e_Paper (23 December 2016)

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10 FRIDAY, DECEMBER 23, 2016 DT World INSIGHT India’s cash crackdown imperils pivotal national tax reform People queue outside a bank to withdraw cash and deposit their old high denomination banknotes in Ahmedabad REUTERS • Reuters, New Delhi Indian Prime Minister Narendra Modi’s crackdown on the cash economy has shattered the consensus needed for a new national sales tax, plunging his boldest reform into limbo and threatening to entrench an economic slowdown. Modi’s government already had its work cut out to finalise a deal with India’s 29 federal states to launch a Goods and Services Tax (GST) on April 1 that would transform Asia’s third largest economy into a single market for the first time. But his decision to scrap 86% of the cash in circulation, in a bid to purge the economy of illicit “black money”, has caused huge disruption. A slump in business activity stemming from the cash crunch has caused the revenue of state governments, which collect value-added tax on goods and other duties, to slump by 25-40%. The states won’t risk another setback by rushing the sales tax into force. The GST is India’s biggest tax overhaul since independence in 1947. It would replace a plethora of federal and state levies with one tax, easing compliance, broadening the revenue base and boosting productivity. It took Modi more than two years to forge a political compromise on the tax in August. Now, demonetisation “has created a trust deficit,” said Kerala Finance Minister TM Thomas Isaac. “After this, I am not going to sit and compromise. They don’t deserve it.” Left in the lurch Failure to break the deadlock could tip India into a fiscal crisis: The GST would need to come into effect by mid-September, when the old system of indirect taxation is due to lapse. The lingering uncertainty is worrying companies needing to understand financial implications of the new tax. Modi’s shock move last month to scrap Rs500 and Rs1,000 notes was aimed at India’s shadow economy. But the ensuing cash crunch has caused job losses, disrupted supply chains and slowed construction activity. With cash shortages showing no signs of abating, some economists are calling for emergency stimulus to cushion the economy against the impact of demonetisation. Ambit Capital, a Mumbai brokerage, forecasts growth this fiscal year will be only half of the roughly 7% level many expect. The Reserve Bank of India has shaved its growth outlook by half a percentage point to 7.1%. To make up for their losses, states are seeking compensation and will press their case at a meeting in New Delhi on Thursday and Friday with Finance Minister Arun Jaitley. Counting costs The quibble is not just over lost revenue. Some states worry about the social and political costs of demonetisation. Take Kerala, where credit cooperatives that farmers and retired government workers rely on cannot swap old bills or issue fresh notes. The state alleges this has encouraged commercial banks to scout for their deposits, sparking a “run” on them. Odhisa’s chief minister has written to Modi, saying curbs imposed on primary agriculture societies were making it difficult for farmers to access crop loans and procurement payments. • A front page of a Chinese newspaper with a photo of US Presidentelect Donald Trump and the headline 'Outsider counter attack' is displayed at a newsstand in Beijing, China AP ANALYSIS Trump should learn from India to deal with China • Tribune International Desk US President-elect Donald Trump can take strategy lessons from one Asian country on how to effectively deal with China without the latter blowing its gasket, suggests noted American magazine Foreign Policy. The entire world by now knows about how China threw a fit because of Trump’s unintended or deliberate gaffe in taking a congratulatory call from Taiwan’s President. As well, about how US State Department mandarins have been wringing their hands ever since this ‘sleight’ to China by ignoring the decades-old ‘One China’ policy. What they seem to have forgotten, or overlooked, is that one particular country got away without acknowledging there is just ‘One China’, which is mainland China, not Taiwan. And that country did it not just without blow-back, it even worked the situation to its advantage. That country is India. How India dealt with China The article talks about how in 2010, the Congress party-led Manmohan Singh government took “uncharacteristically swift and punitive action” against China and suspended all bilateral military ties and any form of joint exercises. This was done in retaliation for China refusing a visa to Lieutenant General BS Jaswal because he was then on head of India’s military command in Kashmir. Being Pakistan’s “all-weather friend”, meant Beijing was refusing to acknowledge Indian sovereignty over Kashmir. “For India to agree on a one-China policy, China should reaffirm a one-India policy,” External Affairs Minister Sushma Swaraj said right before Chinese President Xi Jinping’s first trip to New Delhi in September 2014. “When they raised the issue of Tibet and Taiwan with us, we shared their sensitivities.... They should understand and appreciate our sensitivities regarding Arunachal Pradesh,” the minister added. “More important, six years after India’s change of heart on One-China policy, it has suffered no discernible political or economic backlash that can be tied to the policy shift... It’s notable, then, that beyond its broad refusal to endorse the One-China policy, New Delhi has given no indication that it plans to walk back its repeated reaffirmations of Chinese sovereignty over Tibet (much less Taiwan). On the other hand, Prime Minister Modi has adopted several initiatives short of that threshold to signal a more defiant posture on Tibet and the border dispute,” notes Foreign Policy. There’s more. “It’s notable, then, that beyond its broad refusal to endorse the One-China policy, New Delhi has given no indication that it plans to walk back its repeated reaffirmations of Chinese sovereignty over Tibet. • [This is an excerpt of a Foreign Policy magazine article, which can be found at http://atfp. co/2hDZV5s]
World 11 FRIDAY, DECEMBER 23, 2016 DT This file photo taken on November 15 shows a placard reading ‘Trump Make Israel Great Again’ in Tel Aviv AFP Trump, Netanyahu urge Obama to veto UN resolution on halting settlements • Reuters, Jerusalem US President-elect Donald Trump and Israeli Prime Minister Benjamin Netanyahu urged the Obama administration on Thursday to veto a UN Security Council draft resolution calling for an immediate halt to settlement building on occupied land that Palestinians want for a state. Netanyahu took to Twitter in the dead of night in Israel to make the appeal, in a sign of concern that President Barack Obama might take a parting shot at a policy he has long opposed and a right-wing leader with whom he has had a rocky relationship. Hours later, Trump, posting on Twitter and Facebook, said: “The resolution being considered at the United Nations Security Council regarding Israel should be vetoed.” Trump said that “as the United States has long maintained, peace between the Israelis and Palestinians will only come through direct negotiations between the parties, and not through the imposition of terms by the United Nations”. Egypt circulated the draft on Wednesday evening and the 15-member council is due to vote on Thursday, diplomats said. It was unclear, they said, how the United States, which has protected Israel from UN action, would vote. The resolution would demand Israel “immediately and completely cease all settlement activities in the occupied Palestinian territory, including East Jerusalem”. Obama critical of settlements Obama’s administration has been highly critical of settlement construction in the occupied West Bank and East Jerusalem. US officials said this month, however, the president was not expected to make major moves on Israeli-Palestinian peace before leaving office. Netanyahu said the United States “should veto the anti-Israel resolution at the UN Security Council on Thursday”. Israel’s far-right and settler leaders have been buoyed by the election of Trump, the Republican presidential candidate. He has already signalled a possible change in US policy by appointing one his lawyers - a fundraiser for a major Israeli settlement - as Washington’s new ambassador to Israel. In 2011, the United States vetoed a draft resolution condemning Israeli settlements after the Palestinians refused a compromise offer from Washington. Israel’s UN ambassador, Danny Danon, said on Israeli Army Radio: “In a few hours we will receive the answer from our American friends.” The draft text says the establishment of settlements by Israel has “no legal validity and constitutes a flagrant violation under international law”. It expresses grave concern that continuing settlement activities “are dangerously imperilling the viability of a twostate solution”. The United States says continued Israeli settlement building lacks legitimacy, but has stopped short of adopting the position of many countries that it is illegal under international law. Some 570,000 Israelis live in the West Bank and East Jerusalem, areas Israel captured in a 1967 war. •
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