Dylan Grice is a strategist with Societe Generale and is based out of London. He is the co-author of the French investment bank’s much-followed Popular Delusions analysis. “History is replete with Great Disorders in which social cohesion has been undermined by currency debasements. The multi-decade credit inflation can now be seen to have had similarly corrosive effects… I fear a Great Disorder,” he says. In this interview he speaks to Vivek Kaul.
What is debasement of currency?
Sometimes the most basic questions are the biggest ones! I’ll try to keep it as simple as possible by defining currency debasement as an increase in the supply of money which increases the purchasing power of whomever issues that money, by reducing purchasing power for everyone else.
And since when is it happening?
In the story of our civilisation, coins of a defined weight first appear at around at around 700BC. Around 400BC Aristophanes references inflation in his comedyThe Frogs, probably a reference to the currency debasement caused by the Peloponnesian war. So money debasement is as old as money itself. Traditionally, money debasement would involve issuers or traders ‘clipping’ tiny amounts of gold or silver from the coin, but still passing that coin on as though it was of a given weight. After a few rounds of clipping, your ounce of silver might only be worth nine tenths of an ounce of silver. Or maybe treasuries would mint gold or silver coins alloyed with base metals, again hoping that no one would notice. The intention was again to pass a coin containing less than an ounce of silver off as an ounce of silver and the effect would be an increase in the price level. Since more gold coins were needed to obtain a given amount of gold, more coins were also needed to buy given goods.
And why would people do this?
It’s important to understand that currency debasement is a mechanism for redistributing wealth. Anyone clipping coins kept the clippings for themselves and therefore secured an increase in their purchasing power. Any treasurer minting coins alloying gold or silver with copper or tin similarly benefitted because they now had more coins. Since the twentieth century the dominant circulating currency has been paper money and more recently, electronic money. Currency debasements have taken different shapes and forms this century – from the hyperinflations of central Europe following WW1 to the credit inflations of the 1920s or 2000s – but the fundamental principle has remained the same: the supply of money was increased in a way which redistributed societies’ wealth towards the issuer of the new money and away from everyone else.
What is the Cantillon effect?
Cantillon observed that when precious metals were imported into Spain and Europe from the New World in the sixteenth century causing a general price increase, the gold miners – the money creators, in other words – and those associated with them benefitted. When they spent their new found wealth on goods like meat, wine, or wool the prices of meat, wine and wool would rise as would the incomes of anyone involved in the production of those goods. For this group, money creation was highly beneficial. The problems arise for other groups. Anyone not involved in the production of money or of the goods the newly produced money purchased, but who nevertheless consumed them – a journalist or a nurse, for example – would find that the prices of those goods had risen while their incomes hadn’t. In other words, their real incomes had declined. Cantillon, writing before the days of Adam Smith, was the first to articulate it. I find it very puzzling that this insight has been ignored by the economics profession. Economists generally assume that money is neutral. And Milton Friedman’s allegory about the helicopter drop of money raising the general price level completely ignores the question of who is standing under the helicopter.
Why do governments debase money?
Governments usually raise revenue through taxation which has the benefit of being transparent and open. Everyone knows why they are poorer and by how much. They know who the perpetrator is, if you like. But raising money by simply creating it, debasing the existing currency stock is very different. For the government, the effect is the same. Whether printing money today, or clipping coin in the past, the debasement represents a real increase in government revenues and therefore purchasing power. But it’s better increasing in tax revenues because you can pretend you’re not actually raising taxes. You can hide what you’re doing. By printing one billion dollars, it now has one billion dollars more to spend without having to be open about what you’ve done. But we know that revenue cannotbe raised without someone somewhere paying. And here is the problem such an action creates: who pays?
Who pays?
The answer is that no one knows who or by how much. Most people are completely unaware that they are even being taxed. Keynes said that inflation redistributed wealth arbitrarily and in a way in which “not one man in a million is able to diagnose.” All people see is that they are suffering a decline in their own purchasing power. They can’t afford to buy the things they used to buy. They know something is wrong but they don’t know why. And they don’t who to blame. They don’t know who the perpetrator of this wrong they’re suffering is, so the group dynamic unleashes suspicion and speculation just like it does in Agatha Christies novels.
Could you explain that in detail?
Unfortunately, things being more complex in the real world than in whodunit novels, the group finds someone to blame. But there does seem to be a coincidence of past currency debasements with past social debasements in which society looks for an enemy to blame for its problems. History is replete with Great Disorders in which social cohesion has been undermined by currency debasements. The multi-decade credit inflation can now be seen to have had similarly corrosive effects. Yet central banks continue down the same route. The writing is on the wall. Further debasement of money will cause further debasement of society. I fear a Great Disorder.
Can you give us an example?
In medieval Europe, for example, the seventeenth century currency debasements coincided with the peak in witch trials. During the French (and Russian revolutions), rapidly debased currency coincided with the revolution’s transition from a representative movement to one which becomes bloody and self-consuming. The hyperinflations in Central Europe after WW1, most infamously in Weimar Germany but also in Austria and Hungary saw societies turning viciously on their Jewish communities. In Zimbabwe more recently, the white farmers were made scapegoats for the country’s ills and in Venezueala today, Chavez blames “profiteers” variously defined.
What sort of great disorder do you expect to play out in the days and years to come?
Although what we’ve seen in the last few decades has been an unprecedented credit inflation, which is a different type of currency debasement to the monetisations of the past or quantitative easing of today, today’s problems have the hallmarks of past inflations. So we see Cantillon redistributions in the very sudden increase in wealth inequality which has favoured those closest to the money creation (the financial sector and anyone with access to cheap credit). Everyone else has suffered. Median US household incomes have stagnated during the past twenty years while there is a record number of US households on foodstamps.
That’s a fair point…
We also see the in-group trust turn to suspicion as societies look for someone to blame. The 99% blame the 1%, the 1% blame the 47%, the public sector blame the private sector, and private sector blames the public sector. In the Eurozone the Northern Europeans blame the Southern Europeans, Germans blame Greeks, Greeks blame bankers. In Spain, the Catalans blame the Castillians and want independence. Meanwhile in China, popular anger seems to be deliberately directed by the Party towards the Japanese. So everywhere you look, everyone is blaming everyone else for the overall malaise. But that malaise is really just a consequence of the various credit inflations each of those societies experienced. The US, China, Spain, Greece etc all experienced one way or another, quite extreme credit inflations. In all of this I just think we’re seeing the usual debasement of society we might expect following a currency debasement.
But the money printing isn’t stopping…
The central banks’ solution to these problems is to print more money. But I think this solution is actually the problem. I understand why they’re doing it, and I appreciate what a difficult situation they find themselves in. But since these problems have been cause by their past currency debasement – asset price inflation engineered by credit inflation – I don’t see why another round of more traditional currency debasement is going to heal anything. I hope I’m wrong by the way, but I’m worried that this is the beginning of a Great Disorder in which social frictions increase. I’m concerned that distrust deepens both within societies and between them and inflation ultimately becomes uncontrollable. Obviously, financial markets reflect an environment like this, the financial analogue to less trust being higher yield. So I think the historically low yields we see today in bond, equity and real estate markets will go much higher. Of course, that implies their prices go much lower.
A shorter version of the interview appeared in the Daily News and Analysis on November 12, 2012.
(Vivek Kaul is a writer. He can be reached at [email protected])
Month: November 2012
What Karnad just found out: India is a nation of holy cows
Vivek Kaul
Two-thirds of the way through singing Kolaveri Di, Dhanush sings a few words which you notice if you are the kind who listens to the lyrics of songs very carefully. He sings “cow-cow holy cow, I want to hear now”.
These few words can be used to best describe the situation which prevails after Girish Karnad said “Tagore was a great poet but a mediocre and second-rate playwright.” Not surprisingly the Bengali bhadralok are up in arms.
There are five holy cows that the bhadralok have and it’s best that people stay away from criticising or critiquing them. Here is the list.
Mohun Bagan is the best football club: This is not much of a holy cow now but in the eighties and till the mid nineties any criticism of this football club could have got you lynched. Then came ESPN-Star Sports and Bengal realised that their football is a slow motion version of the real football played in Europe.
Rossogulla/Sondesh is the best sweet: This can lead to minor battles especially if you have a bong girl friend who loves her food. She will never come around to appreciating the pleasures of eating Mysore Pak. Another version of this debate is whether the Hilsa is the best mach i.e. fish in the world?
Sourav Ganguly is the best cricketer: I realised how strong this holy cow was when in the late nineties India was struggling to find a good wicket keeper and a Bengali colleague of my father suggested that “Sourav se wicket keeping kyon nahi karata hai?(why don’t we get Sourav to keep wickets?” In a land of few heroes Sourav could do no wrong.
Manika Da is the best director: Manik Da was the daak naam or nickname of the great Satyajit Ray. I have watched almost all of what Ray directed and watching his movies has been a brilliant experience. But Pather Panchali isn’t my favourite Ray movie (Now did I do a Karnad here?).
In fact I loved the sequels Aparjito and Apur Sansar much more. My favourite Ray movies are the ones he made in the seventies. The Calcutta trilogy of Pratidwandi (1970), Seemabaddha (1971) and Jana Aranya (1976), and Aranyer Din Ratri (1970) remain perennial favourites. And I can watch Shatranj ke Khiladi (1977) over and over again.
Ray was a rare director whose movies were much better than the books and stories he based them on. Anyone who has read Sunil Gangopadhyay’s Pratidwandi and Aranyer Din Ratri and watched Ray’s movies based on the books would realise that. The same is true for Sankar’s Seemabadha and Jana Aranya, and Prem Chand’s short story Shatranj ke Khiladi. Also I am not getting into the debate of whether Ray’s Charulata was better than the original novel written by Rabindranath Tagore.
Nevertheless, a lot of what Ray directed after Hirok Rajar Deshe in 1980 was very mediocre and nowhere near his best. But I wouldn’t recommend you say anything like that in and around Kolkata.
Rabindranath Tagore is the foremost intellectual: This is the holiest of holy cows for the Bengali bhadralok. Tagore cannot be criticised. Any criticism of Tagore, reasonable and unreasonable, is totally unwelcome. Girish Karnad is finding that out now. A stream of Bengali intellectuals and politicians have queued up to criticise Karnad. The basic argument is that what does Karnad know of Bengal? Even the criticism on Twitter and Facebook has been scathing. A struggling actor who happens to be a Bengali had this to say on his Facebook page “Karnad calls The tagore a second rate playwright!!coming from a mediocre actor and a boring playwright..I have said it..!moving on..”
Another interesting comment that I came across on my Facebook page was “Even Poonam Pandey and Sherlyn Chopra know how to seek attention. Girish Karnad would do better in taking a lesson from them.”
The backlash on Karnad’s comments raises several questions. Is any creative person above criticism? Even Tagore. Also Tagore was not a one dimensioned intellectual. He was a poet. A novelist. A playwright. A musician and even a painter. His interests were not limited to one particular domain. But that does not mean he was the best at all the things he did. And that’s precisely the point that Karnad was trying to make.
As he said “He was a great poet certainly, one of our greatest. And he got the Nobel Prize in 1913 when most of our modern literature was still in the state of formation. His greatness as a poet is there, his greatness as a thinker is there… he wrote plays, he certainly was a pioneer in breaking away from the unexciting commercial plays…he didn’t direct great plays. The point is he was a mediocre playwright.”
And Karnad does know a thing or two about writing plays having written several plays himself. He also won the Jnapith award in 1998, which is the highest literary award conferred in India.
Tagore was a great poet. But whether he was a great musician, painter or playwright remains debatable? And this debate or discussion one cannot have with the Bengali bhadralok. As George Soros’ Theory of Reflexivity states “People’s understanding is inherently imperfect because they are a part of reality and a part cannot fully comprehend the whole.”But why blame only the Bengalis. India as a nation is full of holy cows who cannot be critiqued. And here are some of the bigger holy cows whose criticism can get you into trouble.
Narendra Modi is the best leader: There are three ways to get people to read things on the internet in India. Criticise the Congress party and the UPA. Praise Narendra Modi (or NaMo as his fans like to call him). And the third and the best way is to criticise NaMo. That will unleash a barrage of negative comments on the website, with a lot of them bordering on abuse. But yes the website will get a huge number of hits, something that it has never seen before. The broader point being that any criticism or even an objective evaluation of his persona is immediately run down. But there are chinks even in NaMo’s armour starting with an abandoned wife and the fact that he doesn’t really come across as a team man and likes operating on his own most of the time.
Mahatma Gandhi: The father of the nation was a great man. But he had his weaknesses. The Mahatma did not have a great family life. And his eldest son Harilal converted to Islam. His opinions on sex for a family man were slightly weird. As an article in The Independent points out “It was no secret that Mohandas Gandhi had an unusual sex life. He spoke constantly of sex and gave detailed, often provocative, instructions to his followers as to how to they might best observe chastity. And his views were not always popular; “abnormal and unnatural” was how the first Prime Minister of independent India, Jawaharlal Nehru, described Gandhi’s advice to newlyweds to stay celibate for the sake of their souls.”
But any discussion or debate which does not show Gandhi in positive light is likely to create trouble.
Jawahar Lal Nehru and his relationship with Edwina Mountbatten: As Ramachandra Guha wrote in The Hindua few years back “The Indian public in general, and the Indian press in particular, has shown a keen and perhaps excessive interest in the relationship between Jawaharlal Nehru and Edwina Mountbatten. That they were intimate is not to be doubted — but did the bonds ever move from the merely emotional to the tellingly physical?”
Universal Studios was supposed to make a movie on the relationship but they later shelved the project. As The Telegraph reported “The Indian government had given permission for the movie, Indian Summer, starring Cate Blanchett and Hugh Grant, to be filmed on location there but only if physically intimate scenes were removed.” This is another holy cow which cannot be questioned.
Shivaji Maharaj: In the state of Maharashtra any critique of the great king who fought the Moghuls like no one else did can get you into a lot of trouble. As James Laine who wrote the book Shivaji: Hindu King in Islamic India found out a few years back. Those who wanted the book banned felt that the book insulted Shivaji. Those who read the book felt that it was not a book about Shivaji but more a book about how Shivaji’s legacy has been hijacked by various castes and communities in Maharashtra to further their own ends.
Sachin Tendulkar is the best cricketer: This for a very long time was even holier than the holy cow. Any criticism of the great man was likely to attract trouble irrespective of the fact whether you were in Mumbai or Muradabad. But things have changed over the years and people are more open to the God being criticised. Nevertheless, any criticism of Sachin can get you a lot of abuse, as I found out when I wrote this.
Islam: Any criticism of the religion can create major trouble as Salman Rushdie found out. Salman Rushdie’s The Satanic Verses was released on September 26, 1988 in the United Kingdom. Madhu Jain, a journalist working for India Today reviewed the book for the magazine. As she wrote in a recent column in the Openmagazine “It all began with my review of The Satanic Verses, published on 15th September 1988 in India Today (probably the first review of the novel.)…Unfortunately, the editor of the books pages of the magazine at the time, who later went on to edit a national daily, plucked some of the more volatile extracts from the novel—those about the Prophet’s wives—and inserted them into the book review. Not too long after the IFS bureaucrat-turned-politician Syed Shahabuddin read the excerpts (not the book as he admitted ) and demanded that The Satanic Versesbe banned. Protests erupted in India and Pakistan. In Karachi, a few protesters died when they were fired upon. It is believed that Ayatollah Khomeini watched this on television and ordered the fatwa.”
India became the first nation to ban the book on October 5, 1988, after Syed Shabbudin, a member of parliament, petitioned the government to ban the book. Rajiv Gandhi, the political novice that he was, banned the book immediately. Khomeini of Iran issued a fatwa on Feb 14, 1989, Valentine’s Day.. Rushdie had to go into hiding after that and his been unwelcome in India since then. He had to pull out of the Jaipur Literature Festival last year.
MF Hussain: This is an interesting story. Hussain had to live a large part of his later life in exile given the large number of court cases pending against him in various parts of the country for hurting the sentiments of Hindus through his paintings. This included drawing several Hindu gods and goddesses in the nude. Those in his favour say that artists need to have their freedom of expression, which is true.
But let me reproduce a paragraph from a piece that Shobhaa De wrote on him in The Times of India during his exile in Qatar. “Dressed in traditional Emirati gear, the painter is wearing socks , but no shoes. Mustafa, his handsome third son explains this is to respect local sensibilities regarding bare feet,” wrote De. Hussain had always walked bare foot but he was respecting the local sensibilities in Qatar and wearing socks. If he could respect local sensibilities in Qatar, couldn’t he do that in India as well? But any criticism of Hussain can get the so called intellectual class in Delhi and Mumbai ganging up against the person who dares to criticise Hussain.
The Gandhi family: During her peak any criticism of Indira Gandhi was unwelcome. Nayantara Sahgal, her first cousin, wrote a book Indira Gandhi: Tryst with Power, which was very critical account of Indira’s tenure as India’s Prime Minister. The book written in 1982 was only released in India earlier this year. This trend has continued and any criticism of the Gandhi family is largely unwelcome. Arvind Kejriwal recently broke this trend by taking on Robert Vadra, Sonia Gandhi’s son-in-law headon.
Rajinikanth: Try criticising India’s highest paid actor anywhere south of the Vindhyas and see what happens. Manu Joseph the editor of Openwrote a column on the superstar in which he said “He has no talent, an unremarkable body, and has had no hair for much longer than we realise. When he puts his right elbow on his left palm and the left elbow on the right palm, he demands that everyone accepts it as dance. And his ability to toss a cigarette in the air and grab it with his mouth is attainable even to my mother. Have no doubts, even to Tamilians he looks grotesque in leather shirts and pants and previously unseen shoes. I have watched his films in the cheapest theatres in Madras and know exactly what happens when he makes his grand entry, boots first. The screams and whistles in the theatre are not the awe of respect, but an expression of love for a beloved clown. Nobody in those theatres knew why they were reacting in that manner to him.”
Almost all of what Joseph wrote is true but read the comments that followed his article to see how the people reacted to his critique of the star.
Ambedkar and reservation: BR Ambedkar and the reservation policy first initiated first by VP Singh and then carried forward by the United Progressive Alliance government is a bigger holy cow than even Rajinikanth. You might get away by critiquing Rajinikanth but expect no such mercy if you get around to criticising Ambedkar or the reservation policy. Arun Shourie, wrote a book titled Worshipping False Gods in which he challenged. Ambedkar’s contribution to Indian Independence. As Shourie wrote “There is not one instance, not one single, solitary instance in which Ambedkar participated in any activity connected with that struggle to free the country. Quite the contrary–at every possible turn he opposed the campaigns of the National Movement, at every setback to the Movement he was among those cheering the failure.”
Of course this did not go down well with people. As Rediff reported “Some Congress MPs did, however, burn copies of the book outside Parliament House, and called for a ban.”
The Holy Cow: Yes. The holy cow is the ultimate holy cow in the country. And every few years close to the elections the issue is resurrected with demands to ban their slaughter. Ironically enough India is set to emerge as the largest exporter of beef in the world.
The moral of the story is that India as a country has too many holy cows that one cannot critique and criticise. We make heroes, we worship them but we never get around to analysing them. As the Channel V ad went in the good old days, we are like this only.
The article first appeared on www.firstpost.com on November 10, 2012.
(Vivek Kaul is a writer. He can be reached at [email protected])
45% of black money abroad has gone during UPA regime
Vivek Kaul
It’s a season of clean chits. The latest to join the bandwagon is Annu Tandon, the Congress Lok Sabha MP from Unnao, supposed to be close to Congress general secretary Rahul Gandhi. “Allegations against me are absolutely baseless and malicious… I completely deny all this rubbish,” Tandon said, giving herself the clean chit.
“I had gone to the Congress meeting and have just learnt of the allegations…I feel saddened that instead of doing something to benefit the nation we are speaking about lowly matters,” she said, adding that Kejriwal was perhaps seeking publicity by making such allegations. She stopped short of saying I am ready to face any investigation, as politicians are won’t to say in such cases.
Arvind Kejriwal’s in his latest exposure has said that about Rs 6000 crore of black money was lying in the Geneva branch of HSBC as on July 2011. This list included the brothers Mukesh and Anil Ambani, Reliance Industries, Motech Software (a Reliance Group company whose managing director Annu Tandon was), Naresh Goyal of Jet Airways and Sandeep and Annu Tandon. Annu Tandon and her late husband Sandeep have been accused of having Rs 125 crore each stashed away in their HSBC Swiss Bank account.
There is no way of independently verifying who has how much stashed away in the Geneva branch of HSBC, unless the bank chooses to reveal it. But at a broader level it can safely be said that a lot of Indian money does end up in Swiss banks and other tax havens abroad.
And the quantum of this money going out of India is huge. A report titled Illicit Financial Flows from Developing Countries Over the Decade Ending 2009 released by Global Financial Integrity in December 2011, gives us some astounding numbers. This report was written by economists Dev Kar and Sarah Freitas and was supported by the Ford Foundation.
In the period 2000-2009 the illicit capital flows from India stood at a whopping $104billion. Currently one dollar is worth around Rs 55. Hence in rupee terms this amounts to a huge Rs 5,70,00 crore. To give the reader a sense of comparison the fiscal deficit of the government of India for the financial year 2012-2013 ( i.e. the period between April 1, 2012 and March 31, 2013) was initially estimated to be at Rs 5,13,590 crore. Fiscal deficit is the difference between what the government earns and what it spends. So the black money that went out of India in the period 2000-2009 was more than the fiscal deficit of the government of India in the current financial year. Hence the numbers clearly aren’t small by any stretch of imagination.
And this not a recent phenomenon. In another report titled The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008brought out by Global Financial Integrity and written by economist Dev Kar, it is shown, that black money has been going out of India for decades, though it has gone up in recent years.
Kar estimates that in a period of 61 years from 1948 to 2008, India lost a total of US$213 billion dollars due to illicit flows, the present value of which is at least US$462 billion. In rupee terms this works out to a whopping Rs 25,317,60 crore. This number is almost 5 times the fiscal deficit of the government of India for the year 2012-2013.
And chances are this number is understated. As Kar writes “In all likelihood, this estimate is significantly understated because economic models can neither capture all the channels through which illicit capital can be generated nor the myriad ways in which the capital can be transferred.”
In an interview I carried out for the Daily News and Analysis (DNA) in April 2009, Professor R Vaidyanathan of IIM Bangalore had put the number at $1.4trillion or more than Rs 70lakh crore at that point of time. “More amounts were stashed away during the Nehruvian socialist regime…In fact, in those days, the Indian rupee commanded a better value per US dollar, so fewer rupees could get a dollar. Hence the estimation that Indian money stashed away may be of the order of $1.4 trillion,” Vaidyanathan had said.
Another estimate has been put forward by Arun Kumar, a professor at the Jawahar Lal Nehru University in New Delhi and the author of Black Money in India. An article on Firstpost quotes him as saying “At least $70-80 billion goes out every year.” That is an astonishingly huge number. In comparison Kar and Freitas put the total amount of money that went out of India between 2000-2009 at $104billion.
What is interesting is that a major portion of the black money in India ends up at Swiss Bank and other tax havens abroad. As Kar puts it “The total value of illicit assets held abroad represents about 72 percent of the size of India’s underground economy which has been estimated at 50 percent of India’s GDP (or about US$640 billion at end 2008)…This implies that only about 28 percent of illicit assets of India’s underground economy are held domestically, buttressing arguments that the desire to amass wealth without attracting government attention is one of the primary motivations behind the cross-border transfer of illicit capital.”
Kar’s research also shows that a lot of black money has gone abroad since the United Progressive Alliance (UPA) government led by Sonia Gandhi came to power. Between 2004 and 2008 around $96.3billion dollars of black money has gone abroad. Kar puts the total flow from 1948 to 2008 at a little over $213billion. This means that nearly 45% ($96.3billion expressed as a percentage of $213 billion) of the total black money that has gone abroad since independence has gone during the rule of UPA. UPA came to power in May 2004.
What this clearly tells us is that crony capitalism has gone through the roof since Manmohan Singh became the Prime Minister of the country. Businessmen and politicians are the most likely candidates for sending their ill gotten wealth abroad. Also, the data is available only till 2009, and corruption has only gone up since then.
The money going abroad has also gone up since India adopted a policy of economic liberalisation in 1991. Between 1991 and 2003 around $50.3 billion of black money went abroad, as per Kar’s estimates. Hence between 1991 and 2008, a total of $ 146.6 billion ($50.3billion + $96.3 billion) of black money has gone abroad.
All this money going abroad has had a huge impact on the economic development of India. As Arun Kumar wrote in an article in The Hindu in August 2011 “India could have been growing faster, by about 5 per cent, since the 1970s if it did not have the black economy. Consequently, India could have been a $8-trillion economy, the second largest in the world. Per capita income could have been seven times larger; India would then have been a middle-income country and not one of the poorest. That has been a huge cost.”
Annu Tandon in her reaction to the accusation of stashing away black money to the tune of Rs 125 crore abroad said “I feel saddened that instead of doing something to benefit the nation we are speaking about lowly matters.”
Yes these are lowly matters but given that they have cost the nation so much, they need to be talked about. And since the government and the Congress Party refuse to talk about these things it’s up to the likes of Arvind Kejriwal and Prashant Bhushan to bring it to the notice of the nation. And if that means, as Tandon put it that Kejriwal is seeking publicity, then so be it.
Oh and in the end, let’s be ready for another round of clean chits.
The article originally appeared on www.firstpost.com on November 10, 2012. http://www.firstpost.com/economy/45-of-black-money-abroad-has-gone-during-upa-regime-521434.html
(Vivek Kaul is a writer. He can be reached at [email protected])
You can claim both HRA and interest paid on home loan as tax deductions
Vivek Kaul
I was at a house warming ceremony of a friend last week. My friend, instead of looking happy of having finally managed to buy his first house, had a worried look on his face.
“So what is bothering you?” I asked. “Is the wife being too jumpy as usual?”
“Well that part of life I have adjusted to. But I was worried about something else. Now that I have a home loan EMI (equated monthly installment) to pay up, I need to ensure I don’t get fired at work,” he said, with a smirk on his face.
“Yeah your habit of putting things in a very matter of fact manner will have to be controlled,” I said jovially. “And do remember to say nice things to your boss now and then.”\
“Hmmm. But that’s not what I am bothered about.”
“Oh. Then?” I asked.
“See till now I used to claim a deduction for my HRA (house rent allowance) against my taxable income.”
“Yeah. So?”
“Oh, now that I have taken a home loan to buy a house, I will not be able to claim a deduction on my HRA.”
“And why is that?”
“Well now I plan to claim a deduction on the interest portion of the home loan that I have to repay. Given this, I will not be able to claim a deduction on my HRA,” he said with grave concern on his face.
“And who told you that?”|
“Oh my company accountant!”
“But you don’t plan to stay in this house that you have bought. Right?
“Yeah. My parents will stay here,” he explained.
“Then you can claim both the deductions.”
“Oh. Can I?”
“Yes, you can. As far as the Income Tax Act is concerned one does not influence the other.”
“Well, I thought as much. But my company accountant told me to specify the relevant section in the Income Tax Act which says that.”
“Hah. That’s the problem with these accountants. They are too bookish and cannot interpret anything. The next time you meet him ask him which section in the Income Tax Act specifies that if you are claiming interest that you pay on your home loan as a deduction you cannot claim HRA as a deduction as well? In the language of the Income Tax Act silence signifies approval,” I explained.
“Silence signifies approval?” he asked. “What do you mean by that?”
“Let me give you an example to explain this. You claim deductions under Section 80C for investments in employees provident fund, public provident fund, tax saving mutual funds, life insurance and so on. You also claim a deduction for payment of premium towards medical insurance under Section 80D. Both these deductions are separately claimed but does any section of the Income Tax Act expressly say so?”
“Now that you put it this way, it makes perfect sense.”
“As far as HRA is concerned, the deduction is covered under Section 10 (13A) of the Income Tax Act. It clearly specifies that the tax payer should be paying rent for a house he does not own. As long as this condition is met a taxpayer can claim a deduction for his HRA.”
“Oh. I did not know that.”
“So as long as the rented place is not owned by the taxpayer, which by its very definition cannot, he can claim a deduction as specified. This or any other section does not specify that this deduction cannot be claimed in case the tax payer owns any other property.”“So I can claim both the deductions?”
‘Yes you can claim a deduction of a maximum of Rs 1.5 lakh for the interest that you pay on your home loan and you can claim a deduction for your HRA as well,” I explained.
“But I had another doubts here?” he asked.
“Fire away.”
“I was reading somewhere that in order claim the interest paid on the home loan as a deduction the home has to be self occupied. Now if I live in a rented accommodation how can the home I have bought on a home loan be self occupied?”
“Very good question. How can the home you have bought be self occupied when you are living in a rented accommodation?”
“Yes. That’s my question,” he replied. “I can’t be living at two places at the same time.”
“For this we need to look at Section 23(2) of the Income Tax Act. The term self occupied property includes property that cannot be occupied by the owner due to his business or profession or employment, being carried on at any other place in a building that he does not own. What this means is that a self occupied property should be meant for your occupation and you need not be necessarily living there,” I explained.
“Hmmm. Nothing is ever like it seems!” he exclaimed.
“Especially when it comes to the Income Tax Act.”
“And now that we have got into some detail, how does the HRA deduction work?” he asked.
“As per section 10(13A) of the Income Tax Act, the deduction is restricted to a minimum of: a) The actual HRA that you get b) the actual rent paid less 10% of your salary, where salary includes the basic salary plus the dearness allowance c) 50% of the salary if the rented house is situated at Mumbai, Chennai, Kolkata and Delhi and 40% of the salary in any other case. The HRA that an individual receives over and above this is included as a part of the taxable income.”
“So how would it work in my case? You know my HRA is Rs 30,000 per month or Rs 3.6. lakh per year, and I pay a rent of Rs 22,000 per month.”
“What is your basic salary?”
“My basic is Rs 60,000 per month.”
I picked up a piece of paper that was lying around and got cracking on the math. “The actual HRA you get is Rs 30,000 per month. The actual rent paid less 10% of your salary works out to Rs 16,000 (Rs 22,000 – 10% of Rs 60,000). And 50% of your basic salary works out to Rs 30,000. As you can see the minimum amount works out to Rs 16,000 per month or Rs 1.92 lakh per year. And that is the amount that you can claim as a deduction from your taxable income. The remaining portion of your HRA i.e. Rs 1.68 lakh (Rs 3.6 lakh – Rs 1.92 lakh) will be added to your income for the year and taxed at the marginal rate of tax you fall into,” came a long wielding explanation from my end.
“So that explains it I guess. You have taken a huge load of my shoulders,” my friend said.
“Yes. Now let’s have some ras malai and celebrate.”
The article originally appeared on www.firstpost.com on November 10, 2012. http://www.firstpost.com/investing/you-can-claim-both-hra-and-interest-paid-on-home-loan-as-tax-deductions-521391.html
(Vivek Kaul is a writer. He can be reached at [email protected])
Why Brand Obama trounced misbranded Mitt Romney
Al Ries is a marketing consultant who coined the term “positioning” and is the author of such marketing classics (with Jack Trout) as The 22 Immutable Laws of Marketing and Positioning: The Battle for Your Mind. He is also the co-founder and chairman of the Atlanta-based consulting firm Ries & Ries with his partner and daughter, Laura Ries. Along with Laura he has written bestsellers like War in the Boardroom and The Origin of Branding. In this interview he speaks to Vivek Kaul and analyses why brand Barack Obama emerged stronger than brand Mitt Romney.
How would you define the brand Barack Obama? What are the three characteristics that you would attribute to him?
Consistent. The three characteristics I would attribute to Barack Obama are (1) Consistency. (2) Consistency, and (3) Consistency. He took office promising “change.” And the major changes he promised include creating jobs, reforming the health-care system and reducing the deficits by increasing taxes on the wealthy. He has never wavered from these three basic principles.
Brand experts talk about a strong story accompanying a brand. What do you think is Obama’s story?
His story is his climb from poverty to a law degree from Harvard, our most-prestigious university. It includes his birth to a Kenyon father and an American mother, one black and one white. He is unique. Very few politicians have a story quite like Barack Obama. One exception is John McCain, who was defeated by Barack Obama in the 2008 Presidential elections. John McCain’s story is the five-and-a-half years he spent in Vietnam as a prisoner of war and the torture he endured. This created a tremendous amount of sympathy for him. But he lost the election because he was handicapped by the negative reaction to the eight years of the previous President, George W. Bush.
What are the right things that Obama did to build brand Obama in the run up to the elections?
His entire campaign was built around a single idea and he expressed it with a “two-sided slogan.” A two-sided slogan is like a two-sided knife. It cuts both ways. It says something positive about your brand and something negative about the competition.
Could elaborate on that?
Take “Believe in America,” Mitt Romney’s slogan. It’s a nice thought, but it’s a one-sided slogan. It says something positive about Mitt Romney, but what does it say about his opponent?
That Barack Obama doesn’t believe in America? A country that educated him at Harvard. A country that elected him to the Senate and the Presidency. A country that made him wealthy and world famous. Barack Obama doesn’t believe in America? Highly unlikely.
What does Obama believe in? The number one issue among voters is “jobs,” but he couldn’t claim much progress on this issue because of the economy. His best approach was to plead for more time to “finish the job.” So he used the slogan “Forward.”
And what did that imply?
His “Forward” slogan implied that Republicans want to go backwards to policies that failed in the past. Forward is a great slogan because it cuts both ways. This makes two in a row for Barack Obama. His 2008 slogan, “Change we can believe in,” was also a two-sided slogan. With the Republicans in power, John McCain couldn’t exactly advocate “change,” because that would offend his base. The best he could do would be to imply that he would do the job “better than Bush.”
What are the things that went wrong for Obama?
Nothing. The American economy is in bad shape. Deficits are enormous. The Republicans should have won in an easy election, but their marketing strategy was bad.
Which is the brand that you think comes closest to brand Obama?
Virgin might come close because it’s a brand associated with Richard Branson, a unique individual with many stories.
When it comes to brand names the brand name Obama is fairly different from the usual. How does that work/not work?
What many companies forget is that a brand name should be “unique and different.” The biggest mistake companies make is trying to create a brand name that says something about the product or service they are offering. A typical example is “Seattle’s Best Coffee,” a high-end coffee chain launched in America. But the competitor was Starbucks, a unique and different name unrelated to coffee. Starbucks is a far better name than Seattle’s Best Coffee, which is a generic name. Ask people, What is Seattle’s Best Coffee? And they are likely to say, Starbucks.
Could you give us another example from business to substantiate your point?
Google is a typical example. When you start with a unique name without any specific meaning, you can make the name mean whatever you want it to. Yesterday, Google meant nothing. Today, Google means “search” and it’s become one of the most valuable brands in America. On the stock market today, Google is worth $220.1 billion.
How would you define the brand Mitt Romney? What are the three characteristics that you would attribute to him?
Romney is a “business” leader and the attributes voters attribute to him are all based on his business experience. Businesses should (1) Make money. (2) Reduce expenses. (3) Avoid taxes legally.
What is that made brand Romney attractive to the white American male? And what is it that made him unattractive towards everyone else?
The white American male is focused on becoming a business success. He expects to work hard and be rewarded when his hard work pays off. The white American male resents having to share the rewards of his hard work with the government in the form of higher taxes. Women are more family oriented. They don’t mind sharing with less-fortunate individuals. That’s why many of them voted for Barack Obama.
Which is the brand (or even brands) of a product or a service that you think comes closest to brand Romney? And why?
You could list almost every American corporation from IBM to Microsoft. The general perception is that companies want to increase profits, reduce expenses and find a way to avoid taxes (legally.)
You have always said that marketing and branding are all about focus. So who do you think had more focus Obama or Romney? And why?
Barack Obama was focused on just one thing: “Let me finish the job.” That idea was expressed in his slogan “Forward.” Mitt Romney was focused on attacking Obama for the lack of jobs and the high deficits. All true, of course, but that’s a losing political strategy. A politician needs to first have a “positive” focus. I think Mitt Romney should have focused on his business experience and then used a slogan like “Let’s run the government like a business.”
I was reading somewhere that both Obama and Romney employed a technique called brand hijacking in the elections. People who type one candidate’s name into Google’s search box in some markets have seen ads for his opponent. A search for “Barack Obama,” for instance, has yielded ads for Romney, while entering “Mitt Romney” has resulted in ads for Obama. Romney has used a similar tactic on Facebook. How does that help? Would you advocate something like that in the future?
I would not advocate something like this. While it might be effective with some people, it might turn off others.
What are the branding mistakes that Romney make? How difficult was it to beat an incumbent President who was struggling with the economy and most of everything else?
Mitt Romney spent most of his time attacking Barack Obama. That’s the wrong strategy. What a politician needs to do is to offer a positive concept first (business experience) and then point out that his or her opponent lacks this concept. (Barack Obama has never worked in the private sector). It should have been easy to beat an incumbent President with his track record.
I was reading an article on Fast Company and it said “politics, after all, is about marketing — about projecting and selling an image, stoking aspirations, moving people to identify, evangelize, and consume.” Would you agree with something like that and why?
Absolutely. It’s all about perceptions, not reality. That’s what marketing is all about, creating positive perceptions in the minds of consumers.
What are the branding lessons that companies can learn from Obama’s successful campaign?
Years ago, Bill Clinton became famous for running a campaign which his consultants dubbed: “It’s the economy, Stupid.” Today, a company should adopt something similar. It’s what I call the KISS approach. “Keep it simple, Stupid.”
The article originally appeared on www.firstpost.com on November 8, 2012. http://www.firstpost.com/world/why-brand-obama-trounced-misbranded-mitt-romney-518734.html
(Vivek Kaul is a writer. He can be reached at [email protected])