We have lived long enough in inter-connected, inter-dependent political world to realise that military and financial domination are function of long-term strategic vision and planning, executed through foreign policy, in overt and covert manner.
Covid19 pandemic has granted independent India a second opportunity to seize it’s assertive and deserving place in geo-polity.
As romantic and heart-cuddling the above statement may sound, fact is that whole world is down under. Whichever country plays it’s cards right, will emerge or retain its position as a dominant global power in next 10-20 years. That’s the horizon we are looking at when we discuss the ‘opportunity’.
This is India’s moment to go for complete reset. If India misses this opportunity, we will have to remain permanent second fiddle to any of the post-Covid19 surviving or newly emerged power centre.
We have to work for it, upset our status quo, assume the risk of failure, take the pain and earn our place.
The first opportunity was wasted post-independence with policy of non-alignment, yet covertly being aligned with socialist nations – a confused state of affairs plaguing our vison and foreign policy till date.
We are ripe for a leap into the future. A whole new different world. Most of our fundamentals – young demography, education and professional space, vast English speaking and internet connected population, entrepreneurs who have travelled and merchandised internationally, thought leadership and individual innovative brilliance, et al. – all these factors are sufficient for taking the leap with confidence. We can always overcome the cohesion of thoughts amongst individuals and groups, built soft skills like foreign language, literature, art, culture, entertainment, et al on our journey. It is important to begin.
The Reset.
Two factors which have dominated past 1000 years of well documented political human history are military and economic power. Call these two foundational pillars of our nation or two strong legs on which a global warrior stands proud on. Both are equally important.
First reset would be for India to become a global manufacturing and innovation hub for military-industrial economy including cyber space and bio-tech innovations.
Second reset would be to shed its current economic and monetary policy and go for a more dynamic financial system with a mix of ‘political currency’ replacing ‘foreign exchange reserve backed currency’, significantly building gold reserves and be a global player dominating data of money flows establishing tax havens and liberal entertainment centres like casinos.
How to Reset.
The most important and powerful unit of Union Government of India is Cabinet Committee on Security.
This reset entirely falls under preview of Cabinet Committee on Security (CCS) than Cabinet Committee on Economic Affairs (CCEA). Role of defence and security should be undeniably superior in shaping our foreign policy. Economic policy and financial system shall remain execution tools or weapons if one may wish to say.
The focus of CCS and CCEA should be to assert India as a reliable and financially attractive global manufacturing and service innovation centre in next 10 years, attracting maximum global investments any country can in post-Covid19 world. This should simultaneously be backed by our political currency printed in ‘quantitative easing’ style. We chip-in our equity first. Who respects perpetual beggars or the weak ever?
The priority areas under preview of CCS have to be only military, cyber space, bio-tech including bio-warfare, energy and healthcare manufacturing and service innovation.
Leave rest all sectors to ‘Business India’ under liberal inward and outward money-flow regime. Indian and global entrepreneurs will seize the opportunity, if government remains absent through overregulation’s and deep-water style data-fishing under garb of various compliances.
The Execution for the Reset.
The reset execution is divided in two parts – immediate measures and medium to long-term measures with singular focus on achieving military and economic power house status in next 10-20 years.
Immediate measures:
Resource mobilization undoubtedly shall be the first priority to navigate both Covid19 pandemic related immediate hardships to citizens and financing entire of business sector to turn sentiments positive.
Hardships for all classes of citizens are real and have to be acknowledged – food and wages for poorer class; rentals, loan instalments and education costs for middle class; and unsettling downgrade of lifestyle for richer class. Here measures ranging from direct benefit transfer, PDS support, subsidies in interest payments, financing public and private educational institutions, financing public and private healthcare institutions to lowering direct and indirect taxes to incentivise spending amongst financially well-off class – all will have to be undertaken simultaneously as immediate short-term action. These would be demand-side boost measures.
The businesses need a kickstart and they need it urgent. What blood is to a human body, cash flow is to a business unit. At this point the blood supply has stopped, consequently brain is in state of coma. Hence mix of monetary policy stimulus in form of soft rate loans, enhanced working capital limits, illiquid asset refinancing options, relief from IBC actions and direct fiscal stimulus to business sectors in form of sovereign credit guarantees, capital subsidies, interest subventions and tax relief measures would work best in short term. These would be supply-side boost measures.
I would want to refrain from narrating detailed explanations on the above stated gist of measures. Enough has been written in mainstream media, social media and represented at various levels in government by many individuals and industry associations including myself. All put together would form a broad direction in which the resources would flow in immediate near future.
Important focus is resource mobilization for measures to be undertaken to navigate economic crisis now:
1. Income and Assets (Domestic and Foreign) Disclosure Scheme, 2020
The prior schemes like Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Income Declaration Scheme 2016 and Pradhan Mantri Garib Kalyan Yojna for Undisclosed Cash during Demonetisation, 2016 were failures with impractical tax rate during already tough economic environment. It is a surprise no one in government factored then prevailing economic scenario and liquidity situation in both formal and parallel economy.
I would suggest a comprehensive income and asset disclosure scheme at 10% tax rate and 5% contribution to Covid19 Fund (government and registered NGO/CSR) for individuals and non-individual entities (partnerships, companies, NGOs, et al). The disclosed assets to be valued at historical cost on self-declaration basis with no penal action against the citizen either by the centre or the state under any existing law in the nation.
This would result in three benefits: (i) onboarding of significant portion of parallel economy and in many cases unlocking of money tied up in governmental litigation; (ii) strengthening of balance sheets with increase in asset base (erstwhile benami) and hence increase in net-worth of the business (consequently better credit rating); and (iii) flow of money back to nation which is stuck outside India in tax havens and other nations.
2. Onshore and Offshore Tax Havens
Indian businesses and rich citizens need to keep their war chest ready for global opportunities and fight hostile takeovers. Every business and business owners who have crosses certain networth and geographical spread or plan to gain footprint in international space keep their money secret from praying eyes. Most mature economies have understood this need of the entrepreneurs and allow it in various ways and forms. Certain jurisdictions require minimal non-detailed disclosures, some have allowed onshore tax havens.
Tax havens ensure most instant flow of money in any economy. India has already reduced its corporate tax rate to 25%. As per the latest budgetary proposals, new ventures in certain cases would have to pay only 15%. Can we not forgo that much amount of direct tax revenue in favour of incremental growth in indirect tax and local direct tax collections due to increase in money-in-circulation? Tax on long term capital gains is already being demanded, since a long time by citizenry and business, to be abolished. Also, mind what will be sacrificed as direct tax is only income attributable to the tax haven unit in the tax haven. The company incorporated domestically in India which received the equity infusion remains taxable unit in India.
Tax havens fit perfectly in India’s plan to grow our military, political and economic presence beyond borders. We can conveniently have onshore tax havens in Goa, Uttarakhand, Sikkim, Union Territory of Diu and Daman, Union territory of Ladakh. Offshore tax havens should be given full military protection with our base in that nation however tiny that nation might be. India promoted or controlled tax haven would be data gold-mine for international funds flow of global riches, businesses and corrupt regimes across the globe. Focussed data is an important foreign policy tool. The benefits would not be immediate. Fruits can be reaped through promotion of favourable tax treaty negotiations, building trust and participating in laundering black-ops funds of other nations.
3. Liberal Entertainment Centres
Give the world another Las Vegas. Trust entrepreneurs to deliver. Why deny Indians an opportunity in India who spend liberally on foreign destinations at casino? Casinos are not just gambling. They bring business of hospitality stay and resorts, shopping, fine dining, mega entertainment parks, et al along. What does that mean for India? Tax revenue.
This needs zero investment from government side. What businesses need is a clear unambiguous policy for it. Framing a policy is neither too complex nor time consuming, if subject matter experts are involved in drafting it instead of generalist bureaucracy. Since GST is consumption-based tax collection system, the state which hosts such entertainment centres would benefit from it. I am so sure of some states and few union territories can be game for being fantastic hosts. There are quite a few major premium hotels and resorts who are more than willing to grab the business opportunity immediately.
These entertainment centres can be aligned with onshore tax havens. Casinos and such entertainment centres also remain data gold-mine on global riches, businesses and corrupt across the world. This will add another weapon to our foreign policy ammunition.
Go truly liberal and legalise gambling. Taxes. Taxes. Taxes.
4. Printing Currency
The currency in circulation as on 19th April 2020 was Rs. 25.06 trillion and that as on 8th November 2016 was Rs 17.97 trillion. This is almost 40% jump in three years of our politics compared to what we achieved over earlier seventy years. It only proves that we can be bold and we can print currency. If we factor the above three very low hanging fruits, I think we are in much comfortable position to ease pressure off our current ‘foreign exchange reserve backed currency’ system.
This money can be channelised in re-capitalising banks and non-banking financial institutions. Covid19 pandemic has disrupted businesses all across. It is a no brainer that there will be financial and operations-disruption led stress-induced bankruptcies. Why wait for this pain to unfold first and then address the financial sector’s capitalisation issue? It is a perfectly predictable event. RBI along with Ministry of Finance can estimate an amount and undertake pre-emptive measures to strengthen health of our financial system.
A portion of money printed should be earmarked towards soft interest loans for MSME sector. A minimum of Rs. 5 trillion is needed to be earmarked for sovereign credit guarantee backed loans ranging from Rs. 5 lakhs to Rs. 5 crore. This will cover capital needs of about 5 to 50 lakh existing and new MSME units including self-employed professionals.
New opportunities in post-Covid19 pandemic economy should not be ignored by our financial sector. They will be the healthiest with best cash flows to service the dues back to the banks and also their supply chain. Such overwhelming crisis require a birds-eye approach from top to cover opportunity exploration and financing them in addition to bailing out those in distress.
I will be discussing the ‘political currency’ system later in this essay. That requires overhauling of entire financial system and realigning back to reinvigorated central banking operations.
5. Tax Rate Cuts.
We are a high tax regime nation given the pathetic and badly exposed social security and the healthcare facilities.
The surcharge in any form for any purpose on income tax is evil and it has to go.
Another evil is high interest rates on delayed tax payments. Instead of exploitative exorbitant 18%, the government should charge only as much as it pays to the citizens on delayed refunds which is 6%. If any mala-fide intent is attributable to the tax payer for delay in payment there are enough provisions within direct and indirect tax laws to penalise the defaulting tax payer. Penal provisions are separately coded in each law. Interest which is compensatory, cannot be made penal in nature.
GST across board needs to be brought down to just three rates at 0%, 5% and 12%. Let consumerism led volume growth drive the tax collection instead of feudal mindset deciding sin tax on non-essentials. GST payments should be on cash-basis instead of accrual-basis ie liability discharge should be deferred till receipt of money from the counter party.
TDS and TCS rates also need to be bought down in range of 0.5% to 5% for all sources of income except gambling and horse racing.
These tax rate measures are not just to navigate the Covid19 pandemic related cash-flow cycle disruption. These would go a long way in defining economic policy to make India an attractive destination for investments.
Medium to Long term measures:
1. ‘Political currency’ replacing ‘foreign exchange reserve backed currency’
It does not matter which countries do or do not do it. There is no economic angle to this decision. It is a political decision to be managed via defence and foreign policy strategies. Post World War 2 the international monetary and trade was structured by the winning side. The most dominant two nations the United Kingdom and United State of America established their currencies as base reserve currency. Later European Union floated Euro and eventually through geo-political clout of dominant members like France and Germany pushed Euro as base reserve currency. All three currencies became top ten exported commodities out of those nations/zone. There is no economics here. It is geo-politics at play.
This is right time and opportunity for India to stop being shy, bear full confidence and go global with their currency. Print as much for domestic needs and export the rest. The extent of aggression in our foreign policy and evolving global scenario will define the pace. The only thing certain today is there is no ‘right time’ other than ‘now’.
This will redefine our monetary policy and our financial framework for good. The new monetary policy framework will shift the current singular focus on domestic operations to a more dynamic politically-aligned framework. This would also permanently end debate on current account convertibility of rupee vs fully convertible rupee. We will be dealing with export of currency and calibrating the flow back via geo-political manoeuvres.
2. Gold
Gold is the only asset class known to mankind to bear trust of timeless store value of wealth. Gold is survival. What is the most interesting observation from the following compilation made from the World Gold Councils’ website on Central Bank’s Gold Operations since year 2000 till 2019? Most countries participated directly in and bore the burnt of World War 1 and 2. Gold was exchanged as mode of settlement for conflict and punitive costs. Since turn of this century and especially since the 9/11, the aftermath of limited international conflicts and rise of terror groups, all these countries have been shoring up their gold reserves to maximum. Check the consistency of top five – it reflects their long-term vision clarity through the future. In contrast China, Russia and Saudi Arabia woke-up to the importance of gold and started shoring-up their reserves. India somehow comes across as reluctant buyer who wishes to, yet is apologetic listening to ‘economists’ noisy criticism.
India has to get over propaganda of theoretical economists and think on building a credible cushion through strategic conflict and crisis planning. Fund nations through political currency, lure regimes through our tax havens, do whatever it takes to get control over and extraction from gold mines including participation in mine exploration. Go Bold. Buy Gold.
3. Governance: Business Laws
One thing which strikingly reveals itself is the manner in which business laws are being framed in our country since past 20 years I can recall. Every major business impacting legislation right from The Foreign Exchange Management Act, 1999, Companies Act, 2013, Insolvency and Bankruptcy Code, 2016 to Goods and Services Act, 2017 and various amendment acts to different business regulatory and tax laws – a common phenomenon is most sections of the duly legislated laws make reference to rules and regulations made from time to time. These ‘rules and regulations’ are defined and notified by the bureaucracy in the form of circulars and notifications.
When a law is enacted, the debates of the parliament and minutes of various standing committee meetings form the ‘intent of the legislature’. The amendments to the law or provisions therein also follow the same process of record of intent. Hence in case of interpretational conflict, first reference is made to discover intent of the legislature. However, when the bureaucracy ‘operates’ the law via amending rules and regulations, this defeats the purpose of legislature. The intent is neither recorded nor discoverable leading to ‘business of changes’ from ‘time to time’ and interpretational litigation in courts. This is where democracy dies for business world.
This is one tough reset which requires dilution of power accumulated by the administrative wing of governance since decades and restoring it back to people ie legislative house.
4. Governance Reforms: Police and Judicial
Absolute monopoly over violence has to be with the state. Our policing systems are under-staffed, under-trained, over-worked with host of non-policing duties, police housing in dilapidated conditions, ill-equipped wrt operational gears and equipment’s, investigation tools and forensic support. Sharing my first-hand interaction and engagement with police training officers across two states, there is dire need to address well-being of their physical and mental health which impact their professional duties at times and families on regular basis. Their woes are endless. Safest business environment is a well policed one.
Internal security is paramount for making mark in geo-politics. Vulnerabilities back home can derail best efforts undertaken internationally. There have been enough recommendations by judicial commissions, government appointed committees, former cops associations, civil society and by the department themselves. The will to move forward with reset required will define pace of police reforms.
The lowest hanging fruit in judicial-reforms field is promoting mediation counselling and institutional arbitration. As we grow our economy and also in population, the quantum of litigations will certainly overwhelm the judicial system which also suffers due to poor capacity augmentation since decades. Though considerable efforts have been made in past few years to fill the vacancies, yet vacancies along with the court infrastructure remain woefully short of requirement.
Understandably, the National Judicial Appointment Bill and Judicial Standards and Accountability Bill require parliament and state assemblies approval. A town-hall style discussion meeting with cross-section of citizenry would prove to be a more efficient path in building consensus and bridging trust deficit between judiciary and the executive. Judicial reforms will require Arjuns’ focus along with Buddhas’ patience.
5. Military and Healthcare
Two biggest vulnerabilities exposed since turn of this century are cyber security and pandemic preparedness. Cyber and pandemic risks can bring down business and consequently the economy causing major economic setback. Both are going to dominate 21st century. Both will redefine traditional attributes of ‘non-state actor’ – one could be an intelligent bot and other could be an infected but an unsuspecting citizen travelling the world. Plausible deniability factor will force re-evaluation of intelligence gathering means and forensic skills.
Focus on cyber securing governance infrastructure, critical installation and identification of business sectors critical to national economy will be the bare minimum to start with. Non-traditional warfare perpetrating cyber breach at private enterprise will result in theft of intellectual property and research innovation – an economic loss for the nation. By the time such events get exposed, knock-offs by rogue regimes would flood international and domestic markets.
Covid19 virus has thoroughly and badly exposed disaster management (ill)preparedness wrt pandemic, extremely poor state of our healthcare systems and poor investment in bio-tech research. As of now, India has tried its best in managing the pandemic crisis. The dominant consideration for lockdown being preventing large section of population form being infected; the time bought also helps augment capacity in healthcare infrastructure, resource mobilisation and on-event training of healthcare professionals and the support staff.
The cyber and pandemic risks require highly skilled professionals to innovate cyber and biological defence and offensive-defence measures. That is the visible part of the game. A more permanent dimension is owning the manufacturing chain of defence equipment’s and defence electronic hardware, pharmaceuticals and medical equipment’s. These require planning to achieve credible buffer stock in near future to becoming reliable supply chain partner of other nations, creating global dependencies on our manufacturing and innovation process.
Conclusion
This kind of total reset will change course of our nation permanently and of the world order too. It is about time we take the leap with faith and confidence. To my mind we are already a decade behind in preparation. These ideas have been floating in my mind since last 10 years. I have occasionally written about them largely as a contextual reaction of some developments on social media and discussed with a few friends on occasions.
I am told these are too bold and radical. Of course they are! We have to stop being reactive and stop playing within the geo-political system developed in 20th century’s post world war scenario. The role of international institutions we subject ourselves to for our economic, trade, commerce, financial systems and social conduct have been questioned by most countries now. All the post world-war 20th century institutions and the world order are seeing a rest.
Covid19 pandemic crisis has overwhelmed all of us with kind of social discipline of stay at home and social distancing no living person on earth has seen in past 70 years. The economic hardships are real. However very important factor is every political jurisdiction is overwhelmed equally. This is where I hear a loud final call to India to board herself on global theatre. It is going to be a bet. For a nation with 1.3 billion people, this will be like going all-in in a poker game. Yet the risk is worth it. We have the potential, we have a glorious proud history, we have very fertile and independent minded thinking population on scale world can never imagine and yet we are a functional democracy.
Government should focus only on building military-industrial complex, promote healthcare manufacturing and service innovations, ensure energy security and installing brand new version of robust foreign-policy aligned financial system. Leave rest of ‘Make in India’ to domestic and global entrepreneurs with minimal governmental interference. What are we waiting for brothers and sisters, what are we waiting for? ‘Right time’ is ‘now’.