India Positive

by Chetan Bhagat

  ‘Yes, the BJP has a communal ring to it, but who cares, if they can make India rich,’ was how many non-traditional BJP voters justified their votes for Modi in May 2014. These voters led the BJP to a big victory, and we got a stable, right-wing government. Many thought the Indian economy would now fly. People expected the fiery Gujarati entrepreneurial spirit to reach the PMO, a departure from the slow, soft-spoken, academic style of Manmohan Singh. The ‘nayi bahu’ excitement around Modi was unprecedented. And as anyone who has gone through the ‘my nayi bahu is the best’ phase will attest, when you expect so much, some disappointment is bound to follow.

  Yashwant Sinha’s 2017 open letter on the economy had relatively few defenders outside the BJP. Objectively speaking, it was low on data. It was also somewhat alarmist, predicting an extremely unlikely ‘crash landing’. However, it did make the point that this turbo-powered government may have underperformed in a core area—the economy.

  There is no denying that India’s GDP growth continues to slow down. Given our low base, we should have been close to a 10 per cent annual growth rate by now. So why are we at 5.7 per cent (or 3.7 per cent, according to some)? This hasn’t hurt the BJP politically yet, given that the masses don’t track GDP like the experts. However, once there’s a media perception that this government cannot deliver growth (and hence jobs), the message will trickle down. This would destroy the roaring tiger image of the Modi government and advance the (embarrassing) possibility that the Manmohan Singh government, for all its policy paralysis, could deliver better on growth. That’s bound to hurt the BJP’s chances in 2019.

  Little wonder then that the government went into defensive mode, calling out naysayers and pessimists. Naturally, it is concerned about the self-fulfilling nature of economic pessimism. If everyone believes times are bad, tightens their purse strings and reduces spending, then the economy does indeed suffer. Euphoria 2014 becomes Doubts 2017 which, in the worst-case scenario, turns into Despair 2018, and so on.

  How did this happen? Is it due to specific measures like note-bandi and GST? Or is it something about the government’s attitude that is hurting the economy, these measures being just a manifestation? Chances are that it is the latter.

  When Modi came to power, entrepreneurs across the country believed in him. His energy, zeal, hard work and belief in India continue to be inspiring in some ways. However, the BJP government seems to have become obsessed with one thing—black money.

  In our country, a lot of black money holders have done business for decades in a culture of tax evasion. These people, a few hundred thousands of them, control our economy, creating millions of legitimate jobs and adding billions to the GDP. What do we do in this situation? Suffocate them, and the jobs they create, to death? Or do we live with both the good and the bad they represent, and softly move them towards a cleaner system? Should we teach them a lesson for being bad, and risk businesses shrinking and jobs disappearing? Or should we come up with easier ways to make the transition so that ways of doing business in our country get cleaned up over time?

  There are no easy answers. However, GDP data indicates that this government may have been a bit too strict. Today, the entrepreneur fears the taxman. Nobody wants to take big risks to grow in this atmosphere of fear, despite assurances from the tax department that they will refrain from unnecessary harassment. There are so many new rules that, if someone wants to make a businessman’s life difficult in this country, they can. And if the entrepreneur goes into consolidation mode, we will have an economic slowdown for sure.

  The government also seems to have fallen behind on the concept of ‘change management’. When you are making life difficult for people, you have to give them incentives to accept the discomfort. If the GST switchover was going to be cumbersome, the least the government could do was to reduce rates drastically in the ‘change management’ phase. Instead, for many products and services, rates were higher than before.

  Noble intentions to clean India up are not enough to ensure that people cooperate through the change. Every transition, even if it’s for the greater good, has to be managed well. The government needs entrepreneurs if it wants the economy to grow in double digits. Teaching them a lesson may be justified but, sadly, it will hamper growth. Taxes should be kept low, as getting through the transition smoothly is more important than penalising defaulters. Instead of playing the strict teacher trying to get the homework done, the government would do better to slowly turn them into motivated students who want to do their own homework.

  @chetan_bhagat

  Hate Modi or BJP. You have the right to. But think twice before painting Congress in pure gold. Don’t forget massive scams in their time, where spectrum, coal and even games weren’t spared. Citizens have to make a choice during elections, but then must keep all parties accountable

  1,936 replies/ 5,854 retweets/ 16,735 likes

  @chetan_bhagat

  Petrol Diesel prices too high. Said it before saying it now. Taxation on fuel needs to be revisited. People are suffering. Inflation will rise. Why not just simply bring it under GST?

  440 replies/ 843 retweets/ 5,170 likes

  Cracking the GST Puzzle

  It’s a modern reform implemented with an archaic sarkari attitude, so here are five ways to set it right

  Confession: My brain is fried right now. Reason: I have spent the last several hours trying to figure out the Indian government’s GST return filing processes. I am still somewhat confused. This, when I have a business degree, worked at an investment bank for a decade, and analysed hundreds of annual reports for companies.

  Ask any tax expert in the country and they would agree. The GST puzzle is so complex that it feels like a cruel and nerdy prank played by taxmen on India’s entrepreneurs. It would be funny, if it wasn’t real and didn’t threaten millions of businesses and jobs across the nation.

  The technically complex design of the GST returns process assumes that every businessman in the country is an experienced Munimji and entrepreneurs have nothing better to do (such as running their businesses) than fill out multiple puzzle-like GST forms every month. So while an American business may be figuring out how to make app-based sales or invest in new technologies, the poor Indian business is busy scrambling to figure out and meet three (yes, three!) monthly deadlines for GST returns.

  It is a classic case of tax nerds imposing their jargon on helpless users. The tax department continues to say they want to be more taxpayer-friendly, but they have always lacked customer focus—evident in their process design which assumes that users have advanced taxation expertise. Small wonder, then, that GST is fast becoming unpopular.

  This is unfortunate because this tax reform actually has the power to change India. For a few silly reasons stemming from sarkari attitude issues, the entire GST programme risks failure. The only silver lining is the fact that the GST council continues to meet and revise its processes. This at least shows a willingness to take feedback. If that is indeed the case, here are some practical suggestions to save GST’s reputation and India’s economy.

  One, GST rates are too many. The more rates there are, the more complex the forms and processes get, and the more discretion the authorities get to tinker around. This is the complete antithesis of what GST set out to do. There needs to be only one GST rate, and an exempt list. If you are itching for more rates, just have two. No more.

  Two, the GST rates are too high. There are too many items in the 28 per cent category, and even 18 per cent is too much. Right now, input cost GST reductions are not being passed to consumers, and probably won’t be for a few years to come. Hence, GST rates need to be reduced considerably for the medium term. The government must note that, for many who pay income tax, GST comes out of post-tax income. To gouge people is to upset people. The ideal GST for the moment would be 10 per cent flat for almost all goods, with a higher rate of 15 per cent for some items, if absolutely necessary.

  Three, the ‘pleasure equals more taxes’ attitude h
as to go. To tax air-conditioned venues or readymade garments more as they are luxuries is archaic, obsolete and fake-socialist. After all, people should be free to spend their post-tax income however they want. Should I sweat to deserve a lower GST? Really?

  Four, GST returns are too complex. The government has an ambitious plan of tracking every invoice for every transaction for every business in the country, and matching the GST collected and paid on these every month. While this may be a dream for the tax department, it makes life super-complicated for entrepreneurs, many of whom have never done this their entire lives.

  A simpler method is to go by aggregate cash outflows and inflows of GST, and arrive at a net number on a quarterly basis (unless a business specifically wants monthly refunds). In other words, a businessman says: I paid this amount in GST, and I collected this amount; hence the net amount due to/from the government is this much. That’s it.

  Right now you have three returns a month, every month, with multiple complicated entries that have to be matched with every buyer and seller you did business with. Google the GST F5 form for Singapore, a simple quarterly online form with just fourteen boxes to fill. It can be that simple. (Oh, and Singapore’s GST is 7 per cent flat. Just saying.)

  Finally, just do not hold on to Indian attitudes from the 1960s, which would have us believe that (a) profits are terrible; (b) all businesses are run by crooks who have to be caught red-handed; (c) running businesses is no work, so people can sit around and file returns all day; and (d) tax guys must behave like colonial lagaan collectors, hunting down businessmen who are no better than uncouth thieves.

  There is no reason to disdain or damage Indian businesses. India’s private sector is our lifeblood. Without them, many Indian households would not be able to run. Take your taxes by all means, but in reasonable amounts and in a simple manner. Don’t suffocate Indian enterprise.

  The GST reforms, when fully in place, can truly make India a more competitive player in the business world. Right now, however, it’s a modern reform mixed with old-fashioned attitudes, and the latter risk damaging GST’s reputation. Hope the authorities address this problem, so that they can truly celebrate and raise a toast to GST’s success one day (but don’t forget to pay GST on the toast!).

  The Government Is Bad at Running Hospitals, Let’s Have Modicare Instead

  Relieving excess pressure on the public healthcare system and improving medical insurance coverage could avert tragedies like Gorakhpur in the future

  In one of the most tragic and macabre incidents in recent times, seventy children died in BRD Medical College Hospital in Gorakhpur in a span of two days. The supplier allegedly stopped supplies of liquid oxygen to the hospital, citing multiple unpaid bills. Many theories were floated to explain this mishap. Blame was ascribed to the government, the hospital authorities, and the supplier. Some even said this wasn’t about the oxygen shortage at all. Essentially, everyone involved found someone to blame.

  The children, however, are dead. Their families will have to live with this irreparable loss and immeasurable sorrow all their lives. What makes things worse is the knowledge that this was avoidable. This happened because of one reason—utter mismanagement, the hallmark of a range of government-run services in India. Those who remember the pre-cell phone era will recall the harrowing experience of trying to obtain a landline connection. Government-run hotels and airlines are usually of far poorer quality than their private counterparts.

  In short, when it comes to the Indian government, one thing is clear: it just can’t handle complex services well. When the operations require constant interaction with multiple customers, quick decision-making and certain standards of quality control, the government’s performance is simply terrible.

  Of course, mismanagement at MTNL means you have to wait endlessly for a phone, and at Air India, it would mean your flight gets delayed. But when things are bungled up in a government hospital, you could die—even en masse, as in this case.

  The purpose of this article is not government-bashing; there’s more than enough of that going around. It is to make the government understand and accept its limitations—the fact that it just can’t do complex services. The reason is simple. Most government staff adopt a ‘cover-their-backside’ approach to work. For government employees, there is no incentive for initiative, creativity or improving status quo. In fact, when new ideas go wrong, they suffer for it. Hence, the typical babu’s approach is this: do nothing new. Repeat, until retired.

  This is why nobody at BRD Medical College Hospital in Gorakhpur acted on something as basic as oxygen. Ideally, the oxygen supplier should be on autopay. The hospital should also have an oxygen inventory system. Drops in oxygen stores should trigger a fresh order, with automatic payments. Every government hospital should have a line of credit for pre-approved emergency items.

  These are fairly obvious, implementable remedies for the existing state of affairs. However, who will do this? Nobody suggesting such measures would get a raise, a promotion or any other form of recognition for doing so. However, if for some reason there are hiccups, the individual will be blamed and punished (with a bad transfer, perhaps, or a delayed promotion) by the system. Hence, do nothing.

  A better solution is to change this management style across government entities. Our government officials need to be empowered or incentivised to improve things.

  The government must also take note of its limitations. While it doesn’t do complex services well, it does run fairly decent financial institutions. For instance, LIC is one of India’s top insurers. Money is a simpler product to handle than, say, liquid oxygen and life-saving medicines because routine systems suffice to keep things going. The government could harness it strengths in this area to improve healthcare by taking on a more active role in India’s medical insurance scene, for instance, and be less involved in running hospitals.

  Do note that some of India’s best doctors are in government hospitals. Talent does get attracted to government jobs and often stays on. However, it is the running of the hospitals—cleanliness, supplies, logistics and payments—where the government falters. Get out of that slump. Insure more people. Give them good coverage plans. Hold on to those good doctors. And let more private players run the hospitals.

  Some government initiatives like the Rural Health Insurance Scheme have been modestly successful, but they have not transformed the medical sector. The insurance coverage offered by such schemes is paltry. A new comprehensive medical insurance scheme (and it doesn’t have to be free) that offers Indians good coverage across the private as well as public health network may work better than the present system where the government runs thousands of large hospitals. If there can be Obamacare, why not Modicare?

  One really needs to relieve the excess pressure on the public health system. Speaking of tragedies like Gorakhpur, while some fault lies with poor management, a lot is owing to overstretched healthcare facilities. Whether in terms of better insurance schemes or new hospitals, we do need to spend more on healthcare (a sizeable percentage of the GDP).

  Nothing can lessen the pain of the people who lost their kids. What we can hope for is that lessons are learnt from this horrible incident and our healthcare system is reformed, so that Gorakhpur never, ever happens again.

  Sell Air India for One Rupee: Right Now, It’s a Giant Black Hole Relentlessly Sucking in Taxpayer Money

  Air India will never make enough money to pay off its debts; it’s high time the government sold it to the highest private bidder

  In 2017, the Cabinet gave in-principle approval to sell Air India. It is an oft-repeated idea, but this time the resolve seems to be stronger. The government will really be doing our country a huge favour if it gets rid of this company which is a giant black hole that relentlessly sucks in taxpayer money.

  As an ex-distressed banker, I can say this: some companies can be rescued from the hole they have dug themselves in. Others have dug it so deep, they can never, ever get out. Air India
is in the latter category. There is no point saying, ‘But last time I flew, the service was good.’ It’s irrelevant. The hard truth is this: the company is a dud. Sorry.

  Here’s the math, in the form of an example. Imagine your neighbour has a drinking problem because of which he racks up loans of over ₹5 crore. But instead of earning money and paying his debts, he continues to borrow even more and spends another ₹70 lakhs a year on his addiction. Over the decades, you have rescued him several times. However, he refuses to change. Now the loans are simply too big. Even if he tries his best, he can’t make more than a couple of lakhs a year. Hence, he can never repay his debts.

  To understand Air India, multiply the numbers in the example above by 10,000. It has over ₹50,000 crore of debt and is cash flow negative, reportedly by over ₹7,000 crore a year. The numbers could be worse, as the company hasn’t released recent data, not to mention the fact that the CAG has raised issues about the existing data.

  Even in the best of scenarios, Air India won’t earn enough to repay its debt. So no new buyer can purchase it as-is, with its mountain of debt. There is simply no scope to repay it. Financially speaking, right now, Air India is the worst corporate in the country.

  There’s no point in casting blame. When sins have accumulated over decades, no one person or set of persons is to blame. One does feel bad for the 20,000 plus employees, though, who may even be working hard at running the company from day to day.

  But the black hole is going to remain just that, and the taxpayer is paying for it. Air India’s annual cash flow loss is equal to what Vijay Mallya’s Kingfisher Airlines owes the banks. Air India costs us one Mallya a year, money that can be used to build hundreds of hospitals and schools.