In the Economic Survey 2017, the Chief Economic Adviser does mention his much-propagated idea of the Universal Basic Income. What is the concept of UBI and what are the various aspects related to it, we will understand in this blog.
- What is the Universal Basic Income?
- It is an income which has three components, namely
- Universality, that is, given to all
- Unconditionality, that is, will be given without any pre-conditions or eligibilities
- Agency, that is, the beneficiary will be allowed to spend it according to his/her needs.
- What is the need of UBI?:
- Poverty persists despite so many welfare programmes.
- The situation of employment remains dismal.
- This is a situation of social injustice.
- The gap between the rich and the poor remains to be bridged.
- It is important to elevate the poor at least to such level after which they could work for their own welfare.
- Subsidies amount to around 5% of the GDP. These are not distributed well and leakages undermine the intent of these subsidies.
- What are the arguments in favor of the idea?:
- Philosophically, it is in line with the ideals of equality and social justice
- Poverty and vulnerability reduction
- Choice with the poor to spend accordingly. Money-in-hand could also help in backing the entrepreneurial aspirations
- Better targeting of poor, as all are targeted–>no inclusion errors
- Provides insurance against shocks like health, income among others
- Lesser psychological shocks due to guaranteed incomes
- Lesser burden of implementation of CSS will increase the efficiency of the administration
- Improvement in financial inclusion: as it will encourage greater usage of bank accounts.
- What are the arguments against the idea?:
- Irresponsible spending. For eg. men may spend it in liquor, gambling etc
- Could reduce the tendency and will to work–>Goes against the Gandhian principle of earning one’s own bread through labour
- Men may exercise the control over the whole income–>inducing gender disparity.
- Implementation is going to be a challenge–>stressed banking system.
- Fiscal deficit may increase.
- Inflation may increase due to increase purchasing power.
- Rich also getting the income –>absurd and philosophically empty.
- It may be followed or preceded by the repealing of the current subsidies.
- What are the challenges?:
- Ensuring transparency in the process of transferring the amount.
- Putting in place a large machinery required to implement the idea.
- Ensuring timely transfer of the benefit to the beneficiary.
- What is the way ahead?:
- Bank accounts for all. Even after PM Jan Dhan Yojna, a number of people, particularly, in the rural areas remain without any account.
- Universal availability of Aadhar: Till now, around 95% of the population is registered under UIDAI.
- Time bound transfer within the date stipulated.
- Financial literacy among the people to operate their bank accounts.
- Awareness about the scheme and sensitisation about the legitimate spending of the money.
The government has been taking a serious stance in its fight against the black money. After demonetisation, the next target as also repeatedly emphasised by the Prime Minister is the Benami property.
Here is all you need to know about the Benami Property.
- What is a Benami property?:
- A property which is purchased in the name of someone who has not purchased it.
- The person on whose name it is purchased is called benamdar.
- The property purchased is a Benami property.
- Such a property may be movable or immovable, tangible or intangible, any right or interest or legal documents, even gold or financial securities.
- Why is it necessary to tackle the Benami property holding?:
- It is one of the largest sources to channelize the black money.
- Illegal money is often used to purchase land or any property.
- What is/are the reason/s for existence of Benami property?:
- Evasion of Land ceiling acts(an upper limit on land holdings is placed to avoid concentration of land with a few).
- To evade taxes and conceal the accrued black income.
- To conceal the corruption-related income (by the public servants).
- Any earlier attempts/recommendations to curb Benami property?:
- Committee on Tax reform : 1960.
- Law Commission: 1973.
- Benami Transactions(Prohibition) Act, 1988: First of its kind legislation.
- What’s there in the new legislation?
- Earlier definition: a property transferred in the name of a person but paid by another person.
- NOW: following will be considered as benami:
- Transaction made on fictitious name.
- Owner is not aware or denies knowledge of the ownership of the property.
- The person providing the consideration of the propertyànot traceable.
- Exemptions under the new act: cases when a property is held by:
- A member of HUF in the name of child/spouse and paid through known sources.
- Joint property with sister, brother or other relatives for which the amount is paid through known sources.
- Someone in fiduciary capacityàtransaction involving a trustee and a beneficiary company , firms and bodies of individuals director, trustees, directors of a company.
- Religious trusts.
- Imprisonment and fine :
- 7 years+ fine(can be up to 25% of the fair market value of the property) as compared to the previous 3 year jail or fine or both.
- Also penalties for providing false info 6 months to 5 years + fine up to 10% of fair value of Benami property.
- Earlier authority according to rules; Now: Four authorities:
- Initiating officer.
- Approving authority
- Adjudicating authority.
- What are the challenges that lie ahead?:
- Identification of Benami Property.
- Lack of political will.
- Lack of proper implementation. The earlier act of 1988 was barely implemented.
- Procedural infirmities.
A debate about taxing the agricultural income has picked up of late. It is said that at least a few rich farmers need to be brought into the tax net. As of now Central Government can’t impose or levy tax on agricultural income. The exemption clause is mentioned under Section 10 (1) of the Income Tax Act of India.
Taxation of agriculture has many supporters including Dr. B.R Ambedkar. The recent Economic Survey also gave positive signals regarding the same. The topic has been a moot one since 1970s. A committee on Agricultural income headed by K.N Raj also recommended taxation on the income of rich farmers.
In this article, we will be understanding both the sides of this debate.
Why should agricultural income be taxed?
- A large number of farmers earn more than those non-agricultural workers who pay taxes.
- It can reduce disparities among farmers across the country. For example, the farmers in the region where Green Revolution happened are much affluent while many farmers in Maharashtra, Rajasthan, Bihar, MP among others are living in pestilence. Channelizing the taxed income to their welfare can help reduce the disparities among the farming community across the country.
- Since, agriculture has modernized and is continuing to do so, the productivity has been increasing, thus, creating avenues for taxing the agricultural income.
- Countries like Japan, China and Soviet Union opted for inter-sectoral resource mobilisation. They mobilised resources from agriculture to the industrial sectors.
- It can bring down land prices as the land dealing will be done through appropriate legal procedures.
- It can promote economic stability.
What are the issues with taxation of agricultural income?
- Difficult to trace the income of the farmers.
- Seasonal fluctuations leads to fluctuations in the income of the farmers.
- Imposition of taxes could lead to higher credit flows from banks to the rich farmers as they have higher income to show and thus, banks would prefer to lend them as the return is much more assured as compared to that of the poor farmers.
- Problem of depreciation and capital replacement is more complicated in agriculture.
- Most of the farmers are illiterate/semi-literate and thus, are unaware of the systematic account keeping methods.
- With increasing suicides, taxing the agricultural income may increase the fear of more.
What could be done?
- Start with partial taxation.
- Setting a threshold of say, 5 acres for eligibility of taxation.
- Providing necessary exemptions like exemptions of income from rice/wheat/pulses fields.
- Agriculture is a state subject and thus, consultations with the states regarding the same need to be carried out.
The government has introduced its last and final amnesty scheme for encouraging the disclosure of concealed/unaccounted income. This is called the Pradhan Mantri Garib Kalyan Yojna.
Here is all you need to know about the scheme:
- Has it been introduced under an act or just through an executive resolution?:
- It has been introduced under Taxation Laws(Second Amendment) Act, 2016.
- When will it come into effect and what’s the duration of the scheme?
- It has come into effect from 17th December, 2016 and will remain open till 31st March, 2017.
- What are the key provisions of the scheme?:
- Disclosure can be made by any person in respect on undisclosed income in the form of cash or deposits in an account with bank or post office or specified entity.
- Declarant has to pay:
- 30% tax.
- 33% Pradhan Mantri Garib Kalyan Cess.
- 10% penalty.
- This sums up to around 50%
- Pradhan Mantri Garib Kalyan Deposit scheme: 25% of the undisclosed income in a zero interest deposit account with a lock-in period(minimum time till which deposit remains in the account) of 4 years.
- The income declared will not be included in the total income of the declarant under the I-T Act.
- Also, declaration to be kept confidential .
- If a person with concealed income do not declare the same under this act, it will attract a penalty and surcharge upto around 78% .
Now, when India is talking about becoming a cashless economy, former RBI Governor, Raghuram Rajan’s dream project Unified Payment Interface(UPI) is expected to draw attention and response from all sides. Here is all you need to know about the UPI.
What is UPI?
It is an interface that integrates multiple banks* for providing inter and intra-bank fund transfer , merchant applications etc. through a single mobile application.
*Only the banks which participate. Till now around 30 banks have participated.
Who is implementing the project?:
The project is being implemented by the National Payment Corporation of India with RBI.
What is its purpose?
The underlying purpose is to move towards less cash and then cash-less economy
How it is a commendable project?:
- Simple to understand and use.
- Low cost.
- End-to-end encryption (128 bit: pretty secure).
- One of the best technological interventions for bringing about a grace in the economy.
Who can use it?
Anyone with a smartphone can avail the UPI facility. Follow these steps:
After the demonetisation move, the government has been persistently pushing for a cashless economy. Of late, a number of incentives like service tax exemption, reduction in toll duties among others have been put in place by the government as a goodwill sign for cashless economy.
In this article, we will understand various aspects associated with the cashless economy.
- What is a cashless economy?:
- An economy where the usage of cash for daily payments, big or small is considerably low or has even zeroed.
- The modes of payment include cards(debit.credit). e-wallets, online/mobile banking, Point of Sale machines , RFID tags among others.
- What are the advantages of cashless economy?:
- Lesser hoarding of cash , thereby, reducing the chances of accumulation of black wealth.
- Reduced printing costs of notes due to reduced demand. Currently,RBI and commercial banks have to bear a cost of Rs.21,000 crores in note printing and handling.
- No illegitimate practices like over-invoicing and under-invoicing which is a major cause of accumulation of black wealth at smaller scales.
- Increased tax compliance, and thus, better revenue generation.
- Transparent transactions, thus, lesser risk of tax evasion.
- What are the concerns associated with cashless economy?:
- Digital literacy is pretty low.
- Phishing and data theft
- Encryption and data protocolàstandards not par with excellence
- Providing content in regional language.
- Smartphone penetration is still to catch the required pace.
- Internet connectivity is also on a lower side.
- What could be done to induce a cashless regime?:
- Security infra and technology like encryption need to be developed at par with the developed nations.
- End to end encryption to prevent messages being read in transit.
- Instant hot-listing to prevent UPI(Unified Payment Interface) accounts being looted.
- NOFN(National Optical Fibre Network) and digital infra need to be penetrated well in the rural areas.
- Digital Saksharta campaign for digital literacy.
- Databases for all the transaction must be secured of theft and hacks.
- Grievance redressal mechanism at the level of banks
- Proper authentication is must and UPI should conform before carrying out any transaction.
Nobel Laureate Amartya Sen recently in a statement slammed the move to demonetise the currencies as authoritarian. He said that it declares all Indians as possible crooks. This brings many to doubt on the whole move of demonetisation. Whether demonetisation is positive or negative, we will find out in this article.
If we look at it, it has both positives and negatives. These are enumerated as follows.
- Positives of demonetisation
- It will help thrash the concealed income. Now, if you want to make it white legally, then you have to pay around 50% of penalty.
- This ,in turn, could help in boosting revenue.
- This may provide a cushion to an aggravating fiscal deficit.
- With greater revenues in hand, the government ,in turn ,could effectively prepare and implement welfare schemes for the poor.
- It can be considered as a major leap towards a “cashless economy” , especially, when we consider the psychological factor post-demonetisation.
- Cashless economy ,in turn ,has its own pros like transparency in transactions and in-turn lesser accumulation of wealth. Lesser expenditure in printing currencies can also be one of it. (This ,in turn, has an ecological dimension as well: trees).
- Banks are seeing a greener phase. The deposits have spiked considerably. This would , in long-term help in soaring the investment in the economy due to cheaper loans.
- Demonetisation is a major hit on the counterfeit currency(FICN) users, in particular, terrorists who used them to finance terror equipment.
- In long term, it also acts as a warning to those who opt concealing their income.
- Negatives of demonetisation:
- Concealed black income constitute only around 5% of the total black money.
- Sudden demonetising has hit hard on the poorer sections like:
- farmers: no money to but Rabi seeds, equipment etc.
- BPL: who keep their income in cash than in accounts. There are many who still do not have a bank account and an ID(despite PMJDY and Aadhaar) .
- Poor woman: who manages the finances of a household through savings.
- The GDP of the economy would see a decline over the few quarters as the demand of many commodities has dipped. India is a consumption based economy and thus, reduced consumption has a grave impact on the economy.
- Many businesses have seen a decline in their profits.
- MSMEs generally keep their money in cash with them. They could be hit hard. This, in turn ,has a negative impact on employment generation and poverty(MSMEs generate around 128 million jobs in our country).
- New counterfeit notes have already been created.
- Psychological breakdown and deaths.
Amartya Sen has taken a view against demonetisation by attributing it as authoritarian. His view is more or less “socialist” in nature as he has invoked the problems surrounding the common man and the people of the lower strata of the society.
Though the move of demonetising the currencies appear to be one with negative outcomes ,in long -term could prove to be a considerably positive measure for all the stakeholders alike.