IAS-2015 TEST SERIES,SAMVEG IAS DEHRADUN

Black money: pinning the shadow down

The steps taken so far, and this includes the Black Money Bill, to bring back an estimated $1.5 trillion stashed abroad are completely ineffective. There are better and stronger solutions available

Recently, on the suggestion of the eminent lawyer, Ram Jethmalani, the Chief Justice of the Supreme Court allowed me to lead arguments on the effective steps to be taken to bring back black money, or undisclosed illegally held funds, estimated at Rs.120 lakh crore, stashed secretly abroad by Indians in numbered bank accounts. This amount is about 60 times the annual revenue from income tax in the Union Budget.

The media had reported during the 2014 Lok Sabha election, possibly with the usual dose of interpolation and dramatisation, that Prime Minister Narendra Modi had pledged in election speeches to bring back to the country all this black money. According to these reports, Mr. Modi had said the money belonged to the nation, and every citizen would receive Rs.15 lakh in his or her bank account when the money came in.

When or where Mr. Modi said this is not clear, but the nation, convinced after his speech that this would be done, now holds the government led by the Bharatiya Janata Party (BJP) responsible for having failed to keep this promise.

It is a fact that despite the Modi government setting up, soon after coming to office, a Special Investigation Team under two former Supreme Court judges, there is no sign yet of black money having being brought back.

Does this mean that the BJP had underestimated the reality and complexity of the issue and that there are no quick fixes for retrieving the black money back? To understand this, it is important to recognise why eliminating black money is crucial to the nation’s strategy for high growth.

The black money issue should not be misunderstood as one of merely avoiding taxes. It is, in fact, a major systemic crime of denying the nation’s financial system the proceeds of wealth. Such denial should actually be declared as treason, where opportunities to share the wealth for the benefit of the poor are wilfully denied.

The spreading cancer

Black money is a cancer in our economic system, not yet terminal or life-threatening. But we do not have much time left, possibly only a decade, before the economic system starts to unravel and contort.

There are three dimensions to this cancer. First, there is a distortion of investment priorities because acquiring luxuries with black money favours high-level investment in the luxury goods industries — there is a higher rate of return on investment. This is similar to the cellular disorder in the body of a cancer patient.

Second, forward trading in agricultural commodities by cash-rich speculators causes fluctuations in prices due to hoarding of agricultural products.

Third, generating black money with impunity means that the quality is sub-optimised in public sector infrastructural projects by tender manipulation, under- and over-invoicing in trade, and so on. The so-called Black Money Bill of 2015, passed recently by Parliament, is inadequate to secure the return of an estimated $1.5 trillion deposited illegally abroad by Indian citizens in about 90 countries.

The statute is structured in a way that will ensure punishment for black money hoarders once the money is detected or admitted for amnesty, but has no provisions on how to bring back the money itself.

Taking the right steps

There are four ways by which the names and accounts that are illegally held abroad can be ascertained, and the money stashed away brought back.

First, the Central Bureau of Investigation/Enforcement Directorate can register a First Information Report on the receipt of information of illegal accounts through Intelligence sources, and then obtain a Letter of Request u/s 166A of the Criminal Procedure Code (1973) from a designated court. Then, the agency can use Switzerland’s Law On International Judicial Assistance in Criminal Matters and seek Swiss cooperation to confiscate the account.

The second way is the German or French method of obtaining records of a particular bank. Monetary inducements are used in these two countries to will senior bank officials, as was done with the Bank of Liechtenstein and HSBC in Geneva.

The third way, the U.S. method, was used in the Washington D.C.-based branch offices of the Union Bank of Switzerland and Credit Suisse. Senior bank officers based in the Washington D.C. branch were arrested on charges of espionage to pressurise Swiss authorities into giving over 5,000 names of U.S. citizens who had illegally opened bank accounts in these two banks that had claimed secrecy as a business principle. India also has Swiss bank branch offices in Mumbai.

The fourth is the method suggested by eminent jurist and senior advocate Fali S. Nariman in his Rajya Sabha speeches and opinion pieces in newspapers, namely, invoking the Resolution of the UN Convention against Corruption, adopted by the UN General Assembly in 2005 and ratified by India in 2011.

This requires Parliament to pass a law. Or, as a first step, it requires the President to issue an Ordinance to nationalise all the bank accounts of Indian citizens in the 90-odd nations where black money is stashed. Thereafter, bilateral discussions with each of these countries can take place to get hold of the accounts.

Moreover, SIT must seek a report from the Financial Intelligence Unit (FIU) of the Indian government on what it has done about suspicious transactions reported by banks. This will ensure that the banks report, on a real time basis, all suspicious transactions. SIT should demand both an investigation into at least 100 of the major suspicious transactions that have been reported in the past three years, and action to be taken against them within 10 days. There must also be a follow up on all other cases, as and when reports surface.

Issue of ownership

There is also no precise definition of politically empowered persons. It is defined as per the UN Convention against Corruption 2005, which India ratified and became a signatory to in 2011. Further, in line with the provisions of Section 12 of the Prevention of Money Laundering Act, all institutions must declare to the government their beneficial ownership — this will include ICICI Bank, Axis Bank, HDFC Bank, Jet Airways, and so on. Unless this is done, the ownership of several large corporations will remain unknown.

Mr. Nariman’s suggestion, the first of its kind, should become a crucial instrument of black money restitution, mandated by the Supreme Court.

These are the effective ways of obtaining the estimated $1.50 trillion stashed abroad. The measures being taken presently by the government are completely ineffective in tackling this cancer and are, therefore, only of diversionary value.

Why are many of the sports so badly governed

Why are many of the sports so badly governed? In India, there is no end of complaints from players and spectators about the bad and often illegal behaviour of the people in charge of administration of sports. Those in charge get elected in small exclusive coteries with neither players or spectators allowed to vote. They are answerable to no one. No wonder the Supreme Court had to intervene in the affairs of the IPL.

The latest scam is, of course, the re-election for the fourth time of Sepp Blatter as president of FIFA and his sudden resignation. There had been a lot of complaints about the way the World Cup locations for 2018 Russia and 2022 Qatar had been chosen. The investigative journalism of some British newspapers was commendable. But then England was also bidding and lost. Sour grapes, people said. ‘All this talk of corruption is just because the Europeans no longer rule football like they used to.’ ‘African and Asian countries are the majority. They loved Sepp Blatter.’ ‘Europeans were just being imperialists. They did not understand the way of doing business in Asia and Africa.’ ‘They were just imposing their own standards.’

FIFA had commissioned a report on the allegations of corruption but did not publish it. There had been rumours that Qatar and Russia had bribed the members of FIFA to secure the World Cup. Nothing fazed Blatter. He stood for the fifth time as president. One by one his rivals began to drop out till only the Jordanian prince remained as his rival. Then as if by miracle, the authorities in Switzerland where FIFA is located acted on a tip-off from the FBI and arrested 10 FIFA officials. Still Blatter insisted he was innocent. His friends came to his aid. Europeans were derided for going on about corruption.

Blatter got elected . Europeans had lost and did not know what to do next. Then FBI moved a bit closer to Blatter himself. This was a signal that the game was up. He resigned. There will have to be new elections and perhaps reconsideration of the locations for 2018 and 2022. We may begin to see the cleansing of FIFA.

The remarkable thing about this episode is that it illustrates the contradictions of globalisation beautifully. When England won the World Cup in 1966, football was largely a European and Latin American game. Most players in football clubs were local born and spectators also local, watching their weekly games in cold and uncomfortable stadiums. By 2014, when the World Cup was staged in Brazil, all had changed. European football teams had become multi-racial and multi-national. Television had multiplied the audience and brought lots of money to the game. Players commanded huge .incomes and even more fabulous transfer fees. Neither colour nor nationality mattered. If you had talent enough to play at the top, the world was your oyster. But when corruption proliferated, the cure also had to be global. Europeans complained about their beautiful game being ruined by the newcomers in FIFA but it was not they but the new kid on the block, the US, which moved to arrest the likely culprits. But then the dollar is a global currency for all transactions. Large bribes were being paid by cheques. (In India they know better and use the Gandhi notes.) These cheques passed through one or the other banks which did business in the US and around the globe. The globalisation of football and of finance set up the trap. There was one diligent nation which takes fraud seriously. The Americans tipped off the Swiss about the FIFA meeting as a good time to nab the suspects. The point has to be made that there can be no separate morality for the First World and the rest. Those who defended corruption by attacking European Imperialism were just defending elite rent seeking. Their citizens did not benefit nor did the spectators. No country treats corruption as legal. The elite get away with it if the democratic pressures from the Press and the civil society are weak. But global policing helps protect the interest of the weak against the powerful local elites. Globalisation zindabad! - 

For accountable cities

Since vast sums of money are to be spent on recasting India's city landscape over the next five to six years, this is the right time for the Centre to take the initiative in bringing about big changes in urban governance

If cities are to be the engines of India's growth, they need better governance. The Union urban development minister has talked about the central government alone provisioning over Rs 3 lakh crore on recasting the urban landscape over the next five to six years. State governments are also expected to come in with a similar amount; this, plus urban local bodies (ULBs) raising resources, means we have a huge developmental spending agenda of Rs 7-8 lakh crore in our 4,000-plus urban areas.

What this spending will need is good city-level leadership - both elected and bureaucratic. The fact is that our third level of governance still needs substantial strengthening. Given that such major spending is provisioned, this is the right time for the Centre to take the initiative to bring about big changes to urban governance.

One of the first steps should be to look at the spirit of the74th Amendment of the Constitution and develop an understanding with the chief ministers of all states as to what changes they will incorporate into state municipal legislation to enhance the powers and responsibilities of elected ULBs. A road map should address whether and when to have directly-elected mayors and chairpersons; and the role of para-statals like development authorities, water boards and so on.

One of the key points is which functions of those listed in the Twelfth Schedule of the Constitution (added when the 74th Amendment came into force) will be fully and effectively transferred to these bodies. Along with these functions, required funds and functionaries should also get transferred to the local body regime. Just to illustrate, when water supply is a local body function, why should a state-level water board continue to control this activity?

There is a good starting point for the dialogue. In the erstwhile National Development Council, a sub-committee of chief ministers had some time back recommended that ULBs should be empowered by the devolution of all functions listed in the Twelfth Schedule - and a framework law passed by Parliament could ensure that there is a fair degree of uniformity in the legislative and institutional framework for these bodies.

It would also be desirable to arrive at an agreement as to whether functions like those relating to urban transport and housing - which are essentially major city-level issues but currently do not figure in the Twelfth Schedule - can be or need to be added to that list.

A five-year road map can be worked out by chief ministers to implement the recommendations of the Fourteenth Finance Commission, before the next Commission becomes due in less than five years. As the FFC said, there is considerable scope for local bodies to improve revenues from their own sources by taking already-recommended steps. The measures which states need to take are listed in the report.

It is also the case that our urban bodies lack the governance capacity required for today's requirements. It is important that there is a major effort to revamp the municipal cadre structure and strengthen it. Also, the personnel must have continuous professional training opportunities. The working group report on municipal capacity-building could be the framework to take this agenda forward.

What we need is better, accountable urban bodies. Just as with the "City Challenge" competition for identifying the hundred "smart cities", as another open and transparent initiative in this direction the Centre could institutionalise an arrangement whereby city bodies' performances are ranked every year in terms of service delivery, overall performance and resource generation. Assessment of service delivery should be in terms of improvements in basic services, given benchmarks; while performance should be judged in terms of the implementation of schemes like the Swachch Bharat Mission, e-governance and housing schemes, and so on. Local bodies have to find more resources - and with better credit ratings, taking recourse to municipal bonds and such market mechanisms becomes an option. Thus they could generate more resources - which would be the third area of performance ranking.

It would encourage our cities and our citizens if the three best mayors and commissioners of the country from out of 4,041 urban bodies receive such rating awards from the prime minister once every year.

With such a spirit of constructive competition among local bodies it is also possible that city-dwellers also start taking various initiatives on their own to demonstrate their pride in their city of residence.

Once this essential dialogue takes place between the Centre and the chief ministers, the timelines jointly worked out could be incorporated in the "smart cities" mission and the Atal Mission for Rejuvenation and Urban Transformation, or AMRUT.

Does India need so many ports?

Vietnam has suddenly woken up to a new and unusual problem. On its 3,400-kilometre coastline, which is along one of the world's busiest sea routes, it is dismayed to find that its policy of encouraging the establishment of more and moreports has only led to over-capacity - which has put a question mark over its ability to attract the sort of high-value manufacturing that depends on efficient logistics systems. Almost every province along the coast has managed to grab a port project and the Vietnamese government has projected private investment of more than $32 billion by 2020 to develop transport infrastructure. As a result, the country finds that port capacity lies idle, cranes are silent and investors are counting their losses.

This is typified by Vietnam's only deep-sea facility, the Cai Mep Port, set up at the mouth of the Cai Mep River and the South China Sea at a cost of $2 billion in 2009. It was seen as a crucial step in boosting shipping volumes by 130 per cent by the end of the decade. South Sea consultants, Asia, estimate that the port has already lost about $1.5 billion since then - mainly because there are just too many ports nearby. Traffic is routinely siphoned off to other ports in the area; and, with each port fighting for the same cargo and wooing the same lines, the future for Cai Mep looks bleak.

Vietnam is not the only country that has sought quantity over quality in the port sector. Gujarat, which has what is arguably one of the best Maritime Boards in the country, also tried to hard-sell the state's coastline by encouraging huge private investments in a large number of ports. The difference is that hard-headed businessmen in India studied capacity creation in Gujarat and made their own investment decisions. Many sites offered for port development did not attract any bids - so over-capacity is not a problem for Gujarat.

Unfortunately, governments do not always exercise the same care and consideration when they make investment decisions with public funds. In a mis-guided move in last year's Budget speech, the finance minister announced the setting up of two new major ports on the east coast. Estimates put government outlays for these ports in excess of Rs 5,000 crore. And even this is not enough. Not long ago the ministry of shipping said it would approach the finance ministry for Viability Gap Funding for these ports, because on their own they would not be able to attract investment.

One of these ports, in West Bengal, is expected to offset the disadvantages of a long riverine channel and shifting currents from which both Kolkata and Haldia ports suffer. There is some justification for this move, because to access Kolkata port ships must traverse a channel of 236 km with a dodgy draft and excessive silting. Huge amounts have to be spent each year on dredging this channel and even then a minimum depth is not guaranteed. A port located at the point where the ocean meets the river can easily receive large vessels that can be lightered so that smaller vessels could deliver cargo at Kolkota and Haldia. Even here however, it is not clear why Paradip port, which is not very far from the site of the new proposed new port, was not dredged and developed for this purpose. Why create another port when an existing one can perform the same function after being suitably upgraded at a much smaller cost?

The real killer however, is the proposed port in the erstwhile Andhra Pradesh. Planned for location at Dugarajapatnam in Nellore district, it will have to compete with both major and non-major ports that have been established much earlier and are therefore better placed to offer cargo handling facilities at greatly lower cost. Andhra Pradesh already has a major port at Vishakhapatnam that is one of the largest among the major ports in terms of cargo handled. In addition it has two other private ports, at Gangavaram and Krishnapatnam, which have been set up at considerable cost and will leave no stone unturned to attract cargo. Finally, there is Kakinada port, which has been in existence for a long time and which receives a good deal of liquid cargo.

Faced with this embarrassment of riches, why would the government want to spend good money on setting up yet another port in this area? If P G Wodehouse once talked of a very stout man whose several chins were continually fighting for a place on his collar, one can only pity the state of Andhra Pradesh as port after port fights for place on its coast and for a share of its cargo.

More ports do not necessarily bring in more cargo. The extent of a country's exim trade is a function of its policies and its openness to international commerce. When growth rates pick up, existing port capacity will definitely be inadequate. But the best and most cost-effective way of addressing this is to upgrade and refurbish existing ports to enhance their capacity. In other words, quality over quantity every time.

The unfortunate part is that the budget for building new ports is needed but not where the government is spending it. There is a crying need for investment in small new ports in India that can more effectively cater to vessels on coastal and inland waterway runs. In spite of a massive 7,500 km of coastline and five national waterways, the amount of cargo moved by water is negligible. Instead of concentrating on the development and expansion of infrastructure that would make water transport more attractive, we have prioritised road transport and turned our already over-crowded highways into death traps.

There are many policy initiatives needed to promote coastal shipping and inland water transport, but one vital input is a series of small ports dotting the coastline which will be accessed only by such vessels. Coastal vessels find it extremely difficult to use large ports, whether managed by the Centre or the states. Such ports are usually expensive, they are congested and priority is invariably given to larger foreign-going vessels. Most important of all, such ports come under the jurisdiction of the Customs department and coastal vessels find it extraordinarily difficult to persuade Customs officials that their writ does not cover coastal shipping. There is a huge amount of paper work that must be gone through before coastal or inland vessels can move out of these ports and this only adds to transaction costs.

All this points to the need for a string of small ports around the coast, meant exclusively for short sea and inland shipping. Shippers and shipping lines will find such ports much less costly and more user-friendly. They will encourage the growth of coastal shipping and decongest our heavily polluted road network

Who rules cyberspace?

A new architecture of social power and control is getting built with its core in the U.S. India should work through the BRICS group to develop an alternative to this Internet hegemony

The Internet evokes a deep dilemma of whether ‘to govern or not’. Few things work as well as the Internet does: it’s always on, always obliging, and consists of endless possibilities, routinely conjuring wonders that we have not dreamt of. On the other hand, it is difficult not to be troubled by how the Internet is everywhere, but without any clear means of accountability and political reaction to how much it is changing around us. But without sufficient clarity regarding the nature of the problems and the required solutions, mere general political scepticism cannot hold a candle to the populist governmental-hands-off-the-Internet sentiment. The latter is expectedly strongest among the richer classes, who trust the devices of the market to get the Internet to do their bidding. Other than routine knee-jerk reactions over people freely expressing themselves on the Internet, which could threaten various kinds of power elites, while also sometimes causing genuine security and cultural concerns, there exists no serious political conceptions around the Internet in India today, much less its appropriate governance in public interest.

This state of affairs is quite detrimental to society as the Internet is becoming closely associated with social power and control in almost all areas. It has become like a global neural system running through and transforming all social sectors. Whoever has control over this neural network begins to wield unprecedented power — economic, political, social and cultural. Two elements of this emerging system are the connectivity architecture and the continuous bits of information generated by each and every micro activity of our increasingly digitised existence — what is generally known as Big Data. Even a superficial scan of how the triple phenomenon of digitisation, networking and datafication is occurring in every area will suggest the nature of consolidation of power in the hands of anyone who can control these two elements.

Every sector is impacted

Take the agriculture sector for example. Monsanto is now increasingly a Big Data company, as it holds almost field-wise micro information on climate, soil type, neighbourhood agri-patterns, and so on. Such data will form the backbone of even its traditional agri-offerings. It is easy to understand how data control-based lock-ins are going to be even more powerful and monopolistic than the traditional dependencies in this sector. Recently, John Deere, the world’s largest agricultural machinery maker, told the U.S. Copyright Office that farmers don’t own their tractors. Because computer code runs through modern tractors, farmers receive “an implied license for the life of the vehicle to operate the vehicle”. There is a pattern of end-to-end informational controls.

Similar developments are occurring in every other sector. Policymaking and governance are becoming dangerously dependent on Big Data, even as the public sector is all but giving up its traditional responsibilities for public statistics. The state is increasingly dependent on data collected and controlled by a few global corporations. Data companies such as Google are entering verticals like automobile and health in a manner that is threatening the traditional players in these sectors. Doctors subscribing to medical information networks carrying patient data, disease demographics, pharma information, and so on could soon become but appendages of the network. The network they think right now is a mere support may become the primary agent in the relationship. Such is the power of the network, vis-a-vis its peripheral users. Network and data providers in the education sector sell their services in the name of personalised offerings for every student, and every context. Schools with resources may find them alluring, but then they merely add to the power of the monopolistic networks, at the expense of their peripheral users. As their power consolidates, so do the terms of engagements mutate in the favour of the network controllers.

Here we have deliberately used examples of power shifts across whole sectors induced by digital networks. On the individual-use front, it is perhaps even easier to see the kind of social power exercised by those who can at will alter the algorithms of Facebook and Google, which increasingly provide us the logic and pattern of our social relationships and of means of accessing information and opinion making.

All this should set us thinking about who really controls the digital connectivity patterns and Big Data. In this regard, one can speak of a global unipolar networked-digital complex, with its elements of political and commercial power, both overwhelmingly concentrated in the U.S..

We are therefore witness to a phenomenon which is of extreme social importance, spanning all sectors of society. And the powerful levers of control of this phenomenon almost entirely lie in an eco-political domain over which the Indian society or state has no control, and very limited influence. This should be a public policy nightmare. However, you would not suspect it if you were watching the political discourse in India, not only inside the government but also outside. One comes across periodic discussions on freedom of expression issues, while the state, and some civil society actors, have begun to show heightened security-related anxieties. But one hears nothing about the overall new architecture of social power and control that is getting built, with its core in the U.S. It implicates very significant long-term economic, political, social and cultural issues that should greatly concern a country like India. Even freedom of expression and security are significantly related to this new power architecture.

Governments are traditionally slow on the take with regard to such rapidly moving phenomena, however socially important they might be. Civil society engagement in this area is dominated by middle class interests, whereby markets tend to be considered as essentially benign. Their major struggle is against the excesses of the state, the Internet no doubt being a significant new arena for such excesses. This has resulted in serious blind-spots regarding the larger architectural issues about the global Internet, with far-reaching economic, social and cultural implications. It is urgently required to undertake a systematic examination of these issues, situating them in the geo-political and geo-economic logics that overwhelmingly drive them. Appropriate domestic and foreign policies have to be developed within such a larger understanding.

India’s geopolitical options

Even for a country of India’s stature, it is not easy to play the geo-political game on its own, and certainly not in an area viewed by the dominant actors as among the most crucial for establishing global political and economic domination. No quarters will be given here, as has been clear from the pronounced non-activity in the limited UN-based global forums dealing with Internet governance issues. This, therefore, is not a field for the faint-hearted; it requires strong real politik approaches.

The only option left for India is to go with the strong nations that are similarly placed with respect to U.S.’s digital hegemony. Although this is one area where the EU countries are almost as much the victims as other countries, it is unlikely that they will break their geo-political alliance with the U.S. any time soon. They would either keep suffering silently, or seek solutions at the bilateral level with the U.S., and through strengthening EU level regulation. Just last month, the economic ministers of Germany and France sought a “general regulatory framework for ‘essential digital platforms’” at the EU level.

India should work through the BRICS group (Brazil, Russia, India, China and South Africa) to develop an alternative to the U.S.-based global unipolar networked-digital complex. This may be the only viable path right now. It could be difficult for BRICS to work together on issues involving civil and political rights, for which reason the cooperation could focus on economic issues. The global architecture of the Internet today is mostly determined by its geo-economic underpinnings.

Going beyond the typical one-off treatment of Internet and big data issues, BRICS must begun to see them in a larger geo-systemic framework. The last BRICS summit gave a resounding response to the global financial hegemonies by setting up a New Development Bank, and an alternative reserve currency system. The next BRICS summit in Ufa, Russia, in July 2015 should come up with a similar systemic response to the U.S.-centred Internet. This can be achieved by pulling together a strong framework for BRICS cooperation on digital economy. That would be the biggest game changer with respect to what is now a complete stalemate over global governance of the Internet.

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