Tax terrorism eroded confidence of Indian businesses: Manmohan Singh
| 08 Nov 2017
| Onkareshwar Pandey, Editor In Chief, NOP

Tax terrorism eroded confidence of Indian businesses: Manmohan Singh

Full speech of Dr. Manmohan Singh, at, Ahmedabad on Nov.7, 2017

New Observer Post
Ahemdabad (Gujarat) [India] November 7, 2017
Former prime minister Manmohan Singh on Tuesday cornered the Centre over its economic policies and asserted that the fear of tax terrorism has eroded the confidence of Indian businesses.

Critical of the Goods and Services Tax, Dr. Singh said the tax reform broken the back of small businesses, ANI reported.

"The fear of tax terrorism has eroded the confidence of Indian business to invest. This twin (demonetisation and GST) blow is complete disaster for our economy, it has broken the back of our small businesses," Dr. Singh said.

Cornering the government over increase in imports from China, Dr. Singh said because of the weak economic policies of Prime Minister Narendra Modi and his government, New Delhi had to run for Chinese imports at the cost of Indian jobs.

"We had to run for Chinese imports at the cost of Indian jobs. In the first half of 2016-17, India's imports from China stood at Rs 1. 96 lakh crore. In 2017-18, it increased to Rs.2.41 lakh," he said.

"Unprecedented growth of imports by over Rs 45,000 crore, a 23 percent increase in a year, can be attributed largely to demonetisation, GST. When undertaking endeavour of one nation one tax, if the Prime Minister had taken inspiration from resolve of the great Sardar Patel, the outcome would've been different," he added.

Here is the full speech of Dr. Manmohan Singh, Former Prime Minister at Sardar Vallabhbhai Patel Samarak Auditorium, Ahmedabad on 7 November, 2017

I am happy to be back in Gujarat, which has produced India’s most extraordinary sons, Mahatma Gandhi and Sardar Vallabhbhai Patel. I am also happy to be amongst you, who are renowned all over the world for your business and enterprise. I am also happy to be in the state where one of my daughters obtained her degree, at IRMA in Anand.

But I must state that I also speak with a heavy heart. I start my address by invoking the memory of more than a hundred people who lost their lives last year due to demonetisation.

Tomorrow will mark exactly one year since the disastrous policy of demonetisation was thrust on the people of India. I say it with immense pain and a sense of deep responsibility, that the 8th of November was a ‘Black Day’ for our economy, and indeed our democracy. I remember feeling shocked when I heard the Prime Minister’s announcement, and I wondered who advised him to inflict such a reckless step on our nation, and whether any considered thought went into it.

My dear friends and fellow countrymen, black money and tax evasion are a menace that the country needs to tackle, but demonetisation was clearly not the solution. It has been suggested many times in the past as one of the methods to eradicate black money. But as a responsible government, we never took such a drastic measure because in our reasoned analysis, the costs of demonetisation always exceeded the benefits substantially.

One must also remember that nowhere in the world has any democracy undertaken such a coercive move, withdrawing 86% of legal tender in one single swoop. Neither would anyone advise to bring out an even more high-value currency note of rupees 2000 after invalidating 500 and 1000 rupee notes.

We know by now that none of the stated objectives of eliminating black money, terror financing and counterfeit currency have been met. To promote a less-cash economy, coercive steps like demonetisation are ineffective. The Cash in Circulation after one year is close to 90% of previous levels. The fact that more than 99% of the demonetised currency came back into the banking system, has punctured the government’s claims. There are also widespread reports of the rich converting their black money into white while the poor suffered.

Demonetisation has proved to be mere bluster to reap political dividends while the real offenders have escaped. I repeat, this was organised loot and legalised plunder.

We saw the impact of demonetisation on the economy when the GDP growth rate dropped to 5.7% under the new calculations. Even this is bound to be a gross underestimate as the pain of the informal sector is not adequately captured in the GDP calculation. Every one percent loss of GDP annually costs our nation 1.5 lakh crore rupees. Think of the human impact from this lost growth -- the lost jobs, the youth whose opportunities have vanished, the businesses who had to shut down and the entrepreneurs whose drive to succeed has turned into discouraged disappointment.

What is even more tragic is none of the lessons from this monumental blunder have been learnt by the government. Instead of providing relief, as I had requested in Parliament, to the poor and marginalised, farmers, traders, and the small and medium businesses, who suffered the brunt of demonetisation, the government chose to inflict on them a badly designed and hastily implemented GST.

This twin blow is a complete disaster for our economy. It has broken the back of small and medium businesses in India. In the textile hub of Surat alone, 60,000 looms have been discarded since July. At a rate of 35 jobs lost for every 100 looms shut, an estimate of 21,000 jobs have been lost in just one industry sector in Surat. The impact in the rest of the country is equally bad if not worse. The supply chains and credit lines of our MSME sector and industrial clusters have been greatly affected, hampering production. You are aware of the damage done to the ceramics sector in Morbi and the industries in Vapi and Rajkot. Overall, as our domestic sector is not able to cope with demand, China is benefiting from this situation.

In the first half of FY 2016-17, India’s imports from China stood at Rs. 1.96 lakh crore. During the same period in FY 2017-18, the imports from China increased to Rs. 2.41 lakh crore. This unprecedented increase of imports by more than Rs. 45,000 crore, which is a 23% increase in a year, can be attributed largely to demonetisation and GST. These twin blows damaged India’s MSME sector and our businesses had to turn to Chinese imports at the cost of Indian jobs.
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The Good and Services Tax, as envisioned by our UPA government, was supposed to simplify taxation in the country with a single tax, capped at 18%, to make life easier for businesses, both big and small. The current GST is a great departure from that vision. It has transformed into a complicated mess, with multiple slabs, and rates as high as 28%, along with additional cesses. This was done by the government without paying any heed to our advice, both in Parliament and in private consultations.Compliance requirements have become a nightmare for small businesses. The unending notifications and changes, a repeat of the chaos of demonetisation, have caused needless confusion.

Along with demonetisation, GST has sown a deep-rooted fear of tax terrorism among the business community. At a time when the economy has slowed down considerably, despite favourable global macroeconomic conditions, the fear of tax terrorism has eroded the confidence of businesses to invest. As you know, the growth in private investment is at a 25 year low. This is terrible for India’s economy

My dear friends, good governance involves both the head and the heart. It pains me to say that the Union government has completely failed to do its duty on both fronts. Let me explain through the example of two of the greatest Gujaratis the world has seen.

The Mahatma, who represents the heart and soul of our nation gave us a talisman. He said: “Whenever you are in doubt, apply the following test. Recall the face of the poorest and the weakest man [woman] whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him [her]. Will he [she] gain anything by it? Will it restore him [her] to a control over his [her] own life and destiny? In other words, will it lead to swaraj [freedom] for the hungry and spiritually starving millions?”

Did the Prime Minister stop to consider the wisdom of the Mahatma when asking the RBI Governor to sign on the dotted line or while implementing GST in haste? Did he think about the impact on those who toil in the informal sector whose earnings dried up because of a shortage of cash? Did he think about the millions of people who lost jobs and had to return to their villages in despair? If the Prime Minister had paid attention to Mahatma Gandhi’s talisman, the poor of India would not have suffered the way they did.

You know that I have seen crippling poverty while growing up in other side of Punjab before partition. I have also seen the significant strides our great nation has taken in my lifetime, building on the foundations laid by Congress governments from Pandit Nehru, to Shastriji to Indiraji, Rajivji and Narasimha Raoji.. I can proudly say that when I was Prime Minister we lifted 140 million people out of poverty, a task no other democracy in the world has achieved. Yet 1 in 2 Indians remain vulnerable and one blow can make them fall back into poverty. Demonetisation and GST were two blows that have probably pushed millions back into terrible hardship. So they had to turn to the social safety net provided by the MGNREGA, brought in by the UPA.

The other great Gujarati who is an inspiration to us is Sardar Vallabhbhai Patel. He was the force behind uniting India, from 565 disparate princely states to one glorious nation. When undertaking the endeavour of ‘One Nation, One Tax’, if the Prime Minister had taken inspiration from the resolve and attention to detail of Sardar Patel, the outcome today would have been very different. Bravado and drama are poor substitutes for courage with conviction and the ability to execute well.

When we passed the Nuclear Deal in UPA-1, the intelligence and idealism of Pandit Nehru, Sardar Patel and Indira-ji were our guiding lights in our endeavour to end the nuclear apartheid of India, and ensure energy security for all Indians. We stood strong by our principles and even risked our government while the BJP opposed us. We got the world to change the rules of the nuclear regime in our favour. Which is why the people of India supported us fully on the issue of the Nuclear Deal. Today, one year after demonetisation, large sections of the country feel they have been taken for a ride by their government. That their trust was betrayed.

Another example of the failure of both head and heart, is right here in Amdavad. The bullet train project launched with much fanfare is sadly an exercise in vanity and will not benefit either 6.5 crore Gujaratis or the nation. Rs. 88,000 crores through a ‘soft loan’ may seem like easy money, but it still needs to be repaid to the Japanese. Gujarati entrepreneurs know very well that, if a deal is too good to be true, it probably isn’t.

The bullet train project requires the creation of a parallel infrastructure while our existing passenger rail network is languishing and needs a dire infusion of funds to improve both safety and speed. The past year has seen the highest number of deaths due to derailments in more than a decade, but the government’s priorities are misplaced. Did the Prime Minister consider the alternative of introducing High Speed Rail across India, by upgrading the existing broad gauge infrastructure? The UPA had requested the Japanese to fund the dedicated freight corridor instead, and we signed the deal in 2005. This project will create a multiplier effect on the economy, with upgradation of transportation technology, increase in productivity and reduction in unit transportation cost.

My friends, questions must be asked again and again on the soundness of policy and the lack of transparency in the government. It saddens me to see that every important issue that affects the lives of crores of citizens is being turned into binaries of black and white. The Congress party has built India into a global economic powerhouse over the past 70 years. We want to ensure that the national interest is upheld and that the weaker sections of the society are protected. By questioning the bullet train, does one become anti-development? Is everyone who questions the outcome of demonetisation or GST, a tax-evader? Does questioning the drop in GDP rate make one an anti-national? This attitude of suspecting everyone to be a thief or an anti-national, the low-level rhetoric is damaging to democratic discourse and has real consequences for how we relate to one another as citizens. Political leaders must stick to the high road.

Every government builds on the foundations of the past and benefits from the efforts of the centre. Pandit Nehru laid the foundation of the Sardar Sarovar Dam and various Congress governments took it forward. Water poured into the Narmada Main Canal the year our Prime Minister first became Chief Minister of Gujarat. I also remember that when the World Bank cut funding for the project, as Finance Minister of India, I stepped forward to provide the funding from the Centre.

As we think of the benefits to farmers from the Sardar Sarovar project, we must also address their concerns about land acquisition. It was the Congress party that ushered in a historic change in the form of the landmark Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013, undoing a 123 year old imbalance and injustice to the farmers. The objective was to ensure a “humane, participative, informed and transparent process” resulting in least disturbance to the owners and making the affected persons partners in development. This was inclusive growth, with both head and heart in the right place.

However barely a year after coming into power, the NDA governmentsought to amend the law to take away the need for Social Impact Assessment studies, rights to consent and rehabilitation/resettlement and other necessary safeguards such as public hearings of those affected. While the Congress, under the leadership of Sonai-ji and Rahul-ji prevented this from happening, the Gujarat state government and other BJP governments have amended the Law at the state level, undermining the spirit of the national law. Is it any wonder that our farmer brothers continue to protest for justice in these states?

Our farmers are also suffering from extended agrarian distress, along with the impact of demonetisation and depressed rural spending. The decline in real wages is apparent, while the BJP’s poll promise of increasing the Minimum Support Price has been betrayed. The loan waivers announced in a few states have only paid lip service to farmers’s concerns.

Similarly, our Adivasi brothers and sisters are hurting. The Gujarat government has been the worst performer in settling claims and distributing title deeds to adivasis and other forest dwellers as per the historic Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act passed by the UPA in 2008. While across India, deeds have been disposed of at a rate of 87%, in Gujarat the figure stands a poor 44%. Moreover, the Gujarat government has taken a very controversial decision to ease norms for selling forest land to industries. The bottom four districts in human development in Gujarat are the Adivasi districts of Dahod, Dangs, Panchmahal, Banaskantha.

On every social indicator, from Infant Mortality Rate, Maternal Mortality Rate, to female literacy, Gujarat has fallen behind the best performing states in the country, including Himachal, Karnataka, Kerala and Tamil Nadu. The abdication of the Gujarat state of public education has led to rampant privatisation and decreasing quality of education. This in turn is affecting the competitiveness of otherwise sharp Gujarati youth in the job market.

The recent agitations of the youth cutting across different sections of the society, is an indication of the deep dissatisfaction with the performance of successive BJP governments in Gujarat. The winds of change are blowing in Gujarat. The Congress party will ensure that the voice of every Gujarati regardless of caste, creed, gender or class will be heard. Our Congress government will govern with both head and heart, with Sardar Patel and Mahatma Gandhi as our inspirations.

After decades, the time has come for the intelligence and enterprising people of Gujarat to once again repose their faith in the Congress Party, which will work together with 6.5 crore Gujaratis, to take the state to new heights and the future it deserves. Jai Hind! Jai Gujarat!




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