“I’m willing to admit that I may not always be right, but I’m never wrong” — Samuel Goldwyn

Category: Economy and Business

Water in the desert

Djibouti — Potential Areas for Development, Some Thoughts

Areas identified for development are those, which  according to my perspective would have an all-round beneficial effect on communities. The choice of processes to implement them would fit in with local conditions, and would be subject to modifications. Each activity would have zero-waste, zero pollution processes.

A Conversation

During the course of a conversation was asked: Which country would be my choice in Africa today for investing, in addition to the Caribbean and Northern Europe.
My answer: I’d look at investments in the same way as the other two geographic areas, from the point of view of how it would help in the economic empowerment of the common people.

The primary factor influencing my choice was was the political environment in that country. If that was stable, and was likely to be so in the future, with a low crime rate, then an operational strategy could be put into place. Foreign investors need to be insulated from local political pressures if a country is to benefit from the investment and technology they bring with them. They require the support of all political groupings for all-round benefit of communities. The second factor was the potential for development.

Narrowed my choice down to two countries, one on the west coast, and one on the east coast, and chose Djibouti.

All the areas would require significant investment, some more, some less. My simple answer is, that the required funds can be generated, if one knows how to go about the process.

In my case these investments would be driven more by socioeconomic objectives rather than a pure profit motive. It isn’t that profits won’t be made, they will be, tangible and intangible. A business model will ensure that a share of the profits up to the retail level, will go to those associated with the various projects.

Without getting into details, which form the subject matter of reports prepared by international consultants, presented in beautiful folders with a country report, charts, graphs, statistics, background matter, cash flow projections, etcetera, we shall proceed to what to my mind are the areas where I would like to be involved in.

Djibouti

The official title of the country is the Republic of Djibouti.

Map of Djibouti

Quoting from earthwise.bgs.ac.uk:

The economy is dominated by the service sector, which accounts for 80% of GDP, with commercial activities focused on the country’s free trade policies and transport links. Industry, including fishing and fish processing, and growing salt production, accounts for around 17% of GDP. The desert environment limits agricultural production, which accounts for only 3% of GDP. Rural people traditionally relied on nomadic pastoralism, but rural populations are now small: three quarters of Djibouti’s inhabitants live in cities. Its limited natural resources mean that Djibouti relies heavily on energy and food imports. Despite the importance of services to the economy, there is very high unemployment. Nevertheless, relative political stability also means that the country has become an important country of passage for refugees, asylum seekers and economic migrants from surrounding countries.

Djibouti is an arid country with low and erratic rainfall, and limited surface water resources, and it relies almost entirely on groundwater for drinking water and irrigation. Increases in water demand have led to intensive exploitation of groundwater from the mainly volcanic aquifers across the country, with consequent falling groundwater levels and groundwater quality deterioration in many areas. Periodic droughts in recent years, with reduced recharge, have put even more pressure on groundwater resources.

One of the immediate areas which comes to mind is the re-development of existing villages, towns, and cities, and the building up of new ones, offering economic opportunities, so that the population can be more widely dispersed and employed gainfully all over the country. I have no doubt that the Government would have thought of this aspect. All that remains is for those plans to be refined to be implemented, [investment].

Water — The Basic Building Block

Water

Djibouti has a large sea coast. Our primary process for sourcing water supplies would be desalination, and taking it inland in phases till about 20 kilometres. [An assessment on taking pipelines further inland could be decided after that]. A secondary and simultaneous choice would be the use of Atmospheric Water Generators (AWG’s) for producing potable water from air. The Relative Humidity varies from 43% to 74%, well within the operating parameters of AWG’s.

Would coordinate with local authorities for processing waste water and sewage. Recycled water can be used for irrigation. Power can generated from sewage.

The major use of desalinated water would be for greening, (keeping in mind that we’re operating in a desert area), using suitable varieties of grass, and nutrient-based irrigation methods.

In most desalination processes, brine left over from the desalination process is released back into the sea. We would use it to make saltwater batteries, to be used in conjunction with solar and wind power facilities, in urban or rural areas for 24-hour power.

Rainwater Harvesting: Even though the rainfall is erratic, the potential for rainwater harvesting exists, and based on past patterns of flash floods, a system of storm-water channels and tanks for storage can be planned to prevent runoffs.

Freshwater Fish Farming: To open up another economic area would also explore the rearing of freshwater fish as an area of activity.

Note: The ocean between Djibouti, Yemen, Oman and other neighbouring countries have a very high level of oxygen depletion and are considered a ‘dead zone’. The amount of fish caught as time goes on will continue to decrease,  as will their quality, affecting the fishing industry. The only way forward is mariculture and as mentioned above rearing of freshwater fish.

Ethiopia

While on water let’s examine the water resource situation in Djibouti’s neighbour Ethiopia.

Ethiopia has 12 river basins with an annual runoff volume of 122 billion m3 of water and an estimated 2.6 – 6.5 billion m3 of ground water potential. This corresponds to an average of 1,575 m3 of physically available water per person per year, a relatively large volume. However, due to large spatial and temporal variations in rainfall and lack of storage, water is often not available where and when needed. Only about 3% of water resources are used, of which only about 11% (0.3% of the total) is used for domestic water supply. Source: ‘Water Resources’ on https://ethiopianinstitute.org/water-resources/

Storage resources can be organised along rivers, with generation of electricity by mini- and micro-hydro power plants. Large dams are not required, they do more damage than the benefits they are supposed to confer. Storm water drainage channels leading to storage tanks need to be planned for rainwater harvesting.
[Investments can be organised for a holistic plan. Ethiopia can also benefit from the growing of Industrial Hemp for creating a whole range of economic activity].

Industrial Hemp (the non-THC variety)

The primary choice of crop to start agricultural operations would be Industrial Hemp, IH, (from which over 27,000 products can be made), after which we could look at growing other crops, vegetables and fruits. They would be grown using organic methods without chemical fertilisers and using organic pesticides. IH is ready for harvesting in 90 to 120 days. [Industrial Hemp is not a source for THC]. Environmentally one acre of IH absorbs 4X the amount of Carbon Dioxide as one acre of grown trees. Hemp is ready for harvesting in 90 to 120 days, a grown tree takes 25+ years. It is also good for soil remediation, in this case it’ll be used to prepare the desert soil so that it can be used for planting other crops.

Industrial Hemp Farming

Harvesting of Industrial Hemp. From shift.is

Uses of IH

15 Ways Hemp Can Save the World (link)
Growing hemp prevents pesticide pollution ♦ Hemp helps restores soil fertility ♦ Hemp can produce biodegradable plastics ♦ Hemp plant absorbs toxic metals ♦ Hemp is an outstanding renewable biofuelFabrics made from hemp do not contain chemical residue ♦ Hemp can reduce effects of carbon emissions ♦ Cultivating hemp prevents deforestation ♦ Industrial hemp conserves water ♦ Hemp supports sustainable farming practices ♦ Growing hemp prevents soil compaction and erosion ♦ Hemp builds stronger and healthier homes ♦ Hemp reduces air pollution ♦ Hemp grows in almost any environment ♦ Hemp can help curb world hunger

7 reasons why you should start consuming Hemp (link)
A powerhouse of healthy nutrients ♦ Reduces the risk of heart disease ♦ Boosts immunity ♦ Gets rid of stress ♦ Acts as a pain reliever ♦ Helps in healthy weight loss ♦ Aids in digestion ♦ Improves skin and hair

Potential for establishing textile manufacturing facilities [fabrics, garments, furnishings]. Djibouti already has a weaving tradition in place, hemp fabrics will offer diversification. Production of hemp paper, as well as oil extraction facilities and units for production of edible downstream products. Hemp plastic units. Waste to energy units for using the biomass. Seed-cake after oil extraction can be used hemp flour, and for fish and cattle feed. Also manufactured wood suitable for a wide range of wood products.
[Generation of earning opportunities and jobs from each economic segment].

Soilless Farming

Soilless farming uses about 5% of the amount of water used in conventional farming, [ideal for arid areas], to grow pesticide free produce. The growing area in such farms have a multiplication factor, four to thirty times the ground area used for conventional growing. This initiative does involve an initial capital expenditure. Each such farm will have its own power supply using solar and wind, as well as cold storage’s, and reefers for transport and supply.

Veget

A part of such farms will be used for growing flowers, mainly to be used for extraction of essential oils to be used for manufacture of perfumes and cosmetics, and pharmaceutical products. The biomass after the flowers are harvested will be used to operate a waste to energy plant.
[Produce would be supplied for available for domestic consumption, food processing, and exports. Generation of earning opportunities and jobs].

Dairy Farming, Processed Products, Meat, Leather

Cows and Milk

With the availability of water, it would be possible to establish a series of dairy farms, (in addition to the existing ones), which would allow the production of milk, processed dairy products, meat, and hides. The availability of hides opens up the possibility of processing hides for fine leather, and thereby leather products.

Dairy and Leather Products

Varieties of cheese; beef being grilled; leather bag

Goats: Since goats are reared it would be worthwhile exploring the establishment of fixed farms for goat-rearing communities. Goats contribute to desertification, because they uproot grass by the roots when they graze, unlike other ungulates. Fenced-off rearing spaces with feeding troughs for the goats would enable rearing as well as preventing damage to the land.
[Goat milk, cheese, mutton, leather].

Renewable Energy

Djibouti from all reports is self-sufficient in generating electrical power, and has a surplus. All activity areas planned would generate their own power requirements — solar, wind, biomass.

Golf — Leisure, Tourism, Training

Djibouti has one desert golf course at  Douda. It could be greened and made into a regular golf course, with a supply of desalinated water. Would like to develop another one or two, covered with solar panels, (150 acres+), which would house a golf academy to train young men and women from schools and colleges, to enable them to play professionally by the time they finish their studies. Lights would be fitted under the solar panels enabling it to be used as a day-and-night course.

Douda Golf Club

Golf course at Douda Golf Club

Other Sports

If we consider desert heat as a resource, it can be used for cooling systems. Consider a completely covered stadium cooled using desert heat, with solar panels on top to provide power for the lighting, supported by wind power and battery storage systems.

The one I have in mind, would allow football (soccer) and hockey to be played in the centre and have a running track around it. (Used to have one like that in the school I studied in, except it wasn’t covered).

Stadium

Indoor, cooled facilities for: tennis, badminton, basketball, and volleyball, any other indoor sport. These would provide facilities to sportsperson’s and the general public. However the major objective is to provide training facilities.

Basalt Fibre

Basalt Rebar

According to geological reports 60% to 70% of the country is covered with basalt rocks. Potential exists to establish manufacturing facilities for basalt fibre and rebars to be used in infrastructure, and exports. Basalt is not affected by sea water and does not corrode like steel.

Some More Thoughts

Aviation — current state

Of the five companies offering aviation services in Djibouti, who are shown to be active, only one has a fleet of two 25-year-old aircraft. There are several small airports over the country. Would require a comprehensive development plan encompassing both airports [size, services, engineering services] and aircraft [choice of aircraft, fleet size], to build up a viable aviation sector for it to be able to deliver economic benefits.
[Potential to collaborate or takeover an active company, and develop a regional airline, using turboprop aircraft, using them for passenger and cargo].

Transportation — Road and Rail

Haven’t touched on the subject of transportation, both road and rail. From available information a certain level of road and rail connectivity already exists. The challenge would be to develop new road and rail networks, and upgrade existing networks to provide smooth connectivity supporting economic activity of all kinds, as well as leisure travel.

Multimedia Studio Facilities, Skill Training

Most countries especially small ones possess a pool of talent in the arts with their own cultural traditions. However they’re hampered in reaching out to audiences due to a lack of production facilities. It would be worthwhile setting up studio facilities, audio and video, especially for young artistes to be able to reach out to a global audience, along with a skill centre for training, (at no cost to the trainees). It would be something like this. Link to proposed skill centre in Punjab.

With the availability of water and cooling systems

Poultry
The availability of [desalinated] water, and water-based systems for cooling large areas, would make it possible to rear poultry (chicken, turkey, quail, duck, geese, etc.), by providing cooled halls for feeding areas, pools for the aquatic birds, and areas for the birds to roost. So the doors open for supply of eggs, meat, and processed/cured meat products, (hams, sausages, salamis, etc.), which makes it another income generating area for women’s groups. The [meat] waste can be processed for manure and other products — zero-waste, zero-pollution. Waste water would be recycled and used for watering grassy areas.

Horticulture
Apart from soilless farming mentioned above, available information suggests that there is a large scope for horticulture products, using both organic farming, and controlled environment pesticide free farming processes.

Horticulture

MM

There are a lot of other areas which have potential and require looking into, which can be taken up once the main activities are established.

All in all Djibouti would be a good place to invest in for development. The underlying principle is that each area of development generates either jobs or earning opportunities, no raw materials are exported, only finished goods, and profit is not the sole motive.

Image credits: theodora.com/maps; technobasalt.com; golfadvisor.com; Unsplash.com — MRJN Photography, Maira Salazar, David Nicolai, Paula Hermann, Alana Harris, Annie Spratt, Jonathan Borba, Eilive Sonas-Aceron, Ertiom Vallat, Maksim Shutov, Alice Butenko, Nadine Primeau, Megan Markham; Source for ‘Uses for Industrial Hemp’ image — truthinsideofyou.org

‘Process — Do Not Recycle’

Note: For some mysterious reason known to the gods of cyberspace, my pieces on processing of plastic waste vanished from here. I am combining both pieces and re-writing this from my notes.

When processes are dealt with in a holistic fashion, they have a visible and positive environmental and economic impact.

Quoting from an earlier piece:
We have a tendency to view things in isolation, whereas everything in the universe is inter-connected. What is considered as ‘waste’ is the starting point for something that is useful, and so on, till we arrive at a state of zero-waste. Nature does not waste anything, only man does.

So a solution is produced for one ‘problem’, without taking into account interconnections with that ‘problem’, and in the end we have produced more problems than solutions.

Dealing with plastic waste is a world-wide problem and has solutions. Banning plastics is not a solution. Dealing with plastic waste as a resource is. There is a lot of it already accumulated, and more being generated every day. Taking a somewhat contrarian view I am proposing that till alternatives are developed for using plastic packaging and products, plastic waste be used as a valuable resource, which is why this piece is titled, ‘Process — Do Not Recycle’.

Recycling creates it own set of problems, as parts of the unused waste then either clogs up drains and waterways, or is dumped in landfills.

Processing on the other hand, (properly done), converts the plastic waste to usable products, leaving no waste for a landfill or polluting the environment. ‘Properly done’ is the keyword here. Like all processes, proper protocols have to be followed, for the desired results. It will be noticed that wherever problems have arisen, it is due to cutting corners, whether in the process of collection or in processing.

The Potential

Let us see what is possible when plastic waste is processed. This includes all kinds of plastic wastes including synthetic fabrics.

One tonne of plastic waste has the potential to:

  • generate 1 MW of electricity from waste heat generated during the process of conversion;
  • generate around 900 litres of fuels, the final products — diesel, aviation turbine fuel, kerosene, fuel oil — determined by the processes used, which are currently available;
  • generate cooling, air conditioning, or heat, depending on the location.

The properly done processing means the plastic waste is converted in a sealed building, where the air from the inside of the facility is fed through a scrubber, before it is released into the atmosphere. This is not a process for cutting corners, where accountancy procedures are allowed to override technological and safety considerations.

The positives

  • Employment generation, direct and indirect, starting from the collection process, processing, and distribution (of fuels).
  • No plastic waste in the streets, drains, waterways, which means cleaner rivers and oceans, and no plastic waste going to landfills.
  • Creation of value in terms of electricity generation, and fuels.
  • Cleaner environment.

To those countries engaged in a debate on exporting their plastic waste, I’d say don’t. Process it, don’t throw away a valuable resource by exporting it.

I have not touched on household and commercial organic waste, which can be used to generate Methane (to electricity), Manure, and Water. Again zero waste goes to a landfill.

Similarly I haven’t touched on cotton products and textiles, which can be processed for bio-ethanol.

The proposition is, that it is possible to have a zero-waste situation if the waste problem is tackled in a holistic manner.

Underground Money and Foreign Direct Investment

What could be the connection between Underground Money and Foreign Direct Investment.

One has the potential of unlocking the economic power of the country, and the other an immediate palliative with negative after-effects.

Another disclosure scheme for ‘unaccounted’ money, or ‘black’ money has been announced. A very small percentage of that money will be declared, and the rest will literally continue to remain underground.

[Update: 30 September 2016 has passed and the amount declared under the Income Declaration Scheme is Rs 65,250 crores disclosed by 64,275 declarants, or Rs 1.015 crore per declarant. Rs 10,000 crores more is expected once tabulation is complete, which would bring it to Rs 1.170 crore per declarant. My suggested model would have brought in much, much, more.]

[Update: 29 November 2016. A demonetisation scheme was announced on 8 November 2016, whereby currency notes with a face value of Rs 500 and 1,000, ceased to be legal tender from that date. From all reports the move does not seem to have achieved the objectives it was announced for, and according to assessment by economists the world over, will have an extremely negative effect on the Indian economy as a whole.]

These schemes do not work because in the whole scenario, the most important factor has been missed out, the human factor. A retributive scheme of taxation has never worked from the time that a system of taxation came into being, a few thousand years ago. What he have today is a carried over colonial system of taxation, which successive governments have tinkered with since 1947. Not once has any government applied their mind as to whether the money extracting system of the East India Company, or the British Raj was suited for an independent India.

No one has ever thought of the principles enunciated in the Arthashastra. These excerpts are extremely relevant today.

Ideally, the government should collect taxes like a honeybee that sucks just the right amount of honey from the flower so that both can survive. [Has this ever been followed?]

the taxing power of the state should be limited, tax should not be felt to be heavy or excessive, tax hikes should be introduced gradually, tax should be levied in the proper place, time and form, and tax level should be equitable and reasonable. [The taxation system over the last few decades has been unreasonable and inequitable].

The root of wealth is economic activity and lack of it brings material distress. In the absence of fruitful economic activity, both current prosperity and future growth are in danger of destruction. The King shall populate the countryside by creating new villages on virgin lands or reviving abandoned village sites. [The thrust on mindless urbanization, has had its consequent results of overcrowded cities, with a large percentage of the city populations living in slums. Villages need to be made self-sustaining so that villagers do not have to come to the city for work]

Economics works well with resource management, efficient administration, a fair judicial system, knowledgeable people with integrity capable of taking up high positions. [How many governments have measured up to these words of Kautilya].

For Kautilya, good governance was paramount. He suggested built-in checks and balances in systems and procedures for the containment of malpractices. Many postulates of Kautilya’s philosophy of political economy are applicable to contemporary times.

Economics is all encompassing, and not confined to an economists neat graphs, charts, equations, trends, and treating a human being as a data point. Human beings act on their feelings and emotions, and when that is neglected, one has a chaotic economy, with an unbalanced taxation system, and a country lands up with an underground economy. The strongest human emotions over the centuries have been linked to money and assets exemplified by Zar (wealth), Zameen (land), Zan (woman). [In a historical and cultural context, a woman, was equated as a possession, and still continues to be so in many societies]. Governments tread on very dangerous ground when they levy taxes without considering the human consequences. It is not an arithmetical exercise, and never will be. Governments who understand this will always have strong economies.

To come back to where we started.

India has an immense amount of underground money. According to an NIFP report, the size of the parallel economy is around 75% of the GDP. Now whether we take the nominal GDP value of 2.308 trillion dollars or 8.027 trillion dollars by Purchasing Power Parity, 75% is a fairly large amount. (October 2015 figures)

This money, which if brought into the banking system, would obviate the need for foreign direct investment to a very large extent. Without getting into the morality of naming, shaming, exposing, penalties, we need to focus on what the country requires today. Here’s an approach which I have proposed before, modified in the light of present day requirements, as a solution.

  • Issue bearer bonds with a face value of 1 crore, 10 crores, and 100 crores.
  • The bonds would bear an interest of 2.5% per annum, and be redeemable after 10 years. [Redeemed money is not to be treated as income. The income from its investment into economic activity can then be taxed].
  • No forms to be filled, no questions to be asked. Designated bank branches would receive the money, check the received amount for fake notes, count the money, and issue the bonds. [Banks would deduct a 10% handling charge to cover their costs. Identities will automatically come to the fore when the bonds come for redemption].
  • [If black money can become holy by landing up in a holy place’s coffers, it can surely become ‘white’ when it lands up in a bank vault. Money is money and has no colour].

The money so received in the banking system would be advanced to:

  • Farmers, Women Entrepreneurs, Artisans, Weavers, Self-Help Groups, Tribals, Micro-enterprises, Village-level Industries and Facilities like cold storages, food and dairy processing, animal husbandry, biomass to energy plants, health-care centres, organic farming, and so on, with an interest rate of 4% per annum, with a cap on the borrowing. To put things in perspective, money is borrowed at 2%–5% per day by vegetable and fruit vendors. [This would boost up the farm sector, the rural economy and the so-called unorganized sector. The cap would be decided by groups of people familiar with the problems in these sectors. No bureaucrat or politician should be associated with these groups. The condition is that the government cannot change the recommendations — since governments exist to carry out the will of the people].
  • Small Enterprises at an interest rate of 6% per annum, including localised renewable energy projects not exceeding 2 Megawatts.

Legislation should be brought in so that banks and micro-lending institutions can lend at these rates.

None of the money received by the banks on this account will be available to medium and large enterprises, who will use normal banking or institutional channels for their credit needs.

Have touched on this before. Nothing in an economic system works in isolation. Every activity is interconnected. To make the system work we also need to implement measures like:

  • No personal income tax, which would mean that the long list of deductions would also be scrapped. There are other ways of replacing the revenue received from personal income tax.
  • Remove service tax. [This is an unnecessary tax and has only increased the cost of services to consumers without any benefit accruing to them. The poor and the rich are affected equally].
  • Corporate income tax to be capped at 15%. [This would encourage a lot of companies to set up base in India, and provide an alternative to Hong Kong, and Singapore. Ireland functions with a tax rate of 12.5%].
  • Along with this would be required lifting the controls on foreign exchange. [Indians will not need to set up offshore companies, and a lot of those set up outside will be encouraged to come back to India].
  • GST (whenever it comes) to be capped at 5%, with no extra levies.
  • No multiple taxation.
  • Plugging of leakages in government expenditure. [The Aam Aadmi Party government in Delhi has shown that leakages can be plugged, and the positive benefits for citizens due to this — lower cost of infrastructure, supply of basic services at an affordable cost, free healthcare, good school infrastructure. All in line with the Arthashastra].

There are a lot of supporting regulations and systems which will need to be set up and refined to support these main reforms, to reach a Singapore/Hong Kong level of efficiency, which I’m not covering here.

Have just focussed on the main points, which if set right would really make India an economic superpower and improve social conditions of all the citizens.

Request that comments be in the directions of improving on the solutions suggested, and not why these things can’t be done. We have had enough of that. Let us have people-guided solutions instead of government directed solutions.

 

Ease of Business, Taxes, and Other Things

“Some men see things as they are and ask why. Others dream things that never were and ask why not.” — George Bernard Shaw

This will be a longish piece, expressing thoughts based on my interactions and observations. This is not exactly an academic treatise, so I’m taking the freedom to ramble. You’re welcome to agree or disagree. I shall not be responding to any “this can’t be done” critics. Throughout human history, progress has always been spearheaded by those who believed “it can be done”, and fortunately we have no shortage of such souls in the country.

On 5 October 2015 there was a statement by Sri Lanka’s Finance Minister Ravi Karunanayake’s inviting Sri Lankans and Indians who had to take back their deposits from banks in Switzerland to place their funds in Sri Lanka, no questions asked.
This was basically about recognizing a practical situation, and converting it into an opportunity.

The Hindu-1On the other hand India lost an opportunity by bringing forward legislation full of heavy taxes, and penalties. All this while recognizing that excessive taxation was responsible for the flight of capital. (I am not commenting on money received in the form of bribes, kickbacks, proceeds of smuggling, etc., which is spirited abroad, and which is where efforts of the agencies concerned should be directed to).

Coming back to the Sri Lankans. India should have allowed the declared offshore money to have been deposited in accounts with micro-financing banks, giving account holders an interest 1% less than the saving bank rate of interest, with a lockin period of say 7 years.

That money should have been available for lending on a micro financing basis with an interest rate of 6% and a maximum borrowing limit of 10 lakhs. (This would require amending the rules governing the base lending rate. Everything being interconnected). On a comparative scale, money is borrowed in wholesale vegetable and fruit markets (mandis) at a daily interest of 2% and more. This should answer your question, if you’ve ever wondered about the big gap in wholesale and retail prices.

This measure would have improved poverty levels to a great extent, and accelerated the pace of economic growth.

While on the subject, there could be be a domestic declaration scheme. Money Bond’s or Infrastructure Bond’s with a face value of 1 lakh each could be issued (no questions asked), bearing an interest of 2.5% per annum, non-transferable, and non-tradable for 10 years.

According to a NIFP report, the size of the parallel economy is around 75% of the GDP. Now, whether we take the nominal GDP value of 2.308 trillion dollars or 8.027 trillion dollars by Purchasing Power Parity, 75% is a fairly large amount. (October 2015 figures)

That would make available a really large amount of money which can be spent on building up social infrastructure, economic infrastructure, power and industrial capacity. (Charging 30% tax on declarations and penalties will not bring this money out, from wherever it is stored or hidden).

Apart from the fiscal and economic angle, “black” money is connected with electoral funding, which makes electoral reform another component, which requires correction in the scheme of things. (The Aam Aadmi Party has demonstrated that it is possible to fight an election with transparent funding and accounted money).

Kautilya said in his Arthshastra:

“the taxing power of the state should be limited, tax should not be felt to be heavy or excessive, tax hikes should be introduced gradually, tax should be levied in the proper place, time and form, and tax level should be equitable and reasonable.

Ideally, the government should collect taxes like a honeybee that sucks just the right amount of honey from the flower so that both can survive.”

Kautilya also said that good governance and stability go hand in hand. According to him, there is stability if rulers are responsive, responsible, accountable, removable, and recallable, otherwise there would be instability. (Just having large numbers in legislatures does not ensure stability).

Cultural Policing

From The Hindu, 6 October 2015.

Any economic system is composed not just of arithmetical numbers, but people who make that system function, within a business, cultural, and political environment. Everything has to mesh smoothly if the system is to function to the advantage of everyone. India has an unnecessary proliferation of tax departments, (another colonial legacy), all levying different kinds of taxes, which need to be unified for ease of tax collection, and simplifying life for the citizens.

Every one says that India needs to grow. To do that it needs to create the conditions for growth. All round economic progress will not be achieved by creating industrial corridors, and making farmers, industrial labour. Millions of jobs need to be created, and big manufacturing units with their penchant for automation, are not going to be able to do that. The micro and small businesses need to be supported and encouraged.  (Figures are available in the public domain for jobs created by big business since 1947, versus small business which has created the majority of jobs).

Environmental DestructionPlanners in India need to focus on a larger number of small projects, rather than those of the ultra- and mega- variety, which meet the needs of the people, rather than displace communities, or damage the environment for some kind of mythical growth. (Over 25% of India’s population, mainly rural and poor, has been displaced since 1947 by big dams, and some are still to be rehabilitated).

Better to have ten 50 MW power plants closer to consumption centres, rather than have one 500 MW plant. Have a series of smaller dams, rather than one big one. (This would place lesser pressure on the environment, have zero displacement of people, and generate the same amount of electricity as the big one). Encourage and support micro- and mini-hydel projects.

Back to Kautilya again: Three principal vocations are recognised as providing men with the means of livelihood namely, krsi (agriculture), pasupalya (cattle rearing) and vanijya (trade). The three together constitute varita (derived vritti —livelihood).

Agriculture

For a detailed explanation of the rural scenario, you can read this excellent article by Subir Roy.

Amit Prakash in Digital India needs to go local, says, “Framers of development policies worldwide, and in India, have realized that an explicit recognition of the pathways through which the poor and marginalized contribute and benefit in the economic growth process is important.”

India needs to grow every sector, particularly agriculture and agro-based industries, otherwise there will be no food to eat, and migration pressure on cities will grow. We need thousands of smart villages and towns, rather than smart cities. The investment required will be many degrees less than that required for cities. (Why should people have to come to cities for work). We have overcrowded metro cities full of slums, thanks to politicians not having a clue about urban planning.

We need integrated facilities set up in rural areas, so that one has renewable energy and waste-to-energy plants in a series of inter-connected micro-grids, for power; use heat recovery from them for refrigeration (cold storages) and air-conditioning, for storing vegetables and fruits, to be used for food processing, milk and dairy products, and so on.

What is also required to move this forward is an infrastructural network of rural roads, telecommunications (internet connectivity), and marketing support.

An example of what can be done: Sugar Mills.
This is from a personal observation at a sugar mill, which wanted power to be generated from bagasse.
There was enough sugar left over in the bagasse after crushing to be used for extraction of ethanol. The resultant bio-mass could then be gasified and used for power generation allowing for complete usage of the bagasse, rather than just burning it in boilers. According to International Energy Agency estimates, an integrated sugar cane to ethanol technology, the well-to-wheels CO2 emissions can be 90% lower than conventional gasoline. Brazil (which uses ethanol blends for fuel), is considering using sugar cane for production of ethanol only rather than sugar.
The waste heat from power generation can be recovered through primary and secondary heat exchangers for refrigeration and air conditioning. One can then have a cold storage facility along with a sugar mill, at practically nil operating cost.
There are many more things like this which can be done. The brain power is available in the country.
Effect: It will stop rural migration to cities, and increase the spending power of the rural population.

Ease of Business, Banking and Taxation

A lot has been written and spoken about making it easier to do business, and how we wish to rival Singapore, Hong Kong, and other financial centres. To get anywhere near them we require to change a few basic procedures.

  • one should be able to incorporate a company in one to two days; (Estonia is offering it online in 20 minutes).
  • payments to the RoC should be enabled through any bank, like any other online payment;
  • Allow Chartered Accountant’s offices to be used as a registered office, (they’re looking after the company’s affairs in any case);
  • the process of opening a bank account should not be a time consuming process for limited, private limited, or LLP companies;
  • directors of private limited companies, LLP’s should have no problems being issued business debit cards from any bank. It is not understood why all banks offering current account facilities cannot issue business debit cards;
  • corporate tax levels are brought down to 15.5% or thereabouts, in line with Hong Kong and Singapore; (otherwise India can never be a viable alternative)
  • restrictions are removed on Forex transactions, (with sensible checks and balances). As a reference point the foreign exchange reserves in billions of dollars are: India: 355.459; HK 343.213; Singapore 251.921. (October 2015). A 0.075% transfer tax can be levied, in case an Indian bank is just being used to transfer funds.

Effect: Indian companies who have established off-shore companies, would be able to operate from India with Forex transactions not acting as a restraint. A lot of foreign companies would find it viable to establish a base in India, rather than say in Hong Kong or other places. India has a lot to offer in terms of things to be done and market size. There would be an all-round improvement in the economic climate in terms of investments, new businesses, and employment generation.

Income Tax

Others besides me have felt that levying personal income tax is not necessary. It was a wartime tax and should have been abolished on attaining Independence.

Had posed a question to Doctors Bimal Jalan and Montek Singh Ahluwalia in a casual conversation, at a book release function in 1991: Why didn’t they work out a plan for doing away with income tax. I got a smile from both of them.

However implementing this change will require a radical shift in mindset by the government. A start can be made by dropping the personal income tax level to a flat 2.5%, to be levied on incomes above 5 lakhs, and 5% for incomes above 25 lakhs, with no exemptions and deductions. This will make returns simpler, reduce a lot of paperwork, and free manpower in the Income Tax department for other tasks.

Alternative means of taxation

Since taxes are required to run the nation and public services, other sources of taxation need to be tapped. Basically we need to go to a purely consumption based tax system. (Everyone is a consumer, rich or poor, old or young, buying goods or services).

For example let us take city of Delhi, and within Delhi, two areas, Karol Bagh and Chandni Chowk.

There are any number of street vendors, (sweet meat sellers, vegetable & fruit sellers, flower sellers, roadside eateries, small shops, sellers in weekly markets, etc.), who don’t pay any tax, and they number in the millions. Add to them very small makers of biscuits, bakery products, confectionery, other food items, and other manufactured items. Levy a 0.5% turnover tax on their daily sales.

Since everyone now has a bank account, (more or less), they can be linked to it with a Tax ID, like the Permanent Account Number (PAN). The Aadhaar Card should not be used, since we already have the tax system linked with PAN. Young men and women can be organized to visit each vendor physically in designated areas, with a dedicated Tablet, at the beginning of the day, to get the previous days sales figure, and transfer the tax due to the tax department online. The transaction can be authorized by the vendors over their mobiles. This system will avoid accounting creativity of gross profits, nett profits, etc., by linking the tax to the turnover.

One may have to think in terms of late night cash collection centres, a reverse of a third-party payment bank, which can credit the bank account of the vendors, without the vendor being required to visit his bank branch for deposits. The cash collection centres can be jointly owned by all the banks.
Effect: Revenue generation, and employment generation for the youth and the retired.

According to the Ministry of Housing and Urban Poverty Alleviation, the number of street vendors is 10 million. Their website say that Mumbai has the largest number of vendors, at 250,000, Delhi has 200,000, Kolkata, more than 150,000, and Ahmedabad, 100,000. The actual numbers may be larger than that.

Indirect Taxes

Service Tax levels should not exceed 5%, and should ideally be between 1% and 5%, (remember “collect taxes like a honeybee”. A similar approach should be followed for sales tax, VAT, etc. There should be no service tax on bank transactions, credit card bills, and similar transactions.

No multiple taxation. If one goes out to eat food, one pays a single tax. One’s bill shouldn’t look like a complicated financial statement. Taxes and charges levied on passengers travelling by air are a typical example. You’ll notice that the taxes and charges at Rs 2,906 are nearly 2.6 times more than the base fare.

Airfare breakup-1Why should there be so many surcharges and taxes. Air travel is also part of the economic growth process. (A lot of other things require straightening out in the aviation sector, but that would require a separate article).

There is a need to reduce the tax collection points for manufacturing and distribution. The retailer should not be a part of the process. There should only be two points of collection, the manufacturer, (excise and sales tax), and the distributor, (any local taxes).

Banking

Banks-Overdraft chargesThere have been certain anti-customer moves by banks in India over the last few years.

Minimum Balance Charges
Minimum balances for ordinary savings accounts, with a debit card, (daily cash limit — Rs 50,000, PoS — Rs 1 Lakh), cheque book (20 leaves), and internet banking, should be between zero to Rs 500. This will take care of a bulk of bank account holders. Private banks are the biggest culprits in this regard, with minimum balance charges 10 to 30 times of those levied by nationalized banks. Moreover they do not offer any special facilities, which a bank like SBI with zero minimum balance requirements offers. There should be no minimum balance charges leviable on savings accounts.

Otherwise these become accounts with negative interest, when the minimum balance charges exceed the interest paid.

Banks are free to offer premium accounts with higher minimum balances to those who wish to opt for them.

ATM’s
ATM’s were supposed to relieve pressure on the staff at bank branches. Now all of a sudden they are complaining about costs of operating ATM’s, and the RBI was happy to go along by limiting ATM withdrawals to 4 a month. These need to be brought up to 15 withdrawals a month.

In fact going a step further, banks should stop operating individual ATM’s, since they say they are losing money. Hand over all ATM operations to White-Label ATM’s, which have been growing at a slow pace so far. The cost of ATM operations for banks will come down and customers will not be penalized.

There are other charges too, but these are the two main sticking points.

It may be worth getting a CAG audit done especially of private banks to see how much they earn by way of penalties, levies, and other such charges. They are always very happy to announce their profits, perhaps they can inform their customers where those profits come from.

Mother Branch: In an era of computerised all-branch banking, and scanned signatures and photographs, customers should be able to get things like passbooks or other documents issued by any branch, rather than be told to go the “mother branch”. (One should be able to get a physical verification done at any branch).

Clearances and approvals

Solar Power is the flavour of the season. It can require something like 40 clearances/approvals for setting up a solar project in some states. It is recognized that clearances and approvals are required for projects, otherwise there would be chaos. However the process should be simplified and a concept of single-window clearance should be the norm

Environmental Clearances

If we have projects, then we require environmental clearances, and India’s record on this front especially for large projects, is not a happy one.

The Uttarakhand disaster was a prime example of “bending” rules.

Since clearances are given by government authorities, there is a conflict of interest situation, when the same authorities are involved in the preparation of EIA’s and SIA’s.

Preparation of EIA’s and SIA’s, could be done by organizations like the Narmada Bachao Andolan, Greenpeace, Centre for Science and Environment and the like. A copy of the report could be filed with the National Green Tribunal, to be referred to, whenever required.

This would prevent EIA reports saying that land is barren, when 3 crops are being grown on it, or a SIA report in favour of a port site, ignoring hundreds of fishermen and their families who will be uprooted and having their fishing catchment area destroyed.

A last thought. This is what happens when governments follow skewed taxation systems, and then insist that other countries help them recover money, which has been deposited there because of their high taxation rates.

US Taxes-1This was supposed to be about things to be done for ease of business, but like all other human activity it encompasses a lot more than just making rules simpler for establishing businesses. What is required is simplification of rules and procedures across the board, and removal of a lot of unnecessary irritants. Have only pointed out some examples. A lot of changes are necessary if India is to become a super-power, otherwise all the grand plans will remain dreams.

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