A River Tells A Story

The first thing that hits you as you reach the end of the road is the sound. It doesn’t just hit, it assails; and as I came to realise, it takes over all your senses. The river Parvati rushes all the way down from the Man Talai glacier where it springs up as a tiny brook, gathering tributaries and waterfalls in its widening swathe, displaying its audible impatience as it rushes to meet its more popular counter-part Beas in the Kullu Valley. And, in one of the many sinuous bends the river takes to plough its way down, lies a small village called Manikaran, now a bustling pilgrimage site for both Hindus and Sikhs. Manikaran’s provenance is uncertain but if you listen carefully, amidst Parvati’s roaring din, you can hear many stories.

When I reached Manikaran for the first time in the mid-1980s, the motorable road ended at Manikaran, on the opposite bank. Today I believe it extends further up the mountain to a hydropower project. You had to cross a small metal bridge to reach the village. My first encounter was with a sadhu — smeared with ashes, wearing his basic habit but carrying a fancy rucksack with a sleeping bag tied to its top. Sadhus play an important role in the continuing allure of Manikaran by providing an unending supply of stories and mind-bending herbs to make the stories sound credible.

So, on Dusshera night in 1986, when all the tourists had departed to witness the Ramlila in Kullu, I sat with a sadhu outside an ancient temple. Among the many stories he recounted about the mountains in the region – including one about an ancient Shiva Temple which is struck down by lightning every year and rebuilt painstakingly by its priest with loving care – he shared an interesting legend about how Manikaran came to be and how it was named.

Legend has it that goddess Parvati came down to the river for a bath one day, wearing a precious stone gifted by her loving husband, Shiva the creator-destroyer. While she was busy with her ablutions, the serpent king of the river started coveting her gem. Caution soon yielded to avarice and the serpent king wrested the ornament away from Parvati. She was obviously distraught and went weeping to Shiva and complained about the bully (with the sadhu providing a side-bar on the couple’s infinite love and their timeless coupling).

Enraged, Shiva switched on his third eye. So powerful was Shiva’s wrath that the serpent king had to cough up the gem. And, to top it all, Shiva’s revenge was so violent that the gem split into millions of small hot and burning pieces when the serpent spit it out. Wherever they fell, hot springs gurgled up.

And so it came to be that the river – with its impetuous, abundant, ferocious and untamed demeanour – was named Parvati. The bend in the river is her ear and the small hamlet perched on a rock in the bend is the ornament in her ear, or Manikaran, a phonetic twist to the purer term Manikarn. That night, sitting on a cold marble platform, Parvati’s roar suddenly seem to grow louder at the end of the story.

Reprinted With Permission from Talking Myths Projects: http://www.talkingmyths.com/a-river-tells-a-story-2/

Working The Budget: Before India Goes Business As Unusual, Fix Patchwork Policies

One of the promises made by the BJP in its election campaign was to change the mode of governance. This pledge found resonance with voters because the dominant mode of governance and service delivery was felt to have been appropriated by the privileged, which included the politician-bureaucrat-businessman nexus. Narendra Modi’s rhetoric of “minimum government, maximum governance” promised to upend the superstructure. This meant giving the short shrift to business as usual.

But it would appear that it’s not so easy to extirpate the old ways of doing business. The decision to impose a punitive capital gains tax on debt mutual funds (MFs) has classic Indian bureaucratic response to market initiatives written all over it. Household and corporate savings have been exiting bank deposits and heading for fixed maturity plans (FMPs) and debt MFs. The government wanted to stop this because there was a tax arbitrage at play here. But what they failed to see is that there is also an issue of real returns here.

The problem is simple: interest income from bank deposits attracts income tax. After deducting tax and the rate of inflation from interest income, the real return received by depositors is negative in most cases. There are two options thereafter for investors: move their funds to physical assets, such as gold or property, or move to more efficient financial instruments. Since investment in FMPs and debt MFs qualifies for lower taxes, many depositors forsake bank deposits in favour of debt MFs.

The tax arbitrage could be eliminated by improving the real returns provided by bank deposits. In the short term, this can be achieved by aligning tax breaks on bank deposits and debt MFs. But this may be unrealistic and could create an undesirable precedent. In the longer run, though, the only way to provide positive real returns is to ensure that inflation doesn’t erode returns.

While the arbitrage opportunity has now been plugged, there is still no guarantee that all the money invested in debt MFs or FMPs will necessarily return to bank deposits. What the government does not realise is that the money moving from bank deposits to debt MFs stays in the system and is still available for productive investments; money that moves away to physical assets is lost to the economy.

In the end, to foster savings in the economy, the government will have to take a call on what kind of tax breaks it wants to provide on which kinds of financial instruments. The additional Rs 50,000 deduction from income allowed for investment in certain specified instruments suffers from the same syndrome: most of the instruments included in the list yield only negative real returns.

On another note, finance minister Arun Jaitley in his Budget exhibited some concern for the health of his fellow citizens by imposing a punitive levy, the so-called “sin tax”, on cigarettes. Excise duty has shot up from 11% to 72%. But the levy is limited to only cigarettes of 65-mm length and below. So, the message from the government: cigarettes over 65mm length, the “king-size” brands, are safer than the smaller ones.

What about competing tobacco products? The tax on gutka and chewing tobacco has been increased from 60% to 70%. But on pan masala, the duty has gone up from 12% to only 16%. What gives? This is policy, wittingly or unwittingly, creating a new arbitrage window. There have been reports over the last couple of years, ever since states started banning gutka sales, that these sachets of oral tobacco have been masquerading as pan masala. There is now a tax incentive for gutka to impersonate pan masala. Anybody doing research on the “law of unintended consequences” is sure to find a wealth of material in Indian government policy pronouncements.

If it was public health that was causing Jaitley anxiety, it is intriguing why he spared beedis. Perhaps political expediency requires courting some large beedi manufacturers, whose support is crucial for the upcoming state assembly elections.

Jaitley’s arithmetic for estimating revenue and expenditure numbers for 2014-15 have also invited some degree of scepticism. Even if we tamp down on the cynicism, it is clear that a meaningful Budget can be presented only in February 2015.

Published in The Economic Times on August 2, 2014: goo.gl/sKzcta