What we learn from recent elections in India

In an extraordinary move one fine evening in November last year, Prime Minister Narendra Modi announced sudden withdrawal of 86% of India’s currency in circulation, in what he termed as a crackdown on black money. In a predominantly cash based economy like India, it was an unprecedented move and has no parallel anywhere in the world. While the last word on “notebandi” has not been said yet, several elections – both local bodies and states - since then confirm voters have not been averse to the action. This is in sharp contrast to what was shown incessantly on electronic media during those eventful days of acute currency shortages. Besides a verdict on demonetization, here are some takeaways from recent elections in the country not just in the five states that went to polls last month, but elsewhere as well.

Democracy is flourishing in India as voters demand performance & accountability

The mainstream media has no touch with reality. I wonder how they justify the crores they get as salary. For example, the sheer scale of BJP’s election victory in Uttar Pradesh is mindboggling. Yet, throughout the election campaign, the media painted a picture of a keen contest between the “UP ke ladke” Vs. Narendra Modi, with Mayawati’s BSP thrown in for some additional spice. The media narrative portrayed a largely equal fight, or occasionally an edge to the BJP depending on whom you believed. As if to justify prior coverage, the exit polls also reflected similar trends, with BJP a bit ahead of the rest but not too much. But it all fell flat when the results were declared. This is true not just for U.P. but elsewhere as well. Recall that the non-stop coverage for more than a month of the poor “suffering” in bank queues (some even died!) also turned out to be top class fiction. Clearly, if you are watching too much TV, especially the newsroom debates & “expert” analyses, you are wasting your time. Go, get a life.

There is no substitute for hard work. Narendra Modi’s charisma sits on top of several decades of solid ground level work by RSS & several of its affiliate organizations in the remotest corners of the country. You cannot build a sustainable electoral model without some real groundwork & voter connect at the grassroots. Mulayam Singh Yadav built Samajwadi Party from scratch. He has spent his whole life in the rough & tumble of U.P.’s realpolitik, connecting with people, building relations and nurturing the party to what it is. In the 2012 U.P. State Assembly elections, people voted for Samajwadi Party with “Netaji” in mind. But it was Akhilesh who was made the CM. You can inherit party posts but not the personal touch & rapport with the people. You have to build that yourself. Governing a State & showcasing a couple of projects is one thing, having a grassroots level connect with the people that makes them vote for you again & again is another. It is no surprise that cutting across party lines, one can see that most second generation politicians are failures.

There are no shortcuts to success, no substitute for real groundwork and people connect

Leadership matters. In Uttar Pradesh, Narendra Modi staked his personal reputation at risk and led the battle from the front. There is no doubt that BJP could not have pulled off such a huge success if Modi had stayed away from campaigning or only made token appearances. Ideology has ceased to matter. Choosing your party is no longer a question of ideology you subscribe to. All parties call themselves socialist and secular. Nobody reads party manifestos. Even freebies have ceased to matter, if only because everyone promises a bountiful of them, so the factor gets neutralized. People want forceful, decisive leadership.

There are no vote banks. The “secular” narrative is dead. Sixty five percent of India’s population is below the age of 35. The median age of an Indian is 27.6 years. The generation which saw Partition has passed away. To a large section of today’s voters, even the Ayodhya demolition is “history”. And voters are no longer swayed by what happened in history. The BJP has successfully shed its “communal” label. Even Muslim attitudes towards BJP are changing. But like an Ostrich who buries its head in the sand, the old generation “secular” politicians - most of them past their retirement age - refuse to see this reality. Even the caste factor is overrated. Just because one can generate caste-wise statistics and blabber some nonsense, it does not follow that voters who cast their vote ‘vote their caste’. Even where a correlation exists between the caste of the electorate & the elected, it does not prove causation. I have not seen a single survey or opinion poll which asked the voters why they voted for a candidate they did, and majority of the voters pointed to caste as the driving factor. No wonder sand it slipping from under the feet of parties who thrived on such narrow agendas. In an article three years back, I called such parties “Dodos of Indian Politics”.  

Voters have become demanding. Television & radio has reached every home. Internet penetration is increasing rapidly. Literacy has improved significantly over the years. People are much more aware of what’s happening in & around them. You just can’t take them for a ride anymore with empty promises. The voters have become demanding, and politicians who fail to deliver get thrown out. This is repeatedly getting proved one election after another, be it in Nitish Kumar retaining Bihar, or the Akalis losing Punjab. 

Despite its recent spate of successes, even BJP cannot rest on its laurels. It will have to deliver genuine improvements to the lives of the people. Otherwise the same fate awaits them.

The Intolerance debate

Intolerance (n.) – unwillingness to accept views, beliefs or behavior that differ from one’s own

Over the past few weeks, a debate about rising “intolerance” has been raging in India. Several writers have returned awards citing “rising intolerance in India”. Talking to India Today TV, film actor Shah Rukh Khan has reportedly said, “There is intolerance, there is extreme intolerance… there is, I think…, there is growing intolerance”. More recently, actor Aamir Khan said that alarmed by recent events, his wife Kiran Rao has suggested that they should leave India. 

I find this whole issue utterly ridiculous.

Intolerance is a subjective term; it means different things to different people. Also, opinions always differ from person to person, and there is nothing wrong in different people having divergent opinions. Beyond a point therefore, the current debate on whether there is growing intolerance in the country or not is futile, it is never ending. Nobody claims that each and every one of 121 crore Indians are tolerant. Nor are all of them intolerant.

The slant in the current debate is that intolerance has increased after the new government came to power in May 2014. For example, Aamir Khan has reportedly said that “…the sense of insecurity and fear has been growing in the past six or eight months”. Coming from Aamir Khan, the statement is all the more surprising, since his film “PK” was considered to be hurtful to the religious sentiment of Hindus and was demanded to be banned by certain right wing organizations. However, the film was not only allowed to be released, but became one of the highest grossing Indian films of all times. 

The so-called “intolerance”, was nowhere on display, neither on the part of the government, nor on the part of majority of the viewers.

No intolerance on display - PK was a big hit

How we decide

On any such issue, a rational person should base his opinions & judgments on two primary sources:

1. Official data
2. Personal experience.

Sources such as newspapers, television are secondary sources and should never be made the primary basis of our opinion and judgment. They can best be used for confirmatory signals when they support what data and personal experience indicates. Secondary sources should be taken with a pinch of salt when they contradict data and personal experience. Further, even while using these secondary sources, care should be taken to differentiate facts from opinions.

Let us say, the TV anchor reports something like this:

“A person was killed because he was selling beef. There is growing intolerance in the country.”

In this,

1. A person was killed is a fact.
2. Because he was selling beef is the suspected motive. It may be proved or disproved after a full investigation is over.
3. There is growing intolerance in the country is a generalization which will need supporting data with a much larger sample size.

When we listen to such news, and form our opinions and judgments based on them, we must be conscious of what we are relying on. When I listen to the above news, I would give 100% weightage to point no. 1 above, 50% weightage to point no. 2 and zero weightage to point no. 3.

Where is the data?

The Home Ministry website has lot of statistics on the country’s crime. None of those who allege intolerance have provided any data to support their thesis. Note that even when data is present, it needs to be analyzed carefully, as raw numbers may prove existence of fact, but not causation. I have often seen that from the same set of numbers, different people draw different inferences. For example, economists differ on whether the economy is doing well, or poorly, though both sides refer to the same sets of data.

In the present debate, there is no data or survey which indicate how many attacks have been caused by this alleged “intolerance” and whether there is any substantial increase in them after the change of government at the Centre. Besides, let us also not forget that under the constitution, law and order is a state subject. We cannot blame Modi for riots in Gujarat while using a different yardstick for law and order problems in Assam, U.P. or West Bengal or elsewhere. The intolerance argument fails miserably against the “data” test.

Personal experience

My personal experience and observation does not corroborate the intolerance allegation. To the extent I see around myself at home, in office or in my neighborhood, behavior of the people, inter-personal and social relationships and attitudes towards others including towards people belonging to other religions are the same today as they were before May 2014. If your experience is any different, you are entitled to hold a different opinion.  But to me, the intolerance argument makes no sense. 

The only intolerance I see is an intolerance towards Modi.

The misleading debate on bringing back Black Money

Imagine this.

Journalists & cameramen have assembled in large numbers at the Delhi’s Indira Gandhi International Airport, eagerly awaiting the arrival of an incoming Air India flight. The flight arrives, and a triumphant Arun Jaitley, India’s Finance Minister steps out of the aircraft, flanked by top Finance Ministry officials. He is carrying two large suitcases in his hands. For a moment, he puts the suitcases down and waves to the waiting media. Everyone knows what’s in those bags. The reporters just cannot wait to ask him some questions. The moment has arrived. Yoga guru Baba Ramdev is among the first to issue a congratulatory tweet to the NDA government. Prime Minister Narendra Modi proudly proclaims that his government has completed an electoral promise made to the nation. The black money stashed abroad by unscrupulous Indians in Swiss banks has finally been brought back!

If this is your visualization of the moment when India is going to get back its promised “black money” from Swiss banks, this write-up is going to disappoint you. But the media coverage of the black money issue has been so wanting in depth, and so mired in meaningless sensationalism, that the aam aadmi may be forgiven for thinking something similar is going to happen one day. The manna from Switzerland is bound to arrive. After all, wasn’t it part of the “Achche Din” package?

In this article, I put in perspective a few thoughts on this much debated topic which seem sorely missing from the mainstream discourse.

The color of “Black Money”

I have found most discussion on the black money issue, such as this or this or this or this center around tax evasion. Businessmen make profits on which they do not pay tax, the money is secretly moved to some bank in Switzerland. This money needs to be brought back as the country is losing out on tax revenue. This is the standard narrative of black money that is dished out to the aam aadmi. 

However, this is far from the truth. Tax evasion is only a part of the problem.

Proceeds of crime

A large part of the money stashed abroad illegally is, what is termed in banking parlance as “proceeds of crime”. It owes its origin to criminal activities like corruption, misappropriation of government funds, fraud, cheating, or activities of underworld gangs, drug mafias and terrorists. The entire wealth accumulated though criminal activities is illegal and liable for confiscation. The account owners are liable for criminal prosecution. Here, the question of tax assessment, payment of penalties or even amnesty (as suggested by some), does not crop up at all. Simply speaking, if I steal Rs.100 from you and hide it under the carpet, the problem is not that I have not paid Rs.30 of tax, the problem is that I have stolen Rs.100. No government in its right senses can regularize this wealth on payment of tax.

Most discourse on black money conveniently skips this angle.

Under-invoicing of exports and over-invoicing of imports is a standard mode of laundering money abroad

Where is the money?

A common misconception that people seem to have is that the money is lying in some (Swiss, mostly) bank account. But is it there really? Do you really believe that someone stashing millions of dollars of stolen money would keep it in a bank account for years together for everyone to see? 

Obviously, the money has already been used up – to buy villas and yachts and Ferraris, to invest in Hedge Funds or Private Equity, to buy Soccer Clubs or Formula One teams, to purchase hotels, farmland or commercial property, to invest in shares or pay back loans! Even the returns generated from these would have been further used in payment of dividend, for business or further investments. It is nearly impossible to “bring back” the money the way most people seem to think about it.

Most of the government’s efforts on this issue has centered on enabling sharing of information with foreign governments or banks involved. Even if that is accomplished, all that a bank can share is a statement of account, many of them in benaami names or shell companies. The statement would contain inflows & outflows, but actually getting the money back is a different ball game altogether. In this era of electronic transfer, when money can be moved from one corner of the world to another in a matter of seconds, we can never get anything in a foreign bank to confiscate. No government, following its “due procedure” can ever move faster than the account holder himself and ‘catch’ the money in a foreign bank before it moves out.

Black money once “created”, is simply impossible to “bring back”, at least in the manner in which it is being made out to be. Its better the people face this reality and temper their expectations, no matter how noble the intentions of the authorities may be.

How big is the problem

There is no doubt that the extent of the problem is humungous and needs to be tackled on a war footing. For example, illicit capital flowing out of India over a 10-year period from 2003 to 2012 has been estimated to be higher than the country's total income tax collection during the period itself. While everyone agrees that the menace needs to be curbed, solutions are difficult to come by. Combating the problem requires negotiating a complex maze of financial regulations and international diplomacy. Though Switzerland has received the most media attention, it is not the only “tax haven” where such funds are being siphoned off, there are several others. (For example, Tax Justice Network lists out 73 such jurisdictions).

In 2007, evidence of deposits of more than US $ 8 billion surfaced in the UBS Zurich accounts of Hassan Ali Khan alone. The inaction of the Manmohan “Sin” Government in cases such as these led to the landmark Supreme Court order in July 2011 forming a Special Investigation Team (SIT) to investigate and bring back black money. The SIT was formed immediately after Narendra Modi government took charge in May 2014.

The landmark Supreme Court order forming the SIT came in a case filed by Ram Jethmalani & Others

The SIT on black money

The Terms of Reference of the SIT (available here) are wide and far-reaching. The SIT is charged with the responsibility and duty to investigate and prosecute all instances of stashing of unaccounted money in foreign bank accounts, investigate and prosecute activities which are the source of such money and to prepare an action plan for the future. The SIT is headed by former Supreme Court judges and has heads of virtually all national investigating agencies such as IB, RAW, CBI, ED, DRI, NCB, FIU etc as its members. It reports directly to the Supreme Court. All organs of the Central and all State governments, such as agencies, departments, constitutional bodies etc have been ordered to co-operate with the SIT. The SIT is also empowered to re-open past cases where investigations have been completed and charge-sheets filed.

Effectively, the issue of black money stashed abroad is now outside executive control and owned by the SIT. It is the SIT that has to deliver concrete results, not just in terms of giving recommendations for the future (which is the easy part) to pre-empt generation & stashing away of money, but actually getting back what has been lost and prosecuting those involved. The SIT report is awaited. But it is pertinent to note that even the ToR of the SIT or the Supreme Court order which led to its formation (available here) does not specifically charge it with "bringing back" the siphoned off money.

What can be done

Clearly, the fight against black money needs dramatic solutions and out-of-the-box thinking. Suggestions such as banking transaction taxes, annulment of high value notes, stringent regulations and even amnesty schemes have been suggested from time to time. While each of them have their own merits and demerits, the one I have found the most actionable has come from “super spy” Ajit Doval, presently the India's National Security Advisor. In a blog post in 2011, Doval writes:

"...India must pass a penal law declaring itself as the sole owner and beneficiary of all Indian monies, assets and bank accounts held abroad by or the dependents of Indian nationals without due declarations to the Indian authorities. On the strength of such a law, the Government of India can ask world governments and foreign banks to recognize Indian government as the beneficiary of undeclared wealth and freeze the accounts till owners of the wealth are able to prove that they had acquired it by fair means and from legally valid sources....

...Government of India should register an omnibus criminal case against suspected unidentified persons who have been indulging in criminal activities and unauthorizedly transferring money to tax havens abroad.  This would enable the Government to get assistance of foreign police and investigating agencies for gathering evidence and information. It will empower the government to approach different banks abroad, as also the concerned governments, for information regarding the money trail as they pertain to criminal cases..."

In other words, we should "nationalize" all such assets lying outside India and put the onus on their owners to prove that the assets are legitimate. 

When it comes to recovering what has already been plundered, only such drastic solutions can give some decent results. Even then, we can only hope to recover only a part of the stolen wealth, nothing more can be expected.

The economic solution

Enforcement and policing is never a sound and harmonious solution. For that, the problem has to be pre-empted.

Tax rates have to be kept as low as possible, so that tax avoidance ceases to be profitable. This means the government keeps its expenses as low. The government should withdraw from economic activities, restricting itself to the bare minimum such as maintenance of law & order and running the judicial system. This reduces the scope for bribery and crony capitalism. In India, much illicit wealth has been generated from bribes paid to twist policies or government decisions. Scope for discretionary decision making aids corruption.

Global economies are slowing, and profitable investment opportunities are shrinking abroad. India is among the fastest growing economies in the world today. If business climate in India is improved, incentive to retain money abroad reduces. This again calls for dismantling bureaucratic controls, improving the rule of law and installing a quick and efficient grievance redressal system.

Despite all this, a few black sheep will still exist. For them heavy penalty should await. Investigations should be fast, and justice delivery certain. Police and judicial reforms therefore should be on top of the government's agenda.

If all this is done, the problem of “black money stashed abroad” can be mitigated. But for now, the suitcases Mr. Jaitley would be carrying are likely to be largely empty.

The ABCD of India’s political landscape

This Republic Day, a basic lesson on the country’s current political landscape...

A is for Aam Aadmi Party, the newest kid on the electoral block. Starting out as an anti-corruption movement, AAP sprang a surprise in the Delhi Assembly Elections. The sheer novelty of its approach has now put them at the centre of the country’s political discourse. How well the approach works in the long run remains to be seen.

B is for BJP, the principle asylum of India’s right wing political thought. The party attracts those who believe everything was hunky-dory in the Land of the Rajas & the Maharajas, until the successive invasions of the Moghuls and the Europeans deprived Bharat of her wealth & prosperity.

C is for Congress, the party that has governed the country for a major part of its existence. It has worn different garbs at different times in history, toying with socialism in the 60s & 70s, free market - liberalism in the late 80s & 90s and back to welfarism in the 21^st Century.

D is for - what I call - the Dodos of Indian politics. These are parties other than the above three, mainly regional in existence. Most of them have little economic ideology and depend on narrow populism or chauvinistic programs to sustain their existence. 14 years into the 21^st Century, many of them do not even have functional websites, let alone embrace emerging media and reach out to the voters of tomorrow. As the results of recent State elections show, most of these are facing extinction.

E is for Elections, that grand celebration of democracy that gives the people a chance to speak & be heard. Half the world population does not live in a democracy, and we are proud we have achieved a matured democratic infrastructure that allows for smooth transfer of power.

F is for Freedom, our most valuable possession. Freedom to live our own lives, the way each one of us wants to. It is upon us to use it responsibly and for the benefit of all, without malice and nuisance to others.

G is for Gandhi, the dominant name in India’s politics for the last hundred years. The original one lived a simple life; preached non-violence, truth and honesty. Later came the fake ones, whose contribution is more controversial.

H is for History, that which teaches us our lessons. It is upto us to ensure that mistakes of the past are not repeated in future.

I is for Independence, what India achieved on 15^th August 1947. It means we are now the masters of our own destiny, and cannot blame others for what happens to us. Let us take it upon ourselves to put our house in order and make this a wonderful place for our future generations.

J is for Judiciary. An independent & efficient judicial system is a key pillar of any democratic set up. Despite some ups & downs, Indian judiciary has largely stood the test of time in its independence, though its efficiency leaves much to be desired.

K is for Kursi, the seat of power which is what all the fight is for! It is the magnet that attracts people to this game and can bind even the most disparate group of elements together.

L is for Listening, an ability that seems so short in supply among political class. A Parliamentary debate is in progress? We don’t care. Listening to the people? What is that?

M is for Media. A free & vibrant media is often considered the fundamental proof of an open society. The advent of technology and social platforms has added a new dynamic to this channel in recent times, handing even ordinary people an unprecedented power to be seen and be heard.

N is for Nexus, that invisible thread that binds politicians, bureaucracy, industry and the media together. You cannot see it easily, but know it exists!

O is for Outrage, the only thing which makes our political class sit up and take notice. You need an outrage against corruption, outrage against rape, outrage against terrorist attacks, outrage against anything, if something has to happen. Until then, things don’t move.

P is for the Public, the fools who follow the rules. Come election season, every politician swears by them but soon forgets once elected to power.

Q is for Quotas, supposedly the ticket to electoral success. Create a quota; create a vote bank, so goes the conventional thinking in the political class. Caste, class, religion, age, gender, language, even profession, location and what not - you name it and there is some quota somewhere on that basis!

R is for Rule, that misnomer used to describe what the people we elect are supposed to do. I suggest we use ‘Govern’, which is the right word, as in, ‘BJP governs Goa’, ‘Congress governs Karnataka’, and so on. Not “…rules…”

S is for Scam, that recurring theme in our political discourse. From fodder to satellites, there seems to be one in everything.

T is for Taxes, the legitimate hard-earned money that is forcefully diverted from productive purposes to run the government. What happens to it afterwards remains a mystery!

U is for Unity, Unity which every party preaches, even as it goes around dividing the people.

V is for Vote Bank, that mythical entity that is supposed to keep you permanently in power. But as many are finding out lately, it may not actually exist!

W is for Wealth, what the Gods have bestowed on this nation – a very hospitable climate with an abundance of rain, water, sunshine, air and plenty of natural resources. It is upto us to make the best of it.

X is for the eXception! Once in a blue moon, a boy who delivered newspapers goes on to build missiles and even becomes the President. Untarnished, unblemished by everything around him. That the system allows him to reach such heights is what gives me hope.

Y is for Youth, the ‘demographic dividend’ of having one of the youngest populations in the world. This is the principle strength of India, the youth who will shape its destiny, its future.

Z is for Zero. Zero tolerance for corruption, zero tolerance for mis-governance, zero tolerance for crime. This is what the youth of this country should look for, when they vote in the coming elections!

Happy Republic Day!

The Aadhaar Card and our "Identity" crisis

Archana works for an organization that has recently introduced a new device to track employee attendance. At the time of entry and exit, members of the staff press their fingers against a biometric sensor installed in the office. The sensor matches the fingerprints with those in its database, identifies the employee and marks them present. But there is a problem. Female employees have learnt the hard way that on days when they have mehendi on their fingers – a very common occurrence in India, especially during festivals and family events like weddings – the sensor fails to recognize the employee, marking them absent.

Professor Chari is a retired professor who spends his time doing research and freelance journalism. He is a regular visitor at the local Public Library, which has a large collection of rare books that help him in his research. The University has recently ‘upgraded’ its systems, and introduced a biometric reader that scans the borrower’s fingerprints when membership is granted. However, there is a problem. The biometric reader fails to ‘read’ the Professor’s fingerprints, making it impossible for him to enrol. The Librarian says this is a very common occurrence with senior citizens, for which he has no solution.

These two incidents (names changed, stories true) that I came across recently drove me to attend an event organized by Moneylife Foundation earlier this year, on the recently introduced “Aadhaar” card by the Government of India. The event was addressed by Col (retd.) Mathew Thomas, a former missile scientist cum civic activist, and Mr. Jude D’Souza, a forensic expert. At the event, Mr. D’souza gave a demonstration of how fingerprints can be faked, and claimed even Iris scans can be easily tampered with. Col Thomas, in his speech, came down heavily on the Aadhaar project and explained how the project is being pushed ahead despite its lack of Parliamentary sanction, extraordinary high cost and innumerable flaws in conception, execution and  implementation. 

Since then, I have tracked the Aadhaar project closely. The critics of Aadhaar are many, and its flaws are there for all to see - the project has no Parliamentary sanction, its cost benefit analysis has not been done, it uses questionable methods to collect its data, the accountability for breach of data secrecy is vague and unidentified, the card itself is unnecessary and adds no value, and it exposes citizens to a grave risk of identity theft. (Read this, this or this) The card is being mischievously linked to government schemes like subsidy payments, for which simpler solutions such as Electronic Transfers (e.g. RBI's ECS) already exist. It's marketing campaign makes the deceptive claim of being “every citizen’s right”, creating a perception of value and benefit. One can understand a right to vote, a right to free speech, or even a right to subsidies and scholarships (if eligible). But a "right" to an identity card is a laughable statement! And yet, the citizen’s have lapped up the card, as if there was no tomorrow (around 38 crore enrolled at the time of writing!). I am amazed at this craving for another “identity” proof, without giving a second thought to what constitutes an "identity", and why identity cards exist. So let us ponder over it...

Aadhaar - A "right" to get a card that tells you who you are!

My dictionary defines Identity as “the fact of being who or what a person or thing is”. A person’s name and face, appearance and physical features give him his identity. His character, reputation, image give him his identity. His achievements, his work, his thoughts and actions – all give him his identity. "Cogito ergo sum”, Rene Descartes famously said in the 17^th Century. I think, therefore I am. That gives me my identity. People would still have their identities even if there were no identity cards.

Identity Cards exist not because people need identities, but because organizations need to identify people they want to deal with. The Election Commission issues an Identity Card, because it needs to identify voters who are authorised to vote. National governments issue passports because they need to identify people who enter and exit their country. A school or college issues an Identity card because it needs to identify students who have been granted admission. Why the UIDAI needs to identify anybody is beyond my understanding. It is probably the only organization in the world whose sole purpose is to issue Identity Cards!

Going far beyond its blatant illegality and reckless implementation, the Aadhaar project raises serious issues of citizen’s freedom, liberty and privacy that are little understood by a majority of Indians. The government exists for the sole purpose of ensuring law & order, defending the country from external aggression and providing a dispute resolution framework. People are unaware that nobody – not even the government – needs to know more about its citizens than what is necessary. For example, the Motor Vehicles Department seeks information about a person’s age, physical fitness & blood group in its ‘normal’ course of business. The Income Tax Authority does not ask for your physical fitness and blood group, but may seek information about income and assets, because that is in its normal course of functions. The Election Commission seeks information about age & residential address, but not income & assets! But the UIDAI wants to know everything about everybody, and for no specific purpose! 

It should be noted that opposition to Aadhaar is not opposition to technology. From Stone Age to this day, mankind has progressed only because of advancements in technology. The benefits of technology in areas such as bank computerization or railway reservation systems have been there for all to see. In recent times, government departments like the Income Tax or Passport Offices have computerized their operations, bringing immense improvement in the quality of their service delivery. However, Aadhaar seeks to create an integrated database that will hold everything from a person’s name and date of birth, to fingerprints and iris scans, and address to bank account numbers. It  would expose citizens to a grave risk of identity theft, and is a blatant encroachment on the citizen’s right to privacy and liberty. It would grant immense power to anybody who lays his hands on this data, and would be open to misuse (see this, esp. the last para). This includes unscrupulous employees from the related offices, data collection agencies, people with political power, and by consequence their relatives, associates, business partners or anyone else who is interested in obtaining this data for a consideration. 

The UIDAI claims the data is encrypted at the point of collection. But we know that adding a layer of encryption does little to deter a determined hacker. Everything from bank websites to email accounts, defence networks to even nuclear establishments have been hacked. No wonder UIDAI doesn’t even reveal whether the country’s top politicians own an Aadhaar Card!

To me, Aadhaar is nothing but part of a grand scheme to create a Surveillance State. Its other elements includes the Central Monitoring System (CMS), the National Population Register (NPR), the National Intelligence Grid (NATGRID), countless CCTVs at every nook and corner of the country, and every other instrument of state oppression that is used to track every step a citizen takes. Much of this is often justified on the grounds of 'national security' – in other words, the government’s own administrative failure of securing our borders and making the country safe. Governments exist to serve its people, not to control them. Unfortunately, schemes such as these do not face popular resistance, because a majority of the people feel they have nothing to hide. But once such an infrastructure is created, it can be misused to intimidate and subjugate people, and create a regime of oppression and injustice.

No wonder the government is desperate to give you an Aadhaar card. Why are you desperate to take it?

Shooting the Messenger - India's Gold Imports (Part II)

(In this two-part series, we look at India's gold imports in the context of its foreign exchange problems. Click here for the first part of this article) 

But, aren’t gold imports, however small, a waste of money? After all, gold has no intrinsic value.

Fig. 3: World's Central Banks are sitting on huge Gold Reserves

Neither does paper money! Let us first look at some more points of data (Figure 3). It is known that all Central Banks are holding large reserves of Gold  as part of their foreign currency reserves. The adjacent table that shows that even those countries who are facing severe economic stress, are holding  large amounts of gold as part of their foreign exchange reserves. (Even China is playing catch up and is in fact set to emerge as the world’s largest gold importer)

Fig. 4: Central Banks have become net buyers in Gold in recent years

Not only are the Central Banks holding large quantities of Gold, but are increasing them further (see Figure 4). In 2012 too, Central Banks have remained net buyers of the yellow metal, as these reports suggest (click here or here). If gold had no intrinsic value, why are the Central Banks themselves, who supposedly understand money better than us, sitting on so much gold and buying more?

The fact is, Central Banks understand that gold is money, and money does not have intrinsic value. Your currency note derives its value from the promise of the Central Bank printed on it. Gold derives its value from the value attached to it by thousands of years of human civilization. To destroy value of paper money, you just need to print more money (to elaborate on this is beyond the scope of this article, but the interested reader can refer to this excellent article on inflation). To destroy value of gold, you need to change the subjective opinions of billions of people (and Central Banks) all over the world. The reader can decide what is easier.

Even India's Central Bank, which itself bought 200 tonnes of gold in 2009 had this to say last week: "Gold is easily accessible. It is a store of value, has no credit risk and is relatively liquid thereby incentivising many households to buy gold” (RBI's Financial Stability Report (FSR) released on 28^th December 2012). 

But gold has no cash flows, pays no interest or dividends and is risky to store.

A common argument made against gold, but gold is not an equity share at all. So aren't we comparing apples with oranges here? Gold is not an investment at all. Gold is money, gold is currency, gold is wealth. I would use the cash flow  argument only to evaluate an equity share, not gold. 

But of course, you can’t take a milligram of gold to the grocer to buy your stuff, right?

Right. Nobody disputes the need for paper (or digital, these days) money. This article should not be construed as an invesmtent advice, nor am I saying that gold prices will continue to rise perpetually. The purpose of this article is only to highlight that gold imports are nowhere as problematic as they are being made out to be and one needs a different perspective to understand gold.

Conclusion

It is estimated that Indian households own more than 17500 tonnes of gold accumulated over centuries of civilization. Despite two decades of economic reforms, it is pointed out that India’s equity investor population has actually shrunk – a surprising statistic given the importance the stock markets are attached to by policy makers and the media. Performance of mutual funds has been disappointing, to say the least, and double digit inflation has made investing in fixed income instruments a loss making proposition. Gold and property are the only assets where Indian people have seen their wealth grow. Since buying property needs deep pockets, gold has emerged as the only asset which people can accumulate in small quantities. In fact, in the FSR mentioned earlier, the RBI has admitted low interest rates have caused households to shift away from financial assets to physical assets and valuables such as gold. “Gold prices have increased the most in comparison with other assets and are significantly above the movement in WPI (i.e. inflation)” it said. It has proposed inflation indexed bonds as an option, which it hopes can reduce demand for gold.

Blaming gold imports suits the political class, as it shifts the blame of India’s economic ills away from its own mismanagement to the Indian public. But it is for us to analyze data, ask the right questions and make intelligent judgement. Gold imports are neither frighteningly high, nor the cause of India's currency problems. Nor are Indians alone in buying gold. If people are buying more gold, there are reasons for the same. Those reasons need to be addressed. Other avenues to park money need to be made more attractive. Raising taxes or banning imports will only encourage smuggling, punishing the honest and rewarding the dishonest. Key non-gold imports, such as oil or defence need to be reduced by increasing domestic production. Exports need to be increased by controlling inflation (since higher domestic costs reduce export competitiveness). Interest rates need to be increased, and should be higher than inflation rate, in order to encourage savings in financial assets like bank deposits. Until that happens, people will continue to buy gold, and for a good reason.

III

President Roosevelt’s order had permanently pegged the price of 1 oz. of gold at $ 35 and committed the U.S. government to exchange dollars for gold at this rate with anyone on demand. After World War II, backed by gold, the U.S. Dollar emerged as the primary currency of global trade. All international transactions and agreements, no matter between which two countries and what their currencies, came to be denominated in U.S.dollars. But thanks to inflation, the dollar continued to lose its value while gold held its own. By the early 1970s, it was clear that an ounce of gold was much more valuable than the $ 35 that the U.S. government paid for it. The demands on America to redeem dollars for gold increased dramatically. In 1971, faced with a run on its gold, President Nixon announced that it was ending the peg of the dollar to the gold, letting it float freely in international markets. In the next 10 years, the price of gold shot up more than 10 times to more than $ 400 per ounce and is trading at $ 1650 today.

Shooting the messenger - India's Gold imports (Part I)

I

On 5^th April 1933, citing difficult economic conditions, the then U.S. President Franklin Roosevelt signed a decree. The Executive Order 6102, as it was called, made it illegal for American citizens to possess gold (with certain exemptions). The Order specified a date, 1^st May 1933 to be precise, before which all citizens were required to deposit all the gold bullion held by them with the U.S. Treasury or face heavy penalties and / or imprisonment upto 10 years. The U.S. Government would pay $ 20.67 per oz (troy ounce, i.e. 31.10 grams, the then official gold exchange rate) for the gold, the Order said.

A few months after the Order, the President signed The Gold Reserve Act of 30^th January 1934, outlawing private possession of Gold and suddenly changing the price of gold to $ 35 an ounce. In effect, wealthy Americans, who had amassed huge amounts of gold over generations of hard work and entrepreneurship since the onset of American industrialization in the mid-nineteenth century were short cheated for millions of dollars by the government in the name of saving the country. Mind you, financial markets were not as well developed in those days as they are today, and gold was one of the primary means of wealth accumulation in the U.S. at that time.

II

“Steps were being taken to control the Current Account Deficit…there was a need to control gold imports…” said India’s Finance Minister Mr. P. Chidambaram at a meeting of the National Development Council on 27^th December 2012. "We are worried about gold imports. It is an unproductive instrument", Mr. Raghuram Rajan, Chief Economic Advisor to the Government of India had said earlier. 

Over the last few months, there has been a sustained campaign in the press about India’s ‘soaring’ gold imports. The government has raised taxes dramatically on gold, quadrupling the import duty rate, changing it  from specific to ad valorem, and doubling the excise duty on jewellery as well. “One of the primary drivers of the current-account deficit has been the growth of almost 50 percent in imports of gold and other precious metals in the first three quarters of this year,”  Mr. Pranab Mukherjee, the then Finance Minister had said earlier last year, before announcing the tax hikes. “I have been advised to strengthen the steps already taken to check this trend.” To cut a long story short, Indians are buying too much Gold, and that is causing problems in managing the economy, we are being repeatedly told.

It is therefore time to take a look at the numbers and check out the facts. Take a look at the data on gold imports given in figure 1 below:

Fig. 1: Ninety percent of India's imports are non Gold

 We observe that:

1. Gold imports were 9.26 % of India’s total imports in 2011-12. Ninety percent of India's imports are other than gold.

2. Imports were in the 5 – 6 % range till 2008-09 but increased after that, roughly the time when the rapid deterioration of the economy began.

3. There has been a dramatic increase in the price of gold in the last decade. Increase in the quantity of gold imported therefore, is more benign. (It is in the range of 7 - 8 % per annum)

Gold imports have thus increased only in line with the overall growth of the economy, with only a small uptick in the last 2-3 years. They are in fact expected to come down in the current year and the next. The brouhaha around gold imports therefore does not seem justified.

Don’t they cite some data whenever they blame gold imports?

Figure 2: India's CAD started deteriorating from 2004-05 itself

Most of the time, it is pointed out that gold imports are high as a percentage of Current Account Deficit (CAD, the excess of total imports to total exports). Read the Finance Minister's comment yesterday: ‎“Suppose gold imports had been one half of the actual level that would have meant that our ‎foreign exchange reserves would have increased by $10.5 billion,” Chidambaram said. “I would ‎therefore appeal to people to moderate the demand for gold, which leads to large imports of ‎gold.”  But this is a wrong metric to use, since it does not prove causation. As  Figure 2 shows, India’s current account started deteriorating as far back as 2004-05 itself, much before gold imports picked up. Current account deficit is caused not just by gold imports, but by all imports and all exports. The question is not why gold imports are rising, but why the CAD is rising. Contribution of gold imports to current account deficit is much smaller than what is made out to be.  In 2011-12, India's total imports were USD 607.158 billion and total exports were USD 529.003 billion. Gold imports were thus only 4.95 % of the total Foreign Trade of USD 1,136.161 billion, a very small portion, compared to other imports like petroleum or defence. Overall current account deficit on the other hand, has increased at 64 % p.a. in the last 7 years. 

  

But, aren't gold imports, however small, a waste of money? After all, gold has no intrinsic value.

We will look at these and other arguments in the next part of the article. 

(To be continued)

God's own country!

Back from a refreshing trip of Kerala!

Calm and serene backwaters. Tender coconuts. Mouth-watering banana chips. The tempting aroma of freshly brewed coffee. Houseboats. Spices. Rare species of birds. Kadla curry with Appam or Puttu. Pothole-free roads. Disciplined traffic. Long winding village names, which only the Mallus can spell and pronounce! Freshly fried fish. Karl Marx & Che Guevara posters.  Clean white dhoti. Uttapa called as a Dosa, and Dosa simply as a plain ‘roast’! Served along with a Vada that you think is complimentary (till you get the bill, that is). A lake so large you think it is the sea. Mundum Neryathum, the unique two-piece sari. "Chinese" fishing nets, that actually use Portuguese technology, not Chinese! Beautiful roadside bungalows. Picturesque inland waterways. Ancient "dembles" (!) mostly dedicated to Shiva, holding some of the world’s largest treasure troves known to man. Thundering rains. A quite & peaceful life. Kerala is unique. Kerala has so much to offer.

And a lot more!

Photogenic tea gardens.  Majestic elephants. Ayurvedic massages. Kathakali. Honest autorickshaw-wallahs!  The list can go on…

Some snippets from my recent visit...

Navigating through the backwaters...

The houseboats and the stunning scenery is without doubt Kerala's biggest tourist attraction

The Mahadevar Temple at Kottayam has some stunning architecture on its walls

The unique "Chinese" fishing nets at Fort Kochi

The Bird sanctuary at Kumarakom offers some beautiful sightings 

A mini-Venice, locals around the Vembanad region move around in boats rather than the road

India awaits freedom

History has it that Kamsa was a cruel and unjust ruler of Mathura. Kamsa was greedy and cunning, and imprisoned his father Ugrasena to become the King of Mathura by deceit. Kamsa aspired to rule the world, and his frequent war mongering left the peace loving people of Mathura harassed and exploited. When he learnt that the eighth son of his sister Devaki & Vasudev would kill him, Kamsa imprisoned them both and killed each of their children as soon as it was born.

But the eighth son, Krishna, survived.

It is said that when Krishna was born, the doors of the prison where Devaki & Vasudev were kept opened automatically, and the guards fell into a hypnotic sleep. It was midnight and raining heavily, but a Sheshnag appeared from nowhere and protected Baby Krishna from the heavy rain. The raging Yamuna calmed down almost by magic, and made way for Vasudev to pass to the other side of the overflowing river. For the next few years, as Krishna grew up in Gokula, Kamsa spent all his time searching for Krishna. He lost his appetite and slept poorly at night. He could see his dream of conquering the world fade away. He got obsessed with the thought of killing Krishna, but all his attempts to assassinate Krishna went in vain. The poisonous Putana could cause no harm, and Trinavarta, the ‘whirlwind’ demon was blown away. Arishta, Keshi, Kaliya and many others fell like ninepins before the might and magic of Krishna. Krishna was unstoppable, Krishna was unbeatable. Krishna was the Supreme Being.

Krishna was an idea whose time had come.

Today, five thousand years later, India again awaits an idea whose time has come.