Swacch Bharat cess shows minimum government is just a slogan

On November 6, earlier this month, the Narendra Modi government decided to implement a Swacch Bharat cess. The cess amounts to 0.5% on all services, and has pushed up the effective rate of service tax to 14.5%, from the earlier 14%. The cess has come into effect from yesterday i.e. November 15, 2015.

The first question that needs to be asked is how much money will the cess end up raising for the government? During the first seven months of this financial year between April and October 2015, the service tax collections have grown at an excellent pace of 26%.

The total service tax collected during the period stands at Rs 1,12,727 crore. If the government continues collecting service tax at this pace, it will end up with around Rs 2,11,846 crore (1.26 x Rs 1,68,132 crore, which was the total amount of service tax collected last year).

At a service tax rate of 14%, this would mean that an income of Rs 15,13,186 crore will be taxed (Rs 2,11,846 crore divided by 14%). A Swacch Bharat cess of 0.5% would amount to a total of Rs 7,566 crore (0.5% of Rs 15,13,186 crore) collected during the course of the year. But the cess will be collected only for a period of 4.5 months during the course of the year (between mid-November and end March). Once that is taken into account then the amount likely to be collected through the Swacch Bharat cess will be around Rs 2,837 crore. (This is a simple calculation which doesn’t go into technicalities which arise with any kind of tax collection).

Also, given that more tax is collected during the last few months of the financial year, the number is likely to be higher than this. This calculation works with the assumption that the tax collections are distributed equally through the year, which is not totally correct.

Over the last few days, I have come across news-reports which suggest that the government will be able to collect only Rs 400 crore through the Swacch Bharat cess. This is incorrect.

As a PTI newsreport points out:The additional cess would be over and above the 14 per cent Service Tax rate which is already being levied and may yield the government an additional about Rs 400 crore during the remainder of the current fiscal.”

How did this calculation come about? As I mentioned earlier, the total service tax that is likely to be collected during the course of this year should be around Rs 2,11,846 crore. 0.5% of this amounts equals Rs 1,059 crore for the whole year. For a period of 4.5 months this amounts to Rs 397 crore, or around Rs 400 crore.

But there is a basic mistake in this calculation. The cess of 0.5% is on the total income and not on the total tax.
So that was the mathematical part of this column. Now let’s deal with the more important issues. Why has the government come up with a cess of 0.5% instead of increasing the service tax rate to 14.5%?

The financial impact of both would have been the same. The government would end up collecting the same amount of money. The answer lies in the fact that anything collected as a tax needs to be shared with the states. But anything collected as a cess remains with the central government. And that is why the government has come up with a cess amounting to 0.5%, instead of increasing the tax to 14.5%.

As the 14th finance commission report released earlier this year points out: “Almost all States have argued that cess and surcharges should form part of the divisible pool, with some suggesting that this should be done if cess and surcharges continue for more than three years.” But that is not how things stand currently.

Also, the money raised through the cess is to be allocated to the ministry of urban development and the ministry of drinking water and sanitation. The question is how well can a central government sitting in Delhi run a cleanliness drive across the country? Cleanliness ultimately remains a local issue and can be taken care of in a much better way if the governments at the local level are involved, which will not happen in this case.

The Swacch Bharat cess also goes against Narendra Modi’s pet theme of cooperative federalism, which talks about empowering the state governments. In a letter to chief ministers earlier this year, Modi had said: “This Government is…committed to the idea of empowering states in all possible ways. We also believe that states should be allowed to chalk out their programmes and schemes with greater financial strength and autonomy, while observing financial prudence and discipline.”

Further, should the government have come up with a  cess more than half way through the year and ended up complicating the tax system further, in order to raise an amount of Rs 3,000 crore? The answer is no. (I am no tax expert but you can Google and read all kinds of articles which claim to clear all the doubts regarding the Swacch Bharat cess).

Rs 3,000 crore amounts to just 0.3% of the central government’s total share of revenue of Rs 9,19,842 crore, for this financial year. The government could have easily raised this small amount from other sources without complicating the tax system.

For example, it could have shut down MTNL which faced losses of Rs 2,000 crore during the course of the last financial year. Or it could have shut down many other hugely loss making public sector enterprises which India’s miniscule base of taxpayers continue to fund. After shutting down these enterprises, the government could have looked to sell the massive physical assets like land and building that these enterprises own. These sales can fund the Swacch Bharat campaign many times over in the years to come.

But that would mean working towards a smaller government, which Narendra Modi doesn’t seem to like, even though during the course of his election campaign last year he had promised “minimum government and maximum governance”. But what we have got up until now is nothing along the lines of what was promised.

As Arun Shourie told The Hindustan Times recently: “He doesn’t believe in disinvestment. This government has shown an almost criminal neglect in improving tax administration. His idea of development is to have a few large projects like the Sardar Patel statue, which turns out to be made in China, or a bullet train from Ahmedabad to Mumbai, rather than spend that money to improve the speed of all trains in India by 15 mph. He’s increasing the role of the state in everything. ‘Minimum government, maximum governance’ is just a slogan.””

And that is worrying.

The column originally appeared on The Daily Reckoning on Nov 16, 2015

Sovereign Gold Bonds are a great idea that won’t work in India

On November 5, 2015, the Prime Minister Narendra Modi launched the sovereign gold bonds. On the occasion Modi said: “India has no reason to be described as a poor country, as it has 20,000 tonnes of gold. He said the gold available with the country should be put to productive use, and these schemes show us the way to achieve this goal.”

Our fascination for gold has led to a situation where we have managed to accumulate 20,000 tonnes of gold over the years. To understand how big this number is, consider the following point made by the World Gold Council. As it points out: “At the end of 2014, there were 183,600 tonnes of stocks in existence above ground. If every single ounce of this gold were placed next to each other, the resulting cube of pure gold would only measure 21 metres in any direction.”

What does this mean? India has 20,000 tonnes or around 10.9% of the 1,83,000 tonnes of gold in existence. The tragedy is that India doesn’t produce almost any gold. In fact, in 2013-2014, we produced 1.4 tonnes of gold.

And how much did we import? The minister of state for commerce Nirmala Sitharaman(independent charge) in a written reply in the Lok Sabha had pointed out that Indian import of gold in 2013-2014 had stood at 638 tonnes.

So India produced 1.4 tonnes of gold and imported 638 tonnes of gold. Interestingly, the import of gold in 2013-2014 fell by around 25% from 845 tonnes in 2011-2012. In 2011-2012, India had produced 1.59 tonnes of gold. Hence, we practically import all the gold that we consume.

And this creates major macroeconomic imbalances. Gold is sold internationally in dollars. When India imports gold it needs dollars, which need to be earned through exports. When India imports gold, it pushes up the demand for dollars in comparison to the rupee and the value of the rupee starts to fall. A depreciating rupee is good for the exporters because they earn more. But given that our imports are more than our exports it hurts.

Other than practically importing all the gold that it consumes, India also imports 80% of the oil that it consumes. A depreciating rupee means that the oil marketing companies which import oil have to pay more for oil in rupee terms. In the past, the government did not allow the oil marketing companies to pass on this increase in cost to the consumers totally.

Only recently diesel prices have been freed and are determined by the price at which oil marketing companies are able to buy oil internationally. Oil marketing companies still suffer under-recoveries every time they sell kerosene and domestic cooking gas.

The government has to compensate the oil marketing companies for these under-recoveries. Up until last year, the oil prices were very high. And when gold demand went up, the rupee depreciated and this pushed up the total amount of money oil marketing companies had to pay for oil. Since they were not allowed to totally pass on this increase in price to the end consumer on the oil products they sold, the government had to compensate them.

When the government compensated them, the expenditure of the government went up and so did its fiscal deficit. Fiscal deficit is the difference between what a government earns and what it spends. This meant higher borrowing by the government.  A higher borrowing led to crowding out, where the increased government borrowing did not leave enough on the table for the other borrowers. This, in turn, pushed up interest rates. And so the cycle worked.

Let’s look at this in another way. In 2013-2014, the gold and silver India imported, formed around 7.1% of the total commodity imports. In 2012-2013 and 2011-2012, the number was higher at 11.3% and 12.5%. For a commodity which is pretty much useless from an industrial point of view that is a huge proportion.

In 2013-2014, gold worth $28.7 billion had been imported. Now compare this to India’s IT and IT enabled services exports which during the same period stood at $86.4 billion. So, one way of looking at it is that one-third of dollars earned through IT and IT enabled services exports were used up to buy gold.

In fact, the situation was even worse in 2012-2013, when the gold imports were at $53.7 billion. The IT and IT enabled services exports were at $76.5 billion dollars. Hence, more than 70% of dollars earned through IT and IT enabled services exports were used up in buying gold. For 2011-2012, the proportion was even higher at 81%.

Once all these factors are taken into account the sovereign gold bonds sound like a fantastic idea. As a RBI notification dated October 30, 2015, points out: “The Bonds shall be denominated in units of one gram of gold and multiples thereof. Minimum investment in the Bonds shall be 2 grams with a maximum subscription of 500 grams per person per fiscal year (April – March).” The bonds shall also pay an interest of 2.75% per annum.

So anyone looking to buy gold instead of buying actual physical gold can buy these bonds. The value of these bonds will be linked to the price of gold. As the RBI notification points out: “The redemption price shall be fixed in Indian Rupees on the basis of the previous week’s (Monday – Friday) simple average closing price for gold of 999 purity, published by IBJA [Indian Bullion and Jewellers Association].” The bonds can be held on paper as well as demat form.

When an investor invests in these bonds he will not buy physical gold. This will help in reducing gold imports and the entire cycle, which I have explained above, will not play out or play out to a lesser extent. The RBI and the government will not get a macroeconomic headache because of our fascination for buying gold. At least, that’s the idea.

Of course I am assuming here that investors will move from buying physical gold to investing in sovereign gold bonds. Nevertheless, will that happen? Paper and demat gold has already around in the form of gold mutual funds and gold exchange traded funds(gold ETFs). Gold mutual funds invest the money that they collect into Gold ETFs.

These funds haven’t really taken off. This tells us that the Indian investor has an aversion to paper and demat gold and likes to hold real gold.

The advantage in case of sovereign gold bonds is that the investor along with getting gold returns also gets 2.75% as interest on the initial amount he invests. Is that lucrative enough to get him to move from physical gold to paper/demat gold? I don’t think so.

And that’s basically because there are other factors at play. Investing in gold is a lot about touch and feel. Indians are emotionally and culturally attached to the gold that they buy. Further, as I mentioned in the Friday edition of The Daily Reckoning, many Indians buy gold to store their black money. A lot of money can be held by buying a small amount of gold. These individuals are likely to continue to buy gold in physical form. The reason is straightforward. They are not going to buy paper/demat gold because it would be establish an audit trail and lead to problems for these individuals.

Also, those interested in getting gold jewellery made will get gold jewellery made and not buy sovereign gold bonds instead.

Due to all these reasons, I think the sovereign gold bonds are unlikely to take off. Indians will continue to buy gold in physical form. But that shouldn’t stop the government from trying.

The column originally appeared on The Daily Reckoning on November 10, 2015

Bihar elections: Why TV channels declared that Nitish Kumar had lost

In Friday’s edition of The Daily Reckoning
I had mentioned that on Monday I will be discussing the recently launched sovereign gold bonds. Nevertheless, there is something else that I wanted to share today, in the aftermath of the Bihar election results.

Given this, the column dealing with the sovereign gold bonds will now appear tomorrow (November 10). Today I want to discuss the Bihar election results. Or to put it more specifically, the analysis that happened on TV and the social media after the counting started and the first trends (and not results) started to come in.

The counting started at 8AM and within a period of 30 minutes the first trends stared to come in. Over the next hour and a half, the Bhartiya Janata Party (BJP) led National Democratic Alliance (NDA) was way ahead of the Nitish Kumar led Grand Alliance (comprising of Nitish Kumar’s Janata Dal(United), Lalu Prasad Yadav’s Rashtriya Janata Dal(RJD) and the Congress Party).

Experts on a whole host of TV channels and social media started offering reasons for this trend. Some experts and TV anchors more or less declared a BJP victory. One senior journalist surmised on an English news channel that Nitish Kumar’s arrogance during the second term had cost him this election. He also said that Nitish had misread the youth.

On a Hindi channel an expert said that the “annihilation of caste had started in Bihar,” as Dr Ambedkar and Dr Lohiya had predicted. A senior Muslim BJP politician belonging to Bihar also said the same thing: “humne jatiya ganit ko toda hai (we have broken the caste arithmetic).”

Within the Grand Alliance, initially Nitish Kumar’s Janata Dal (United) or JD(U), was leading in many more seats, in comparison to Lalu’s RJD. An expert on a Hindi news channel explained this in a very interesting way, which sounded quite convincing at that point of time.

He said all of Lalu’s voters (i.e. primarily the Muslims and the Yadavs) had voted for Nitish (in constituencies where a JD(U) candidate had been put up by the Grand Alliance), but the vice versa has not happened (i.e the Kurmis and the Extremely Backward Classes, who are supposed to the supporters of Nitish, hadn’t voted for the RJD in constituencies where the RJD candidate had been put up).

An Indian American who is known to be a Modi bhakt (though in the recent past he has been very unhappy with the economic policies of the Modi government) tweeted saying: “Please don’t feel bad, JDU+RJD. At least you won the exit polls.”

After 10 AM the trend started to change and the Grand Alliance started to move ahead and ultimately overtook the NDA by a huge margin. The Hindi news channels caught on to this very quickly. The English channels took some time. And that’s how it stayed till the end. The NDA was washed out. The Grand Alliance got 178 seats and the NDA ended up with just 58 seats.

The RJD emerged as the largest party with 80 seats. The JD(U) came in second at 71 seats. And the BJP was third at 53 seats.

So that is the background to the issue I want to write about today.

Analysing on TV and the social media forces people to come up with instant analysis. There is no scope for nuance or words like possibly and maybe. The experts can’t wait either.

The instant analysis can be shaky given that many times it’s based on very small sample sizes. This leads to analysts and experts on TV and the social media, becoming victims of the law of small numbers. And this is precisely what happened in the first two hours after the counting of votes started yesterday.

As Leonard Mlodinow writes in The Drunkard’s Walk—How Randomness Rules Our Lives: “
The misconception—or the mistaken intuition—that a small sample accurately reflects underlying probabilities is so widespread that [Daniel] Kahneman and [Amos] Tversky gave it a name: the law of small numbers. The law of small number is not really a law. It is a sarcastic name describing the misguided attempt to apply the law of large numbers when the numbers aren’t large.”

And what is the law of large numbers? As Mlowdinow writes, the law of law large numbers essentially states that “a large enough sample will almost certainly reflect the underlying makeup of the population being sampled.”

How does this apply in the context of the Bihar elections? When the first trends started to come in, only a few votes had been counted. Hence, this sample of votes was a small portion of the total votes that had been polled. And it showed that the NDA was well ahead. Nevertheless, it did not reflect the underlying reality. As Daniel Kahneman writes in Thinking, Fast and Slow: “Large samples are more precise than small samples. Small samples yield extreme results more often than large samples do.”

The extreme result yielded in this case was that the NDA was ahead in many constituencies. This led analysts and TV anchors to declare an NDA win. But the votes that had been counted initially (the small sample) were not a correct representation of how the public had actually voted (the overall population).

A few hours after the counting started, when a large number of votes had been counted (a large sample), the Nitish led Grand Alliance emerged clearly ahead.

And all the analysts on TV and the social media predicting an NDA win, ended up with eggs on their faces.

In any election analysis, the experts need to wait till a decent number of votes have been counted, so that these votes are a good representation the way the overall voting has happened. But in the days of instant analysis on TV and the social media, waiting is simply not possible.

To conclude, as Kahneman puts it: “We pay more attention to the content of messages than to information about their reliability, and as a result end up with a view of the world around us that is simpler and more coherent than the data justify. Jumping to conclusions is a safer sport in the world of our imagination than our reality.”

In fact, the NDTV anchor Ravish Kumar summarised the situation the best when he said: “pal pal badalti khabron par, pal pal badalta vishleshan. Hum log chalak log hain (As the news changes second by second, so does our analysis. We are smart people).”

The column originally appeared on The Daily Reckoning on November 9, 2015

Switch off the TV tomorrow and don’t waste time on Bihar election results

A cottage industry has emerged these days around trying to predict which way the Bihar election will go. I don’t want to add to it. And this is not a column explaining who will win the Bihar elections and why. Enough of that has been written and discussed in the media.

The irony in all this is that people sitting in television studios and writing editorials in newspapers, who have never visited Bihar, are perhaps the most confident on which way the election will go. Don’t ask me how.

Nevertheless, there is some logic to it. Dan Gardner explains this in Future Babble—Why Expert Predictions Fail and Why We Believe Them Anyway: “There is a “confidence heuristic”. If someone’s confidence is high, we believe they are probably right: if they are less certain, we feel they are less reliable, this means we deem those who are dead certain the best forecasters.”

As Gardner further writes: “Another problem with the confidence heuristic is that people may look and sound more confident than they really are. Con men do this deliberately. We all do, to some degree. Of course most of us don’t do it brazenly as con men – one hopes – but we all sense intuitively that confidence is convincing. And so, when we are face to face with people we want to convince, we downplay our doubts, or bury them entirely.”

So being confident and forceful about what you say makes for good television and great reading. And that explains why people sitting in studios in Delhi and Mumbai are making the most confident forecasts about who will win in Bihar.

Research also shows that when there is a competition to make forecasts, the forecasts people make get more and more confident. as we go along.

What does this mean during election time? When every political analyst is busy making forecast, if someone wants to standout then he has to make clear and confident forecasts. And that is precisely what has been playing out in television studios up until now.

You are likely to see more of that once election results start coming in and by 10AM tomorrow morning, it will be more or less clear who is likely to form the next government in Bihar—the Nitish Kumar led Grand Alliance—or the Narendra Modi led National Democratic Alliance (NDA).

Once the results are out political analysts will offer us explanations on why the results happened to turn out the way they have. If Narendra Modi led NDA wins, then we will hear stuff like the Modi magic is still at work, people have taken Modi’s promise of a separate Rs 1.25 lakh crore development package for Bihar seriously and so on. Some cheeky analyst might also suggest that all the statements made by the “so-called” fringe elements in the ruling Bhartiya Janata Party (BJP), also helped bring in the votes.

If the Nitish Kumar led Grand Alliance wins, you will hear analysts stay stuff like there was no anti-incumbency at work. The development carried out by Nitish Kumar has worked. The women have come out in full force to vote for him given all the development projects targeted towards women Kumar carried out. And voters in state elections have once again shown that development gets you votes.

Given that it is Bihar election results that the analysts will be analysing, there is bound to be some analysis along caste lines. You are likely to hear stuff like the Muslims plus Yadavs, the base on which Lalu Prasad Yadav ruled Bihar for a long time, voted for the Grand Alliance en masse. Hence, all the statements made by the so-called fringe elements in BJP did not work.

So if the BJP wins we will be told that the statements by fringe elements may have added the icing on the cake. If it loses, we will be told it didn’t work.
Long-story short, we will be told a lot of stories explaining why things happened the way they did. As Gardner writes: “People love stories, both the listening and the telling. It’s a central part of human existence, found in every culture, in every place, in every time…For explanation-sharing to work, however, a story cannot conclude with “I don’t know” or “The answer isn’t clear.”” The narrative should be complete. Incomplete stories do not work.

Hence, there will be no shortage of explanations and stories on why things happened the way they did in Bihar. Political analysts will come up with extremely coherent reasons on why things happened the way they did. You won’t hear phrases like “I don’t know” or words like “maybe” or “possibly”. In fact, some analysts will even say stuff like “as I have been saying all along”. In case of television channels the “I” will become “we”.

Even those who get their forecast wrong (and believe me there will a lot of them) will revise their forecasts. As Jason Zweig writes in The Devil’s Financial Dictionary: “Once you learn what did happen, your mind tricks you into believing that you always knew it would happen. Contrary to the popular cliché, hindsight is not 20/20; it is barely better than legally blind.”

This tendency is referred to as hindsight bias.

Hindsight bias is also referred to as “I knew it all along effect”. As Nassim Nicholas Taleb writes in Fooled by Randomness: “Our minds are not quite designed to understand how the world works, but, rather, to get out of trouble rapidly and have progeny…Psychologists call this overestimation of what one knew at the time of the event due to subsequent information…the “I knew it all along” effect.

The Nobel Prize winning psychologist Daniel Kahneman talks about this phenomenon in his book Thinking, Fast and Slow, in the context of the financial crisis which broke out in late 2008.

As he writes: “I have heard of too many people who “knew well before it happened that the 2008 financial crisis was inevitable.” This sentence contains a highly objectionable word, which should be removed from our vocabulary in discussions of major events. This word is, of course, knew. Some people thought well in advance that there would be a crisis, but they did not know it. They now say they knew it because the crisis did in fact happen.”

Something similar will play after the Bihar election results as well. Depending on the result, people will adjust their analysis and say “I knew this will happen”.

So if Nitish wins they will say, I knew this will happen, even if they had been predicting a Modi win earlier. And vice versa.

This is not a good thing. As Kahneman writes: “What is perverse about the use of know in this context is not that some individuals get credit for prescience that they do not deserve. It is that the language implies that the world is more knowable than it is. It helps perpetuate a pernicious illusion. The core of the illusion is that we believe we understand the past, which implies that the future also should be knowable, but in fact we understand the past less than we believe we do.”

Given this, it’s best not to waste time watching all the analysis that will pour in on Bihar elections, all through the day tomorrow and on Monday.

Switch off the television.

Take your kids out for a spin.

Buy some gold for your Mother. And your wife. Or your girl-friend (It’s Dhanteras after all).

Or just pick up a good book and read.

Happy Diwali!
The column originally appeared on The 5 minute Wrap Up on Equitymaster on Nov 7, 2015

Why the Swacch Bharat cess is a terrible idea

Fostering Public Leadership - World Economic Forum - India Economic Summit 2010
The government announced a new Swacch Bharat cess, yesterday. The cess will amount to 0.5% on all services, pushing up the rate of service tax to 14.5%, from the current 14%. The cess will come into effect from November 15, later this month.

As the press release announcing the decision said: “Swachh Bharat Cess is not another tax but a step towards involving each and every citizen in making contribution to Swachh Bharat…The proceeds from this cess will be exclusively used for Swachh Bharat initiatives.”

This decision is in continuation with something the finance minister Arun Jaitley had announced in the budget speech he made on February 28, earlier this year. As Jaitley had said on that occasion: “It is also proposed to have an enabling provision to levy Swachh Bharat Cess at a rate of 2% or less on all or certain services if need arises. This Cess will be effective from a date to be notified. Resources generated from this cess will be utilised for financing and promoting initiatives towards Swachh Bharat.”

Thankfully, the government has resisted the temptation to increase the rate of service tax by 2%, through the cess route and settled at 0.5%.

There are multiple reasons why this is a bad decision. As the press release said: “Swachh Bharat Cess is not another tax but a step towards involving each and every citizen in making contribution to Swachh Bharat.” What this clearly tells us is that the Swacch Bharat initiative is an important initiative for the government, as it should be.

And given that, it should be financed out through the primary revenues of the government and not through a cess. If the Swacch Bharat initiative is deemed to be important then it should have first claim on the revenues of the government and shouldn’t be financed through a cess.

Second, any cess essentially ends up taxing the same set of people again. Over the years, the government has made very little effort in trying to expand the tax base by simplifying the tax system as well as cracking down on a large set of Indians who do not pay any tax. The annual report of the ministry of finance for 2014-15 puts the total number of income tax assesses in 2013-2014 at 4.7 crore. These includes individuals, families, trusts and corporates. Given a population of close to 125 crore, what this clearly tells us is that not many Indians pay income tax. And this is something that government needs to improve on, instead of taxing the same base over and over again.

Third, any new tax (as a cess is) adds to the complication of the tax system and this keeps people away from paying tax. Further, in the Indian case, a cess tends to be more of a permanent nature than ad hoc as it should be.

Take the case of the education cess on income tax. It has been around for a while now raising the question that isn’t education important enough to be financed out of the primary revenues of the government.

Fourth, while the government has come up with a Swacch Bharat cess, it is wasting thousands of crore on keeping loss making public sector enterprises alive.

Let’s take the example of Mahanagar Telephone Nigam Ltd(MTNL) which offers internet and telephone services in Mumbai and Delhi.

During the course of 2014-2015(the period between April 1, 2014 and March 31, 2015) the company’s income was at Rs 3,400 crore. Its expenditure on the other hand stood at a much higher Rs 5,284 crore. The government(or rather the tax payer) bore the loss of around Rs 1,900 crore.

Or take the case of the government owned airline Air India. The company has accumulated losses of Rs 20,000 crore. The airline keeps making losses. The government keeps putting more and more money into it.

As this August 2015 news-report by PTI points out: “The Finance Ministry today sought Parliament’s nod for making an additional equity infusion into Air India worth Rs 800 crore, less than half the amount sought by the Civil Aviation Ministry for the national carrier.” Thousands of crore have already been infused into Air India. And with so much money going towards such lost causes, it is not surprising that the government has had to introduce a new Swacch Bharat cess.

Fifth, the government can easily finance Swacch Bharat by selling the shares it owns in Axis Bank, Larsen and Toubro and ITC, through the Specified Undertaking of Unit Trust of India (SUUTI). These shares as on November 6, 2015, were worth Rs 53,472 crore. Some portion of these shares can be sold every year to finance Swacch Bharat. At the end of the day what is strategic about the government holding shares in ITC, a company which earns a major part of its revenue through selling cigarettes? The SUUTI’s holding in ITC is worth Rs 30,210.7 crore.

Sixth, by levying a cess for Swacch Bharat, the government is taking the moral incentive out of the equation. As Nitin Pai of the Takshashila Institution puts it: “Levying a cess dilutes the moral incentive that a borderline conscientious citizen faces. Instead of a gnawing feeling when she sees garbage in public places, the marginal citizen is likely to feel the same-old, “I’ve done my part but the government is not doing its job properly.””

Once all these reasons are taken into account the Swacch Bharat cess is a stupid idea. The Narendra Modi government could have done better than this.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Huffington Post India on Nov 7, 2015