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BS REPORTERNew Delhi, 20 March

The government introduced a Billon Friday in the Lok Sabha withharsh provisions for those stash-

ing abroad unaccounted money. In case,a company has abetted in this crime,every one involved, including the com-pany, would also face these provisions.

The Undisclosed Foreign Income andAssets (Imposition of New Tax) Bill, 2015— black money Bill, in popular parlance— has some safeguards. For instance,failure to report bank accounts with amaximum balance of up to ~5 lakh atany time during a year will not entail apenalty or prosecution. This is aimed atprotecting persons holding foreignaccounts with minor balances whichmight not have been reported out ofoversight or ignorance.

A short window would be provided tothose having illicit money abroad todeclare their assets, says the Bill. A 30 percent tax and as much penalty would beimposed on those availing this windowbut they would not be prosecuted. Itmeans of every ~100 so declared, thegovernment would take ~60.

The government refused to call it anamnesty or a voluntary disclosure ofincome, as a penalty will also beimposed, beside the tax. However, 'nam-ing and shaming' could be done, an offi-cial said, though he added this would bedecided in the course of the debate inParliament.

Revenue secretary Shaktikanta Dassaid, "The new law will not apply to peo-ple against whom the legal process orthe assessment process or the dueprocess has already been initiated by theincome tax (I-T) department. So, wherewe already know about the cases, theywill not be ale to get the benefit of thecompliance window...This is no amnestyscheme."

The Bill seeks to impose a penalty fornon-disclosure of income or of an assetlocated outside India, at three times theamount of tax payable thereon -- that is,90 per cent of the value. This is in addi-tion to tax payable at 30 per cent. Anyexemption and deduction will be disal-lowed and the owner or beneficiary willbe required to file a return even if thereis no taxable income, the Bill says.

Failure to furnish a return in respectof foreign income or assets will attract apenalty of Rs 10 lakh. The same amountof penalty is prescribed for cases wherealthough the assessee has filed a return

of income, he has not disclosed the for-eign income and asset or given inaccu-rate particulars of these.

The punishment for willful attemptto evade tax on a foreign income or anasset located outside India will be rigor-ous imprisonment from three years to 10years.

The Bill also seeks to make non-com-poundable the offence of stashing awayunaccounted money abroad. Offenderswill also not be allowed to approach theSettlement Commission and non-filingof return or filing of return with inade-quate disclosure of foreign assets will beliable for imprisonment up to sevenyears.

In prosecution, the wilful nature ofthe default will be presumed and it willbe for the accused to prove the absenceof a guilty state of mind.

Later, Finance Minister Arun Jaitleytold reporters, "No indian can hold unau-thorised and undisclosed assets orincome outside this country. Those whohold it initially will have to pay taxes,disclose the asset and bring the moneyback to India. If they don't do that, theyare going to be severely prosecutedunder this law."

He hoped the Bill would come fordiscussion in the second half of the ongo-ing session, from April 21.

Even abettors of the above offences— persons, entities, banks and financialinstitutions — will be liable for prosecu-tion and penalty. Abetment or induce-ment of another person to make a falsereturn or a false account or statement ordeclaration will be punishable with rig-orous imprisonment from six months toseven years.

Black money Bill introduced in LS Not an amnesty scheme, govt emphasises; one last chance, subject tohigh penalties, to declare such wealth; then, strict action

NO ESCAPESome of the features of the Undisclosed

Foreign Income and Assets (Imposition

ofNewTax) Bill, 2015

� Failure to report bank accounts with upto ~5 lakh during a year to not entailpenalty or prosecution

� Short window to declare illicit moneyabroad; 30% tax and as much penaltyon those using this window, but noprosecution

� Ifwindowis notused, 30% taxand90% penaltywill be levied on value ofincome ofasset located outside India

� ~10 lakh penaltyon foreign income orassets for failure to furnish returns

� ~10 lakh penaltyon assessee notdisclosing foreign income and asset

� Punishment for will ful attempt to evadetaxon foreign income or assetoutsideIndia to be rigorous imprisonmentof3-10 years

� Non-filing of returns or filing of returnswith inadequate disclosure of foreignassets to attract imprisonmentup to 7 years

ARIJIT PALADHINew Delhi, 20 March

The ambitious plan of NitinGadkari, Union minister forroad transport, highways &shipping, to develop a smartcity around major ports is like-ly to start with Kandla port,where a smart city will come upin a few years time.

The terms of reference(TOR), or project charter, is cur-rently under preparation for theproject, covering Kandla andGandhidham areas. TORimplies laying out the essentialstructure and purpose of a proj-ect and how the goal could beachieved.

“Each major port will con-struct one smart city with anexpenditure of ~3,000-4,000crore,” Gadkari had said earlier.“These will be green smartcities and you will see all thesecomplete in fiveyears.”

There are 12major ports in India- Kandla, Mumbai,Jawaharlal NehruPort Trust,Mormugao,Visakhapatnam,Cochin, Chennai,New Managlore, Ennore,Tuticorin, Paradip and Kolkata- having 260,000 acres of landbetween them.

“There are a lot of techni-calities involved since most ofthese ports are about 50 yearold. The prerequisites of duediligence, hiring consultants,mapping areas etc need be

completedbefore we cantangibly pro-ceed on thisproject. Itwould takeanother cou-ple of yearsbefore theplans are

firmly in place,” said a seniorministry official involved in theproject.

The smart port industrial

cities will be built in line withinternational standards andwill have wide roads, advancedtownships, special economiczones, greenery, etc. The portswill also have internationalbenchmarking, ship-breakingand ship-building centres,besides other ancillary things,the official added. According toanother official, these portcities will involve consumptionof green energy, which will begenerated at the ports.

Mumbai and Paradip portsare also having discussions tobuild smart cities around them.The Mumbai Port Trust hasabout 750 hectares of land, val-ued at ~46,000 crore.

Kandla likely to have first smart port cityTHE CHARACTERISTICS� Each smart city to be

constructed at a cost of~3,000-4,000 crore

� Green energy generation tobe prioritised in these smart cities

� Port water to be recycled,vehicles to be incentivised touse biogas, which will beproduced from waste atthe ports

� Emphasis on SEZs, ship-breaking and ship-buildingcentres, allied port activitiesin these cities

Ayear ago, you could exchange a euro to get ~85; now you will get onlyabout ~67. It’s a similar story with the British pound; a year ago it wasworth ~101; now it is worth ~93. The rupee has also gained over the pastyear against the yen (which was worth 60 paise then, and now fetch-

es only 52 paise). The only major currencies that have gained against the rupeeover the past 12 months are the Chinese yuan (by about one per cent) and the USdollar (by slightly more than two per cent). Against these minor drops in rupeevalue, India’s currency has gained against the euro by about 20 per cent, againstthe pound by about eight per cent, and against the yen by about 13 per cent.

The stronger rupee is great news for those who want to travel to Australiato watch India’s semi-final match in the cricket world cup. You have to pay only~48 to buy an Aussie dollar; a year ago it would have cost you ~55. In other words,the Australian dollar has dropped by about 13 per cent against the rupee. Butwhat about travelers wanting to come to India? This country has become a moreexpensive destination for them — which puts a dampener on the tourismindustry. Exporters have been put at disadvantage too, because the strength ofthe rupee has made India more expensive as a production base for exports, whileimported competition has become cheaper. The country’s current accountdeficit (ie on trade in both goods and services) is still running at about $30 bil-lion and more each year, despite cheaper oil. What is more, the export of goodsis falling instead of rising.

The foreign exchange required to meet this deficit is met through importsof capital — as equity or borrowings. Indeed, Indian companies have been bor-rowing abroad more and more because international interest rates are much low-er than in India, even after you pay the premium to insure against currency risk.Overall foreign currency debt has risen much more than the increase in foreignexchange reserves; so our external vulnerability has increased.

Figuring out these basics requires no great knowledge of economics or the cur-rency market. What is a mystery though is what the Reserve Bank thinks it is doingin the midst of these trends. It has opened the window steadily wider for compa-nies to borrow more overseas; the resulting inflow of dollars has added to theupward pressure on the rupee. Nor has RBI thought it fit to drop its interest ratesin line with falling inflation. Consumer price inflation has dropped over the pastyear from 8.3 per cent to 5.4 per cent. Wholesale price inflation has dropped fromfive per cent a year ago to (-) two per cent — yes, we now have negative inflation.The drop in consumer price inflation is three percentage points, and in wholesaleprice inflation seven percentage points. Through this period, however, the ReserveBank has dropped its main policy rate by just half of one percentage point.

So we have a currency policy that makes it difficult to close the trade gap. Wehave a commercial borrowing policy that encourages more foreign borrowings.And we have an interest rate policy that is way behind the curve, and thereforeencourages companies to borrow abroad rather than borrow in India. At the sametime, India’s banks say that they don’t get enough lending proposals!

Now, RBI has smart economists who know more about these things thanmost people. But sometimes you have to apply the simple tests. As Surjit Bhallalikes to say, if it looks like a duck, quacks like a duck and walks like a duck, thenit is likely to be a duck. Similarly, if a policy looks, sounds and smells wrong, thenyou need to check your premise and give the thing a fresh look.

WEEKEND RUMINATIONST N NINAN

What’s RBI smoking?

Volume II Number 31

MUMBAI | 21 MARCH 2015

Recently the Pope declaredthat we are already in themidst of a “piecemeal World

War III”. Given that the UnitedStates remained the sole superpow-er after the implosion of the Sovietimperium in 1991, how has thiscome to pass?

The two former Communistimperial behemoths – China andRussia – are again challengingWestern hegemony, including its val-ues. The Middle East continues tobe in turmoil, with the jihadi ISISthreatening to repeat the feats of the ProphetMohammed and his successors in creating a neworder in the region through a lightning military cam-paign — eventually conquering Mesopotamia, andestablishing a medieval Salafi Caliphate enforcingSharia law. Iran is seeking to establish its own Shiahegemony from Tehran to Beirut, and the Af-Pakbadlands continue to be in turmoil.

The origins of this increasing disorder lie in partin the Great Recession of 2008 in the US, which hastarnished the purportedly free market-based capi-talism of the West. An alternative authoritarian cap-italism promoted by China and Russia is beingclaimed as more likely to deliver faster growth, as wit-nessed by the rising share of these countries in glob-al gross domestic product (GDP) since the econom-ic crisis of the West. In previous columns, I havediscussed the validity of these claims and foundthem wanting.

It is the serious mistakes in maintaining the US’srole as the sole superpower under both the youngerMr Bush and Mr Obama which are largely to blamefor the growing world disorder.

In both Iraq and Afghanistan, the initial militarycampaigns were resoundingly successful, andshowed how with the revolution in military affairs

the US is an unmatched military pow-er. But serious mistakes were madein maintaining and securing thepeace. The resultant insurgenciesrequired further expenditure of menand matériel to quell them. This hasdrastically reduced domestic supportin the US for muscular military action.

In Iraq, after the counter-insur-gency was quelled, much against thedire predictions of the time, relative-ly free elections have been held, andafter a hiatus a multiethnic govern-ment was formed. But with Mr

Obama’s haste in withdrawing all US troops, withoutan agreement (as planned by the Bush administra-tion) to leave a residual force which could have act-ed as guarantor of a multiethnic state, Iraq has againdescended into a civil war. This. with the ongoing onein Syria, threatens to create a Shia-versus-Sunni waracross the Middle East, foretelling another battle ofKarbala. Meanwhile, taking advantage of the Syriancivil war and the military vacuum left in Iraq, thejihadist ISIS has secured vast swathes of territory innorthern Syria and large parts of Sunni Iraq to createits Islamic State.

In Afghanistan, after the surge in US troops in 2010,the Taliban had lost almost all its principal havens insouthern Afghanistan; its ability to acquire, transportand use improvised explosive devices had been dis-rupted; and the ISAF was receiving the support oflocal populations in the fight against the Taliban. In2011, “the momentum of the insurgency in the southhas unquestionably been arrested and probablyreversed” wrote Frederick W Kagan and KimberlyKagan (Defining Success in Afghanistan, AmericanEnterprise Institute). But Mr Obama made the mostheinous mistake in dithering about the Afghan war inhis West Point speech, authorising a troop surge, butstating all the troops would be out by 2012.

Though he has since backtracked, the lesson USadversaries have learnt was articulated by HamidGul, the notorious former head of Pakistan’s ISI, whosaid this “makes clear that the Taliban areAfghanistan’s future, and the Americans are its past”(www.memri.og, Special Dispatch 2895). It is this per-ception which has given heart to the Pakistan armyin its Af-Pak strategy of asymmetric warfare againstIndia, and clandestinely against the Afghan govern-ment. With Mr Obama’s commitment to withdrawmost US troops by 2016, Mr Gul’s prediction is aboutto come true.

For, despite the seemingly difficult hand dealthim by the financial crisis, Mr Obama has com-pounded its seeming weakness in dealing with itssuperpower role through various missteps whichhave led to the impression of the US as a decliningsuperpower. Mr Obama seems to have blinked sooften in his time in office that it has worried friendsand bolstered US rivals. (See James Mann, TheObamians, and Vali Nasr, The Dispensable Nation).

Why has this happened? A perceptive essay byJames Traub (‘When did Obama give up?’ foreign-policy.com/2015/02/26) provides some answers. MrObama has a rare gift of speech which, as he notesin his Dreams From My Father, he discovered whenas an undergraduate he was asked to give a two-minute speech against the South African apartheidregime at Occidental College in Los Angeles, and allthe people playing Frisbee on the lawn stopped tolisten. “I noticed,” he writes “that people had begunto listen to my opinions. It was a discovery thatmade me hungry for words. Not words to hidebehind but words that could carry a message, sup-port an idea.” (p 105)

In his first term, Mr Obama gave many foreignpolicy speeches, based on idealism, to “choose”, as hesaid, “to work for the world as it should be”. He andhis advisors believed that “the great issues con-fronting the United States were not traditional state-to-state questions, but new ones that sought toadvance global goods and required global coopera-tion”, and he saw himself, as he explained to MrTraub, with “a grandmother living in a hut on LakeVictoria and a sister who’s half-Indonesian, marriedto a Chinese-Canadian”, as destined to provide theleadership “needed to enlist the support of citizensas well as leaders”.

He offered a new American narrative to audi-ences around the world in 2009 — including inMoscow, where Vladimir Putin must have laughed uphis sleeve when he heard Mr Obama say “The pursuitof power is no longer a zero-sum game”. But “to thisday,” Mr Traub says, “his world view is assessed onthe single question of when and where he is pre-pared to use force”.

Increasingly in his second term, this idealistpresident has been mugged by reality. He is now,says Mr Traub, “becalmed before a listless andsurly public, an openly hostile and increasinglyisolationist Congress, and a disintegrating order inthe Middle East”. The bright young man, whoseface has become sallow, and hair turned to grey,who offered hope and change increasingly appearsto be broken. “Obama’s trajectory is that of a gift-ed orator who learned over time that he had put toomuch store in speech itself.” But, the world is leftwith the disorder that his reliance on rhetoric,rather than the robust action expected of a super-power has provoked.

Reality mugs rhetoricThe world is left with the disorder that Mr Obama’s reliance on rhetoricrather than the robust action expected of a superpower has provoked

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