Vijay Kumar Gaba

Monday, December 15, 2014

The longest hour

Thought for the day

"Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other. "

- John Adams (American, 1735-1826)

Word for the day

Efface (V, trn)

To cause to disappear by rubbing out, striking out, etc.; to erase; to render illegible or indiscernible.

(Source: Dictionary.com)

Teaser for the day

I dare all champions of Hindu cause to visit Vrindavan during rains!

The longest hour

This morning the financial market place seem more like a war front to me; where the next one hour seems much more critical than the next day and no one seems interested in talking or listening about next one month or next one year. Survival is the key here not the longevity.

Writing a strategy about next one year under the circumstance seems like a hazardous task to me. Nonetheless, moving with the heard, I would like to foresee the events in the womb of time and bet my money on some of the events which I feel are most likely to occur.

I am encouraged by the fact that despite all grave accusation and great provocations, I maintained my NIL weight to commodities, underweight to infrastructure & financial, and overweigh to consumers and exporters stance throughout the year.

I am also satisfied by not getting carried away by the change in government in India and insisting on first seeing the change on ground before betting on my money on broader economic growth trade.

I have always maintained that historically, a large majority of Indian businesses have grown on government patronage and/or resource arbitrage opportunities and have been low on innovation, productivity and scale. The politically advantageous socialistic façade of the government, especially during 1950-1990 led to misallocation of resources, trade and capital controls, demand suppression, and protectionism that promoted low productivity. The conditions have changed in past 10-15years but not sufficiently to make a majority of Indian businesses globally competitive.

The following trends, which are quite likely to strengthen in next few years, would suggest that a large number of small, over protected, less productive, uncompetitive, under-capitalized businesses should become extinct in next decade or so.

In past two decades we have seen this happening with small steel and cement plants, textile manufacturers, petrochemical plants, numerous public sector undertakings, NBFCs, etc.

There is no reason why it should not happen to (a) small and mid-sized engineering and construction companies which purely survive on administrative patronage: (b) ITeS providers who are pure commodity plays solely focused on wage arbitrage opportunities; (c) mid-sized commodity producers who cannot scale up to compete with global corporations in a more open, price & quality competitive and transparent market; (d) intermediaries who are not adequately capitalized and technologically prepared to serve or compete with large global businesses which are highly price sensitive, etc.

Over next few days, I will present my thoughts on various issues concerning investors.

Friday, December 12, 2014

May Sensex tread its own random path

Thought for the day

"Public opinion is the thermometer a monarch should constantly consult."

- Napoleon Bonaparte (French, 1769-1821)

Word for the day

Happenstance (n)

A chance happening or event.

(Source: Dictionary.com)

Teaser for the day

J&K beats Mumbai in cricket!

Will it also do so in democracy, by giving a clear mandate?

May Sensex tread its own random path

The recent CII "in-camera" meeting has evoked considerable interest in media and market circles. The selective leaks and euphemistic explanations somehow reminded me of the Hans Christian Andersen's story "The Emperor's New Clothes".

From what appeared in media, it looks that the Indian industrialists are already skeptical of the capabilities of the new government. Many in industry are apparently beginning to believe that the Modi led government is not doing enough or doing things the wrong way, but no one has the courage to speak up openly.

The cynicism, in my view, is flowing from the fact that at once everyone believed that the PM Modi will be able to implement his Laissez-faire or free market theory based economic model almost immediately at the national level. Regardless of the fact that he could implement the model in Gujarat only with limited success. Even though, unlike many other states, Gujarat has a history of 200years of industrialization and 60mn people who are globally recognized for their enterprising skills.

To give some concession, many captains of industry have advocated grant of reasonable time for bringing effective changes in traditional Nehruvian socialist model to the desired Laissez-faire.

But the zest with which they seek "reforms" almost immediately dissipates when you mention the words "Nira Radia", "Coal Gate", "2-G Spectrum" in front of them.

In my view, considering the present state of socio-economic development of various parts of the country, it is 10-15years too early to test the Laissez-faire model at the pan-India level. Hence, presently, Modi’s Gujarat model may not be of much relevance at the national level.

But at the same time I do not see the Gujarat model as PM Modi's limitation also. PM Modi has very successfully demonstrated his strategy skills in past one decade. It would be totally wrong to assume that he would not be able to adapt to the larger responsibility and formulate an appropriate strategy for integrated development of the country.

However, the proposal like dismantling the Planning Commission without having a concrete idea and or without putting in place a conceptual framework for the alternative mechanism will only erode his credibility.

The daily patterns emerging at Sensex technical chart do not worry me. 30K, 20K, 50K or 100k are just numbers which may temporarily concern a miniscule proportion of population. What worries me is affording too much importance to this number. Anecdotally, I know that too much focus on stock market has only brought many distortions in the policy.

I believe that the new government is merely a reflection of the people's desire for change - change in the way this country and economy has been run so far. The change will take place at the speed and in the direction the people at large are comfortable with. May the Sensex chart tread its own random path.

Thursday, December 11, 2014

Show me the Dollars

Thought for the day

" When small men attempt great enterprises, they always end by reducing them to the level of their mediocrity."

- Napoleon Bonaparte (French, 1769-1821)

Word for the day

Philosophaster (n)

A person who has only a superficial knowledge of philosophy or who feigns a knowledge he or she does not possess.

(Source: Dictionary.com)

Teaser for the day

ET headline yesterday talked about an in-camera meeting of CII, where a critical evaluation of government's performance was made.

Are they scared of Modi?

If yes, why?

Show me the Dollars

In the summer of 2007, I had just moved to the financial capital Mumbai from the political capital Delhi. The mood was as buoyant as it could be. Everyday plane loads of foreign investors and NRIs would alight at Mumbai airport with bagful of Dollars. They would spend two hours in sweltering heat to reach the then CBD Nariman point (Worli Sea link was not there and BKC was still underdeveloped), and virtually stand in queue to get a deal where they can burn those greenbacks.

Mumbai properties were selling like hot cakes. Every day one used to hear some mega property deal. NRIs from middle east, Europe and US were buying properties without even bothering to have a look at them.

Bank were hiring jokers for USD 100 to 500k salary for doing nothing. I was of course one of these jokers!

That was the time, when sub-prime crisis has just started to grab headlines. Indian economic cycle started turning down in spring of 2007, with inflation raising its head. RBI had already started tightening. Bubble was already blown and waiting for the pin that would burst it.

INR appreciated more than 10% vs. USD in first six months of 2007.

INR depreciated over 75% during period from January 2008 to August 2013. This was the time when Fed was printing USD at an unprecedented rate. There was no shortage of EUR, GBP and JPY either.

The point I am making is that in the present times when most globally relevant central bankers are using unconventional policy measures to stabilize their respective economies, the value of currency is seldom a function of demand and supply alone.

Regardless of the economic theory, it is the faith of people in a particular currency that is primary determinate of its relative exchange value.

2005-2007 was the time when the Indians had developed good faith in their currency. Local people were happy retaining their wealth in INR assets, despite liberal remittance regulations and NRIs were eager to convert a part of their USD holding in INR assets.

The situation changed 2010 onwards. There is no sign of reversal yet. Despite huge popularity of Narendra Modi amongst overseas Indians, we have not seen any material change in remittance pattern in past six months. Despite tighter regulations, local people appear keen to diversify their INR assets.

Most of the USD inflows have come from "professional investors" who invest others' money to earn their salaries and bonuses. These flows are bound to chase the flavor of the day, not necessarily the best investment. Whereas the outflows are mostly personal, or by corporates with material promoters' stakes.

In my view, no amount of FII/FDI money can strengthen INR if Indian do not have faith in their own currency. Yield and inflation have become secondary considerations.

Wednesday, December 10, 2014

Cart leading the horse

Thought for the day

"I am sometimes a fox and sometimes a lion. The whole secret of government lies in knowing when to be the one or the other. "

- Napoleon Bonaparte (French, 1769-1821)

Word for the day

Nonage (n)

A period of youth or immaturity.

(Source: Dictionary.com)

Teaser for the day

Lehman Bros. was crucified in the financial collapse of 2008!

Who will it be in the commodities' collapse of 2015?

Cart leading the horse

The elementary principle of economics is that the price of a thing that has any economic value is determined by the forces of demand and supply. Often in the short term a state of inequilibrium does exist leading to volatility in prices. However, the equilibrium is usually restored by operation of a variety of factors.

There is no denial that economics is youngest amongst the scientific discipline and pure scientist hesitate in admitting it as a discipline of science. Nonetheless it is evolving fast and becoming popular.

Not getting into this academic debate, what I have understood is that in popular economics theory:

(a) Price of currency is usually a function of demand and supply of that currency at any given point in time. Higher supply should normally leads to lower exchange value and vice versa. The demand of the currency is determined by the relative real rate of return (interest) and level of economic in the parent jurisdiction.

(b) Price for a particular commodity is determined by the demand and supply conditions of that commodity at any given point in time. The demand of commodities fluctuates as per the level of economic activity in the consuming jurisdiction, export demand and outlook for the foreseeable future. The supply of commodities may fluctuate due to a variety of reason - local to the producing jurisdiction as well global.

(c) Interest rates are usually function of demand and supply of the money in the monetary system. Demand for money is again impacted by the level of economic activity and outlook in foreseeable future. Whereas supply of money is mostly a function of risk perception and relative return.

The traits of human behavior like "greed", "fear", "complacence", "renunciation", and "aspirations" have all been accounted as the balancing factors for demand and supply and not considered as determinates of price as such. This in my view is the cause of most problems facing global economy in the present times.

Consequently, the business of forecasting has become extremely difficult and fraught with risk.

In past two months I have seen hundreds of reports forecasting price of commodities, most notably crude oil; currencies, most notably USD and JPY; interest rates, most notably US policy rates.

Most of these forecast appear mere extrapolation of the current price trend and hence do not inspire any confidence.

In Indian context, exchange value of INR, 10yr benchmark yield and crude oil prices evoke much interest. Interestingly most economic growth forecasts appear predicated on these, whereas logically it should be the other way round.

...to continue tomorrow

Tuesday, December 9, 2014

Kal ho na ho!

Thought for the day

"Never interrupt your enemy when he is making a mistake. "

- Napoleon Bonaparte (French, 1769-1821)

Word for the day

Cant (n)

To talk hypocritically.

To speak in the whining or singsong tone of a beggar; beg.

(Source: Dictionary.com)

Teaser for the day

Declare "Bhagvat Gita" as a National Book!

What does it mean-

(a) Honor Gita and Lord Krishna; and/or

(b) Give recognition to Gita; and/or

(c) Honor India and Indians?

I feel it is a blasphemous idea!

Kal ho na ho!

The Chandershekhar government in 1991 originated the idea of disinvestment in public sector enterprises (PSE) with the stated objective to “broad based the equity, improve management and enhance the availability of resources for these enterprises”. In April 1993 the Rangrajan Committee that was set up to make recommendation on the issue of disinvestment, made some radical suggestions which obviously remained unimplemented. The NDA-II government led by Atal Behari Vajpayee added the term privatization to disinvestment policy in 1999.

During Vajpayee regime some serious work did happen with regard to disinvestment. The best part was that the government of the day bravely and rightly focused more on "Divestment of Monopolies" as against mere "Disinvestment of Minority stake in PSEs".

The government sought to divest its monopoly over core businesses like ports, airports, coal, power, oil and gas exploration and production, roads, mobile telephony, data transmission, etc. It started the process in right earnest. However, the problem was that most of this endeavor lacked any conceptual framework.

Consequently, we constructed bridges where there was no river.

As we discovered a decade later, lack of a strong conceptual and regulatory framework eventually led to huge losses to government, banks, investment and entrepreneurs due to numerous scams, non-viability and unsustainability of projects, and legal hurdles.

It is pertinent to note here that post liberalization of trade and commerce in 1990’s, the maximum employment and investment growth has occurred in private enterprises. In particular self employed entrepreneurs have increased exponentially in the country. This coincided with the sharp fall in public sector employment. The aggregate private sector employment level has not been able to compensate for fewer opportunities available in public and unincorporated private sector. Consequently, the total number of employees on live payrolls has fallen sharply since early 2000’s.

Failure to adequately address the employment issue, i.e., creating alternative opportunities in lieu of declining public sector and government employment, has led to failure of disinvestment plans in once profitable and in demand PSEs like BSNL and Air India. Labor unions have also hindered the restructuring of Coal India (which in my view is sprinting fast to join BSNL in the blind alley), and capitalization plans of most public sector banks.

I have seen that in past five years, many investors have been vary of investing in PSEs. The primary reason is total and utter disregard of minority shareholders by the government, in not running these enterprises strictly on the sound and prudent commercial principles. Exploitation of oil sector companies to meet political ends is just an example in case.

To sum up, my suggestion is that government should DIVEST most of its businesses when going is good with the world swashed with liquidity. For all you know kal ho na ho. Selling 5-10% would not help anyone.

Monday, December 8, 2014

Selling sweets at village fair

Thought for the day

"The best way to keep one's word is not to give it."

- Napoleon Bonaparte (French, 1769-1821)

Word for the day

Genuflect (v)

To be servilely respectful or obedient; to grovel.

(Source: Dictionary.com)

Teaser for the day

Given the behavior of our parliamentarians, do we seriously need to reconsider the Constitution of India?

Selling sweets at village fair

The beginning of the disinvestment process by the new government could at best be described as farce. It reminds me of an old bedtime story, my grandfather used to narrate.

In a village, there lived a widow with her two sons. Both the sons were lazy and hated studying or working. Once when the annual fair of village was going on, the mother prepared some sweets and told her sons to go and sell those sweets in the fair and earn some money. She also gave one rupee each to both the boys for buying food for themselves. Both the sons reluctantly went to the fair, found a shaded place under a big tree and dozed off only to wake up at the lunch time. Feeling hungry, the younger boy bought sweets from his elder brother and gave him one rupee the mother had given him. In return, the elder brother bought sweets worth two rupee from the younger one. In one hour, they had sold all their sweets, had satiated their hunger and had also saved the two rupees their mother had given them. Happy and satisfied, they returned home by late afternoon. Of course to the dismay of their mother.

Since 1991, when the process of selling minority stake in public sector enterprises (PSEs) first started, the government has attended many such fairs and sold lot of such sweets. Who has actually benefitted from this frequent ritual is matter of detailed study.

Unfortunately, what started as a strategic program to limit the role of government in routine businesses like making steel, running airlines etc., has degenerated to a fiscal management tool.

In spite of full recognition of the pertinence of limiting government’s role in business to core and strategic areas and exiting all non-strategic businesses successive governments have failed in achieving the stated objectives and targets.

The February 2002 President address to joint session of the Parliament categorically admitted that “Learning from our experience, especially over the last decade, it is evident that disinvestment in public sector enterprises is no longer a matter of choice, but an imperative. The prolonged fiscal hemorrhage from the majority of these enterprises cannot be sustained any longer.”

The primary reasons for the abject failure, in my view, are:

(a) lack of a comprehensive policy framework on the issue of government role in business and

(b) lack of commitment to the stated objectives of disinvestment.

Evidently, the disinvestment program has been mostly used as a measure to manage fiscal balance rather than as a business or policy decision.

...more on this tomorrow

Friday, December 5, 2014

The game of cat of mouse continues

Thought for the day

"Wisdom is oftentimes nearer when we stoop than when we soar."

- William Wordsworth (English, 1770-1850)

Word for the day

Contrite (Adj)

Deeply affected with grief and regret for having done wrong; penitent;

(Source: Dictionary.com)

Teaser for the day

Which party needs to worry most about coming together of splinters of erstwhile Janta Dal - BJP or Congress?

The game of cat of mouse continues

After reading the 3rd report of the Tax Administration Reform Commission, I am reminded of the tale of Cat and Rats, that I have shared with readers once earlier also.

“Once the king rodent called a general assembly of all rats to ponder over the rising feline threat. Everybody was too concerned and bothered about the menace. After a long deliberation, it was unanimously agreed to appoint a strategic consultant to advise on the matter. The consultant so appointed studied the problem in great detail and came out with this voluminous report, that primarily highlighted that cats are far more powerful, wise and smart animal than mice. Therefore it is extremely difficult for the mice to put up a credible defense against the menacing felines. The only way to counter the threat, the report egregiously suggested, is that all rats should become cats.”

The report just states the "too obvious". Besides being too academic, at places it is seen conspicuously flirting with naiveties. There is nothing remarkable in suggestions like simpler procedures, use of technology for data mining and identifying cases of non-compliance, lesser number of exemptions and deductions etc. However, going back to controversial and mostly unsuccessful measures like FBT and BCTT shows lack of innovative ideas and progressive thinking.

For example, consider that the panel suggests that agriculture income higher than Rs50lacs should be taxed at regular rates. It however does not explain how a farmer in India can earn more than Rs50lacs from agriculture. The average land ceiling for agriculture land in India may be 25acres. The average annual yield per acre varies from Rs20,000 to Rs. Rs1,00,000.

If the number of farmers earning more than Rs50lcs is material, the panel could have assessed how these farmers are earning so much from agriculture. If it is through leased land, whether the government needs to examine the benami holdings. If it is case of higher yields, whether the department should examine the probability of coloring of money in the garb of agriculture income. Some states have liberal land ceiling for horticulture. But the panel is not suggesting segregating horticulture from regular farming.

I also found the following quote from the report amusing:

"It is an admitted fact that the tax culture is lacking in India. Despite considerable efforts to widen the tax base, the number of taxpayers is about half the number who should pay tax if they adhere to the law. Although the rates have been lowered over the years, the country still lacks the desired tax culture that exists in developed nations. It is time perhaps that tax is not considered a burden but a price for public services, if not for civilisation itself."

"To develop a tax culture, revenues collected should be wisely spent and taxpayers should be able to see how their tax money has been spent. This will encourage them to pay willingly and may be happily. Tied to this is the need to curb corruption and tax evasion. Every rupee collected that is misapplied reduces monies that would otherwise be available to the government for developmental purposes."

Thursday, December 4, 2014

Despite the brave talk...

Thought for the day

" Pictures deface walls more often than they decorate them.

- William Wordsworth (English, 1770-1850)

Word for the day

Renascent (Adj)

Springing or rising again into being; showing renewed vigor.

(Source: Dictionary.com)

Teaser for the day

If Naveen Tyagi and Niranjan Jyoti are "Hindu", then I am not! Are you?

Despite the brave talk...

I had an opportunity to meet a group of learned financial market participants last evening. With benchmark indices close to all time high levels; 10yr yields sliding below 8% after long; gold and silver prices in down trend and copper prices slithering towards cycle lows - the sense of discomfort in the room was palpable. From the discussion, I could gather the five major trends that are bothering the discerning minds at this point in time.

(1) The global environment that seemed stable and improving six months ago appears to have taken a turn to the worse. All efforts to accelerate global economic growth through unconventional monetary policies have yielded little result. Major economies of Europe, China, Japan, Russia look more vulnerable today as compared to 2008-09 crisis period. The stability in financial market as measured by the yield of sovereign debt of most troubled European economies, e.g., Spain, France, Italy, Greece, Portugal etc., seems a distortion and hence unsustainable.

(2) The commodities' world look seriously in trouble. The emerging and frontier markets that supported the global economy post 2009 appear more vulnerable than ever. Besides Euro area, many new points of vulnerability have emerged e.g., Latin America, Central Europe, South Africa and Australia.

(3) US that appeared as harbinger of global economic stability and growth till couple of quarters back is posing more questions rather than providing solutions.

It is not yet clear how the USD would react to the rising US rates. If USD strengthens in equal proportion it could be a double whammy for emerging market businesses, especially those carrying huge USD debt.

Moreover, rising US rates may trigger a major USD carry trade and all the USD of world start rushing back to US in search of higher yield. This could be a disaster for EM assets, both equity and debt.

The rising cost of capital may impacts the US consumption demand which is still fragile as shown by poor Thanks Giving numbers. Intuitively lower energy prices should boost US consumer sentiments, but it appears that there is paradigm shift in US consumers' savings habits. If higher costs actually results in even higher propensity to save rather than spend, we may have different kind of problems. The commodity demand may collapse further and deflation specter may acquire even more ominous proportion.

(4) Union Budget for FY16 has become a major milestone for investors hope, in the absence of any concrete program for economic revival in past six months. A below par delivery there could cause major disappointment and reevaluation of Indian economy.

(5) With Bihar (2015), West Bengal (2016) and UP (2017) elections, PM Modi may remain engaged in electioneering forever, leaving the governance to other ministers, who like him may not follow the zero tolerance norm as seriously.

Wednesday, December 3, 2014

Subsidy reforms: Need a micro approach

Thought for the day

"In modern business it is not the crook who is to be feared most, it is the honest man who doesn't know what he is doing. "

- William Wordsworth (English, 1770-1850)

Word for the day

Nosophobia (n)

An abnormal fear of disease.

(Source: Dictionary.com)

Teaser for the day

Heard on street: the top leadership of Congress is in drought mode post Lok Sabha election. Preservation and thrift is the order of the day at Akbar Road and Janpath!

Subsidy reforms: Need a micro approach

One of the major problem with the centralized planning process has been the misguided and misdirected social welfare planning and subsidization programs.

It is critical to evaluate this aspect, along with more popular foreign investment and PSU disinvestment policies, to make a realistic assessment of need for reforms in social spending of the government as in past decade or so it has accounted for over 50% of the total budget spending.

Efforts to achieve socio-economic and regional equality and justice through various subsidies and welfare programs have not yielded desired results in past six decades.

Whereas it is common to cite poor execution and leakages as the primary cause for sub-optimal results of the social welfare programs, in my view, the primary reason is disregard to regional diversities.

For example consider the following:

(a) Lakshadweep (95%) and J&K (65%) have large Muslim population; whereas Meghalaya, Mizoram and Nagaland (65-85%) have large Christian population. Implementing uniform religion based welfare program for these states is bound to fail.

Similarly, the Schedule Tribe population in Hathras district in UP (0.1%) Goa (0.04%) are materially different from the ST population Mizoram (95%) and Lakshdweep (95%). How implementing same reservation policies in these states, Union Territories or even districts could yield desired results.

(b) The southern states in India mostly witness hot weather and receive abundant sunlight. Western states get abundant sunlight, have arid environment. Northern, Central and Eastern states have a variety of seasons, while hill states mostly have cold climate.

Having uniform energy policy and subsidization for all these states is bound to produce disastrous results, as the case have been.

For example, a solar energy based subsidy policy in south and west, a wind and tidal energy based subsidy regime in coastal areas, and a mix of solar/LPG/KSO subsidy regime in northern and central plains, and hydel energy based subsidies to hill areas from beginning could have created an amazing energy security infrastructure in the country in past six decades.

(c) For example, Punjab & Haryana, UP & Bihar, MP, Rajasthan and Tamil Nadu have very different water resource profile and irrigation infrastructure. Within UP eastern and western parts differ materially. Having uniform food and farm subsidy regime has only increased regional disparities.

Tuesday, December 2, 2014

Tax reform - make it simple, objective

Thought for the day

"To begin, begin."

- William Wordsworth (English, 1770-1850)

Word for the day

Specter (n)

Some object or source of terror or dread.

(Source: Dictionary.com)

Teaser for the day

If it is 35 (BJP), 35 (PDP), 12 (NC) and 5 (Congress) in J&K Assembly - How the government will be formed?

Tax reform - make it simple, objective

The debate over tax reforms in past few years has circled around GST, GAAR, simplification of tax filing and assessment procedures, and rationalization/elimination of taxes like dividend distribution tax (DDT); Minimum Alternative Tax (MAT), especially in respect of units located in SEZ; and capital gains tax in respect of securities. The new Direct Tax Code is spoken about as a platitude but not much enthusiasm is shown towards it. Similarly inconsistencies in taxation rules are only spoken about when a change is proposed to the detriment of some strong interest group.

In my view, these issues are important for various interest groups. But to the economy as a whole these issues (except creating a single market through GST) may be relevant at the fringes only.

The debate on tax reform to my mind should focus on three core issues (a) Restructuring of tax provisions to prevent misallocation of capital; (b) improving compliance; and (c) Maximum transparency and objectivity in tax administration.

The objective of tax reforms to my mind should be to make tax laws, rules, regulation and procedures focused, simple transparent, objective, and people centric. For example, consider the following:

(a) All tax incentives to encourage investment and consumption and tax deterrents to discourage investment and consumption may be removed.

Private investment should be encouraged purely as a function of commercial viability and not as matter of tax arbitrage. In my view, tax incentives for investing in equities, windmills, special zones like Baddi (HP), Kashipur (UK) etc. and SEZs, have invariably led to misallocation of capital, rise in cases of tax evasion, manipulation, and rise in tax related litigation. It would be interesting to know if some study has been done to evaluate the cost and benefit of such tax incentives on long term basis.

(b) Providing tax deterrent or incentive to discourage consumption, export or import of specified goods and services has been widely used in India. Many of these have largely failed in achieving the desired objectives. To the contrary in many cases this has been seen to be encouraging unlawful practices like smuggling, black marketing, adulteration etc.

Far removed from their original objectives, some of these practices have actually degenerated into either (a) revenue maximizing tools for the government like in case of duties on tobacco, alcohol and petroleum products or (b) favoring strong interest groups like in case of exceptional import and export duties.

(c) Ambiguity in tax laws and many discretions to the tax administrators has led to harassment of assesses, rise in cases of non-compliance and revenue leakages. Introducing higher degree of objectivity and simpler rules may materially improve compliance level.

The big bang reform would be a flat 16% tax on all income (income tax) and consumption (GST), with no exemption, exception or deduction with sedition charge for voluntary non-compliance....to continue tomorrow