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Tuesday, March 23, 2010

Do you have empathy?

Maruti Dhumal had been named after the god of the strength but was at his weakest when I met him a few years back. He had borrowed Rs. 96,700/- in 1981 for buying a tractor for tilling his agricultural land of 5 acres but the heavy losses of crop in 3 consequent years, untimely rains and the government buying at much lower price than the production costs forced him to be a defaulter with the bank he had borrowed from. He could pay only Rs.1,50,000/- plus to the bank towards the principal amount and the interest. Moreover, the bank was charging interest rate much higher and also illegally in a compounding interest manner. He had received a notice from the bank either to pay Rs. 18,59,000/- or his house, land, tractor was to be auctioned.
Maruti Dhumal was 49 years old but looked like a 65 plus senior citizen, merely trying to survive against all odds in the small village Sheni in the Nanded district of Marathwada region of Maharashtra. Incidentally, the Chief Minister of Maharashtra also hails from the same district but he too had no will to look after the problems that the distressed Maruti was going through.
Almost all the marginal farmers are facing dire problems due to various government policies and also due to the complete passive approach of the leadership towards their genuine problems. For example, we all have been hearing words like “market based economy”, “market liberalization” for the last 2 decades. 64% of India’s population is directly dependent on the agriculture and this huge population is not allowed to decide the prices of their produces. They have been kept deprived of this basic right to decide the price of their agriculture production based on their production cost.
A farmer buys seeds, pesticides, fertilizers, electricity, fuel, pumps at the prices as decided by the respective manufacturers. So, all his input cost is decided by some-one else. Then he depends on the monsoon and if at all it is good enough, he succeeds in producing his crop. Then he has to take it to the nearest APMC (Agriculture Produce Market Committee) for auction. For the transportation, he has to hire a truck for tractor for the full day. The traders at the APMCs form a ring among themselves for the maximum rate to be offered and bid. The farmer has to then sell it to the trader at whatever cost the trader has put his bid. Sometimes, it does not even cover the cost of transportation forget his production cost. And a farmer never calculates his and his family’s labor cost that he has put for hours together throughout the season.
So, for buying his input material like seeds/pesticides/fertilizers, he has to borrow from the local credit society. Now, though the government says that they will offer loans at 5% to the farmers; there is a huge and corrupt chain to actually handover the loan. The RBI gives to NABARD (National Bank for Agriculture & Rural Development) at say 5%, then NABARD gives it to the State Co-op Bank at say 7%, then it gives it to the District co-op Bank at say 9%, DCC gives to the rural Credit societies at 11% and then the credit society offers to the farmer at 14 to 18%. Here also, the farmer never gets 100% of the loan amount in his hand. The interest for the first year, 10% amount towards shares of the society, insurance premium are all deducted from the principal amount before handing over the loan to the farmer. Effectively he ends up in paying almost 24% interest and if he doesn’t get his input cost also for his produce then he finds himself in the debit trap.
The farmers were encouraged to opt for the cash crops since the green revolution begun. Loan schemes were offered for buying chemical seeds, chemical fertilizers and crop loans were also offered for the variety of cash crops. Obviously, the farmers were lured enough to adopt. They used to take two crops a year; a cash crop and a crop of food grains but since money was made readily available for the cash crops, they opted for the cash crops and subsequently lost their own food security. This was far more frustrating especially when the monsoon was not good enough or when the rates that they got were not meeting their production costs. The marginal farmers had lost their food security, their conventional knowledge & stock of developing seeds and also their traditional fertilizers & pesticides due to this new wave of cash crops. The big farmers always had an option of preserving a piece of land for ensuring their own food security but the marginal farmers lost it and had no options but to commit suicides in case of a death trap. Following statistics clearly shows that
Suicide & Farmers Details Small Farmers Medium Farmers Big farmers
Percentage of Suicides 64% 23% 14%
Farmers with alternate source of incomes 14% 60% 78%
Illiterate farmers percentage 40% 27% 0%
Suicides after harvesting 93% 40% 44%

During the phase of encouraging, a period came when the farmers were convinced to adopt the BT Cotton seeds in the cotton growing areas. They were told that BT will require them to use chemical fertilizers & pesticides in a very small quantity but it was not to happen so. Today India imports pesticides worth a whopping 820 million USD of which 50% is used only for cotton. In 1990-91, India was importing fertilizers worth 1766 Cr which has grown to 9159 Cr by 2006. The food grain imports were at 999 Cr in 1990-91 which have increased to 11,869 Cr in 2006. The mad rush behind the cash crops has forced the present pathetic situation.
The disparity in development is another issue of concern. After 50 years of the creation of the Maharashtra state, only 14% of its agricultural land is irrigated. Of this, 80% of the land in western Maharashtra is irrigated and only 10% land in Vidarbha is irrigated. North Maharashtra, Marathwada, Konkan are also at a very low percentage of irrigation. 64% of the total farmers are marginal farmers in Maharashtra and they are the biggest sufferers of these real issues of concern which never get addressed. The loan waiver is only a treatment on symptoms but the real decease is not looked at all. Only 9% of the total farmers cultivate sugar cane but they consume 69% of the available water and all the rest of the 91% farmers are left with only 31% water.
These billions of marginal farmers also have dreams, they too wish to live with respect, they too want their children to be educated but first they want their hunger to be satisfied and they have no gods to look up to but only us and the leaders to look up to. Will we ever try & understand their plight with empathy?

Monday, March 22, 2010

It is Lucky to be Rats than Human Beings…

Our maid servant was washing utensils and a reporter on a TV channel was reporting the huge stocks of the food grains going waste, rats eating and spoiling the food when suddenly she said, “it’s better to be born as rats in India than as a poor human being.” And it hit me, hit me hard.
Why does it happen so?? Why our poor fellow citizens do not even get enough food to eat when millions of tones of food grains get just spoilt after spending billions of rupees? Where exactly things go wrong? Why none is bothered to think of the alternatives? The government spends more than 28 thousand crores on the Public distribution system every year and still thousands of children die of malnutrition and millions of people sleep with their stomachs half empty, starving for food. Why?
It won’t need a highly decorated economist to say that whenever two markets exist simultaneously, it’s natural that the goods from the low cost market will be moved to the higher cost market. We have a market of PDS for the below poverty line population and a regular open retail market for the rest of the population and since the PDS is a low cost market, the greed of the ration shop owners transfers the food grains to the higher cost open retail market. The corrupt machinery of the government helps this to happen and hence the black-marketing of the PDS food is often reported. So the government has to stop this co-existing two priced double market system and ensure that the food security is delivered to the poor & the needy.
A few have suggested to the government to replace the existing Public Distribution System by adopting an alternative such as Smart Card or Food Coupon for the people below the poverty line. The economic survey of the previous year also suggested implementing the Smart Card as an alternative to the corrupt & inefficient PDS. The Smart Cards will be electronically credited with the subsidy amount every month as per the government norms & the inflation percentage. The beneficiaries below the poverty line will go to any grocery store or super markets and will buy the food grains of their choice (variety & quality) and the store owner will swipe the card and will charge only the balance amount to the beneficiary. This system will enable the beneficiary to buy food as per his choice and he will be saved of the usual harassment that he faces at the hands of the ration store owner. The beneficiaries will not be forced live according to the whims of the ration store owner or according to the inefficient/inadequate and the corrupt functioning of the PDS officials. He will not be forced to eat the second grade, low quality food and of course, the government will not be required to buy, store and transport the millions of tones of food grains every year. The entire government machinery involved in this can e kept away and be utilized for something better.
Since, the involvement of the government in the agriculture produce markets will be eliminated; more stocks will be available in the market which will effectively rationalize the market prices to its natural level of equilibrium. The government will, actually be able to divert some part of the money spent on storage & distribution directly to the farmers as subsidies. A very strong objection usually is raised that in such a case, how will the poor adivasis, living in the remote villages where even PDS has not reached, survive? Where will they go to avail their food security? But the objectors sadly forget that how are these poor adivasis surviving today when even the existing PDS has not reached them?? It means that they have to go to the open market somewhere in their vicinity and hence in the same way, they will go to the same open market in their vicinity for buying food but now with a Smart Card.
It’s also important to note here that one of the rationales of the PDS is to enable the beneficiary to avail food of his choice & tradition habits. The latest survey by the government shows that 74% of the rural population in the Maharashtra and the 88% of the BPL population in the Maharashtra state eats course cereals such as Jawar, Nagli & Bajra as their main staple food. It’s the inherent culture of the people of Maharashtra to have these course cereals for hundreds of years. But the PDS offers wheat & Rice. These course cereals are neither bought by the government nor distributed through PDS. So, the families used to eat these have no option left but to either not avail their PDS food (which then invariable gets sold in the open market) & buy coarse cereals from retail market or sell their quota of PDS food and buy food of their choice from retail market.
The same survey also exposes the fact that the government had actually spent more on the subsidies for the Above Poverty Line population than on the subsidies for the Below Poverty Line population. All this can be avoided if the central government succeeds in putting off the pressure from the corrupt bureaucrats and the petty politicians and implements the Smart Cards to ensure the food security. It’s obvious that since politicians have their vested interests through their workers who invariably own or run the PDS ration shops and the bureaucracy has its own corrupt interests to oppose such a move. But the will to provide food security to the poor should supersede the vested interests and then only the poor will not feel lucky to be born as Rats instead of human beings.

Saturday, March 20, 2010

A Letter to Kalavati...

Dear Kalavati,

Did you vote? No? But, why? I don't understand why you people are so depressed nowadays. Actually, traditionally we Indians have all been ardent lovers of donating and voting is the holiest donation. Don't you remember having donated so many things in the last 60 years? Don't you remember? Let me help you recollect.

Your family has been farmers for many generations. Crores of Indians have been doing it for ages. Now, all of you buy seeds, pesticides, fertilisers, electricity, ropes and what not. You buy all these at the prices decided by the respective manufacturers. Then you till the land with your sweat for days and months. Whatever you grow; whether it's cotton, onion, potato, vegetables or grains; tell me do you ever decide the price for that? No. Never. Not a single farmer in India has ever decided the price of his produce. Now, is it not a donation? Donation of the right to decide the price of your produce on the basis of its production cost. Well, you don't stop at that. Whenever the selling price of your crop is unaffordable and you fall into the debt trap, you donate your life also. Your husband also donated his life and you call it as suicide. No. It's donation!

Hey Kalavati, you know I met one of your brothers at the bank. He had come for borrowing some money to buy a tractor and I had gone to approach for a car loan. The bank gave me loan at 7 per cent interest and the dealer had paid for the RTO tax and insurance. Since your brother wanted a tractor, the bank charged him 19 per cent interest. But your brother started arguing with the manager. Now, is there any comparison between my urban and his rural stature? No way! He kept on saying that the agriculture minister says that loans to the farmers are at 6 per cent interest. Now who will tell him that the RBI gives some loan to the NABARD at 7 per cent, then the NABARD gives it to the state cooperative bank which, in turn, then gives to the district cooperative bank (DCC) and the DCC disburses it to the rural credit society, which finally gives it to the farmer at 18 per cent because the operating cost (expenses of the board of directors, their air conditioned cars, guest houses etc.) gets added in the interest at every step. But since your brother is illiterate, he could not understand the importance of this donation of added interest.

Now, on the other side, me and all my relatives stay in urban areas, the million-plus cities of India. Do you know that our government is going to spend thousands of crores of rupees for the renovation and development of these select cities in the country? Arre, so many committees have been formed at city, state and the national levels. Monitoring, steering, scrutinizing committees, with many highly educated and experienced IAS officers sitting in those committees. The projects are going to be implemented through People and Public Partnership. They call it principle of PPP. Forget that representatives of the people or public are not present in those committees but the principle is there. And what is the use of taking suggestions from the people or what is the use of understanding their needs? If that is to be done, what is the use of taking so many highly educated and experienced IAS officers? Isn't it? And majority of the people have taken this as another donation. Now, you also consider this as a donation, ha!

Now what remains is our religious and linguistic issues. Are we all not Indians? We have given liberty to everyone so far to do anything they want. We had issues of hunger, poverty, unemployment but we allowed all of them to do whatever they wish. We gave liberties of instigating riots, of demolishing historical monuments, of taking or giving commissions, of releasing terrorists. Tell me, have we not given these liberties? Have we ever questioned them directly? Now a few are taking liberties of creating hatred on the basis of linguistic differences, isn't it? But you take all these too emotionally. That day didn't you ask me that these people who talk of linguistic pride educate their own children in convent schools. Didn't you say that? Kalavati, it is not the betrayal of their linguistic pride, but it is the donation of their linguistic pride. And we have to do everything for that pride.

And you silly woman, do you have the remotest idea that nearly 12.5 crore people in India do not even have the basic fundamental rights? They are not given birth certificates, ration cards, they are not allowed a house, education is denied. They don't even exist in the voters' list. But still, they are all silent and taking this as their contributory donation. Tell me, had you not existed in the voters' list, who would even think of visiting your home? Now, you exist in the voters' list and that's why even prince Rahul visits your home. And yet you don't vote?

Kalavati, have you now finally understood how large-hearted we all have been? If you get depressed, what will happen to all those people who have launched so many national and regional political showrooms? You have to think about them too. Now don't think too much also. Do vote the next time. Vote twice or thrice if you feel too guilty.

Yours truly,

Niranjan Takle

If I were the Finance Minister Of India...

I aim to be the Prime Minister of India. Recent history, however, guides me to be the Finance Minister first and then only can I aspire to be the Prime Minister. Also, I have to offer something extraordinary to the people of India as a Finance Minister to gain a credible pro-poor, pro-development image which would impress my high command and select me for the coveted job.

I met Mr. Anil Bokil one day and he told me a way to heaven. Yes, a path to heaven. But is it a practical idea? Frankly, I don't know. Is it possible? I don't know. Is it fiction? I don't know. Is it worth considering? Yes, why not? All other questions could be discussed and debated. I think India has plenty of intellectuals, experts and economists to debate on that and decide. Well, well, but let me tell you the way first, the way to heaven!

What will it be like in a situation where there is no tax, no octroi, no VAT, no excise, no income tax, no corporate tax, no stamp duties, no wealth tax, nothing! It will be like living in heaven! But, there will be something that will be simple, possible and easier! Say, if two per cent was charged at the end of every transaction. Would any one ask, WHY? What is it going to solve? What are the problems that this will address? We will see them one by one.

The present taxation system has two types of taxes: Direct (tax on income) and Indirect (taxes on consumption). The principle of equity in economics implies that the direct taxes should be more than the indirect but presently the ratio is reverse, 28 per cent to 72 per cent. The canon of simplicity demands the system to be very simple so that even a layman could understand the implications without the need of an expert. But the system is too complex and complicated. The current system of multiple point tax rates, multiple rules of exemption, constantly changing policies completely confuses a tax payer and this leads to the violation of the principle of certainty. The tax-payer never knows exactly how much he needs to pay and how much is extracted from him. The cost of tax collection also has to be minimum. Presently, the tax collection infrastructure costs itself are extremely high for the government.

The Union taxes as per the 7th Schedule of the Constitution range from income tax to the inter-state taxes covering 12 types of taxation. The taxes within the state jurisdiction as per the List II in the 7th Schedule cover 17 various types of taxation from sales tax to octroi. The existing problems of multiplicity of taxes, complex nature of taxes, heavy reliance on indirect taxes, arbitrary nature of taxes has led to various far-reaching serious problems. The scope of evasion, creation of narrow base of taxation and limited coverage and rise in the generation of black money have been the major problems. The Indian Economy by Ruddar Datta claims that the black money in the country was 11 lakh crores in 1998 and was increasing at a rate of 13 per cent per annum. At the same time, the white money was only 8.5 per cent with an increase of 7.5 per cent per year.

Well, there are many more details and problems of the present system. But then what is that way to the heaven?

1. Abolition/withdrawal of the present taxation system, except customs and import duties. Instead, every transaction routed through the banks will attract say a 2 per cent deduction at the receiving end, to the credit accounts only. The deduction will be automatically credited to different government levels like Central, state and local. Additionally, certain share will be credited to the bank. Say, 0.7% to the central, 0.6% to the state, 0.35% to the local government like Municipal corporation or ZP and 0.35% to the transacting bank account. Total 2% of the transaction amount.

2. The RBI and the government should abolish all the denominations above Rs.50/- in one year. With only low valued currency, the tendency to adopt cash transactions for high values will stop.

Per capita income


Highest Denomination (B)
A/B =
30,000 USD
100 USD
18,000 pounds
50 pounds
40,00,000 yen
10,000 yen
Rs. 16,000

The availability of higher denomination currency, leads to avoiding bank transactions in India.

3. Cash transactions will not attract any transaction tax. But the government should make legal provisions to restrict cash transactions upto say Rs.2000/- only. Transactions in cash of Rs.2000/- only should be treated as LEGAL and no legal umbrella should be provided for anything above that.

4. The banks will need to modernize and work round the clock. For that, they will be receiving adequate revenue also.

For example, in 07-08, the revenue of the Mumbai Municipal corporation was Rs. 8,550/- crore. The bank transactions in Mumbai during that year were of Rs. 36,85,000/-. So considering the proposed 0.35% share of the local self government, the revenue to the Mumbai Municipal Corporation will be Rs.13,000 crore.

The proportion of the annual transactions to the GDP in various countries is as below ..

Annual transactions & GDP ratio
20 (assumption)

As for India,

20 = Annual money transaction / GDP.. so as per the figures of 2007-08, the GDP was Rs.47,00,000 crore. Hence, the annual money transactions would be Rs.9,40,00,000 Crore. Now, the government calculates its revenue as

Government Tax Revenue = Annual money transaction x banking transaction tax / 100... so the banking tax in % will be...

Bank transaction tax in % = 8,74,120 x 100/9,40,00,000 = 0.93%

And, we are proposing, 2% transaction tax... This means that the government will easily be able to generate more revenue than it's collecting now.

This will lead to the complete eradication of black money. The revenue collection will be very simple, hassle free and the cost of collection of taxes will be the most minimum. The unproductive time spent with tax collection authorities will be saved and more productively used. The revenue collection will be every day and very simple. Hence, the government will always have money in hand whenever needed. The stabilization of prices will happen in all the states and will help the manufacturers. The tax collection will be corruption free and the banks will also earn more money to avail credits at lower interest rates.

I know, there would be many opinions and views of the experts but at least a good debate can be initiated... But if it is practical, it will be of benefit to the last man and if it's not practical, then what is wrong in dreaming of living in heaven?