Trillions stashed in offshore banks

It's not only Switzerland where the elites like to hide their money. A recent report by the IMF has brought to light that multinational firms like Apple, Microsoft, Google keep billions of dollars hidden in offshore bank accounts.  

These offshore banking centers help the elites and other criminals remain incognito.

Some call this - Offshore capitalism. It was in the 1970s that this form of capitalism began, from the margins, to make itself known in the wider world. Multinationals and banks began as a matter of course to expand and grow through tax havens.

The reason these corporate elites don't wanna bring their money back into the US is the  inordinate corporate tax. If Apple takes back its money to the US, it'll have to pay a corporate tax of 35%. And that's the reason why instead of taking that money back, it has resorted to borrowing money at a rate of 9.1% to pay dividends worth $100 billions to investors, thereby saving large amount of tax.


Microsoft too has long kept a lot of its cash overseas, mostly in Ireland.It is keeping more than $51 billion in cash overseas to avoid high U.S. corporate taxes. Microsoft , Apple , Google together have around $134.5 billion outside the US.  These tech companies are calling for a repatriation holiday, where the U.S. government would temporarily suspend taxes on bringing cash back from overseas. 

According to guardian.co.uk , "On a conservative estimate, a third of the world's wealth is held offshore, with 80% of international banking transactions taking place there. More than half the capital in the world's stock exchanges is "parked" offshore at some point." $1.4 trillion  is being held in offshore banks in the Cayman Islands alone.

It's not only corporate elites who hide their astronomical wealth in offshore banks but politicians too. One such example is Mitt Romney.

The following comes from ABC news

"In addition to paying the lower tax rate on his investment income, Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans."

Can India be the next breakout nation?

A country of diverse cultures and traditions, myriad dialects, sects and religions ; a country of paradoxical characteristics ; a country where people are colorful , vibrant , proud of their rich culture, family-oriented, unreliable, casual, bear a proclivity to stereotype, favor close kin , have a high propensity to become corrupt and bear an excessive desire for social welfare of state to the extent of jingoism. Whatever can be said about India, the exact opposite is also true. In the words of Edward Hall, India is a classical 'high-context' society. 

After globalization in early 1990s, India saw escalation in growth and during the 2003-2007 boom, it reached its peak - around 8%-9% GDP. During the last few years, the backward states in India have been growing at a remarkably high growth rate while the growth in advanced states has been comparatively lower. Bihar , Uttarakhand, Goa and some other northern states have achieved high growth rate in recent years. All the credit goes to the dynamic CMs of these states who have transformed these states dramatically. But the overall growth is disappointing. Moreover, India doesn't seem to get out of this slump whatsoever.

Like most of the Asian economies, India too is in the phase where it is expected that the demographic dividend will assist in achieving remarkable growth. The elites particularly liken it to that of China. Although China has curbed the high growth rate in population, India's is still unbridled. Indians , on an average are expected to be younger than Chinese and this young work force is expected to drive the growth. But what we need to ask is will the employment generated be sufficient to assimilate this young work force completely? i believe the answer is no. 

Post that 2003-2007 boom in india, there engendered an over-confidence in the minds of the elite. They were busy spending the windfall rather than bringing about reforms that could sustain the growth. While the global oil prices were escalating , the politicians thought they can control inflation by keeping the prices of oil low. The foreign investors saw this as a sign of an upcoming danger. They started withdrawing their money from India thereby decreasing the value of rupee against dollar. The imports eventually became higher and inflation soared high.  The present hyperinflation due to excessive spending post the boom is very similar to Brazil's lot in 1970s. So if at all India were following the footsteps of any country at all, it would be Brazil and not China.

China is a state controlled economy while India is a liberalized one. India's resemblance to Brazil (both high context with extreme desire for social welfare of nation) can also be seen in the government intervention. Petrobras ,a Brazilian multi-energy corporation, is still suffering due to the government intervention. It's stock price fell from 50$ to 14.6$ a share. Investors and speculators have dumped the shares witnessing a steep fall in the share price. At present the stock is hugely undervalued and therefore can be attractive for those who have that insight to see through and estimate a firm's true worth. Well that's a totally different story. I'll get back to it in another post. Another reason for the deplorable state of the firm apart from the government's desire to sell oil at a cheaper price is that, the government wants only indigenous machinery and equipment to be used in drilling, refining and other operations. Sounds a lot like India before Globalization in the early 1990s when the unanimous cry of the politicians of our country was that India must be made self-sufficient and independent. The import tariff was absurdly high. Imports were extremely expensive. Indigenous industries were not much developed. We were oblivious of the state-of-art technologies being used by the best of the countries. Consequently the GDP stood around 5% and inflation was high.

One of the biggest hindrance in the path to development is that there is hardly any creative destruction in India. A flaw in the system remains a flaw and usually the citizens either get used to it if its a trivial matter or protest vehemently for a short period of time during which the administration turns a deaf ear towards them and so they ultimately find themselves helpless. For instance, the protest against corruption. A lot of protest went in vain. That's because the government can never pass a bill that has real teeth. After all, their interest is above everything else. Reforms are needed in the field of business too. There is no provision for exit of failed business in such a way that the investors don't lose their money. Top-down reform is needed at every level that can substantially boost the economy. Recently, our finance minister Mr Chidambaram has taken a few wise steps which will most probably help bolster the growth. GDP is expected to reach 6.1%- 6.7% while WPI inflation is expected to fall from 7.45% to 6.2%-6.6%. The budget will no longer be kept a secret. This move is expected to ameliorate investor confidence and improve India's credit rating. It worked well until recently when Moody's warned India that targeting double digit growth will lead to negative consequences. 

It is a pity that even the elites remain indifferent towards the lot of this country. There are hardly a few who actually strive to provide growth and bring about reforms.  Our PM Manmohan Singh who is seen as merely a puppet in the hands of Sonia Gandhi brought about some tremendous reforms in early 90s and also last year. During both the instances he was initially opposed and censured but ultimately his decision proved to be a much needed reform. Moreover, he was the first person who said that coal blocks must be auctioned and not allocated in 2006 but none paid heed to it. The irony lies in the fact that when CAG brought to light the "Coal block scam" , which wasn't a scam in any sense because licenses and coal block have always been allocated in our country, he was alleged of this transgression.  

India's per capita income is around $1400, which is pretty low. This gives a huge potential for a high growth rate which will not be very difficult to achieve. The tough part is sustaining that rate as the per capita income increases.We need reforms that encourage start-ups. Entrepreneurs should be assisted in every way and starting a business must be made easier for them. India's debt/GDP ratio has fallen. It is on the leading side in the field of software , pharmaceuticals , and automobiles. If sensible reforms are brought about in judiciary and amendments in constitution, India will experience gargantuan changes. The bureaucracy needs people who not only have exceptional ability but also do not have a proclivity to stoop so low as to encourage or practice graft, corruption and nepotism. Fast-track courts, which are actually fast in delivering justice, conviction of the culprits must be setup. Our complete system needs to be overhauled in order to give India an edge over others in becoming the next breakout nation. 

Crony capitalism in India

Capitalism is an economic system in which the means of production and properties are owned by people. Crony capitalism is one in which the business relies closely on government officials in order to earn it's stupendous share of money. No doubt the government officials too have their share in the gargantuan pie of wealth which they receive in return for their nepotism and for paving the way for the business leaders. Recent revelations have brought to light a number of such malpractices.

Fodder scam, Taj corridor scam, 2G scam, Coal block scam, Vadra scam - to name a few - enkindle the nation for short span of time and are soon forgotten by the fickle minded masses. 

In the US , a lot of top businessmen are convicted every month. But this does not happen in India. That's something worth pondering over. Anil Ambani's Swan Telecom and Unitech were allegedly involved in the 2G spectrum scam but no none of the accused were convicted beyond appeal. The same goes for Robert Vadra scam. Robert Vadra was accused of having amassed crores of rupees through his illegitimate dealings with DLF and nepotism shown by the Haryana government. No one has been convicted beyong appeal yet. INLD leader Abhay Singh said - "The Congress in alliance with CBI and its 'B' team hatched a conspiracy in order to save Robert Vadra (son-in-law of Sonia Gandhi) in the land scam in the state," he alleged.

Once poster boy of BJP, Nitin Gadkari, began building his private empire. Besides favouring infrastructure companies for key road projects, Gadkari set up his own Purti group of companies, which included a controversial private power generating firm. When TOI exposed Gadkari over rampant irregularities in these firms, Gadkari retaliated, saying, he was clean and has the blessings of powerful people in the BJP and RSS. Eventually , I-T men raided the firms associated with him and he was accused of being involved in fraudulent practices. His firms had fake directors, offices and it remains dubious if they really have any assets or not.  But Gadkari on the other hand haughtily held out a threat to the Income Tax department. He said that no one will be able to save them when BJP comes to power. Gadkari affirmed that he is not involved in any malpractice, his intention is to help the poor farmers and that a collusion is being hatched against him. 

The IAC website claimed that Gadkari has "five power-producing industries and three sugar industries in Maharashtra". "In a short span, Gadkari has built a huge business empire, with more than 15 companies in (several) sectors, including construction, sugar, distillery, power, coal, agro, etc," the website read.

According to a recent World Bank report, India ranks at 183 out of 184 countries of the world in enforcement of contract. This brings to light the dire need for some grave amendments and overhaul needed by our system which at present is in the interest of only the crooked politicians and businessmen of our country. Majority of the masses remain oblivious of the loopholes in our system. The wonky politicians ensure that none of the Bills introduced in the parliament is mordacious enough to harm their interest. That is exactly what they did to the Lokpal Bill, which even if passed in the original form would not able to serve its true purpose to a substantial extent. The change needed is in the police-judiciary system. As long as our senescent and futile system prevails, such instances of corrupt malpractices on the part of politicians and businessmen will continue to prevail and most probably thrive in future. 

Needed: Constitutional amendments and judicial reforms

The Indian constitution and the judicial system can often make any sane person laugh. It takes forever to hang a terrorist and render punishment to a rapist, murderer, or a robber even after they confesses their crime. Cases continue through generations. Some people forget what were they fighting for in the first place while others die of old age. Yet, the saga continues.

It's no rocket science and can be easily perceived at the very first sight that the system is seriously flawed. So it shouldn't come as a surprise that crime is encouraged and engendered as a ramification of such flaws.

The rapid and unbridled escalation in crime against women remains a prime concern of people especially belonging to the middle class families. The macabre and gruesome incident of Delhi bus rape shook the whole country. Numerous protest exploded in different parts of India. Other parts demonstrated peaceful protests, suppressing their rage within themselves. Yet, the government remains indifferent to this day. The apathy shown by the government is not only appalling and bewildering but extremely outrageous. The culprits have been nabbed. But their case seems to perpetuate indefinitely and who knows they might even elude any sort of punishment. Moreover,  it's surprising to see that despite having committed an act that would have shamed the whole of humanity, it's raining lawyers for them who are using their good old flim-flam to "lawyer" the victim and assist their client escape any kind of punishment. One of the lawyers who is defending the rapist was asked why he was doing so, and he replied - because my mother asked me to do so. Well , none of us is oblivious of the fact that rhetoric is the hall-mark of lawyers. Kudos to you Mr. lawyer!

The masses of our country have been rightly demanding for death sentence for the culprits. I guess that's the least that must be done. As always, the government set up a committee  - Justice Verma committee - to probe into the matter and decide what punishment must be rendered to rapists. The committee came out with it's report yesterday. Not surprising to the aam aadmi, who are almost always disappointed and have learnt to live in dismay, it did not consent to death penalty or chemical castration for the rapists. The most probable reason being the abuse of this law. Honestly, this reason sounds lame to me. We do have provision of punishment for rapists - however ludicrous they may seem to the victim but they are there. How often do we hear about the abuse of this existing law? That's sheer jibber jabber concocted as a good excuse to prevent any harsh law being framed which is not in the interest of the elite or the closest of their kin.

Committees are set up, laws are made, "reforms" are brought about, but nevertheless, the culprits escape punishment with ease.  The roots of corruption have entangled not only the bureaucrats but also the judiciary. India Against Corruption leader Arvind kejrival has proclaimed that their next target would be the Indian judiciary who is responsible for delaying the case for many years without any decisive outcome.

Rampant corruption , loopholes in the constitution and ground-hugging levels of convictions in cases of crime encourage more such crimes. An instance of exploitation of such loopholes can be readily seen in the way "juveniles" are treated by court. The most brutal of the culprits of the Delhi gang rape case pleaded that he is a juvenile and should be convicted by the juvenile court. Really? I believe convicting him under a juvenile court would be the most preposterous decision that can be taken in such a case. It would be a lachrymose demise of justice in our society and an indelible blemish on our judiciary system. The decision taken by a juvenile court can leave many shocked. Rapists, murderers and other culprits of the most grisly crime may be sent to counselling for a few months,or maybe sent to do some social work, plant trees or any other sort of stuff. Why? because they are only 17 years and 11 months old. In such a flawed system, one can hear the rapists and murderers sniggering while the family of the deceased weep helplessly and cry their eyes out for they have no one to resort to.

Kingfisher bankrupt but Mr. Mallya's profilgacy perpetuates

The crisis-ridden airline's lot does not seem to ameliorate anytime soon. Its employees have not been paid since May last year. The airline owes money to airport operators, oil companies and other vendors. It's stock has recently plummeted by 11%. The surprising part is that despite being bankrupt, the airline was allowed to fly for so long. The fact is Kingfisher never made any profit ever since its inception. Not even when its rivals were profitable. But inflated egos did not allow Mr Mallya to file for bankruptcy.  Piling burden of debt eventually wreaked havoc. 

Kingfisher's flying license has been cancelled and it has been asked to pay its debt and the outstanding salaries of its employees. Kingfisher is burdened with a loss of Rs 8,000 crore and a debt burden of another over Rs 7,524 crore, a large part of that has not been serviced since January 2012. But nevertheless, even in such dismal times, Mr Mallya donated  gold bricks, weighing about three kg, to a temple at the famous hill shrine of Lord Venkateswara on his 58th birthday. CEO Sanjay Agarwal continues to be one of the highest paid CEOs. In August, Mr Mallya offered 80-kilo gold plated doors to the Kukke Subramanya temple in Karnataka. Most probably he believes that such offerings would make the gods happy and they would pull his company out of the financial crisis. 

India has not been able to bring reforms that can facilitate exit of such businessmen who are not capable of handling the business adroitly. During the early 90s , in the times of license raj , there were very few indigenous companies because getting a license permit was an arduous and herculean task. So the handful of companies that existed received a great deal of protection from the banks. This tradition continues to this day. In the US, creditors can seize a company that defaults on dues, and sell it to a new owner. India too needs similar reforms. Mr Mallya is reportedly on the verge of striking a deal with Abu Dhabi’s Etihad Airways.  Etihad will buy a 48% stake in Kingfisher for $552 million. Etihad's stake in Kingfisher can meliorate the condition and enable it to fly again. But rehabilitating Kingfisher will cost around a billion dollars. And a new airline can be started for maybe just $100 million. No wonder the deal hasn't been closed yet.