Mr Adhia, GST Needs “Complete Overhauling”, “Some Rejig” Just Won’t Help


Yesterday evening, the social media was abuzz with a statement that Hasmukh Adhia, the revenue secretary, had given in an interview to the Press Trust of India (PTI) regarding the Goods and Services Tax (GST). As he said: “There is a complete overhauling that is required… it is possible that some items in the same chapter are divided.”

The website of The Hindu still has this report. You can also read it on
This statement was later changed to: “There is need for some rejig in rates… it is possible that some items in the same chapter are divided.” The interview on the PTI website, currently has this statement and not the earlier one.

The phrase complete overhauling [of GST] has been replaced by some rejig in [GST] rates, by the PTI. Of course, a complete overhauling is majorly different from some rejig, but this is the closest that someone senior in the Modi government has publicly admitted that the implementation of the GST has been a disaster.

There are questions that need to be asked, even though the chances of getting any answers from the Modi government, remain nil.

1) Why was the government in such a hurry to launch the GST, when it was clearly not ready for it. This lack of preparation was already visible even before GST became the order of the day.

As Navin Kumar, the chairman of the GST network, in an interview published on June 27, 2017, told Business Standard: “It should be a stable system. Problems that surfaced during the first phase of the testing have been resolved. We did the testing on the basis of the rules that came in December. After that, some changes were made to the rules. Those changes we have absorbed now, so there is no time to do beta testing for that.”

Here is the Chairman of the network on which the GST is implemented saying that they haven’t had the time to test it properly. What more evidence is needed for the system not being completely ready?

Bharat Goenka, the managing director of Tally Solutions, one of the companies which has made a software for customers to help them file the GST returns, made a similar

In an interview with the Business Standard published on June 23, 2017, he was asked: “Is the problem essentially with the cramped timeline? Is July 1 too optimistic?” He answered: “It is indeed very cramped. While it is easy to add a new feature to software with respect to its functioning, developing robust software takes time. Whenever you make a change, you need to harden the software and that takes time. If you do not give it time, you end up with fragile software and get potentially surprising results. It is a high-risk environment. So, it is not sensible to try and do such mega rollouts without robust backing.

Obviously, the government was in a hurry to launch the GST without adequate preparation. In the process, it ended up creating the mess that currently prevails. And given that concerns were raised by people who were part of the process of the launch, this is clearly not benefit of hindsight.

2) Nearly four months after the launch, a lot of confusion prevails on many fronts. Even the chartered accountants lack clarity on issues. This tells us again that there wasn’t enough communication from the government on this front. In countries where GST (or value added tax as it is more popularly called) has been successfully implemented, an adequate amount of time is spent in training those who will be a part of the system implementing the GST (both inside and outside the government). This, has clearly not happened in India.

3) In fact, much before the GST was launched, analysts had pointed out that there were way too many GST rates, and that made the entire system fairly complicated, for those who need to follow the system.

The examples are now out.  A newreport in The Times of India quotes a supermarket chain owner as saying: “Tax on snacks like aloo bhujia, potato chips, samosa, kachori is 12%. Now the tax rate for cashews is 5%, but I can’t figure out if masala cashew is a snack or a standalone item.”

Similar issues have cropped up when it comes to sweets. Milk sweets come under the 5 per cent bracket, but the moment a silver foil is put on it, tax shoots up to 18 per cent. As Congress leader Veerapa Moily put it: “For example, is Kitkat a chocolate or a biscuit? Is coconut oil considered as hair oil or cooking oil?

A ministry of finance press release towards the end of September 2017 pointed out: “The total number of tax payers who were required to file monthly returns for August 2017 is 68.20 lakhs, of which, as on 25th September, 2017, 37.63 lakh GSTR 3B returns have been filed.” Around 55 per cent of those who needed to file GST returns, actually filed it.

Given the way, in which the system has been designed, this isn’t surprising at all. What this has also brought out is the fact that Indian traders are digitally challenged, and it will take time for them to catch up to GST. Meanwhile, the economy will have to suffer because of this.

4) The multiplicity of tax rates has led to a situation where the tax rates on different products make very little sense.  While the GST on condoms is 0 per cent, that on sanitary napkins is 12 per cent. One explanation provided for this is that only branded sanitary napkins invite a GST. But why even make this distinction? Does the GST apply only on branded condoms? Or more importantly, is there anything like an unbranded condom? These issues will simply not arise if there were fewer rates of tax.

Another explanation provided is that the mandate of the GST Council which decided on the GST rates, was fitment of taxes i.e. the GST rate on a product must be close to the existing taxes on it.

This is a rather silly observation given the status of the GST Council. If the idea was mere fitment any junior level bureaucrat could have done it. The fact that GST Council comprised of the finance ministers of all states and the finance minister of the central government, means that such anomalies could have been easily corrected.

There are several such inconsistencies, for the lack of a better word. The GST on environmentally friendly hybrid cars as well as fossil fuel guzzling SUVs is the same at 43 per cent (28 per cent GST and 15 per cent surcharge). Before GST became the order of the day, the total taxes on SUVs added to around 50 per cent.[i] In case of hybrids the tax before GST was around 29 per cent.[ii] This has led to the companies increasing the prices of the hybrid models of their cars.

And there is more. The GST rates on diamonds and gold are at 0.25 per cent and 3 per cent respectively. But the GST on something as useful as matchboxes (handmade ones) is 5 per cent. Why is this the case? Is it because those who run diamond and gold firms have deeper pockets funding political parties, than those running firms making matchboxes?

5) The rate of tax for most services has gone up from 12.36 per cent in 2014 and 15 per cent till June 30, 2017, to 18 per cent under GST. Of course, a part of this jump was supposed to be neutralised because of the input tax credit available under GST. But anecdotal evidence clearly suggests that the price of services has gone up because of GST. The government needs to study this and if this is true, it needs to cut the rate of tax on services to 15 per cent.

6) Also, the Modi government has tried to implement a convoluted and a complicated GST, which has “privatised compliance”. This has hit the small and medium enterprises(SMEs) the hardest. This also shows that we haven’t really learnt the lessons from our past.

One reason for India’s big black economy has been the high income tax rates over the years. In the early 1970s, the highest marginal rate of tax was as high as 97 per cent. Of course, at such a high rate most people who should have been paying income tax, did not. Not surprising, why would anyone give away Rs 97 out of every Rs 100 that he earned over a certain level, to the government.

The point being that tax compliance is always better at lower rates. At 28 per cent and higher, the peak Indian GST rate is among the highest in the world. Hopefully, as the number of tax rates under GST gets slashed in the years to come, the higher rates will go.

To conclude, GST has hit the small and medium enterprises (SMEs), which were already reeling under the negative impacts of demonetisation very hard. This is something that needs to be corrected very quickly, simply because it is the SMEs which create jobs in any growing economy. As finance minister Arun Jaitley recently told ET Now“Bulk of the jobs in India are created by SMEs, by the micro industries, by self employment. Gone are the days where only the government sector created jobs in the government or the organised sector created jobs.”

And given that one million Indian youth are entering the workforce every month, the country needs SMEs to create jobs more than it ever did before. Given this, the GST needs complete overhauling, in order make it simple and uncomplicated. A simple rejig won’t do. Hope Mr Adhia and his boss in the finance ministry are listening.

[i] A.Modi, Planning to buy a luxury car or an SUV? GST may save you up to Rs 85,000,, May 21, 2017.

[ii] A. Khan, Hybrid Cars May Become A Thing Of The Past Because Of GST,, July 4, 2017.

The column originally appeared in the Huffington Post on October 23, 2017.

How Modi Cherry-Picked Data To Build A Positive Narrative On The Economy


The prime minister Narendra Modi in a speech yesterday assured the nation that All is Well with the Indian economy, and that there was no reason to worry.

He offered data to sell his argument. Let’s go through some of the data that he offered and see what he told us and more importantly what he did not.

1) The fiscal deficit of the government has fallen from 4.5 per cent of the gross domestic product (GDP) in 2013-2014, when Manmohan Singh was prime minister, to 3.5 per cent in 2016-2017. Fiscal deficit is the difference between what a government earns and what it spends.

Yes, the fiscal deficit has come down. A major reason for this is the fall in oil prices, since Modi took over as prime minister. On May 26, 2014, the day Modi was sworn in as prime minister, the price of Indian basket of crude had stood at $108.1 per barrel. As of October 4, 2017, the price was at $55 per barrel, having fallen to even lower levels during the period.

Oil prices go up and down due to a whole host of reasons and Modi’s government has almost no role to play in it.

The central government has captured much of this fall in price of oil, by increasing the excise duties on petrol and diesel, thereby increasing its earnings, and thereby bringing down the fiscal deficit. As they say, there is a difference between making things simple and making them simplistic.

2) Prime Minister Modi also claimed in his speech that the current account deficit has improved from -1.7 per cent of the GDP in 2013-2014 to -0.7 per cent of the GDP in 2016-2017. The current account deficit is the difference between total value of imports and the sum of the total value of its exports and net foreign remittances. Or to put it in simpler terms, it is the difference between outflow (through imports) and inflow (through exports and foreign remittances) of foreign exchange.

Again, this has primarily been account of fall in the price of oil and thus a fall in the total amount of dollars that India pays for importing oil. India imports around 80 per cent of the oil that it consumes. Hence, Modi’s government has had very little role to play in the fall of the current account deficit.

It further needs to be pointed out that imports are a negative entry in the GDP calculation. So, if imports fall, the GDP rises automatically, assuming everything else stays the same. Falling oil imports are a big reason for the pick-up in the GDP growth, during Modi’s tenure as prime minister.

3) Take a look at the following chart, which was a part of the prime minister’s presentation yesterday.


As per this chart, the total foreign exchange reserves have risen by close to $ 60 billion during the period that Modi has been prime minister. In contrast, they were more or less flat when Manmohan Singh was the prime minister. At least that is what the above chart suggests.

This is primarily because of data has been taken from the end of 2011-2012 onwards. What happens if the data would have been taken from the end of 2003-2004 onwards. Manmohan Singh first became prime minister in May 2004.

As of March 31, 2004, the total foreign exchange reserves were at around $113 billion. By March 2014, they had jumped to around $304 billion. This meant an increase of 10.4 per cent per ear on an average. Between April 2014 and September 2017, the growth rate in foreign exchange reserves has been at 8.3 per cent per year on an average.

Hence, foreign exchange reserves accumulated at a much faster rate during Manmohan Singh’s tenure as prime minister. Of course, a bulk of these gains came during the first five years of the tenure, when the forex reserves increased at the rate of 17.4 per cent per year. Between 2009 and 2014, when the Congress led UPA made a mess of the economy, the increase in foreign exchange slowed down dramatically to 3.8 per cent per year on an average.

Basically, who did well, Singh or Modi, on the foreign exchange front, depends on where we start measuring from.

4) Prime Minister Modi further said that the interest rate that the government pays on the money that it borrows has fallen from 8.45 per cent in 2013-2014 to 7.16 per cent in 2016-2017. This has happened primarily due to two reasons. The falling fiscal deficit has led to the government having to borrow lesser in proportion to the size of the economy. With the government borrowing lesser, interest rates have come down.

It is important to remember here that the government has had to borrow lesser because it has increased excise duty on petrol and diesel and captured the bulk of the gain of falling oil prices.

Also, after demonetisation, a huge amount of deposits ended up with banks. These deposits were reinvested into government securities and in the process interest rates on government securities came down.

5) Prime Minister Modi pointed out that food inflation is in negative territory. The question is, is that a good thing? Why is food inflation in negative territory? It is in negative territory because farmers haven’t got the right prices for their produce. This is primarily on account of the fact that agri-supply chains have collapsed in the aftermath of demonetisation, forcing farmers to sell their produce at rock bottom prices.

The thing is there is no free lunch in economics. The collapse in food prices led to farmers demanding a waiving off agriculture loans and that has happened in state after state. It is ultimately expected to cost the nation, in the form of state governments compensating banks, more than Rs 2 lakh crore.

6) Over and above this, the prime minister shared data on a few consumption data points. Car sales, two-wheeler sales and tractor sales have improved, since June, hence, all is well.

What the prime minister did not tell us is the rapid rise in non-oil non-gold non-silver imports, post demonetisation. Take a look at the following chart.


Source: Ministry of Commerce and Industry.

Imports also represent consumer demand at the end of the day, even though that demand does not add to the country’s GDP. For example, every time an Indian buys an electronic good manufactured in China, he is adding to the consumer demand but not to the GDP. Of course, he is adding to the Chinese GDP because exports are a positive entry into the GDP formula.

Hence, if we remove the imports of oil, gold and silver, from the total imports number (in dollars), what remains (i.e. non-oil non-gold non-silver imports) is a good indicator of consumer demand.

The above chart tells us that non-oil non-gold non-silver imports have grown at an extremely fast rate after October 2016. They are growing at rates at which they haven’t grown for a couple of years. What is happening here?

Demonetisation destroyed domestic supply chains. Without supply chains products can’t move. This has resulted in consumer demand being fulfilled through imports.

This is clearly visible in the huge growth of non-oil non-gold non-silver imports. What this also means is that as demonetisation destroyed supply chains in India, it also led to a huge job destruction. If goods weren’t moving, there was no point in producing them either. This meant shutdown of firms and massive job losses.

Further, by importing stuff that we used to produce in India earlier, we have helped the manufacturing business in foreign countries and in the process “possibly” helped create jobs there.

Of course, this is something that the prime minister did not tell us in his speech. What he further did not tell us is that:

a) During the course of this financial year between April and August 2017, the total outstanding loans of banks (non-food credit) have shrunk. Only retail loans are growing, loans to industry, agriculture and services have shrunk. This, even though interest rates have fallen. What this clearly tells us is that a large section of the economy is not in a good shape and in no mood to borrow money and that is not a good thing.

b) As on March 31, 2017, 22 out of 27 public sector banks had a bad loans ratio of 10 per cent or more. This basically means that out of every Rs 100 of loans given by these banks, Rs 10 or more of loans had gone bad and weren’t being repaid.
In fact, five banks had a bad loans rate more than 20 per cent, which basically means that more than one-fifth of the loans given by these banks had gone bad and were not being repaid.
This is a problem that has only grown during Modi’s tenure. He and his government have sat on it, and only blamed the previous government for the mess.

c) All the so-called attack on black money has had a very limited impact on the price of real estate. While prices haven’t risen, they haven’t fallen either. This essentially means that homes continue to remain unaffordable for most people.

d) There has been almost no talk on how demonetisation and now the badly implemented GST have played havoc with the functioning and the existence of small and medium enterprises. If small and medium enterprises keep getting destroyed how is the country ever going to create jobs. It is worth remembering here that one million Indians are entering the workforce every year. Where are the jobs for these people?

e) Our primary education system continues to remain in a mess, with most children finding it difficult to read, write and do basic maths. It has been more than 40 months since Modi was elected prime minister, and nothing serious has been done on this front.

f) The non-government GDP has collapsed to 4.3 per cent. The non-government part of the GDP amounts to close to 90 per cent of the economy.

g) The growth rate of industry in general and manufacturing and construction in particular is at a five-year low. The manufacturing part of industry grew at 1.17 per cent during April to June 2017, whereas construction grew by 2 per cent during the same period. Also, it is worth pointing out here that manufacturing and construction together form 82-85 per cent of industry. If these sectors are barely growing, how will any jobs be created?

I can go and on the bad state of the Indian economy, but there is only so much time and only so much space. The trouble with trying to be clever all the time is that ultimately you get found out and more importantly, the nation doesn’t go anywhere.

The first step towards solving a problem is recognising that it exists. The economy has a problem, it is time that the government acknowledged that and worked towards it.

The column originally appeared on Huffington Post on October 5, 2017.

How I Knew Demonetisation Was Going To Be A Disaster Right From Day 2


The recent past has seen even the biggest supporters of prime minister Narendra Modi concede that demonetisation was a disaster that the country could have done without. A major reason for this has been the gross domestic product (GDP) data for the year 2016-2017, which was published on May 31, 2017.

As per this data, the growth for the non-government part of the economy crashed to 5.6 per cent in 2016-2017, after having grown by 8.5 per cent in 2015-2016. In fact, even the 5.6 per cent growth might be an overstatement given that the GDP data does not capture informal sector data well enough. And the informal sector has been in a large mess post demonetisation.

The trouble is that anyone who had any basic understanding of economics or had read up on some economic history, would have known this from day one. And if not from day one, at least from day two.

I wrote my first piece on demonetisation within hours of the announcement to demonetise the Rs 500 and Rs 1,000 notes. As a freelance writer, I am expected to react to things as soon as they happen. The first piece I wrote had a neutral tone to it, where I tried to explain as to why the government had done what it had done.

With the benefit of hindsight, I can say that the first piece was written too quickly and at the same time was highly influenced by the government’s press release explaining the decision. But from Day 2 onwards, I went back to basic economics to essentially say that demonetisation would turn out to be bad for the Indian economy as it eventually has.

After the first piece was published I happened to remember a story that was a part of my first book Easy Money–Evolution of Money from Robinson Crusoe to the First World War.
The story was about cigarettes being used as money in the prisoner-of-war camps that cropped up all over Europe during the Second World War. The prisoners used to receive standard food parcels from the Red Cross during the war. The parcels included biscuits, butter, cigarettes, canned beef, chocolate, jam, milk, sugar, etc.[i]

As soon as the rations arrived, prisoners used to start exchanging them. One of the earliest transactions used to be nonsmokers exchanging their cigarettes for chocolates that the smokers had got. Sikhs, who had been fighting for the British Army, used to exchange their allocation of beef for other goods like butter, jam, and margarine. But gradually cigarettes went way beyond the status of a normal commodity and became the standardized medium of exchange. A prisoner of war even recalls exchanges like “cheese for seven cigarettes” happening in the camps. He also recalls an individual who sold coffee, tea, or hot chocolate at the rate of two cigarettes a cup. This individual eventually scaled up his business but failed, making losses of a few hundred cigarettes.[ii]

Sometimes, the weekly Red Cross parcels which had cigarettes in them, did not arrive. At other times, the stress of heavy air raids near the camps made peo­ple smoke away their money, that is, cigarettes.[iii]

In such situations, there was not enough money (i.e., cigarettes) going around in the prison economy and led to a situation where prices fell. Since people did not have cigarettes to buy goods, those who were hoarding food, toiletries, and so on, had to cut prices in the hope that they are able to make a sale.

This story tells us a lot about how demonetisation has played out.

Money basically has three functions. It is a medium of exchange, a unit of account and a store of value. It’s function as a medium of exchange is its most important function. People use money to buy and sell things i.e. to carry out economic transactions, with the buyer paying money to the seller every time he sells a product or a service.

In the above example cigarettes were used as money. And when a war camp ran out of cigarettes, or there was a shortage, the economy inside the camp collapsed or slowed down considerably.

How is this relevant to demonetisation? Any economy needs a certain amount of money to function properly. Demonetisation at one go rendered 86.4 per cent of the currency useless. While currency is not the only form of money in India, it is the major form.
Like with cigarettes at prisoner-of-war camps, suddenly there wasn’t enough currency going around post demonetisation. Hence, the rupee’s function as a medium of exchange came to a standstill.

The Reserve Bank of India (RBI) has replaced this money at a very gradual pace. In fact, even now the currency in circulation is at 84 per cent of the currency in circulation that prevailed before demonetisation. This shortage of currency over the last seven months has led to a slowdown in the buying and selling of things i.e. people haven’t been able to carry out economic transactions.

The slowdown in economic transactions has ultimately led to a slowdown in economic growth. In fact, when there weren’t enough cigarettes going around, prices collapsed in the prison economy. Along, similar lines prices of agriculture produce, have collapsed since demonetisation, as cash in agriculture trade has dried up. This has led to the farmers protesting across the length and breadth of the country.

Anyone who had studied some economic history would have known from the beginning that demonetisation would turn out to be a disaster that it has. Anyone who understood the functions of money, would have argued along similar lines.

But that is not how it has turned out to be. Economists have gone on and on, about how demonetisation will prove beneficial to the nation, especially in the long run. Some have even built models to show the success of demonetisation.

But the fact of the matter is that you can keep building models to justify demonetisation but that doesn’t change the basic fact that with less money going around an economy contracts or grows at a slower pace.

Because with less money people cannot carry out economic transactions of buying and selling things. And without that economy grows slower or contracts.

Yes people can move onto digital payments. But digital payments haven’t grown fast enough to be able to bring down the influence of cash in the Indian economy. This means people still prefer cash or they are simply not confident about spending money in any form at this point of time.

[i]  C. Desan. Coins Reconsidered: The Political Alchemy of Commodity Money (The Berkeley Electronic Press, 2010).

[ii] R.A. Radford, “The Economic Organisation of a P.O.W. Camp,Economica 12 (1945): 189–201.

[iii]  Desan 2010

The column originally appeared in the Huffington Post on June 17, 2017.

Why The Real Estate Act Will Remain Ineffective Until The Builder-Politician Nexus Is Broken


In the first half of Vidhu Vinod Chopra’s 1994 release “1942: A Love Story,” there are a series of characters saying: “Shubhankar Da aane waale hain (Brother Shubhankar is about to come)”. The movie is based around the freedom struggle and the hope every time the lines are said is that the man called Shubhankar will come and set everything right.

Shubhbankar, played by Jackie Shroff, does come, just before the interval shot. Things become messier after his arrival, though eventually, like in all good Hindi films, everybody lives happily ever after.

Dear Reader, you must be wondering why am I talking about a 23-year-old movie which everyone has forgotten about by now, except for its marvellous songs composed by RD Burman.

Well, The Real Estate (Regulation and Development) Act, 2016, or RERA for short, has come into effect from May 1, 2017.

And it is expected to play the role of Shubhankar in the real estate sector in India. It is expected to come and set everything alright, at least that is the impression that has been given by many real estate experts in the media. But how correct is that?

RERA is basically a central Act. Given this, state governments do not need to pass separate Acts in order to implement it. But land is a state subject and given this the rules needed to implement the Act, need to be formulated and notified by the state governments. Many states are yet to come up with these rules.

As rating agency ICRA points out in a research note: “Except Uttar Pradesh, Gujarat, Madhya Pradesh, Maharashtra, Andhra Pradesh, Orissa, Bihar and the Union Territories, most have missed the deadline to notify its rules under the… Act.”

This tells us how serious the various state governments are about implementing the Act. Over and above this, the RERA mandates that every state set up its own real estate regulator. It so happens that Madhya Pradesh, Maharashtra and Rajasthan, are the only states up until now to have set up a real estate regulator. “Certain other states have set up interim regulatory authorities (as permitted under the Act),” ICRA further points out.

Also, as a newsreport in the Mint points out, Maharashtra is the only state that has set up a website where the real estate developers can register to set up new projects under the RERA.

Given that most states haven’t gotten around to setting up the real estate regulator and a website, this is something that will take time as they go around meeting the physical infrastructure and human resources requirements of the regulator as well as the website. And given this, RERA will not actually be implemented across large parts of the country, for some time to come.

Also, states which have formulated the rules to implement the RERA have diluted them in comparison to the rules framed by the union government. Take the case of Gujarat. Only projects launched on or after November 1, 2016, come under the aegis of the Act.

On the other hand, the central government Act defines ongoing projects as projects “for which the completion certificate has not been issued” on the date of commencement of the Act. This essentially allows many projects which are still work in progress not to come under the RERA.

Haryana, another state ruled by a BJP government, has done something along similar lines to help keep ongoing projects outside the ambit of the RERA. Projects which have applied for a part completion certificate or an occupancy certificate will not come under the RERA, if the certificate is granted. This, as was the case in Gujarat, is another ploy to get around the central government Act’s definition of an ongoing project.

In Maharashtra, a new nomenclature called proposed plans has been introduced and proposed plans instead of sanctioned plans can be submitted to the regulator. In the case of RERA only the term sanctioned plans has been used and only sanctioned plans can be submitted to the regulator.

As per the RERA any changes made to the sanctioned plans needs the written consent of allottees in the project. As the bare Act points out: “Any other alterations or additions in the sanctioned plans, layout plans and specifications of the buildings or the common areas within the project without the previous written consent of at least two-thirds of the allottees, other than the promoter, who have agreed to take apartments in such building.”

In case of Maharasthra, the usage of the term proposed plan is basically being seen as a way of getting around the written consent of the two-thirds of the allottees, if the builder goes around making changes to the project.

Over and above this, the Maharashtra rules point out that a phase of a project “may consist of a building or a wing of the building in case of building with multiple wings or defined number of floors in a multi-storeyed building/wing”. This has again been done to give flexibility to the builder to operate in the way he wants to, without following the letter and spirit of RERA. It allows the builders to keep developing projects on a piecemeal basis, something that they excel at.

In Delhi, the rules allow the builder to give details of only those legal cases where courts have already given a deicision. He does not have to provide details of cases which are still on. This directly contradicts Section 4.2 (b) of RERA which essentially states that the builder needs to provide: “a brief detail of the projects launched by him, in the past five years, whether already completed or being developed, as the case may be, including the current status of the said projects, any delay in its completion, details of cases pending, details of type of land and payments pending.”

In the time to come more such dilutions will keep coming out. The trouble right now is that operational rules of all states are not available in English and hence, it’s difficult to get a pan India perspective.

So, the question is why are state governments diluting the implementation of the RERA? The simple answer lies in the fact that there is a nexus between the builders and the state governments. Currently, the regulations governing the real estate sector vary from state to state and are inherently complicated. Given this, anyone wanting to be even a marginally serious player in the real estate business, needs to be in the good books of local politicians. This also explains why there are no pan India real estate companies. Forget pan India, there are no real estate companies which operate through an entire state.

The politicians also see real estate to be a cash cow which helps them generate money to fight elections as well as enrich themselves. This explains why regulations governing the sector continue to be complicated. In many states, the politicians are builders themselves though they have other individuals fronting for them. In such a scenario expecting the RERA to be implemented properly is nothing but day dreaming. For politicians, it makes sense if RERA is not implemented in letter and spirit. Given that politicians benefit from builders, a diluted RERA is their way of a quid pro quo.

If RERA has to be implemented properly the nexus between the politicians and the builders at the state level needs to be broken. And for that to happen, one of the first things that state governments need to do is get rid of change in land usage regulations that are currently in force. Only once this happens will things start to roll.

To conclude, Shubhankar Da may have been effective in 1942—A Love Story, RERA in its current form will become yet another regulation which won’t achieve much.

The column originally appeared on The Huffington Post on May 3, 2017

New Tax Data Is Unambiguous: Black Money Is A Huge Part Of Indian Economy



The Income Tax(IT) Department has released some very interesting data today. The data basically reconfirms what we have known all along—that very few Indians pay income tax.

The number of Individuals with a permanent account number(PAN) for assessment year 2014-2015 (which basically means the income earned during the financial year 2013-2014, or the period between April 1, 2013 and March 31, 2014) stood at 4.86 crore. The income tax department calls them effective assessees. In the assessment year 2014-2015, the returns for the income earned in the financial year 2013-2014 had to be filed.

The number grew at a rate of 6% per year, over a three-year period between assessment year 2011-2012(i.e. the income earned during the financial year 2010-2011, or the period between April 1, 2010 and March 31, 2011) and assessment year 2014-2015.

Data from the World Bank tells us that in 2013(considering that we are talking about financial year 2013-2014 here), India’s population was at 127.9 crore. What does this basically mean? This means that around 3.8% of India’s population came under the income-tax net in assessment year 2014-2015.

The government has also released detailed data for the assessment year 2012-2013 (or income earned during the financial year 2011-2012, the period between April 1, 2011 and March 31, 2012).

And this data tells us something interesting as well. For the assessment year 2012-2013, a total of 2.88 crore income tax returns were filed by individuals.  The number of individuals with permanent account numbers for the assessment year 2012-2013 stood at 4.43 crore. This basically means that only 65% of individual permanent account number holders filed a tax return.

Data from World Bank tells us that India’s population in 2011 was around 124.7 crore. This means that only 2.3% of India’s population filed the income tax return in assessment year 2012-2013, when returns for the income earned during the course of financial year 2011-2012, had to be filed.

Hence, the actual number of individuals who file income tax returns is significantly lower than the total number of individuals who have a permanent account number. Also, it is safe to say that the actual number of tax payers would be more than those who file an income tax return, given that some individuals paying income taxes are clearly not filing returns.

The Income Tax department does talk about the fact that in many cases the “tax has been deducted at source from the income of the taxpayer but the taxpayers has not filed the return of income.” This gap is huge despite the so-called attempts of the government to simplify the tax-filing process every year. It tells us that the simplification process is clearly not working.

There are more interesting data points for the assessment year 2012-2013. The average individual had a returnable income of Rs 3.77 lakh and paid a tax of Rs 39,823. Further, the total number of tax payers with a returned income of greater than Rs 10 lakh is just 13.32 lakhs. The returned income is defined as the total income after taking deductions allowed under chapter VI-A deduction into account.

The chapter VI-A deductions essentially refers to deductions allowed for investments made into the Employees’ Provident Fund, the Public Provident Fund, tax saving mutual funds, life insurance policies and so on (Section 80C).

It also allows deductions of premium paid for buying a medical insurance policy for self as well as parents (Section 80D). Then there are deductions allowed for interest paid on an education loan (Section 80E), royalty on books (Section 80 QQB) etc. Deductions are also allowed for donations made to charitable institutions (Section 80G).

In most cases, a maximum deduction of Rs 1.5 lakh is allowed under Section 80C. This was limited to Rs 1 lakh earlier.  The point being that the Chapter VI A deductions in most cases can’t be over a couple of lakh rupees. Hence, there is a difference between total income of an individual and the returned income. Other than Chapter VI A deductions, there are other deductions allowed as well (interest on home loan being one).

Even with these limitations, the total number of tax payers with a returned income of greater than Rs 10 lakh at 13.32 lakhs in assessment year 2012-2013, is a very low number indeed. In fact, there were only 1.02 lakh tax payers with a returned income of more than Rs 50 lakh.

What does this tell us? It tells us that a major part of the country continues to be outside the income tax net. Of course, a major reason for this remains the fact that most Indians don’t earn enough to be paying income tax.

But it also tells us that there are many Indians out there who should be paying income tax but they don’t. The consumption patterns of luxury items clearly tell us that. And so does the price of real estate in many parts of the country. A major portion of the black money goes into real estate. Black money is essentially money which has been earned and has not been declared for tax purposes.

To conclude, the new data published by the Income Tax department is another indicator of the huge amount of black money that is a part of the Indian economy. Clearly no surprises there.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])

The column originally appeared on Huffington Post India on April 29, 2016