MY/YOUR VOTE, YOUR/MY FUTURE!

1.    The year 2018 is set to be year of elections worldwide. In queue are a number of countries[1]. The Italians and Russians have voted in March. No political party won out-right majority in Italy and the political chaos continues. In Russia it was all about Vladimir Putin who won his second consecutive (fourth overall) term in office with 77% of the vote. And so continue the elections and political distinctness.......showing signs in some countries of evolving far-right politics.

2.    In politics the process of electing leaders varies widely, more so after digitization influence - the sensation of smartphone era - came into play.  I wonder what it would be like in AI (Artificial Intelligence) age. And the understanding of an election varies from person to person. I look election in Bhutan through pretty simple angle: a process of electing legislators, possibly the best among the candidates even though best candidate getting elected through electoral process in other countries is too idealistic a notion. And we have seen apolitical bazaar, geographical concourse and even theological undertones in recent National Council election. Haven't we?

3.    In the process of making laws, legislators should understand and anticipate political and policy landscapes and development profiles in and outside the country, and be sensitive to emerging duality: one with concentration of intense responsibilities with feeble structured support machinery, and other executive functionary with frail accountability often shying away from core responsibility. Also, the pace of shift from right-wing politics,  politics-people disconnect and bureaucracy "floating and fishing" on hierarchical dysfunctionality are key issues.

4.    The election need not be zero-sum game. Why can't politics be positive-sum process competing to work together? Both winners and losers (one leading other supporting) proactively participate in flourishing democracy, economy and society and equally derive benefits through nation’s progress? I mean through nation's progress, not resources at source. Why don't the politicians understand that in politics close embrace of opponents proves extremely effective in diminishing the misplaced appeals of both even in highly chaotic world of politics and governance? 

5.    In Bhutan politics and governance need not be messy like in many big economies, not if we choose so, are willing to work hard and in right way, yes the right "way", and address also the conflicts of interests all along. There is no need for the voters to carry the partisan baggage after the election is over. Once EVM[2] button is pressed, it should be the end of the five-year "over" and every one should congregate towards achieving common mission. Unfortunately it is not. They do carry partisan stigma, and backpack it quite seriously, even emotionally, dividing friends and families. The important question is why should the people feel compelled to curry favour with politicians.

6.    I have never registered myself as member of a political party. The pseudo-nationalistic ideologies (casual common platform) do not fascinate me. I loathe partisan politics. The issues of national importance do not seem to penetrate the core of mainstream politics. It is, as usual, downplay or even sweep-under-the-carpet of the inconvenient truths, and an embedded hope that things will work out for better. These seem the main reason why politics is not a positive-sum process even in Bhutan. Addressing the US Congress on 25 April 2018 French President Emmanuel Macron said, "Without reason and without truth there is no real democracy. Because democracy is about true choices and rational decisions."

7.    The mobilization of combined efforts of both election winners and losers into policy making apparatus is easier said than done. But not impossible if only it is backed by new standards, new rules and new ethic of governance to have space for elected leaders, their supporters and opponents to come together, cooperate and not allow partisan self-serving agendas that undermine the national interests to dictate. Effective leadership demands not only boldness but also requires to exercise restraint when holding back is toughest thing to do. Also it requires analytical depth and dimensions to take opposition alternatives on board, and manage the political shift towards center which some how is inevitable in modern world.

8.    Failures of others to act is no excuse for one’s inaction, and that during difficult times leaders - if they really hope to lead - must be ready to act and  not be afraid to face calculated consequences. I hope we are electing leaders, even if they are not of the caliber I have in mind here. It is too naive to address the action based only on what is told, reported or just for a sideshow rather than after analyzing the causes and consequences of such action and addressing the causes. The true leaders do not put on the table nation's interest, prestige and dignity.

9.    The understanding of the nation’s mission and vision cannot be different, but the ways to achieve the national vision may differ depending on the ideologies of the political parties. The key word is "achieve", not make it up. I do not know why I get an impression that the politicians do not get it. The reason why their focus center only around the “way” that enable them use/misuse of state resources through political power for individual and/or political gains but not on policies and ideas that give rise to the right "way" and the mission to achieve the national objectives and goals. Have you heard any politician saying anything on these lines? I have heard none. And the reason why partisan politics has started to gain momentum.

10.    Without right policies and regulations, and their strong enforcement; easy money flow into the system with loose accountability is not only spoiling segments of bureaucracy and society but also contaminating youth attitudes while the youths of today in rich countries are becoming more alert and responsive. The cover-up of misdeeds parroting nationalism that has no analytical bearing on national interest, mission and aspiration is laying very weak governance foundation. The general disconnect with people and bureaucratic sleaziness are quite common. The reasons why polarization is gaining momentum, and also we see more and more activities geared towards partisan politics. It is up to you to analyze the seriousness of these in an environment we live today.

11.    In this regard we cannot assume human behavior towards politics to improve - not in the least, if it is offshoots of political patronage - through education, not even over experience. There are two ways to change: either institute deterrence-based system or prepare for misdeeds in advance by eliminating opportunities for misuse of power and authority (Singapore model). 

12.    In early 1960s Singapore had neither sizable markets or industry to build on nor commodities or other natural resources to exploit. Most Singaporeans were poorly educated, and about 50% lived in slums. The place was malarial swamp. As a result conditions at independence was grim. Then Singapore realized quickly how to turn its poverty of resources into an asset by giving its leaders the freedom to think and act radically including in good governance giving excellent reliability and predictability, and constructing comprehensive anticorruption systems the world has ever seen. This was a major politcal shift towards the center and the shift continues even today. It was the only way out for them. And I do not need to tell you more about today's Singapore where added emphasis on collective wisdom and leadership is being strategised and how political shift is being managed. 

13.    In today's political environment when you vote, look for one who cares more about policies and ideas, and less about politics. Almost a radical with buck-stops-here sense of responsibility for the constituency's welfare, and with ruthless determination to do whatever to advance it. A typical pragmatist who is not bothered by handicaps of politics. Also idealists only trust and therefore are ineffective. Look for realists. They trust and verify through even system of checks and balances. In plain language 'Vote for Best Candidate, Do not Vote for Political Party' in Primary Round. Meaning cast your primary round votes based on qualities and credibilities of candidates, but not based on issues presented by political parties because no party has addressed the issues of national importance (how they will address the mounting debt, how they will mobilize massive finance required for huge programs/projects they pledge/promise all over, what are the issues that stiffle economic development and how they will be addressed, and others).

14.  Do you believe bureaucrats retired/resigned from service fill the bill? Not necessarily. They mostly are far-rightists with very little to offer in managing the smooth and inclusive governance enabling political shift to a point that is best suited for the nation today. The more you take control of the shift and manage its pace and position, better it is. 

15.    Therefore, let us give full support to merit-based candidates and give absolutely no regard to the notion that which party should form the next government. The government formation on collective wisdom and leadership is best for us. It is hard but not impossible, and will reject/reduce all political party-based implicit biases. If people are fully committed to meritocracy rather than party-based dirty game, the possibility hinges on the question that if the rule of law is serving the best interest of Tsa-Wa-Sum (King, Country and People). If not let constitutional experts clear/open "the way" forward. I do not see any reason why the ministers cannot be selected based on merits from both ruling and opposition parties. 

16.    The politics seems moving virtually blind-folded, and needs to be shown the light of the day. Individual diligence and devotion to the nation’s mission have never been more necessary. Its a question of finding ways to consolidate democracy, accountability and rule of law.

17.    Therefore cast your vote judiciously, it’s my future. More importantly for millennials: my vote, your future!

Every wish cannot be fulfilled

Don't you toss-up the crystal bulb

Neither your indifference is an option,
nor luck coins the future

The way to predict it, is to create

Because,

Destiny will bear no guilt of your inaction 

and my reticence
For reason now you understand not
that far more powerful than fear,
the motivators are 
guilt and affection!

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[1] Malaysia (May), Cambodia (July), Mexico (July), Bhutan (April, September), Japan (September), Brazil (October), United States (November), Thailand (November) and others. 

[2]  EVM = Electronic Voting Machine.

"Today is only one day in all the days that will ever be. But what will happen in all the other days that ever come can depend on what you do today." - Ernest Hemingway

GST: If we cannot help ourselves, who can?

The Government of India (GOI) has undertaken very bold and courageous reforms that include demonitisation and the goods and services tax (GST) taking full responsibility for success and failure alike. Given the gigantic efforts required for the implementation of demonitisation and GST, near-term economic slowdown is obvious. India is not the country which takes monumental challenges to its stride with pride on political consensus. For all you may expect, the growth turn-around may be further away than International Monetary Funds (IMF) forecast of 2018 as upward push. IMF may not have factored in “babu culture” of the Indian bureaucracy and old-fashioned private enterprises, and politicians always on lookout for political scissor-kick to score a goal. These cannot be easily parted with yet even if there is effort to modernize systems and corporate management. India may come around the lethargic what-is-there-for-me (personally as well as politically) work culture but that may take much longer than expected.

The IMF expects India to regain its fastest growing major economy status by next year, and  forecasts  7.4% growth (against China's 6.5%) next year and 8% in the medium term once reforms are firmly rooted into the system. The IMF chief Christine Lagarde said, “Indian economy is on a solid growth track in the medium and long term due to the structural reforms undertaken by the government, and the current slowdown due to implementation of GST and demonitisation is short term.” The IMF has lowered 2017-18 forecast to 6.7% from 7.2%.

The Indian economic turn-around is not going to be spontaneous. To overcome the economic slowdown, IMF has suggested a three-pronged structural reforms including (i) addressing the corporate and banking sector weaknesses[1]; (ii) continued fiscal consolidation[2]; and (iii) improving the efficiency of labour and product markets[3].

The fact is India is on a solid growth trajectory and we cannot afford being off-the-track, not us. Our economy is India import-dependent. Leaving aside few high-end and luxury items, all essential goods (and services) are imported from India. The dependency will increase further with Indian economy moving at faster pace on a strong track unless alternatives somehow emerge. We seem to judge ourselves by our uncertain intentions, and do not realize the pace with which we need to catch up with neighbours. The world will judge us by our actions, not by intentions. Move, we have to make this way or that. There is no choice. The options are: we either move ourselves smartly or get towed along. The signs so far show we are heading towards latter, unfortunately. If we cannot help ourselves, I do not know who will help us!

With GST in place, India exports us zero-rated goods and services. The Bhutanese bureaucracy has no clue and private sector is too inept to work out details to take full advantages of GST-free Indian supplies. What can you say to we-can-do-ourselves-everything kind of persons who cannot think beyond nationalism as credential or cover-up for them to be engaged in corrupt, fraudulent, coercive and collusive practices parroting dedication and commitment to Tsawa-Sum (The King, Country and People)?  Nothing. Because when the model is wrong, it cannot be right in any sense of the word. If these do not bring in forth the need for course correction, I really do not know what will!

The interpretation that revenue shortfall  of Nu 14 billion in 12^th Plan due to subsuming of excise duty into GST by GOI leading to increase trade deficit and adverse impact on the economy is shocking shallow. Can we not think beyond this? The cheaper imports from India increase business volumes as well as modes and models, enable savings, decrease expenditures, generate economic activities and new jobs, and make the economy vibrant. But these are subject to one condition: hard work. The question is who will work hard when mindset is too used to plucking easy handouts. We need to grow-up to enter into the real world, seriously!

If we see through things, details can be worked out. Let us take a simple example. You want to buy 2 truck tyres, which cost Rs 30,300 per pair (including 28% GST). If you buy from India, 2 tyres will cost you Nu 32,115 [30,300 price + 1,515 (5%BST) + 300 (transport & handling)]. The same items if you buy from Bhutanese dealer (who imports GST-free) will cost Nu 27,117 [23,672 GST-free cost + 1,184 5% BST + 1,740 (7% Bhutanese dealer profit)+ 521 BIT]. The tyres are delivered to dealer by manufacturer. You will save Nu 4,998 (or about 18% of your cost) and the Bhutanese dealer benefits Nu 1,740. This is not an arbitrary example.

This is plain arithmetic, reality is much harder. You want to buy for instance 10 ton CGI sheet and ask an Indian retailer/dealer anywhere to supply you GST-exempt 10 ton CGI sheet. He will say no way because you are one-time buyer. Why should he go through the rigorous process of GST-free supply for one-time Rs. 60,000 supply for no subsequent process  benefits? But if the Bhutanese CGI sheet retailer goes and establishes business relationship with Indian supplier for regular supply of CGI sheet, the seller may agree to go through GST-free supply process. The Indian suppliers have to be convinced (even pushed) where business relationship, dealings, reputation, trust and future scope between both Indian and Bhutanese business houses come into play. Also, the sales figures will be recorded in GST database, which can be retrieved to counter-check/reconciled with the figures at Indo-Bhutan gate to help make clean transaction, free from corruption. Initial stages are pretty tough but beneficial to both Bhutanese buyers and Indian sellers longer-term, and eventually consumers.  To expect Bhutanese businesses who are so used to living on proxy system practising unfair means to move in the direction that benefits all and upgrades themselves on value chain is an irony of pretty tall order.

Having understood the business dynamics, the government role should be to make policy and regulatory environment conducive to Bhutanese business entities to enable smooth GST exempt import from India. This is a high hope! Any bureaucratic efforts along these lines would be a pleasant surprise. On contrary nitpicking the dated regulations to make the import process regressive is no exception. There is neither responsibility nor accountability for such actions. The rudimentary systems for checks and balances are as good as non-existence. And its like you cannot ask someone to do something who is benefiting from not doing it. Much bigger irony!

People may do whatsoever they feel deemed right, but we are not willing to give the opportunity a free pass.  No sir, we aren't. Like I say if we cannot help ourselves, who can!

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[1]  Accelerating the resolution of non-performing loans, rebuilding the capital buffers for the public sector banks, and enhancing banks’ debt recovery mechanisms.

[2]   Consolidating revenue measure as well as further reductions in subsidies.

[3]  Reforming the market regulations, including reducing labour laws, in order to create a more favorable environment for investment and employment.

What a price tag of Doklam standoff

          Mr. Yuji Kuronuma, staff writer of Nikkei Asian Review, derives his argument from his headline “China woos Bhutan with 10 billion in standoff with India”. He quoted no credible sources of such a courtship, and reported that China was offering Bhutan $10 billion(b) in economic assistance to soften its stance and since then Bhutan toned down its allegations that China was violating its territorial claims.

From beginning till end of Doklam standoff, the world knows that Bhutan toned neither up nor down. And it is not fair to put presumed $10 b Chinese economic assistance as price tag on us to an event in which arm forces of two Asian giants were standing face-to-face with guns on their shoulders but pointed downward to the ground. And also $10 b is too arbitrary a figure for serious contemplation (see below). Therefore let us leave aside this as vested message conduit through, or spiced-up rhetoric from Mr. Kuronuma of Nikkei Asian Review, a fairly credible news media. The figure aside the words 'Chinese economic assistance' should ring our bell hard.

It may be innately insane to assume that the Chinese economic assistance will never ever flow into the country and the northern border will remain sealed for all time to come. The issue for us is and will be -- what exactly will be the significance of  the Chinese economic assistance? Even though the tense Doklam standoff has ended for now with "necessary adjustments and deployments according to the changes", the better option for us would be to understand fully the significance of such an economic assistance from north without being carried away and attaching neither too much hyperbole nor dry sarcasm. So let us take a look through following perspectives that, I think, are of very vital effect, the significance then ought to enter into the Bhutanese minds in one form or other (with regard to both unanticipated and current development assistance). 

What comprises Chinese economic assistance?

The Chinese development finance to Africa provides a fair insights into China’s strategic approach to outward investment and economic diplomacy, even if exact figures and in-depth strategies are difficult to ascertain. While  the modern association between China and Africa stretches back to the 1950s, the past decade has witnessed dramatic growth in Sino-African trade. Then it became clear that financial flows do not constitute normal official development aid (ODA) as defined by OECD.[1]

 The Chinese financial architecture is made up of two distinct types of financial flow: ODA and Other Official Flows (OOF). The Chinese ODA comprises three instruments: grants, zero-interest loans and concessional (fixed-rate, low-interest) loans. Under these instruments they finance Chinese government scholarships for students; Chinese medical teams; ‘turn-key’ construction of stadiums, government buildings, telecommunications networks and other infrastructure; technical assistance teams in agriculture and other sectors; short-term training programs; youth volunteers; and material aid (normally Chinese goods). The concessional loans were introduced in 1995. Only large projects with a value of at least US$2.4 million, and that make a minimum 50% use of Chinese goods and services, are funded with concessional loans.

The government-provided finance to Africa falls primarily into the OOF category. China’s OOF in Africa consists of export buyers’ credits, official loans at commercial rates and strategic lines of credit and suppliers’ credits.

So, the $10 b or any package from Chinese purse will not be exactly what you thought it to be. You will know much more about Chinese Development Aid in Africa if you go through the details in Prof. Deborah Brautigam's Report, my source for above summary.

Do we have absorptive capacity?

Any bilateral assistance may initially sound like a good spread of wealth. But it also comes with the spread of influence depending on how effective are the ability to negotiate aid and capacity to absorb assistance by the recipient country. The development assistance is not "one-shot pot-luck lunch". It is a program spread over a number of years and continuation thereafter. We know these well but tend to forget often.

Let us take  Kuronuma's $10 b as example. The Chinese economic assistance, roughly about Nu 650 b, will have to have a spread of at least 10-15 years. The $1 b (Nu 65 b) per year or in project size terms about 2 hydropower projects (of about 600 MW, slightly smaller than Mangdechu Hydropower Project) every year for 10 years will choke us. Or on a loose schedule of 15 years, one Mangdechu[2] equivalent per year for next 15 years will also spill over our brim, to be honest. It makes no sense given our ability in dealing with international issues and capacity to implement projects, and the Chinese probably know it looking at cost and time overruns of our ongoing mega projects.

The economic finances -- grants, zero-interest and/or concessional loans -- need strong in-house capacity for beneficial use of the resources, including for (i) project design and feasibility study, (ii) project execution, management and administration, (iii) financial management and control, and (iv) project operation and maintenance. Strong internal ability to deal with issues and capacity to implement and absorb external funds productively over the period spread across several priority sectors is pre-requisite to improve the country's competitiveness.

If undermined by the ability and capacity shortcomings, the projects will be dependent on deals made at high political levels, our leverage at such levels for all purposes will be insignificant considering our overall standing vis-à-vis theirs. As in Africa the projects will then lack competitive and transparent bidding processes, and most of the work force employed at those ventures will be Chinese. It is difficult to foresee how successful would be the promises of job creation, local employment and technology transfer. Under such configuration it may turn out to be a recipe for degeneration of national interests. As the old saying goes you will only get choked if you try swallow too big a chicken-bone. A size that can be chewed, swallowed and digested is a better healthy option.

And the influence

Compared with China's $3,200 b foreign exchange reserve, $10 b may look like a pocket-change for them.  But in terms of an aid it is a huge amount for any country. For China, aid in Africa has primarily been a diplomatic tool. As a consequence, Beijing offers development assistance to most African countries with which it maintains relations including South Africa, which has a higher per capita GDP than China. Aid is part of a historical and diplomatic narrative, not simply a device for snapping up resources of Africa. And large part of the narrative is influence, which mostly is true for any country that gives economic assistance bilaterally. No bilateral donor is a saint. Who will know it better than the Bhutanese? Or I say to myself, steady man!

The arbitrary figure of $10 b economic aid may even have been coined to instigate a purpose. The purpose could be anything from showing an alternative source of development finance to influencing 2018 election results. The figure may be arbitrary and standoff may have ended but the purpose looks neither arbitrary nor at an end. For all we know the initial purpose of instilling in the minds of people the need for diplomatic relation and development finance alternative may have been achieved, however small.  It is not how much that matters now but mere thought of the needs may prove utilitarian eventually.

The display of strength, power, money and even commonality in religion, language, culture to influence thinking of common people will likely continue Doklam or no Doklam. The stand-off may have been disengaged but the message that the Chinese would like to keep their interest in, and engagement with Bhutan (consequently influence obviously) alive is loud and clear. We better understand it well and think hard how best to deal with the future situations.

Is it all about water?

Water is the most important resource in the world. The Tibetan Plateau holds more ice than any place on Earth that isn't a pole. The glaciers from the Plateau supply most of Asia's rivers and, by extension, some 2 billion, out of total 7.3 billion people of the world.  The region's mountain ice is so great that it's often called the "third pole" or the "water tower of Asia."

As the two giants may figure out how to live together, we need to know how to smartly live knowing well what is at stake.  Bhutan sits on the southern slope of the Tibetan Plateau. As per FAO Bhutan’s total annual internal renewable surface water resources are estimated 78 km³ (78,000 million m³) without accounting groundwater resources (ground water mostly gets drained by the surface water network because of hilly terrain). The internal renewable water resources (IRWR) comprises both ground and surface water. As per the World Bank Bhutan's IRWR of 101,960 m³/per capita is one of the highest in the world.[3] In 2008, total water withdrawal by entire country was estimated at 338 million m³, representing a mere 0.35% of the annual IRWR.

According to the World Resources Institute 33 countries will face extremely high water stress by 2040 (see map below). The water resources management requires years of study, research, data analysis and implementation capacity. The need for a strong institution to take stock of and manage the country’s water resources and watersheds cannot be overlooked at any cost.

Yes, Bhutan's natural resources are important in the region. And our trade balance with Chinese will be one-sided from day one. The inflow of Chinese tourists will not off-set the anticipated import from China. The only substantial potential export I can think of is hydropower subject to overcoming the conditions, restrictions and shortcomings. The current investments in our water resources through hydropower comprise run-off-the-river projects. But should Chinese investments flow into hydropower somehow, the justifications will be more for reservoir projects, that I can tell you, for the reasons of strategic play and their lead on it. Everyone knows Chinese are far ahead on reservoir power generation. The three gorges dam, the world's biggest, with installed capacity of 20,500 MW is a vivid attestation. The question for us would be -- what a difference of perspectives on same issue?

            The United Nations says fight for and control over water resources will get more and more intense in future. Who will know better than the Chinese and Indians because Tibet reportedly provide fresh water for half of the Earth's population through ten watersheds and China keeps it under direct control. And Prime Minister Narendra Modi says northeast is India's "Laxmi" (Goddess of Wealth).

Can we work to make comfortable living in our country that sits on southern slope of Tibetan Plateau and north-east of Indian subcontinent? What concerns me most, as always, is the intellectual development backlog, more than the debt buildup, inhibiting home capabilities to come out small but smart!

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"Half of being smart is knowing what you are dumb about." - Solomon Short

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[1]    The concessionary funding given to developing countries and multilateral institutions primarily for the purpose of promoting welfare and economic development in the recipient country. Funding must be ‘concessional in character’ (i.e. involving government subsidies) and loans must have a grant element of at least 25 per cent, using a 10 per cent discount rate.

[2]      Installed capacity of 720 MW at a cost of $670 million or Nu 43.50 b.

[3]   Asian IRWR average: 3,300 m³/per capita, Bangladesh: 660 m³/per capita, China: 2,062 m³/per capita, India: 1,116 m³/per capita, Nepal: 7,034 m³/per capita and Pakistan: 297m³/per capita.  

GST : Zero-rated Supply?

       The recent introduction of Goods and Services Tax (GST) by Government of India (GOI) makes the whole country unified common market. GST is a single tax on supply of goods and services, from manufacturer to consumer. The input taxes paid (e.g. on raw materials) at each stage are reimbursed in the subsequent stage of value addition. Therefore final consumer bears only the GST charged by the last dealer in the supply chain, with set-off benefits of previous stages. The GST details are at CBEC Website.

       The GST is an all India indirect tax. Indirect taxes are either origin-based or destination-based. Origin-based tax (also known as production tax) is levied where goods or services are produced. Destination-based tax (consumption tax) are levied where goods and services are consumed. In longer-term destination-based taxation benefits less developed states who consume more (so more tax revenue) than what they produce. The disadvantage being that the goods producing states are likely to try to put restrictions on interstate sales to avoid flow of revenue outside their states. This may sometimes hamper the progress of inter-sate trade within the country and affect overall growth.

       Since GST is the destination-based tax, Indian exports are considered as zero-rated supply (meaning no GST charged on export) but Indian imports are levied the same taxes as domestic goods and services adhering to the destination principle in addition to customs duty which is not subsumed in GST. So all exports of goods and services from India to Bhutan from 1 July 2017 are GST-free.

       With my short experience of importing goods from India under GST, I have briefly reviewed here only one aspect, the import of goods (service import and goods and services export aside). The GST for goods is charged at 0%, 0.25%, 3%, 5%, 12%, 18% or 28%. The GST Rate Finder app for both goods and services is available to help find GST rates for all the items.    

       For GST-free export, procedure in GOI Circular No. 26/2017-Customs dated 1 July 2017 gives following two options:

(a)    supplier may supply goods or services or both under bond or Letter of Undertaking (LOU), subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilized input tax credit; or

(b)   supplier may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 (Refunds) of the Central Goods and Services Tax Act, 2017.

       In short, suppliers either provide bond or LOU to GOI with bank guarantees (so GST could be charged by GOI to suppliers later should the suppliers not export or divert goods for consumption within India) for GST-free export to Bhutan or pay full GST prior to export and claim refund following appropriate provisions and procedures. In either case Bhutanese importers will need to provide Exemption Certificate for every import from the Department of Revenue and Customs for submission to Indian tax authorities by suppliers to liquidate outstanding GSTs against their names. Once the Exemption Certificate is given for an import, Bhutanese buyer MUST get GST-free goods or GST refund. There are Indian retailers going around trying to take GST advantage on their side. For instance, they offer 10% or 15% discount on maximum retail price (MRP) (which  already includes GST) for items with 28% GST, and also want Exemption Certificates (but do not talk of GST refund because their bills/invoices do not show GST separately). So when Exemption Certificate is given, they profit (28-10)18% or (28-15)13% from GST alone on Bhutanese buyers account.

       Therefore for export, Indian suppliers need to (i) register and obtain GST registration no., (ii) provide bond or LOU to GOI for GST-free supply or export GST-paid goods and claim refund, and (iii) supply goods under Export Tax Invoice, where GST forgone or charged has to be clearly indicated. The GOI Land Customs Stations at Indo-Bhutan borders rigorously check these documents. 

       Only manufacturers and major dealers/suppliers will take the pain to go through the process (also involves in many cases their own operational system modification) for GST-free export to Bhutan. In some cases Bhutanese buyers may need to push the sellers for GST-free export or GST refund claim. It is difficult for normal retailers to go through the GST-free export or refund claim processes. They would rather treat small purchases by Bhutanese as over-the-counter local sales and charge GST which will eventually be passed onto the Bhutanese consumers. So bulk of the personal and consumer items is likely to be subjected to double taxation, GST in India plus Bhutan Sales Tax (BST). The Bhutanese are too used to local procurement of personal and consumer items from places like Jaigaon, which will mostly be  GST-paid and BST-evaded (most likely) purchases. The reports that all purchases in India will be cheaper because of GST-free provision is misleading.

       The GST is not only an Excise Duty. So the rationale for GOI charging Excise Duty for export to Bhutan and reimbursing the Excise amounts at regular intervals to Royal Government of Bhutan (RGOB) earlier is different. Let us take a look:

        The GST is indirect tax that subsumes Central Excise Duty, Additional Excise Duty, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, and Special Additional Duty of Customs (at central level); and (ii) State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the centre and collected by the states), Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling (at the state level). 

       A tax is a mandatory finance charge or levy imposed by the state following the due process to fund public expenditures. Non-payment or evasion of taxes is dealt with in accordance with the law. 

       The Excise Duty is an origin-based tax levied on manufactured goods and is levied on some types of goods (such as alcohol, cigarettes, or petrol) that are deemed harmful to society in one way or other. The excise duty is eventually passed on to the final consumer. So the Excise Duty refund earlier for import from India was mainly because the imported goods that had excise duty tags were consumed in Bhutan and RGOB had to incur expenditures to counter those harmful effects. But the option of levying GST by GOI to Bhutanese consumers and reimbursing it to RGOB is an issue that, in my view, has serious implications. I am neither a lawyer nor constitutional expert. Let them examine if the option is within the purview of our law(s).

       In addition RGOB looking into levy of GST on limited items that are GST-free looks against GOI's zero-rated supply principle, and not farsighted considering cost/benefit pattern of our overall import from India. The Bhutanese consumers will benefit from GST-free import of high GST rated (12%, 18% or 28%) items but that will be offset by the double tax jeopardy mentioned above. The RGOB and the Bhutanese private sector may rather focus on how best to take advantage of Indian zero-rated exports to our best advantage without too much inflationary pressures and on ensuring that the item-specific GST-free advantages get passed onto the final consumers!

The Doklam dispute over undisputed call

The Siliguri Corridor, or Chicken's Neck, is a narrow stretch of land in West Bengal that connects India’s 45 million northeastern people in seven states with rest of India. Nepal and Bangladesh lie on either side of the corridor, and at the narrowest point the corridor is less than 27 km. Bhutan and Indian state of Sikkim are on north of corridor and in between there exists a slice of Chinese territory constituting a tri-junction at one spot. The Indian land stretching from tri-junction to Bangladesh border is at crow-flight distance of about 130 km and the tri-junction is at about 500 km from narrow Chicken’s Neck. The Doklam plateau (Chinese name of same area is Donglang) is the area around tri-junction and portions of Ha (Bhutan), Sikkim (India) and Yadong (China). 

Therefore slightest disturbance in Doklam area is security and geo-strategic sensitivities of highest order for India. India has rushed additional troops in the area where its soldiers have been locked in a standoff with Chinese People's Liberation Army (PLA) for almost a month, longest impasse between the two armies since 1962. No surprise on army reinforcement, not even to the Chinese. For China it is more like pressing a nerve at India’s strategic space to make their point. For Bhutan Doklam is about boundary talks that is 33 years old and 24 rounds wide diplomatic lifeline. 

The first boundary talk between Bhutan and China was held in April 1984 and last one in August 2016. Each talk discussed how best to resolve the disputed areas including Doklam. I am quite certain that our purpose for the boundary talks was to resolve boundary disputes but wonder if their purpose was the same. If the purpose is same, solution, I tend to think, would converge sooner than anticipated. If not, the end objectives differ. When destinations are different, ‘big boys’ only pretend that they walk the talk along with you. And they do not play zero-sum game when it comes to pursuing their geo-strategic interests.

The 24 rounds of border talks would have always included Doklam as one of the disputed areas. The two governments also conducted Joint Technical Field Survey (JTFS). The JTFS teams have visited Doklam (confirmed by Prime Minister's report below).

The Prime Minister visited disputed areas and presented to the parliament as part of the State of the Nation report, as per  25 August 2015 Kuensel, the following:

“In the western sector, it was reported by the Prime Minister in the State of the Nation report delivered to parliament in June, that the first phase of a joint technical field survey had also been completed.

The disputed areas in the western section are Dramana, Shakhatoe, Sinchulung, and Doklam, in the dzongkhags of Haa and Paro. The areas comprise of 269 sq km of disputed areas. The Prime Minister had also reported that he had been personally visiting these areas. The two countries have agreed to settle the border demarcation issue at the earliest. The talks are based on the guiding principles agreed to in 1998 by the two countries and the agreement on the maintenance of peace and tranquillity in the Bhutan-China areas signed in 1998.”

The findings and recommendations of JTFS teams were endorsed by 22nd boundary talks as reported through 26 November  2016 Kuensel:

“To understand the dispute, a Joint Technical Field Survey was also conducted and the team had visited the field thrice. The report of the team was endorsed during the 22nd round of border talks. This, Lyonpo Damcho Dorji said has been helpful in reducing the differences in claims between the two countries. The country’s basis for claims, Lyonpo said is on the age-old practise of land usage and administrative authority.” 

        We do not know how helpful the JTFS report was “in reducing the differences in claims between the two countries” and what exactly was meant by “The country’s basis for claims is on the age-old practise of land usage and administrative authority.” The fact remains that JTFS teams visited all disputed areas and their report was endorsed by the representatives of the two governments.

Having come to the point of “The two countries have agreed to settle the border demarcation issue at the earliest” in 2015, some events seem to have taken centerstage from mid-June 2017 undermining progress made so far. On 16th June 2017, PLA started constructing a motorable road from Dokola in the Doklam area towards the Bhutan Army camp at Zompelri. Bhutan conveyed to the Chinese side that the construction of the road inside Bhutanese territory was a direct violation of the agreements and affected the process of demarcating the boundary between our two countries. The Indian army was deployed to the area and blocked PLA from constructing the road.

On 29 June 2017 Chinese foreign ministry spokesperson Lu Kang told in his regular conference that Doklam area belonged to China, not Bhutan and India, which had been proven by history and legal principle. China's road construction in Doklam area, which is their territory, was legitimate, and any other party had no right to interfere.

The Chinese media  Global Times  reemphasized that Donglang (Doklam) area belonged to China, not Bhutan and India, which had been proven by history and law. China's road construction in the Donglang area, which is their territory, was legitimate, and any other party had no right to interfere.

Then China released a map to back the above claim accusing Indian troops of "transgressing" into Doklam area of Sikkim sector, to prevent PLA from building a road there. China cited a Britain-China treaty called Convention between Great Britain and China relating to Sikkim and Tibet signed by British viceroy Lord Lansdowne and lieutenant governor Sheng Tai in 1890 to back its claim on Doklam.

The exact location of the tri-junction is the main issue. While Beijing believes tri-junction is located 2.5 km south of Dokola Pass at Gyamochen/Mt Gimpoche. Bhutan is of the view that the tri-junction is at Batangla, 4 km north of Dokola. So the road construction south of Batangla for us is encroachment in disputed territory. The Chinese consider now up to Gyamochen/Mt Gimpoche is their territory.  And they have said that their territorial sovereignty is unwavering and asked for withdrawal of Indian troops who have overstepped and trespassed into Chinese border. Without the withdrawal they say there will be no boundary talks between India and China. And so on...the statements from Beijing trickle almost every day.

         The Chinese contention that Doklam area (south of Batangla) is in Chinese territory and not under disputed area falls flat from their own perspective having discussed/deliberated last 33 years and visited by JTFS teams for field survey. I am quite certain that the map and the Convention between Great Britain and China of 1890 are not new. The boundary teams would have seen/discussed those before. The boundary talks between Bhutan and China are still ongoing. So reintroduction of old map and Convention at this stage does not make disputed area undisputed, and certainly does not authorize one party to declare so on unilateral basis. It looks more like an attempt to disturb status quo by trying to build a strategic road south of Dokola to make the statement of a neighbour. How serious? If the standoff is not de-escalated early, it can get very serious. Time is the variable.

         If it is really an effort to change status quo, what happens to the earlier written agreements stating that the two sides agreed to maintain peace and tranquility in their border areas pending a final settlement on the boundary question, and to maintain status quo on the boundary as before March 1959? The agreements also stated that the two sides will refrain from taking unilateral action, or use of force, to change the status quo of the boundary. 

So what is new and what has changed now? I just cannot believe that our boundary teams missed something so drastic that Doklam could be declared by other party an undisputed territory unilaterally. And also that China wants to carry a big bully stigma internationally and that they ignore all previous agreements/endorsements that have taken 33 years of negotiations. We are in 2017, not 1962. Every corner of the world is interconnected, gets informed and forms opinion in few seconds. It may be possible that our teams goofed a bit that they did not grasp in depth the Chinese diplomacy and their geo-strategy in the region. This is our internal issue. What is it then? Is our neighbour tired of seeking diplomatic relation with us the formal way? Are they perturbed with stagnant geo-politics of the region and looking for dynamism? Can anyone decode the Chinese statements above and those trickling almost every day and confirm these? 

One thing seems more certain that the Chinese have their strategy in line and they also know who they are dealing every time with -- directly, semi-directly and sometimes indirectly. They may even make Bhutan centerpiece of the India-China standoff as a means to achieve their objective. And the objective is.....that everyone knows but do not know. We can afford neither diplomatic indifference of past nor brinkmanship in future. The call is also for us to think (not only blurt out reactive narratives), and think hard! May be we can find diplomatic compromise that will ease tension at Doklam.

As I said in October 2012 “The challenge lies in coming out from dormant attitude on relationship of gratitude and gratefulness to understanding the merger of nationalism with new geopolitical thinking to carve out a comfortable geopolitical space. How many will properly understand the nationalism trends, including reading signs of an advancement towards so called "geopolitik nationalism"? Can we think in terms of the possibility of being an instrument of confidence building?” It may sound asking for too much too soon, but time is not a luxury commodity! And in-between gap is far too wide just like sitting in the middle of the "person is guilty until proven innocent", and "person is innocent until proven guilty."