Monday, 28 July 2014

India’s Shackles




Democracy is a system by which people may have a say in governance. If a nation is headed by a dictator and should he be despotic, it would take a huge revolution to overthrow him. In a democracy, people provide a check on the government – if they are not happy they simply elect a party out of power. Further, there is an element of fear of the ruling elite that is much more pronounced in an autocratic rule. I say pronounced because it is not altogether missing even in democracies. However, people rule should not turn into a mob rule – where a majority can simply over-rule the rights of a minority. As much as elections and majority elected governments are a check on the government, it needs to be balanced with checks on the majority. There are a few oppressed segments in India:
Dalits – it should perhaps be unimaginable that even in the 21st century an archaic and oppressive system like the caste system continues to date. There are about 150 million people classified as so called lowest caste and they suffer extreme oppression especially in the rural areas. The girls and women are at particular risk. But apart from violence and physical abuse, there is a kind of dispiriting and mean intent about telling someone – you are not human enough or just by birth you are inferior and your caste something to be ashamed of. This kind of social and emotional oppression exists even in urban educated India. Even among top notch globetrotting MBAs, it is not unusual to hear them boast of their superior caste status. That is rather irresponsible as these should be the change agents instead of upholders of a regressive model.

While the system is rooted in Hindu religion, people who have converted to other faiths like Islam and Christianity too practice it. There is a trend of converting to Buddhism where people have given up their caste vastra but unfortunately, this self proclaimed equality is not acceptable to the rest of the society. Now some people go and lecture to the dalits about how they need to stand up for themselves and come out of this oppressive state but that is like adding insult to injury. It is not up to the lowest caste segment (which is also a democratic minority) to pull themselves up. The onus is on the better off segments to help end this form of oppression, particularly the better off educated classes. They have to at the very least give up caste based identity and if they could go beyond that, champion the rights of the lowest segments. Even if they can’t do the latter, doing the former is the least minimal contribution they can make to the society.

North East Indians – this is another minority who is increasingly at the receiving end of lynch mob kind of crimes. They are loosely referred to as Chinks or chinkies, whatever that means. Although classified as Scheduled Tribes, they are actually more modern and progressive especially in terms of women’s rights and equality. By nature they tend to be mellow and gentle. But in the last few years there have been several crimes where people from North east have been lynched brutally. No one really takes a stand for them as again they are a democratic minority. The idea of democracy should not be a mob rule where every minority community is alienated from the nation.

Muslims – now this is a tricky one. Post India Pakistan partition, there was massive bloodshed that led to deep seated enmity. Further, on account of terrorism, there is a sense of mistrust but also most people from the community fear being targeted. To put it in perspective, the partition saga belongs to the past century as well as terror strikes are on the wane. Yet what is on the rise are riots as well as lynching of Muslim youth and victimization based on continuous mistrust. At the same time, this is a substantial segment and makes for an important vote block and there are a lot of politicians who bank on it evincing pseudo support and concern. Even respectable Muslim Indians who have contributed greatly are often questioned for their national identity. This sort of alienation can only lead to further misuse of mob rule form of democracy.

Rural India / farmers – now this is a surprise entry here! Rural India still comprises about 70% of the population yet this is one neglected and forgotten ‘majority’. Why so? You see, lacking in education, economic well being or any kind of power, it is easy to manipulate them during election times. Leading a poor hand to mouth existence, come election times, it is easy to bribe them with a bag of free rice or cash etc. or play them against each other along caste or communal lines. Once in power, this segment is quickly forgotten. Agriculture is a mess – based on small farms relying on primitive methods that do not produce the right crops or make efficient use of water and soil. Farmers are often debt ridden and most rural Indians lack access to basic amenities like water, sanitation, education or economic opportunities. There is a need to modernize agriculture as well as take infrastructure and development to smaller towns and rural areas. The fruits of development thus far remain limited to a few large cities which are already overcrowded with large influx of people coming in search of jobs since there is little opportunity in the countryside. Rural India is a strangely neglected and oppressed majority.

Apart from looking at these segments that need support and empowerment, let us look at a key issue that affects a majority of Indians but there is hardly any focus on it in the quasi modern  21st century India.

Water and Sanitation

Most Indian cities lack any drainage system or sewage treatment model. What are intended to be storm water drains carry all the sewage of the cities and simply go and dump it into the rivers. This has to be seen to be believed. If we look at Delhi, Yamuna is fairly clean (though muddy looking) water before it enters the city. Then there are these huge drains like the Najafgarh drain along with Supplementary drain which together are almost like a river or canal - at times 500 meters across. They bring black stinking sewage and simply dump it into the river at Wazirabad. Thereafter putrefication of Yamuna starts as most other drains like the Shahdara drain also do the same. The story continues down the stream as the river passes through various other small towns gathering their sewage. Now millions of people live along these riverbanks and suffer from several water borne diseases. That is the model across the country for all river systems which have become drains playing the role of carrying sewage to the sea. Only in few large metros drinking water is at least treated. In the rest of the country they depend upon the filthy untreated water.



To add to the woes, there is depletion of the ground water primarily on account of agriculture – 80% of the groundwater is used in agriculture. Since no one has bothered to modernize that segment, there is tremendous wastage and inefficient use. The World Bank has predicted that at the current rate, India’s ground water would dry up in the coming 10 -1 5 years. The problem can not be solved by running campaigns like close the tap properly etc. as the problem lies elsewhere, in agriculture which is the main consumer of it.  That is why paying attention to the farming sector is important, not just for the farmer’s sake but the nation’s future depends upon it.

These are some gaping issues for the democracy – in essence it does not seem to be working for the minorities nor the poor rural majority. Then who is it working for?




Friday, 4 July 2014

Global Tax Rates




As I was reading an article on how several companies are acquiring others based in low tax rate countries, one of the things that struck me was how varied the tax range is across the world, both for corporate as well as personal tax rates. Below is the list of both and let us see some points that the data throws back at us.

The mean for corporate tax rate is 26% but the lowest is in Ireland at a mere 12.5% whereas the highest is in the UAE is at 55%. That seems like a lot of room for companies to shop.

For the personal tax rates (for the highest tax bracket) the mean is much higher at 36% and again the range is wide with Saudi Arabia and UAE charging 0% whereas the highest Sweden at 57%.

There are some countries where corporate and individual tax rates are similar and both low like Hong Kong and Singapore, perhaps reflecting an overall economic strategy. But there are others where individual taxes are high but corporate tax quite low, perhaps an aggressive attempt at luring business from abroad. Ireland and Finland seem to fit this bill.

Personal tax rates are unique to each country and people can’t shop for them as they are normally domiciled in theirs and shifting is a lot more emotional decision.

Corporate tax on the other hand is a more sensitive issue. Companies can base themselves anywhere in the world and increasingly will seek low tax havens. Hong Kong and Singapore’s tax rates at 17% and Ireland at astonishingly low 12.5% are lucrative versus that of 35 – 40% in countries like the US, Japan etc. So much difference in the tax rates would make substantial difference to the companies’ earnings. And unlike personal relocation decisions which are based on cultural roots etc., companies’ decisions are not emotional and they would see no harm in finding better deals. I read recently that countries are trying to regulate it but there is no way to control it. The good news is that only smaller countries can offer such deals. Very large economies need to earn on their own base and tend to be closer to 25 or above.  But still if the rate is too much higher than that, the companies would be tempted no matter how professional their home base country is. Because they can operate from anywhere afterwards!

So if there are scenarios with much lower corporate tax rates – companies are going to shop. In a global world, this will warrant some rationalization for higher tax rate countries to remains lucrative.

Highest corporate taxes are in the UAE, the US and Japan though that has not deterred business thus far perhaps due to their industry friendly environment.

Personal tax rate is highest in European countries like Sweden, Denmark, Netherlands etc. though that might explain their greater equality which we saw in the previous blogpost.

Well of course, taxation is so varied for historical reasons. Each country evolved its own formula well before globalization. But in the present age, such differentials are going to make a difference and countries can not ignore that factor so easily.

Any how here is the detailed list:





Corporate Tax rate
Personal Tax rate
12.5

48
15

15
16.5

15
17

20
17

40
17.92

40
19

22
19

32
20

40
20

51.25
20

13
20

0
20

35
20

35
22

57
23

48
23

45
24.2

38
24.5

55.6
25

50
25

45
25

33
25

25
25

30
25

26
25

52
26

29
26

42
26.5

50
27

47.2
28

40
29.6

45
30

45
30

30
30

24
30

32
30

52
31.4

43
33.3

45
34

50
34

27.5
34

33.99
34

20
34

34
35

35
38.01

50.84
40

39.6
55

0








Mean
26

36