(A detailed version of this chapter in notes #301.043 on http://facebook.com/mehtarahulc )

43.1 Main problems

The trade deficit of India is out of control – we are importing more than we export. This has forced GoI to borrow dollars and this has increased foreign debt and dependence on US. How do we reduce trade deficit and pay off the external debt? And ensure that debt doesn’t increase in future?

And while citing proposals on reducing trade deficits, the key item that one must address is crude oil (and associated products). India has to import about 75% of crude oil it consumes and that takes away much of the forex (nov-2011). And an increase in international prices forces GoI to borrow dollars and increase the final local sale price of petrol. I have no proposals to “stabilize” the final petrol price, but I do want to spell out how the laws I propose will reduce petrol imports, reduce other imports, reduce the final sale price of petrol and also ensure that petrol import and other imports will not create foreign debt.

My proposals have following changes at core :

1. buying dollars or import expenses will not be deductible expense wrt income tax calculations

2. dollars earned or rupees earned from sale of dollars to private company will be taxable income

3. rupees earned from sale of dollars to RBI will be tax exempt income till India’s public external debt is repaid, and after that it will be also taxable income.

43.2 List of proposals to reduce imports and foreign debt

1. Import duty of about 300% on most goods.

2. For some commodities, importer will have to pay part of duty in dollars and not in rupees. E.g. As per one of my proposals, if a person imports a car or car parts, the duty will be 300% and will have to be paid in dollars.

3. The cost of imports will not be allowed as deductible expenses for income tax purposes

4. Part or whole of duty paid too may not be allowed as expenses for income tax purposes.

5. Example : Say a person imports goods worth say Rs 10 lakhs, and say he had to pay duty of Rs 30 lakhs and sells the goods for Rs 70 lakhs. Say the salaries he paid and rents he paid Rs 8 lakhs. Then his profit will be entire Rs 70 lakhs minus Rs. 8 lakhs of salary, rent etc i.e. Rs 62 lakhs. The Rs 10 lakhs of import will not be allowed as deductible expense. And whole or portion of Rs 30 lakhs of duty too may not classify as deductible expenses. So importer has to keep the markups accordingly. This will increase the prices of imported goods including imported petrol and thus reduce the imports

6. The exporter must keep the proceeds of his exports in dollars in account with bank authorized by RBI to keep forex

7. If exporter wants to keep the revenue in dollars, then tax of 35% to be paid in dollars will apply on the revenue amount he received. But if the exporter sells the dollars to RBI at rate decided by RBI within 3 months after he receives the dollars, then that entire revenue will be tax exempt.

The above laws will reduce imports and reduce trade deficit.

43.3 List of proposals to manage crude oil imports and over all supply

1. MRCM : give 67% crude royalties to citizens and rest 33% to Military (see chap-5)

2. Right to Recall Petroleum Minister, RTR Hindustan Petroleum Chairman, RTR ONGC Chairman, RTR IOC Chairman. The procedure will be similar to RTR Reserve Bank of India Governor given in chap-9.

3. Jury System over employees of Hindustan Petroleum, ONGC, Petroleum Ministry etc. Encouraging use of local technology in oil drilling and refining

4. RTR State Transport Chairman to improve public bus system to reduce petrol consumption

5. RTR City Transport Chairman to improve public bus system to reduce petrol consumption

6. RTR City Mayor and RTR Municipal Commissioner to improve footpaths and pedestrian crossings so that use of vehicles reduce

7. Improve all govt depts so that travel requirements reduce, by increasing use of Govt websites and public-emails

43.4 Giving crude oil royalties to citizens (MRCM law)

My key proposal is to convince citizens to convince PM, CMs to print TCP-draft in the Gazette (see section-1.3). And then using TCP, citizens can convince PM to print MRCM law. Once MRCM law-draft is printed in Gazette, citizens will directly start getting mineral royalties from crude oil and natural gas. Once this happens, citizens ability to buy crude oil at higher prices will increase, and they will be able to withstand price rise to some extent. Let me elaborate.

The final price of petrol is sum of royalty, taxes, cost of exploration, drilling, cost of refining, cost of transports, retail costs and normal profits of companies in each activity. If the drilling, refining is done locally, then using RTR over Hindustan Petroleum Chairman, ONGC Chairman and Petroleum Minister, citizens of India can ensure that these companies are not making too much profits, not paying too high salaries and not siphoning money. The costs of drilling, refining has 2 main components – salaries and material. These costs are fixed in short run – they don’t vary randomly. I propose zero excise\sales taxes on internal production and replace the taxes by royalties alone. The royalties will directly go to citizens and military via MRCM-draft printed in the Gazette (see chap-5)

So what procedures do I propose to decide the royalty? The drilling company like ONGC will sell the crude oil to refining company like HP at international prices (plus customs duty) and the difference between cost of drilling and the sale price to refinery will become the royalty to the Govt, of which 67% will go to citizens. Now what will stop crude oil drilling companies etc to raise the cost by over paying its workers or over paying contractors siphoning out money from ONGC? The RTR ONGC Chairman and Jury System over ONGC employees will ensure that such things will be minimal.
So now say (cost of explorations + cost of drilling + cost of refining + cost of transport + cost of retails etc) is Rs 10 per liter of petrol. Now say internal production is 20 liters per citizen per month. And if imports are zero, then selling price at this supply level is Rs 60 per liter. Then Rs 50 will be the royalty that will go to Military and Citizens in 33% to 67% ratio. Whatever may be the royalty income, it will be equal to ability to buy certain amount of petrol for “free”, directly or indirectly.

43.5 To ensure that oil import doesn’t become GoI liability

The problem with imports is: who will bear burden of forex. My proposal to manage forex needed to import crude oil is as follows :

1. A company which is in oil drilling or refining business must be WOIC (Wholly Owned by Indian Citizens , see chap-20 for details on WOIC)

2. A company in oil drilling or refining business in India cannot take any debt in dollars

3. A trading company can import crude oil or petrol and sell it refineries or petrol wholesalers or retailers. This trading company may or need not take debt in dollars. Trading company may be private and need not be WOIC.

4. The trading company can purchase dollars from any company it deems right for the prevailing market price.

5. The trading company cannot take money spent on importing crude as deductible expense. And thus entire sales it makes to refining company will be taken as gross income.

6. The Govt may impose import duty on imported crude oil or imported finished petrol, and may mandate that whole or part of duty must be paid in dollars.
So the oil importing company has to obtain dollars on its own and not from GoI. The oil importing company will eventually get dollars from companies which export goods from India. If the exports fall, then automatically, oil importing company will get less dollars and so the import will fall. But GoI wont need to take any debt to support the oil import.

43.6 Increasing industrial exports

1. Exposing anti-worker anti-poor intellectuals : Most of intellectuals are agents of elitemen, and so they oppose giving mineral royalties and land rent from GoI plots to the poor. And sadly activists think that these intellectuals are pro-poor, pro-workers. I at RRP propose that we should inform activists that these intellectuals are anti-poor pro-rich and here is the proof : they oppose giving land rents from GoI plots to the poor citizens.

2. Protection of workers : the MRCM law-draft will give a minimum income to all workers and so it will protect them against exploitation.

3. Hire-fire laws : Using TCP, enact hire-fire laws in India

4. Universal Provident Fund and Pension System : Enact provident fund system and pension system for all citizens. Abolish all EPF and private pension schemes. This will reduce burden on employers to manage the paperwork.

5. Environmental laws at par with US of the year, when per capita GDP of US was that of India.

6. Ban all agricultural exports till all Indians have enough to eat

7. Income from sale of dollars to RBI will be exempt from income tax till the foreign debt is repaid. After that no subsidies of any kind to any exporter.

43.7 Improving administration of India’s crude oil drilling and refining companies

The oil companies in India pay too much salaries etc to its employees and corruption is norm. So what solution do I propose overt this problem? Following are the solutions are propose

1. Right to Recall Petroleum Minister
2. Right to Recall ONGC Chairman
3. Right to Recall Hindustan Petroleum Chairman
4. Jury System over employees of Petroleum Minister, ONGC, HP and all oil companies

These measures are more than sufficient.

43.8 Reducing crude oil consumption by improving bus systems

Crude oil consumption can be decreased by improving footpaths, improving city bus service, improving state bus system, creating shared taxi service, shared auto rickshaw service, creating bus service where person can carry his bicycle and so forth.
Once citizens have RTR over City Bus System Chairman and State Bus System Chairman, the bus system will improve, private traffic will decrease and crude oil import will decrease. RTR Mayor and RTR Municipal Commissioner will improve footpaths and further reduce crude oil import.

43.9 Increasing vehicle tax, parking fees to reduce crude oil consumption

The annual vehicle tax should calculated on the basis of land price and (amount of land the vehicle takes minus per capita available space at peak hour). And the parking price too should be increased as land prices increase. Because as long as person is taking less or equal to per capita space at peak hour, there will be no congestion. But moment some people start taking space more than per capita space available, congestion will increase. In short, when anything gets subsidy, rampant misuse happens and shortages occur. The vehicle tax and parking fees must be linked with market price of the land – with some adjustments. At the same time, parking fees and vehicle tax should be used only for building roads, footpaths and not for unrelated purposes. Further, vehicle tax may be used for subsidizing public bus system because public bus system benefits the car users. I propose to print all the drafts in Gazette in using TCP only.

Further, I propose to make all travel related expenses non-deductible for income tax purposes. This will include purchase of petrol, purchase of vehicles and depreciation on vehicles. I propose to print all this drafts via TCP only.

All these proposals are for tomorrow. As crude oil production increases, as India purchases more oil wells outside India and as exports increase, many of the above proposed laws may be removed or relaxed. But as of now, urgent need is to increase exports, reduce imports, particularly reduce crude oil import and so forth.

43.10 What can YOU do to reduce crude oil import , other imports and foreign debt?

Please read chap-13 of this book http://rahulmehta.com/301.htm . It has several steps where-in you can spend 6 hours a week and help to bring TCP draft in Gazette in India. The steps involve distributing pamphlets, informing citizens on motives of leaders such as Congress MPs, BJP MPs, The Anna etc who oppose TCP draft, by giving newspaper ads and contesting elections. Once TCP gets printed in Gazette, using TCP, it will become easy for activists to get citizens’ opinion law-drafts mentioned in this chapter such as Right to Recall Petroleum Minister, RTR ONGC Chairman, MRCM, making dollar expense undeductible, RTR City/State Bus Corporation Chairman, RTR Mayor etc. These changes will reduce crude oil imports, other imports and thus reduce foreign debt as well.