Economic Highlights

New Delhi, 6 February 2010

Internet Banking

 FRAUDS COST CLIENTS Rs 4000 Crore

By Shivaji Sarkar

A United Nations officer issued a cheque on his nationalized bank account. The cheque bounced despite his having deposited a big sum a few days back. He complained to the bank only to be told that Rs 75,000 was withdrawn in a number of transactions in Romania, a country he has never visited.

The police suspect that the account was hacked on internet. This is not the lone case of fraudulent activity in an Indian bank.  Bank fraud is a big business in today’s world. With more educational qualifications, banking is becoming impersonal and an increase in banking sector has given rise to this white collar crime. In many cases, the involvement of bank officials, as deliberate colluders, is also suspected.

With the introduction of internet universal banking, the number of bank frauds has more than doubled in five years.  There were 10,450 cases of such cases in 2004-05, which rose to 13,914 in 2005-06 and 23, 914 in 2008-09. The figures are as per cases recorded with the Central Bureau of Investigation. It is assumed that there are many more cases, which are settled at the banks’ end and no complaints are lodged officially.

The frauds have cost the depositors cost Rs 779 crore in 2004-05. It almost doubled to Rs 1381 crore the next year. In 2008-09, the figure rose to Rs 1883 crore. The figures given – Rs 4,043 crore in these deals - are again not conclusive. The actual figure may be much more. Both bank and forensic officials are baffled at this massive level of fraud. In 2004-05, there were 96 cases in which over Rs 1 crore was swindled away in each transaction. This rose to 212 in 2008-09.

Apparently no depositor is safe. Chances of swindling increase seemingly with the size of the bank. A multi-crore fake cheques scam estimated to the tune of Rs.52 crore was exposed in the Kanpur main branch of the State Bank of India last August. Seven bank officials, including one assistant general manager and two chief managers were suspended. The bank’s audit team found that the fraud involved clearing of fake cheques in the bank account of an influential petrol pump owner. He is believed to have fled the country. This is stated to be the biggest fraud in the Kanpur-Lucknow region.

This banking fraud is basically classified as fraud by insider and fraud by others. It involves a highly placed insider nominally authorized to invest sizeable funds on behalf of the bank; as it happened in the Kanpur case. This person secretly makes aggressive and risky investments using the bank's money and when one investment goes bad, he engages in further market speculation in the hope of a quick profit, which would hide or cover the loss. Many such transactions found their way even to the stock market though investments in other speculative activities are also not uncommon.

Unfortunately, when one investment loss is piled onto another, the costs to the bank can reach into hundreds of crore of rupees. Remember, many of the US and western banks went out of business for such activities in 2008.

The banking fraud is classified as fraudulent loans, wire frauds, forged or fraudulent documents, uninsured deposits, theft of identity, demand draft frauds, forgery and altered cheques, accounting fraud, bill discounting fraud, credit card fraud, fraudulent loan applications, phishing and internet frauds. While some of these existed in one or the other form even earlier, the magnitude was far less. New technology has added to the woes of the investigators as it not only involved complex accounting processes but also complicated technology and software applications.

A computer crime may be committed in one country and its result can be found in another country. There has been a lot of jurisdictional problem and though the Interpol helps, it too has its limitations. Different treaties and conventions have created obstructions in relation to tracking of cyber criminals hiding or operating in other nations.

It is described as a no-scene crime. The usual crime scene is the cyber space. The terminal may be anywhere and the criminal need not indicate the place. The only evidence a criminal leaves behind is the loss to the bank. The major advantage the criminal has in instituting a computer crime is that there is no personal exposure, no written documents, no signatures, no fingerprints or voice recognition. The criminal is truly and in the strict sense faceless.

There are certain spy softwares which are utilized to find out passwords and other vital   entry information to a computer system. The entry is gained through a spam or bulk mail. This is called phishing. A number of programmes called "Trojan horse" programmes have also been used to snoop on the internet users while online, capturing keystrokes or confidential data.

The information thus stolen is then used in other frauds, such as theft of identity or online fraud. Though using debit and ATM card is stated to be safe by banks, technological experts say that pin numbers and other details can easily be cloned or pilfered and misused as one feeds the machine. The experts also advice not to put credit card ATM details ever on the internet for any kind of transactions. The information travels to a chain of computers and could be intercepted at any point.

International internet transactions are always fraught with risk. The CBI and banks are now putting their heads together to create a firewall and improve the forensic techniques. However, the nature of transaction that has to allow access to the accounts of the banks pose a daunting challenge. Some elements have suggested closing the direct internet transactions at least at international level. It is a matter of probe whether terrorist groups are part of cyber crime or not.

The existing Indian laws are not at all adequate to counter cyber crimes. The Indian Penal Code, Evidence Act, and Criminal Procedure Code have no clue about computers when they were codified. The IT Act is there but it is inadequate. Banks are clueless at stopping this crime. The alternate is to utilize the banking services in the conventional paper method till a foolproof system evolves. --INFA

(Copyright, India News and Feature Alliance)

Economic Highlights

New Delhi, 30 January 2010

Budget Request

AID INDIVIDUALS, NOT CORPORATE

By Shivaji Sarkar

Finance Minister Pranab Mukherjee is passing through one of the most difficult phases of his life as he prepares to give the final touches to his budget papers. The government is short of revenue, borrowings are rising and the corporate is breathing down his neck to get more stimulus packages despite high profits. Mukherjee has to balance all this with the poor individual taxpayer, whose contribution to the national kitty is sharply falling.

Skyrocketing prices are adding to the minister’s woes. The Petroleum Ministry is demanding Rs 12,000 crore to offset the supposed losses its companies have suffered. Else they want to raise the prices to add to his discomfiture.

The market is baying for the Finance Minister’s blood. It wants the individual consumer to turn to the market. The consumer is hanging between the devil and the deep sea – high prices and low purchasing power. This apart, he is saddled with a high personal income tax liability and is not organized like the Federation of Indian Chambers of Commerce (FICCI) to demand a relief. . 

Unfortunately, Mukherjee has not considered the individual taxpayer, who is squeezed from all sides worthy of a concession. Rising prices means he has to pay more in terms of indirect taxes, whether it is VAT or excise duty. Higher the prices he pays for commodities more he is forced to pay the tax. Sadly, the taxpayer is not appreciated for this contribution. It is not even acknowledged. This apart, he is not given any relief on his tax burden and is expected to go to the market to help it look up!

Often the minister is led by bureaucrats, who just at the year-end come up with a list of celebrities such as Sachin Tendulkar, who supposedly have evaded some tax. The State does not provide any welfare scheme to any taxpayer. Those welfare schemes supposedly provided can hardly be availed. Over 5 lakh people have lost their jobs during the past one year. Many more are losing employment. A larger number of them have their wages frozen by their corporate employers. Many have not got their own Provident Fund contribution deposited with the Employees Provident Fund (EPF) authorities. Though this can invite penalties, including jail, nothing has happened

The government has powers to swoop down on the defaulting employers. But it has chosen not to do so in the hope to “create congenial business atmosphere”. Additionally, business is not creating the jobs, which it is capable of doing. The business houses are in a mode to exploit the country. Instead of helping the government in tiding over the situation, they are out to extract more to enrich their own kitty. They could say that they are paying more taxes “despite the slowdown”.

Indeed, they are definitely doing it. But they are doing much more on the sly. They are producing speculative figures on growth pattern to scare the government to give them more of stimulus. The FICCI has come out with projections stating that the growth could slip below 7 per cent. The International Monetary Fund had put the projections at 7.7 per cent and the government had stated it to be 7.75 per cent.

The statement of FICCI may or may not be correct. That is not the issue. The timing it has chosen needs to be marked along with the fine prints that it has added. The official growth figures would be coming in about 20 days. The key point is not the innocent projection. What is to be noted is FICCI’s suggestion that a sudden withdrawal of stimulus measures announced through 2008 and 2009 to counter the economic downturn, would adversely affect growth prospects. The idea has come almost as a tactic to pressurize the government to continue what it would like to reduce, if not scrap it altogether.

In short, it appears that the FICCI wants to corner more for the corporate from the public kitty without agreeing to part anything for building the nation. It wants the tax concessions to continue ignoring the overall improvement in corporate performance, profit figures and reduced expenditure particularly on payment to employees.

It is surprising then that it has not said a word on personal income tax. The falling accruals –over 13 per cent - on this count have not caused any concern to FICCI. Instead, it should have shaken it. Undoubtedly, corporate performance is sustained on growth of individuals. If by depriving the individuals – the employees - a section of the business has made profit, it needs to ask how it would sustain it if the employee lacks the capacity to go to the market and purchase what the corporate produces.

The Global Economic Prospects 2010 (GEP) prepared by the World Bank has predicted that the economic recovery that is now underway will slow later this year. Financial markets remain troubled and private sector demand lags amid high unemployment. It also predicts more borrowings by developing countries.

The GEP warns that while the worst of the financial crisis may be over, global recovery is fragile. Predictions are that the fallout from the crisis will change the landscape for finance and growth over the next decade. Unfortunately, FICCI was aware of this latest report but chose to ignore the key factor of high unemployment. The moot question is: Is it the sole responsibility of the government to create jobs and that of the corporate to rake in profits-- even snatching what is not its due from the exchequer?

Clearly, it is a difficult task for the government to extend concessions. But it must not ignore the individual citizen, who contributes and suffers the most. Sadly, the government works under pressure from corporate lobbies and conveniently forgets the citizen, who elects it so that it could safeguard his interest.

On no count the government is being seen protecting the interests of its citizens. It is time it comes out with a generous tax policy – cut individual direct tax at the highest level to 20 per cent – to empower the people to lead the country on the path of growth. Too many benefits to the corporate would not help the nation. The government has given it enough of carrots. It is now the turn of the individual citizen to have it.---INFA

(Copyright, India News and Feature Alliance)

Economic Highlights

New Delhi, 22 January 2010

Global Predictions, Reports

ORGANISATIONS MAKE A KILLING

By Shivaji Sarkar

Nagging doubts over the credibility of some global organisations have recently come to the fore.

A number of incidents connected with climate, health etc have strengthened fears that some of concerned organizations are serving the interests of certain industry or groups. They have been raising scare to cash in on billions of dollars of profits.

For a long time it was being alleged that AIDS, the dreaded disease has emerged as the biggest business and systematically promoted by world organizations. This is yet to be proved. But swine flu -H1N1- pandemic scare has unraveled the role of World Health Organisation (WHO) and the close links of its experts and pharmaceutical companies.

Additionally, it was being alleged that global warming emerged as another big business. Not many believed it. Now it has been proved. India has been shamed as one of the proponents of receding or vanishing glaciers is a Nobel Prize winning Indian, RK Pachauri, president of Geneva-based International Panel on Climate Change (IPCC). It has also raised doubts about the international NGO, Greenpeace.

The UN and its related organizations are funded by donations from the world population. Theoretically it is termed as the biggest non-governmental organisation (NGO). It was set up to bring peace and welfare to the poor. It too has emerged as the biggest money spinner to NGOs. It was involved in a food for petrol scam in Iraq. International Atomic Energy Agency (IAEA) filed reports about mass destruction weapons in Iraq, which were not found to be correct, paving the way for a war that has bolstered profits of powerful arms’ companies and their dealers. Now more is coming out of the closet. Indeed, it has made the world skeptical about many NGOs.

Evidence has surfaced that several members of the WHO’s vaccine board, which pushed countries to buy the H1N1 vaccine, have had significant ties with pharmaceutical companies. This has been made known by the head of health at the Council of Europe, Dr Wolfgang Wodarg. The council represents 47 European nations. He accused the makers of the flu drugs and vaccines of influencing the WHO decision to declare a pandemic. Wodarg has branded the H1N1as one of the greatest medical scandals of the century.

The evidence he has cited has raised questions about the WHO’s selection process of “experts”. Many of them and other decision makers in the WHO were reportedly drug company officials and were promoting their own interests. It comes to light that the producers of vaccines secure orders from governments, on the certification of the “trusted” WHO and made enormous gains.

Documents acquired through the Danish Freedom of Information Act revealed that Professor Juhani Eskola, a Finnish member of the WHO Board on vaccines called the Strategic Advisory Group of Experts (SAGE), received almost 6.3 million Euros in 2009 for his vaccine research programme from the vaccine manufacturers GlaxoSmithKline. Six other members of SAGE had financial ties with various pharmaceutical companies, which include Novartis, Solvay, Baxter, MedImmune and Sanofi Aventis.

This has given rise to speculation that the swine flu was a false pandemic, orchestrated by drug companies looking for large profits from the vaccines. Experts now say that the classic flu causes more deaths than swine flu. The WHO has to explain how it declared the disease as pandemic 5, overlooking its basic stipulation.

Importantly, the “scare” has impacted government decisions in many poor countries, including India. New Delhi has spent Rs 120 crore for hastily stocking up Tami flu – Oseitamavir Phosphate, one of the two drugs said to be effective in treating the infection. This requires a probe as to who forced the Central government to buy 40 million doses of Tamiflu as also who provided the intelligence to decide on the quantum.

Currently companies like Cipla, Hetero, NATCO, Ranbaxy and Strides are manufacturing the drug in India and also exporting it. Do these companies also have moles in the government? This needs a detailed investigation. Their relationship with the international drug cartel and the WHO experts also needs to be established. The Central government has a policy to accept any UN organization report as authentic and act upon it. Now it has to set up a separate body to scrutinize the hype created by any of them so that the nation does not become a victim to international corporate or other vested groups’ manipulations.

The functioning of the IPCC reveals almost a parallel to the WHO. An unsubstantiated speculative comment of Syed Hasnain, professor at the Jawaharlal Nehru University that the Himalayan glaciers would disappear by 2035 formed the baseline of the IPCC report in 2007. Interestingly, Hasnain was appointed by Pachauri at his own TERI in New Delhi as a senior fellow and together they raised millions of dollars for research at their institution.  

Contrary to IPCC was the report of the VK Raina panel appointed by Union Environment Minister Jairam Ramesh. The panel first did a scientific study and looked at 150 years of data gathered by the Geological Survey of India from 25 Himalayan glaciers. It concluded that while the glaciers had been retreating for a long time, there has been no recent acceleration of the trend and nothing to suggest that these would disappear as “predicted” by the IPCC. Further, it scotched the IPCC claims that the Gangotri glacier was retreating at an alarming rate. The Raina panel said this glacier, the main source of the Ganga receded fastest in 1977 and is today practically at a standstill.

Shockingly, almost three years later the IPCC has admitted its mistake on January 20. The world lost billions of dollars discussing the impact of a report that was virtually a waste paper. But in the process the IPCC experts may have made a fortune. Clearly, its report could not have been an accident as it would have been discussed at a number of levels before its approval. It is intriguing that nobody scrutinized the methodology that has embarrassed the entire world.

Worse, it has raised doubts about the climate change debate and now it looks tendentious. More alarming is the approach of some other NGOs, including the Centre for Science and Environment, which supported the IPCC report. Greenpeace had too raised similar alarms about several glaciers in South Andean Iceland. Now that too has been found to be incorrect.

There is apparently a pattern in all the doomsday predictions – scare the world, drain it and earn billions. The big question is why UN-related bodies work so callously? Or was it intentional? It calls for a global debate on replacing such irresponsible and the not-so-honest UN organizations and NGOs. ---INFA

(Copyright, India News and Feature Alliance)

Economic Highlights

New Delhi, 16 January 2010

 Difficult Year Ahead

REDUCE PERSONAL INCOME-TAX

By Shivaji Sarkar

Rising prices, growing Central Government deficit and fall in personal income-tax collection are grim indicators of the difficult days ahead. The UPA government is also under pressure to have a re-look at the personal income tax rates. The stimulus has boosted corporate profits. The individual has suffered erosion in terms of job losses, wage cuts and by contributing far less to the government kitty. Now it is their turn to get a stimulus through a cut in income-tax rates.

It has been an effort on the part of the government to project each of these as unrelated events. The recent Union Cabinet meeting has not taken any concrete step to bring down the prices. Rhetoric of requesting the States would not reduce these. It requires a political will and a firm action plan. The government has merely tweaked the ears of a minister, who is promoting the interests of the sugar and food grain lobby he represents. It is not easy to understand why such a person is not thrown out. Such an action would help reinforce the faith of the people in the system.

There is little effort at managing the supply side problems. No proposal has come up from the Cabinet for reinforcing the distribution of food items. Apathy is evident in creating a parallel intervening system to keep the market in check. The government can claim that a system exists for those below the poverty line. But as per government statistics not more than one-third of the poor are covered by it. If discrepancies in poverty estimates are taken into account it would include about 60 per cent of the population.

The way the prices continue to rise, the salaried middle-class is too getting closer to the poverty line. This apart, even industry leaders have impressed upon the government to take steps to reduce food prices. High prices affect disposal income – spare money – of the people and leads to reduction in demand for manufactured goods. It affects the health of the industry on various counts – higher wages, higher costs, consequent higher prices of products and lower profit margins. Sadly, the Cabinet has not taken note of the precarious situation.

This despite that it also affects government finances. A review of the April-September 2009 finances of Central government indicates that all the key deficit indicators widened significantly over the corresponding period of the previous year, Division of Central Finances (DCF) of Reserve Bank says. Growth in receipt declined due to decline in tax revenue. Excise duty collection alone reduced by 22.9 per cent as against an increase of 6.6 per cent the previous year.

The DCF has expressed a grim view about the way the government is financing its expenses. These are coming from the dividend and public transfers from the government-owned finance institutions. It means the dividend that should have gone to create infrastructure and strengthen the public sector enterprises is being utilized to meet government expenses. Public transfers are borrowings. The government has raised Rs 58,802 crore from these two sources.

Notably, the government’s expenditure has risen to Rs 448,848 crore-- a growth of 23.6 per cent. Most of it has come from market borrowings, says the DCF. As on November 23, the government had borrowed Rs 406,369 crore – 82.8 per cent of budget estimates (BE) as against Rs 163,904 core in (47.8 per cent of BE) in 2008-09. It simply means that the entire corporate stimulus package, which has not benefited the common man, is funded by raising debt.

Another concern is the deceleration in plan expenditure. It rose by only 15 per cent against 31 per cent a year back. If inflation figures are taken into account actual raise in allocation is far lower. It is certain to impact the developmental aspects and affect the people at large.

That the common man is losing is testified by the personal income-tax figures, which have come down by 19.7 per cent to Rs 13,117 crore from 16,345 in the same period last year. The government has yet not come out with a strategy to help the individual tax payer. High inflation is eroding his earning and high taxes are leaving little with him for spending. Unless he spends there would not be a real revival of the economy. Panacea suggested by corporate leaders to the government to borrow more and disinvest public sector companies is clearly not the solution.

Government expenditure is maintaining a rising momentum. This puts it in a catch 22 situation. If it does not spend then progress is hit. If it does not give relief to the individual tax payer – rate cut of income-tax rates - there would be no boost to the market spending. In addition, it can not raise other taxes because these too would have detrimental effect.

The growth of loans by banks has been slow despite the huge liquidity with the banks. Non-food credit – borrowings by industry and others for productive purposes - grew by 11 per cent year on year as on December 4 as against 26.3 per cent in the same period in 2008. According to the Reserve Bank of India weekly statistical supplement the total bank credit year-on-year as on December 4, 2009, was Rs 2,77,479 crore compared to Rs 6,27,529 crore on Dec. 4, 2009. Against this the deposits increased to Rs 6, 61,064 crore in 2009 over Rs 6, 27,529 crore in 2008. This indicates that the stimulus is not benefiting the economy, but is boosting individual corporate profits. The government needs to reconsider its decision.

It also has to take stern steps, just not cosmetic rhetoric, to control the prices. High prices again benefit some corporates but the economy is suffering. It has to act with short-term and long-term strategies. In the former it has to rejuvenate the PDS, so that the market knows that the people have an alternative to meet their needs. In the long-run, the government has to have a pragmatic agriculture policy, where both the market and government would have a role to play. So far all strategies are half-hearted and that the government appears to be on “daily wages”.

The government’s dilly-dallying attitude does not suggest there would be any relief either from high prices or other malaise. Growth is not real. It is more propaganda. The nation is in abyss and must be prepared for far more difficult days. ---INFA

(Copyright, India News and Feature Alliance)