Monthly Archives: February 2014

Top 12 Challenges Facing India in the Decades Ahead – 09 – Taxation

India has a lot of challenges ahead of it whose solution requires capital. Lots of capital. This capital is going to have to come from taxes. But in this regards, India also has a lot of challenges. The most significant of which are:

  • Poverty
    Despite rapid economic growth in recent years, India is still one of the poorest countries in the world as only 15 countries have a lower gross national income per capita. Officially, 30% of the population is below the poverty line as defined by the Tendulkar Committee Report (2009) which clarified the official poverty estimation methodology and set the poverty line at Rs 32 per person per day in urban areas and Rs 26 per person per day in rural areas at 2011 prices, which is approximately 52 US cents in Urban areas and 46 US cents in Rural areas at the end of 2013. This line is so low that it is actually a destitution line that does not ensure anything above bare subsistence. If we use the international poverty line of $1.25 US per day as defined by the World Bank, then almost 33% of the population is below the poverty line and if we define the poverty line at $2.00 US per day, which is barely above subsistence levels in many of the bigger urban areas, then almost 69% of the population is poor!
  • Unequal Wealth Distribution
    The top 1% own 16% of the country’s wealth, and the top 10% own 53%. India has three of the 100 richest men in the world, and the richest man in India is worth almost 22B, while the second and third richest men are worth about 17B and over 11B, respectively. This says the three richest men are worth about 50B in a country with only 1.8 Trillion in GDP and that they alone represent a net worth that is about 2.8% of the overall economy.
  • Import Duties
    India does not charge, or often forgives, import duties on certain types of materials and products that could provide a considerable contribution to the economy, even if the duties were kept low with respect to the rest of the world, and it does a poor job of collecting import duties on some categories that it has stated it will make an effort to collect import duties on. For example, the annual “Revenue Foregone” statement released by the Finance Ministry estimates that India lost RS 529,432 crore (97 Billion) in 2011-2012, or more than 5% of India’s GDP and nearly 67% of total tax collections in India in 2011-2012! (Source: IndiaSpend) This included almost Rs 66,000 crores of customs duties foregone on “diamonds and gold” alone. Any one, or any business, that can afford to buy diamonds and gold can certainly afford to pay a small import duty! And the duty is small — in India, the import duty on gold is a mere 2%! (In the US, the duty and taxes for gold jewelry can be up to 5.5%.)

In other words, India has the situation where:

  • Approximately 2/3rds of its population cannot afford to pay tax.
  • Almost 1/3rd of the remaining population that can afford to pay tax is extremely wealthy, influential, and able to influence the government that sets the tax rates.
  • The government, unwilling to deal with intense complaints or publicity when it tries to collect, or raise, import duties is giving up over 40% of its potential current tax base.

For a country that can’t even address the basic needs of its population, how is it ever going to address its infrastructure, energy, and global economic challenges if it doesn’t stand up and collect taxes where taxes are due?

Don’t blame the lawyers. Blame the bankers!

Recently, listosaur posted the list of the 10 Most Despised Professions in America. According to the list, the most hated profession in America are Members of Congress. SI has to agree with this one as anyone who would shut down a whole country for almost a month over petty party differences deserves a bad reputation, but doesn’t agree with Lawyers being in third place while Wall Street Traders are in tenth. While even the doctor can sympathize with William Shakespeare when he said the first thing we do, let’s kill all the lawyers, the lawyers are not responsible for the current state of the global economy and are definitely not responsible for three of the top four risks as identified in the 2014 Annual Global Risks Report put out by the World Economic Forum.

The people responsible for three of the top four risks, directly and indirectly, are the bankers. According to the 2014 World Economic Forum Global Risks Report, the top four risks are:

  1. Fiscal Crises in Key Economies
  2. Structurally High Unemployment/Underemployment
  3. Water Crises
  4. Severe Income Disparity

1. Fiscal Crises in Key Economies

Many of the fiscal crises playing out around the world are the result of a stock market collapse of one kind or another. Hedge funds, (sub-prime) housing markets, commodity markets, etc. All of which are controlled, and manipulated, by bankers.

2. Structurally High Unemployment/Underemployment

What are the causes of unemployment? While we like to blame job outsourcing, technological advancement, or other trends that tend to displace jobs, the reality is that as old industries decline new industries emerge. In reality, GDP drives employment and unemployment more than other factors that usually get the blame. But the reality is, in the private sector, bankers influence employment and unemployment more than anything else. In a recession, or a slow economy, every hire cuts into profit margins and quarterly numbers, and a company is penalized by the bankers on Wall Street for every penny it is off in its quarterly earnings call. And even as the economy recovers, fearful of hiring too fast and getting penalized by Wall Street, a company will hold off on hiring as long as possible. So even though it is up to the company whether or not it will hire when it has the cash to do so, the fear the bankers install in the company is typically enough to make it hold off as long as possible. Yet again, the bankers’ manipulations of a market are putting us all at risk.

4. Severe Income Disparity

The gaps between the rich and poor are widening every day, and this is threatening social and political stability as well as economic development the world over. And who are the richest people? Typically, wealthy industrialists and bankers. Where do the industrialists keep most of their money? In banks, where it can be manipulated by the bankers to earn those wealthy industrialists even more money. The bankers are making the rich richer and the poor poorer every day.

the doctor will be the first to admit that this is a very simplified view of the matter at hand, but the reality is that, directly and indirectly, the banks have a lot more control over the global economic situation than we should like and their greed is doing more damage and good. We don’t need to be able to measure precisely to tell good from bad. So even if you hate them (and hate them with good reason), don’t blame the lawyers. Blame the bankers. When all is said and done, the lawyers are just a royal pain the in @ss. Bankers, on the other hand …

130 Years Ago Today

Oxford gave us the English Dictionary. Well, it gave us the first volume thereof and we knew the meaning of every word from “a” to “ant”. So, as long as you were anchoring aardvarks to alligators, you were ok but try to alter an appetite, and you were out of luck. And if you wanted to be a zealot for zebras, you had to wait 45 years until the final volume of the first edition was complete! In all, it took 76 years to finish the first edition.

Work has not sped up much since the the third edition of the Oxford English Dictionary began in 1990. Current estimates are that the third edition will no be completed until 2037, 47 years after it began. Updates are being made every quarter to the OED online, with information on the most recent update available on the OED site, and, as per current estimates, will continue to be made quarterly for the next 23 years.

And you thought your Supply Chain Projects took a long time …