Black Money and demonetization

Black Money and Demonetization

Black money is generated by not accounting business profits by businessmen and money earned through corruption, bribes, siphoning of project funds by politicians and bureaucrats. These category of people do not sit on hard currency that they so amass for longer period. Mostly such money gets invested in real estate which in turn is owned by the trusts, societies, HUFs, partnership firms owned by them. Only a fraction of such investments get accounted as the declared value of the property is much lower than the price actually paid. For example when a politician buys a land for Rs 10 crore the recorded sale deed is only for about Rs 50 lakhs. Simply the black money is hidden in such properties. Our netas and babus purchase lands, buildings and apartments in different parts of the country to escape easy detection.

There is a provision in Income Tax rules that if a reported value of a property is less than fair or market value the department can acquire the property at the so called agreed transfer price. But this provision is rarely exercised.

Government cannot track properties owned by an individual if such properties are lying in different part of India. Land records are not fully computerised and not linked to either PAN or Aadhaar. Entities like partnership firms, HUF, Trusts and societies help these corrupt people to avoid detection.

No real benefit will result unless the real estate investments are targeted. Under reporting of land value is the easiest way to hide black money. 

All IT, ED raids have been targeted at businesses and no politician is touched. Netas protect netas and fool the people of India. Sure no politician will be caught this time. 90% of politician's black money is hidden in real estate and nobody is sitting on hard currency.

The white paper on Black Money prepared by Govt of India is very detailed and still holds good
http://finmin.nic.in/reports/whitepaper_backmoney2012.pdf

Current Best(sic) practices to convert black money into white
1. Many educational institutes are paying 6-10 months salary as advance to their staff in old currency
2. Students of colleges are given Rs 40000 in old currency to get it converted by offering 15% commission
3. Cooperative societies and banks controlled by politicians are working 24x7 in creating deposits and FDs back dated and parking old currencies
4. Brokers are busy exchanging old currency at 30-50% discount
5. Buy land or property by paying 20-30% high rate using old currency
6. Dole out interest free cash loans to employees/ self help groups and with repayment scheduled one year later
7. Buy US dollars in the grey market

Updates to follow.

How to eradicate Capitation Fee?
(or Donation / Building Fund / Development Fund )

Almost all seats in the management quota in engineering and other professional colleges are sold openly and cash collected by the management of these institutions. In most leading colleges the admissions for 2008-2009 under management quota has been completed. Officially these institutions maintain that they are yet to start the admission process. The admission to various branches of engineering, medicine and other professional courses under management quota has been booked by collecting large sums of amount in cash under capitation fees, development fund etc without any official receipt.

The governments at Cental and various states and the governing bodies for education in India like UGC, HR Ministry, AICTE (www.aicte.ernet.in) all maintain that they have not received any complaint regarding illegal collection of money for admission by any college in India. This is collective play acting by all these bodies and every school leaving kid in India knows the current market rate for getting admission in colleges and universities run by trusts and societies. Merit has no place in this collective game of greed and loot.

These public charitable trusts and societies amass huge wealth every year by granting admissions under the management quota and the so called donation is collected in cash and no receipts are issued in most cases. This is one of the main causes for the spiralling real estate prices as the black money finds its hiding place in investments in real estate where the declared price of land is often a fraction of the actual transacted value.

When temples can get administered and controlled by government through direct supervision and by appointment of officers (like Hindu Religious and Charitable Endowments Administration Department in Tamil Nadu www.hrce.tn.nic.in) why not the educational institutions and universities the so called public charitable trusts be administered by the government in a more transparent way.

In 2007 the capitation fees collected for admitting a student in engineering course by these colleges ranged between Rs 15lakhs and Rs 3 lakhs depending on their reputation and demand. It is still worse in private deemed universities where the number of seats in some branches of engineering is increased depending on the demand. In one such deemed university about 2000 students are admitted to one or two branches of engineering. and most of the seats are filled only after collecting capitation fee from each student to the tune of Rs 7 lakhs and above.

It is time these educational institutions which are taking advantages of benefits granted to public charitable trusts and societies taken over by government and administered to ensure that the education is not only for the rich and these institutions are run as per the objectives laid out in their trust deeds and society registration declarations. If that is not possible then government should appoint trustees from government and eminent personalities with high integrity and rotate them periodically.

India has seen tremendous growth when sectors like telecom, banking and insurance are privatised and in all these sectors the prices have come down. It is right time that government should open all forms of education to private sector, remove restrictions like number of seats etc. At present due to restrictions, regulations and licence raj the demand far outstrips the supply. The total cost of setting up an education institution and getting all necessary permissions becomes too large due to present state of affairs. Under the deregulated regime initially there will be mushrooming of institutions but on the longer run the best will survive. Let the public and students decide the best.

Under right to information act, government or UGC or AICTE should collect information from the public through their web sites on the current rates of capitation /donation prevailing in various colleges and trigger CBI enquiries on a continuous basis. The information provided by the public should be collected without the need to declare the particulars of informants and it will help gather more feedback on such practices from the affected students. At present the government wants information or complaint from the student / parents to initiate action. This is not possible and practical as it affects the student's future and safety.

If these institutions are for the purpose of promoting education only, then why there should be separate government and management quotas. All state governments should start more engineering colleges and at least one medical college per district. More participation from the government side will create a level playing field and much needed intervention from government towards the welfare of its citizens. Government of India should fix a target for college/university to population ratio and increase the supply to match the demand some thing similar to what it has achieved in Teledensity.

NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION, NEW DELHI said in one of their judgments

"Capitation fee cannot be permitted to be charged and no seat can be permitted to be appropriated by payment of capitation fee. “Profession” has to be distinguished from “business” or a mere “occupation”. While in business, and to a certain extent in occupation, there is a profit motive, profession is primarily a service to society wherein earning is secondary or incidental. A student who gets a professional degree by payment of capitation fee, once qualified as a professional, is likely to aim more at earning rather than serving and that becomes a bane to society. The charging of capitation fee by unaided minority and non-minority institutions for professional courses is just not permissible. Similarly, profiteering is also not permissible. Despite the legal position, this Court cannot shut its eyes to the hard realities of commercialisation large amounts of education and evil practices being adopted by many institutions to earn for their private or selfish ends. If capitation fee and profiteering is to be checked, the method of admission has to be regulated so that the admissions are based on merit and transparency and the students are not exploited. It is permissible to regulate admission and fee structure for achieving the purpose just stated."

UGC has banned capitation fees in any form by Private deemed universities. http://www.indiaedunews.net/Today/UGC_bans_capitation_fees_in_deemed_universities_3218

The readers of this article are free to post their replies with the information of going rates of donation/capitation fees at various colleges in India.

Strange Fight.

Normally in river disputes the people in the downstream protest demanding release of water from the people living in upper stream or catchment areas. The present protest by people in Karnataka defies logic. How does it effect them if people in Tamil Nadu build dam to divert water for drinking purposes in drought prone districts. The dam will capture water which is released by Karnataka and in most cases it overflows once all the storages in that state are full and overflowing. In fact Tamil Nadu should protest for the numerous dams and canals built in Karnataka since 1950s under various world bank assisted schemes.

Accountability in New Insurance Companies.

Marketing operations of private insurance companies is facing major problem in India. After the opening of insurance sector to private companies – man power requirement by these companies is posing a great challenge. The low level of insurance penetration and rising incomes has opened huge opportunity to the newly started insurance companies.

Insurance companies need agents to deliver their products to customers. The agents require training and license from IRDA. No body is paying any attention to the basics of selection of agents, training on insurance concepts, products and sales skills. The agents are attached to Unit Managers ( or business development managers or sales managers or team managers) and it is the duty of Unit Managers to bring business through the agents.

The insurance companies today face severe shortage of manpower. Attrition rates are very high in this very young industry which is only 5 years old. The Unit Managers are given primary target of appointing a minimum number of agents and are expected to nurture them. The problem is the attrition of Unit Managers and the agents appointed by them are left high and dry.

Number game is not going to last. Targets and incentives should not be based on the number of agents appointed. It should be based on the number of successful agents. The Unit Managers should ensure that the newly recruited agents are properly guided through sales process including prospecting techniques, requirement analysis and product positioning. Newly appointed agents soon exhaust their list of prospects from among their friends and relatives and they come to a stand still as they are not trained to locate new prospects.

Unit managers are busy talking to each other and they talk to the agents only in the last week of the month. Three weeks of the month they are busy boasting last month’s achievements (despite no contribution from them), tracking colleagues’ move to or in other companies, and visiting tea and pan shops on hourly basis (to ease pressure!), and somehow manage to act busy. Given an option majority of agents will opt for working independently without any Unit Manager for two reasons. One why should Unit Manager earn commission and promotion without any significant contribution towards business growth and secondly the fact the Unit Manager will not last in the company for more than a year exposes the agent’s customer database to competition.

One wonders why the new companies are blind to non-performance, wrong incentives. Ask any common man with little business acumen he will point out the glaring mistakes.

1. Unit managers should manage their units towards set targets of business. Appointing number of agents should not be the target.

2. Why do agents come to these companies? ( now they have been dragged by the Unit Managers) – To earn. After the exhaustion of known circle of prospects, the business stops. The Unit Managers have no time or business plans to ensure that these agents continue toearn in the long run.

3. It is the agents and the companies which are going to stay together in the long run. Unit Managers are joining and leaving so fast the agents are left high and dry as the new Unit Managers have the target of appointing new agents and nobody cares for the existing agents. More than 95% of agents recruited, trained and licensed are not properly utilized.

4. Who will hold these Unit Managers accountable? The Managers of managers are also joining and leaving all the time, which makes it easy for all to escape accountability.

5. Any pay structure should be so tailored to address these concerns. Total pay should be split into 3 components. One third basic pay, two thirds on achieving minimum targets every month (like bringing business from the all agents attached to that particular Unit Manager) and incentives should be based on the breadth of the business and volumes.

6. Working for competition: The newly appointed agents rush in with prospects, create awareness about insurance in persons with no insurance or less insurance but are unable to clear the doubts due to lack for training and non-availability of his Unit Manager due to his busy(sic) schedule. These leads generated and not handled properly automatically go to LIC as the Development Managers of LIC are quick to move in and close the sale. Reality- In a rural area an LIC agent whose annual premium collection has never crossed Rs 2 lakhs per annum till last year, now notched up a premium collection of Rs 15 lakhs per annum thanks to leads generated by all the private company agents who are ill-trained and badly supported. 90% of these leads were walk-ins for this LIC agent. Main objection which could not be addressed by private company agents was “private vs. government owned”

7. Number games in agent recruitment is a failure: To reach the number target set by companies Unit Managers fill the IRDA classes with dummies or friends or contacts assuring them that they need not attend 100 hours, 2-3 days will do and attendance will be cooked up to show 100%, and they need not prepare for the exams and it will also be taken care of. Now look at the results it is very poor at less than 5-10% passes percentage in recent IRDA’s agent examinations.

Solution: The managers should be sufficiently remunerated to reduce attrition. Focus should be laid out on quality in agent recruitment and training instead of mere numbers. Companies should also formulate and review their methods of incentive calculations to ensure it results in greater accountability.

The above example though pertains specifically to insurance industry the underlying problem is being or will be faced by all companies in the emerging India