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India’s Fiscal Deficit: Recent Trends and How to Tackle It

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Role of any government in the  economy is an essential  one where it takes decision on receipts and  expenditure. Total expenditure and total receipt are the two important features of budget yearly presented by government. Fiscal deficit actually refers to the excess of the spending over the revenues.[1] It  is calculated as a percentage of the  GDP.[2]  

Gross fiscal deficit or GFD is basically the excess of the total expenditure which includes the loans, net of recovery, over receipts of revenue (which includes external grants) and receipts of non-debt capital.[3] Net fiscal deficit is the GFD minus net lending.[4] 

Whenever fiscal balance is in positive then it is considered to be beneficial as revenue  is above  expenditure. Whereas, negative fiscal balance in fact means borrowings on which an economy depends on and is seldom bad.[5]   

Targets for fiscal deficit  are set annually  that  India fails to follow . We will see through this paper why is fiscal deficit happening , what impact it has on economy,  how  demonetisation and GST has impacted it and also how to use it to tackle the economic problems.  

Why Is Fiscal Deficithappening?

 Tax evasions by various organisations along with various other factors, leads to a loss in revenue for government that leads to fiscal deficit.

The Union budget, for 2019-20, estimated fiscal deficit to be 3.3% of GDP or Rs 7.03 lakh crores.[6] The overly-optimistic revenue estimations for 2019-20, was further worsened by the reduction in corporate income taxes (CIT), for which there were no expenditure or revenue offsetting steps been taken. This could result in the government breaching, by about 50 basis points, its fiscal deficit goal.[7]  Cutting CIT to the extent of Rs. 1.45 trillion, was mainly done to lift the weakening economy.[8]The fiscal impact would be felt much sooner than the decision’s growth impact.[9] 

The government ended August 2019, with a Rs 4.36 lakh crores revenue deficit.[10] As of mid-November, the Center mopped up just 6 lakh crores in direct taxes, that is about 50% less of the current direct tax revenue goal of 13.35 lakh crores.[11] This will lead to an increase in fiscal deficit. 

Comptroller and Auditor General or CAG stated that government’s key deficit numbers might be substantially higher than mentioned in the budget. CAG has therefore, asked whether or not extra-budgetary resources taken into account in budget reflect the true picture.[12] The CAG re-calculated, 2017-18 fiscal deficit to reveal that it is 5.85% actually. Government reported a 3.46% fiscal deficit that year.[13]  The fiscal numbers of the government over past few years are under heavy scrutiny as growth has been sluggish since year 2016’s third quarter.

Impact Of Fiscal Deficit On Economy

Fiscal deficit is similar to a vicious cycle. Fiscal deficit has dire consequences on the economy as the government borrowings is in fact one of the last resorts left with the government and that results in higher interest rates in the market.[14] 

Higher interest rates are resulted because markets are doubtful about repayment by the government;  due to which the government bears high interest rates, for this perceived risk that later puts the government into further debt, hence being a vicious pattern.   Higher the rates, lower is the scope of private investment that decreases resources that are available for the private sector investment. High government borrowings can have various potential hazards that are mentioned below.  

The Crowding Out Effect

The government to cover up for its deficit borrow more from the private sector in form of bonds. By selling the bonds it takes money from the private sector. When the private lenders lend money to the government, they actually lend it out, of their savings/ profits. The savings of the private sector gets reduced which lessens itsability to invest which ultimately crowds out the private investment, out of the market.[15]

Therefore, government spending increases and the private spending reduces. Since the government spending’s are considered less effective than private spending this is bad for the economy. The government during a fiscal deficit in fact does two things: increases borrowings or increases tax revenue.

INCREASES TAX REVENUE- Whenever the government increases tax, it does it by actually increasing corporate taxes, income taxes etc. which results in a reduction in disposable income of the firms, so this increase in the government spending does not really result in increase in the aggregate demand(AD).[16]

The increase in the government spending becomes offset by the decrease in the AD   that is due to decrease in the disposable income. When the private sector has lesser money, it even spends lesser in the private projects.

Inflation 

When the government sticks to not borrowing of money but actually ‘monetisation’, inflation occurs,[17] which increases the money supply in the market. Therefore, aggregate demand too increases causing inflation. Fiscal deficit can also imply an increment in the government spending’s which then increases AD that results in higher price levels of services and goods.

Higher Taxes 

Whenever the debt to GDP ratio amplifies, the government requires to increase the tax revenue which it does by increasing its tax rates.[18] 

Impact of demonetisation and goods and service tax(GST) on fiscal deficit

Demonetization changed our currency system providing the people an incentive to use and spend money in a much productive way than letting cash lying around. Cash lying around was deposited in the banks and eventually people started trusting digital payments. Banks also experienced a surge in liquidity. Banks then deposited this sum, through different windows such as SLR, to RBI. This resulted in an increase in the government treasury. The raids for the black money also led to an increase in revenue. This resulted in an increase in income taxpayers. Income taxpayers grew by 9.1 million. There had been an 80% rise, above the average annual increase, in taxpayers.[19] The rise was also reflected in the filing of IT returns and the payment of advance tax. While in the evaluation year 2016-17 the figure of taxpayers increased, in the next year the rate of growth fell to acquainted levels.

But demonetization affected India’s MSMEs badly. Micro-industry owners weren’t ready to cope with the lasting effects of demonetization. Therefore, a lot of micro-industry workers lost their jobs and also went back to their villages. These companies therefore had a low growth rate of 1%.[20]   

The primary goal demonetisation was tackling black money, at which it failed. Since the system has recovered 99.3% of the demonetized notes, it indicates that the activity didn’t bring enough “black money”.[21] This could be because just a tiny portion of tax evasion takes place in cash. 

It resulted in job cuts which led to higher unemployment rates.[22] Job losses led to lower productivity and the decrease in liquidity disrupted India’s cash-based economic structure, which devastated unorganized sector. Though, demonetisation led to higher tax revenue, the cumulative losses arising from the move left a scar on economy, which had an impact on GDP and fiscal deficit. Since demonetisation the GDP, has decreased to 5% (July-September 2019) from 8.8% (July-September 2016).[23] In FY20, fiscal deficit breached Rs 7lakh crores mark.[24]

By removing the cascading effect of multiple central and state taxes, GST has worked to increase profit and reduce costs of doing business. This could attract investment which would lead to an increase in GDP.  The increase in GDP would result in an increase in revenue for the government since taxes will increase. The GST is a type of tax that is consumption based and not anymore production based.

During the first 6 months, of the GST implementation, indirect taxpayers increased by 50%, partially due to several small businesses actively opting to be a part of the GST in attempt utilise input tax credits.[25] Even with a wider base, however, GST revenues were underwhelming.[26] Indirect tax collections of the Center in the post-GST era, rose by just 1.8% from the year earlier in April-September 2018, far slower than the growth of 5.6% seen in the full year of 2017-18 and even smaller than the growth of over 20 percent in the previous two years.[27] This is primarily because of decrease in economic activity, sluggish demand and compliance issues. 

Therefore, flawed GST implementation, coupled with demonetisation, served as the catalyst in India’s growth slowdown, which opened doors to fresh economic problems and affected the fiscal deficit.[28] 

Measures To Control Fiscal Deficit

There are two methods of restraining fiscal deficit. First, if the government decreases its expenditure, second, if it increases its revenue. There are again ways to achieve on both the ends.    

Reduce Expenditure 

SALE OR CLOSURE OF SICK UNITS  

India is a centre for the public sector undertakings(PSUs). Several of these PSUs are not making profits and demand more than giving. So, selling or closing the non-viable, sick industry would decrease the government spending on them.[29]

REDUCE SUBSIDY PAYMENTS

The subsidy bill is more than 10% of GDP, of which the non-merit subsidies add up to 5.7%.[30] Rationalization these could free up to 6% of fiscal space.[31]

REDUCE INTEREST PAYMENT  

India’s government is paying a lot of interest in previous years loans. Approximately one-fourth of the Indian spending of the budget went to interest payments.[32]   Therefore, government borrowings need to be reduced in order to decrease interest payments resulting in lower expenditure. 

Increase In Revenue   

PREVENT EVASION AND INCREASE TAX REVENUE 

Government needs to take measures to stop tax evasion and streamline the process of tax so that taxpayer base of the country widens which will lead to higher taxation. Agriculture could be included in the tax net, because distinguishing jobs cannot be the criterion for not paying tax, but rather it should be centered on high and low income.  In fact, people for evading taxes disguise their non-agricultural income as agricultural income.  

DISINVESTMENT 

Disinvestment is PSUs offers the government funding to cover the fiscal deficit and also has long-term advantages, as this money can be spent or invested in productiveuses that would generate jobs, increasing revenue and taxpayers.[33] The government has targeted mobilising 1.05 lakh crores by the means of disinvestment.[34]

ECONOMIC GROWTH

 Business promotion will help the economy to flourish. If the economy grows, the government tax revenue increases. It includes setting up a framework conducive to businesses and environmental improvement. 

Conclusion

India’s fiscal deficit, for many years, has been a concern. Although, fiscal deficit affects the economy in many ways like by increasing inflation, increasing interest rates, crowding out private investment, etc., it can be helpful when borrowings are done for productive uses, which can amplify government revenue. It can also be controlled by several measures when it is harmful for the country. The government, in recent years, has taken several reforms like introducing GST and demonetisation, the effects of these can be observed on the fiscal deficit.

A fiscal stimulus dose is needed to revive the growth rate of the economy. The stimulus size will be calculated by the constraints on debt servicing, borrowing capacity and Indian sovereign rating concerns. A downgrade will raise borrowing costs not only for government, but also for private sector; this could cause a freeze in the portfolio funds which track indices passively and has been flowing into India. In addition, such a freeze can strain the exchange rate of the rupee, which could drop abruptly. The possibility of a sudden cessation or reversal of foreign flows is serious, and our fiscal managers cannot neglect it. That is the price you pay for being not able to pay, in your own currency, for imports. It is undeniable that foreign inflows are required, at least in order to pay for capital goods and imported oil.

As India’s fiscal space is at a risk, it can also be assisted with easier monetary policy. Monetary policy must maintain a loosening or easing bias, given the economy’s cyclical weakness, at least till the predicted recovery takes hold.  

To be effective or successful in fiscal policy, it must be counter-cyclical, so a larger deficit in a year like a recession is all right. Every valuable additional fiscal rupee must result in a boost in consumption and growth immediately. The tax on capital gains ought not be abandoned, as stock market being at a high, as these are progressive direct taxes. Because Google, Apple, Microsoft, Amazon and Facebook, five of the world’s most successful entities, in India have a huge customer base, a digital tax should be imposed. The GST rate must be rationalized. This could give the fiscal buck, a greater turnout than a reduction in the individual income tax, which is borne only by about 3% of the population. This should be followed by a base expansion. The compensation formula provided to states for their failures in GST collections could be revised, as they too should bear some of the fiscal pain. 


[1]“Definition of ‘Fiscal Deficit” (December 2018) <https://economictimes.indiatimes.com/definition/Fiscal-Deficit>

[2]Will Kenton, “Fiscal Deficit” (August 2019) <https://www.investopedia.com/terms/f/fiscaldeficit.asp>

[3]“India’s Economy Dashboard” The economic times (February 1, 2019) <https://economictimes.indiatimes.com/news/economy/indias-economy-dashboard/what-is-economy-dashboard/slideshow/67755935.cms>

[4] Ibid 3.

[5]Sean Ross, “Understanding the Effects of Fiscal Deficits on an Economy” (August 2019) <https://www.investopedia.com/ask/answers/021015/what-effect-fiscal-deficit-economy.asp>

[6]Singh K, “August Fiscal Deficit at 78.7% Of 2019-20 Target ”The economic times (September 30, 2019) <https://economictimes.indiatimes.com/news/economy/indicators/august-fiscal-deficit-at-78-7-of-2019-20-target/articleshow/71377147.cms?from=mdr>

[7]Asit Kumar Misra, “IMF says India should avoid fiscal stimulus, opt for easing policy” (May 2019) <https://www.livemint.com/news/india/imf-says-no-to-fiscal-stimulus-okay-with-further-monetary-policy-easing-11577181218530.html>

[8]“Fiscal deficit hits 93% of budget estimate at ₹6.52 trillion till Sept-end” (October 2019) <https://www.livemint.com/news/india/fiscal-deficit-hits-93-of-budget-estimate-at-rs-6-52-trillion-till-sept-end-11572526967720.html>

[9]Asit Ranjan Misra, “Corporate tax cut may widen fiscal deficit by 40 bps: Fitch Ratings” (October 2019) <https://www.livemint.com/politics/policy/india-s-fiscal-deficit-may-shoot-up-to-3-7-in-fy20-fitch-ratings-1569489629214.html>

[10]Ibid 6.

[11] Nandi S, “More Steps to Revive Growth Soon: Finance Minister Nirmala Sitharaman” livemint (December 7, 2019) <https://www.livemint.com/news/india/more-steps-to-revive-growth-soon-finance-minister-nirmala-sitharaman-11575706380335.html >

[12]Narayanan D, “CAG Demonstrates How Govt Relies on off-Budget Resources to Fund Deficit” Economic times (July 25, 2019) <https://economictimes.indiatimes.com/news/economy/indicators/cag-demonstrates-how-govt-relies-on-off-budget-resources-to-fund-deficit/articleshow/70360281.cms> accessed December 26, 2019.

[13]Ibid 12.

[14]Reem Heakel , “Forces That Causes Changes in Interest Rates” (August 2019) <https://www.investopedia.com/insights/forces-behind-interest-rates/>

[15]Rajesh Kumar, “De-jargoned | Crowding out” (September 2012) <https://www.livemint.com/Money/x5B8XGNuQXqeZzZ6RU41jJ/Dejargoned–Crowding-out.html>

[16]Tenjvan Pettingar, “Crowding Out” (Economics Help,2017) <https://www.economicshelp.org/blog/1013/economics/crowding-out/>

[17]Chandavarkar, Anand G. “Monetization of Developing Economies (Monétisation Des Économies En Développement) (Monetización De Las Economías En Vías De Desarrollo).” Staff Papers (International Monetary Fund), vol. 24, no. 3, 1977, pp. 665–721. JSTOR, www.jstor.org/stable/3866500

[18]Julia Kagan , “Gdp Tax Ration” (July 2019) <https://www.investopedia.com/terms/t/tax-to-gdp-ratio.asp>   

[19]Ibid 18.

[20]Aishwarya Krishnan“Demonetization Anniversary: Decoding the Effects of Indian Currency Notes Ban” (May 2019) <https://economictimes.indiatimes.com/tdmc/your-money/demonetization-anniversary-decoding-the-effects-of-indian-currency-notes-ban/articleshow/61579118.cms?from=mdr>

[21]Ibid 20.

[22]Koustav Das, “Three years after demonetisation: Lot of sound and fury signifying nothing” (November 2019) <https://www.indiatoday.in/business/story/demonetisation-three-year-anniversary-economic-slump-gdp-unemployment-negative-growth-outlook-1617099-2019-11-08 >

[23]Ibid 42.

[24]Ibid 42.

[25] Kundu T, “How GST and Demonetisation Impacted Govt Finances” livemint (November 5, 2018) <https://www.livemint.com/Industry/pkS48kM47yZbxS49jL6MSN/How-GST-and-demonetisation-impacted-government-finances.html>

[26] “Dip in GST Collections Tells a Story” The hindu business line (October 3, 2019) <https://www.thehindubusinessline.com/opinion/quick-take/dip-in-gst-collections-tells-a-story/article29585185.ece>

[27]Ibid 20.

[28]Ibid 19.

[29]Devika Kher, “Divestment: More than just revenue” (May 2016) <https://www.livemint.com/Opinion/ZxVQBVNoq8UbqDwVhCMY6M/Divestment-More-than-just-revenue.html>

[30]Nikita Kwatra, “How government can fund a growth revival” ,(November 2019) <https://www.livemint.com/news/india/how-the-government-can-fund-a-growth-revival-11574237638358.html>

[31]Ibid 24.

[32]Krishnaand Tripathi, “Budget 2019: Do you know, a fourth of India’s Budget goes into interest payment?” (January 2019) <https://www.financialexpress.com/budget/budget-2019-do-you-know-a-fourth-of-indias-budget-goes-into-interest-payment/1454897/

[33]Smriti Jain, “Budget 2014: Five prescriptions for Narendra Modi to tackle fiscal deficit” (The Economic Times,2014) <https://economictimes.indiatimes.com/news/economy/policy/budget-2014-five-prescriptions-for-narendra-modi-to-tackle-fiscal-deficit/articleshow/37697902.cms>

[34]“Cabinet approves new strategic disinvestment process” , (October 2019)<//economictimes.indiatimes.com/articleshow/71445908.cms?from=mdr&utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst,https://economictimes.indiatimes.com/news/economy/policy/cabinet-approves-new-strategic-disinvestment-process/articleshow/71445908.cms?from=mdr>

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Indonesia’s political will is the key to a successful carbon tax implementation

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Authors: I Dewa Made Raditya Margenta, and Filda C. Yusgiantoro*

A carbon tax should be overviewed as an oasis of post-pandemic recovery. The proper carbon tax scheme will solve two of Indonesia’s extensive homework; reducing greenhouse gas (GHG) emissions and boosting revenue to support economic recovery. In the end, Indonesia’s political will is crucial in completing this mission.

Recently, the carbon tax has become an exciting topic of discussion in Indonesia. This carbon tax is introduced in a revised General Taxation Law bill and becomes this year’s Indonesia National legislation Program. According to the bill, the government plans to collect a carbon tax of IDR 75,000 (US$ 5.25) per tonne of GHG  (tCO2e). The carbon tax could target emissions on the use of fossil fuels such as coal, diesel, and gasoline by factories and vehicles.

The introduction of the Carbon Tax is quite astounding. Previously, the Coordinating Minister for Maritime Affairs and Investment of Indonesia, Luhut Binsar Pandjaitan, said that President Joko Widodo planned to issue a Carbon Trading regulation in December 2020. However, there has been no signal that the regulation will be issued until now.

Implementing a carbon tax is seen as a strategic step for the government to reduce GHG emissions and boost state revenue to increase development funds. As a result, the carbon tax scheme must be well constructed, specific, and well-targeted so that the carbon tax implementation can recover the environment and Indonesia’s economy.

However, the carbon tax implementation will not succeed without strong political will and commitment from the government.

Carbon tax as a climate action plan

As the sixth-largest GHG emitter in the world, Indonesia becomes vulnerable to climate change impact. According to the Ministry of Environment and Forestry of Indonesia, the transportation and manufacturing sectors contributed to around 64% of 2017 national GHG emissions. This number will rise considering the increase in energy demand and manufacturing activities to stimulate the economy. Therefore, a new climate policy, such as a carbon tax, needs to be promoted as a climate action plan.

As an economic-environmental instrument, a carbon tax is more straightforward to address this issue. Also, the revenues gained from this tax can be recycled to support green development. Thus, the target of this tax must be well identified, and the carbon tax scheme must be designed correctly to avoid a deadweight.

Singapore can be the lead example to emulate its carbon tax scheme. Based on Singapore’s climate action plan, the tax is applied to the facilities that emit abundant GHG annually. They also promote clean and simple carbon tax to preserve fairness, uniformity, and transparency. Its carbon tax scheme, which takes place from 2019 to 2023, will be reviewed by an impact assessment in 2022.

From Singapore, Indonesia can learn that the scheme may have the flexibility to respond to the dynamics that will occur, including the opportunity to move towards a carbon trading scheme in the future. Besides, having a solid political like Singapore will give Indonesia’s carbon tax implementation an upper hand.

Building Indonesia’s political will for a climate action plan

Indonesia’s successful climate action plan relies on various variables such as GHG emissions reduction, identifying the most appropriate instruments, and introducing new climate policies. However, all of these variables are highly dependent on political will.

Indonesia’s political will on climate mitigation would be a perfect start and a powerful tool to take immediate action in climate mitigation initiatives. Instead, Indonesia’s political will may face a political challenge during the policymaking process. A lengthy policymaking process of the New and Renewable Energy Bill is one of the examples. Hence, Indonesia’s political will to address climate change at the beginning of the policymaking process is crucial.

Gaining public trust and being severe are essential steps that should be carried out before introducing a carbon tax.

At first, the government must improve its accountability and transparency, reflecting on what Singapore has shown. Indonesia should also consider complementary economic policies that minimize a carbon tax’s negative impacts on business and household sectors.

Then, Indonesia could consider removing fossil fuel subsidies and replacing them with direct subsidies to low-income households.

Finally, Indonesia should guarantee that the obtained revenue from the carbon tax will be recycled for green development and improving community welfare.

Conclusion

In brief, implementing a carbon tax in Indonesia will determine the nation’s and its citizens’ future.

Ensuring the carbon tax implementation will be on point, Indonesia’s political will is the brain, which can be seen from a carbon tax scheme and the supporting policies. The success of this policy will be seen from intensive GHG reduction, positive economic growth, and improve Indonesian people’s welfare simultaneously.

*Filda C. Yusgiantoro, Ph.D., chairperson of Purnomo Yusgiantoro Center and an economic lecturer in Prasetya Mulya University


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Central Bank Digital Currencies: What do they offer?

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The decision of the government of El Salvador to adopt bitcoin as legal tender has invited mixed reactions from around the globe. Notwithstanding the pros and cons of the issue, the message is loud and clear – digital currencies are here to stay.

The total market cap of bitcoin has reached 600 billion US dollars by March 2021. Cryptocurrencies have captured the imagination of rich and poor alike. The percentage of cryptocurrency users has been steadily increasing in countries facing financial instability and grappling with weak currencies. Latin America has seen large scale activity in bitcoins, especially in countries like Venezuela and Columbia. Nigeria likewise has emerged as a hub for bitcoin trade given the challenging economic climate in the country. The Central Bank of Nigeria (CBN), in a February directive, had warned banksand financial institutions of facilitating payments for cryptocurrencyexchanges.Cryptocurrency trade has grown to such volumes that it can’t be overlooked by the state actors.

States and Central Banks unable to buck the trend are contemplating their own version of digital currencies. So, do ordinary citizens gain something from the Central Bank Digital Currencies (CBDC’s)?

Societal and Environmental concerns

Experts have already pointed out serious pitfalls of allowing a free hand to decentralised currencies outside the regulatory framework of the governments. Crime syndicates use cryptocurrencies as safe conduits for money laundering, cross-border terrorist financing, drug peddling and tax evasion. Recently an FBI operation, “Trojan Shield”, which busted a criminal underworld along with the seizure of millions worth of cryptocurrencies, further echoed the proximity of criminals with the crypto-world. Several cryptocurrency frauds have unearthed in recent history. The widespread popularity of cryptocurrencies has diluted the globalstandardson KYC (Know Your Customer) and AML (Anti Money Laundering), providing room for criminals and lawbreakers. 

The energy-intensive nature of cryptocurrency mining has raised concerns about its impact on climate change and pollution. China and Iran have recently put stringent controls on bitcoin mining owing to environmental pollution and power blackouts. It is bizarre that the total electricity used for bitcoin mining surpasses the total energy consumption of all of Switzerland.

Threat to sovereign power 

Decentralised currencies pose a grave threat to the sovereign power of the governments. Several States and Central Banks have thus stepped in to maintain their relevancy, by announcing their version of digital currencies, backed by sovereign guarantee. In the latest Bank of International Settlements (BIS) paper, 86% of 65 respondent central banks have reported doing some research or experimentation on Central Bank Digital Currencies.

China leads the rest

China is quite ahead in the development of its CBDC compared to all other nations. China has already distributed some 200 million yuan (US$30.7 million) in digital currency as part of pilot projects across the country. By early implementing the digital yuan, China expects to challenge the US dollar’s hegemony as the international currency. In future, China hopes to achieve more international trade through a digital yuan, which would further China’s global ambitions and effectively push plans like the Belt and Road Initiative (BRI). Moreover, it provides China with sufficient strength to effectively bypass US sanctions in any part of the world.

The Federal Reserve and the European Central Bank have taken a more cautious stance and indicated that they are not in the race for the first place. In late May, Fed Chair Jerome Powell announced plans for a discussion paper on digital payments, including the pros and cons of the US Central Bank currency. European Central Bank Chief Christine Lagarde said her institution could launch a digital currency only around the middle of this decade.

Why CBDC’s may not offer anything new

Only stringent regulations or an outright ban on decentralised currencies could control money laundering and financing of crimes through digital currencies. It is unlikely that the introduction of CBDC’s would hamper the flow of illicit money through decentralised channels. In all probability, criminal elements would still run their show through decentralised currencies where there is anonymity and the lack of regulations.

CBDC’s may perhaps offer fast and real-time settlement of payments. While this is a plus, the existing bank payment systems already provide for swift and sophisticated transaction processing. So, real-time settlements are nothing new and certainly not a novel innovation. Moreover, cross-border transfers might not see any revolutionary change because these transfers still have to go through the existing regulatory frameworks.

CBDC’s would boost the surveillance mechanisms of the State. It would put every transaction under the government scanner. Individual privacy will be a major causality if proper safeguards are not incorporated. Brighter sides are that the government could effectively target economic crimes like tax evasion with greater ease and a reduced carbon footprint.

Threat to the banking system

Though the actual modalities have not come out, reactions from Central Banks indicate that CBDC’s will co-exist with the existing fiat currencies. The new system can potentially destabilise the present banking system and the financial intermediaries. Proposed digital currencies are backed by the Central Bank, which could never go bankrupt. In the existing system, money is secured by the guarantee offered by private banks. In a period of economic instability, citizens might pull too much money out of banks to purchase CBDC’s, backed with better security and consequently triggering a run on banks.

Back to centralisation

The introduction of digital currencies is out of necessity to preserve Central banks’ legitimacy in the face of the cryptocurrency boom. It possibly will protect the citizens from the extreme volatility of decentralised currencies and may serve as safer mediums of exchange. Since it is backed by sovereign guarantee, it might also act as a better store of value. But, CDBC’s would expand the state power and cause the continuance of the regime based on “trust” in governmental institutions, which was precisely what decentralised currencies like bitcoin had intended to annul. Essentially, CBDC’s would bring in more government to our daily lives, which is rather regressive and goes against the spirit of modern libertarian values.

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Rise of Billionaires In India, Lobbyism And Threat To Democracy

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Let me start by asking you – Have you watched Oliver Stones’ 1987 masterpiece, ‘Wall Street’? Great! For those who haven’t, here is a quick reflection of its storyline. This movie is a premise with a promise, and exert its audience to seek an answer to one of the most neglected question in the philosophy of ethics and greed – ‘How much money is enough money?’. Michael Douglas plays an unsparing millionaire raider Gordon Gekko. Bud Fox, played by Charlie Sheen, is a stockbroker full of ambition, doing whatever he can to make his way to the top. Fox is enchanted by Gekko, and entice him into mentoring him by providing insider trading information. Although Fox is loyal to his mentor Gekko, throughout the film, he is seen asking the millionaire trader Gekko, “How much money do you need to be satisfied with? How much is enough?”. And each time Gekko ponders and thinks hard, but the truth is, he himself doesn’t know. There is a scene in the movie where Gordon Gekko uses Fox’s inside information to manipulate the stock of a company that he intended to sell off, while throwing its workers, including Bud’s father. When Bud hears about his father losing the job along with other workers, he experiences deep agony and immediately repents his participation in the millionaire’s duplicity and deception. He storms to his office and asks again, “How much is enough, Gordon?”

And, Gekko answers – (Source :Wall Street, 1987)

“The richest one percent of this country owns half our country’s wealth, five trillion dollars… You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now, you’re not naïve enough to think we’re living in a democracy, are you, buddy?  It’s the free market. And you’re part of it.”

Now, what this scene exposes is the adrenaline rush of power that wealth provides. But, what this scene also highlights is how this power of wealth has created a society where corporate empires are thriving through lobbyism, while middle-lower class are palpitating in a life of destitution. And in case you are thinking how a 1987 American classic like ‘Wall Street’ is relevant to the rise of billionaires in 2021, here is the answer – wealth, national morality and democracy all symptomatic of a thriving country. But, with the rise of billionaires in India, this is exactly what is at stake.

Corporate Political Activity (CPA) – When Corporations Colonizes The State

Luis Fernandez said, “Either we can have democracy or a great amount of wealth concentrated in the hands of few. We cannot have both”. So, what did he mean by this? For starters, hoarding of wealth not only gives you the liberty to buy luxury goods, but it also gives you the freedom to buy votes, laws, and legislation. How? Well, corporate involvement in any democratic ecosphere is usually manifested into a corporate political activity (CPA). This corrupts the democratic process by excluding the citizens from policy decision-making. Thereby, privatizing profits for corporation and socializing the loss among citizens(Daniel Nyberg,2021). So, how is this accomplished? It’s achieved through a specialized team of people called – Corporate Lobbyists. They act as a mediator between the political parties and the corporation they work for. But, what do these billionaires lobby against? Mostly tax deregulations. However, the devil hides in details – Most billionaire monopolists lobby against anti-force entrustments, giant banks lobby against risk regulations, polluters in the private sector lobby against environmental regulations, and private corporations lobby against public services. Each one of these is detrimental to the growth of any democracy because lobbyists act out in the interest of billionaires and influence government policy-making by taking in no account of public interest (Mehrsa Baradaran, 2019). In simple words – they suggest extraneous elements in decision-making and subvert the public interest in areas like infrastructure (highways, airports, and massive scale projects under the Jawaharlal Nehru National Urban Renewal Mission in 63 cities), natural resources, and energy (gas, oil, petrol, energy), telecom (3G and 4G technology),military (weapons and aircrafts), mining (where giant corporations have developed stakes making billions on India’s tribal heartland), and agribusiness (seeds, privatization of agriculture sector), etc. And, how does this work? Keep reading.

You must be aware of the ongoing farmers’ protest since last year. It is strictly against two issues. First being the ‘three new farm laws’ introduced by Modi government. Second, being the agitation against India’s two richest billionaires – Mukesh Ambani and Adani, who are close to Modi and is believed to profit from these new farm laws. These two billionaires have been eyeing India’s farm sector for a while now. In 2017, Ambani expressed his interest in investing in the agriculture sector. His Jio Platforms, today, is leveraging its partnership with Facebook to dilate into this domain with Jiokrishi app, which will ease out the farm-to-fork supply chain. The company’s records suggest that it source(ed) 77% of its fruit directly from farmers. Now, currently, the farmers take their produce to wholesale markets, governed by APMC (government body). APMC in every State decides the price it will pay to the farmers for their produce. Remember, this market becomes the central point for government acquisition of food grains. With the new farm laws, a giant corporation can directly approach the farmers, buy and pay for the produce at an agreed amount. In short, this new farm law aims to abolish this structural network and privatize it. But, this is just structural damage for farmers. As I mentioned earlier, the devil hides in details – The news laws do not make a written contract between the farmers and corporations mandatory. This means that if there is a conflict of interest between both parties, it will be extremely difficult for farmers to prove that a corporation has breached that agreement. Additionally, this law states that a farmer has no right to take these disputes to an independent judiciary for justice. Instead, they would have to reach out to two bodies – a conciliation board (district-level administrative officers) or to the appellate authority. Now, both of these bodies are dependent on government, which can potentially revert the case in favor of corporations. This law also has a grave danger of impacting the minimum support price that government bodies offer to farmers in case of a declined price fall for their produce during a particular season. The farmers here are sailing on a boat of uncertainty, economic chaos, and policy madness —- all favoring the interest of the giant corporates instead of the public; more specifically, the farmers, who are the beating heart of an agrarian economy like India.

Remember, The Rafael deal? The deal was given to a Ambani brother, who had minimal to no experience in aircraft. Rafael offset contract has been given to Reliance Defense, which was formed 12 days before the announcement of the Rafael deal. ‘Mediapart’, a French-language publication, quoted Francois Hollande (2018), “It was the Indian government that proposed this service group (Reliance), and Dassault which negotiated with Ambani. We had no choice. We took the interlocutor who was given to us.” Two weeks back, the French newspaper ‘LeMonde’ dropped a bombshell stating that the French authorities passed off Anil Ambani’s $162 million tax after Modi-led NDA government negotiated Rafael deal with France based Dassault Aviation. Another example- Back in 2018, when the Modi government approved the privatization of six airports, it also relaxed the prerequisite requirements. BJP allowed companies with no prior experience in this sector to present their bid. After deliberation, all six airports were given to Gautam Adani, the second-highest billionaire in India with no history of running airports. Today, in 2021, Adani Airports has acquired 23.5% stake in Mumbai International Airport Ltd(MIAL), and is set to extend the stakeholding percent to 74%, which will give Adani group the ownership of the upcoming Navi Mumbai airport in which MIAL holds majority stakes. His other ventures in sectors like Adani green energy, power, and transmission hold a close-by narrative. His Carmichael coal mine project in Australia has earned him an infamous ‘climate change villain’ title. Tax deregulations is the primordial goal of corporate lobbyists, and they seem to be winning. The Indian government last year announced that it had reduced the rate of tax for certain existing companies at 25.17% , the lowest since 2010. There is an extra tax deduction of 15% from earlier level of 25% for start-ups. One would argue that the low tax rate would increase international corporate investments. But recent studies show that businesses are moving to countries like Bangladesh, Vietnam, Indonesia for labor-intensive operations. Thereby, failing to bring employment to the country.

Figure 1: The rate of tax imposed on corporates by the Indian government in the last ten years

Figure 2: Mukesh Ambani’s $2 billion house overlooking the slums of Dharavi – The world’s largest slum. Source of the image : www.thecharette.org

Tax deregulation, tax invasion, and corporate lobbying are not the only problems that manifest with the rise of billionaires in India. The most chronic and malignant effect is the ever-widening gap between the rich and poor, threatening economic justice and social cohesion in a society. This economic gap is so dilated that it becomes a life of excess for these billionaires and destitution for the rest of the 1.38 billion Indians. According to Forbes magazine, the third richest Indians – Mukesh Ambani ($84.5 billion), Gautam Adani & family($50.5 billion) and Shiva Nadar($ 23.5 billion) own 60% of the country’s wealth. India’s top three richest people have added over $100 billion between them. In fact, since the initial lockdown in March 2020, India’s top billionaires increased their wealth by 35% during COVID-19 pandemic. According to Oxfam report, India’s top 100 billionaires witnessed their fortune increase by staggering number of Rs 12.97 trillion. This amount could have provided every 364 million poor Indians a cheque for ₹94,045 each. So, what was the economic status of the working class? They suffered abominably during COVID, while billionaires thrived. The study, ‘State of Working India 2021 – One year of Covid-19’, by Azim Premji University, revealed that the economic recession caused by the COVID-19 has pushed 230 million Indians below the poverty line. This number accounted for and contributed to the global increase in poverty by a whopping 60% in 2020. The study shows the loss in monthly income earning for all kinds of workers. The fall was 17% for temporary salaried jobs, 18% for self-employed, 21% for daily wage workers, and 5% for permanent salaried workers. This ever-widening gap of economic inequality in India goes against every fiber of true democracy, where public resources and rights like healthcare, education, COVID relief financial aids, etc., instead of being elevate, are subverted. Gabriela Bucher, Executive Director of Oxfam International said, “Rigged economies are funnelling wealth to rich elites who are sailing through the pandemic in luxury and ease, while those on the frontline of the pandemic — medical assistants, healthcare workers, and market vendors — are struggling to pay the bills and put food on the table”. Existence of these billionaires in any society is symbolic of a theocracy thriving and a democracy that’s palpitating. Times like these demand a moral obligation to question, resist and fight against the economic injustice, not just for ourselves, but for our children and many generations to come by. Remember, power seeks self-preservation first and foremost. The billionaires will do anything and everything to continue hoarding resource, wealth and pass it to their heirs. So, the question is not – when will this stop? But, what are you going to do about it?.

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