Recently, I visited India in the midst of the demonetisation of Rs 500 and Rs 1,000 notes. At the international arrival terminal at the Delhi airport, there are three banks and three ATM machines. There were long lines at each in order to get new currency. It is not a pleasant “welcome” to stand in queues after travelling for many hours. I thought a government agency such as the Delhi Police Counter for the Prepaid Taxis at the airport would accept old Rs 500 notes; they did not and luckily I had enough Rs 100 notes to pay for the cab. In India, I was inconvenienced a little as I was able to exchange money and deposit a few thousand rupees, which I had, without standing in queue as I knew the bank manager very well. At this bank also, there was a long line so were at all the banks and ATMs. Like me, I did not see any well-to-do person standing in lines as all of them are able to easily exchange and deposit amounts without any significant limit by using contacts or having contacts with bank officers. They are charging commissions equal to 30-35% for their services. However, the story is different for a common man. The demonetisation, with a number of restrictions, is causing hardships to many, especially daily wage earners, small traders and tourists. Even big businesses are suffering. Economic slowdown has started and could seriously hurt India’s economy. For example, in November, business productivity declined significantly. The RBI has lowered the 2016 growth rate from 7.62% to 7.12%. In 2017, the growth rate may be even lower. As the cash crunch is not going to ease soon, the long term effect on the economy could be disastrous. This demonetisation would not result in reducing corruption significantly, if at all. As pointed out above, corruption is there and would continue in the same way with the new currency notes. Further, none of the big corrupts with billions of dollars sitting in foreign countries, have been touched at all. This money is much more than the black money in India.
All foreign travelers like Megasthenes, Hyuan Sang and Fayhan admired the honesty of the people in India. A Christian missionary wrote about his experience in his book which he wrote after spending decades in 1940s and 1950s in India. He stated, “In general, Indians are more religious than most of the Christian priests.” He gave one example. When he was in Kolkata, one day he bought fire wood from an old woman. After walking for over two km, the old woman realised that the priest had paid her two more paisas (at that time one paisa had the same buying power as does Rs 10 now) than she asked for. She walked back and handed the two paisas back to the priest. The priest was surprised at the honesty of the woman and told her to keep the two paisas. The old woman refused to do so and said if she kept the two paisas, she would have to take another birth in order to return the money back.
After Independence, the government did three wrong things. First, it continued the tradition of glamour attached to top government personnel. The elected leaders and bureaucrats were allowed to have big bungalows and hoard of servants and peons. English sahebs were replaced by Indians. Now, it is extremely difficult to get politicians and bureaucrats out of their big houses even after they lose their positions. Sonia Gandhi still retains 10 Janapath which is bigger than the PM’s residence. Besides occupying bungalows even illegally, they do not pay for utilities and phone lines. Rashtrapati Bhawan is bigger than the houses of the head of all the democratic countries. Rashtrapati is not a king; why does he have to come in a buggy with a big procession to the Parliament? All the “Janata Sewaks” (public servants) live much better than the common man their “Maliks” (masters). Second, the implementation of licences, quotas and permits not only empowered the political leaders and bureaucrats; these measures became a source of additional income which remains undocumented. A number of Prime Ministers such as Nehru, Shastri, Desai, Vajpayee and Monmohan Singh were honest, but tolerated corruption without any hesitation. Narendra Modi’s honesty is unquestioned; however, he has not yet touched any Swiss account even after getting a list of account holders. Third, socialists like Nehru had a great distaste for businessmen and rich people. Their desire was “stick it to them”. The government imposed high income taxes. During Vajpayee’s government, the income tax rate was reduced substantially. The high income tax rate combined with the laxity in applying the income tax laws encouraged people not to declare income and the era of black money started. Bribes resulting from corruption added to the black money.
In order to significantly reduce corruption and ease the difficulties for people, three areas need to be addressed namely, improved income tax process, transparency in the government and regulations and an improved judicial system. In order to address these three areas, the steps described below need to be implemented immediately.
The government has announced a scheme under which people can deposit any amount in the banks with 65% payment. Why would someone do so when a person can get black money deposited as white with a 30% commission? The payment should be reduced to less than 30%, preferably 20%.
As stated above, the black money is generated primarily for two reasons; people do not want to pay income taxes and bribery which is prevalent at all levels. The income tax rate should b reduced to 20% which would result in the government collecting more income taxes and much less black money. As a result of the shock caused by demonetisation, people will pay 20% income taxes to avoid future hassles and harassment by Income Tax personnel. The low income tax rate would also help business in the country. US President-elect Donald Trump is planning to reduce the current income tax rate of 35% to 10%.
Briberies can be reduced significantly by the following steps:
(A) Needless regulation, bureaucratic process and intervention should be eliminated. For example, income tax officers hold the payments by other government departments to be made to the hospitals as they have the authority to inspect the hospitals. They have no business of inspecting hospitals and approving the payments; their job should be to retain the proper amount of income taxes.
(B) The government functions should become decentralised and transparent.
(C) All the government contracts should be awarded through open and transparent competition. All the bid amounts and contracts awarded must be posted on the websites.
(D) Most of the PSUs, including ONGC, should be privatised. The retained PSUs should be made autonomous and headed by technocrats and not bureaucrats.
(E) All government payments should be made within two weeks of the receipt of bills. If there is a dispute, it must be decided within two weeks.
(F) No file need to be reviewed and signed by more than two to three persons and all files and applications (approved or rejected) must be disposed of within two weeks and the decision needs to be posted. DDA, the most corrupt agency, sits on files for years and decades.
(G) Receipt of all the applications and decisions should be posted on websites. A simple noting that the matter is under further consideration should not be permitted. If any further information is needed from an applicant, it should be requested within five days of the date of the application. Not more than two rounds of information requests should be allowed.
(H) All the conversations between an applicant and bureaucrat should be recorded. Recording is very cheap now.
(I) Any person who provides a proof of a politician or bureaucrat taking bribe should get work done immediately unless it is highly illegal.
(J) Bureaucrats should be encouraged and rewarded for providing the information to the news media about the sifarish (favour) recommended or sought by anyone.
(K) The in-charge of the areas, where an illegal activity or corruption is happening, should be fired.
(L) All the alleged bribe takers should be prosecuted by special courts within 20 days and the punishments should be severe. They can appeal their conviction, but have to remain in person during the appeal process.
(M) All gifts to politicians and bureaucrats should be made illegal.
(N) There should be public financing of election campaigns. This step would avoid political parties seeking campaign contributions. Most of the politicians keep 80% to 90% of the contributions for themselves and give the parties only 10 to 20%.
(O) As long as people pay income taxes, the source of their incomes need not to be revealed to the other departments. In USA, if a thief declares his theft as income and pays income taxes, the IRS does not inform the police about the theft. The police are expected to do their job.
(P) Income tax department should focus only on collecting income taxes and should have no other authority. Performance should be measured based on the income taxes they collect.
(Q) All employed persons and shopkeepers should be required to file income tax returns. The return forms should be short and simple. For daily wage earners, their employers should be responsible for filing the returns. Entities, without regard to the status or position, failing to file return on time should be heavily penalised.
(R) All purchases and transactions exceeding Rs 5,000 including in stores, restaurants, etc. should be in instruments other than in cash. In order to encourage store owners and others, credit and debit card companies should not charge the merchant or payment receiver more than 3%.
(S) No Benaami transactions should be allowed. The government should have the authority to buy a property at the registered price within three months of the registration. These acquired properties should be resold in the open market within three months of the acquisition.
(T) The justice system in India is one of the slowest and most corrupt in the world.
This system can be made more efficient by the following steps:
(1) Increase the number of judges and courts. Disputes involving less than Rs 100,000 should be handled by small claim courts.
(2) The small and other courts should hear the cases within twelve months. No case should be postponed for more than two times unless a person is in the hospital. If a hospital or doctor wrongfully certifies a hospitalisation, his licence should be immediately cancelled.
(3) The trial time should be limited to minimum extent possible. Judges should not allow delaying tactics and frivolous arguments.
(4) As in the USA, each party before the High Courts and Supreme Court should submit briefs in advance. At the trial, each party should be given only 20 minutes.
(5) Judges, police officers, politicians, protectors of the laws involved with corruption should be severely punished. Corrupt lawyers should be debarred permanently.
Finally, a dramatic and popular action is needed to restore the government’s credibility against corruption. This can be done by the government following its promise of bringing back the money in the Swiss banks. The government should also go after big names belonging to all political parties, including those from the BJP.
J.K. Tuli was an advisor to former Prime Minister Atal Behari Vajpayee.