Capital, only a small part of it.

The same story every year. One rain shower and Delhi is under knee deep water with massive traffic jams. Out of 1,011 drains under the Public Works Department just 83 drains have been completely cleaned out. The PWD is under the Delhi government. One official said that they do not have regular staff like municipalities and so have to use contractors to get the job done. Talking about drains one official said, "These waterways are not meant to carry faecal matter and sewage. But we are forced to clean this sort of muck because the drains are connected to the sewers. There is a need to upgrade the sewer network in the city." What were they doing all these years? Delhi is a city with multiple governing agencies. How many? There is the central government with a 73 ministers and a Prime Minister, making a total of 74. The Delhi government has 7 ministers and a Lt Governor, appointed by the central government, to inspect everything that the local government wants to do, which often means that nothing gets done. Then there is the New Delhi Municipal Council, which looks after the center of Delhi, referred to as Lutyens Delhi, named after the British architect Edwin Lutyens, where our modern colonial masters live. There the roads are smooth, drains are cleaned and no one has to wade through filthy water. For the rest of us proles there are 3 Municipal Corporations, North, South and East, which are supposed to provide public services to the millions. For those of us fortunate enough not to have to sleep on pavements or to live in slums, most services, such as security, garbage collection, cleaning streets and maintaining parks, are provided by Resident Welfare Associations which collect subscriptions from residents. With so many authorities toiling away Delhi should be the cleanest, prettiest city in the world. In reality, it is filthy, with broken roads, piles of garbage, blocked drains and unnecessary traffic jams, because lights do not work, and the only duty of the traffic police is to collect fines from drivers. The authorities are apparently struggling to fix potholes on city roads. Why now? What were they doing in the dry season, from September to March? Because repairs are purely cosmetic and will break after one shower so that roads will need to be repaired again. That is where the money is. The High Court in Delhi noted that there are a total of 64,000 cleaning staff in Delhi but the city stinks. That is what the books show. What the court should be asking is how many are working and how many are ghost employees. Cases of Malaria have already been diagnosed, soon Dengue and Chikangunya will follow. Mosquitoes do not understand boundaries. If they infect some of our Lutyens masters maybe something permanent will be done. They are our only hope.

The protection of cash.

There is growing use of cash in Europe, except in Sweden and Denmark, which is puzzling economists, wrote Leonid Bershidsky. The share of cash relative to GDP is increasing, including in Japan where the shadow economy is small, at 10%. The use of cashless transactions is increasing all over the world and amounted to $617 billion last year, up from $60 billion in 2010. Prof Kenneth Rogoff has been arguing against the use of cash, especially high value notes. "Cash facilitates crime because it is anonymous and big bills are especially problematic because they are so easy to carry and avoid," he wrote. "A million dollars in $100 notes fits into a briefcase, a million dollars in 500 Euro notes (each worth about $565) fits into a purse." True. But the vast majority of the population do not possess a million dollars and cash gives ease of transaction, you avoid bank charges and it allows people to limit spending to what they can afford. Cash is still preferred in Germany, maybe because Germans are reputed to be thrifty. In the US families earning less than $25,000 use cash in 48% of transactions, and families earning between $25,000 and $50,000 use cash in 33% of transactions. Poor people are denied credit cards by banks, you have to pay charges for possessing a card and banks charge merchants for the use of cards, including debit cards, which is sometimes passed on to the customer. Using cards allows people to postpone payment, which gets them into debt. The middle class in Britain has racked up 198 billion pounds in unsecured debt on their credit cards. A lot of people do not trust banks. Details of our accounts are insecure because banks do not spend money on anti-virus software. Details of bank accounts of 10 million Indians are available for 20 paise each. Bank managers are seen as crooks. Even as banks are making huge losses they are paying massive bonuses to their managers. The Royal Bank of Scotland paid out 340 million pounds in bonuses despite incurring losses of up to 5 billion pounds in 2016. Credit Suisse paid more to its chairman despite making losses and despite opposition from shareholders. During demonetization the use of cash dropped because there was hardly any cash available. But as soon as cash was available the use of cash jumped by 78% in January, compared to December. "If governments were not so drunk from the profits they make by printing currency, they might wake up to the costs," wrote Rogoff. We are told by politicians that it costs a lot to print currencies but the government is actually making a huge profit from notes. This is called 'seigneurage'. Why would Indian politicians give up this income? Because it gives the government enormous power over the people by knowing what we are doing, wrote A Nageswaran. Cash is our only protection against these despots. If only the people understood.

We need optimism, the alternatives are terrifying.

"In 50 years, I predict that the world economy is likely (though not guaranteed) to be thriving, with global GDP growing by as much as 20% per year, and income and consumption doubling every four years or so," wrote Prof K Basu. From 1500 to 1820 the world economy was growing at just 0.32% "with large sections of the world experiencing no growth at all". The Industrial Revolution lifted "average annual global growth to 2.25% from 1820 to 2003". Why the optimism? "Today, it is the Digital Revolution that promises to lift growth to new heights.Indeed, we are in the midst of dramatic technological breakthroughs, with advances in digital technology connecting all corners of the world." Digital technology is also taking away every shred of privacy and freedom from individuals as it lays us bare to autocratic despots, wrote Chinmayi Arun. Vivek Wadhwa predicted,"Our future of unlimited growth -- and joblessness." Robots will take over all the jobs in manufacturing, driving, nursing and medicine while drones will do all the delivery work. One Carl Bass said, "The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment." Automation will make everything extremely cheap. But not free. Industrialists will still want to recover costs of manufacturing robots, paying for raw materials and buying land to set up factories. If there are no jobs how will people buy even the cheapest of goods? "Through improved education and training, as well as more effective redistribution, we can facilitate more creative work -- from art to scientific research -- which machines will not be able to do in the foreseeable future," wrote Basu. But, how? Is it possible for billions of humans to be trained to be engineers of Artificial Intelligence or to be able to write programs for robots that they will want? Starting at 8,000 BC the world population reached 1 billion by 1800, but by 2050 it will reach about 10 billion. That is a huge number of people with no jobs. So who is going to feed, clothe, educate and treat them when they are ill. We may have robot doctors but medicines will still need to be manufactured. Prof Tyler Cowen wrote that there can be no economic miracle, citing the example of Denmark which has been growing at an average of under 2%, with no recession. An economic history of the world, compiled by Angus Maddison shows that economic growth in the West has been faster for centuries, wrote M Chakravarty. Perhaps, because the West has been adept and making instruments of war with which to subjugate other nations and loot their resources. Digital technology will also be used for war. It only takes time.

What about GST on hot air and flimflam?

Prime Minister, Narendra Modi invited US businesses to invest in India, claiming that the Goods and Services Tax, or GST, will be a game changer. Even as Modi was waxing eloquent, an art he has mastered, four US lawmakers wrote a letter to President Donald Trump complaining about the difficulty of doing business in India. "While Indian businesses continue to benefit from open US markets, India has failed to eliminate, or even address concretely, multiple trade and investment barriers that have been the focus of recent bilateral and multilateral fora," they wrote. "At the same time, India has imposed several new significant barriers that have harmed US producers across all sectors or our economy, including services, manufacturing and agriculture. Prime Minister Modi's visit provides an opportunity once again to press India for results." Not everyone is impressed with hot air, it seems. In his radio address, presumably recorded prior to his visit to the US, Modi reminded everyone of the "dark night" of the Emergency imposed by Indira Gandhi 42 years ago. At least Indira Gandhi did not force every citizen to provide fingerprints and iris scans for biometric identity cards and did not force retired tax payers to stand in queues for hours to withdraw their own money from banks because of sudden banning of high denomination notes, known as demonetization. As for repression ask NDTV, whose offices were raided by the CBI without any valid reason. The real crime? NDTV was critical of Modi's government. When the government treats every citizen as criminals it is not surprising that India is at 130 out of 190 in the ease of doing business, according to the World Bank. A report in 'Foreign Affairs' said that demonetization was one of the most 'disruptive experiments' in history, was of no benefit to the economy, but was very popular because Modi was able to persuade the poor, who suffered enormously, that he was hurting the rich. The Economist was not impressed with Modi's reforms or the GST, although it praised his administrative ability and the lack of corruption in the upper ranks of government. Modi boasted that there has not been a single stain of corruption on his government. True, but not one high profile criminal has been successfully prosecuted. When 1.3 billion people are treated as criminals the real ones are lost in the crowd. Public sector companies have been ordered to pay for celebrating the third anniversary of Modi's rise to power and government owned oil companies have been 'directed' to pay Rs 2 billion for a statue to Sardar Patel. That is surely misappropriation of public funds. Modi has visited the US many times before so they will have a dossier on him. If only there was GST on flimflam India would be a rich country. Pity.

Why would the bums want to be thrown out?

People are voting against political parties in government all over the world, wrote Ruchir Sharma. "Right-wing reformers are rising where left-wingers ruled, progressives are rising where conservatives ruled, and unconventional populists are gaining where the traditional parties are especially weak," he wrote. "If there is a common factor driving voters worldwide, it is less a particular ideology than a deep but amorphous desire for change." Why the anger? "The voters anger stems from the wide and persistent slowdown that has taken root since the global financial crisis of 2008. The growth rate of the global economy has slumped to around 2.5% this decade, from 4% in the decades before 2008, undermined by weakening growth in both population and productivity. No major region of the world is growing as fast now as it was before the crisis." The US economy has been growing for 96 straight months, and unemployment is down to 4.3% but wages are not growing in step with economic growth, wrote Danny Vinik. Wages are growing slowly because of hidden unemployment, which is reflected in low inflation. A couple of weeks back the Federal Reserve in the US raised its Funds rate by 25 basis points to 1%. The Fed targets retail inflation of 2% but some economists are urging the Fed to set a higher inflation target, which means that they are asking for low interest rates to continue. These economists are concerned about increasing inequality and are hoping that low borrowing costs will encourage borrowing for new investments, which will lead to increased job opportunities for the working classes. A report from the World Economic Forum warned of increasing polarisation of society due to rising inequality. Most of the wealth generated is going to the top 1%. But, surely low interest rate is one of the main causes because it allows the rich to borrow cheaply to buy up assets? Low interest rate tempts people to buy on credit, gradually trapping them in debt that they cannot repay. The middle class in Britain has racked up 198 billion pounds in unsecured debt. The present global prosperity, enjoyed by the old, is based on debt which the young will have to repay, wrote Satyajit Das. "Central to the issue is that the rise in living standards and prosperity of the past 50 years has been largely based on rising debt levels, ignoring costs of environmental damage and misallocation of scarce resources." Ken Buck, a member of the US Congress, wrote that there should be term limits on elected representatives just as there is on the president of the US. In India there is no question of term limits. Politicians not only try and hang on for life but get their children, brought up with a sense of entitlement, financed by taxpayer money, elected so that succeeding generations can continue to loot. We vote to be looted. How stupid is that?

How do you measure the fear of suffering?

"The sharp fall in inflation in recent years has pulled down the growth in nominal gross domestic product (GDP)," wrote N Rajadhyaksha. Nominal GDP is measured in current prices while 'real GDP' measures growth with reference to a base year by eliminating rise in prices, or inflation. Thus, nominal GDP is what we see and feel as we shop while the real GDP is a calculated figure, which is irrelevant to most people. Nominal GDP in 2016-17 was Rs 152.51 trillion, while the real GDP was lower at Rs 121.65 trillion. Last year the real GDP was growing at 5% and not 7.1%, as claimed by politicians. "Employees who are used to large increases in nominal pay during episodes of high inflation feel cheated with the more modest pay hikes we see in these years of low inflation." Farmers are incensed at the fall in prices of their produce. "People think in nominal rather than real price terms. Price changes matter." Farmers want higher prices for their produce but low prices are good for consumers and low inflation is useful for politicians to bully the RBI for lower policy rates. Apparently, Irving Fisher coined the term "money illusion". "Indian workers, companies, investors, savers are so used to high inflation that lower nominal numbers because of the drop in inflation is a fact that they have psychologically not adjusted to." In short, people feel poorer because prices are not rising. So, are the farmers being irrational for demanding higher prices for their produce? Well reasoned articles explain why farmers have been hurt by the fall in food prices. Everything from a change from growing cereals to horticulture, imports of cheap produce from abroad, delay in paying farmers, to demonetization have been advanced to explain the fall in prices. But, most people tend to ignore the fact that input costs are rising. Prices of fertilizers and pesticides have risen because we import 60% of 'technicals' from China. So, our inflation calculations are probably based on the finished product, without accounting for the inputs. The Goods and Services Tax is set to impose a 12% tax on fertilizers, 12% tax on tractors and 18% tax on crop protection products, which means pesticides. There will be no tax on seeds. And so we come to loan waivers which are generating a lot of heat. Loan waivers mainly help rich farmers with big landholdings but not marginal farmers, who generally borrow from local moneylenders. Loan waivers will increase fiscal deficit of states which is reflected in the difference in yields between bonds issued by the states and the center. This may affect India's sovereign rating. However, Pronab Sen argues that agricultural loans are insured against defaults, farmers usually repay their loans and people should not be allowed to starve. Money maybe an illusion but suffering is real. There is no economic measure for the fear of suffering.

Buy F-16s to influence their thinking?

A couple of days back, in a display of unnecessary bravado, a NATO aircraft buzzed an aircraft carrying the Russian Defence Minister, Sergei Shoigu, over the Baltic Sea. A Russian Sukhoi-27 inserted itself between the 2 planes and tilted its wings to show its weapons, making the NATO plane flee. The NATO fighter jet was a F-16. Tata, an Indian multinational, is in talks with Lockheed Martin to build F-16 jets in India, which may result in Lockheed shifting its plant from Fort Worth in Texas to India. In a head to head comparison the Sukhoi seems no match for the F-16. The Sukhoi is capable of a top speed of 1320 mph, has an autocannon capable of firing 1800 rounds of armor piercing high explosive rounds per minute and air-to-air missiles capable of hitting targets 80 miles away at 4.5 mach. The F-16 has a top speed of 1553 mph, its guns can fire 20 mm bullets at 6,600 rounds per minute and it has missiles capable of hitting targets 111 miles away and Sidewinder missiles capable of hitting targets 22 miles away. However, we do not know how good it is in close combat and maybe that's why it fled. So, should we be wasting money on a plane which has reached the end of its shelf life? A Iyer-Mitra wrote that "less than 40% of the F-16 is actually Lockheed technology. The remaining 60% is proprietary technology owned by by hundreds of subsystems manufacturers spread across the globe", some of whom, like those in Turkey, will not transfer their know-how to India. "In the end, India gets a superb fighter and a few thousand jobs but nothing more -- not a monopoly, not innovation, not cutting-edge technology and, certainly not 'strategic autonomy'". Russia is also developing a hypersonic missile capable of flying at 4,600 mph, which is 5 times the speed of sound. The same scramjet technology will be used in Brahmos II that India is developing with Russia. India has a well developed satellite program. It should be possible to put up a chain of satellites which will monitor our borders constantly and link anti-aircraft missiles with the satellites so that they home in on any enemy aircraft crossing our borders. Russia is building a gas pipeline across the Baltic straight into Germany, and bypassing Ukraine. That will raise Russia's share of German gas requirement to 50% and Russia will be able to shut gas supply to Ukraine without affecting supply to its other customers in Europe. Naturally, European countries are unwilling to increase sanctions against Russia. Western sanctions forced Russia to sell cheap oil and gas to China to keep its economy going, so a direct pipeline to Germany may give it more bargaining power. Just as the British have not been able to clear cobwebs of their Empire from their brains the US seems to be locked in a Cold War mindset, unable to see that China is the greatest threat to the world and to the West. An alliance with Russia will make them to see off China+North Korea+Pakistan. That is what India should be whispering to them. While buying outdated planes. 

Is socialism about to die in India?

The Tata group, one of India's huge industrial conglomerates, with businesses ranging from steel to tea, from cars to IT, is in talks to buy Air India, India's national carrier. JRD Tata gave birth to Tata Airlines in 1932 and flew its maiden flight from Karachi to Mumbai. In 1953 it was nationalised when it was one of the best airlines in the world. Nehru apparently rebuked JRD saying,"Never talk to me about the word profit; it is a dirty word." How prescient! The company has cumulative debts of Rs 500 billion and the Comptroller and Auditor General reported that the company has been understating its losses. Tata already operates a domestic airline, Vistara, and taking over Air India will give it immediate access to foreign routes and landing spots. Tata must be careful. The merger of Air India with Indian Airlines in 2007 was a disaster, a fact acknowledged by its present CEO, Ashwani Lohani. Being a government company meant that corruption was endemic, and pilots were earning eye-watering salaries for little work. The government desperately wants to get rid of this drain on its revenues but is apprehensive about doing so. Professors Krishna and Dahejia have no doubt that Air India must be privatized right away because privatization of British Airways, Kenya Airways, Air Canada and Singapore Airlines turned them into profit making companies. "Disinvestment of Air India would send absolutely the right message, that India is now a market economy, not a planned economy in which the government clings on to the "commanding heights", and that the Modi government is serious about extending the disinvestment agenda to other potentially sensitive areas." It will not be easy. Any debt write-off will be claimed by Opposition politicians as a gift to Tata in return for kickbacks. And unions will oppose it vociferously. After all, when workers have been used to an easy way of life they will not want to give it up without a fight. But Air India is not the only one. Pubic sector banks are the walking dead of the Indian banking system, wrote Aparna Iyer. They have accumulated so much bad loans that the average bad loans of government banks amount to 75.53% of their net worth, wrote T Bandopadhyay, and in some banks bad loans exceed their net worth. So, these banks are unable to lend money for new projects. Already there are calls to privatize public sector banks but the Finance Minister did not agree with the suggestion last year. Ownership of banks gives politicians opportunities of using our money for dubious projects, such as farmer loan waiver. In fact, the government is proposing merging loss-making public sector companies with ones which are doing well, a very bad idea wrote R Chinchwadkar. Not easy to kill socialism, is it?

They feed the nation, but cannot feed themselves. Why?

"Farm crisis is really a jobs crisis in disguise," wrote R Jagannathan. Farmers are agitating against a fall in earnings due to a fall inf food prices. Retail inflation has fallen to 2.18% and wholesale price inflation fell to 2.17% in May. While prices of cereals are still rising prices of vegetables and pulses are actually falling. Indian farmers have been shifting farming practices, so that horticulture production is higher than production of cereals. The government sets a minimum floor price for 26 agricultural commodities, known as the Minimum Support Price, or MSP. The government stocks foodgrains, so large scale buying by the Food Corporation of India increase prices of these commodities. There is no MSP for fruits and vegetables and these cannot be stored because of a lack of cold stores and reliable electricity supplies. Prices of some products have crashed by as much as 13.64%. Farmers have been agitating for waiver of their bank loans resulting in the shooting to death of 5 farmers by the police in Madhya Pradesh. The BJP promised loan waiver for farmers in UP before the assembly election in February. This was followed by the BJP government in Maharashtra and then the Congress government in Punjab. The BJP government in MP is resisting, hence the deaths. The Maharashtra government has announced loan of Rs 10,000 for farmers to prepare for the planting season ahead, including to those who own vehicles worth over Rs 1 million. MP has announced a subsidy of Rs 9,541 on electricity bills for farmers. "The politics fuelling the agitation is obvious: With the Narendra Modi-led BJP pummeling the Opposition in election after election, the anger in farmland has come as a godsend to political foes and even allies," wrote Jagannathan. Why not? The BJP won an enormous victory in UP by convincing the poor that demonetisation had hurt the rich, by neutralising their black money. In damning irony, the punitive effects of demonetisation is still depressing farm prices, leading to a rash of suicides by debt-ridden farmers. Why are our farmers in such distress despite repeated loan waivers amounting to trillions of rupees. Because 69.4% of farms are less than 1 hectare, so that they do not earn enough to survive and another 17.1% of households earn a surplus of Rs 891 every month which is easily wiped out in a crisis. The poorest borrow from local moneylenders and are not helped by loan waivers. So what is the answer? "The farm crisis is really a jobs crisis in disguise. If the jobs growth problem is handled, the farm crisis will abate steadily." And therein lies the main problem. Number of jobs is not growing, in fact some sectors are shedding workers. Having created the problems fellows have no idea what to do, so they throw taxpayer money and claim credit. Congress or BJP, nothing ever changes.

Can you make anything easy by using force?

"Why care about the 'ease of doing business' (EoDB)?" asks Prof Vivek Dahejia. There is no direct correlation between EoDB and economic growth or a rise in per capita gross domestic product, or GDP. "However, in India and other formerly socialist economies featuring a very large overhang of a meddling and burdensome state, it is safe to take it as a working assumption that up to a certain point, which we are still far away from, what is good for business is good for everyone." Saurabh Ahuja tried to import a $600 3D printer for manufacturing drones in his Delhi workshop, he ended up spending another $900 in taxes and bribes and waited three months for it to clear customs. "If my business grows, the country grows with me. But the government won't let me grow," said Ahuja. No wonder the World Bank ranked India at 130 out of 190 countries in the EoDB. Prof Tyler Cowen wrote that the "Legacy of British rule is still holding India back". Whatever the British did was to increase their power and not to increase living standards of Indians. In Thailand, which avoided colonial rule, per capita income is $16,300, while it is only $6,100 in India. But, the worst legacy of the British is that we still have a colonial form of government - adversarial, distrustful and exploitative, enforcing its diktats through brute force. Demonetization and biometric identity cards, where the entire nation is held culpable for actions of criminals that the state protects, are prime examples. The Goods and Services Tax has over 5 rates and returns must be filed in every state every month, which makes it so complicated that companies will need an army of accountants and lawyers to obey the law. The cost of compliance will have to be added to the selling price for any business to survive. But, the government has armed itself with an 'anti-profiteering weapon' to punish companies for not reducing prices. The government forces citizens to deduct taxes from rent or sale of properties, submit it to the tax department and then provide a tax certificate to the payee, wrote Gautam Nayak. A tenant has to follow rules exactly and penalty for not doing so is Rs 200 per day. This when tax officers and politicians get huge salaries and perks, while taxpayers get nothing from the government. You get shot dead if you protest. At least the British left you alone if you did not revolt. Private sector investment is at a standstill and the economy is surviving on government spending and private consumption. If there is no investment there will be no jobs. Jobs are being lost in almost all sectors. Women are losing out. India is at 120 among 131 nations in the share of women in the workforce. Force can never make anything easy. EoDB is only for professors to write about.

Speed breakers are holding the nation back.

Over 30 people are killed in road accidents caused by potholes everyday in India. The obvious answer would be to build roads with concrete so that they do not break after one shower but potholes are a great source of extra revenue for municipal officials and their contractor friends. So, what is their solution to the problem of potholes? Build speed breakers, or humps, on roads every kilometer or so, to slow down traffic to a crawl. The logic is that if vehicles are hardly moving any accident is unlikely to kill anyone and making these humps also add to the earnings of officials and contractors. Genius. Except that speed breakers are killing around 10 people everyday across India. Last year the High Court in Delhi ordered removal of all illegal speed breakers from the capital. Has it happened? No. Instead, new ones have been constructed where none existed previously. Obviously they are not going to give up such a lucrative source of private revenue. In 2014, a total of 253 million cars and trucks were registered in the US. Last year Americans bought 17.55 million cars and trucks. In 2015, 23.85 million cars were registered in China and the total number of cars reached 172 million. Contrast that with India where the total number of registered cars, jeeps and taxis numbered a paltry 28.6 million in 2015, 5 million higher than the number of new cars sold in China that year. Total number of two-wheelers reached 154.3 million, less than the total number of cars in China. About 78% of our national highways have one or two lanes, so driving is hazardous at the best of times. Add potholes, speed breakers and animals, such as cows and dogs, wandering around and its a wonder that so few people die each day. India's economy maybe growing the fastest in the world but per capita GDP is not growing because of population growth, wrote Prof R Parthasarthy. Which means that wealth in collecting in the top 10% and the divide between rich and poor is widening. Mosquito borne diseases kill people every year during the rainy season. The answer is to clean the drains and construct smooth roads so that water does not collect. But that may not get votes because the poor may see it as pampering the rich. So blame car owners for pollution and legislate enormous parking charges. That pleases the poor while increasing tax collections. Official vehicles will naturally be exempt, so the charges do not affect politicians and senior civil servants. Such politics of jealousy was most dramatically demonstrated by demonetization, which was most harmful for the poor but was wildly popular, because it was seen as punishing the rich. India is a 'do something' nation, wrote R Jagannathan. Unfortunately that something usually makes us miserable.

Will others be able to live with Jio?

" 'Mommy, Ambani broke my business!' Or was it something else Mr Mittal, Mr Birla?" asked Andy Mukherjee sarcastically. He is talking about India's telecom companies which have been hit by the entry of Reliance Jio, which is offering free voice calls with free roaming throughout India with its data package costing Rs 303, less than $5, per month. Why is it a problem? Because, nearly 50% of revenues of telecom operators in India depended on voice calls and messaging. The sudden attack by Reliance Jio on this lucrative source of revenue has hit companies very hard. Partly, it is because of government policy. All resources in India belong to politicians and not to the people. So companies have to pay huge sums of money for spectrum and then have to pay a portion of gross revenue as additional license fees. On top of that we have to pay a service tax, which will go up to 18% under GST, on our phone bills. Business tycoons in India never risk their own money in the companies they control. Instead they borrow from banks. Bharti Airtel has raised 33 times more money from debt than through equity, which means huge interest outgo. Reliance Jio has 6 times more equity than debt, which would allow them defer dividend payments until they make profits. Reliance Communications has already defaulted on its debt payments, its stock price has collapsed by 40% and its junk-rated foreign debt is fetching 70 cents to the dollar. About 20% of loans at public sector banks in India have gone sour. Bad loans at some banks equal 75.53% of their net worth, in some banks bad loans exceed their net worth, wrote T Bandopadhyay. Banks have warned the government of the risk of default on loans to the telecom sector. That is why the government will do anything to stop RCom from going bankrupt, thinks Mukherjee. However, telecom companies are not entirely blameless. The telecom regulator asked companies to make all mobile numbers portable throughout India in 2009, which meant that users would not have to pay roaming charges. Companies were unwilling to give up such a lucrative source of revenue so after a lot of struggle they introduced their own interpretation of the order. People could change from one service provider to another locally but roaming charges were to continue. This is because India was divided into 22 circles and they had to pay for each circle separately. Vodafone and Idea have merged, but, in reality, Vodafone is selling out. In desperation the existing companies are accusing Reliance Jio of predatory pricing and are asking the regulator to fix a base rate for consumer charges. 'Jio' means 'to live'. Will Jio allow other companies to live?

Why not subsume smuggling as well?

The Goods and Services Tax regime will start on 1 July. It is supposed to be a simplified structure for collecting indirect taxes on goods and services. The most important word is 'subsumed', which is being repeated like a mantra by politicians and civil servants, to lull citizens into believing that it will be good for us. Thus, sales tax will be subsumed, VAT will be subsumed, excise will be subsumed, the whole country will be subsumed. Subsumed we maybe, but it will not be simple. There will be 4 rates -- 5%, 12%, 18% and 28% and the government has the leeway of adding cess, according to its whims, taking the rate up to 40%, which means different levels of cess on different items making the whole thing totally confusing and giving a golden opportunity to tax fellows to increase their earnings. Gold will be taxed at 3%, but import duty of 10% will be retained, taking the total to 13%. Clearly gold will not be subsumed. Rough diamonds will be taxed at 0.25%. When the price of one gram of gold is Rs 280 higher in India compared to Dubai then the profits from smuggling become huge. Apparently, smugglers have trained their rectums to hold gold biscuits. "A smuggler bringing gold pieces concealed in his rectum is often an expert. That's because not anyone can move with ease when gold pieces are in the rear," said an official. "We practice to carry the gold and walk and sit normally to avoid customs officials," said Sajilal, who earns Rs 50,000 per kg of gold smuggled into India."There are a few exercises we do that make work easier and help us to carry more gold. The maximum one can carry in the rear is up to 800 grams broken into pieces." Clearly, rectums must be subsumed. The problem with high taxes is that businesses migrate to nations where taxes are low and transparent. That is why foreign investors choose to come into India through Singapore. Not just foreigners, Indian businesses also choose to set up their headquarters in Singapore. The list is a who's who of Indian business names. So, high taxes result in lower revenues. Alcohol, real estate and petroleum products, which constitute 37% of state taxes, have not been subsumed. GST on air travel seems reasonable, with 5% tax on individual and and 12% on business travelers but other charges are among the highest in the world. Fares for flights are predicted to go up. For a return flight to Belgium from Delhi, the Passenger Service Charge at Delhi Airport was $46.85 plus a Passenger Service Fee of $3.74, for a total of $50.59. The Charge at Belgium was $29.30. FMCG companies are quietly decreasing contents of various products so that they are not accused of increasing prices when GST comes in. Pity we cannot subsume our politicians.

How do we protect our young from ourselves?

"The old are eating the young," wrote Satyajit Das, in a stark warning. Today's prosperity is based on debt as people consume more than the earth can sustain. "A significant proportion of recent economic growth has relied on borrowed money -- today standing at a dizzying 325% of global gross domestic product. Debt allows society to accelerate consumption, as borrowings are used to purchase something today against the promise of future repayment." We are degrading the environment and fossil fuels are resulting in global warming. A few weeks back the US withdrew from the Paris climate accord, prompting a ferocious reaction from opponents who say that China is a winner. Is it? "Trump's coal bet faces Moore's Law," wrote Prof Stephen Mihm. In 1965, Gordon Moore found that the number of transistors per integrated circuit doubled, with an increase in speed, about every two years, while costs went down. However, some technologies, such as chemicals and household goods, do not follow Moore's Law, while energy "is a mixed bag". Adjusting for inflation coal costs the same as it did in 1890, while the price of solar power is dropping by 10% per year, so that solar will be competitive with coal by 2024. It will make sense for companies to shift to renewable energy. Prof Rohit Prasad uses game theory to try to explain if Trump's exit is a "masterstroke, death knell, or farce". If everyone switches to more expensive energy sources while the US uses cheap coal it will get an advantage in international trade, unless other nations can exact some cost as punishment from the US. They cannot because the Paris accord in not binding on any nation so the US could have just carried on polluting as before. Therefore, Trump's gesture is an empty one. Is it? If there is nothing to lose and if renewable energy is inevitable then Trump has pleased his political supporters at no cost whatsoever. That makes it a masterstroke. As birthrates fall and the number of retired people increases it is going to impose an increasing economic burden on the young. "In 1970, in the US, there were 5.3 workers for every retired person. By 2010 this had fallen to 4.5, and it's expected to decline to 2.6 by 2050. In Germany, the number of workers per retiree will decrease to 1.6 in 2050, down from 4.1 in 1970. In Japan, the oldest society to have ever existed, the ratio will decrease to 1.2 in 2050, from 8.5 in 1970," wrote Das. According to a report from the World Economic Forum, the savings gap for pensions in just 8 countries in the world will be an eye-watering $400 trillion. It will be worse if people live longer. The only solution to the problem is to reduce the number of people so that earth's resources can pay for everyone. How to do that is the question.

If the economy is growing why are the dollar and inflation falling?

Prof Jim O'Neill analysed the changes in the value of the dollar since Donald Trump became president. "After soaring in the wake of Trump's victory, the dollar's value began to slide in April." Calculating the value of a currency against others is difficult but it is clear that "markets have built in a risk premium for the dollar, to account for the uncertainties that Trump's presidency has introduced." One way of calculating the exchange rate of a currency is to compare the amount required to buy a basket of goods as compared to other currencies. O'Neill has developed his own method of calculating exchange rate of currencies, called Dynamic Real Exchange Rate, or GSDEER, according to which the dollar is overvalued by 6-7%. On the other hand, if he uses an adjusted GSDEER then the dollar is undervalued by 6%. So much for expert calculations. The US economy is dependent on personal consumption at 70% of GDP. The US should spend less and save more. "The good way is for the US to import less and export more, and to increase its domestic savings and investment. The bad way - particularly for American consumers - is for the US to pick fights and retreat from the world." Why? The US economy has been growing for "96 straight months" and the unemployment rate is down to 4.3%, but, instead of rising, inflation has been falling for 3 months. It was 1.7% in April, core inflation was at 1.5%. One reason maybe that there is hidden unemployment due to an increase in part time work, which is pushing wages down. Another reason is the import of cheap goods manufactured in countries where labor is cheap, so that prices of goods have risen by 0.3% in the last year. Cheap services cannot be imported, so prices increased by 2.4% in the service sector. Surely, a border adjustment tax, which is a tax on imports, is the answer. Trump had proposed a 45% border tax on Chinese goods but was scared off by vested interests. A tax on imports would increase inflation to the desired level, reduce consumption and increase revenue growth, exactly what the professor desired. China threatened a trade war against the US, but with an annual trade surplus of around $350 with the US it would be a contest between a heavyweight and a flyweight. Prof Keyu Jin proclaims that China creates jobs in the US by controlling global supply chains, but forgets to say how many jobs it destroys. Prof Zhang Jun is alarmed by the state of China's financial sector. Credit from the shadow banking sector has risen to 65trillion Yuan and interbank assets have risen to 21.47 trillion Yuan. Sounds like the good old Credit Default Swap. Professors seem very good at analysing problems but shy away from solutions. Wonder why?

One bold move deserves another.

The government is apparently furious with the Reserve Bank, write Mehta and Rangan. What is the Bank's crime? It did not reduce policy rate at the meeting of the Monetary Policy Committee last week. The MPC was set up by this government last year after its disagreements with the previous Governor, Raghuram Rajan who ridiculed those who wanted to "have it both ways, want lower inflation as well as lower policy rates". "By focusing on low inflation, we are abandoning old ways that benefited the few at the expense of majority poor," said Rajan. In a churlish gesture Rajan's contract was not renewed and the MPC was formed to transfer powers of the governor to 6 members, 3 of whom will be appointed by the government, so hopefully obey orders from the finance ministry. The ministry asked the MPC members to a meeting before setting rates but all the members refused, infuriating politicians, who are used to bulldozing over citizens. Why is there a perennial disagreement between the government, which wants lower policy rates, and the RBI, which wants to keep inflation under control? To add to the fire, retail inflation fell to a record 2.18% in May because of low food prices. The government set a target of retail inflation at 4%, +/- 2, which means a range of 2 to 6%. The RBI predicts inflation at 2-3.5% in the first half of the year and 3.5-4.5% in the second half, exactly in the middle of the range set by the government. So what is the problem? Apparently, inflation can only be lowered by sacrificing growth, called 'sacrifice ratio'. Aparna Iyer calculated the sacrifice ratio at 3.4%, which means that for every 1% fall in the rate of inflation growth will fall by 3.4%. If that is true why not let retail inflation climb to 100% which will stimulate growth to 340% and India's $2 trillion economy will race to $8 trillion next year and $18 trillion the year after? Ask Zimbabwe, whose central bank printed 100 trillion dollar notes, which would not buy a bus fare. There is fierce debate among economists on whether a reduction in policy rate is necessary or not. VA Nageswaran, who was scathing about the perpetual whining about low rates last year was recommending a hefty 50 basis points cut in interest rate this time round. This bickering between the government and the RBI is hurting Indian companies, wrote Andy Mukherjee. On the other hand, Rajeev Malik argued that retail inflation maybe low now but the RBI wants to be sure that it will remain within rage in the longer term. The RBI has to watch out for the US Federal Reserve, which meets this week, wrote M Bhusnurmath. If the Fed starts to tighten monetary policy in the US there could be an outflow of dollars, which would weaken the rupee and raise prices. Central banks in the west target an inflation level of 2%, which makes it almost certain that the Fed will raise Federal Funds rate by 25 basis points. If demonetization was a bold move by Modi, resulting in a catastrophic drop in food prices which is severely hurting farmers, then surely this is a bold move by the RBI? MPC rather than Modi.

BJP is just alt-Congress, that's all.

"We are still awaiting a business that defines the 2010s," wrote R Sukumar. In the previous two decades the economy grew in the middle years and then cooled towards the end, but no such bump occurred in this decade. "The 2010s have been different in another way as well. Each of the two preceding decades saw an industry, maybe two, perhaps even three, emerge and grow. Many of these were relatively new industries that were around at the beginning of the decade but really came into their own during it." In the 1990s IT services and pharmaceuticals took off and companies, such as Infosys, TCS, Cipla an Dr Reddy's became huge. Both sectors are under stress today. IT companies are actually losing jobs and profits of pharmaceuticals are under pressure because of greater competition in the generics market in the US. In the 2000s it was the turn of telecom and private banking. Indian telecom companies are unable to cope with their debt because earnings have dropped sharply, due to a sudden increase in competition from a new entrant, and massive payments for license and spectrum, due to government greed. Banking is under pressure from new technology companies, such as Paytm.  Infrastructure companies also did well in the 2000s but are now laden with debt. Highway construction is the only sector doing well, purely due to government spending. This decade has not seen any new industry capable of creating millions of jobs. There is E-commerce but most of those companies are running heavy losses. Why, when the World Bank is projecting economic growth at 7.2% this year, which will make it the fastest growing economy in the world. If the economy is growing so fast then people should have more money to spend, and prices should be rising. But it is exactly the opposite with retail inflation falling to a record low of 2.18% in May. That is apparently due to falling food prices causing losses to farmers who are unable to repay their debts. Industrial production grew at 3.1% in April, mainly due to change in the base year. As usual, there are agonised screams for a reduction in policy rates. On the one hand politicians are crowing about being the fastest growing economy and on the other they abuse the RBI for not reducing rates, so as to stimulate growth. Sounds familiar? This is exactly what the Congress was doing. Win elections with handouts which increase debt burden and then increase taxes to balance books and prevent credit rating from dropping to junk status. High taxes make us poor. Indians cannot afford to fly because taxes are so high, which means airlines cannot grow. Apparently GST will solve all problems. Will it? It is so complicated because it is designed to increase tax collections, not to serve Indian consumers. The Indian government is a musical chair game. Parties may change, we remain poor as always.

If there has to be hegemony, the US is definitely preferable to China.

"The latest edition of the Shangri-La Dialogue in Singapore witnessed considerable hand-wringing about the US commitment to a 'rules-based economy," wrote Srinath Raghavan. Chancellor Angela Merkel of Germany said that Europe could not depend on the US any longer and "really must take our fate into our own hands". That is because Donald Trump accused 23 European countries for not paying their share of NATO funds. "Twenty-three of the 28 member nations are still not paying what they should be paying for their defence," said Trump. Initially Trump refused to commit to NATO's Article 5, but has done so recently.  Trump wants Germany to reduce the huge trade surplus it runs with the US. American commentators claim that Trump has "sounded the death-knell for American leadership". David Frum argued that US leadership has to be "exercised with a view to something bigger than the selfish interests of the United States". But, is it leadership or is it hegemony? Hegemony implies coercion and the US prefers to use soft power. Why does Europe desire US hegemony? Perhaps, because the US guarantees security, without the need for Europe to spend vast sums of money on defence. Perhaps, Trump is right to be angry when Germany runs a trade deficit with China while running a surplus with the US. It seems like a transfer of US wealth to China. Unfair. In fact, Germany runs a trade surplus with the rest of the world and last year had a record surplus of $270 billion, the highest in the world. Germany does it by keeping wages low, levying high taxes, which reduce consumer spending, and by strictly controlling government expenditure. How is all this important for us in India? Because we have a long border with a most dangerous hegemon, which is China. The US has a free press that forces its armed forces to obey some rules. China has no such qualms. Bradley Manning, now Chelsea Manning, leaked documents showing US killings and torture, but no dissent is possible in China. Even representing someone in court can bring arrest and torture. China has banned Muslim names and beards in Xinjiang province, where Muslim Uighurs live. China has conceived a devilish plan to enslave nations, which it calls One Belt, One Road, or OBOR. Sri Lanka has already fallen into the trap but that is nothing compared to what China is planning with Pakistan, which is to make it into a colony. If there has to be hegemony by one nation the US is much more preferable to the uncivilized barbaric Chinese. India is in grave danger.

Are we wrong to be so optimistic?

Morgan Stanley predicts that the stock market index, the Sensex will rise by another 9% to reach a record 34,000 by June next year. It has risen 17.14% since January of this year. "Now actually we are close to a situation where the economy will be firing on all cylinders and strong earnings growth will come through," said Jonathan Garner. Others are not so bullish. "Earnings revision momentum is still negative (more downgrades than upgrades) and Nifty (fiscal) 2018 earnings growth expectations stand at 15% vs 18% at the start of the earnings season," said a note from Citigroup. Mobis Philipose gives examples of shares whose values have soared despite earnings remaining flat. Earning per share of ACC has fallen by 55% since 2013 but the price of shares has risen by 40%. Shares of Ultratech Cement have risen by 120% although earnings have remained flat. Nestle is valued at 67 times its earnings. Foreign funds, with $40 billion in assets, have got returns of 25%, wrote Andy Mukherjee. Indian funds, with investments of $79 billion, have done even better, generating 27% returns. There is $60 billion of excess liquidity in banks and foreign investors have brought in $7.8 billion this year. There is hardly any volatility in the Indian market. Not just India. "Of all the dangers in the world of finance, the enduring low level of market volatility is the most significant," wrote Dean Curnutt. How low is volatility? The level of realized volatility of the S&P 500 in the US has dropped to 6.7% which is lower than before the financial crisis of 2008-09. Surely a calm stock market is better than one that is jumping up and down? The danger comes from irrational behavior of individual investors. People suffer from 'availability bias', which means an expectation of recent events repeating themselves, and have an aversion to making losses, more than the joy of making profits, wrote Prof Cass Sunstein. When markets are rising investors start buying, thinking that they will go on rising infinitely, and when they fall they sell shares in a panic, incurring heavy losses. Some people worry that individuals who are rushing into this overvalued market are going to get badly hurt. Why? A Reserve Bank survey showed that people are worried about jobs. That is because private sector investment has fallen. Naturally, demand for electricity is not rising as expected, so that 25 gigawatts of coal fired plants are lying idle, even while 50 million households remain in the dark. Indian consumers are the most optimistic about 'well being' in Asia. So they ignore everything and buy stocks. Cute.

We may follow the Brits, but are so different.

British Prime Minister Theresa May won Thursday's general election and lost. Her party, the Conservatives, also called the Tories, had a clear majority with 331 seats in the last parliament. There are a total of 650 seats in the House of Commons and 326 gives a majority. May wanted a larger majority to silence members of her own party who want a soft Brexit, negotiations for which must be completed by 29 March, 2019. She ended up with 318, down 13 seats. Just a couple of months ago the Tories were leading Labour, the main opposition party, by 20 points in opinion polls. So why did they do so badly? Voters may have been angered by being asked to vote when the last elections were held in 2015 and the parliament still had 3 years to go. Looking to protect her lead in opinion polls she built a protective wall around herself, refused to debate her opponents and answered every question with the same slogan of "strong and stable leadership". This naturally gave her opponent Jeremy Corbyn, leader of the Labour Party the opportunity to appeal to the 'vote bank' by promising to nationalise the railways, increase taxes on the wealthy and abolish tuition fees for college students. Young people turned out in large numbers, giving victory to Labour candidates in university towns like Canterbury which had been held by the Conservatives for over 100 years. The Tories did unexpectedly well in Scotland, gaining 12 seats, for a total of 13. This and support by the Democratic Unionist Party, the Protestant party of Northern Ireland, has allowed May to form a minority government. India follows the British system of government. In 2004 the Congress formed a government even though it had only 145 seats in the Lok Sabha, out of a total of 545 seats. In 2009, it increased its tally to 206 by promising farmer loan waiver, increasing civil service salaries through the Sixth Pay Commission and MGNREGA. The Congress got hammered in 2014, being reduced to just 44 seats. The BJP is now ruling. Is it any different? No. We have farmer loan waivers in various states, there was the Seventh Pay Commission, which increased civil service salaries by 24%, and a host of handouts, including free gas connections for the poor. The difference with Britain is that Theresa May will probably be replaced as leader of the Conservative Party, but here political parties are controlled by families who hang on to power by any means. Also politicians will kill to stay in power. Thus, in Madhya Pradesh police shot 5 protesting farmers to death. The Chief Minister promptly announced a compensation of Rs 10 million to family of each farmer. It is taxpayer money so it's easy to be generous. Now the Chief Minister is going on hunger strike to appeal for peace. Kill, handout, drama. We may follow the British system but we are so different.

How to bring farmers into the main economy?

India has been creating one billionaire every month since 2010, wrote Kenneth Rapoza. The number of billionaires on Forbes' list rose to 101 from 84 last year. "It's record number historically (and) it means every 33 days brought a new Indian billionaire to the list last year," said Fakhri Ahmadov. "We have always imagined Indian private capital to be in the hands of 'old wealth' rather than self made entrepreneurs, but self made account for around 65% of the wealth of billionaires and it has been stabilized at this ratio since 2010." With so much new wealth being created surely the economy must be roaring ahead. Not so. Growth has declined every quarter of the last financial year, falling to 6.1% in the last quarter, which is being blamed on demonetization on November 8. The reason why it was 7% in the December quarter could be because people were buying goods in bulk to get rid of their old notes which is why private consumption spiked at 11% in that quarter. Any growth is due to government spending and private consumption. As per the 'trickle down theory' if you create enough wealth at the top some of it will trickle down to those at the bottom, so why is growth falling off. Because a large chunk of our citizens are missing out on the growth. Farmers, who grow our food, are suffering. Ironically, this is because of bumper crops due to a good monsoon last year. How many farmers do we have? The total of cultivators and agricultural laborers comes to around 263 million, or 22% of the population. If we add their families then about half the population is probably dependent on agriculture. Bumper harvests of certain crops, combined with the effects of demonetization, has resulted in the steep drop in farm prices, so that farmers are unable to recover their costs. Spending behavior of our farmers is very strange. They spend on flashy gadgets or ornaments when they have money but are close to starvation if the weather does not cooperate. Farmers are agitating for their loans to be written off, which may cost the government a total of Rs 2.57 trillion in the next 2 years. Young people in rural areas do not want to be farmers. Plot sizes have become progressively smaller as land has been divided among children. If the government increases the Minimum Support Price food prices will rise, increasing retail inflation and prompting the RBI to tighten monetary policy. The government wants interest rate to be reduced so that new jobs can be created. If there are no jobs for educated people how will farm workers get jobs outside agriculture unless they are taught skills demanded by industry. Seems no way out of the trap.

If only everyone did as they are told to do.

Yesterday the Reserve Bank kept policy rate unchanged at 6.25%, while predicting lower retail inflation and lower growth rate. It however softened its stance for the future. The Monetary Policy Committee, formed by the government, last year is charged with setting rates, and was set an inflation target of 4% (plus/minus 2%). This was an effort to cut the powers of the governor, in response to the actions of the previous governor, Raghuram Rajan, who was not afraid to tell the truth. He was treated with uncouth discourtesy and the present governor, Urjit Patel was appointed instead. Even he has refused to toe the line. Et tu Brutus. One member of the committee, Prof Ravindra Dholakia, cast a dissenting vote, but it is not known which way he voted. To add salt to the wounds, Governor Patel said that all members had refused to attend a meeting with finance ministry officials one week before the MPC meeting. This was clearly a shameful effort to arm-twist the committee with bogus statistics. "The meeting did not take place. All MPC members declined the request of the Finance Ministry for that meeting," said Patel. Predictably, the decision was met with teeth snarling fury by government fellows. Economic conditions warranted a substantial monetary policy easing, said Chief Economic Adviser, Arvind Subramanian. "I think there is a plausible macro-economic assessment," he said. "Inflation forecast errors have been large and systematically one-sided in overstating inflation." Dr Subramanian is a DPhil in economics from Oxford, as is Dr Monmohan Singh who was the Prime Minister when retail inflation jumped over 10% in 2009 and stayed there till 2013 so that the Congress was almost wiped out in the general election of 2014, being reduced to a paltry 45 seats in the Lok Sabha from 206 in the previous parliament. Do they want a similar fate for Modi? The RBI expressed concern about bad loans in our banks and loan waiver for farmers. After a loan waiver by the newly elected BJP government, costing Rs 364 billion in UP farmers in other states demand the same. Maharashtra caved in recently, inviting a caution from the RBI. Maharashtra's public debt will cross Rs 4 trillion, incurring interest outgo of Rs 310 billion per year. Five farmers were shot dead in Madhya Pradesh while protesting for loan waiver. Farm loan waiver will cost Rs 2.57 trillion by 2019, said Bank of America Merrill Lynch. The share market is at record territory, with no correction. Promoters of companies have borrowed Rs 2.45 trillion against their shares. If interest rate goes down share prices will rise even further and they will borrow even more. If the market turns suddenly banks will be left holding a lot of useless paper. Government versus the people - the RBI is our only protection.