Sunday, May 18, 2008

Anything for the High Life...

In the din and frenzy of inflation that is searing the Aam Admi, certain significant comments by Kamal Nath, the Commerce Minister appear to have gone unnoticed.

De-facto Minister for Promotion of Luxury Imports - at a 2007 Conference

Kamal Nath, speaking at a Luxury Conference on 28th March 2008, declared that the government was planning to increase foreign direct investment in single-brand retailing. While this comment could be seen as a continuance of his pet theme of promoting the Cause of Foreign Retailers and Imported Luxury Products, his further comments sound quite strange.

He said that “The government could reduce import taxes of high-end luxury goods. We do have high tariffs so we are looking at rationalizing these. We also have to differentiate between high-end and low-end luxury goods.” Kamal Nath said India could look at the tariff model which was applicable to wines and spirits where high value products are subjected to lower duty. Propounding his rationale, he said that India may reduce import duties on luxury products to stem revenue losses from luxury brands bought by Indians traveling abroad. “India has high tariffs and we recognise that if you go abroad and buy, then the country loses revenues. Therefore, we are working on both duties and countervailing duties.” He said he had forwarded proposals for duty cuts to the finance ministry. He further added: India is unwilling to reduce tariffs on low-cost imports, which can hit its own industries.

His talk of reducing import duty on high-end luxury products appears to be quite bizarre, to say the least. Let us examine his quixotic idea and his incomprehensible rationale.

First of all, he said that Govt. was losing revenue from luxury goods bought by Indian traveling abroad. What revenue is he talking about? Is it Customs Duty? Imports by Indians traveling abroad are governed by the Baggage Rules which, broadly speaking; allow import of up to Rs. 25,000 per passenger subject to some further restrictions e.g. max. 2 liters of spirits and alcohol. Everything above this level is dutiable. So, when Kamal Nath talks of revenue loss when Indians buy luxury goods abroad and bring them into the country, does he imply that the Customs Dept. lets them import anything they wish without duty, either due to lax control or otherwise? And, if at all there is revenue loss due to the duty free limit, should this not be the worry for Finance Ministry which determines the limit after due consideration and consultations? What does he, as the Commerce Minister have to do with this?

Could he be thinking of domestic revenue loss assuming the same products were imported in bulk at a low duty and sold in the country by the foreign entities involved in single-brand retailing? If that be so, then also the issue of revenue loss is not his concern as Commerce Minister. Perhaps, then, his real objective is only to promote large imports of Luxury products by the foreign retailers at low import duties. The revenue loss rationale is just a bogey.

Secondly, what is the logic in saying that high end products require less duties and low end require more duties? He does not want duties to be reduced for low-priced products on the ground that it will swamp the local markets with cheap imports from countries like China and hit the country’s own industry. That argument may carry its own logic. What it does mean, though, is that Western countries whose branded products are expensive should get the benefit of low duties. If similar products can be supplied by others at lower prices, they should suffer higher duties. The higher the price, the lower the duty, because those charging higher prices need to have higher profits - simple.This is turning the principle of equity and fairness on its head. How can a govt. that encourages its ministers to use such concepts to promote luxury products be called a govt. that cares for Aam Admi?

(see more details of these luxuries here)
Thirdly, exactly which products does he have in mind for the reduction in import duty? India’s duty structure is no longer what it was ten years back and today it is in full compliance of its WTO obligations as regards maximum duty tariffs. Most of the products, even consumer products whether high end or low end, carry a basic duty of just 10%. A few products which do have a basic duty of over 30% are:
Cars, Motorbikes etc. – 100%. However, it is absurd to think that Indians travelling abroad would buy them there and bring them into the country as returning travellers without paying duty.

( see more details of these luxuries here or here)

Apparel – Here, although the basic duty is just 10%, there are minimum specific duties. The highest minimum duty is in the case of men's suits being Rs. 1,100 per piece. This could hardly be termed as high and deserving to be reduced for the so-called ‘high-end’ products which in any case, would be subject to the 10% duty.

Alcoholic Beverages – Wines carry a high duty of 150%. Whisky which was brought down from a high of 182% following a dispute with EU and USA, still carries a duty of 150%.

Food products – All food products including food grains, edible oils, tea, coffee etc. carry higher rates of duty between 30% and 100%. Pet foods have a lower duty of 20% under a dispensation given by the Finance Minister.

So were Food Products were on the Minister’s mind for duty reduction? In his wisdom, the Minister might have already realised in the month of March, the developing situation that would make food products the real luxuries for the Aam Admi!

Or products made out of food grains, say, whisky? Exactly a year ago in May 2007, the country’s top distillery group of Vijay Mallya acquired Whyte & Mackay, one of the producers of Scotch whisky for $ 1.2 bn. One of the prime reasons for acquiring this distiller with a capacity of 40 million liters was to exploit the Indian market where Mallya holds a sound position. The success of the acquisition, therefore, depends in no small measure on the reduction in the import duty structure, especially for import of the Scotch concentrate. Is this a product on the Minister’s mind then?

Or is he simply trying to vie with the Finance Minister in announcing give-aways for promoting the high life? It will be remembered that this Finance Minister recently announced, quite unnecessarily, a reduction in excise duty on small cars, completely unmindful of the disastrous impact it may have on the stressed infrastructure. Earlier in Dec. 2006, this Govt. was also reported to be considering a duty reduction on large cars applying some perverse logic!

Jack Russels - favorites of Very Important Persons... at the school of petcare

The same Finance Minister of this country with a GDP of $ 1.16 trillion and central revenues of $ 177 billion, had grandly announced in his Budget Speech last year, a decision of great consequence for the country: “I have good news for cat and dog lovers. I propose to reduce the duty on pet foods from 30 per cent to 20 per cent.”

Distinctly refined tastes

All this is written here just to place things in context and show this Govt.’s sense of priorities.
It is a Govt. that truly cares - FOR THE CREAMY LAYER

Anything to please .......

Friday, May 09, 2008

The AIIMS (Amendment) Act 2007 - from farce to fiasco

What a sad reflection on the way Bharat, that is India, is being run!

At the center of this latest episode that highlights the capricious ways of functioning of the
present Govt. of India is Dr. A. Ramadoss, the Union Minister for Health & Family Welfare.

I shall teach him a lesson.
Dr. A. Ramadoss

Dr. Ramadoss is one of the
in the present Government. During his tenure as a Minister in the Union Cabinet, he has shown a remarkable ability to think and act in ways that displays a sheer lack of maturity. Many of his utterances and actions have invited ridicule or landed the Govt. repeatedly in the Courts. (See here, here and here) His Ministry has tied itself into knots trying to execute some of his ideas, having had to repeatedly modify or defer the implementation of half-baked rules framed at his behest.

On 8th May 2008, the Supreme Court of India struck down a provision in the All India Institute of Medical Sciences & the Post Graduate Institute of Medical Education and Research (Amendment) Act, 2007. -AIIMS (Amendment) Act, 2007 for short. Even by the most charitable interpretation,
this Judgment is a serious blow to the Union Govt.’s slapdash approach to the serious business of governance.

The events leading to the present fiasco have been known since a long time by the Government comprising of the Cabinet as well as the Babus, the Parliamentarians and even the public-at-large, thanks to regular media coverage of the machinations of Dr. Ramadoss in this matter.

Dr. P. Venugopal

From the time he began interfering in the affairs of the All India Institute of Medical Sciences (AIIMS), the Minister had made it evident that the Director of AIIMS, Dr. P. Venugopal, an internationally renowned cardio-vascular surgeon, was a thorn in his flesh that had to be removed. Soon after he got interested in the affairs of AIIMS, he came to the conclusion that the Institute was not functioning in the way it should and Dr. Venugopal was identified by him as the person who was to be held responsible and sacked. During this time, the quota agitation in April 2006 also affected AIIMS with the resident doctors joining the fray to protest against the proposed reservations for OBC. Rightly or wrongly, Dr. Venugopal was perceived to be tacitly supporting the agitation in AIIMS, further strengthening the Minister’s determination.

Having been totally consumed by the desire to teach Dr. Venugopal a lesson, the Minister used every possible device to pressurize and hound him out, an effort which saw the Govt. getting involved in the Courts time and again. When nothing worked, he convinced the Union Cabinet to amend the AIIMS Act with the sole objective of removing the Director in the garb of formulating a policy in accordance with the
directions of the Delhi High Court in a Public Interest Litigation. The Union Cabinet, in its wisdom or lack of it, decided to go along with Dr. Ramadoss and presented the Amendment Bill in the Lok Sabha in August 2007. Even a misleading picture was given to the Parliament in the Statement of Objects & Reasons for the Bill.

A fair idea of the stratagems adopted by the Minister was presented by Mrs. Maneka Gandhi (BJP/NDA) in the Lok Sabha during
the debate on the AIIMS (Amendment) Bill. The good Minister’s side as presented by himself and another member Dr. Karan Singh Yadav (Congress/UPA) is also found in the debate.

During the Lok Sabha debate, Mr. Braja Kishore Tripathy (BJD/NDA) repeatedly drew attention of the House to the fact that the Bill was unconstitutional and liable to be struck down. He said: “If you approve this thing, tomorrow, it would be declared unconstitutional by the court. So, should we be ignorant like this and approve this? That is my point and I am just trying to draw the attention of the entire House to know the provision of law. The same would be declared unconstitutional in the light of law laid down by the Supreme Court in a number of cases.” But, Mr. Das Munshi (Congress/UPA) mad
e it “abundantly clear that this UPA Government is not against any individual. We are streamlining the policy only.” The Bill was passed after a walk out by members opposing the Bill. In the short debate in Rajya Sabha, the CPI as well as CPIM, self-appointed conscience-keepers of the UPA also unequivocally supported the Bill.

The Bill became law on 30th Nov. 2007. On the same day, Dr. Venugopal was removed but he challenged in the Supreme Court, the provision of the amending Act under which he was removed. On 8th May 2008, the Supreme Court struck down as ultra vires and unconstitutional, the very provision in the Amendment Act under which Dr. Venugopal was sacked. The Supreme Court further directed that:

“..the writ petitioner shall serve the nation for some more period, i.e., upto 2nd of July 2008. We direct the AIIMS Authorities to restore the writ petitioner in his office as Director of AIIMS till his period comes to an end on 2nd of July 2008. The writ petitioner is also entitled to his pay and other emoluments as he was getting before premature termination of his office from the date of his order of termination.”

In the course of its Judgment, the Court observed: "…. the Parliament does not seem to have been apprised about the pendency of the proceedings before the Delhi High Court and this Court and declaration made and directions issued by the Delhi High Court at different stages." It is worth noting that the Delhi High Court Judgment dated 29th March 2007 had held that Dr. Venugopal was entitled to continue as Director up to 2nd of July 2008 and issued a Writ of Mandamus that premature termination could only be made for justifiable reasons and in compliance with the principles of natural justice. The conclusion of the Supreme Court was clear that the proviso to sub-section (1A) of Section 11 of the Act was only intended for Dr. Venugopal when it said: Such an impermissible over classification through a one man legislation clearly falls foul of Article 14 of the Constitution being an apparent case of “naked discrimination” in our democratic civilized society governed by Rule of Law and renders the impugned proviso as void, ab initio and unconstitutional.

Can there be a greater indictment of the Government’s actions?

This was an amendment initiated by one single individual to act against one other individual. No one in the Union Cabinet could have been ignorant of the goings on in this matter for well over an year, before the proposed amendment Bill was brought before it. The Union Cabinet knew very well that a particular part of the amendment bill was tailor-made solely to sack the Director of AIIMS at the whims of a single Minister, a relatively junior Minister at that.

The Union Cabinet could not have been unaware that the particular provision would run afoul of the Constitution, particularly as there were precedents in the Judgments of the Supreme Court in similar matters. It is inconceivable also that the Cabinet was so badly advised by the officials in the Ministries of Health and Law that they did not point out to the
judgment of the Delhi High Court dated 29th March 2007 and the Writ of Mandamus issued against the Govt. It is abundantly clear, therefore, that in approving this Bill for presentation to the Parliament, the Govt. knowingly threw all caution to the wind in completely ignoring the law and failed to maintain the high norms of probity expected of it. It presented a Bill to the Parliament concealing facts and misleading it. Similarly, even the Parliamentarians were aware all the time about the true intent of the amendment Bill. And yet, the Parliament passed the Bill.

The issue then is, that had it not been for the fight of principles carried on by the person affected by the amendment, the people would have remained mute spectators to the manner in which the Govt. of the country manipulated the legislative powers and the entire system to remove just one individual from office only a few months before his term was to end. It was as if that one person was the enemy of the entire Government. Sadly, even the Parliamentarians allowed themselves to acquiesce in this blatant subversion of the Rule of Law.

The lesson is that even in India of the 21st Century, Governments pretending to look after “supreme national interests” can and will continue to behave in an arbitrary manner and take subjective, suspect actions and abuse their power, whenever they think that ‘no one is looking’. The only solution against such tendencies that weaken Democracy is for the people at large to be alert.

For the Government, this incident may not be the last one to bring it discredit. Some of the actions of the Ministry of Health & Family Welfare are already before the Courts and as long as Dr. Ramadoss is allowed to have his way as a spoiled child, it may well be that the Govt. will keep getting more egg on its face.