Black money is back

A property dealer from Chandigarh recently told me that black money is back in circulation as previously and property prices have regained their earlier pre-demonetisation levels. Large amounts of money were sent abroad by government servants and politicians in the months following demonetisation. They did not want to buy gold then because the bank lockers could be seized by the government at any time.

It was difficult to invest black money in property because of the government’s efforts to track benami properties. It was unsafe to keep cash both because it could be demonetised again and also because it was difficult to keep it out of the reach of the government. Therefore, they sent large amounts of money abroad through hawala. Now the government’s harangue against benami property has become less therefore some money is coming back into the property market.

To clarify, hawala consists of barter of currencies. Say, a person named ‘A’ wants to send black money of Rs 66,000 from India to the United States. He deposits this amount with the hawala dealer in India. A Non-Resident Indian named ‘B’ working in the United States wanting to send white money of US $1000 from the United States to India. He has two options.

He could send the money through the banks which would give him an exchange rate of, say, Rs 63 to a dollar. The hawala dealer in New York, however, will give him a rate of Rs 64. Thus, he sends the money through the hawala dealer. The India-branch of the hawala dealer uses the Rs 66,000 deposited by ‘A’ in India to pay Rs 64,000 to the recipient of ‘B.’
The US-branch of the dealer uses the $1000 deposited by ‘B’ to pay to the recipient of ‘A.’

The government cannot track these transactions because no transfer of money takes place across the borders. However, India loses the $ 1,000 that would have been received by the country if the money has been remitted by ‘B’ through the banking system. Government servants and politicians have sent out large amounts of money through the hawala after demonetisation.

The decline in growth rate in India since that time is because of wealth of the country going abroad through these transactions. Now we return to the main theme of this article. The government servants are recruited to ‘serve’ the people. But ask any jeweler in any part of the country and they will tell you that most gold is purchased by government servants.

One jeweler told me they were coming with old currency notes earlier, now they are coming with new currency notes. His business thrives as previously. Those who have been employed to serve the people have become their exploiters. Moreover, they claim their fundamental rights. Our High Courts are flooded with litigations by government servants regarding salary fixation, transfers, perks and promotions.

The courts are duty bound to adjudicate these matters. So, the government servants have the best of the both worlds. They claim benefits of security etcetera as applicable to the special category of government servants; simultaneously they claim benefits of fundamental rights as an ordinary citizen.

The situation is different with respect to the Army. Article 33 of the Constitution allows the Union government to make a law to deprive the defense personnel of their fundamental rights. This has been done by the Army Act. Thus, defense personnel cannot approach the High Courts for issues such as promotions. The need is to amend the Constitution to bring all government servants and PSU employees under Article 33. They must give up their fundamental rights if they want the security of government employment.

The Constitution provides for a balance between the Legislative, Executive and Judicial branches of the government. Thus, depriving the government servants of their fundamental rights would amount to removing the check of the executive on the legislative. They way out - keep the higher executive, say the secretaries and members of All India Services beyond the purview of Article 33.

It is only, they, if at all, who keep checks on the legislative. There is no need to grant fundamental rights to the government servants such as peons and school teachers. It can be argued that depriving the government servants of their fundamental rights will lead to tyranny of the politicians since government servants will then be bound to do their calling whether right or wrong. We face a difficult choice here.

At present the politicians and government servants are both bleeding the people. The government servants are supposedly accountable to the politicians who, in turn, are accountable to the people. But the politicians and government servants have created an unholy alliance to jointly bleed the people. The accountability of the government servants to the politicians is a sham. It is better to have a tyrannical politician who is accountable after five years rather than tyrannical government servants who are never accountable.

This approach should also be applied to the employees of the PSUs. The government proposes to offer a Voluntary Retirement Scheme to one-third of the 40,000-odd employees of Air India before steps are taken to privatise the ailing PSU. These employees will be given hefty packages to depart. The situation in other PSUs is much worse.

A class fellow of mine has been drawing salary from a public sector fertilizer factory for the last 20 years despite the unit being closed. The PSU employees are treated as government servants where their salaries and perks are concerned. But they claim autonomy and do not want to be held accountable like the government departments.

One Secretary to the UP government once wanted me to undertake some study. It was cumbersome to go through the approval process applicable to the government departments. So, he called up the MD of a PSU and asked him to give me the contract.

The PSU employees want the cake and eat it too. They should either be treated as government employees in which case they should be transferable from a PSU to a government department. The government must make a law to place all surplus PSU and government employees in a central pool wherefrom any other PSU or government department may lift them. Alternatively, they should be treated as employees of a commercial enterprise in which case Air India employees should be retrenched rather than given a lucrative VRS.

One reason the government servants are able to indulge in corruption without hesitation because they have the protection of their fundamental rights. The same applies to PSU employees. The solution is to deprive the government servants of their fundamental rights by expanding the scope of Article 33 of the Constitution that is presently applicable only to the army personnel. Author was formerly Professor of Economics at IIM Bengaluru