Tag Archives: India

A case for Modinomics and reforms, forthcoming budget and lowering of taxes

Weekly Column: Thinking Beyond

By Anoop Swarup

Anoop_SwarupIn an earlier column I had presented a case for ‘achey din’ for the Prime Minister in view of the anticipated bonanza to the developing world, particularly India as a spin off to the global crude oil windfall. Now with the Budget Session due next month, the Direct Tax Code and the budgetary exercises being in full swing with the North Block mandarins I would make a case for lowering of the tax regime. This indeed is imperative to kick start the growth engines in the economy and for bringing about a favourable investment climate. For the Prime Minister this also unravels an opportunity to do away with the poorly planned government schemes and the half hearted and shoddy austerity measures of the years bygone. In no less a measure this should not turn out to be another exercise in vain for jacking up of government investments in ill conceived development schemes of the past that have miserably failed the masses over the post independence years.

In fact the danger looming before the world at large is because of uncertain markets and the poor export demand internationally. Let us briefly review the global scene and the response from other economies. The question indeed is whether we follow the traditional Keynesian economics of lowering the taxation rates to boost household savings for improving the investment climate or for annual deficit budgets that bank on burrowed funds leading to fiscal deficits, for public subsidies and investments in poorly conceived socio-economic programmes that India is used to. I draw a simile to Narendra Modi with John F Kennedy who became the President of the United States in 1961 and brought Keynesian ideas to national thinking to expand national income. One of his key policy measures was to drastically reduce taxes and the outcome was phenomenal with a five fold rise in real GDP and fall in unemployment rates.

Incidentally with a growth forecast of 7.3 percent during 2015 the Chinese government is on an overdrive to boost its investments in order to maintain its growth forecasts like many other economies whereas the United States is currently struggling to get inflation to reflect manufacturing and construction take off. It is worth understanding that Quantitative Easing is an unconventional technique first used by the Bank of Japan more than a decade ago and now by many administrations such as with the European Central Bank and the US Federal Reserve. Most economies including India focus on buying covered bonds, a form of corporate debt, thus the US federal reserve holdings equal almost 20 percent of US GDP whereas European Central Banks assets were worth 30 percent of its GDP. We know that almost 60 percent of the US corporate cash reserve are outside the US and bringing it back would imply raising the taxation rates which will not be politically or economically the right approach for the Obamanomics think tank. It is also an equally interesting observation that invariably huge public investments as during the great depression or government austerity measures as in the past to kick start the economy may not yield as good a result as boosting of the cash reserves with the consumers and the households. Further the stock markets ostensibly are driven more by the confidence of the consumers and in India the highly volatile stock market conditions need such an adrenaline push in no less a measure. It is also an irony that barely 1 percent of the population in India perhaps the service class pays its taxes and bears the burden of welfare schemes as also the plan and non-plan expenditure for the government. In the developed world and more so in countries such as the US historical study reveals that low interest rates and reduced indirect taxation rates do spook up investments. In a country like India where individual enterprise and entrepreneurship have been traditionally valued as an asset, lowering of tax rates thereby making goods and services cheap would help not only in boosting household savings but also in improving the investment climate as a whole. Considering the inefficiencies, the state run institutions and projects as we have seen in years bygone post-Independence, it is better imperative to have private participation along with the public particularly in infrastructure development. In the West as I observed the economic growth is fueled through major infrastructure development even which may in itself be a mirage as real economic growth may still elude these economies.

We in India would do well to understand that for a country of our size and diversity the best investment by the government would be in education and health that would deliver great outcomes over the long run in terms of enterprise, innovation and creativity that will be the cornerstone for future growth in an era of technology and information whereas the private sector may do well when it comes to better decision making and to ensure returns on investment. As spin off, better efficiencies and improved employment opportunities in a globally competitive world would be a definitive outcome. It would be a strategic approach and a tactical measure to attract foreign direct investment particularly in greenfield projects as well, with lower tax rates in India vis-a-vis the developed world. The developed world, including the US, is well aware that it could remain an attractive destinations for overseas investors considering the huge availability of an amount of USD 2 trillion from their international cash reserves. Reduced taxes would imply a growth push and increasing the interest rates by the central banks have been resorted to by most central banks to control money supply and inflation in as much as regulating liquidity and ensuring export competitiveness through currency depreciation. From a historical perspective it would be seen that most countries are vary of the fact that in a globalised world transnational corporations may easily shift their base for cost effective and better and cheaper manufacturing. No wonder that the developed economies with little or no politico-bureaucratic indulgence perform much better and corruption is kept at bay. In view of the foregoing it is fervently hoped that the Modinomics would take a cue from Obamanomics and would find a strategic path to usher in tactical solutions as discussed above by not only making Indian economy more liberalised and by eradicating the archaic jungle of bureaucratic rules and regulations ranging from the labour laws to the much needed reforms in goods and service taxes regime and the excise and income taxes that have eluded the Indian electorate in the past. India will no doubt emerge as an attractive investment destination and provide the much needed relief to both the honest tax payers and the foreign investors through the much needed reforms and liberalisation and by reduction of the taxation rates so as to usher in the ‘achey din’ that the country awaits.

Review of natural catastrophes in 2014: Lower losses from weather extremes and earthquakes

The absence of very severe catastrophes and a quiet hurricane season in the North Atlantic meant that losses from natural catastrophes in 2014 were much lower. At US$ 7bn, the most expensive event in terms of overall loss was Cyclone Hudhud in India. Around 7,700 people lost their lives in natural catastrophes.

“Though tragic in each individual case, the fact that fewer people were killed in natural catastrophes last year is good news. And this development is not a mere coincidence. In many places, early warning systems functioned better, and the authorities consistently brought people to safety in the face of approaching weather catastrophes, for example before Cyclone Hudhud struck India’s east coast and Typhoon Hagupit hit the coast of the Philippines,” said Munich Re Board member Torsten Jeworrek. “However, the lower losses in 2014 should not give us a false sense of security, because the risk situation overall has not changed. There is no reason to expect a similarly moderate course in 2015. It is, however, impossible to predict what will happen in any individual year.”

The year at a glance

  • Overall losses from natural catastrophes totalled US$ 110bn (previous year US$ 140bn), of which roughly US$ 31bn (previous year US$ 39bn) was insured.
  • The loss amounts were well below the inflation-adjusted average values of the past ten years (overall losses: US$ 190bn, insured losses: US$ 58bn), and also below the average values of the past 30 years (US$ 130bn/US$ 33bn).
  • At 7,700, the number of fatalities was much lower than in 2013 (21,000) and also well below the average figures of the past ten and 30 years (97,000 and 56,000 respectively). The figure was roughly on a par with that of 1984. The most severe natural catastrophe in these terms was the flooding in India and Pakistan in September, which caused 665 deaths.
  • In total, 980 loss-related natural catastrophes were registered, a much higher number than the average of the last ten and 30 years (830 and 640). Broader documentation is likely to play an important role in this context, since, particularly in years with low losses, small events receive greater attention than was usual in the past.
  • The costliest natural catastrophe of the year was Cyclone Hudhud, with an overall loss of US$ 7bn. The costliest natural catastrophe for the insurance industry was a winter storm with heavy snowfalls in Japan, which caused insured losses of US$ 3.1bn.

Loss events
More than nine out of ten (92%) of the loss-related natural catastrophes were due to weather events. A striking feature was the unusually quiet hurricane season in the North Atlantic, where only eight strong – and thus named – storms formed; the long-term average (1950–2013) is around 11. In contrast, the tropical cyclone season in the eastern Pacific was characterised by an exceptionally large number of storms, most of which did not make landfall. One storm in the eastern Pacific, Hurricane Odile, moved across the Baja California peninsula in a northerly direction and caused a loss of US$ 2.5bn (of which US$ 1.2bn was insured) in Mexico and southern states in the USA. In the northwestern Pacific, a relatively large number of typhoons hit the Japanese coast, but losses there remained small thanks to the high building and infrastructure standards in place.

“The patterns observed are well in line with what can be expected in an emerging El Niño phase. This characteristic of the ENSO (El Niño Southern Oscillation) phenomenon in the Pacific influences weather extremes throughout the world,” explained Peter Höppe, Head of Geo Risks Research at Munich Re. Water temperatures in the North Atlantic were below average. Atmospheric conditions such as lower humidity and stronger wind shear also inhibited the development of tropical cyclones. Even events like the severe windstorms and heavy rainfall in California in December following a long drought fit in with the El Niño pattern.

Höppe added that most scientists expect a light to moderate El Niño phase to persist until mid-2015. “Following the below-average incidence in 2014, this could increase the frequency of tornadoes in the USA. If the El Niño phase does, in fact, end towards the middle of the year, there would be no cushioning affects from the ENSO oscillation in the main phase of the tropical storm season.”

The costliest natural catastrophe of the year, Cyclone Hudhud, also illustrated the practical effect of measures by the authorities to limit damage. Hudhud reached its maximum strength on 10 October over the Gulf of Bengal, and with wind speeds of over 190 km/h, was a Category 4 storm (of a maximum 5). On 12 October, it made landfall near the Indian port of Visakhapatnam, an important economic centre with a population of two million in the Andhra Pradesh region. In some places, more than 120 litres of rain per square metre fell within 24 hours. Thanks to warnings from the Indian weather service, the authorities evacuated around half a million people and brought them to secure accommodation. This kept the number of fatalities for a catastrophe of this strength at a low level (84). Of the overall losses of approximately US$ 7bn, roughly US$ 530m was insured – a comparatively small proportion, but insurance density in India is showing pleasing constant growth.

The situation was similar with Typhoon Hagupit, which hit the Philippine island of Samar on 6 December, then headed for the main islands and the capital Manila. On making landfall, Hagupit was a Category 3 typhoon, with wind speeds exceeding 175 km/h at times. The storm was thus weaker than Super Typhoon Haiyan, which killed over 6,000 people one year previously, but very destructive nonetheless. Before Hagupit struck, the authorities had evacuated 165.000 people in its track, with the result that the death toll was only 18.

On 24 August, an earthquake in the Napa Valley in California close to the town of Napa was like a wake-up call. Napa lies within a highly exposed, 70 km-wide zone that has several known faults forming part of the greater San Andreas fault system. Here the Pacific plate in the west is sliding past the North American plate in the east at the rate of roughly 6 cm per year. The earthquake had a magnitude of 6.0 and was therefore not extraordinarily strong for this region. Nevertheless, a large number of buildings were badly damaged. The economic loss amounted to US$ 700m, of which US$ 150m was insured. In many businesses in the important winegrowing area of this region, wine-processing machines were damaged and stocks destroyed. “The earthquake shows that the San Francisco region must prepare itself for bigger tremors too. However, these cannot be predicted,” said Höppe.

The greatest losses in North America over the past year stemmed from the unusually cold winter. Heavy frost lasting for weeks in many parts of the USA and Canada, along with heavy snowfalls and blizzards, particularly on the East Coast, caused losses of US$ 3.7bn in 2014 alone, of which US$ 2.3bn was insured.

The summer in Europe saw a very costly hailstorm, just as in the previous year. The trigger was the low pressure system Ela, which swept across France, Belgium and the western part of Germany in June, with high wind speeds and accompanied in places by hailstones up to 10 cm in diameter. The overall loss totalled US$ 3.5bn (€2.5bn), of which US$ 2.8bn (€2bn) was insured. In Germany, this hail storm caused losses of US$ 1.2bn (€880m) and insured losses of US$ 890m (€650m).

“Loss-related severe weather caused by thunderstorms, technically known as convective events, is demonstrably increasing in various regions like the USA and Central Europe. Hailfall can cause extreme losses. Measures to reduce loss susceptibility, for example that of buildings, are therefore of the utmost importance,” said Höppe.

Bhopal: The Disaster continues

Lalit Shastri

union-carbide

Bhopal, Dec. 2: The Bhopal gas disaster and several issues linked with it continue to present a disastrous and gloomy picture even thirty years after the state capital was struck by the worst industrial catastrophe that claimed thousands of lives and left more than a hundred thousand others critically wounded and affected by the poisonous gas leak from the Union Carbide pesticide plant on the midnight of December 2 and 3, 1984.

What led to the disaster, issues relating to the potential threat posed by the Union Carbide pesticide plant; the overall plant safety; and how functional were the safety devices installed at this ill-fated plant; whether or not full attention had been paid on the safety aspect by the Indian authorities before allotting the site for establishing the plant are some issues that have been taken up over a prolonged period as the Indian courts have been seized of the matter during the course of the hearing in the criminal case linked with the disaster, which remained buried for a few years at the intervention of the Supreme Court in February 1989 when it approved the $ 470 million out of court settlement towards compensation to the gas victims. The criminal case, a few years later got revived following an appeal. It is an entirely a different matter that even after the court of the Bhopal chief judicial magistrate convicted the Indian accused in this case for “homicide not amounting to murder” in July 2010, the culprits are out on bail. Warren Anderson, the former chairman of Union Carbide Corporation who was in Bhopal immediately after the gas disaster was given a safe passage and flown out in a state plane within hours of landing in the city. Aided by top authorities in India and USA, he managed to dodge repeat court warrants till his death recently.

While a large number of genuine victims suffered due to the tardy pace of settlement of compensation, what is most tragic is that even those who were not affected by the poisonous gas leak managed to fraud their way with the clandestine help of the compensation disbursement authorities and could manage to extract from themselves illegal share when it came to compensation and monetary relief.

Since a lot of easy money got circulated among the undeserving, the work culture and the availability of wage earners for unskilled jobs in the city was adversely affected and the problem got further aggravated due to rise in inflation by the sudden flow of cash in innumerable hands without matching contribution in terms of the production function.

On the health and treatment of gas victims’ front, a massive infrastructure, comprising of hospitals and dispensaries was planned, designed and built under an ambitious Action Plan by the State Government and these efforts were further augmented by the Medical relief Gas Victims Project of the Indian Red Cross. The Bhopal Memorial Hospital Trust also built a huge hospital complex for the gas victims by funds acquired through confiscation of shares and assets of Union Carbide. The Bhopal Memorial Hospital and Research Centre, built exclusively for the victims has turned into a facility where all the high and mighty of Bhopal make a beeline as this has become the most preferred facility for VIPs. Once the Government of India took over its administration, the working of BMHRC, 350-bedded multi-speciality tertiary care centre, has come under a barrage of criticism on many counts. Rachna Dhingra of Bhopal Group for Information and Action said that BMHRC was built to extend to the gas victims free medical treatment but they turned them into guinea pigs to serve the interests of multinational pharmaceutical companies.

The Red Cross dispensaries and hospital facilities built by funds transferred by the American Red Cross, including the hospital inaugurated by the then President R.Venkataraman within years of the gas disaster, were shut down once the funds were exhausted. The services rendered by the 125-bed Jawaharlal Nehru Hospital that came up near the now closed Union Carbide pesticide plant, besides several other smaller hospitals and government dispensaries in the worst affected parts of the city have continued to face many allegations. While the victims have continued to question the quality of services provided at these facilities, there are also allegations that the costly drugs that were supposed to be supplied free of cost to the victims were smuggled out and sold in the open market. The costly machines and equipment in these hospitals also got rusted due to disuse. The main reason for this was that the government authorities in-charge were more interested in building the brick and mortar buildings and purchasing equipment rather than recruiting staff and channelising funds for their salaries and the running cost.

Today the State Government boasts of the Praiyadarshini Indira Gandhi hospital built in the Sultania Ladis Hospital Complex. It needs to be brought on record that fifteen years after the disaster, even a few years after the building for this 150-bed hospital had been constructed, only the outpatients’ department had been opened. Only a few years ago this hospital became fully functional. There was a huge delay in starting this facility as there was a prolonged tussle between the State Gas relief Department and the Health Department over the recruitment of Staff. Obviously no one in the bureaucracy or the political executive was interested in commissioning this hospital and handling the operating costs when all expenditure on construction and purchase of costly medical equipment had been incurred.

The story was no different when it came to the 540-bed Kamla Nehru Hospital in the Hamidia Hospital Complex. The Comptroller and Auditor General had pointed towards siphoning away of funds from this project by the Capital project Administration but the Government of Madhya Pradesh chose to ignore the matter and nothing was done to fix responsibility. In fact the State Government should have hauled up those who had blocked massive investment in a facility that remained a dead-stock for many years.

On the environment front, successive State governments have failed to pay even an iota of attention. The severely affected gas victims, most of them from the economically weaker sections, continue to live under sub-human conditions and reside in neighbourhoods and shanties lacking even the basic amenities. Concerted initiative has been lacking all these years to improve their habitat and surroundings by creating a functional garbage disposal system and the situation has been worst confounded by pollution especially caused by vehicular traffic due to ill-maintained roads and complete lack of traffic management in the old city where the most critically affected victims reside. Since a large number of survivors have suffered irreversible lung damage, their immune system has gone haywire and the poor environment aggravated by open drains and sewage and regular burning of domestic waste along the roads, are factors leading to the very high incidence of various kinds of diseases among the gas victims.

A huge stockpile of toxic waste still lies inside the abandoned Union Carbide pesticide plant in Bhopal. The hazardous material continues to pollute ground water on a massive scale as the soil inside the factory premises, particularly in its northern and north-eastern side, remains contaminated by toxic chemicals.

Under the previous regime led by Manmohan Singh, a group of ministers on Bhopal had recommended complete decommissioning and dismantling of the hazardous plant. This was to be done by the state government and the process was to be supervised by an oversight committee to be created by the Central government. The question that still remains to be addressed is how to clean up the polluted soil.

The wastes are highly toxic in nature and contain chlorobenzenes, dichlorobenzenes, lindane and PCBs — chemicals that can cause cancer, birth defects and an entire range of systemic damage. These wastes were dumped both inside the factory premises and outside, in a landfill which has been leaking from 1981 onwards.

Besides the huge stockpile of toxic waste collected and stored in a warehouse on the factory premises, what also needs to be removed is hundreds of tons of chemicals that are persistent in nature — chemicals that retain their toxicity for hundreds of years in some cases.

Besides, heavy metals like mercury, chromium and nickel have been found in high concentration in samples drawn from places even three km from the now closed pesticide plant.

“The killer factory continues to leach poisons into the ground water,” points out Satinath Sarangi, founder of Sambhavana Trust Clinic and Bhopal Group for Information and Action.

Today thirty-years after the gas disaster, the victims are demanding immediate cleaning up of the Carbide site and revision of figures relating to deaths and injury caused by the Union Carbide gas disaster and additional compensation to the victims. It is a travesty of circumstances that the administration led by the democratically elected rulers have neither been able to settle the compensation claims in full nor could they, in any appreciable way, upgrade the sanitation , environment and the traffic situation in Bhopal aspiring to turn into a metropolis and compete with the best cities in the world.

The disaster has left hundreds of thousand citizens crippled for life as they suffer the effect and after-effects of coming in contact with extremely toxic Methyl isocyanate (MIC) that had leaked from the Union Carbide Plant on that fateful night in December 1984. The gas victims are living with weakened respiratory system and other vital organs. They have been living and continue to die a painful and slow death. For them life has been reduced to a continuous disaster is the callousness and indifference of the authorities who have failed to do anything about the ever-increasing toxic gases being released into the atmosphere due to poor enforcement of the Air and Water Acts.

A sympathetic, sincere and sensitive administration could have done so much for this unfortunate city and its environment for making the life liveable for the survivors but alas–human selfishness, human greed and human callousness intervenes to ensure that nothing could be done to alleviate those sufferings and what has been done continues to look like a sad reminder of what happened 30 years ago.