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LESSONS FROM MIZORAM PROFILE
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Need for a pincer attack on black money The subject of black money generates much public debate even though it is little understood. The various elements that contribute to this economic crime remain shrouded in mystery. These include the factors that drive the generation of undisclosed assets, the macro-economic scenario of the past that provided an incentive to engage in illegal commercial/ industrial activities enhancing the corpus of illegal funds and the fiscal structure that creates domestic black money with illicit foreign assets in opaque investment banks/ tax havens.
At the lay level there is strong outrage at what is considered to be against general public interest, but public discourse is largely emotive and rhetorical. Here my attempt is to demystify the phenomenon. What is the scale of black money and why has it become important to the ordinary citizen? Because funds are of a clandestine nature, there is no accurate estimate of its magnitude. Estimates had been made in the past, but these were based on many broad assumptions. The last estimate of black money generated, made by the Indira Gandhi Institute of Development, gave a figure of 20 per cent of the GDP in 1999-2000. Many experts consider this a gross under-estimate. Still, it is evident that the magnitude of black money is gigantic. Twenty per cent of the current GDP would be more than the annual budget of the country. No serious estimate of this black economy has yielded an estimate that is not huge. Therefore, we must accept this scale as a huge parallel economy. How does this illegal black economy impact the economy, and ultimately on an individual citizen? The situation — in which the quantum of black money generated in a year (which is pumped back into the economy) exceeds the resources injected into the economy by the central government through its budget — is a disturbing one. The government designs its budget consistent with its socio-economic vision. If the volume of black money injected into the economy is more than the budget, quite clearly public policy will be overwhelmed by the priorities of black money. Black money generally originates from heinous activities – arms running, narcotic trade, purchase of influence in the political domain, etc. — where the social cost is infinitely more than any loss of tax revenue. Therefore, the parallel economy tends to mutilate the structure of the legit economy. As the clout of the parallel economy increases, it tends to capture political power and disable legitimate public policy, eventually threatening the integrity and sovereignty of the State.
The black money economy is primed by the underlying macro-economic factors. In the early days of Independence the prevailing resource constraints necessitated a high tax regime, which increased the propensity in the business/corporate class to carry out much of its activities off the formal account books. With reduced tax rates in the post-reforms period, one would have expected a reduced propensity for off-the-book transactions. However, the business/corporate class seems to have got habituated to the evasion of direct taxes, and the generation of black money does not appear to have declined in recent years. One economic policy instrument that significantly aggravated the disease of black money was the exemption granted from direct taxes to units located in special export enclaves, and to 100 per cent export-oriented units. It is widely believed that this concession resulted in large-scale “round-tripping” of black money over the last two decades. Exporters in these categories wishing to launder their black money used the modus operandi of hugely over-invoicing their exports. In the first instance, the party transferred its domestic black money to foreign accounts in tax havens using the hawala route. The over-invoiced export earnings were then partly funded from illegal assets held by the exporter abroad. The over-invoiced earnings, once remitted to the country, were exempt from direct tax and also served as laundered assets to the entrepreneur. Support for this hypothesis is provided by the evidence that over the entire reforms period the premium rate for hawala transactions continued to rule high; the normal expectation was that this should have slumped with the decrease of the direct tax rates. This modus operandi provided a fool-proof way of laundering domestic black money. There is good reason to believe that a large part of the extraordinary export earnings in the post-reforms period were ramped up by exporters laundering their domestic black money. Global Financial Integrity, a highly regarded international research NGO, has estimated that in 2006 the outflow of black money from India was $44.6 billion. The facility of laundering black money, and recycling it at will has given domestic black money tremendous muscle in the economy.
It is self-evident that the increasing shadow of black money over the domestic economy is the result of the failure of the economic law enforcement agencies. The direct taxes have to be collected by the Income Tax Department. The efficiency of the department will determine the supply-side of the black money circuit. The lower-than-expected collection in direct taxes reflects the fact that the tax administration has not been able to capture all the tax due – partly because of evasion and partly because of the abuse of the exemption afforded to export earnings. It is useful to examine the issue of black money looking at the ambient environment for the enforcement of economic laws. The truth of the matter is that, in the post-reforms period, the enforcement of economic laws has not been a priority of governance in the country. The approach of the State has been to handle the business/corporate sector with kid gloves. The persistent signal to the law enforcement agencies has been that nothing by way of enforcement should impede growth. The economic law enforcement agencies have not been encouraged or held accountable for rigorous enforcement of the law. In fact, it can be said that they have merely been suffered. This observation would be true not only for the I-T Department, but also for the agencies enforcing the laws relating to economic crimes – Central Bureau of Investigation, Directorate of Enforcement, Directorate of Revenue Intelligence, Reserve Bank of India etc. Such devaluation of the responsibility of economic law enforcement has not merely harmed certain sectors of the economy, but has more generally created a dismissive contempt of the rule of law amongst the citizenry.
In the context of black money problem, the experience of the Directorate of Enforcement is of illustrative value. In 1999 the stringent Foreign Exchange Regulation Act was replaced by a diluted Foreign Exchange Management Act. In the same period a new and stringent Prevention of Money Laundering Act was passed. However, the PMLA was only applicable to foreign exchange transactions involved in certain heinous crimes such as drug trafficking, arms running, etc. This differential in the degree of stringency of the two laws — FEMA and PMLA — is based on a misconception of approach. Black money in the global economy constitutes one large universe of illegal resources. From that corpus, some may go into heinous crime, while some other portion may go into non-criminal activity. At any point of time the owners of the resources would be trying to maximise their returns. The various uses of black money are freely interchangeable between various activities. Thus, the strategy of attempting to effectively control heinous crime with stringent powers, while handling the other foreign exchange infractions with a lighter touch is unworkable. The above conclusion is particularly pertinent when one analyses to what extent the provisions under FEMA have been diluted. Historically, laws covering serious economic crimes (FERA, NDPSA, COFEPOSA, etc) have had more stringent provisions than the general criminal law. Such stringent provisions include the power to arrest at a relatively lower level, the power to summon, search and seize, and the onus of proof is imposed on the accused to prove his innocence in reversal of the normal principle of jurisprudence; stringent penalties; etc. These powers have been removed from FEMA. Thus, for pure foreign exchange infractions, the Enforcement Directorate has been rendered entirely toothless. If the country is to tackle the menace of black money, the artificial distinction between foreign exchange involved in heinous crimes and the ordinary foreign exchange infractions would have to be removed. The nature of the criminal circuit is such that it can only be tackled if all types of foreign exchange infractions are brought under the purview of a single stringent law. Black money has both domestic and foreign dimensions. The foreign leg of the black money transactions is very difficult to investigate. Some countries/tax havens have made it their area of financial specialisation to offer secrecy to their banking clients. There are some 70 tax havens over the globe, of which Switzerland is the best known. Their iron-clad secrecy laws/practices enables them to obtain deposits of high net worth individuals who demand inviolable secrecy. The tax havens, by offering such iron-clad secrecy, are able to get deposits on low interest terms. The rationale they offer for their secrecy laws is that individual clients are entitled to their right to privacy. This ethical position is hypocritical – these banking entities find it justifiable to rake in huge profits by denying cooperation to countries in which these funds are suspected of fiscal crimes. These tax havens do not recognise the concept of a fiscal crime – fiscal violations, for them, are mere civil irregularities. They refuse to offer cooperation for fiscal crimes recognised in most countries; it is only in the rare case, where the offence is a crime in our country, and also in the tax haven, that cooperation may be offered. Such a self-serving basis of cooperation is not an appropriate premise for international relations. Though India has been at the receiving end of such one-sided arrangements over ages, our position, in future, need not be so weak. Amongst the emerging economies, India and China are the two most notable ones. The banking giants of the developed world are most anxious to establish a foot-hold in India at the earliest. For India the non-cooperation of foreign banking companies in the investigation of fiscal crimes is of the highest sensitivity. India, while negotiating with foreign banks to set up units in the country, should make cooperation without demur, in the investigation of domestic fiscal crimes, an irreducible condition for the grant of banking permission. This can hardly be considered an unreasonable demand. India should not agree to enter into banking/tax information assistance agreements with foreign countries if they do not agree to full cooperation in all fiscal investigations. The integration of the global banking system can only be conceptually justified if cooperation across the world is readily available for enforcing fiscal and banking laws in all countries. Most importantly, the resolute commitment of the political/bureaucratic will to the pursuit of probity in public life is needed. All the instruments have to be used to converge in a pincer attack to bring the economic Frankenstein of black money under control. The writer is a former Union Revenue Secretary and former Director of Enforcement Directorate
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LESSONS FROM MIZORAM AN anniversary has come and gone, unremembered even by those who are professionally concerned. The reference is to the Mizo insurgency that scorched the Mizo Hills 25 years ago. This area was then a district of the undivided Assam state, and was in the throes of an insurgency mounted by the Mizoram National Front (MNF) led by Laldenga. It began in 1966 and ended with the historic Mizo Accord signed on 30 June 1986. It is not realised, incidentally, that insurgency is the most common form of warfare in history. According to the ‘Correlates of War’ Project, there were 464 conflicts between 1816 and the end of the twentieth century. Of these, only 79 (17 %) were conventional wars between the armed forces of nation-states; the remaining 385 (83 %) are designated as civil wars or insurgencies. It would be useful to define insurgency and counter-insurgency. According to the military field manual of the United States, “insurgency” is “an organised movement aimed at the overthrow of a constituted government through the use of subversion and armed conflict.” The manual describes “counter-insurgency” as the “military, paramilitary, political, economic, psychological and civic actions taken by a government to defeat insurgency.”
The beginning These general precepts provide the backdrop for discussing how the insurgency in Mizoram began and how it ended. Its origins lie in the Mizo Union, a regional party, which defeated the Congress Party in the first elections to the District Council in 1952. The unwillingness of the Congress to let the Mizo Union function by starving it of funds bred huge resentment that kept simmering. But the immediate origins of this insurgency have been traced back to the mautam that afflicted Mizoram in 1959-60. It was triggered by a massive flowering of the bamboo forests, which led to the population of rats increasing rapidly, and their eating up available food supplies. The resulting famine in Mizoram was badly handled by the inefficient local administration, adding to existing resentment against the Indian state. It was countered politically by Guwahati encouraging Laldenga, then a junior civil servant, to form the ‘Mizo Famine Front’ to weaken the Mizo Union. He converted it later into the Mizo National Front (MNF). Even later, Laldenga turned against his manipulators and declared the independence of Mizoram in 1966. He was even able to briefly establish his authority over the Mizo Hills. New Delhi deployed the Indian army in Mizoram, which led to the MNF and Laldenga being driven out and taking refuge in the Chittagong Hill Tracts, from where he inspired and encouraged the Mizo insurgency with active support from Pakistan till 1971. The emergence of Bangladesh did not bring about any material change in this situation though. The counter-insurgency campaign mounted by New Delhi was especially brutal. A controversial measure was the use of the Indian Air Force, for the first and only time thus far, to bomb the district headquarters, Aizawl, where the situation was deemed out of control. The death and maiming of innocent civilians—‘collateral damage’ in security jargon—led to great resentment and strengthened the insurgents. Another measure that was bitterly resented was the forcible transfer of the local population into designated ‘safe’ areas that were protected by the security forces. The stated intention was to deny the insurgents food and shelter, allowing the security forces to hunt them down outside the populated areas. This strategy was successfully used by the British to eradicate the Communist insurgency in Malaya. But the disruption in the lives of the affected population by this forced translocation also led to more recruits for the MNF.
The end The Mizo Union was merged into the Congress Party and the Mizo Hills were accorded Union Territory status in 1972. But, these frantic measures failed to put out the fire. However, bold negotiations resulted in the Mizo Accord in 1986 that led to the establishment of a separate state. The Mizo National Front came overground, elections were held in which the Mizo National Front triumphed and Laldenga, the erstwhile fugitive, became the Chief Minister. No doubt, the situation was aided by there being no inter-ethnic issues involved; hence, New Delhi could negotiate directly with the MNF and Laldenga. But, the co-option of the Mizoram National Front and Laldenga into the local governance structures was the master-stroke that ensured the return of peace to Mizoram. A lesson of general application to counter-insurgencies worldwide is that they have very rarely ended decisively. Four endings are theoretically possible: wars in which the insurgents manage to win; wars in which the government win; insurgencies and civil wars that end after spiralling into terrorism or criminality; and insurgencies which are resolved by co-opting the insurgents into governance by negotiated settlement and bringing them back into normal social life. The co-option modality is recognised by the counter-insurgency specialist, David J. Kilcullen, as offering the best option. Consequently, a political strategy of co-option has to be developed simultaneously while not letting up on the military side of counter-insurgency operations, which suggests the need to combine diplomatic, media, financial, intelligence, and law enforcement assets in a holistic manner.
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PROFILE THE last fortnight saw Anjali Joseph's debut novel, Saraswati Park, bag two international awards. The 10,000 Pound Desmond Elliott Prize for fiction, in the memory of the publisher and literary agent who died in 2003, was followed by the 2011 Betty Trask Prize. Once a Commissioning Editor of Elle magazine's India edition, and a feature writer with The Times of India at Mumbai, she beat Ned Beauman and Stephen Kelman to bag the prestigious Elliott award. Her Malyalee father, a research scientist, and her Gujarati-Bengali mother migrated to England when she was barely 7 years old. Her father took up a teaching assignment at Warwick University. Having studied English at Trinity College, Cambridge, Joseph is also proficient in French. Indeed, she has taught French in London and English at the Sorbonne in Paris. Her parents returned to India when she was 25 and settled down at Pune. " I would visit my parents for holidays, but I never really spent much time in India for my education or anything else, so I don't really have that sense of what it means to be an Indian here," she says. Joseph now shuttles between London, where she is pursuing a Ph.D along with writing, and Pune when she is not traveling. Labels annoy her. She is an Indian but then she has spent more than half her life in England, she points out. She acknowledges that she has been influenced by the writing of R.K. Narayan, Amit Chaudhuri and Upamanyu Chatterjee. Chaudhuri in fact gushed that 'Saraswati Park' was the best debut novel he had read for a long time. The book took her 18 months to write and she wrote it in Europe, away from home. The fictional 'Saraswati Park' , she acknowledges, was inspired by Narayan's equally fictional Malgudi. She was homesick, Joseph admits, and instinctively wrote about what she missed the most. The critically acclaimed novel-- set in the suburbs of Bombay-is about a married couple and their teenage nephew who comes to live with them. The BBC admiringly acknowledged that "the characters are beautifully rendered, their lives, with their ambitions and regrets, stay with you long after you have closed the last page. Anjali Joseph's skills, as a novelist, are humbling". The Saraswati Park revolves around life in Bombay. Known for its electric chaos and noise, the city also accommodates pockets of calm. In one such space works Mohan, a contemplative man, who has spent his life observing people from his seat as a letter-writer outside the main post office. But Mohan's lack of engagement with the world has caused a thawing of his marriage. At this delicate moment Mohan-and his wife, Lakshmi-are joined at their home by their nephew, Ashish, a 19-year-old boy who has to repeat his final year in college. As the novel unfolds, the lives of each of the three characters are thrown into relief by the comical frustrations of family life; annoying relatives, unspoken yearnings and unheard grievances. When Lakshmi loses her only brother, she leaves Bombay for a relative's home. As Mohan scribbles away in the margins of the books, the likes of which he secretly hopes to write one day, he worries whether his wife would return, what would become of Ashish, and if he himself would ever find his own voice to write,from the margins, about the centre of which he would never be a part.
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On record
THE Armed Forces Tribunal has been in existence for over two years. An agency dedicated to deal with military related issues, it expedited the judicial process that earlier used to take years to settle due to the huge pendency of cases before various high courts. The inclusion of a retired armed forces’ officer on the bench also helped in dealing with technical issues unique to the services. While the tribunal has been a boon, specially the veterans who are now able to get their pension related grievances resolved faster, several issues remain to be sorted out. Justice Ghanshyam Prasad, the senior judicial member of the Tribunal’s Chandigarh bench speaks on some of the more contentious issues. What are the major challenges affecting the functioning of A major obstacle is that the Tribunal does not have the powers to initiate civil contempt proceedings in case of non-compliance of its orders. This is unlike the High Courts, where a party can be hauled up for non-compliance. This does have an impact on the Tribunal’s effectiveness. In more than 50 per cent of the cases, the orders and directions passed by the benches are not executed by the authorities concerned, requiring repeated follow-up action. On an average our bench is receiving 10-12 applications every month seeking redressal for non-compliance of orders alone. So, what is being done to redress this issue ? The government is taking steps to incorporate certain amendments in the Armed Forces Tribunal Act that will equip the tribunals with powers to issue civil contempt. This is consequent to a case that went up to the Supreme Court, where the issue cropped up during the proceedings. We would then be able to initiate the requisite action against erring authorities. At present, the tribunals’ powers of contempt are limited to criminal contempt where we can only initiate action in case of a person disrupting court proceedings or creating a nuisance. There is an accusation that different members of the same bench have given varying judgements on similar matters involving common points of law. Is there any justification ? These are judicial matters. We cannot call varying orders as conflict of judgement. Though they may appear similar on the face of it, all cases have different facts and circumstances behind them and the reasons for arriving at a conclusion can be different. All members could be correct in interpreting and adjudicating a respective case. The AFT Act says that appeals against the Tribunal’s orders would lie before the Supreme Court, but the Delhi and the Kerela High Courts have recently ruled that high courts have the powers to review orders passed by the Tribunal. How does this affect the Tribunal’s functioning? The Tribunal’s functioning, per se, would not be affected, as it has no direct bearing on the role and powers of the Tribunal. The impact of the High Courts’ orders would be borne by the parties concerned only after the Tribunal has passed its orders. It has added another forum between the Tribunal and the Supreme Court and would now further lengthen the judicial process. The Tribunal was established to expedite the judicial process for armed forces personnel, but now things could go back to square one. It is the poor soldiers who would suffer. Are there any plans to expand the Tribunal? The Chandigarh Bench covers the states of Punjab, Haryana, Himachal Pradesh and Jammu and Kashmir. This area has a large number of serving and retired armed forces personnel and keeping in view the number of cases filed daily, we need four benches in Chandigarh as against the two at present. Besides pending cases, we are getting about 200 fresh cases every month. There are also reports of the government contemplating setting up a separate bench for Jammu and Kashmir as it is very difficult for people from that area to travel all the way to Chandigarh , file cases and attend proceedings. Then we have recently started a circuit bench at Shimla, where a bench from Chandigarh holds court for a few days there according to a pre-defined roster. This is taking justice to the doorsteps of veterans and is of great help to those residing in Himachal Pradesh as it does away with the need to travel long distances and arranging accommodation for overnight stay. There is certainly scope for more circuit benches. Are there issues pertaining to the Tribunal that are still pending with the government or other ministries concerned? The biggest issue is non-availability of permanent accommodation for the Tribunal’s offices as well as its members. At present we are functioning from modified barracks at an interim location. Then there is the question of regular staff appointments. All members at present are retired judges or service officers. |
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How this insurgency erupted and how it ended has important lessons for the theorists and practitioners of counter-insurgency. Currently, insurgency afflicts several parts of the world. India suffers this scourge in Kashmir, the North-East and central and eastern states, where Naxalites are recognised as the greatest internal threat to national security.
Reviewing the book, which was published in August last year, The Independent had hailed it as a worthy addition to the list of novels 'celebrating or denigrating' the city of Bombay or Mumbai. The India-born writer and journalist Anjali ( 33) was also shortlisted by the Daily Telegraph among the "Top 20 novelists of 2010 under 40" and is currently busy working on a novel about a group of characters in their twenties, set in Paris, London and Bombay.