Artha kranti or submission to banking cartels
by Krishnarjun on 13 Jan 2014 7 Comments
Recently there have been some reports in the media that the Bharatiya Janata Party (BJP) is seriously thinking about some “artha-kranti” proposals that will revolutionize the Indian economy. The proposals seek to eliminate all direct and indirect taxes like income tax, sales tax, corporate tax, service tax and replace them with a single flat bank transaction tax (BTT) on every bank transaction.


The proposal seems to have the support of yoga guru, Baba Ramdev. At a recent Bharat Swabhiman function at Talkatora Stadium in Delhi, Baba Ramdev exhorted the BJP’s top leadership that was present to implement the BTT proposal. Narendra Modi, who was present, wisely didn’t commit anything but agreed on the broader necessity for rationalization of the tax structure.


Baba Ramdev’s commitment to swadeshi and swabhiman, his articulation of the interests of neglected sections like farmers, rural India, the poor, and his achievements in reviving yoga and ayurveda among the masses is commendable. But it seems that he is being misled on the effectiveness of BTT to achieve his declared goals of swadeshi, swabhiman, system change (vyavastha parivartan) and real freedom.


BTT is nothing other than facilitating the rule of banks via digitalization of the economy. A flat 2% bank transaction tax on every transaction as a substitute for all taxes, which accumulated amount would be divided between the central, state and local governments and banks in a standard proportion. To prevent high volume cash transactions, the BTT proposal seeks to remove high denomination notes above Rs 50 from circulation and withdraw legal sanctity to cash transactions above Rs 2000. These proposals in effect mean massive digitalization of the economy. Keeping aside the feasibility of digitalization in an Indian context, given the huge population not covered by the banking system and the necessity for huge technical infrastructure to support such operations, let us look at the proposal on merit.


The proposal claims BTT would yield more revenue to the Government than the traditional taxation, while benefitting all sections of society. That cannot be true because under this generic tax, the poor would end up paying the same tax as the rich – that is, not on income (which for some is tax free, for others is as per income tax slabs), but on each and every bank transaction. That is to say, for every drop of milk and every vegetable purchased! There is no exemption at all.


Thus, the poor will pay tax from their meagre incomes, while the rich would have the luxury to keep all their extra earnings with nominal tax – because they will not be paying taxes on income, but only on actual spending! Businesses anyway would pass on this bank tax to customers. The net result would be that everybody would be taxed at the same level, irrespective of income levels.


The efficacy of the proposal in preventing black money is dubious. High volume transactions will always find a way to bypass the banking system even when the highest currency denomination is Rs 50. A new mafia with political backup would emerge (remember prohibition in America?) to facilitate high volume cash transactions at charges less than the official banking system. Even gold and other precious metals at market value could be used as transaction medium. Most black money anyway is not stashed in safes; it’s channelled into real estate, converted into gold or commodities or sent out of country via the hawala route. With this proposal, the huge savings of the rich and affluent would easily find its way into assets, gold or rent seeking activities.


Those who have suffered the red tape, corruption and harassment of the tax bureaucracy may find BTT attractive, but banks are not entirely free from corruption either. The privacy and security of transactions would be no longer guaranteed. The risk of exposing vital account information and losing deposited money to fraudsters could increase with digitalization.


The consequence of this proposal to economic freedom and systemic change is negative. In fact, it would end up strengthening the very groups that wage economic warfare on common people by financial chicanery. To understand this, we have to look at the role of banks in the economic system.


The banking system as it operates today is part of the problem. It creates money and could increase or decrease money circulation by fractional reserve system. The system could cause inflation and deflation by controlling few levers or changing few rules at the top. The money supply has to match the growth in GDP; inadequate money supply causes deflation and excess money supply causes inflation.


Let’s say X amount of money is in circulation in the economy. A farmer or small entrepreneur gets loan Y from the bank and generates some economic output. This economic output has to be sold at Y+Z amount for him to pay interest and make some profit. This extra Z money for interest payment and profit also has to come from the banking system via lending activity. If X+ Z money is not available in the economy, even though the farmer gets a bumper harvest or the small entrepreneur makes a quality product, both end up selling their output for less than their investment Y. Even if the output sells at Y they make a loss since they have to pay interest to the bank.


So investment, interest payment and profit are at the mercy of the banking system for the small entrepreneur. The economy is driven by bank lending and they can cause inflation or deflation by expanding or contracting credit. Banks played a central role in major and minor economic booms and busts in modern world history. At the end, the farmer or small entrepreneur has to lose his property pledged as collateral to banks and big money buys it for cheap rates from banks. That’s how banks help to consolidate assets and economic activity under big money over time. American president Thomas Jefferson said, “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.”


The question arises - why should new money to match increased economic growth enter the system again via bank lending to mostly big business? Why can’t sovereign governments create money (Z above) outside the banking system to match increased economic output and channelize it into the system as bonuses to farmers, soldiers, incentives to small entrepreneurs and increased expenditure on social sector? With increased purchasing power among the masses, business would also grow.


For big business it works the other way. The banking system finances big economic expansion with loans, mostly given to business elites, only to write off the majority of them later as non performing assets (NPAs). The same elites and their “intellectual” stooges make a big hue and cry when farmer loans are waived off and brand it as populism. The new money that enters the economic system via banks mostly ends up in the pockets of a few chosen business elite at the top. For the small entrepreneur, the system demands accountability for the loans it underwrites.


The new money that enters at the top of the business hierarchy always tends to monopolize economic activity. Though it may be true that some of the money stimulates innovation and thereby creates new avenues of growth, the final destination is economic monopoly of traditional core sectors. Gradually few corporations and financial elites form the nucleus of the whole economy. With firm control over the economic system, they monopolize and make independent small businesses unprofitable; only those small businesses that have a dependent relationship with them can survive.


The monopoly of the banking-corporate system cannot be complete unless they make all economic activity subservient to them. They specifically focus on three areas apart from control over the monetary system - monopoly over natural resources, retail trade and agriculture. A sustainable self-reliant agriculture and a significant population involved in it is a perennial danger to their political and economic hegemony.


The western economies have finished off agriculture as a significant economic activity with less than 1% contribution to GDP; bank- corporations now own most farm land directly or as mortgages. Only 1-2% population is involved in farm activity. Every economic activity has been linked to speculation in stock markets. The livelihood of more than 95% population is now dependent on stock market speculation controlled by a banking-corporate nexus. In a bank debt driven economy the never ending debt cycle starts with birth and doesn’t end with death for an average citizen.  


Citizenship has become nothing more than a social security number (Aadhaar number) useful for the banking-corporate system to monitor every activity of the citizen in a digital economy. With almost 99% of the population removed from farms, the citizens of western economies have no independent economic life. They have little option outside the control of the banking-corporate elite. Their democratic rights are limited to choosing between candidates supported by banking-corporate oligarchs as presidents and prime ministers.


The banking-corporate elite in every country is connected to the global banking elite primarily operating from western countries; most of them are free from any national sentiments. Their agenda transcends national boundaries. One of the most important agendas of this financial clique - apart from controlling global natural resources - is destroying food security and self-sustaining agriculture in every country by coercing governments to sign international agreements that remove protective barriers and let international corporations monopolize agriculture input and output.


Baba Ramdev professes a desire for system change and real economic freedom for farmers and the poor. So how would giving more control to the banking system help achieve this goal? It is surprising that he has devoted little thought to systemic changes that make Indian agriculture vibrant, self-reliant with organic output, and support small entrepreneurship in manufacturing and services.


Just bringing black money from outside won’t make India rich or provide employment for everyone overnight, though it might help the current account deficit and clearing of external debt. Economic prosperity is not exactly equivalent to money and it takes thorough planning and efforts over time to achieve it.


There are many ways to prevent black money by streamlining and modernizing asset registration to prevent benami land registrations, as most black money goes into real estate. Hawala transactions are another conduit for high volume black money to go out of the country. The international tax havens are there for a purpose, to encourage elite corruption in every third world country by promising financial insurance against domestic disturbances; they are an integral part of the global financial clique. A decentralized economic and administrative system that increases transparency and accountability would be the biggest antidote to black money


The artha kranti proposal to control black money is like setting fire to a house to drive some rats out. Removing tax would only help big businesses to monopolize economic activity. A stable rational tax structure on income helps in economic growth and stability, gives revenue to the Government to fund basic and critical infrastructure that cannot be delegated to the private sector. Preventing leakages in public expenditure through corrupt practices would help stabilize the system.


In his speech, Ramdev Baba also demanded minimizing the tax on petroleum products to reduce transportation costs. This is an unnecessary demand and won’t help in the long run; why increase consumption of a resource that has to be imported? India has to focus more on world class public transportation than can better serve the common man and reduce fuel imports.


Baba Ramdev raised an important issue about Indian languages in the education system. The ingenuity of many Indians from rural and economically disadvantaged backgrounds is killed by English elitism. Ending English infatuation is a step on the path of national rejuvenation. The Bharat Swabhiman convention discussed the plight of the Indian farmer and the necessity to enhance farm income.


Bharat Swabhiman Trust and others aiming for real freedom should focus on economic decentralization with emphasis on self-employment through small enterprises and systemic changes to make agriculture viable and independent. They have to resist oligarchs taking over natural resources, prevent corporate takeover of retail trade and agriculture. Swarajya is about economic independence of the masses, not the rule of oligarchs and their puppets. Without a critical mass of economically independent population who can demand accountability from the system democracy is destined to turn into oligarchy.


The BJP top leadership, including Narendra Modi, participated in the Bharat Swabhiman convention. In the last ten years, they have shown no interest in solving the farm crisis. States ruled by them have a good record but they need a national plan with a long term vision to revive agriculture and the rural economy.


Even leaders with the best of intentions can be misled by stooges of global finance who infest the system in important positions. The mark of great leadership is to listen to all and apply one’s own mind and experience; one hopes Narendra Modi will choose the path leading to real prosperity and freedom for the masses. As a beginning, he must examine if the artha kranti proposal is not a wicked ruse to legitimise and embed Nandan Nilekani’s pernicious Unique Identity gimmick that the UPA and all authorities under its control are rushing through at breakneck speed. Despite the Supreme Court of India ruling that UID is non-mandatory in a host of places, the requisite notifications have not been issued and the Aadhaar card has been made mandatory. A section of the BJP has always been complicit in this duplicity. Narendra Modi has to ask himself if globe-trotting individuals from various fields who have met him in recent months have promoted the digitisation of the citizenry and/or other dubious projects in any way. The way ahead will then suggest itself. 

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