue without complaining became a measure of loyalty to the nation.
Recently, UGC also issued an order that all educational institutions must instil knowledge of Constitution generally and Fundamental Duties particularly. Instead, this can be made a voluntary exercise where students are encouraged to read about the Constitution of India rather than it forcing upon them.
The politics of patriotism and nationalism is not new. It has unfolded in many countries at different points of time with very similar effects like harassment of minorities, blackmailing of dissenters and closure of intellectual freedoms.
Law to protect the anthem
The Prevention of Insults to National Honour Act, 1971 addresses insults to the Constitution, the national flag and the national anthem. Its genesis lies in art 51A (a) of the constitution.
The Act states that whoever intentionally prevents the singing of the national anthem or causes disturbances to any assembly engaged in such singing, shall be punished.
Hence, no where it is stated about forcing a person to stand up or sing the National Anthem.
There are clear rules on when the anthem should be played. Any misuse of the anthem or any wilful insult to it is legally prohibited, and those aggrieved by any such incident can take recourse to the law.
The current National Anthem orders are not a judicial creation but in the form of guidelines compiled by the ministry of home affairs on when and how the national anthem should be played.
Given they are guidelines, they are not part of legislation and hence should not result in any penalties.
Is it the step in right direction?
The singing of the national anthem on special occasions, especially in schools and colleges, is sufficient to help citizens identify the anthem with something larger than their daily concerns.
Playing a national anthem compulsorily through a judicial order does not define a mature democracy.
Also, the cinema halls should not be singled out to play national anthem as a sizeable number of people congregate. If this is the reason, then such an order should be extended to dance and music recitals as well.
And why to stop there? It should be further taken to every sitting of the legislature, or the court itself as the so called reason of ‘congregation of people’ well fits.
Patriotism is the value most cherished without being too demonstrative about it. The feeling of love and respect for the country should come to a citizen from within and something as sacred as national anthem should be played or sung only on special occasions.
Connecting the dots:
What is patriotism? Do recent SC orders on national anthem violate fundamental rights? Examine.