There is something Bollywoodesque in the way some economic policies are being praised or damned in India. Either way, it seems quiet, methodical action is not celebrated as much as the bells and whistles of televised speeches and pithy quotes on prime-time.
There is strong ground to believe that the demonetisation drive launched by Prime Minister Narendra Modi on 8 November has at best yielded mixed results -- with the GDP growth taking a knock, labourers going without cash wages and time wasted in an exercise whose gains are not unambiguously justifying the pains. However, the NDA government and its chosen apostles are happy to claim victory and sing praises to a stunted march towards a cashless society.
Strangely enough, the government deserves significant praise in its war on black money elsewhere -- and there are not enough pats on the back for the moves that have undone years of brazen tax evasion through very legal mechanisms called tax treaties.
Finance Minister Arun Jaitley rang out 2016 by sealing a double taxation avoidance agreement with Singapore, having already done that with two other island nations, Mauritius and Cyprus, that in effect were tax havens for round-tripping Indian money.
India's history of bilateral investment treaties (about 83 of them signed since 1994) have been chequered, with some resulting in tax disputes such as the one involving Vodafone. Many of these have put India on the defensive -- and were perhaps justified in the 1990s when India had to bend backwards to attract foreign direct investment (FDI). In effect, such pacts amounted to soft-blackmailing India.
The simple fact is that the Modi government has tried to shift the balance of power in bilateral investment treaties towards Indian soverignty with a model bilateral agreement that serves as a template. Maybe it has overreached itself in the process -- just as it seems to have done on the demonetisation front -- but it is a step in the right direction.
However, amended tax treaties with Singapore, Mauritius and Cyprus are undoubted milestones as these islands were almost noble centres for money-laundering. Talk of Swiss bank accounts that stash ill-gotten wealth is romantic in a James Bond-style narrative, but many analysts agree that Indian black money had come back to India via these islands long before the Modi government came to power, thanks to round-tripping.
There are still lingering doubts on an agreement with the Netherlands. Commerce Minister Nirmala Sitharaman is pushing ahead with a move to go without bilateral agreements with some European Union nations. Plugging the loopholes in island tax havens and removing any bias against India in bilateral pacts involving other nations are both laudable measures that have gone largely unnoticed in the media din over demonetisation.
The modified treaties with Cyprus, Mauritius and Singapore give India the right to tax capital gains. This right had been given up for long to facilitate shell companies hiding under business confidentiality respectably bring tax-evaded money back to India.
Such money has been parked in real estate or gold or often reinvested in Indian companies in a local market where all one has to do is to hold on to a share for a year to avoid capital gains tax.
News this week that demonetisation has resulted in home sales dipping to a six-year-low with a 44 percent fall in sales volume year-on-year in the fourth quarter of 2016 tells only part of the story. The fact is that despite interest rate increases that took place between 2013 and 2015 India's real estate prices rose steadily between 2011 and 2015 as RBI data shows. Please note these were years that India saw a slump in GDP growth in the wake of the global financial crisis that broke out in 2008.
Clearly, real estate prices were fanned by round-tripping of Indian money back into the shores. What the NDA government has done is to correct some vital imbalances in the economy. But these are quiet achievements. If you are looking for a Bollywood fight scene, you will find them on prime-time news banters. For real action, look elsewhere.
(The author is a senior journalist. He tweets as @madversity)
Published Date: Jan 11, 2017 15:01 PM | Updated Date: Jan 11, 2017 15:26 PM