Taxation of India’s Professional Cricket: A Proposal

Tax professional cricket: Hockey’s debacle shows the distortions in India’s sports markets

by

Subroto Roy

First published in The Statesman, April 1 2008, Editorial Page Special Article http://www.thestatesman.net

All cricket involving professional international-level players, whether Indian or foreign, that comes to be broadcast to Indian audiences or played before Indian spectators, deserves to be subjected to a new, severe, discriminatingly specific excise-tax. Cricket below professional international level would be unaffected. Revenues received by the Union or State Governments from a new “International Cricket Tax” should be specifically “earmarked” to subsidize other sports as heavily as possible. Individual Indian athletes, gymnasts, swimmers, archers etc. as well as Indian teams in soccer, hockey, rugby, volleyball and other sports would be encouraged and enabled to train or compete at sporting events around the world using revenues raised from taxation of professional international cricket involving India. Had our Ministry of Finance or any other New Delhi ministry any serious sense of the economics of public finance, they would have proposed such a simple device of national policy years ago, certainly after the Hansie Cronje gambling scandal broke.

National policy

The distortions of our sports markets have come to be highlighted today by the collapse of Indian men’s hockey coinciding with Indian men’s cricket ballooning from a little international success and a lot of greedy consumer-fed wealth. The public is hardly aware of it but Indians have in fact done very well recently in several international sports ~ especially women’s and men’s boxing, women’s weight-lifting, athletics, archery, table-tennis, swimming, women’s hockey and men’s soccer. Yet youngsters around the country face extremely distorted decisions between investing their time and energy in any sport other than cricket ~ on the outside chance they might hit gold like a Sachin Tendulkar or MS Dhoni or Irfan Pathan and improve their families’ material well-being for ever more, rather like buying a winning lottery ticket.  As a general rule, the structure of economic incentives should be such that a physically talented 10 or 11 year old male or female child should be indifferent between choosing among different sports in which to specialize, cricket being one possibility. Physical fitness through sport along with proper nutrition for all children in the country needs to be the general national goal.

Notwithstanding its virtues, joys, pleasantries and sportsmanship, cricket cannot be considered a nation-building sport for India’s masses. Cricket in England and the West Indies has long declined in face of more vigorous mass sports like soccer and basketball (“West Indian” athletes emigrating to North America). Australia and New Zealand love cricket but they tend to love and excel in many sports and cricket to them is just another ~ if cricket suddenly vanished they would merely move more towards rugby, swimming, tennis etc.

In India, Pakistan, Sri Lanka and Bangladesh as well as South Africa and Zimbabwe, cricket does have some political nation-building role via the secular symbolism involved in choosing a representative national team on merit ~ but that still does not make cricket the single most suitable sport for mass physical or moral upliftment among scores of millions of poor children.

Cricket is similar to baseball and American football in requiring quite a lot of equipment per player; in requiring relatively high technical specialized training (opening batsman, spin-bowler, pitcher, quarter-back); and in not providing all who play it a “total body workout” within a short length of time. One may need to be fit to play cricket but playing cricket in and of itself is not the best route to physical fitness.

Professional international cricketers thus need to be provided with a lot of support ~ gyms, massages, fitness sessions, physiotherapy etc. Field games like rugby, soccer, hockey or basketball do provide “total body workouts”, do not require nearly as much equipment per player and call for much less technical specialized training.

For sake of national policy-making, relevant comparisons should not be made at first class or professional levels but rather on the level of school playing fields, village playgrounds or urban parks and open spaces on any bright day where a bunch of lads have nothing better to do than create a game for themselves. In India as around the world, all that a dozen or more lads need to make a game of it is a ball that can be kicked between them. America’s inner cities have a single basketball hoop around which a game comes to be played.

The high life-time earnings of professional international Indian cricketers arises ultimately from television advertising of mass consumer goods and services ~ aerated sweet drinks, mobile telephone services, chocolates, potato-chips, soaps, shampoos, detergents etc. There is in general nothing wrong with such outcomes of a free process of contracts. The late libertarian philosopher Robert Nozick in Anarchy, State and Utopia gave a classic case of the great basketball player Wilt Chamberlin earning a vast income and wealth because very large numbers of people were freely choosing to part with their money to watch his genius at play.

America, however, has had a long history of sports during which sporting markets have become very competitive in the economic sense. Indian cricket reveals monopolistic trends. Selection at national level, hence to an international professional career of about a decade or so, contains a strong random or arbitrary element to it. At the same time, since the early 1990s professional cricketers in India (unlike those in other countries) have refused to gracefully retire even after poor performance and have had to be chucked out after titanic political struggles that sometimes find mention in Parliament. There is hardly any of the “free entry” or “free exit” that define competitive conditions in an industry.

India’s international cricketers play under India’s Flag and sing the Indian National Anthem; the economic externalities involved are so obvious and the monopolistic or cartel power of Bombay’s cricket and TV businesses so severe that even nationalization of the sport at professional international level might have been considered ~ except for the sheer incompetence our government displays at handling any nationalized industry properly. Thus taxation of cricket and earmarked transfer of those revenues to other sports in India may be the most effective way to move towards a proper structure of incentives.

Sin taxes

Though our Finance Ministry seems quite unaware of it, excise taxes are supposed to be “sin taxes” only ~ e.g. on tobacco and alcohol to try to reduce their consumption and, if demand is inelastic, to extract as much revenue as possible out of them to put to healthier purposes. One reason consumption of professional international-level cricket in India has become unhealthy has undoubtedly to do with the gambling that takes place behind the scenes on innumerable aspects of the game. Placing a severe “sin tax” on professional international cricket will reduce its consumption and hence reduce the gambling deriving from it too. Even the masses who do not gamble but merely watch it on TV for vicarious pleasure and entertainment may need a jolt to prevent addiction. The way to implement a severe discriminatory tax on professional international level cricket in India may be by government control or nationalization of the public arenas in which it comes to be played as well as of course control of the television-broadcast rights. One of our many problems has become that our politicians and senior bureaucrats long to mingle freely with big business and cricket and Bollywood icons themselves; amidst all the glamour and fun that they would much rather be part of, they are unable to think about the public interest less obscurely than they might have done.

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An Open Letter to Professor Amartya Sen about Singur etc

A letter to Prof. Sen

First published in The Statesman 31 July 2007, Editorial Page Special Article

Professor Amartya Sen, Harvard University

Dear Professor Sen,

Everyone will be delighted that someone of your worldwide stature has joined the debate on Singur and Nandigram; The Telegraph deserves congratulations for having made it possible on July 23.

I was sorry to find though that you may have missed the wood for the trees and also some of the trees themselves. Perhaps you have relied on Government statements for the facts. But the Government party in West Bengal represents official Indian communism and has been in power for 30 years at a stretch. It may be unwise to take at face-value what they say about their own deeds on this very grave issue! Power corrupts and absolute power corrupts absolutely, and there are many candid communists who privately recognise this dismal truth about themselves. To say this is not to be praising those whom you call the “Opposition” ~ after all, Bengal’s politics has seen emasculation of the Congress as an opposition because the Congress and communists are allies in Delhi. It is the Government party that must reform itself from within sua sponte for the good of everyone in the State.

The comparisons and mentions of history you have made seem to me surprising. Bengal’s economy now or in the past has little or nothing similar to the economy of Northern England or the whole of England or Britain itself, and certainly Indian agriculture has little to do with agriculture in the new lands of Australia or North America. British economic history was marked by rapid technological innovations in manufacturing and rapid development of social and political institutions in context of being a major naval, maritime and mercantile power for centuries. Britain’s geography and history hardly ever permitted it to be an agricultural country of any importance whereas Bengal, to the contrary, has been among the most agriculturally fertile and hence densely populated regions of the world for millennia.

Om Prakash’s brilliant pioneering book The Dutch East India Company and the Economy of Bengal 1630-1720 (Princeton 1985) records all this clearly. He reports the French traveller François Bernier saying in the 1660s “Bengal abounds with every necessary of life”, and a century before him the Italian traveller Verthema saying Bengal “abounds more in grain, flesh of every kind, in great quantity of sugar, also of ginger, and of great abundance of cotton, than any country in the world”. Om Prakash says “The premier industry in the region was the textile industry comprising manufacture from cotton, silk and mixed yarns”. Bengal’s major exports were foodstuffs, textiles, raw silk, opium, sugar and saltpetre; imports notably included metals (as Montesquieu had said would always be the case).

Bengal did, as you say, have industries at the time the Europeans came but you have failed to mention these were mostly “agro-based” and, if anything, a clear indicator of our agricultural fecundity and comparative advantage. If “deindustrialization” occurred in 19th Century India, that had nothing to do with the “deindustrialization” in West Bengal from the 1960s onwards due to the influence of official communism.

You remind us Fa Hiaen left from Tamralipta which is modern day Tamluk, though he went not to China but to Ceylon. You suggest that because he did so Tamluk effectively “was greater Calcutta”. I cannot see how this can be said of the 5th Century AD when no notion of Calcutta existed. Besides, modern Tamluk at 22º18’N, 87º56’E is more than 50 miles inland from the ancient port due to land-making that has occurred at the mouth of the Hooghly. I am afraid the relevance of the mention of Fa Hiaen to today’s Singur and Nandigram has thus escaped me.

You say “In countries like Australia, the US or Canada where agriculture has prospered, only a very tiny population is involved in agriculture. Most people move out to industry. Industry has to be convenient, has to be absorbing”. Last January, a national daily published a similar view: “For India to become a developed country, the area under agriculture has to shrink, urban and industrial land development has to take place, and about 100 million workers have to move out from agriculture into industry and services. This is the only way forward for bringing prosperity to the rural population”.

Rice is indeed grown in Arkansas or Texas as it is in Bengal but there is a world of difference between the technological and geographical situation here and that in the vast, sparsely populated New World areas with mechanized farming! Like shoe-making or a hundred other crafts, agriculture can be capital-intensive or labour-intensive ~ ours is relatively labour-intensive, theirs is relatively capital-intensive. Our economy is relatively labour-abundant and capital-scarce; their economies are relatively labour-scarce and capital-abundant (and also land-abundant). Indeed, if anything, the apt comparison is with China, and you doubtless know of the horror stories and civil war conditions erupting across China in recent years as the Communist Party and their businessman friends forcibly take over the land of peasants and agricultural workers, e.g. in Dongzhou.

All plans of long-distance social engineering to “move out” 40 per cent of India’s population (at 4 persons per “worker”) from the rural hinterlands must also face FA Hayek’s fundamental question in The Road to Serfdom: “Who plans whom, who directs whom, who assigns to other people their station in life, and who is to have his due allotted by others?”

Your late Harvard colleague, Robert Nozick, opened his brilliant 1974 book Anarchy, State and Utopia saying: “Individuals have rights, and there are things no person or group may do to them (without violating their rights)”. You have rightly deplored the violence seen at Singur and Nandigram. But you will agree it is a gross error to equate violence perpetrated by the Government which is supposed to be protecting all people regardless of political affiliation, and the self-defence of poor unorganised peasants seeking to protect their meagre lands and livelihoods from state-sponsored pogroms. Kitchen utensils, pitchforks or rural implements and flintlock guns can hardly match the organised firepower controlled by a modern Government.

Fortunately, India is not China and the press, media and civil institutions are not totally in the hands of the ruling party alone. In China, no amount of hue and cry among the peasants could save them from the power of organised big business and the Communist Party. In India, a handful of brave women have managed to single-handedly organise mass movements of protest which the press and media have then broadcast that has shocked the whole nation to its senses.

You rightly say the land pricing process has been faulty. Irrelevant historical prices have been averaged when the sum of discounted expected future values in an inflationary economy should have been used. Matters are even worse. “The fear of famine can itself cause famine. The people of Bengal are afraid of a famine. It was repeatedly charged that the famine (of 1943) was man-made.” That is what T. W. Schultz said in 1946 in the India Famine Emergency Committee led by Pearl Buck, concerned that the 1943 Bengal famine should not be repeated following dislocations after World War II. Of course since that time our agriculture has undergone a Green Revolution, at least in wheat if not in rice, and a White Revolution in milk and many other agricultural products. But catastrophic collapses in agricultural incentives may still occur as functioning farmland comes to be taken by government and industry from India’s peasantry using force, fraud or even means nominally sanctioned by law. If new famines come to be provoked because farmers’ incentives collapse, let future historians know where responsibility lay.

West Bengal’s real economic problems have to do with its dismal macroeconomic and fiscal position which is what Government economists should be addressing candidly. As for land, the Government’s first task remains improving grossly inadequate systems of land-description and definition, as well as the implementation and recording of property rights.

With my most respectful personal regards, I remain

Yours ever

 

Suby

Land, Liberty & Value

LAND, LIBERTY & VALUE

Government must act in good faith treating all citizens equally ~ not favouring organised business lobbies and organised labour over an unorganised peasantry

By SUBROTO ROY
First published in The Sunday Statesman Editorial Page Special Article, December 31 2006,

EVERY farmer knows that two adjacent plots of land which look identical to the outsider may be very different in character, as different as two siblings of the same family. Adjacent plots may differ in access to groundwater and sunlight, in minerals and salts, in soil, fertilisers, parasites, weeds or a dozen other agronomic factors. Most of all, they will differ in the quality and ingenuity of thought and labour that has gone into their care and cultivation over the years, perhaps over generations.

John Locke said: “Whatsoever that (a man) removes out of the state that Nature hath provided and left it in, he hath mixed his labour with and joined to it something that is his own, and thereby makes it his property… For this labour being the unquestionable property of the labourer, no one but he can have a right to what that once joined to, at least where there is enough and as good left in common for others” (Second Treatise of Government). Plots of land are as specific as the families that have “mixed” their labour with them. Locke wrote of labour being something “unquestionably” the labourer’s own property; in the same libertarian vein, Robert Nozick opened Anarchy, State and Utopia saying “Individuals have rights, and there are things no person or group may do to them (without violating their rights)”.

But as we recognise the universal sanctity of the individual person and his/her private property, we have to start qualifying it. If you purchase a field, forest or estate through which runs a pathway traditionally used by the public to get from one side to the other then even as the new owner you may not have a right to forbid the public’s use of the pathway. By extension, it is clear the State, the community of which you are a citizen, may approach you and demand there should be and will be a public road or thoroughfare through your property in the common interest. Such is the sovereign’s right of “eminent domain” recognised throughout the world, not only in times of war or natural disaster but also in normal times where private property may be taken for public use. The individual’s right to free use of his/her property is circumscribed as a result.

What may be certainly expected though in all matters is that the State will act in good faith, i.e., that it has conducted proper technical surveys and cost-benefit analyses as well as transparent public hearings, and has honestly decided that the road must be constructed using this route and no other. The doctrine of eminent domain implies that while the right to private property may be basic, it is not absolute, as indeed no right is, not even the right to one’s own life. In India, one key difference between the landmark Golaknath (AIR 1967 SC 1643) and Kesavananda Bharati (AIR 1973 SC 1461) rulings had to do precisely with the former recognising the right to property being fundamental as in our original 1950 Constitution, while the latter consented to the Indira Parliament’s denial of this.

When private property is taken, fair compensation must be paid. For example, the American Constitution says “no private property may be taken for public use without just compensation”. What is just compensation? Typically it would be the “fair market value” — but that must be properly adjudged accounting for the best future use of the land, not merely the historical or traditional past use of the land.

Consider, in a mature urban real-estate market, a plot made vacant because a warehouse located on it has accidentally burned down. What is the value of the plot now? Another warehouse could be built, but other bids could come in too for construction of offices or residential flats or a multi-storey garage. The plot’s value would differ depending on which use it is ultimately put to. And this value would be ascertained by calculating the expected cash flows into the future from each of these possibilities, discounted appropriately to account for the fact the future is less valuable than the present, with the highest value alternative being chosen. That is how a mature private real-estate market works in theory, though in practice there would be zoning and environmental restrictions to account for the traditional nature of the neighbourhood as well as possible pollution by effluent waste etc.

In India, Government departments and ministries have inherited prime urban real estate from British times. Amidst the highest value real estate in Kolkata, Bangalore, Delhi etc. will be found a military camp or flats built for military personnel, having nothing whatsoever to do with furtherance of the nation’s defences today. The appalling state of government accounting and audit of our public property and institutions includes the fact that neither the Union nor State Governments and municipalities have the faintest idea of assets, including real estate, that they own. These public assets are frequently open to abuse by managerially uncontrolled government employees.

Fallacies even more curious seem to be currently at work in Indian policy-making, whether by this or that political party. The “eminent domain” doctrine requires a public purpose to exist for acquisition of private property by the State: e.g. construction of a road, bridge, dam, airport or some other traditional public good which is going to be used by the public. In India as elsewhere, “land reform” did involve taking an absentee landlord A’s land and distributing it to B, C, D and E who worked as peasants on it. But nowhere else outside formerly communist China has land been forcibly taken from peasants B, C, D and E and handed over to this or that private capitalist in name of economic development (in a reverse class war)!

Eminent domain doctrine requires good faith on part of the State with respect to its citizens and that implies treating all citizens’ interests equally – not e.g. favouring an organised business lobby or organised industrial labour over the unorganised peasantry uneducated in the wiles of city people.

Also, there is no reason why Government should be interested in a particular product-mix emerging out of a given private factory (such as the so-called inflation-unadjusted “Rs one lakh car” instead of telecom equipment or garments or textiles). Dr Manmohan Singh’s statement last week that he wishes to see “employment-intensive” industries merely added to Government confusion: from Henry Ford to Japanese “lean business” today, everyone knows the direction of change of technology in the automobile industry has been towards robotics, making modern manufacturing less and less manpower-intensive! The Tatas themselves underwent a major downsizing and restructuring in the last decade, hiving off industries not considered part of their “core competence”.

Traditional agriculture of Singur’s sort represents the most labour-intensive employment-generating kind of rural economy. While such rural life may appear unsatisfying to the urban outsider, there is, as Tolstoy, Rabindranath, Gandhi and others knew, subtle happiness, contentment and tranquility there absent in alienated industrial sprawls. “Surplus” labour occurs in agriculture because of technological improvements in quality and delivery of agricultural inputs as well as new education and awareness (Theodore W. Schultz,Transforming Traditional Agriculture). It is mostly seasonal and all hands are used during the harvest when even urban migrants flock back to help. Industry did not leave Bengal in the 1960s and 1970s because of Mamata Banerjee but because of urban unrest, the culture of gheraos and lockouts, and bad regulations of the labour and capital markets associated largely with Ms Banerjee’s Left Front adversaries.

The basic fiction the Union and State Governments have made themselves believe is that their idea of an industrialisation plan is necessary for economic development. It is not. Real economic problems in West Bengal and elsewhere are financial to do with State budgets. “Debt overhang is there” is how the RBI Governor apologetically put it last week. Interest payments on the West Bengal State public debt consume larger and larger fractions of the revenue: these payments were at Rs 13 Bn in 1995 but grew to Rs. 92 Bn by 2004, and may jump to Rs 200 Bn in the next decade. The communists have been in power thirty years and no one but they are responsible. Making the State’s budget healthy would require tackling the gargantuan bureaucracy, slashing ministerial extravagance (foreign trips, VIP security) etc. It is much easier to hobnob with the rich and powerful while tear-gassing the peasants.