Dear Mr. Jaitley
When you are in the opposition everything lofty sounds like a great objective for the government to achieve. Impossible is possible as long as someone else has to do it. But when in government, you need to deliver more than moral grandstanding.
Your inconsistencies while in opposition are now starting to pinch. You assumed that your rants of that period could be the basis of economic strategy when in government. That was a magnificent error of judgment for which the country is now paying a price.
Here’s what you forgot.
Mukesh Ambani has the money but not the looks. Anil has better looks but little money and lots of debt. Salman has money and looks but can’t find a wife. In life, nothing is perfect; there are always trade-offs.
Remember bribes used to be called speed money once. Because they were the antidote to the paralysis inherent in babudom. The thinking was that if a few crores could get a project worth hundreds of crores going and thereby provide jobs to thousands it was worth it to blink your eyes. Ethically wrong, morally borderline and yet desirable in its own way.
Black money is real money too. Just that a part of it has not been shared with the government, which may well have squandered it by the way. When invested, black money also creates jobs and feeds families. In fact, if smartly invested, it can actually pay back the government back much more in taxes than the amount evaded.
Let us take an example of an industry I am familiar with.
Much of the cost of film production can be incurred in cash and the returns, when they come, are accounted for. That’s classic money laundering for you. If the film is successful at the box office, the government may recover many times the tax it had initially lost by way of entertainment, service and income taxes. Even if the film flops, there is still satisfaction that unaccounted money did not stay stashed in a locker but was used to pay some salaries and run homes. The process is similar for many other industries as well including of course real estate which is the biggest industry by far.
Your government’s long-term strategy announced last year was great. But skills development, infrastructure building and digital, defense and general manufacture all have long gestation periods. And to make matters worse, all are dependent on myriad approvals and clearances from the central and state clearances. The benefits of those initiatives will come by the end of the current term of the government. So far so good.
The problem was for the immediate and short-term. In fact your government took over after over a year of complete paralysis and growth rates steadily dropping. The country needed short-term fixing too. Many of us were surprised to see you present a budget with no immediate stimulus.
In fact, instead of fixing the problem, you did the opposite. No matter how morally desirable it may have been, by blocking the flow of unaccounted wealth into productive use you ended up putting your foot on the brake. You chose to fight a war with at least one arm tied. What you did was not wrong but it was not enough.
Unsurprisingly a year later we can see the results.
The failure to anticipate this crisis was entirely yours. Enough people would have warned you that without an integrated approach you would reach exactly where you were headed. And you did. You cannot block money flow and still expect high growth. Your facile assumption that governments in the past were not clamping down on money-laundering for private reasons was absurd. They were smart enough to understand the dynamics of money flow.
That was not all.
Real estate, ugly and disorganized as it may be, is the bell-weather sector of any economy as inevitably it attracts by far the largest private investment of both the aam and khaas aadmi. Keep the money flowing and you see growth. Block the flow of money and you block growth. Because of your inability to scope the problem you actually made it a triple and not just a double whammy. Here’s how.
Just as you blocked flows at the supply side so also at the demand side. Considering that most property currently in the market has been bought in up to 50% (sometimes even higher) cash deals, the combination of high
Capital Gains Tax and Circle Rates made selling only a last-ditch desperate proposition. The paralysis in the market place has blocked money flow. Again affecting further investment.
No matter how much you fiddle around with this and that, unless you can start the flow of money again, you will not manage to guide the economy into the pink of health. What should you do? Reduce or completely do away with Capital Gains Tax. There is no rationale for it anyway except government pernicious greed. Let people dispose of or buy property without the government being a dalal in between.
Allow the flow of money and let the economy bloom.