November 2016 Archives

Khurram Parvez Released After 76 Days in Detention

Despite courts repeatedly finding no valid grounds for his incarceration, the state kept the noted human rights activist incarcerated under the Public Safety Act.

Khurram Parvez. Credit: Khurram Parvez’s Facebook page

After two and a half months in detention noted human rights activist, Khurram Parvez was released by the Jammu and Kashmir authorities at noon on Wednesday. Parvez was arrested on September 16 when he returned to Srinagar after authorities at the New Delhi airport denied him permission to go to Geneva for a Human Rights Council meet.

Stating that Parvez was “set at liberty after 76 days of incarceration”, the Jammu and Kashmir Coalition of Civil Society (JKCCS) – of which he is the founder and president – claimed that Parvez was “in good health and spirits” and had expressed “his overwhelming gratitude to the local and international solidarity campaign for his release.”

Though a sessions court dismissed the executive magistrate’s order on September 20 and ordered the prison’s authorities in Kupwara to release Parvez immediately, instead of releasing him, the state government had booked and detained him under the Public Safety Act (PSA). This law allowed the state to detain Parvez for up to six months.

The PSA warrant issued by the deputy commissioner of Srinagar referred to four cases registered by the police against Parvez and also noted his role as an “instigator” in these cases.

“You have achieved a prominent position in the separatist camp under a hidden cover of being a human rights activist,” said the warrant, adding, “in the ongoing unrest, you have been found [to be] instigating and advocating the disgruntled elements to resort to illegal activities”.

Parvez was also accused of wielding “a considerable clout in the secessionist circles”, “supporting the [protest] programme calendars” of the separatists and “utilising the youth to resort to violence or gathering so-called human rights activists”.

On November 25, the Jammu and Kashmir high court quashed this detention order, issued under the PSA, stating that it was “not only illegal” but also an “abuse of power” and then ordered Parvez’s immediate release. But once again it took a full five days for the authorities to release him. Initially, there was a delay because of an error in the court order which was delivered to the jail authorities but they had failed to release him even after a corrected order was served to them on November 29.

Rather, Parvez was taken from Kot Bhalwal Jail by personnel from the counter-intelligence wing of the Jammu & Kashmir police (CIJ) to the ” Joint Interrogation Centre at Meeran Sahib,Jammu which is about 20 kms away from Kot Bhalwal Jail,” JKCCS stated.

On Wednesday though, the organisation said, Parvez was formally released from police custody from the Joint Interrogation Centre, Jammu, at noon.

The organisation’s spokesperson added that Parvez’s release only marks an intensification of his work. “The struggle for the release of Khurram Parvez is a part of the larger struggle against unlawful detentions, state impunity and the use of repressive laws such as PSA in J&K. JKCCS reiterates its commitment to the struggle for truth, justice and the rights of all people of Jammu and Kashmir,” the organisation stated.

Incidentally, Parvez’s detention had come under attack from both civil rights groups and international organisations. A group of UN experts had even called for Parvez’s release stating that “his continued detention following his arrest just a few days before his participation in the UN Human Rights Council, suggests a deliberate attempt to obstruct his legitimate human rights activism”.

Demonetisation a Despotic Action, Says Amartya Sen

“It (demonetisation) undermines notes, it undermines bank accounts, it undermines the entire economy of trust.” Sen told NDTV.

Amartya Sen. Credit: PTI

New Delhi: Nobel laureate Amartya Sen has called the Narendra Modi government’s demonetisation move a “despotic action that has struck at the root of [an] economy based on trust”.

“It (demonetisation) undermines notes, it undermines bank accounts, it undermines the entire economy of trust. That is the sense in which it is despotic,” Sen told NDTV.

He further said his immediate point of view on demonetisation is focused on its economic aspect.

“It’s (demonetisation) a disaster on economy of trust. In the last 20 years, the country has been growing very fast. But it is all based on [the] acceptance of each other’s word. By taking despotic action and saying we had promised but won’t fulfil our promise, you hit at the root of this,” Sen, also a Bharat Ratna awardee, said.

Noting that capitalism has had many successes that have come from trusting in businesses, he said if a government promises something in the form of a promissory note and then breaks such a promise, then it is a despotic act.

“I am not a great admirer of capitalism. On the other hand, capitalism has many successes… Its despotic in the sense that if a government promises in a promissory note that when given, we will give you this amount of compensation for it and to break such a promise is a despotic action,” Sen, who is currently the Thomas W. Lamont University Professor at Harvard University, said. The

Demonetisation has also rocked parliament as both houses have been witnessing disruptions and adjournments for the past several days due to noisy protests by opposition parties.

Demonetisation: Voices From Varanasi, Modi’s Constituency

Many of Varanasi’s famous looms have stopped running due to the cash shortage and the city’s small vendors are also struggling with falling sales.

Representational image of a silk weaver in Varanasi. Credit: Andrea Kirby/ Flickr, CC BY-NC 2.0

Varanasi: Like in many parts of the country, the centre’s sudden decision to demonetise Rs 500 and Rs 1000 notes on November 8 has created widespread chaos and confusion in Prime Minister Narendra Modi’s constituency Varanasi as well.

Many people that The Wire spoke to in the temple town – which sent Modi to the Lok Sabha in 2014 with a whopping 5,81,022 votes – sought “immediate relief” from the centre’s decision which has been disrupting their daily lives for nearly a month now.

The general sentiment of the people in Varanasi’s market places mirrored that of common people elsewhere too, with people feeling frustrated about the inadequate supply of cash in banks and ATMs and having to miss work to stand in long queues to access their own money.

Varanasi has a vibrant local economy – which mostly functions cash and credit – that is largely dependent on its famous Banarasi sari industry, and the thousands of international and domestic tourists that visit the city’s temples and the revered ghats of the Ganga every year.

Vishal Kesharwani, who runs a merchant shop in Malviya Market, near the Chowk area, felt the government should reconsider the issue. “With little cash in supply, many people are moving around with a bundle of Rs 100 [notes]. People can purchase only certain items with such an amount and are therefore prioritising their necessities. It is affecting business. Many are also approaching us with only Rs 2000 notes, and we don’t have enough cash to give them in return.”

He added, “The prime minister is talking about [a] cashless economy but this city is not even used to regular banking transactions, unlike the metros. This is also the truth of most of the India.”

Disgruntled weavers

In an election speech in Varanasi, Modi, as the BJP’s prime ministerial candidate, had told those assembled, “Ma Ganga has called me, and I am here to serve the weavers of this holy city.”

Ironically, it is the weavers of the city that now seem to bear the biggest grudge against their prime minister.

Devkant Verma, who runs his business from the Badi Bazaar area, told this correspondent, “How can we assume that all black money will suddenly fade away with this move? This is merely rhetoric, done keeping an eye on the coming Uttar Pradesh elections and to divert people’s attention from basic issues.”

People assembling in front of the Badi Bazaar mosque – mostly weavers – were vocal too. Afaq, the oldest among them, said, “In spite of living in the prime minister’s constituency, it has come to the weavers as a big blow. Here, in this area, only two of the eight power looms are working. The rest have shut down work because of [the] lack of cash to pay the workers and also [the] absence of the workers themselves. Till November 24, many workers had to stand in queue[s] the whole day to exchange their old notes or now those who have bank accounts are taking a day off to take out cash. Everybody is struggling to cope with lack of cash in our day-to-day life. In Varanasi, you need only cash to buy everyday things.”

Yet another weaver, who wished to remain anonymous, pointed out, “Ours is a credit-based business, we can’t think of going completely cashless. A weaver anyway gets little, may be Rs 500 a day, most of them have no bank account, are in a hand-to-mouth situation. [The] lack of cash will push such a person even more into poverty.”

Riyajuddin, who runs a loom, said, “We are unable to pay salaries. We are not a big trader, and most of our business runs on the basis of hard cash flow. So we are badly affected.” He said, “Most of us have dealt with fewer amount[s] of money in Rs 100 notes. Suddenly, the decision turned the entire business cycle.”

In the latest edition of ‘Mann ki Baat’, Modi urged the people of the country to pledge themselves to working towards a cashless society in an attempt to emphasise the lofty ambitions that spurred the government’s decision to demonetise higher denomination notes.

When asked about the prime minister’s appeal, Rijajuddin said, “Most of the bunkers (weavers) don’t even have a bank account; they are not educated. The government must first take some vital steps to educate them about how a cashless society works.”

Rahib, a young weaver, however, added, “We still have hope that the prime minister will soon fix the growing chaos.”

Paanwallahs aren’t immune either

Besides the sari, Varanasi is also known for its delicious paan. The ubiquitous paan shops are where people gather after work and often engage in banter about the government’s decisions, air out their opinions on politics and so on.

Ghanshyam baba, a pan shop owner near Varanasi’s Ramkatora area, is also facing a drop in business since his shop deals in small change, which has become a rarity these days. However, in Ghanshyam’s case, there’s also a bright side to demonetisation.

“Those people who always used to buy things from me on credit and consistently dodged payment are suddenly approaching me and many of my fellow paanwallahs for not only the unpaid amount but for advance payment, but in the currency of old 500/1000 rupee notes. At least, I am happy that I have got the pending dues back now,” he told The Wire.

A weaver in Varanasi’s Badi Bazaar area. He has shut down his loom due to a lack of cash. Credit: Shwetank Mishra

Some vendors are still optimistic

Vegetable vendors in the Sigra Sabji Mandi area have not been immune to low sales in the last three weeks. They have begun selling their produce on credit to customers they know “for two-three days”, but some were still optimistic about the move.

“I am hopeful. I think nine out of ten people are satisfied with this move. I am very optimistic that this will save our nation from the menace of black money,” said vendor Sunil.

Pritam, another vendor, however, added, “It seems the farmers are facing more trouble than us; many of them have stopped coming from the nearby villages to the mandi. So if this trend continues, we will have to ration the stocks.”

When asked about cashless transactions and popular e-commerce platforms like Paytm, Pritam, Sunil and others were clearly unaware of these options.

“There is no term like Paytm, it’s ATM, from where people can take out their money [that they] put in the banks. Paytm is the misspelt term of ATM,” Sunil said.

The Costs of Demonetisation: Delayed Cremation; Lost Rural Jobs

A daily round-up on the human impact of demonetisation.

People exchange their old Rs 500 and 1000 notes at a SBI branch in New Delhi. Credit: PTI

Postponed cremation in Noida

Munni Lal, a 65-year-old vegetable vendor in Noida, had to spend 24 hours scouring the city in order to try and gather enough money for his wife’s cremation, Hindustan Times reported. The two lived in a slum settlement in Noida’s sector 9. Phoolmati, Munni Lal’s wife, died on Monday afternoon after a prolonged illness.

The couple had Rs 15,000 in the bank, Munni Lal told Hindustan Times, but he was unable to withdraw any money until an entire 24 hours later. “I was waiting in the queue at Bank of India’s Sector 9 branch for over three hours on Monday, but in vain. I requested the bank staff to give me some money from my account to perform the last rites of my wife, but nobody heard my request. They thought that I was lying and said that the bank was closed for the day,” Munni Lal said. He was forced to keep his wife’s body at home on a slab of ice all night.

On Tuesday, relatives, neighbours and friends gathered outside the bank to protest, also calling in the media. It was only after pressure mounted that the bank released cash to Munni Lal, his neighbour told the newspaper. “Munni Lal was devastated after not getting cash from his account. He repeatedly requested neighbours to lend him some money, but we were also out of cash. We finally decided to inform politicians and the media about the incident. After pressure mounted, the bank finally gave him the cash,” said Abdul Khan, his neighbour.

The branch manager said the bank had run out of cash and gave Munni Lal money as soon as they received it.

Rural jobs lost in Puducherry

Demonetisation has brought construction work across rural areas in Puducherry to a standstill, The Hindu reported, leaving thousands without work or money.

“After the Rs 500 and Rs 1000 notes became invalid, nobody wants to spend money. When there is work, we get Rs 600 daily. But no one has called us for work in the past three weeks,” D. Sitrarasu, a mason in Bahour, told The Hindu.

Construction work is now an important source of the income in the area, after real estate deals cut into agricultural fields. “The demonetisation has hit us really hard,” K. Kaliyan, a construction labourer, told the newspaper.

A delayed monsoon has also meant those who do have agricultural land have not been able to cultivate their land. Even those who have managed to cultivate are having a hard time doing so. “There is no money in the five nationalised bank branches in our area. With Rs 2000 notes which we got earlier, we are unable to buy anything. The central government has taken this step to curb black money and hope it succeeds in the endeavour. We hope that we will get money in a few days,” a farmer, Kaliyamurthy, told The Hindu.

Other incidents

Since it was announced, demonetisation has been connected to one tragedy after another. Within ten days of the announcement, more than 55 people were reported to have died in demonetisation-related incidents. A 25-year-old man committed suicide in Delhi after not being able to exchange his money; a 70-year-old man died waiting in line to change his money; a 53-year-old bank employee died of a ‘stress-induced’ heart attack in Maharashtra; an 18-month-old baby died in Vishakhpatnam when her parents did not have enough cash to buy medicined and the pharmacy would not accept old notes.

In addition to the numerous deaths, people across the country, in both rural and urban areas, have been facing different kinds of hardship. Production and sales have fallen in different sectors, daily-wage workers have lost out on work or are being paid in old currency which they cannot use, people without bank accounts have had to exchange their savings in old currency notes at discounted rates and farmers are not being able to sell their goods.

Two Moroccans Suspected of ISIS Links Arrested in Spain

According to Spain’s interior ministry, one of the men was a “key element” of ISIS’s decentralised propaganda machine to recruit others to join the group.

Representational image. Credit: Reuters

Madrid: Two Moroccan men suspected of having links to ISIS have been arrested in Spain and police say one of them played an important role in spreading propaganda for the militant group, the interior ministry said on Wednesday.

The man – described as a “dangerous solitary actor” living on the outskirts of the capital Madrid – had been radicalised through internet websites aimed at encouraging individuals to attack civil populations, the ministry said.

Investigators found he had closely followed websites dedicated to Islamist militant suicide attacks and ISIS activity over a long period of time and had used a number of different online profiles, it said in a statement.

The man was a “key element” of ISIS’s decentralised propaganda machine to recruit others to join the group, it said.

The second man, arrested in an operation in the city of Irun close to the French border, had tried to join ISIS fighters by going to Turkey where he was captured by police and sent back to Spain, where he was arrested, the ministry said.

Spanish police have arrested 170 suspected Islamist militants since the security alert level was raised to one notch below the highest in 2015 following terrorist attacks in Paris.

China Military ‘Seriously Concerned’ By Japan-South Korea Pact

Chinese defence ministry spokesman Yang Yujun said the move would add a new unsafe and unstable element to northeast Asia and smacked of a Cold War mentality.

Spokesman for China’s Ministry of Defence Yang Yujun speaks to reporters after a bilateral meeting with Japan ahead of the International Institute for Strategic Studies’ (IISS) Shangri-La Dialogue in Singapore May 29, 2015. Credit: Reuters/Edgar Su/Files

Beijing: China‘s defence ministry on Wednesday expressed serious concern about South Korea and Japan signing a military intelligence pact to share sensitive information on the threat posed by North Korea’s missile and nuclear activities.

The signing of the General Security of Military Information Agreement had originally been expected in 2012, but South Korea postponed it due to domestic opposition.

The case for the neighbours to pool intelligence has increased, however, as North Korea has been testing different types of missiles at a faster rate, and claims it has the capability to mount a nuclear warhead on a missile.

Chinese defence ministry spokesman Yang Yujun said the move would add a new unsafe and unstable element to northeast Asia and smacked of a Cold War mentality.

“China‘s military expresses serious concern about this,” Yang told a monthly news briefing, adding to previous opposition to the deal from the Chinese Foreign Ministry.

“We will make all necessary preparations, earnestly perform our duties and fulfil our mission, resolutely protect the country’s security interests and resolutely protect regional peace and stability,” he added, without elaborating.

Beijing is North Korea’s most important supporter despite Chinese anger at its missile and nuclear tests in defiance of UN Security Council resolutions. Earlier this month, the Chinese Foreign Ministry said the agreement would add to tension on the Korean peninsula.

Reclusive North Korea and the rich, democratic South are technically still at war because their 1950-53 conflict ended in a truce, not a peace treaty. The North regularly threatens to destroy the South and its main ally, the US.

China has also been upset with South Korea for agreeing to host an advanced US anti-missile system, saying it threatens China‘s strategic security.

South Korea went ahead with the deal despite opposition from some political parties and a large section of the public, who remain bitter over Japan’s actions during its colonial rule of Korea from 1910 until the end of World War Two.

To What Extent is Demonetisation Legal?

The longer the government takes to restore normalcy in the cash and informal economy, the more difficult it will be for it to justify demonetisation.

A security guard closes the shutter of State Bank of India ATM after it stopped dispensing cash in Agartala, India, November 15, 2016. Credit:Jayanta Dey/Reuters

While the economic consequences of demonetisation have been extensively debated, the legal issues need more considered deliberation. Significantly, demonetisation has already been challenged in many high courts and in the Supreme Court. The government has relied upon section 26(2) of the RBI Act for its action, which gives it the power to declare – on the recommendation of RBI’s central board – that any series of bank notes, of any denomination, shall cease to be legal tender through a gazette notification. Among other things, the petition before the Supreme Court has challenged the constitutionality of Section 26(2) of the RBI Act on grounds of ‘excessive delegation’. If the legislature excessively delegates its legislative function to any other authority, such delegation is unconstitutional. However, currently, Section 26(2) is a constitutionally valid law till proven otherwise. But is the government’s demonetisation action consistent with Section 26(2) and the constitutional provisions?

Consistency with Section 26(2)

The plain language of Section 26(2) of the Act shows that the government can demonetise through a notification, even if in the past, like in 1978, demonetisation was done through an ordinance. The core issue is whether the government can declare that ‘all’ banknotes of one or more denominations shall cease to be legal tender. This depends on how one interprets the word ‘series’ and ‘any’ in Section 26(2). Since the RBI Act does not define the word ‘series’, it is unclear whether ‘series’ in Section 26(2) refers to the broader category of the ‘Mahatma Gandhi series’ of banknotes that the RBI launched in 1996 – and has since been replaced by the Mahatma Gandhi (new) series from November 9 – or whether ‘series’ refers to the narrower category of different serial numbers with different inset letters printed on the banknotes. If ‘series’ refers to the broader category, then the government’s notification does not pose any problem because ‘any’ surely includes within its ambit ‘one’. However, if ‘series’ refers to the narrower category, then it means that till November 8, there were multiple series of banknotes and thus, the government’s notification would be legal only if ‘any’ in Section 26 (2), means ‘every’.

To answer whether ‘any’ in Section 26(2) means ‘every’, it would be useful see how the Supreme Court has interpreted the word ‘any’ in other statutes. The Supreme Court in a number of cases has interpreted the word ‘any’ to mean ‘every’, based on the context and the subject matter of the statute. For example, the apex court in Shiekh Mohd v Collector of Customs, interpreted ‘any prohibition’ in Section 111(d) of the Customs Act to mean ‘every prohibition’. Similarly, in Lucknow Development Authority v M K Gupta, the apex court interpreted ‘service of any description’ in section 2(o) of the Consumer Protection Act 1986 to mean service of ‘every’ description.

The context and the subject matter of the RBI Act gives the RBI the sole authority to operate the country’s currency and credit system. It gives the RBI the sole right to issue banknotes (Section 22) and gives power to the central government and the RBI to decide on the non-issuance of banknotes (Section 24(2)). These powers extend to all banknotes and not just for some banknotes. Therefore, the power of the RBI and the central government to decide the legal tender status of banknotes should also extend to ‘every’ or ‘all’ series of banknotes and not just to ‘some’ or ‘one’ series. Consequently, demonetisation of all Rs 500 and Rs 1000 banknotes is consistent with Section 26(2), provided that the government is able to demonstrate that this was done based on a recommendation made by the RBI’s central board of directors.

Restriction on cash withdrawals

As part of demonetisation, a withdrawal limit of Rs 24,000 per week has been imposed on each bank account and a limit of Rs 2,500 on debit card withdrawals per day. Is there any legal basis to impose such restrictions? Ordinarily, such restrictions cannot be imposed. However, the current situation is different. It was obvious that scrapping the legal status of 86% of the available cash will result in a cash crunch. If the government has the power to declare that banknotes shall cease to be legal tender under Section 26(2), then it should also have the power to do other necessary things to make demonetisation work. Therefore, imposing these restrictions, in one way, is inseparable from the government’s action under Section 26(2). To argue otherwise would render the government’s power under Section 26(2) meaningless. These restrictions can also be justified under Section 35-A of the Banking Regulation Act, 1949, which empowers the RBI to issue directions to banks in public interest to ensure that the interests of depositors are not compromised. Given the cash crunch, these restrictions will ensure that all depositors are able to access some cash for their basic needs. Nevertheless, questions can be posed about how reasonable these restrictions are. The longer these restrictions continue the stronger will be the argument that they are unreasonable.

Violation of right to property

Has scrapping the legal status of a currency note, which is movable property, violated the right to property of a note holder? Article 300A of the constitution provides: no person shall be deprived of his property save by the authority of law. ‘Law’ here not only means parliamentary and state legislations, but also a rule, or an order backed by law. This question can be answered by dividing it into two parts. The first part is whether the acquisition or expropriation of private property is compulsory. As the Supreme Court held in Jayantilal Shah v RBI (1996) – where the legality of the Demonetisation Act 1978 was challenged – the government’s demonetisation wipes out public debt owed to note holders of such denominations. Consequently, it amounts to a compulsory acquisition of private property by the state.

State acquisition of private property is allowed provided the requirements of ‘public purpose’ and ‘compensation’ are satisfied. This leads us to the second part where the validity of these criteria must be determined in the present context. Demonetisation meets the requirement of ‘public interest’ since it has been done to tackle counterfeit notes, nullify black money hoarded in cash and is meant to curb funds for terrorism with fake notes. It also meets the requirement of ‘compensation’ for those note holders who have a bank account. For those having a bank account, notes worth Rs 2,000 could be exchanged for an equal value in notes having legal tender up to November 24 and anything additional can be credited to the individual’s bank account. It was on these two grounds that the Demonetisation Act, 1978 was upheld in Jayantilal Shah v RBI.

However, the ‘compensation’ requirement is not satisfied for those who do not have a bank account and hold scrapped notes in excess of Rs 2,000. Such note holders had the opportunity to exchange notes worth Rs 2,000 till November 24. Thereafter, this facility is available only at the RBI. So, what happens if a person has old notes even after November 24? The notification is silent on this regard. Thus, the only conclusion that can be reached is that any cash in excess of Rs 2,000 stands expropriated by the state unless these individuals open a bank account to deposit this cash. Does this violate the fundamental right to personal liberty by forcing people into opening bank accounts? Therefore the central question that needs answering is whether demonetisation infringes the constitutional right to property by not providing any criteria for compensating those note holders who do not have bank accounts.

Fundamental right to freedom of trade and occupation

Another critical question is whether demonetisation violates the fundamental right to trade – an occupation guaranteed by Article 19(1)(g) of the constitution. Article 19(1)(g) has been comprehensively interpreted to include, as was said in Sodan Singh v NDMC , “all avenues and modes through which a [person] may earn [his/her] livelihood”. It is evident that demonetisation and the subsequent cash crunch has adversely impacted the livelihood of many, especially those who are heavily dependent on cash and are not part of the formal banking system. The violation of this fundamental right can only be excused if the restriction imposed on this fundamental right is not just in public interest but is also reasonable. The restriction should not be arbitrary or of an excessive nature beyond what is required for public interest. Therefore, are the restrictions imposed in terms of usage of cash – especially on those who are heavily dependent on notes for their trade and occupation and are yet to become an integral part of the banking system – more burdensome than the public purpose sought to be achieved? The longer the government takes to restore normalcy for the cash and informal economy, the stronger will be the argument that the restriction is unreasonable.

It will be interesting to see how the apex court addresses these legal questions especially the constitutionality of Section 26(2) of the RBI Act. The apex court’s interpretation would be useful not just from the legal point of view, but also from the point of view of setting a precedent for any future demonetisation that any future government may contemplate.

Prabhash Ranjan is an assistant professor of law at South Asian University.

Rwanda Launches Inquiry Into French Officials’ Role in Genocide

Rwanda’s prosecutor general said the probe would examine the possible role of 20 military and other officials, but he did not name them.

Coffins containing the remains of victims of mass killings during the 1994 genocide are displayed in a Catholic Church in Nyamata April 9, 2014. Credit: Reuters/Noor Khamis/Files

Kigali: Rwanda has launched an inquiry into the possible role of at least 20 French military and other officials in the 1994 genocide, the prosecutor general said on Wednesday, a move that will deepen already strained relations with Paris.

Rwanda has frequently had diplomatic rows with France since the genocide, when about 800,000 mostly ethnic minority Tutsis and moderates from the Hutu majority population were killed.

Rwandan officials have long accused France of supporting the former government of President Juvenal Habyarimana, a Hutu whose death when his plane was shot down in 1994 sparked the bloodbath.

Kigali temporarily broke diplomatic ties in 2006 with France when a French judge called for the trial of Rwanda‘s President Paul Kagame, a Tutsi whose rebels halted the genocide in 1994, over the death of Habyarimana. Kagame denies any role and has accused France of training soldiers who led the massacre.

“What we announced is the beginning of an inquiry into the role that some of the French officials could have played in the events that took place here in 1994 in the genocide,” Rwanda‘s prosecutor general Richard Muhumuza told Reuters.

He said the inquiry would examine the possible role of 20 military and other officials, but he did not name them.

“Up to now, we cannot say that we already have something sufficient to make charges on those people. This is why we need to talk to them and hear their version of the story,” he said, adding he hoped those named would agree to be questioned.

He said he had been in contact with the French government in the past two or three weeks, but did not give details.

“Despicable lie”

French officials had no comment on Wednesday, but referred to remarks made on November 16 by defence minister Jean-Yves Le Drian, when he criticised a possible Rwandan probe into French officers.

“To affirm that the French army took part in genocide is a despicable lie that I will not tolerate,” the minister said then.

In a document dated October 31, Rwanda‘s National Commission for the Fight against Genocide listed 22 French officers it accused of having a role in the build-up to and during the genocide, including top advisers to France’s then-president, Francois Mitterrand.

The commission also said cases being pursued by the French judiciary into whether Kagame’s rebel force had a role in bringing down Habyarimana’s plane in April 1994 were motivated by a desire to mask the role French officials played.

“The refusal to end the judicial investigation (into downing the plane) and pronounce a dismissal against Rwandan leaders who ended the genocide is an attempt (at) concealing their responsibilities,” the commission said.

Rwanda, a former German and Belgian colony, had strong ties with France until 1994. Under Kagame, the government has forged close links with the US and Britain.

In 2009 Rwanda joined the Commonwealth which mostly groups former British colonies. It has also switched the official language for teaching in schools from French to English.

(Reuters)

Modi Had Demonetisation, Bank Transaction Tax Vetted as Far Back as 2013

The next stage of the ArthaKranti proposal is the introduction of a bank transaction tax – a taxation system that is not based on sound economic reasoning.

Prime Minister Narendra Modi. Credit: Reuters

It’s September 18, 2013 and I’m in the chief minister’s office in Gandhinagar, Gujarat. I wait expectantly amidst a stream of belated birthday wishers – it was the CM’s birthday on September 17th. As a tax economist, I was curious to meet a dynamic chief minister and a prime ministerial candidate of a leading national party.

Ushered in at a little after 12:30 pm, I am impressed not just by the massive black and white picture of a Gir lion that towers over the office from the stark wall behind the CM, but also by the humble manner and quiet, intelligent persona of the man who would be prime minister. Having spent a good half hour in an engaging one-on-one conversation on a range of economic issues, I leave with a request: to meet a representative of ArthaKranti, an NGO, and provide feedback on their radical, revolutionary tax reform proposal to replace all taxes with a single bank transaction tax (BTT). Given India’s poorly developed banking sector and the low level of banking usage, the first step to achieving this would be to demonetise high value currency, thus forcing people into the banking sector.

I spend the next few days studying the ArthaKranti proposal and researching other similar ideas. I find that the ArthaKranti (AK) idea is not so unique after all. In fact, it is an almost verbatim lift of a BTT proposal made by Marcos Cintra, Roberto Campos, and others, for Brazil in 1990. I write a note to the CM outlining various reasons why I believe this proposal should not be adopted in India.

Fast forward to November 8, 2016. Demonetisation of 1,000 and 500 rupee notes is announced. The first step of the AK proposal is implemented. We can only assume this means the next step – of replacing all taxes with a bank transaction tax – is also to be implemented. I hope the decision has not been taken. I certainly believe it should not be. Here are my reasons.

Unsuitable system for India

There are three key issues:

First, a liquidity crunch caused by demonetisation. The main idea of the AK proposal is that high value currency should be demonetised. Of course, this has already happened and we are seeing the consequences. Given the high rates of inflation in India which have lowered purchasing power significantly, even for ordinary day-to-day activities, every common man or woman needs sufficient cash. India does not have a well-developed system of electronic or card payments, such as credit or debit cards. In this context, the demonetisation of high-value currency, has led to a crushing liquidity crunch, which has frozen all economic activity. Demonetisation of high value currency is a good idea, but it needed to be implemented very carefully in phases, and it had to be preceded by a strong increase in use of banking channels and card-based payment systems. Another channel of payments that should have been encouraged to grow is mobile money – the use of mobile phones for payments.

Second, the basic requirement for the successful implementation of this tax is a very well developed, technologically sophisticated banking system. India has a very long way to go before our banking system achieves that level of IT sophistication and technological competence. The proposed BTT is modeled on a proposal which was developed for Brazil. Brazil does have a world class, highly developed, highly digitised, computerised banking system. To quote, “Brazil’s current banking and payment systems are among the most modern known in the world, and this enables them to bring about such paradigm shift.”

While the AK-BTT paper accepts this fact, they do not offer any explanation as to how they believe this issue can be overcome. They assume that by abolishing high-value currency and legal protection to cash transactions, the use of banking channels will grow very rapidly and sufficiently to make the BTT a success. This assumption is not credible.

Third, the rate of a BTT which provides sufficient government revenues would inevitably be too high. The AK-BTT model proposes a rate of BTT, i.e., 2% on each transaction, which in my calculation, may not turn out to be sufficient: the proposal raises various questions, most notably about the ability to provide adequate revenues to government. Their assumptions and calculations appear rather simplistic; it is a static analysis, does not assume any change in behavior; it is fair to assume that tax on bank transactions could actually disincentivise spread of and use of banking habits.

In Brazil, as per estimates by Marcos Cintra, for collecting revenues equal to 31.8% of GNP in Brazil (2002), the single BTT rate necessary would be 5.3%. Now, in India, the total taxes collected by all arms of Government, are about 16% of GDP. Hence, by the same calculation, the rate needed would be almost 2.7%. In addition, India is running a general government fiscal deficit of almost 9%.

Thus, to collect enough revenue so that there is no fiscal deficit (a stated goal of the AK-BTT proposal) the amount of revenue collected must be 25% of GDP. Now, the rate of BTT needed to secure tax revenues of the level of 25% of GDP, as per Cintra’s model, would be 4.2%. This would be a very high rate for a bank transaction tax, given its universality and cumulative nature, and various other issues highlighted below.

Need for multi-tax system

Apart from these three critical issues, there are a number of other issues that need to be considered.

The BTT proposal fails to meet some basic criteria of sound economic principles.

For instance, tax policy plays an important role in influencing economic policy, not just raising revenues. Income taxes help to redistribute incomes by progressive rates of taxation where the rich pay more than the poor. As acknowledged in the AK-BTT paper, the BTT is at best, a proportional tax. So, it does not help in achieving greater equity, a stated goal of our economic policies.

There are also inequity issues – salaried employees, who cannot avoid bank credits will be hit by the BTT, others will have opportunities to evade. Even government welfare payments to poor, for example, old age pension, NREGA wages, etc., will be potentially taxed under the BTT as the proposal aims to tax all credits in a bank account.

A BTT tax also ignores indirect taxation on “demerit goods”, such as, alcohol, tobacco, fuels, and other socially costly activities, such as pollution (ecological taxes) is considered extremely important to regulate these activities and/or consumption of these goods. A pure BTT regime does not envisage these taxes; and, if we do have specific taxes on these demerit goods, we begin to move away from a single BTT, and towards a multi-tax situation, similar to what we have now. So, if at all we have a BTT, it will have to be supplemented by excises on ATF, plus wealth tax at central level, plus property taxes, plus other regulatory taxes, and of course, customs duties.

Finally, the BTT is a cumulative tax – it is on every credit, so each time a payment is made for a raw material, or a part, or a service, or any other input, there would be a tax of 4.2%* on the gross amount. This, in a manufacturing industry, can cascade into very significant amounts of taxation, as there will be a tax on tax already paid. The AK-BTT proposal does refer to this, but given their assumption of a 2% BTT rate, they say that the cumulative incidence will not be much more than a flat VAT or GST of 12%.

In some sectors, such as services, this cascading will not happen to that extent, as the number of inputs is less. This will mean a bias against manufacturing, something India can ill afford. Even a rate of 2%, while seems low, can be very high, depending on the profitability level. For example, for someone with a profitability of 5%, the turnover tax of 2% amounts to a 40% tax on their profits**. Of course, with a higher rate for the BTT, such as 4%, which would be needed for sufficient revenues, the effective tax rate would be extremely high. There are also two other major points:

Discrimination against domestic products – cumulative taxation would be much higher on domestically manufactured goods, on imports there are likely to be only one or two instances of taxation once the imported good enters the country.
Disincentives to exports – the cumulative taxes will add to cost of manufacturing goods for exports. Now, if there is a need to exempt the tax on exportable goods, it brings us back to the issue of difficulty of implementation and of complexity.

A BTT regime would also bring about, as with any other proposal, a number of implementation challenges. The BTT would provide disincentives to poor people to open bank accounts and use bank channels, especially as all credits into bank accounts will be taxed, even government welfare payments.

On similar lines, if it is implemented in the current context of a highly underdeveloped banking sector, it would exclude vast chunks of the economy from taxation. Putting in place a BTT, especially one with a rate as high as 4% or so, would encourage other non-banking, non-cash financial transactions – hundis, adhatiyas, barter deals, etc. to flourish. This will defeat the very purpose of the BTT, as sufficient revenues would not be collectable.

International implications

What global implications would a BTT regime bring about? Firstly, India is a signatory to a number of double tax treaties. It is important to note that the UN does not accept BTT as comparable to the traditional tax bases (income/wealth) which allow reciprocal compensation under international double taxation agreements. So, with a single BTT, India will have to renegotiate all its treaties.

India is also a signatory to the “Global Forum on Transparency and Exchange of Information for Tax Purposes”, an international body which now has over 120 members. Accepting the BTT will mean there will be no need for taxpayers/companies/firms to keep accounts as per the Global Forum standards and India would be unable to honor the commitments made under that agreement. Consequently, India will be viewed as an “unsafe” investment destination.

In short, with demonetisation now in effect, let’s hope Modi’s economic revolution or “arth kranti” does not contemplate this next step.

(Rajul Awasthi is a former officer of the Indian Revenue Services and worked on tax administration. Views expressed here are personal. )

*As per the calculation in B above, to raise enough revenues to cover any fiscal deficit.

** Assume a turnover of Rs. 100. A 5% profitability means their profit is Rs. 5. The tax of 2% implies a payment of Rs. 2, which is 40% of Rs. 5.

Choking Money Supply Is Not the Way to Tackle the Black Economy

Making India a less-cash economy will not necessarily end the generation of black money. It only means that the circulation of black income will take place differently.

A bank employee takes out a bundle of old 500 Indian rupee banknotes from a sack to count them inside a bank in Jammu, November 25, 2016. REUTERS/Mukesh Gupta

A bank employee takes out a bundle of old 500 Indian rupee banknotes from a sack to count them inside a bank. Credit:Reuters/Mukesh Gupta

Prime Minister Narendra Modi recently announced the government’s decision to demonetise high denomination currency notes in order to tackle the black economy in the country. Most analysts, however, believe that a note ban will not make a dent, much less eliminate, the black economy in India.

The notion that banning high denomination notes will damage the parallel economy comes from the idea that the black economy is fuelled by cash; the logic is that once a substantial amount of cash is sucked out of the economy, the black economy gets strangled. But this isn’t necessarily true.

Manmohan Singh, the former prime minister, has said that this move will lower the growth rate of the economy by at least 2%. Those in the government have challenged this assertion and have defended the move by saying that the inconvenience from demonetisation is a temporary pain which will give long-term gain.

However, according to official data, the India economy was doing well and had become the fastest growing major economy in the world. So why a sudden move that threatens this achievement – even if temporarily?

The reasons for it are political and not economic. The economic consequences – both in the short and the long term – need to be understood because they have the potential to impact the political calculus as well.

Money is not consumed by individuals so its shortage should not have a direct effect on them. However, in a modern economy, money is crucial because it is circulated in the form of incomes – which people need to live. It enables people to exchange goods and services, which is crucial for the production and generation of incomes. It removes the need for a double coincidence that is required in a barter economy. Bartering can become very circuitous and lead to a lot of wastage of time which could have been used to produce more of goods. Hence, in a complex economy, barter leads to inefficiency and the presence of money simplifies exchange.

Money does not mean cash alone. One can use cheques, credit and debit cards and electronic money to conduct transactions. But the currency that is issued by the central bank is the base on which the other forms of money are created. Hence, a shortage of currency means that the medium of exchange is in short supply and it affects the production and distribution in an economy.

While several businesses along with the well off and the middle classes maybe using cheques, cards or electronic transfers, the unorganised, small and cottage sectors, and the poor and illiterate who do not have bank accounts, are not as fortunate. They use cash for their transactions and a shortage of cash hits them the most. As for the more fortunate ones, it is a matter of habit whether or not they use cash for transactions. No wonder then there are long lines at the banks to withdraw cash. The government is proposing a ‘cashless society’ since it feels that this will eliminate corruption. Unfortunately, they are mixing up two different things.

In the US, where credit and debit cards have been in use for 50 years, the use of cash continues. It is a question of habit. Despite the widespread use of plastic cards and electronic money in the US, the black economy flourishes. So, the link between cash and black income is weak.

If money is in short supply, gold may be used, payments can be made abroad or money can be held in foreign exchange. Thus, the demand for gold and foreign exchange has shot up in India since demonetisation was announced. Under the gold monetisation scheme, the government has minted gold coins which can be easily used. So, a less-cash economy does not imply that black income generation will stop. Only the circulation of black income will take place differently.

Yes, the nation should move towards a less-cash economy in order to reap the benefits of efficiency, but that should not be confused with curbing the black economy. That requires a whole different approach. The black economy does not mean only cash. Besides, there is nothing stopping the new currency from becoming part of the black economy. If less cash is issued than what there was earlier, it may cause problems for the white economy, especially the unorganised sectors, but the black economy, which is concentrated in the hands of the well-off, is unlikely to be affected.

In government and private institutions, salaries and payments may be made in cheque, but bribes are extracted in a variety of ways. Post demonetisation, many ways of converting black money stashed in old currency into new currency have been devised. Jan Dhan accounts are being widely used. If an unscrupulous deposit of Rs 10,000 per account is made in 20 crore accounts, Rs 2 lakh crore would be converted into new currency. Thus, the black income circulation will continue as earlier.

Currency is neither coloured black nor white. So, the cash in the economy can be used to circulate both the black and the white economies. Thus, the idea of demonetisation and less-cash economy have little to do with the curbing of the black economy.

The banking channels, share markets, informal money markets, hawala and the flight of capital will continue to be available to circulate in the black economy. In fact, some of these ways of circulating the black incomes will become more active, leading to loss of savings to the economy. There are reports that the poor, the farmers, the small producers, big business and industry are all hurting due to a fall in demand and loss of employment.

Would the government get a windfall as a result of some of the Rs 14 lakh crores of notes not coming back into the system? This could be used to argue that the black economy has been tamed. It may also enable the government to increase pro-poor spending and the Robin Hood effect could politically help the government.

When cash is deposited in the bank by an individual, it goes into that person’s account as saving. The bank is obliged to return that to the RBI so that the old notes may be destroyed. The banks’ deposits will increase above what they are required to keep with the RBI – which is called the cash reserve ratio. The currency issued by the RBI was its liability, so as soon as the demonetisation was announced, its liability decreased by the amount of demonetisation. But its assets did not fall. So, in its balance sheet, there is now a huge surplus. Can this be used by the government for the pro-poor schemes?

The RBI is, however, obliged to give new currency in lieu of the old extinguished currency. People are going to banks to withdraw what they have deposited in their accounts so that they can carry on their transactions. The banks are obliged to give people the money they ask for from their accounts and they will have to get it from the RBI. But the demand for cash will be higher than before since people are hoarding currency and not circulating it. So, even if some of the old money does not come back into the banking system, the RBI will have to issue more cash than earlier to maintain the credibility of the system, otherwise, the cash shortage will continue with all its adverse effects.

Hence, the black economy cannot be curbed by choking off cash. What can be done to get out of the morass that the economy is in? Liquidity needs to be immediately restored by allowing the old notes to be used. Some of the adverse effects in the economy would then reverse. But if the current situation is allowed to continue for a month or more, there would be irreversible and long-lasting damage to the economy and the political fallout would be huge.

Arun Kumar is the author of The Black Economy in India and is a former professor of economics at Jawaharlal University.