Transition from service tax to GST
S MADHAVAN LEADER, INDIRECT TAX PRACTICE, PRICEWATERHOUSECOOPERS
THE CURRENT SCHEME OF TAXATION OF services in India is likely to be substantially revised under the much-awaited dual goods and service tax (GST). Services which are at present only taxed at the federal level would be taxed under the GST both at the federal and state level, resulting in a paradigm shift in the taxation of services. This shift will be with regard to coverage and scope, the manner of charge of the tax, its levy and collection and so on.
At present, what is sought to be taxed is defined in elaborate fashion. As opposed to this, it is likely that under the GST scheme of things, the internationally accepted principle of taxing all services, with a small negative list of services which will either not be taxed or will be exempt from the tax, will be adopted. Thus, all services with the possible exception of essential public services such as education, basic healthcare and public transport could be brought within the ambit of the GST. Indeed, activities which are typically not understood as services at all will also be covered. An example is that of refraining from doing something i.e. contractually choosing to be inactive for a consideration , as is the case with fees paid for non compete.
One significant benefit of such manner of coverage would be to substantially reduce disputes on categorisation and classification of services. Presently, a significant amount of vexatious litigation is centred around interpretation of the various complex definitions of taxable services. To reduce classification disputes, it would be essential that all Indian states adopt a uniform statute on taxation of services along the aforesaid lines.
One contentious issue under the proposed dual GST is with regard to framing of the place of supply rules so as to identify the place where the tax will be paid. As for the federal GST, this is unlikely to pose a problem since regardless of these rules, the Central government would be in a position to collect the tax from the service provider located in any part of the country. However, in the absence of clear place of supply rules, serious problems could arise as to which particular state would be eligible to charge the tax in relation to the cross border (inter-state ) supplies of services.
In this connection, it would be worthwhile to consider the rules as are typically in force in the European Union (EU). Although the EU member countries have uniformly implemented a unified GST, as opposed to the dual GST model, these rules are in force in relation to inter- country supplies of services and could hence easily form the basis for a similar model to tax inter-state services in the Indian context. Typically, the EU rules envisage the place of supply to be the place where the service recipient is located, on the principle that the tax ought to apply at the place of consumption of the services. However, there are situations where services are taxable at the place where the supplier is established as a business. Other parameters which are relevant in order to determine the place of supply are in regard to place of performance of the services and place of effective use or enjoyment of the services. The rules also change based on whether the services are rendered by businesses to consumers (B2C) or from businesses to businesses (B2B). Consequently, the place of taxation of services would also depend on the characteristics and the nature of services. Industries such as telecommunications, insurance, banking, software and the like could face serious challenges in regard to determining the place of supplies of services in relation thereto. The challenge would be to ensure that the place of supply rules are reasonably simple.
Another important dimension to the discussion on transition of services taxation from the present model to the GST is with regard to exclusions and exemptions. This aspect becomes doubly important considering that the aggregate rate of service tax needs to be a moderate one, notwithstanding that it would be taxed at both federal and state levels. If this objective, and the allied and equally important objective of having one single rate is to be achieved, it is important that exemptions and exclusions from the tax, which have the effect of narrowing the base of the tax, are minimised. It is therefore entirely possible that the numerous exemptions that are currently in place will be discontinued.
Another aspect of the transition is about the problem of double taxation of a single transaction to both the goods tax and the service tax. With the advent of the GST, the statute on services, as also that for goods, will be so framed that mutual exclusivity will obtain and hence the problem of double taxation will be obviated. This will come about if services are deemed to be as all those which are not treated as goods and it is only goods which will be individually categorised and classified, possibly as per the well known HSN. Internationally, the GST has indeed precluded the possibility of double taxation on the above basis and it is hoped that it will be the case in the Indian context as well.
To summarise, the taxation of services going into the GST is scheduled to undergo fundamental changes and hopefully for the better. The expectation under the GST is for a simpler and more transparent scheme of services taxation, with less attendant complexity. It is also the expectation that the aggregate incidence of service tax under the GST, albeit comprising both the federal and the state services tax, as opposed to the present singular federal tax, will nevertheless be a moderate one. The country will soon know whether these expectations have been met.
Wednesday, June 24, 2009
Will Indian industry engage Bharat
Will Indian industry engage Bharat
Indian entrepreneurs are talented and have emerged from the pains of globalisation with confidence and competence. But they are not trusted and cared for, as of now, by the government, NGOs and the public, says Tarun Das.
THE people of India have given Mrs Sonia Gandhi, Prime Minister Manmohan Singh and his team the baton to tackle the multiple challenges of India. And, there is confidence that 2009-14 will be far more meaningful than 2004-09 in regard to inclusive development. But the government alone cannot solve all the problems of India. The voluntary sector does credible work with limited resources and will add their mite. However, the real value add can come from Indian industry especially the private sector which is engaged in social development activity but far below its resources and true potential.
If the private sector takes its social and national responsibilities truly seriously, 2009-14 can witness a paradigm change in development. Social responsibility is still a marginal, limited activity for industry in India. Not only that, the private sector is still apparently unconscious of the enormous poverty surrounding its island of affluence. Wealth creation and wealth accumulation continue to be of overriding importance rather than wealth sharing and much higher resource allocation to developmental activity . One unfortunate aspect is the ostentation in the private sector display of wealth through expenditure on homes, family celebrations (especially birthdays/weddings) and personal priorities such as travel/vacations.
By doing all of this, trust in the private sectors commitment to, and caring for, society is largely non-existent and entrepreneurs are seen as selfish, self-centred and self-absorbed . Lack of trust and alienation are then two sides of the same coin. How to change all of this and help build and sustain public trust in industry Through action, not words. In the same vein, why is there so much red tape in India Because India has a mistrust-based society and system. Red tape is supposed to safeguard against misuse and abuse and, of course, does no such thing. Government has its own trust dilemma and resorts to red tape as an insurance policy, knowing fully well that this is not a medicine which cures.
Indian entrepreneurs are capable and talented the best in the world and have emerged from the pains of competition and globalisation with confidence and competence. They are the envy of most countries and are the pride of India. They can also be respected, trusted, and cared for but, they are not, as of now by government, NGOs and the public.
And, this is sad because Indian corporates have, and are, contributing to social development through affirmative action; skills development; micro-finance programmes ; women empowerment; primary education initiatives in rural areas; supporting healthcare; building infrastructure in villages; setting up low-cost housing ; reconstructing villages ravaged by natural calamities; planting trees and helping the environment agenda, etc. India is the only country where industry has set up care and treatment centres for HIV/AIDS affected persons (ART Centres) this is an outstanding example of social action.
But compared to the size of India, the extent of poverty and deprivation, industrys contribution is only a drop in the ocean. What is the common perception of Indian industry That they evade taxes (so, the finance ministry mistakenly tries to plug loopholes through more complex laws and rules), they underinvoice or overinvoice (depending on the transaction ), they pay themselves exorbitantly (and pay their employees, much much less), they assure themselves of security (but not to those who serve them), they keep money abroad in private banks, etc. In essence, they are not to be depended upon to be truly national or to be placing public interest above all.
MUCHof the private sector are educated , enlightened people, the best education money could buy. With education comes understanding and enlightenment. But, it appears as though the educated and enlightened really do not care or care very little. It will be great if this were not true.
Equally important is management and organisation. The ability of Indian industry in this regard is truly amazing. To conceptualise , to plan and then to implement. What a difference this capability can make to India if it is available for public and social work. If the efficiency of the private sector can merge with the plans of government and the idealism of NGOs, India will be a different place. So, Indian industry can truly help make a difference to the future of India, and the majority of Indians , especially the poor, if it sets its mind to it. This does not mean that industry is the answer to Indias challenges of poverty but, in a sustained, stronger partnership with government and the voluntary sector, a new dimension can be added to development and growth, to efficiency and implementation.
The integration of industry into development tasks, thinking beyond its own self and imperatives would make a huge difference to the next five years and beyond . There is no better time than now. After several years of 9% plus GDP growth and a future of 8% annual growth for ten years and more, Indias industry will have the resources to make a qualitative and quantitative difference to dealing with Indias social challenges. A Rs 10,000-crore Industry Social Development Fund can be created and its value will be 100 times this amount.
Indian industry now needs to truly integrate into a public-private partnership which can transform India, wipe the tear from every eye and meet its destiny not necessarily of being a superpower but a peaceful, stable nation of all people who have a good life.
In April 2007, the prime minister, addressing CII, outlined a Social Charter for Industry . A 10-point Agenda. For over a month the media went to town, debating the PMs social charter especially his suggestion that there should be some moderation in emoluments. (Now, the US has appointed an Emoluments Czar!)
Its time, now, in 2009, to revisit the 2007 social charter and check how industry is faring on each of the ten points. Also, to see whether those ten points need to be added to or modified. Next five years can be a period of transformation for India and Indian industry can do outstanding work in the social development area. By its actions, industry needs to earn the respect of the likes of Aruna Roy. That will prove that Indias industry has engaged Bharat and made a real difference.
Indian entrepreneurs are talented and have emerged from the pains of globalisation with confidence and competence. But they are not trusted and cared for, as of now, by the government, NGOs and the public, says Tarun Das.
THE people of India have given Mrs Sonia Gandhi, Prime Minister Manmohan Singh and his team the baton to tackle the multiple challenges of India. And, there is confidence that 2009-14 will be far more meaningful than 2004-09 in regard to inclusive development. But the government alone cannot solve all the problems of India. The voluntary sector does credible work with limited resources and will add their mite. However, the real value add can come from Indian industry especially the private sector which is engaged in social development activity but far below its resources and true potential.
If the private sector takes its social and national responsibilities truly seriously, 2009-14 can witness a paradigm change in development. Social responsibility is still a marginal, limited activity for industry in India. Not only that, the private sector is still apparently unconscious of the enormous poverty surrounding its island of affluence. Wealth creation and wealth accumulation continue to be of overriding importance rather than wealth sharing and much higher resource allocation to developmental activity . One unfortunate aspect is the ostentation in the private sector display of wealth through expenditure on homes, family celebrations (especially birthdays/weddings) and personal priorities such as travel/vacations.
By doing all of this, trust in the private sectors commitment to, and caring for, society is largely non-existent and entrepreneurs are seen as selfish, self-centred and self-absorbed . Lack of trust and alienation are then two sides of the same coin. How to change all of this and help build and sustain public trust in industry Through action, not words. In the same vein, why is there so much red tape in India Because India has a mistrust-based society and system. Red tape is supposed to safeguard against misuse and abuse and, of course, does no such thing. Government has its own trust dilemma and resorts to red tape as an insurance policy, knowing fully well that this is not a medicine which cures.
Indian entrepreneurs are capable and talented the best in the world and have emerged from the pains of competition and globalisation with confidence and competence. They are the envy of most countries and are the pride of India. They can also be respected, trusted, and cared for but, they are not, as of now by government, NGOs and the public.
And, this is sad because Indian corporates have, and are, contributing to social development through affirmative action; skills development; micro-finance programmes ; women empowerment; primary education initiatives in rural areas; supporting healthcare; building infrastructure in villages; setting up low-cost housing ; reconstructing villages ravaged by natural calamities; planting trees and helping the environment agenda, etc. India is the only country where industry has set up care and treatment centres for HIV/AIDS affected persons (ART Centres) this is an outstanding example of social action.
But compared to the size of India, the extent of poverty and deprivation, industrys contribution is only a drop in the ocean. What is the common perception of Indian industry That they evade taxes (so, the finance ministry mistakenly tries to plug loopholes through more complex laws and rules), they underinvoice or overinvoice (depending on the transaction ), they pay themselves exorbitantly (and pay their employees, much much less), they assure themselves of security (but not to those who serve them), they keep money abroad in private banks, etc. In essence, they are not to be depended upon to be truly national or to be placing public interest above all.
MUCHof the private sector are educated , enlightened people, the best education money could buy. With education comes understanding and enlightenment. But, it appears as though the educated and enlightened really do not care or care very little. It will be great if this were not true.
Equally important is management and organisation. The ability of Indian industry in this regard is truly amazing. To conceptualise , to plan and then to implement. What a difference this capability can make to India if it is available for public and social work. If the efficiency of the private sector can merge with the plans of government and the idealism of NGOs, India will be a different place. So, Indian industry can truly help make a difference to the future of India, and the majority of Indians , especially the poor, if it sets its mind to it. This does not mean that industry is the answer to Indias challenges of poverty but, in a sustained, stronger partnership with government and the voluntary sector, a new dimension can be added to development and growth, to efficiency and implementation.
The integration of industry into development tasks, thinking beyond its own self and imperatives would make a huge difference to the next five years and beyond . There is no better time than now. After several years of 9% plus GDP growth and a future of 8% annual growth for ten years and more, Indias industry will have the resources to make a qualitative and quantitative difference to dealing with Indias social challenges. A Rs 10,000-crore Industry Social Development Fund can be created and its value will be 100 times this amount.
Indian industry now needs to truly integrate into a public-private partnership which can transform India, wipe the tear from every eye and meet its destiny not necessarily of being a superpower but a peaceful, stable nation of all people who have a good life.
In April 2007, the prime minister, addressing CII, outlined a Social Charter for Industry . A 10-point Agenda. For over a month the media went to town, debating the PMs social charter especially his suggestion that there should be some moderation in emoluments. (Now, the US has appointed an Emoluments Czar!)
Its time, now, in 2009, to revisit the 2007 social charter and check how industry is faring on each of the ten points. Also, to see whether those ten points need to be added to or modified. Next five years can be a period of transformation for India and Indian industry can do outstanding work in the social development area. By its actions, industry needs to earn the respect of the likes of Aruna Roy. That will prove that Indias industry has engaged Bharat and made a real difference.
Will Indian industry engage Bharat
Will Indian industry engage Bharat
Indian entrepreneurs are talented and have emerged from the pains of globalisation with confidence and competence. But they are not trusted and cared for, as of now, by the government, NGOs and the public, says Tarun Das.
THE people of India have given Mrs Sonia Gandhi, Prime Minister Manmohan Singh and his team the baton to tackle the multiple challenges of India. And, there is confidence that 2009-14 will be far more meaningful than 2004-09 in regard to inclusive development. But the government alone cannot solve all the problems of India. The voluntary sector does credible work with limited resources and will add their mite. However, the real value add can come from Indian industry especially the private sector which is engaged in social development activity but far below its resources and true potential.
If the private sector takes its social and national responsibilities truly seriously, 2009-14 can witness a paradigm change in development. Social responsibility is still a marginal, limited activity for industry in India. Not only that, the private sector is still apparently unconscious of the enormous poverty surrounding its island of affluence. Wealth creation and wealth accumulation continue to be of overriding importance rather than wealth sharing and much higher resource allocation to developmental activity . One unfortunate aspect is the ostentation in the private sector display of wealth through expenditure on homes, family celebrations (especially birthdays/weddings) and personal priorities such as travel/vacations.
By doing all of this, trust in the private sectors commitment to, and caring for, society is largely non-existent and entrepreneurs are seen as selfish, self-centred and self-absorbed . Lack of trust and alienation are then two sides of the same coin. How to change all of this and help build and sustain public trust in industry Through action, not words. In the same vein, why is there so much red tape in India Because India has a mistrust-based society and system. Red tape is supposed to safeguard against misuse and abuse and, of course, does no such thing. Government has its own trust dilemma and resorts to red tape as an insurance policy, knowing fully well that this is not a medicine which cures.
Indian entrepreneurs are capable and talented the best in the world and have emerged from the pains of competition and globalisation with confidence and competence. They are the envy of most countries and are the pride of India. They can also be respected, trusted, and cared for but, they are not, as of now by government, NGOs and the public.
And, this is sad because Indian corporates have, and are, contributing to social development through affirmative action; skills development; micro-finance programmes ; women empowerment; primary education initiatives in rural areas; supporting healthcare; building infrastructure in villages; setting up low-cost housing ; reconstructing villages ravaged by natural calamities; planting trees and helping the environment agenda, etc. India is the only country where industry has set up care and treatment centres for HIV/AIDS affected persons (ART Centres) this is an outstanding example of social action.
But compared to the size of India, the extent of poverty and deprivation, industrys contribution is only a drop in the ocean. What is the common perception of Indian industry That they evade taxes (so, the finance ministry mistakenly tries to plug loopholes through more complex laws and rules), they underinvoice or overinvoice (depending on the transaction ), they pay themselves exorbitantly (and pay their employees, much much less), they assure themselves of security (but not to those who serve them), they keep money abroad in private banks, etc. In essence, they are not to be depended upon to be truly national or to be placing public interest above all.
MUCHof the private sector are educated , enlightened people, the best education money could buy. With education comes understanding and enlightenment. But, it appears as though the educated and enlightened really do not care or care very little. It will be great if this were not true.
Equally important is management and organisation. The ability of Indian industry in this regard is truly amazing. To conceptualise , to plan and then to implement. What a difference this capability can make to India if it is available for public and social work. If the efficiency of the private sector can merge with the plans of government and the idealism of NGOs, India will be a different place. So, Indian industry can truly help make a difference to the future of India, and the majority of Indians , especially the poor, if it sets its mind to it. This does not mean that industry is the answer to Indias challenges of poverty but, in a sustained, stronger partnership with government and the voluntary sector, a new dimension can be added to development and growth, to efficiency and implementation.
The integration of industry into development tasks, thinking beyond its own self and imperatives would make a huge difference to the next five years and beyond . There is no better time than now. After several years of 9% plus GDP growth and a future of 8% annual growth for ten years and more, Indias industry will have the resources to make a qualitative and quantitative difference to dealing with Indias social challenges. A Rs 10,000-crore Industry Social Development Fund can be created and its value will be 100 times this amount.
Indian industry now needs to truly integrate into a public-private partnership which can transform India, wipe the tear from every eye and meet its destiny not necessarily of being a superpower but a peaceful, stable nation of all people who have a good life.
In April 2007, the prime minister, addressing CII, outlined a Social Charter for Industry . A 10-point Agenda. For over a month the media went to town, debating the PMs social charter especially his suggestion that there should be some moderation in emoluments. (Now, the US has appointed an Emoluments Czar!)
Its time, now, in 2009, to revisit the 2007 social charter and check how industry is faring on each of the ten points. Also, to see whether those ten points need to be added to or modified. Next five years can be a period of transformation for India and Indian industry can do outstanding work in the social development area. By its actions, industry needs to earn the respect of the likes of Aruna Roy. That will prove that Indias industry has engaged Bharat and made a real difference.
Indian entrepreneurs are talented and have emerged from the pains of globalisation with confidence and competence. But they are not trusted and cared for, as of now, by the government, NGOs and the public, says Tarun Das.
THE people of India have given Mrs Sonia Gandhi, Prime Minister Manmohan Singh and his team the baton to tackle the multiple challenges of India. And, there is confidence that 2009-14 will be far more meaningful than 2004-09 in regard to inclusive development. But the government alone cannot solve all the problems of India. The voluntary sector does credible work with limited resources and will add their mite. However, the real value add can come from Indian industry especially the private sector which is engaged in social development activity but far below its resources and true potential.
If the private sector takes its social and national responsibilities truly seriously, 2009-14 can witness a paradigm change in development. Social responsibility is still a marginal, limited activity for industry in India. Not only that, the private sector is still apparently unconscious of the enormous poverty surrounding its island of affluence. Wealth creation and wealth accumulation continue to be of overriding importance rather than wealth sharing and much higher resource allocation to developmental activity . One unfortunate aspect is the ostentation in the private sector display of wealth through expenditure on homes, family celebrations (especially birthdays/weddings) and personal priorities such as travel/vacations.
By doing all of this, trust in the private sectors commitment to, and caring for, society is largely non-existent and entrepreneurs are seen as selfish, self-centred and self-absorbed . Lack of trust and alienation are then two sides of the same coin. How to change all of this and help build and sustain public trust in industry Through action, not words. In the same vein, why is there so much red tape in India Because India has a mistrust-based society and system. Red tape is supposed to safeguard against misuse and abuse and, of course, does no such thing. Government has its own trust dilemma and resorts to red tape as an insurance policy, knowing fully well that this is not a medicine which cures.
Indian entrepreneurs are capable and talented the best in the world and have emerged from the pains of competition and globalisation with confidence and competence. They are the envy of most countries and are the pride of India. They can also be respected, trusted, and cared for but, they are not, as of now by government, NGOs and the public.
And, this is sad because Indian corporates have, and are, contributing to social development through affirmative action; skills development; micro-finance programmes ; women empowerment; primary education initiatives in rural areas; supporting healthcare; building infrastructure in villages; setting up low-cost housing ; reconstructing villages ravaged by natural calamities; planting trees and helping the environment agenda, etc. India is the only country where industry has set up care and treatment centres for HIV/AIDS affected persons (ART Centres) this is an outstanding example of social action.
But compared to the size of India, the extent of poverty and deprivation, industrys contribution is only a drop in the ocean. What is the common perception of Indian industry That they evade taxes (so, the finance ministry mistakenly tries to plug loopholes through more complex laws and rules), they underinvoice or overinvoice (depending on the transaction ), they pay themselves exorbitantly (and pay their employees, much much less), they assure themselves of security (but not to those who serve them), they keep money abroad in private banks, etc. In essence, they are not to be depended upon to be truly national or to be placing public interest above all.
MUCHof the private sector are educated , enlightened people, the best education money could buy. With education comes understanding and enlightenment. But, it appears as though the educated and enlightened really do not care or care very little. It will be great if this were not true.
Equally important is management and organisation. The ability of Indian industry in this regard is truly amazing. To conceptualise , to plan and then to implement. What a difference this capability can make to India if it is available for public and social work. If the efficiency of the private sector can merge with the plans of government and the idealism of NGOs, India will be a different place. So, Indian industry can truly help make a difference to the future of India, and the majority of Indians , especially the poor, if it sets its mind to it. This does not mean that industry is the answer to Indias challenges of poverty but, in a sustained, stronger partnership with government and the voluntary sector, a new dimension can be added to development and growth, to efficiency and implementation.
The integration of industry into development tasks, thinking beyond its own self and imperatives would make a huge difference to the next five years and beyond . There is no better time than now. After several years of 9% plus GDP growth and a future of 8% annual growth for ten years and more, Indias industry will have the resources to make a qualitative and quantitative difference to dealing with Indias social challenges. A Rs 10,000-crore Industry Social Development Fund can be created and its value will be 100 times this amount.
Indian industry now needs to truly integrate into a public-private partnership which can transform India, wipe the tear from every eye and meet its destiny not necessarily of being a superpower but a peaceful, stable nation of all people who have a good life.
In April 2007, the prime minister, addressing CII, outlined a Social Charter for Industry . A 10-point Agenda. For over a month the media went to town, debating the PMs social charter especially his suggestion that there should be some moderation in emoluments. (Now, the US has appointed an Emoluments Czar!)
Its time, now, in 2009, to revisit the 2007 social charter and check how industry is faring on each of the ten points. Also, to see whether those ten points need to be added to or modified. Next five years can be a period of transformation for India and Indian industry can do outstanding work in the social development area. By its actions, industry needs to earn the respect of the likes of Aruna Roy. That will prove that Indias industry has engaged Bharat and made a real difference.
Saturday, June 20, 2009
Chinese cities VERSUS Indian cities
Chinese cities streets ahead of ours
The disparities between Indian and Chinese urban development is quite glaring. The Chinese government may be seen as totalitarian and corrupt but it is highly efficient in providing urban infrastructure, says Kala Seetharam Sridhar.
MANY scholars and academics say that India and China are two large economies of the world which are comparable in many ways both are countries with a billion-plus population and large land area. In addition, the shares of GDP by sector are also similar, with agriculture contributing to 23% of GDP in the case of India, slightly less in China at 15%. While manufacturing contributes a greater proportion of Chinas GDP (52%), services contribute a much higher proportion of Indias GDP (at 53%). So there are many similarities and symmetries between the two large economies. However , the comparison ends there.
This writer recently visited China, primarily three cities located in the eastern part of that country Beijing, the political capital, Shanghai, the financial capital and Jinan, a city of about seven million population, which is home to Shandong University. Cities are quite important in China as they contribute to nearly 70% of the countrys GDP, quite similar to our cities which contribute nearly half of our GDP. Hence it must be the case that a large part of Chinas economic growth is attributable to the cities. Several features of Chinas urban development and their differences with Indian urban development are worth noting.
The urban density in terms of persons per hectare is much lower, being only 146 persons per hectare in Chinese cities (Beijing, Shanghai, Tianjin, Guangzhou, Hangzhou, and Ningbo) compared with nearly 204 persons per hectare in Indian cities such as Mumbai and Chennai. It is possible that this is directly an outcome of the household registration system in China the hukou system which restricts rural-urban migration by limiting the benefits of migrants into cities.
The total length of Chinas expressways , much the same as in the United States and Europe, was 60,300 km at the end of 2008, whereas the nearly 5,161 towns in India had a total of 224,352 km of both kaccha (27%) as well as pucca roads (73%) according to data from the Census of India town directory 2001. The national highways in India have a total length of 66,590 km. There are no expressways in India the Road Information System (http:// www.nhairis .org) at the NHAI website unfortunately does not work. While it is useful to note that expressways greatly increase the speed of travel and cut down on travel time significantly, their near conspicuous absence in Indias cities and towns testifies to the poor quality of public services citizens receive.
The average occupancy per public transport vehicle in Chinese cities is very high at 53 persons per vehicle on average, compared with 38 in low income Asian cities such as Mumbai. This is because public transport is very affordable, provides connectivity to various parts of the city, convenient and has high frequency in Chinese cities. For example, in Beijing, one can travel on a city bus from anywhere in the city to anywhere else for just 1 yuan. But this is not so in Indias context . For India, some research shows that the minimum cost of public transport use accounts for 20% to 30% of the family income for nearly 50% of the city population living in unauthorised settlements. With the exception of the Mumbai local train network, Delhi metro and Bangalore Metropolitan Transport Corporations volvo buses (there was only an experiment in Bangalore recently to allow commuters to use these buses at Re 1 which received an unprecedented response ), there are no examples of affordable public transport in Indian cities.
PROFAnthony Yeh of the University of Hong Kong at the closing session on urban development at Shanghai Forum 2009 (where this writer was present) pointed out that in China, there is intercity competition for investment such as Shenzhen competing with Guangzhou. However, this is something that has not been happening in India yet. Indian cities, while they are entrusted with responsibilities of planning for economic development by the 74th Constitutional Amendment Act, do not have many independent sources of revenue apart from the property tax. Nor have they been able to tap the capital market for long-term funds except a few cases such as Ahmedabad. The result is that the city governments are dependent on state governments for grants, based on recommendations made by state finance commissions, and on state and central programmes which provide earmarked funds for specific purposes.
While there are significant disparities between urban and rural areas in China, a large part of why and how China has been able to achieve its level of urban development is through its government which apparently is highly efficient (although corrupt) in providing necessary infrastructure and amenities for urban dwellers. In India, municipal governments lack any professionalism in their management of cities; practices are archaic ; their finances are in poor condition, quite similar to the county and township governments in China (for instance, the per capita fiscal revenue of Yunnan province is 11 times greater than the per capita revenue of the county governments ). However, the various levels of government in China, even with their totalitarianism are quite efficient. It must be the case that the leakages in the taxes paid by residents should be minimal. The ratio of local government revenues to GDP is 6% in China, when compared with 8% for the US and 9% for Canada, but only 0.75% of GDP for Indias ULBs. Otherwise , with poor sub-national finances, Chinese cities must have been similar to Indias cities. So governance must explain the disparities between Indian and Chinese urban development.
Hence the UPA should focus on governance and better administration of the tax money that is flowing into government coffers so that they are channelled to appropriate uses. Only then can we look forward to a resurgent urban India with the requisite infrastructure such as expressways, public transport and decent dwellings which would sustain our countrys macroeconomic growth on a higher trajectory.
The disparities between Indian and Chinese urban development is quite glaring. The Chinese government may be seen as totalitarian and corrupt but it is highly efficient in providing urban infrastructure, says Kala Seetharam Sridhar.
MANY scholars and academics say that India and China are two large economies of the world which are comparable in many ways both are countries with a billion-plus population and large land area. In addition, the shares of GDP by sector are also similar, with agriculture contributing to 23% of GDP in the case of India, slightly less in China at 15%. While manufacturing contributes a greater proportion of Chinas GDP (52%), services contribute a much higher proportion of Indias GDP (at 53%). So there are many similarities and symmetries between the two large economies. However , the comparison ends there.
This writer recently visited China, primarily three cities located in the eastern part of that country Beijing, the political capital, Shanghai, the financial capital and Jinan, a city of about seven million population, which is home to Shandong University. Cities are quite important in China as they contribute to nearly 70% of the countrys GDP, quite similar to our cities which contribute nearly half of our GDP. Hence it must be the case that a large part of Chinas economic growth is attributable to the cities. Several features of Chinas urban development and their differences with Indian urban development are worth noting.
The urban density in terms of persons per hectare is much lower, being only 146 persons per hectare in Chinese cities (Beijing, Shanghai, Tianjin, Guangzhou, Hangzhou, and Ningbo) compared with nearly 204 persons per hectare in Indian cities such as Mumbai and Chennai. It is possible that this is directly an outcome of the household registration system in China the hukou system which restricts rural-urban migration by limiting the benefits of migrants into cities.
The total length of Chinas expressways , much the same as in the United States and Europe, was 60,300 km at the end of 2008, whereas the nearly 5,161 towns in India had a total of 224,352 km of both kaccha (27%) as well as pucca roads (73%) according to data from the Census of India town directory 2001. The national highways in India have a total length of 66,590 km. There are no expressways in India the Road Information System (http:// www.nhairis .org) at the NHAI website unfortunately does not work. While it is useful to note that expressways greatly increase the speed of travel and cut down on travel time significantly, their near conspicuous absence in Indias cities and towns testifies to the poor quality of public services citizens receive.
The average occupancy per public transport vehicle in Chinese cities is very high at 53 persons per vehicle on average, compared with 38 in low income Asian cities such as Mumbai. This is because public transport is very affordable, provides connectivity to various parts of the city, convenient and has high frequency in Chinese cities. For example, in Beijing, one can travel on a city bus from anywhere in the city to anywhere else for just 1 yuan. But this is not so in Indias context . For India, some research shows that the minimum cost of public transport use accounts for 20% to 30% of the family income for nearly 50% of the city population living in unauthorised settlements. With the exception of the Mumbai local train network, Delhi metro and Bangalore Metropolitan Transport Corporations volvo buses (there was only an experiment in Bangalore recently to allow commuters to use these buses at Re 1 which received an unprecedented response ), there are no examples of affordable public transport in Indian cities.
PROFAnthony Yeh of the University of Hong Kong at the closing session on urban development at Shanghai Forum 2009 (where this writer was present) pointed out that in China, there is intercity competition for investment such as Shenzhen competing with Guangzhou. However, this is something that has not been happening in India yet. Indian cities, while they are entrusted with responsibilities of planning for economic development by the 74th Constitutional Amendment Act, do not have many independent sources of revenue apart from the property tax. Nor have they been able to tap the capital market for long-term funds except a few cases such as Ahmedabad. The result is that the city governments are dependent on state governments for grants, based on recommendations made by state finance commissions, and on state and central programmes which provide earmarked funds for specific purposes.
While there are significant disparities between urban and rural areas in China, a large part of why and how China has been able to achieve its level of urban development is through its government which apparently is highly efficient (although corrupt) in providing necessary infrastructure and amenities for urban dwellers. In India, municipal governments lack any professionalism in their management of cities; practices are archaic ; their finances are in poor condition, quite similar to the county and township governments in China (for instance, the per capita fiscal revenue of Yunnan province is 11 times greater than the per capita revenue of the county governments ). However, the various levels of government in China, even with their totalitarianism are quite efficient. It must be the case that the leakages in the taxes paid by residents should be minimal. The ratio of local government revenues to GDP is 6% in China, when compared with 8% for the US and 9% for Canada, but only 0.75% of GDP for Indias ULBs. Otherwise , with poor sub-national finances, Chinese cities must have been similar to Indias cities. So governance must explain the disparities between Indian and Chinese urban development.
Hence the UPA should focus on governance and better administration of the tax money that is flowing into government coffers so that they are channelled to appropriate uses. Only then can we look forward to a resurgent urban India with the requisite infrastructure such as expressways, public transport and decent dwellings which would sustain our countrys macroeconomic growth on a higher trajectory.
Friday, June 19, 2009
GOODS AND SERVICE TAX ( gst) REGIME
GST rollout faces many HURDLES ON THE WAY
TINA EDWIN
THE APRIL 2010 DEADLINE for goods and services tax (GST) implementation may need to be postponed, not because the political will to carry through the tax reforms is lacking but for want of adequate preparation in terms of legislative changes and gearing up the administrative machinery.
At the legislative level, two sets of changes are required. First of all a constitutional amendment is required to give the Centre and states the concurrent powers to levy tax on goods and services. This amendment will need to be passed by a special majority in Parliament and then ratified by at least half the states before it can become law. Then the Centre and every state will need enact a GST Act that will replace the Central Excise Act, 1944 and the law on service tax at the central level, and the Value Added Tax (VAT) Act and other local taxes at the state level.
To get the constitutional amendment through before the end of the current fiscal year, the Centre would need to introduce a bill in Parliament in the upcoming budget session and get it passed in the winter session, such that it can be sent to states for ratification. On the new GST Act, the empowered committee of state finance ministers and the Centre would need to agree on the goods and services that would be outside the tax net, tax rate as well as the threshold rate for application of the tax before a bill is introduced . They also need to decide the stage of transaction at which the tax would be collected and incorporate that in the law. At present, the excise is collected at the stage when goods leave the factory, the sales tax when the invoice is raised and service tax on receipt of money.
But that may be the least of the hurdles on the path of GST implementation , even though work on the bills is yet to begin.
To ensure that GST can be rolled out in a meaningful manner such that a common market is created for goods and services and credits are transferred for taxes paid at the state level, it is necessary that all states come on board. At the moment , several states have reservations about moving to the GST regime as they are apprehensive of the losses they may suffer under the new tax regime and the level of compensation they will get from the Centre. Unless a formula for compensation of losses is worked out quickly , the consensus to move to GST is inconsequential . The implementation of VAT at the state level and then the gradual phase-out of central sales tax (CST) was delayed on this account in the past. That apart, delayed transfer of compensation from the Centre, particularly in the instance of CST losses, have made states apprehensive about being adequately compensated for their losses. So much so that some like Sushil Kumar Modi, deputy chief minister and finance minister of Bihar, want the compensation to be part of the Thirteenth Finance Commission awards. While the Finance Commission has been given the mandate to consider the impact of implementing GST on states revenues while finalising the awards, it may not be possible to transfer compensation for GST losses through its awards.
The challenge lies at the implementation stage. The format of the challans for tax payment need to be redesigned and the government may need to allot new unique number under the GST system for better administration of the tax.
The under-developed IT system can pose a problem here, but perhaps not enough to derail the roll out of the new tax system. The Tax Information Exchange System (Tinxsys), a centralised exchange of all inter-state dealers spread across the various states and Union territories of India, set up around the time state VAT was introduced, has yet to be fully implemented by all states and updated with data on transactions regularly . Scaling up this system to capture inter-state transactions would take time.
But the biggest challenge to the transition to GST is the under-preparedness of the administrative machinery . The state tax officials, who are used to collecting tax on goods, need to be trained to collect service tax. That would take time. But that problem can be got around if the Centre continues to collect the service tax for the first 2-3 years of the GST regime and transfers the collection to the state.
Even if the GST rollout does not keep its April 2010 date, the Centre would do well to lay out a firm road map for its implementation, setting milestones for removing every hurdle in the path of the new tax regime.
TINA EDWIN
THE APRIL 2010 DEADLINE for goods and services tax (GST) implementation may need to be postponed, not because the political will to carry through the tax reforms is lacking but for want of adequate preparation in terms of legislative changes and gearing up the administrative machinery.
At the legislative level, two sets of changes are required. First of all a constitutional amendment is required to give the Centre and states the concurrent powers to levy tax on goods and services. This amendment will need to be passed by a special majority in Parliament and then ratified by at least half the states before it can become law. Then the Centre and every state will need enact a GST Act that will replace the Central Excise Act, 1944 and the law on service tax at the central level, and the Value Added Tax (VAT) Act and other local taxes at the state level.
To get the constitutional amendment through before the end of the current fiscal year, the Centre would need to introduce a bill in Parliament in the upcoming budget session and get it passed in the winter session, such that it can be sent to states for ratification. On the new GST Act, the empowered committee of state finance ministers and the Centre would need to agree on the goods and services that would be outside the tax net, tax rate as well as the threshold rate for application of the tax before a bill is introduced . They also need to decide the stage of transaction at which the tax would be collected and incorporate that in the law. At present, the excise is collected at the stage when goods leave the factory, the sales tax when the invoice is raised and service tax on receipt of money.
But that may be the least of the hurdles on the path of GST implementation , even though work on the bills is yet to begin.
To ensure that GST can be rolled out in a meaningful manner such that a common market is created for goods and services and credits are transferred for taxes paid at the state level, it is necessary that all states come on board. At the moment , several states have reservations about moving to the GST regime as they are apprehensive of the losses they may suffer under the new tax regime and the level of compensation they will get from the Centre. Unless a formula for compensation of losses is worked out quickly , the consensus to move to GST is inconsequential . The implementation of VAT at the state level and then the gradual phase-out of central sales tax (CST) was delayed on this account in the past. That apart, delayed transfer of compensation from the Centre, particularly in the instance of CST losses, have made states apprehensive about being adequately compensated for their losses. So much so that some like Sushil Kumar Modi, deputy chief minister and finance minister of Bihar, want the compensation to be part of the Thirteenth Finance Commission awards. While the Finance Commission has been given the mandate to consider the impact of implementing GST on states revenues while finalising the awards, it may not be possible to transfer compensation for GST losses through its awards.
The challenge lies at the implementation stage. The format of the challans for tax payment need to be redesigned and the government may need to allot new unique number under the GST system for better administration of the tax.
The under-developed IT system can pose a problem here, but perhaps not enough to derail the roll out of the new tax system. The Tax Information Exchange System (Tinxsys), a centralised exchange of all inter-state dealers spread across the various states and Union territories of India, set up around the time state VAT was introduced, has yet to be fully implemented by all states and updated with data on transactions regularly . Scaling up this system to capture inter-state transactions would take time.
But the biggest challenge to the transition to GST is the under-preparedness of the administrative machinery . The state tax officials, who are used to collecting tax on goods, need to be trained to collect service tax. That would take time. But that problem can be got around if the Centre continues to collect the service tax for the first 2-3 years of the GST regime and transfers the collection to the state.
Even if the GST rollout does not keep its April 2010 date, the Centre would do well to lay out a firm road map for its implementation, setting milestones for removing every hurdle in the path of the new tax regime.
Wednesday, June 17, 2009
Give a boost to reverse migration
Give a boost to reverse migration
SHUBHADA SABADE PROFESSOR OF ECONOMICS , SINHGAD BUSINESS SCHOOL , PUNE
AS SOON as the euphoria of the decisive political victory subsides, the new government must pull up their socks. The coming budget is likely to be populist , of the thanks-giving sort. But immediately thereafter, three tasks must be undertaken : one, fiscal expansion with a close watch on the deficit to maintain the FRBM target at least over the trade cycle. Two, an accommodative monetary policy that stops expansion at the right time, keeping in view its multiplier and lagged effect on the economy , and three, ensuring inclusive growth by extending infrastructure (read, roads, education , health and sanitation, irrigation, market, micro-finance , technology, teleconnectivity ) to rural India.
Huge deficits, followed by huge borrowings , crowd out private investment and raise interests, cascading slowly but surely into inflation and overheating. So averaging FRBM targets at least over a trade cycle is prudent. It is the quality of government expenditure that is more important than mere deficit numbers. Monetary policy, given its nexus with the fiscal policy, must accommodate fiscal expansion, but the present ample liquidity warrants instruments that encourage productive investment, and not just make cheap money available to all. Rates may be cut, but rather than across the board, more to the auto, infra, real estate sectors and indeed agriculture and agro-based industry. Even if 1% of the SLR is diverted towards timely loans to the rural sector, Rs 60,000 crore will be released into micro-finance . If government spends half the amount spent on farm loan waivers, with Rs 30,000 crore the whole country can have irrigation canals and farmers wont need loan-waivers !
The overall policy must never lose track of inclusive growth for three reasons. One, the new government must deliver what they have promised; two, given the high income elasticity of demand in the economically weaker sections, an infusion of money into this segment would spur demand which, in turn, will drive the economy out of the present recession. And three, most Indian cities are bursting at the seams with loads of rural migrants arriving for jobs every day. The city infrastructure never seems adequate to accommodate the rural exodus. But during recession , these rural migrants, rendered unemployed , would be more than happy to return to their native places if only they can get work and the city lifestyle in villages. The former can be promised by fiscal policy, government programmes like the National Horticulture Mission making agriculture profitable . The latter can be taken care of by industry, targeting the rural market for sales after the saturation of urban markets and given the growing purchasing power of the village folk. We will then be ready to witness a reverse migration, bliss for all. We have the example of thousands of diamond workers returning profitably to agriculture in Bhavnagar and Ahmedabad.
Good economics is often seen as bad politics , but these seem to be days of a paradigm shift with Indian political focus shifting from furthering urban prosperity towards rural development, as is evident from Rahul Gandhis highly publicised visits to rural habitations and policymakers statements. The prime ministers programme for the first 100 days emphasises insurance reforms, telecom consolidation and expanding NREGAs scope. President Pratibha Patil, in her first address to the joint session of Parliament , highlighted the need to build an inclusive society and inclusive economy. With five long years in hand, blissfully, the new finance minister too wont need to face tradeoff between short-run populism and long run growth with reforms.
Recent history indicates that there would be global food shortages and high food prices in future. Adam Smiths invisible hand puts things right by balancing the mismatches in the marketplace by creating signals for economic actors to move in certain directions. Its quite likely that the present financial crisis in advanced countries and a rather lacklustre IT sector in India, together with high food prices would signal a movement of talent away from the service sector, into agriculture , if it is rendered profitable, leading to reverse migration. So, good economics would be good politics too for a change!
SHUBHADA SABADE PROFESSOR OF ECONOMICS , SINHGAD BUSINESS SCHOOL , PUNE
AS SOON as the euphoria of the decisive political victory subsides, the new government must pull up their socks. The coming budget is likely to be populist , of the thanks-giving sort. But immediately thereafter, three tasks must be undertaken : one, fiscal expansion with a close watch on the deficit to maintain the FRBM target at least over the trade cycle. Two, an accommodative monetary policy that stops expansion at the right time, keeping in view its multiplier and lagged effect on the economy , and three, ensuring inclusive growth by extending infrastructure (read, roads, education , health and sanitation, irrigation, market, micro-finance , technology, teleconnectivity ) to rural India.
Huge deficits, followed by huge borrowings , crowd out private investment and raise interests, cascading slowly but surely into inflation and overheating. So averaging FRBM targets at least over a trade cycle is prudent. It is the quality of government expenditure that is more important than mere deficit numbers. Monetary policy, given its nexus with the fiscal policy, must accommodate fiscal expansion, but the present ample liquidity warrants instruments that encourage productive investment, and not just make cheap money available to all. Rates may be cut, but rather than across the board, more to the auto, infra, real estate sectors and indeed agriculture and agro-based industry. Even if 1% of the SLR is diverted towards timely loans to the rural sector, Rs 60,000 crore will be released into micro-finance . If government spends half the amount spent on farm loan waivers, with Rs 30,000 crore the whole country can have irrigation canals and farmers wont need loan-waivers !
The overall policy must never lose track of inclusive growth for three reasons. One, the new government must deliver what they have promised; two, given the high income elasticity of demand in the economically weaker sections, an infusion of money into this segment would spur demand which, in turn, will drive the economy out of the present recession. And three, most Indian cities are bursting at the seams with loads of rural migrants arriving for jobs every day. The city infrastructure never seems adequate to accommodate the rural exodus. But during recession , these rural migrants, rendered unemployed , would be more than happy to return to their native places if only they can get work and the city lifestyle in villages. The former can be promised by fiscal policy, government programmes like the National Horticulture Mission making agriculture profitable . The latter can be taken care of by industry, targeting the rural market for sales after the saturation of urban markets and given the growing purchasing power of the village folk. We will then be ready to witness a reverse migration, bliss for all. We have the example of thousands of diamond workers returning profitably to agriculture in Bhavnagar and Ahmedabad.
Good economics is often seen as bad politics , but these seem to be days of a paradigm shift with Indian political focus shifting from furthering urban prosperity towards rural development, as is evident from Rahul Gandhis highly publicised visits to rural habitations and policymakers statements. The prime ministers programme for the first 100 days emphasises insurance reforms, telecom consolidation and expanding NREGAs scope. President Pratibha Patil, in her first address to the joint session of Parliament , highlighted the need to build an inclusive society and inclusive economy. With five long years in hand, blissfully, the new finance minister too wont need to face tradeoff between short-run populism and long run growth with reforms.
Recent history indicates that there would be global food shortages and high food prices in future. Adam Smiths invisible hand puts things right by balancing the mismatches in the marketplace by creating signals for economic actors to move in certain directions. Its quite likely that the present financial crisis in advanced countries and a rather lacklustre IT sector in India, together with high food prices would signal a movement of talent away from the service sector, into agriculture , if it is rendered profitable, leading to reverse migration. So, good economics would be good politics too for a change!
Monday, June 15, 2009
EMPOWERING THE FARMER
Think Outside The Box
India needs a socially inclusive budget
Bina Agarwal
We have a new government. We await a new budget. Here is a chance to think outside the box for a socially inclusive budget. Five schemes suggested here would mean taking a less-beaten path.
First, laws can be empowering only with legal awareness and legal access. We need to build a countrywide network for this purpose. In 2005, the UPA government passed more propeople laws in one year than most previous ones did in five: the Right to Information Act, the National Rural Employment Guarantee Act (NREGA), the Hindu Succession (Amendment) Act and the Domestic Violence Act. Potentially all provide major benefits for the vulnerable. Yet unlike laws like NREGA which translate directly into policy, those promising rights have little impact since people lack legal information and advice, especially in villages.
We should create a mobile legal camp service with a lawyer and a local NGO member visiting each panchayat for a full day, on a fixed day each month. This team would create awareness on new laws through written and visual materials in the local language; advise those coming to the camp with particular problems; and provide a referral system about legal services and legal aid if people want to file a case. It could cost as little as Rs 1.2 lakh per year per panchayat at Rs 10,000 per team visit. We could cover 20 per cent of our 2.3 lakh panchayats in the first year with only about Rs 550 crore, and cover 100 per cent over five years with about Rs 2,750-3 ,000 crore. This would be an important step towards legally empowering villagers, especially the poor and women.
Second, we need housing support for single mothers. Divorce and widowhood as well as domestic violence leave women with children especially vulnerable. Even most middle class single mothers cannot afford the two- or threebedroom flats typical in government housing schemes, but many could afford studio flats with one room, a kitchen and toilet, with low interest loans. Thirty per cent of all government flats should be studio flats, sold at under Rs 2 lakh each. Only single mothers should be eligible to buy them. Resale should be barred to prevent speculative buying, but bequests to daughters or female relatives could be allowed.
Third, we need a new approach to vocational training. Technology and vocational institutes (TVIs) should be set up for students after class VIII (when large numbers drop out). The TVI curriculum could have two components: a vocational component to teach a job-oriented trade such as carpentry, car mechanics, plumbing and so on; and a general education component for learning, say, English, basic accounting and computers as well as learning about legal rights, civic duties, environmental awareness and gender sensitisation. Those passing a test held after two years would get a certificate. The qualifying person could have three options: a two-year apprenticeship with pay with the private sector, with placement help from TVIs; a two-year teaching assistantship within TVI; or entry into a higher level vocational institution recognising the TVI certificate . This could be a public-private partnership for linking vocational education with employment, and building a middle-level cadre with skills in great demand in construction and other sectors.
Fourth, we need to promote a group approach to farm investment and cultivation, for both higher productivity and economic security for the rural poor. The Indian farmer today is small and increasingly female: 70 per cent of farmers operate 1 hectare (ha) or less. A feminisation of agriculture is also occurring: relative to 51per cent of male workers, 71per cent of women workers are in agriculture. Women form 39 per cent of our agricultural workers and are growing, but individually they cannot easily access land or technology for productive farming.
We should introduce a grant-cum-subsidised loan scheme with two components. One would be for marginal farmers (men or women) owning 1 ha or less who form a group of 8-10 to jointly invest in irrigation wells, bulky farm equipment, etc. The group would own the asset. The other component would allow groups of landless women to buy land jointly and farm it collectively . Half the fund could be a grant and half a low interest loan repayable over five years. Funds would be conditional to forming a group. If 10 women jointly buy 10 acres, an acre each could be registered in each ones name, but cultivation would need land pooling.
Self-help groups of the poor should be eligible. As a group, women farmers could take advantage of economies of scale, share risks and labour, afford crop insurance, get better terms in contract farming and improve access to credit , infrastructure and technology. Poor Dalit women in Andhra Pradesh have successfully done land purchase and joint farming in many villages, taking advantage of a state government scheme. We need a similar countrywide central scheme.
Finally, all states should be advised to budget for a womens component plan in their panchayati raj institutions (PRI), as Kerala has done, setting aside 10 per cent of the grant-inaid in PRI budgets at all tiers: district, block and gram. It is hoped that the finance minister will take up these five suggestions.
The writer is professor, Institute of Economic Growth, Delhi.
India needs a socially inclusive budget
Bina Agarwal
We have a new government. We await a new budget. Here is a chance to think outside the box for a socially inclusive budget. Five schemes suggested here would mean taking a less-beaten path.
First, laws can be empowering only with legal awareness and legal access. We need to build a countrywide network for this purpose. In 2005, the UPA government passed more propeople laws in one year than most previous ones did in five: the Right to Information Act, the National Rural Employment Guarantee Act (NREGA), the Hindu Succession (Amendment) Act and the Domestic Violence Act. Potentially all provide major benefits for the vulnerable. Yet unlike laws like NREGA which translate directly into policy, those promising rights have little impact since people lack legal information and advice, especially in villages.
We should create a mobile legal camp service with a lawyer and a local NGO member visiting each panchayat for a full day, on a fixed day each month. This team would create awareness on new laws through written and visual materials in the local language; advise those coming to the camp with particular problems; and provide a referral system about legal services and legal aid if people want to file a case. It could cost as little as Rs 1.2 lakh per year per panchayat at Rs 10,000 per team visit. We could cover 20 per cent of our 2.3 lakh panchayats in the first year with only about Rs 550 crore, and cover 100 per cent over five years with about Rs 2,750-3 ,000 crore. This would be an important step towards legally empowering villagers, especially the poor and women.
Second, we need housing support for single mothers. Divorce and widowhood as well as domestic violence leave women with children especially vulnerable. Even most middle class single mothers cannot afford the two- or threebedroom flats typical in government housing schemes, but many could afford studio flats with one room, a kitchen and toilet, with low interest loans. Thirty per cent of all government flats should be studio flats, sold at under Rs 2 lakh each. Only single mothers should be eligible to buy them. Resale should be barred to prevent speculative buying, but bequests to daughters or female relatives could be allowed.
Third, we need a new approach to vocational training. Technology and vocational institutes (TVIs) should be set up for students after class VIII (when large numbers drop out). The TVI curriculum could have two components: a vocational component to teach a job-oriented trade such as carpentry, car mechanics, plumbing and so on; and a general education component for learning, say, English, basic accounting and computers as well as learning about legal rights, civic duties, environmental awareness and gender sensitisation. Those passing a test held after two years would get a certificate. The qualifying person could have three options: a two-year apprenticeship with pay with the private sector, with placement help from TVIs; a two-year teaching assistantship within TVI; or entry into a higher level vocational institution recognising the TVI certificate . This could be a public-private partnership for linking vocational education with employment, and building a middle-level cadre with skills in great demand in construction and other sectors.
Fourth, we need to promote a group approach to farm investment and cultivation, for both higher productivity and economic security for the rural poor. The Indian farmer today is small and increasingly female: 70 per cent of farmers operate 1 hectare (ha) or less. A feminisation of agriculture is also occurring: relative to 51per cent of male workers, 71per cent of women workers are in agriculture. Women form 39 per cent of our agricultural workers and are growing, but individually they cannot easily access land or technology for productive farming.
We should introduce a grant-cum-subsidised loan scheme with two components. One would be for marginal farmers (men or women) owning 1 ha or less who form a group of 8-10 to jointly invest in irrigation wells, bulky farm equipment, etc. The group would own the asset. The other component would allow groups of landless women to buy land jointly and farm it collectively . Half the fund could be a grant and half a low interest loan repayable over five years. Funds would be conditional to forming a group. If 10 women jointly buy 10 acres, an acre each could be registered in each ones name, but cultivation would need land pooling.
Self-help groups of the poor should be eligible. As a group, women farmers could take advantage of economies of scale, share risks and labour, afford crop insurance, get better terms in contract farming and improve access to credit , infrastructure and technology. Poor Dalit women in Andhra Pradesh have successfully done land purchase and joint farming in many villages, taking advantage of a state government scheme. We need a similar countrywide central scheme.
Finally, all states should be advised to budget for a womens component plan in their panchayati raj institutions (PRI), as Kerala has done, setting aside 10 per cent of the grant-inaid in PRI budgets at all tiers: district, block and gram. It is hoped that the finance minister will take up these five suggestions.
The writer is professor, Institute of Economic Growth, Delhi.
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