CANONS OF TAXATION

CANONS OF TAXATION Indian national and State direct and indirect taxes in the current context and situation needs serious introspection by the Parliament, Judiciary and Executive. The nation is at a continuous state of dispute with the taxpayer. We need to look at the canons of taxation and also India’s written history and sources from text on how a good and able tax system should evolve and work. Direct and indirect taxation has been taken beyond truth, value, trust and faith. Taxation is a means to the end of the well administered and managed democratic functions of State. It needs to be free from distortions , anomalies and aberrations. Its administration must command respect and admiration. The canons of taxation have turned into twin turret cannons. These have been incorporated negatively against citizenship by – Administrative Law  Injustice in Law Law is ever changing and evolving. It is what one is made to believe in.In this period of 75th year of Independence, a Tax Payer is conveyed a Tax Code or Text of the law up to 999 pages, a little short of a 1000. The Canons of Tax are briefly: (i) Canon of Equality or EquityIt is proposed that every Adult in this nation should be taxed. There should not be any exceptions or exemptions. There need not be any exemptions to the individual who needs to be free to decide what is best to be done with post-tax savings. (ii) Canon of CertaintyDeath and taxes are the only certainty. Everything else is transient. There need not be any uncertainties, ambiguities that assessing officers can twist and turn that goes into litigation. (iii) Canon of Economy Cost of collecting taxes is the lowest in the world. There are enough and more people employed by the Government, and the Governments have the means to collect taxes. The existing people and mechanisms are sufficient to collect intended taxes. The evolution of digital rupee and means can make collection easier from all earners up to the bottom of the pyramid. (iv) Canon of ConvenienceTaxes can be collected efficiently. As Chanakya said, “taxes should be collected like the evaporation of water and distributed like rain.” Modern economists have added more in the list of canons of taxation. These are: (v) Canon of ProductivityEvery citizen need not slog to pay taxes like ‘Lagaan’ and the atmosphere in the nation should be that people pay up with the least effort or ease. Door to Door collection is a possibility – the Postman or a Newspaper distributor or garbage collector can also be a tax collector. (vi) Canon of ElasticityIt has already happened. It will expand when equality and justice prevails. This needs to evolve to zero litigation and all disputes are settled by amicably by negotiation. (vii) Canon of SimplicitySorely missing. All Acts and Rules need to be simple. The implementation needs a change in orientation. This would happen when every person is taxed. (viii) Canon of Diversity Do not exclude transgenders. Make prostitution legal. Every conceivable income can be taxed. A mechanism of secret tax payments can also legitimize illegal or illicit incomes by Voluntary Inclusions – Other Incomes. What can be done is to remove all current exclusions and bring them under the tax net. Salt and rice can bear a taxation of 5 percent. Even Gandhiji would have agreed on a convincing argument that every person or thing be taxed. Poll Tax: Every Voter needs to pay a tax. This can begin with Rs 300 per voter, per year, and progressively increased to Rs 1000 per voter, per year. Every voter needs to be a taxpayer and every taxpayer needs to vote.
Posted by G Giridhar Prabhu

GURPUR SADANANDA PRABHU – Written by Mr Monteiro – Circa 2010

GURPUR SADANANDA PRABHU Clad in a spotless white Dhoti-Kurta, this septuagenarian can be easily mistaken for an old man next door, who however surprises you with his amiable, friendly attitude, cheerfulness and great sense of humour. Gurpur Sadananda Prabhu has always been a man with simple tastes but great ideas and vision.  But what sets him apart from the rest is that he relentlessly worked in implementing those ideas with determination matched with hard work and succeeded against all odds.  His story of success is the stuff, which the legends are made of and would be an inspiration for generations to come. Even at 77, when most others seem resigned to the idea of retiring to take rest, G. Sadananda Prabhu is an exception.  Age has not diminished his flavor for hard work, which has been a part of his life ever since he stepped into adolescence.  Even today he carries on his daily chores as usual with the euphoria and enthusiasm that a 30-year-old entrepreneur might evince in his first venture.  What strikes you the most in the man is his humility and calmness.  The satisfaction of being contented, is writ large on the face.  And certainly, for the youth who came from Gurpur, a village 15 kms. away from Mangalore, with nothing but star in his eyes and bagful of dreams, building Achal Industries from scratch is like a dream come true. Achal Industries is engaged in the manufacture and export of Cashew Kernels and Cashew Nut Shell Liquid.  Today, with a total annual turnover of Rs. 9 crores, it stands as a symbol of Sadananda Prabhu’s grit and single-mindedness of purpose.  But he candidly says, “I am a satisfied man, not for the material gains I acquired through my business dealings, but for having led a simple life and for giving a livelihood to nearly 500 families in Dakshina Kannada”.  His son, G. Giridhar Prabhu who has been a witness to his days of struggle succinctly puts it as “the most important quality of my father is the honesty and probity in both his public and private life.  He made it possible that one can be honest and still achieve success in business”. Sitting in the fourth floor of his spacious office “Suprabhath”, Bejai – Kapikad, Mangalore, is sure to make one feel different.  It is a big hall without any compartments like today’s high-tech offices.  But the ample natural light with plenty of air is enough to rejuvenate both the body and mind and the very atmosphere is soothing and inspiring.  This four storeyed building ­is well maintained with enough space for free movement.  For, behind the tall building located in Bejai – Kapikad, which may not be very impressive to look at, lays the meticulous planning and supervision of G Sadananda Prabhu, who, during the construction paid attention even to the minutest details in the form of personal supervision at every stage.  All the occupants of this building echo the same feeling and are very happy with the maintenance, cleanliness and the overall comforts made available. No doubt, the building symbolizes what the man stands for – discipline, devotion and the “living in comfort” logic. His life and achievements read like a typical short story but this one is real.  Born in 1925, Sadananda Prabhu lost his father when he was 12 years old.  However, his two elder brothers who were 28 and 20 years older than him respectively, never let him feel the absence of his father.  His brothers were doing grocery business in Gurpur and under their guidance and support he had his elementary education in Hindu Higher Elementary School, Gurpur, an aided school. Higher education in those days was very expensive because the school fees were very high compared to the value of rupee.  Naturally only a privileged few could afford High School education where the monthly fee was Rs. 5/- (1939), equivalent to today’s rupee value at about Rs. 500/-.  For G Sadananda Prabhu, opportunity came in the form of scholarship from Sri Venkataramana Temple, Mulky, where there was a scheme to provide school fees for deserving students and he was fortunate to be one of the beneficiaries. However, his educational progress came to a standstill on completion of SSLC in Board High School, Mulki and he had to help his brothers in the business.  Opportunity beckoned also in the form of an employment as a teacher in the same school where he had his elementary education. As an untrained teacher he joined the School on a monthly salary of Rs.12/-. Though his colleagues persuaded him to undergo teachers training, he did not succumb because he wanted to take a risky and challenging career and stood firm on what he thought was right.  Needless to say, though he liked teaching, he was not happy with his career and luck was certainly on his side.  An order of the Education Department that only trained teachers should be appointed in schools came as a blessing in disguise.  He was thus forced to bid adieu to his teaching career.  It was back to the pavilion, situation to assist his brothers in their retailing trade.  Since the Second World War was going on, food rationing was in force and his assistance proved beneficial. Nevertheless, the experience he gained in the retailing business proved to be a stepping stone towards the higher goal he had set for himself.  He came in contact with traders and dealers in Mangalore, which broadened his outlook and provided him ample scope to tread carefully in the dream of web he had built for himself.  He gained valuable insight and experience in trade and commerce during this period of what he calls as “apprenticeship”.  He learnt the trade and not the tricks of the Trade.  “I wanted a career that would provide me independence to put my thoughts into action”.  Once he had set his eyes firmly on the goal, he took a bold decision to tell his brothers that he wanted to put his thoughts into concrete action and all that he wanted was their blessings and support in the endeavor. With their blessings, co-operation and financial loan, a 23-year-old young energetic Sadananda Prabhu, with his high ambitions, hopes and innumerable ideas came to Mangalore and entered into partnership with a reputed concern in the wholesale trade in Bunder area.  This was in 1948 (Sept.).  In the meantime, he also took another major decision of life in 1949 –  that is of entering into marital bliss. Wittingly he says “my wife is serial number 9”.  That is, she is the 9th among the 10 girls and one brother belonging to a single family.  Marriage provided him stability and his wife proved to be perfect mate who provided him emotional stability and support.  Her education was VIII Std.  The family has three children.  Two daughters married and a son married too. The Partnership Company dealt with all essential commodities and the business thrived for 30 long years.  During this period, the Partnership Company had set up an industrial unit in Bajpe to manufacture Groundnut Oil.  It was a gamble to go for the unconventional type of business.  “Mangalore was very orthodox and nobody actually used groundnut oil for cooking purposes, he recalls”.  But Sadananda Prabhu and his partners had firmly believed that they could succeed if they gave the best commodity to the people at a reasonable rate.  True to their belief and determination, the firm came out unscathed, which truly exhibits the adventurous spirit of Sadananda Prabhu.  In 1971, the Partnership Company took over a sick cashew manufacturing unit on lease and managed it successfully.  However, when the unit owner wanted this factory back after 10 years, it was returned without any hassles in 1980. Just like every good thing in life has to come to an end, the partnership was terminated on completion of 30 years in business together.  During the 30-year tenure Sadananda Prabhu was active member of the Kanara Chamber of Commerce and Industry and occupied the highest post as President in 1979-80 after serving as Hon. Secretary for three years in succession.  Armed with the experience and insight he acquired in the course of business, he graduated from business to industry, a great leap forward to be independent and be his own master. At 56, Sadananda Prabhu ripe with the experience he acquired in running a cashew industry, in association with his son, co-partner, a First-Class Commerce Graduate G. Giridhar Prabhu, set up a cashew manufacturing unit in the Baikampady Industrial Area as an H.U.F. unit viz Achal Industries.  Starting with 60 workers in 1981, the Unit has grown leaps and bounds and employs about 500 people, out of which 450 are women.  The group also has a unit in Kolhapur District of Maharashtra, which employs about 200 people in a very backward area.  The choice of participation by co-partner, son Giridhar was his own, which was taken in his college days.  Fondly, recalling his initiation into business, son Giridhar says, “even before I learnt the ropes of business, he showed full confidence in me and gave full freedom.  His integrity and reputation has made my path easy”. But success has not come on a platter to him.  He slogged through initially and his experience came in handy to propel him to the pinnacle of success.  By strict monitoring of quality control, the company earned name and fame and carved an unique niche in the field. “He had great ability to grasp and assimilate everything.  He stressed good accounting practice and complied with all legal formalities.  Having come up in a hard way, he had great concern for the welfare of the employees and their goodwill and support has been instrumental in our success”, opines son, Giridhar Prabhu.  On achieving success, Sadananda Prabhu has been magnanimous to share a part of the profits with his employees by providing all the legal benefits due to them.  Today, Achal Industries has the distinction of being one of the top 10 units, which compiles with law strictly. G. Sadananda Prabhu had unique knack for tapping potential markets and he went by his instincts.  He, therefore concentrated in improving the quality of the product to compete in the overseas market.  Today, Achal Industries has emerged as number one exporter of cashew products in South India in providing quality material abroad. But the story of success is not as rosy as it appears to be.  For the last 12 years, they fought numerous battles with the Government and have succeeded in getting justice not for themselves but for the beleaguered cashew industry in general.  The cashew industry was at loggerheads with Agricultural Produce Market Committee (APMC), which due to its irrational behaviour and unnecessary interference brought the whole cashew industry on the brink of disaster.  While the cashew industry considered themselves as “Producers” and “Manufacturers”, APMC contended that they were Traders.  It made a lot of difference because as traders they had to pay; one percent of their total turnover as market fee, which was substantial.  Even the Supreme Court unfortunately could not come to their rescue because of interpretation of the law, which did not favour the cashew industry. The Industry never gave up its fight on which it felt it was an unjust entry by the APMC in the territory not meant for it.  Finally, the present Hon. Chief Minister of Karnataka, Sri. S. M Krishna, who was convinced of the rationality behind the arguments of the cashew industry, provided the much-needed relief to them.  G. Sadananda Prabhu was in the forefront in this fight against the Government and no doubt, today he is hailed as the “person who was largely responsible to bring justice to the cashew industry”.  He made innumerable trips to Bangalore to follow up the legal battle and age did not hinder his determination. At 77, Sadananda Prabhu believes in the psychology of “living for others”.  His approach to life has emerged from a liberal school of thought.  “This has given me rich dividends in life not in the material sense but in terms of respect and reverence which money cannot buy”, he contends. No, he is never tired of working.  “I like to keep myself busy and earn my livelihood as long as I can” says the man who does not want to bask in the past glory.  Though the industry (Achal Industries) is presently owned by his son Giridhar Prabhu, who happens to be the President of Kanara Chamber of Commerce and Industry this year, Sadananda Prabhu is actively involved in the day-to-day functioning of the group of the Industries.  In fact, he along with his wife spends 2-3 months in Kolhapur for business purpose. “Life is too short to sit back and ponder over past events”, he asserts.  Though he is not into any form of fitness regime, he keeps himself hale and hearty by properly having his meals and spending considerable time for his daily ablutions.  “Throwing the wastes out of the body is best way of keeping oneself healthy”, he reasons out. But it is wrong to believe that it is all work and no leisure or entertainment.  He likes to spend his time with his family.  His grandson (10 years) provides him the best company.  “We get along very well”, he says with a mischievous grin.  He also loves to read the literature of – a) R K Narayan b) Bhavan’s Books        c) the Texts of Chinmaya Mission etc. And watches Kannada soaps with his wife, who is fond of them. He is a great lover of Hindustani Classical Music, Jesudas and Pandit Jasraj being his favourites. He however, has one wish and he is not sure whether it will be fulfilled or not.  “I am yet to be convinced that there is another birth for me.  If at all I get an opportunity to have a rebirth, I want to be born in India”, he convinces.  What enamours him most about the country is its ethnicity, diversity and its spirit of resilience.  In the same breath, he adds that as long as I cannot relate my past life to present life in the event of a rebirth, there is nothing to rejoice about the concept of rebirth.  And the man is so convinced on all that he believes; it is almost infectious. And what gives the man the utmost satisfaction is the familiar smile, recognition and respect he gets from his workforce, majority of whom are females.  He is also happy to involve himself in any work that may benefit others.  He firmly believes in the dictum that one has to give back to the society more than what he takes from it.  He has therefore donated substantially to Ammembala Subraya Pai Memorial Fund, to assist the students to secure loans for further studies.  For, he certainly remembers the scholarship he availed which helped him to build up his career in a way he had dreamt of.  This speaks volumes about the man whose life reads like a story only to be true. He says: “Arrogance Leads to Self-Destruction – Ignorance is not a Virtue – Life is joy –  Enjoy every bit of it – Of course, follow rules of the game.”                                                      
Posted by G Giridhar Prabhu

The 9 C’s of International Trade 

1. Create – Create the demand for a customer. 2. Customs – Deal across customs barriers with thorough knowledge of the customs in the importing country. 3. Communicate – Expression of interest and a commercially valid offer – Be in touch. 4. Connect – Customers must like you and establish a connection.  5. Contract – A valid Contract as per the Incoterms of International Chamber of Commerce. 6. Converge – Exports are a series of steps and convergence at each step is needed. 7. Currency – Know the currency of the importing nation though the currency of the contract can be the US Dollar. 8. Co-operate – Every step of the way Co-operation and fraternity is important. Reputation and integrity are the hallmarks of a good exporter. 9. Complete – Complete the winning transaction and execute.
Posted by G Giridhar Prabhu

The Sri Lankan Crisis

The Sri Lankan Crisis is the product of about 12 to 14 years of investments and expenditure based on external finance. The debt repayment program of any small nation will come from the inability to pay debt in foreign exchange. The earnings drop from tourism has the major impact and this has to be dealt with optimism, humanism, and a fair exchange of ideas to address the situation on a day-to-day basis. India needs to extend all possible cooperation – economic, political, and social, as it would greatly benefit from a healthy prosperous neighbor for all time to come. The Indian position needs to be consolidated from neighborliness as well as a higher degree of self-interest. Previous conflicts bring into mind certain barriers, hesitation, and an inability to act under difficult circumstances due to narrow domestic political interests. A broad-minded approach requires a complete and holistic assessment with attention to details. It requires to begin in a series of small economic and social steps, and political gains in the national or international arena will come when the benefits are assimilated directly by the Indian sectors in both social and economic segments. Political gains are always in the medium and long term when sensible steps are taken. Reason we should prevail over emotions and the action should be bound both by expediency or quickness in dealing with the specific requirements of specific segments. However, broadly it has to come from economic sector, that India and Indian government will have to provide the resources on a regular as well as an exceptional basis. Here, the long term also needs to come into play. Economically, the first big requirement is to be done by the Ministry of Finance, NITI Aayog, and the Department of Economic Affairs, as to how India can benefit from an Indian rupee – Sri Lankan rupee convertibility arrangements as well as a swap. It is not impossible for Sri Lanka to renegotiate the international currency arrangements it has. It has initiated the same. Sri Lanka can also invoke assistance from South Asian GCC nations in the current account services segments. This will enable it to negotiate medium term notes for longer periods by Escrow Mechanisms for inward remittances and services incomes. Sri Lanka will be able to launch corrective actions for the medium-term once the near-term is resolved.
Posted by G Giridhar Prabhu

A Trillion Rupee Package for Sri Lanka

A Trillion Rupee Package for Sri Lanka Sri Lanka, our neighbour, is in a serious crisis. It has come from a series of both internal actions as well as external activities in political, economic, and social dimensions. As on date, the Central Bank of Sri Lanka has taken some decisive economic steps for the near-term, medium-term, and long-term. A collective effort and expertise of India  and Sri Lanka will have an impact on both nations. Economic dimensions need to be tackled effectively, certainly, and as quickly as possible. The political and social spinoffs will come in due course.   India needs to extend a One Trillion Rupee package as a measure of political understanding and as a neighbour. It is in India’s interest to have a prosperous neighbour with positive effects on Indian citizens as well. The components of the package need to be as follows: 1.     It needs to be a 3-year package to provide assurance to Indian, Sri Lankan and Global Communities based on mutual trust and written agreements and International covenants and collaborations. 2.     In this year, for next 12 months, India and Sri Lanka agree that  Sri Lanka’s short-term obligations in Foreign Currency be converted to 3-year, 5-year and 7-year obligations with agreed timelines. 3.     For next 12 weeks, Indian and Sri Lankan business entities are given working capital in Indian Rupees and Sri Lankan Rupees at an agreed fixed currency conversion and agreed interest rates of both nations. 4.     Indian and Sri Lankan banks need to be enabled to transact in respective currencies.  5.     Convertibility in India to Foreign Currency can be enabled through Indian currency and foreign exchange channels in concurrence with branches of Indian banks in Sri Lanka monitored by Sri Lankan Central Bank and the Reserve Bank of India. India needs to strengthen itself further in an arrangement that can benefit our people. We  have surpluses which can be channelled with respective Sovereign guarantees. It needs to be “Trade, Not Aid”, which will win. A currency agreement will generate a win, win, win situation. The idea is to make the Indian rupee and Sri Lankan rupee integrated for all transactions – –        current account –        capital account –        and as a medium to invest mutually, so that Indian and Sri  Lankan people benefit to the maximum extent both in the near-term and the long-term. Currently, India’s economy has the surpluses which the Sri Lankans need, to meet their  immediate requirements and we are not far away from each other – hardly 8 hours by ship and  45 minutes by flight from the southern half of India. It is therefore important to establish an Indo-Sri Lankan mechanism to engage in an activity  to supply medicines, requirements of urgent nature, which India can fulfil for health, for senior citizens, for children and for the community which deserves it most. India’s foreign exchange resources are above that it can have at the moment as a necessity. India has already taken some steps as per the Foreign Ministry release. It is therefore important to take the following further steps: 1) The Government of India should resolve that the Indian people, the State Governments,  and the Central Government can engage with the crisis and turn it into an opportunity for  Indian people without any exploitation or denigration. 2) The past is the past. View the present with only one week at a time and supply the  essentials that they need, that they can pay for in Sri Lankan rupees or Indian rupees. 3) The Government of India and Reserve Bank of India can engage in an immediate  swap of Rs 10,000 crores equivalent into Sri Lankan currency at an agreed exchange  rate frozen for 14 days to 28 days for specific emergency purposes – food, medicines, fuel and essentials. With this, the Sri Lankan Central Government can create an equivalent of Rs 10,000 crores in Sri Lankan currency at an agreed fixed rate and make it available to the Reserve  Bank of India and Rs 10,000 crores of Indian currency needs to be with the Central Bank  of Sri Lanka. This needs to be exercised as convertibility on trade accounts for goods and services. This can be immediately made available to banks in respective nations and in turn,  Sri Lankan businesses can be allowed to have rupee accounts in India as well as  Sri Lankan rupees and Sri Lankan banks can have accounts of Indian businessmen, both in Sri Lankan rupees as well as Indian rupees. ·        “What Is a Currency Peg?A currency peg is a policy in which a national government sets a specific fixed exchange rate for its currency with a foreign currency or basket of currencies.A realistic currency peg can reduce uncertainty, promote trade, and boost incomes.An overly low currency peg keeps domestic living standards low, hurts foreign businesses, and creates trade tensions with other countries.An artificially high currency peg contributes to the overconsumption of imports, cannot be sustained in the long run, and often causes inflation when it collapses.The United States has exchange rate arrangements with 38 countries, with 14 pegging their currencies to the USD.”·        “What is a Floating/Crawling Peg?A crawling peg is a band of rates that a fixed-rate exchange rate currency is allowed to fluctuate.  It’s a coordinated buying or selling of currency to keep the currency within range. Crawling pegs help control currency moves, usually during threats of devaluation. The purpose of crawling pegs is to provide stability.”Source: www.investopedia.com 4) The Indian refineries can sell petrol, diesel and other fuels in Sri Lankan rupees  and they can convert it into Indian rupees in India and each Sri Lankan entity can be  trading in Indian rupees with Sri Lankan rupees over a period of 6 to 10 weeks,  preferably at an agreed fixed rate so that there are no conversion costs other than bank  fees till the crisis is mitigated. India and the Indian Government and its institutions should treat exports in Sri Lankan  Rupees equivalent to international convertible currencies. 5) The Government of India and the Sri Lankan government can enter into a  Memorandum of Understanding that Sri Lankan foreign exchange requirements to  meet international obligations are met comfortably so that it will generate swap to US  Dollars, Euros, Yen and Dirhams for both Sri Lankan and Indian rupees. 6) Further, arrangements can be made that India can use Sri Lankan rupees for  current account transactions which include that Indians can have Sri Lankan rupees deposited with themselves for future usage – for visits to the island for official,  diplomatic, and business purposes, and also encourage Sri Lanka to be back in the  tourism business with Indian tourists visiting Sri Lanka and spending in Sri Lanka. 7) The Government of India can also exercise that Sri Lankan nationals can come,  visit and stay in India and spend Sri Lankan rupees in India as well as buy Indian and  take it back with them. 8) Broadly, India needs to mobilise shipments at the earliest by air or by sea, of most  essential from its port, with payments guaranteed by each other and an Indian  businessmen can buy what Sri Lanka has now by paying in Indian rupees, so that Sri  Lanka can pay back in Sri Lankan rupees. 9) The resolution in terms of banking and finance is more important to be cool and calm with the situation on the island . There are surplus capacities in India which  can be utilised for supplies over a period of time and this requires a continuous  engagement.   10) Increase in the number of flights where Indian airlines and Sri Lankan airlines can  increase the regularity of flights from airports convenient where people can come into  India and move forward.   11) It can also be a temporary situation, where based on the affordability Sri Lankans can  enjoy Indian hospitality in all the states, till the crisis is over and they can get back to  normalcy. 12) Relationships extended in social terms can also mean integration of communities within Sri Lanka into communities in India, where we have surplus capacities in  accommodation for welcoming improvement in relationships. 13) India and Sri Lanka need to invest immediately in ferries from the nearest points  of North East Sri Lanka to South East India. 14) A temporary arrangement, which can mean that India gives certain material free of  duty can also mean that personal essentials can be carried and allowed to trade in the  nation to mitigate the requirements of food items or inputs to establish a supply chain  into Sri Lankan SMEs. Fruits and vegetables can move more freely over ferries as  well as from special consignments arranged from the ports of South India, like  Krishnapatnam, New Mangalore port, or from any part of India that can get mobilised in  warehouses, so that trade can get established near term, middle term and forward. 15) The swap that India can arrange is that the Indian government can direct Reserve  Bank of India and banks to hold Sri Lankan long term debt from established  companies of Sri Lanka, who engage in the economy of the island and this can get  mitigated over a period of 10 years, or 5 to 15 years, so that Sri Lanka can pay back in  Indian rupees.   This will establish the Indian rupee as a convertible in the South Asian nation but it can also extend to all South Asian Nations.
Posted by G Giridhar Prabhu

Redemption of External Debt Outstanding of the Government of India

Redemption of External Debt Outstanding of the Government of India 1.   The Government of India, Parliament, and the Reserve Bank of India need to work together to recognise the difference between the external debt converted to the Indian rupees at book value and the current rates. 2.   Table 1 reveals the external debt outstanding as on September 2021 taken from RBI bulletin. TABLE 1 * Source: Values extracted from Reserve Bank of India bulletin * Converted USD: INR @ 75. 3542 at 1:30 pm on 11/02/2022. Source: Financial Benchmarks India Pvt Ltd 3.  The Indian government owes Multilateral, Bilateral and IMF organizations a debt to the extent of USD 125.6 billion, that is, Rs 9,46,448 crores, which requires to be repaid on due dates. These are loans at concessional rates or otherwise. The Government of India needs to create an International Debt Redemption Fund 4.   The Government needs to be free of debt to any Multilateral and Bilateral institutions or the IMF. 5.   Parliament needs to decide that the Government of India needs to create an International Debt Redemption Fund. It can decide to allocate a nominal amount of Rs. 2500 Crores for this financial year 2022-23. 6.   One of the sources for the international debt redemption fund that can be decided by Government and Parliament is the annual surpluses from the Reserve Bank of India, entirely or a portion. 6.1. It is also clearly required to be stated that the profits of the Reserve Bank of India as determined annually is a surplus allocated to the Government of India. 6.2. For the next 10 years, it needs to be solely used for economic purposes as it is solely an earning from economic activity. 6.3. The Reserve Bank of India is in a position to share this and the Government can utilize it better. 7.   The liabilities of the Government of India clearly state as follows: TABLE 2 *Balance according to book value Source: Value extracted from statement of liability of Central Government from union budget India. 8.   The unnoticed contingent liability of Government of India. 8.1.  The Government of India does not “hedge its foreign currency borrowings in foreign currency”. 8.2.    As on the date say, 31st December 2021, the Government has “contingent liability of Rs. 4,77,413.48”. This is arrived explicitly in the Table 3 below. TABLE 3 9.  Parliament needs to examine the Pros & Cons of prematurely retiring sovereign foreign currency debt of India. Questions:    To what extent will the Reserve Bank of India and the Government of India with Parliament work together on the redemption of the Government’s Foreign Borrowings?     Is an early retirement or prepayment of the Government’s Bilateral, Multilateral and IMF loans appropriate for India, given the Foreign Exchange Reserves at Record levels?    Can the Government of India and the RBI enable current surpluses in the Global economy to create assets in India through the Financial System without risk?    If any nation in the world is condescending on India, the need for introspection is, do we need any loans or grants from any nation?    Is halting future sovereign loans a good policy? Henceforth, this needs to be a decision in principle. Remedies 10.    Parliament should address the contingent liability of the foreign exchange fluctuation risk. 10.1.  It should be expressly stated to the Parliament in budget papers or in the Committee, and the Reserve bank of India should confirm it in its monthly statement. 10.2.  The Reserve Bank of India and the Government of India should work together in narrowing these contingencies by introducing special measures. 11.     When the pre-payment is decided: 11.1.  It can be done by a Debt Swap equivalent in Rupees by issue of 364 days Treasury Bills. 11.2.  On exercise of this Swap, the Government can deposit it in foreign currency with State owned banks in India till it arranges to repatriate the money in consultation with lenders. 11.3.  All the lenders must agree to take back the loans before the due dates. 11.4.  The repayment of dues to the International Monetary Fund should be the first one initiated by the Central Government. 11.4.1.  The Reserve Bank of India is a contributory to the International Monetary Fund in its International Investments Program. 11.4.2.  The Government of India can easily repay this loan and need not rely on any borrowings of IMF under a managed Foreign Exchange Reserves Program by the Reserve Bank of India, which has been carried out in an accomplished manner. 11.4.3.  Indian citizens in India or internationally also need to be allowed to participate in international holdings in the form of capital account convertibility gradually developed in the next 10 years. 11.4.4.  This would be a great moment for India if the Parliament and Government with Reserve Bank of India decides that IMF borrowings to the extent of Rs 1,75,575 crores be repaid with immediate effect. 11.4.5.  This can be done with swap of Treasury Bills raised from the market and supported by the Reserve Bank of India in a short period. 11.5.   In the case of bilateral loans, these would have been taken for a long period of 20 or 30 years with durations of 20 or 30 or 40 years. It is time that these loans be repaid or provisions made for repayment in the ensuing months. 11.5.1.  Since bilateral arrangements have to be addressed diplomatically and arrangements need to be made by communications, Parliament can resolve that the bilateral loans can be prepaid. 11.5.2.  It would also be a grand moment if Parliament decides with Reserve Bank of India and Government that we are at a confident level that we do not request, ask or take any loan from a sovereign government for the purposes intended. 11.6.   In the case of multilateral loans, India need not resort to any loan from IBRD, ADB or World Bank or any other bank. It can rely on its own rupee sources and its savings. In order to achieve all of this, a conscious creation of an External Debt Redemption Fund will induce and motivate public finance actions as well as recognition of this debt by the public of India to bring in a spirit of sovereignty. 12.   The Government of India in forthcoming sessions of Parliament budget can create two funds –   Redemption of External Debt Fund   Defence Assets Acquisition in Foreign Currency Fund 13. Credits to these funds can be channeled through appropriate Budgetary mechanisms of the Central Government. One of the options is that Reserve Bank of India’s annual surplus can be a source of credit. 14.     The Government of India should halt all sovereign borrowings in foreign currency. India should become investors in Multilateral institutions. 15.   An internal debate in the Ministry of Finance needs to be initiated and if necessary, in the public domain, inviting public views. 16.   The Government of India can decide on merits and convey the decision in principle to Parliament and the Institutions and subject itself to scrutiny in the realm of public finance. 17.     The parliament Panel can convey to Government of India at the views of public. CONCLUSION •   The Reserve Bank of India and the Government should agree to swaps that enable RBI to hold securities equal to the rupee equivalent of Government Debts and the RBI can provide the needful forex to prepay loans. •  It is therefore wise to halt all sovereign borrowings in foreign currency – multilateral or bilateral. On the other hand, the current situation in India can contribute to global development of all nations as it is meant to be. • This will increase returns of capital in India and generate employment.
Posted by G Giridhar Prabhu

Creation of Strategic Petroleum Product Reserve – 20 percent Ethanol Blended

Creation of Strategic Petroleum Product Reserve – 20 percent Ethanol Blended India has a Strategic Reserve for Crude Oil. There is a need for having a Strategic Petroleum Product Reserve at Points and Proximity of Consumption in the Indian Union. An aggressive stance on blending ethanol with petroleum products can give rise to the new series of tactical investment, physical and working capital. Citizen’s participation will also be called for as it is in the interest of the consumer and the economy that vital fuels are always accessible. This demands a policy that these reserves are part of the locales, so that at any given time, the Products Reserve is sufficient to meet the requirements for 30 days and beyond. The possible locations can be: a)     Strategic Locations at Junctions of Indian Railways and NHAI b)     Rural Stations at a distance of 25 kms to 50 kms from cities and towns  c)     Proximity to producers – within 25 kms to 50 kms d)     Suitable for Blending, Stock and Flow with Ethanol 20 percent. e)   Blending with refined products needs to be separated from refineries with tanks, approved blending technology and ready delivery for routine sales as well as defined national or international calamities. f)      The total ” floating ” stock of blended products can be mandated to be available to all Marketing Companies.  g)  Marketing companies need to be offered pooled facilities at nominal national cost, where all Departments – Central and State Government Activities converge. h)     National Interest defined and mandatory connectivity to National Users  ·     Normal Conditions ·     Disruptions in commercial activities –  § notified and sudden refinery or logistics related mishaps § localised calamities  § national calamity related stoppages and shutdowns as determined by Authority Nodal National Agency For Example: o       Projects and Equipments Corporation Limited – Can be the National Agency and can be an Equity Partner with all other agencies as a Catalyst up to 26 percent of Equity. o       All Petroleum Marketing Companies with written agreements on supply and demand matching at respective locations. NHAI –        Needs to float a Subsidiary with commercial viability offering Right of Way and annexed facilities for tanks and pipelines and extended support to Highway Transport. Indian Railways # Needs to nominate an existing subsidiary like RITES or IRCTC or both that can use railway infrastructure in rural areas. # These facilities with strategic and tactical inputs also meet # Defence  # State Government nominated uses. International agencies and Government subsidiaries with interest in Petroleum sector can be invited based on their interest in the Indian markets if, –        they have expressed interest, as India is a dominant importer, –         they also have sovereign funds.    –       Example – Norway, Abu Dhabi, who can provide, Capital International Specialisation Innovation Systems Stakeholders Protecting their interests Safety of Capital Return on Investment Strategic interest Commercial Interests in finding neutral markets  Green Funds Agriculture and Employment Generating Agencies can be participating Example: Milk Unions Poultry organisations State Road Corporations Private Transporters who will value lower costs Indian Railways  PROMOTE –        Own Your Wagons –        Rakes For specific delivery points to long distance consumers.  For example, Kerala, North East, heavy consumption zones outside Major Cities.  METRICS –        One Month Equivalent to Stocks required in each District –        Two Months Equivalent for Defence and National Interests Stock and flow Principle This implies that the petroleum products stores remain fresh and regular commercial sales will be done from the same tank farm. The Base Stock – Diesel and Petrol Pooled Stock Working Notes  1.     There is a need to focus on the supply of products in proximity. 2.     In a market economy, producers will strive to reduce costs and maximise profits. They will not be “greedy” but work in “self-interest”. 3.     National interest has to be paid for by the Central Government and State Government.  4.     In the scenario described, both capital assets and running costs will be paid for by better efficiencies. 5.     Digital management to reduce costs. 6.     Public participation in Equity and Bonds where and when feasible for higher returns. 7.     50 percent utilisation concurrently for flow purposes will pay for the cost of the Product Reserves. 8.     There need not be heavy investment by the Central Government – participation can be restricted to 26 percent. 9.     State Governments will be benefited by infrastructure creations. 10.   Magisterial function in crisis will be with least disturbance to the public. 11.    Any world calamity can be resolved in 60 days with alternative supply. 12.    Public needs to be educated and participative not to waste petroleum products. 13.   Pollution needs to be penalised. 14.  Railway Rakes can be “floating” stocks and can be turned around at will, parking at midway points in loop lines or rural terminals.  15.  All Defence installations can have 8 point strategic storage surrounding the installation or camps and cantonments. Defence buying should specify compulsorily 20 percent blended under stringent quality specifications, which will in turn help civilian supply quality in surrounding areas. 16. Considering the Experience of SPPR – SPPR can be a minority but strategic equity partner at 26 to 35 percent with at least 35 entities to implement this nationally over next 5 years, with Mangalore as Headquarters due to convenience and congruence. Green Energy Promotion should be a win win win win win for the Indian economy
Posted by G Giridhar Prabhu

CASHEW – A TOUGH NUT TO CRACK

Cashew (Anacardium occidentale) is a tree nut of growing importance in the global trade of horticulture produce. Of late, many issues have cropped up and problems have surfaced on dealing with the harvesting and post harvesting stages and further treatment in the commercial value chain. The ratio of kernels to raw cashews is 1: 4 or below, depending on various factors that reduce yield. As it is a very expensive product, processing of cashew kernels must result in least possible destruction or damage or depreciation. Technology has not been a driver in cashew processing and the record of failures is higher than successes over a period of time. The conflict has been between the conventional processes and the newer developments. The evolution of cashew processing followed the course of demand. The higher demand for kernels led to the linear expansion of cashew processing, where the availability of labour was abundant. The increase in the economic cost of labour led to the concept of division of labour and evolution of the small version of the cutting machine. The history of mechanization of cashew is since late 1950s. The advent of mechanization began as supply of equipment trade by UK, Japan and Italy. Probably other nations chipped into help the producers and consumers. Mechanization took root in Brazil and evolved, but the industry could not deliver the volumes required for world markets from their own production. Non-availability of labour led to the innovation, which automated a part of the shelling cycle. Peeling was the most laborious part and machines were developed to remove the outer peel to the extent of 70 to 80 percent. Grading by hand evolved to small graders, which automated the process slightly to the optically sorted grades, almost simulating hand grading for sizing purposes. The Brazilian industry got protection from increases in global raw cashew prices, which indirectly gave compensation to some of the destructive aspects of mechanization on the process and the product. A precondition for good preservation of raw cashew is ideal to perfect sun drying to bring the equilibrium in moisture content. A fully well dried raw cashew has slightly below 9 percent moisture content. The biochemical actions turn for the worse if raw cashews are not well dried. This causes irreversible destruction and hence universal education of producer and traders is essential for making them aware of the value lost when raw cashews are not dried well. The pre-requisite is to complete the post-harvest. Drying process and process raw cashew fit for any type of manufacture. In Africa, a combination of state policy and practices, control and regulations and market practices globally contributed to the installation and failure of mechanised practices. It ran the cashew economy to the ground and revived with market practices and resulted in the massive growth globally when market prices generated market driven policy and practices which we see today. The challenge for cashew is that the means of producing kernels and technology for production needs to be defined.The cashew kernel extraction follows the processes of proper post-harvest care, further processing of raw cashews, conditioning of raw cashews and then roasting, shelling, oven treatments, conditioning of heated shelled kernels, peeling, sorting, elimination of testa and non-conforming degraded kernels and final grading as per commercial standards. The Raw Cashew Is A Tough Nut To Crack. The Following Table Reveals The Process: The peculiarity of raw cashews is that it cannot be compared to other nuts or agricultural processes. The evolution of processes to develop the kernels have been ad hoc and handed over as skills and sub processes to suit manufacture and delivery of kernels. Cashew manufacture requires a systemic study of all processes and sub processes and this need to be in situ in factories. It would be a huge challenge to have a central laboratory and development centre for cashew. Study and research of cashew manufacture is to be preceded by intense studies of the raw cashew for physical, chemical, biological, microbiology, biochemistry and water activity characteristics and behavior under different conditions and parameters. Thus, it is clearly a case for partly manual and partly mechanical process for extracting the full or potential value of a raw cashew. The raw cashew nut is the only tree with a hard shell which has a phenolic substance. The acid which the shell can release in process and how the shell can be separated without any contamination has been satisfactorily done with manual or partly manual and mechanical processes. Optical sorters with RBG technology evolved over sensors, which could sort to requirement. In all, the requirement of 60 employees per metric tonne produced got reduced to 10 employees in this year. The industry now comprises of a large number of heterogeneous processes. Cashew has also a kidney shape with an indent. The other characteristic or shape issue is that it has length, width and depth which vary. The thickness of the shells varies not just from nut to nut but within a single nut at the points where the shelling would take place. Any shelling that happens has to be at a particular point with a shape that has half a kidney characteristic with a sharp centre. This leads to issues when the nut slips and various types of damages can occur if this is done devoid of skill and when done mechanically there is no uniformity. Without shelling no further activity happens. This brings to us the sensitivity of parts of raw cashews when exposed to the process. Cashew manufacture involves heat transfer in multiple stages that can be applied, which are critical for extraction from the outer shell and further for the gentle removal of inner testa. Cashew kernels are covered by an inedible outer skin with a predominant component of tannin. The intricate processes for cashew kernels extraction once simple in the manual process has led to a series of complication when there are automated or mechanical processes. In mechanised processes the prerequisites go higher than in the manual process and the output or yields have qualitative, quantitative impacts as well as it alters the characteristics in a significant way that can affect the final product or the way consumer requires it. Packaging is special to cashew due to its delicate nature. Cashew kernels have another characteristic compared to other tree nuts. It is “meaty” and has good doses of fat and carbohydrates. This requires cashew kernels to be preserved well. Cashew requires an “inert” atmosphere which requires it to have specialised packaging. It is therefore desirable that cashew conversion is subject to severe tests after a series of observations. The objective is to magnify the value from each gram of raw cashew. Cashew as a tree produce will defy uniformity. It is a regrettable fact that there is no established or recognised industrial research on cashew manufacture. The nature and volume of the industry now requires it to be a national or international effort, preferably backed by United Nations or an internationally recognised and backed agency. Cashew manufacture and technology anywhere in the world will be standardized and a success only on the following criteria when set into a pre-requisite programme: Complete and thorough post-harvest drying of raw cashews practices by producers and traders or intermediaries e.g. cooperatives and handlers Protocols for storing and transportation of raw material that is raw cashew Complete understanding of biochemistry in process once raw cashews are submitted to process Suppliers and customers of cashew kernels understanding the cashew value chain Participation of the entire value chain as stakeholders in the study, research and development Any process technology will have to completely be the result of in depth study of the material. It is time for a World Conference on Science and Technology on cashew to establish thoroughly, the agenda and priorities for industrial research, to consolidate and explore new frontiers for cashew.
Posted by G Giridhar Prabhu

Legacy Issues: Pay-out of Interest of Government of India

The Reserve Bank of India must act speedily in making special efforts to undo legacy issues. The Government of India has borrowed heavily over the last 15 years. In the process, dealing with inflation at certain periods, the Reserve Bank of India independently took steps to increase the interest rates and established a higher interest rate regime for the whole nation. It certainly made an impact on the markets; it made an impact on borrowing by the public. In fact, a re-examination of its impact must be done internally by the Reserve Bank as well as the Government of India. In the period of four years, India had extremely high real interest rates as well as nominal interest rates compared to the rest of the world. It is therefore an opportunity to correct this. The Government of India has been the worst hit victim and on behalf of people of India, it cannot be burdened by legacy issues even though it cannot manage it. Reserve Bank of India has now within its means and tools, the capability of redressing these wrongs without hurting markets or its autonomy or position. The table below reveals a substantial amount to Outgo of Interest by the Government of India. a) Due to the increase in borrowings b) Increase in rate of Interest Source: budget.gov.in The Government of India needs to reduce the interest outgo from Rs 809,000 crores per year to Rs 350,000 crores for financial year 2022-23 and need not wait for prolonged periods. The table below shows the flexibility of savings on interest payment. Source: Prepared by G Giridhar Prabhu RBI can take the following steps: 1) The total holdings of government securities that it has on its inventory, which is to the extent of Rs. 11,00,000 crores can be converted into Treasury Bills at a nominal interest rate of 0.25%. This can be proscribed as a national measure in an emergent situation. This is equal to the interest rate in the global situation and India’s position within 10 large economies. This can be for a tenor of 364 days and the Government of India will save instantly the total amount of interest pay-out this year and forever. 2) It is recommended that the Reserve Bank of India can buy back the outstanding oil bonds and convert it into normal securities like Treasury Bills at 3.35 percent. This can be done immediately in order to ensure the goal of reducing interest costs of the Government of India. The saving over the period of the Bonds is Rs 17,788 Crores. 3) The Government and Reserve Bank can work together so that Reserve Bank of India buys to the extent of Rs. 33,00,000 crores of securities. These can be converted into – o 182 days Treasury Bills @ 3.35% o 91 days Treasury Bills @ 1.75% o 46 days Treasury Bills @ 1% o 14 days Treasury Bills @ .25% The table on list of Government of India securities outstanding as on 6th September 2021 is enclosed with this document. The list has been modified by making a table and the total outstanding in each of the interest rates is summarised here below. Total Outstanding Securities at different interest rate slabs (Rs. Crore): 4) Reserve Bank of India within its purview can structure as a response to current global Indian factors as follows in the next 4 months as a borrowing structure: • Treasury Bills Reverse Repo Rate less than 14 days Maturity 0.25% • Treasury Bills Reverse Repo Rate less than 46 days 0.50% • Less than 182 days 0.75% • Less than 364 days 1.00% 5) The RBI Governor in a recent interview conveyed that interest rate on Reverse Repo is within its purview and not within the MPC. Therefore, Reverse Repo auctions can be restricted to Treasury Bills at the respective rates. 6) The Government of India and Reserve Bank of India can create the additional liquidity temporarily so that Government of India can manage to raise these resources for the current year at a low cost. To this end, for at least next 18 months it need not raise any long-term loans beyond 10 years. 7) When Government of India can turn at least 75 percent of its current outstanding, it can save Rs.4,00,000 crores of interest annually for the next 10 years. The Government of India and RBI together should cognise that saving interest outgo is an exercise of convergence. It will help reduce revenue deficit and hence the fiscal deficit. When the Government of India is affected, the whole nation gets affected. RBI’s mission and mandate are for the people of India. The Reserve Bank of India and Government of India need to act to reduce the outgo of interest from the Government of India. This needs to be acted on expeditiously and the exercises and action needs to be in the current year. Government of India will save Rs. 4,59,000 Crores when action is initiated within 4 to 6 weeks now without waiting for Budget 2022-23. European nations are at negative interest rates and rest of OECD are at marginally positive interest rates at .25 to .75 percent. It is therefore India’s moment to capture Rs 33,00,000 Crores equivalent of Rupee Debt at a cost between .25 to 3.35 percent for Treasury Bills by integrating the Forex Markets with the Bond Markets. The balance of Rs. 40,00,000 crores also needs to be brought within the 4 to 4.75 percent range. India will grow at 8 to 10 percent CAGR only when – • Government expenditure comes down. • Public consumption goes up. • Capital goods for long-term can be accessed for future returns. • High-cost debt as legacy is replaced by low-cost debt for all entities. • Growth needs to be in middle class housing. • Infrastructure and long-term finance are priced around 6.1 percent to 7.5 percent or lower, and stable for 10 to 30 years. • Savers interests are protected by secured long-term debt. • Inflation needs to have a balanced view. These are some among the steps that are required to be taken and need to get collaborated with the real economy. India will grow into a Rs 400 trillion economy when a series of actions are initiated for the medium and long-term.
Posted by G Giridhar Prabhu

Sand Extraction at Coal Mines

It is a welcome news that Coal India has converted waste into wealth. Sand is going to be in perpetual requirement for a dynamic and growing building economy. This is acute in urban areas where people use sand for construction of commercial and residential buildings. Sand is also consumed in large quantities in making of concrete roads and concrete structures. There is a shortage of sand in the cities of Bangalore, in the whole state of Kerala, in Goa, where there is a pricing issue as well as a quality issue. It is earnestly requested that Coal India Ltd make trial consignments in southern parts of Maharashtra, Kolhapur district, Hubli-Dharwad and Belgaum, the State of Goa, Kasaragod district in Kerala and up to Calicut. There is a larger demand than supply, hence it puts pressure on available sand suppliers and is leading to “smuggling of sand”, “sand mafia”, “difficult to handle situations” and “when interstate issues are involved”. Coal India Ltd has no presence in Karnataka, Kerala and Goa. If sand is made available to these places it would be definitely a national endeavour. Details can be worked out based on the supply side and it is also very important that Indian Railways is involved in this exercise. Sand selling depots can be organised in smaller railway stations, where access from the road to the rail head can be managed successfully by the users. Even where sand is made available to the contractors of NHAI or Railways, it will mitigate the demand to a certain extent. But at least 40% of the sand can also be marketed to individual households who build their dream homes. The presence of Coal India will then be on all India basis, wherever sand can be made available. It is also important that if river sand is available in other parts of the world, break bulk carriers can bring it to ports – major ports where it can be then made available to consumers as well as in smaller quantities. Sand and aggregates form a very important role in building a Rs.400 trillion economy that is aspired for Government of India.
Posted by G Giridhar Prabhu