Watching The Watcher - Part I

CMP stands for Container Managed Persistence for me, Common Minimum Programme for the UPA, and Conveniently Missed Points for the people.
I came across this site when i was in Mumbai and its been more than a year since i visited that site. I should say its a find of sorts, with data to back up the claims made in the articles.
Worth reading......

The UPA Government's Economic Policies (whole story)

Some excerpts......

The comparison is stark: The UPA Government trumpets the additional Rs 120 billion toward the whole range of basic human needs as a great boon to the people; whereas it hands over an additional Rs 110 billion to foreign arms manufacturers casually, without comment, and not a single parliamentary party, the CPI and CPI(M) included, dares to raise an objection

Continuing the policy of semi-starvation

The urgency of these measures is underlined by the starvation deaths taking place in many parts of the country. For example, according to a study by the family welfare and tribal welfare ministries, 1,020 children in five tribal districts of Maharashtra died of malnutrition in April-May 2004; and 9,000 children in the state's tribal districts died between April 2003 and June 2004. (Indeed, a Government-commissioned study conducted by Drs Abhay and Rani Bang claims that there is massive under-reporting of child mortality in Maharashtra: the study puts the annual figure for deaths of children from all causes at 227,000.) It is likely that systematic studies in several other states would reveal a similarly grave situation.

However, there is no measure in the Budget to remedy this situation. Instead, the allocation for the food subsidy is kept at last year's level. The NDA government introduced the Antyodaya Anna Yojana, which is meant to provide only the "poorest of the poor" with foodgrains at Rs 2/kg. The coverage of this dwarf scheme has been slightly increased, from 15 million families to 20 million families. In fact, the NDA's Interim Budget of February 2004 had already taken this step. At any rate, the additional coverage is so meagre that it is of little importance.

Reassuring foreign capital
What is the justification for the Government's decision to increase the limits on levels of foreign investment in the insurance, telecom and civil aviation sectors (from 26 per cent to 49 per cent in insurance, from 49 per cent to 74 per cent in telecom, and from 26 per cent to 49 per cent in civil aviation)? Chidambaram's claim is that "There is an urgent need for infusing huge amounts of capital in these sectors", and that foreign investment will "add a competitive edge". First, it is particularly laughable today to cite the scarcity of capital as a reason for inviting foreign investment. Indian public sector banks have been flush with funds for several years, and have been unable to find industries that want to borrow for investment. The deputy governor of the RBI pointed out recently that the RBI had absorbed Rs 100,000 crore (Rs one trillion) of idle resources from the banks. Instead the banks have been using the funds for speculation in the capital markets, or have been lending to well-heeled consumers to buy houses or cars.

Here's the bestest......

Gains for speculative capital
The stock market boom had no benefit for the economy as a whole, since hectic trading merely redistributes wealth among the players in the market. If the boom had led to companies issuing fresh shares, and thereby funding fresh industrial investment, that would have been a benefit; but that did not happen, and there was only a handful of such issues, raising a negligible sum.

In brief, the prosperity of the share market was neither the outcome of a booming real economy, nor did it benefit the real economy. And the 'success' of the giant disinvestments carried out by the Government via the share market was merely the looting of public assets. Hence the concern which the powerful print and electronic media whip up for the 'health of the stock markets' is merely their concern for the prosperity of speculators, domestic and foreign

Most importantly, the tax on long-term capital gains in share trading has been scrapped altogether, and that on short-term capital gains has been reduced to 10 per cent. This is a stunning tax give-away. Wages above Rs one lakh are taxed at the rate of 20 and 30 per cent; but speculative income is taxed at a much lower rate!³

The media and various political parties did not mention this grand largesse. Instead the media focused on Chidambaram's proposal for a new securities turnover tax (STT), which was portrayed as a death-blow to the share market. The STT was a small tax to be levied on the buying of shares, at the rate of 0.15 per cent of the value of the shares. Thus a person who bought shares for, say, Rs 100,000, would have to pay Rs 150 as transaction tax. Evidently, for a person who bought shares in order to hold on to them, in anticipation of dividends or long-term capital gains, this would be a negligible amount. However, a certain class of speculators buy and sell continuously without taking delivery of the shares. Typically, if a speculator anticipates that the price of a share will rise, he buys it at the present price; but before he has obtained delivery of the share itself, the price has risen, and he sells it again at the higher price. The difference between his buying and selling prices is his profit. Similarly, if he anticipates the price of a share will fall, he sells it even if he does not own any shares of that company. When the price falls, he buys the share; the difference between his selling price and his buying price is his profit. Innumerable trades of this type take place every day among brokers. Obviously, some actual deliveries have to take place to square up the positions of different brokers at the end of the day, but deliveries make up the lesser part — perhaps 30 per cent — of the total trades.

Now, if each such trade were taxed, those engaging in hectic speculation would pay the overwhelming bulk of the tax. Of course, the rate proposed by Chidambaram was so low that it would not curb speculation, but merely earn a little money for the Government. However, an orchestrated uproar against the tax began immediately among share traders and the media, and within two weeks Chidambaram drastically revised his proposal. The tax would now be paid at 0.15 percent only on actual physical deliveries, and would be shared by the buyer and seller. In the case of trades where delivery was not carried out, the rate of tax would be one-tenth of that, ie 0.015 percent. The revenue loss on account of this change is put variously at between Rs 4,000 and Rs 6,000 crore (Rs 40 and 60 billion).

The share market and the media greeted this with hurrahs. And in the entire drama, the giveaway on capital gains tax was effectively covered up.