If Gandhi was 'half-naked', can't we be fully so?

Internet companies, such as Amazon, are refusing to offer services in India without proof of identity  through Aadhaar, the biometric card that every Indian citizen has been forced to obtain by the government. Amazon is an American company based at Seattle. Internet firms, Facebook and Google, are accused of collecting personal information about their users. Google has faced accusations of violating privacy of its users. Now US companies can add our fingerprints to their databases. What about Indian companies? They should be safe since they hold information within the nation's borders. Amazon's Indian competitor, Flipkart, is based in Singapore, and the parent company of Paytm, One97 Communications, has received huge contributions from Alibaba and Ant Financial. Paytm hopes to sign up half the population of India on its mobile wallet platform. These are big companies so they will take care to protect personal information of their users. "Google has detected an app 'Tizi', which has been stealing information from call records and also from social media apps like Facebook, WhatsApp, and also takes pictures from mobile phones without even displaying them on screen of the device," was a news report. Most people use smartphones for online transactions, so when they were buying online using their Aadhaar number 'Tizi' was busy collecting this information along with the users' names, addresses and photographs. Government agents claim that Aadhaar is completely secure from hacking. Perhaps, they are right, When the whole world can easily obtain our numbers and fingerprints from our phones there is no need to hack into the main server storing the information. "In any kind of system, the basic core will always be secure, but any such core system has to interact with a larger ecosystem and this ecosystem always bring the problem to the table," said V Godse, Director of Data Security Council of India. In the case of Aadhaar the "larger ecosystem" seems to include the whole world. Since the government has mandated that all phone and bank accounts must be linked with Aadhaar, Bharti Airtel has turned it around by surreptitiously signing people to Airtel Payments Bank while linking their phone numbers to Aadhaar. Estonia and Spain faced problems of hacking with Digital ID cards, and in India, where vast numbers are illiterate and live in remote places, many will pay with their lives. Only a few months back the CEO of a security firm in Sweden went bankrupt when someone took out a huge loan with his stolen identity. Gandhi was called a "half-naked fakir" by Winston Churchill, and Gandhi is the Father of the Nation. Now all citizens of India are fully naked. No need to be ashamed, is there? 

Cannot treat without understanding.

Indian pharmaceutical companies have reduced cost of medical care in many countries by supplying cheap generic drugs, "Yet, too many Indian citizens do not get access to medicines owing to high costs." Exports of pharmaceuticals is big business because India is able to manufacture cheap generics. Why do doctors prescribe branded medicines which are much more expensive? A branded strip of Cetirizine cost Rs 27.16 in 2011, compared to Rs 2.24 for the generic version by the same company. Doctors want to be sure of the bioavailability of a drug, which means the quantity of active drug that is able to withstand the highly acid environment of the stomach and first-pass metabolism in the liver and enter the circulation. Secondly, a daily wage earner loses money for everyday that he is unable to work. Poor people avoid tests, which they see as a waste of money, but want effective drugs so that they can get back to work quickly. Thirdly, margins for generic drugs are much higher, and the chemist is sure to push products of those companies which offer the highest margins, possibly because those are substandard. Thus, the control of treatment passes from the doctor to the chemist, while the doctor remains responsible if anything should go wrong. Recently there was an uproar when parents of a 7 year old girl, suffering from Dengue, were asked to pay Rs 1.6 million. The girl died. Everyone is scandalized that 661 syringes were used in 15 days, that is 43 syringes per day, and 2,700 pairs of gloves, but the most important fact is that doctors' fees were just Rs 53,900 for 15 days care in ICU, while room rent was Rs 1,74,000 and diagnostics cost a whopping Rs 2,73,394. The government has left healthcare to the private sector which will obviously maximize profits, wrote R Singhal. An official survey shows how burden of diseases has changed and how it varies between different states, in India. In 1990, the Disability-adjusted Life Years, or DALYs, were 61% for infectious diseases and 30% for Non-communicable Diseases, or NCDs. By 2016, NCDs were 55% while infectious diseases accounted for 33%. These figures do not reveal whether the incidence of infectious diseases has fallen so that NCDs now account for a higher disease burden, or whether NCDs have increased markedly while the incidence of infections diseases has remained constant. However, malnutrition and tuberculosis still afflict the largest number of people. Poor nutrition and diabetes are known precursors of tuberculosis. While disease burden is increasing, government spending on healthcare has dropped from 1.47% of GDP in 1986-87 to 1.05% in 2015-16. Obviously, healthcare is not a vote winner. Can always blame God. Or fate.

Same to same, as we say in India.

The new Bankruptcy Act will administer "A blow against the promoter raj", wrote M Chakravarty. A promoter is one who holds 10% or more shares in a company and, in India, the big promoters are usually families. Promoters got round this rule by 'pledging' their shares, which means they would offer all or some of their shareholdings as collateral to borrow money, mostly from banks, while continuing to run the company. They could then plunder the company at will, until it turned sick, leaving banks holding a lot of useless paper. No longer. Under the new Act, if any company defaults on its loans banks will take over control of the company and sell it off. Promoters will not be allowed to bid. "In essence, what the new rules do is tell company owners that they must either perform or perish and if you've defaulted for reasons beyond your control, tough luck." If promoters are not allowed to bid others will bid much less, hoping to pick up valuable assets cheaply and banks will have to suffer a much larger haircut, wrote A Mukherjee. Allowing promoters to buy back their companies at lower valuations would open the government to a charge of crony capitalism, so this is a political decision which allows others to gain control of valuable assets at the cost of banks, wrote R Krishnan. This is an unforgiving political decision which punishes honest businessmen whose companies ran into problems because of economic reasons, and not because of criminal behavior, wrote S Ghosh. But it had to be done. Why? Because, "haven't farmers been driven to suicide because they have been unable to repay bank loans? Does the bank refrain from enforcing a mortgage because the the home loan borrower has lost his job?" It may seem odd that a promoter of a bankrupt company has the money to bid for it but Indian promoters are "adept at squirreling away money" and "using complicated group holdings and privately held corporations" to get round the law, wrote M Sharma. The previous Congress-led government was responsible for the huge rise in bad loans as it undertook enormous infrastructure projects, many of which could not be completed, wrote TK Arun. Promoters inflated costs and took huge loans from banks to reduce their own investment, and shared the spoils with politicians. Instead of selling assets at giveaway rates allow public sector companies to take over companies in their sector, such as SAIL can take over steel companies and NTPC can take over power companies. Sadly, people will lose jobs as new owners look to restructure failed companies, wrote S Das. So is the problem solved forever? Hardly. In a sleight of hand the Life Insurance Corporation is being forced to finance Indian Railways. Hope this is not to finance the 'Bullet Train' at the cost of the rest of the nation. They are all the same, aren't they?

Will Goldilocks turn into Icarus?

"Active investors regularly track company disclosures and adjust their portfolios depending on the nature and substance of announcements," noted an editorial in the Mint. "However, insider trading is said to be fairly prevalent in the Indian stock market. A recent report by Reuters lends credence to such claims. It recorded at least 12 cases of prescient messages regarding listed companies on WhatsApp groups." "There are closed networks that tend to get information about companies well before the general public," wrote M Sharma. Stock exchange regulator, Sebi, has one employee for every 6 listed companies on the stock market, while the SEC in the US has one employee for each listed company. Companies are controlled by families, known as promoters, who plunder their companies by restricting the information available to shareholders. Reliance Industries, India's largest conglomerate, was fined Rs 4.47 billion in retracted gains and Rs 5 billion in interest for insider trading in stocks of its subsidiary. But unlike Rajat Gupta, who received a 2 year prison sentence for insider trading in the US, no one was charged. Instead, Reliance was allowed to appeal to the Securities Appellate Tribunal which fortunately dismissed the case. Few people in India invest in shares probably because they do not want to risk their meager savings. However, in the past one year investment in mutual funds increased by Rs 4.8 trillion  to Rs 9.8 trillion, an increase of 31% over the previous year. While the domestic savings rate has been falling investment in financial instruments is rising, wrote N Rajadhyaksha. Is that a good thing? At a price-to-earnings ratio of 24.53, India was the most expensive market in the world, one month back. A Barman thought that our market has reached a Mary Poppins moment. Most of the trading is concentrated in a few stocks so the market index, the Sensex, does not reflect the true value of the market, wrote A Banerjee. The government is pushing more money into shares by forcing employees' provident fund and other government controlled entities to invest in them. Not just in India. Bank of America Merrill Lynch has named trading in stocks as 'Icarus trade', meaning it is flying close to getting burnt, wrote M Chakravarty. In the bank's survey, 9 months back 26% of global fund managers were holding 4.9% of their portfolio in cash. Today the cash component is down to 4.4%. "The number of fund managers in the survey taking higher-than-normal risks is at an all-time high, the proportion of fund managers believing in the Goldilocks scenario of above-trend growth and below-trend inflation is at a record high." We are living in a fairy tale world. With Christmas coming, fund managers must be waiting eagerly for Santa.

Can they win trust by fooling us?

Brexit and the Donald Trump's victory in the presidential election last year led to Prof D Rodrik exploring ways of "How to combat populist demagogues." This has happened because of a "trilemma, whereby it is impossible to have national sovereignty, democracy, and hyper-globalization all at once. We must choose two out of three". A former politician said, "Populists are at least honest. They are clear about the choice they are making; they want the nation-state, and not hyper-globalization or the European single market. But we told our people they could have all three cakes at simultaneously. We made promises we could not deliver." The former politician has still not understood or he is prevaricating. Not just populists, all politicians want the nation-state because it is the source of their power. Despite the adoption of a common currency, the Euro, by 19 countries of the European Union in 1999, there is no political union. After the shock of the Brexit vote in Britain last year there are calls for a political union, but will the smaller nations agree to a superstate in which France and Germany, with possible contribution from Italy, will call the shots. "Globalization rests on the premise that the free flow of capital, goods, people and ideas across national boundaries will create maximum utility for people of participating countries," wrote S Saran. Capital has indeed flowed freely to countries with cheap labor and import of cheap goods have decimated jobs, but people cannot, or do not want to move to other countries with totally different cultures. India has suffered badly from Regional Free Trade Agreements, wrote A Ranade. While our import of goods has soared due to lower import duties, we have not increased export of services, presumably because countries have put up barriers against movement of people. Free flow of capital has great dangers for emerging economies because central banks of rich nations have unleashed a flood of liquidity by keeping interest rate near zero which is leading to asset price bubbles everywhere. Should this reverse suddenly it could cause mayhem in our markets. Independence of central banks is being blamed for lack of growth in the global economy, wrote B Eichengreen. Former Federal Reserve Chairman, Ben Bernanke said recently that there should be greater coordination between monetary and fiscal policies, which means that politicians should dictate to central banks, wrote W Pesek. This is already happening in Asia. To win control back from populists, politicians in the center have to offer restriction of globalization, but at the same time "offer an inclusive, rather than nativist, conception of national identity, and their politics must remain squarely within liberal democratic norms". In other words, fool the people. That is why politicians are not trusted in the first place.  

Why are we changing when others are becoming like us?

"Informal sector will be main job creator in future. So equip workers today," wrote A-M Slaughter and A Hruby. In emerging economies less than 40% of people are employed in the formal sector, and even those who are employed find 'side hustles' to augment their incomes. "First, people layer multiple work streams and derive income from more than one source. Second, platform economies are emerging rapidly and build on traditional networks. Finally, these work platforms often go hand in hand with dramatic income inequality." In India only about 20% of workers are salaried, and about 70% of them do not have any written contract. 42% are self-employed and 32% are labourers, so the vast majority of wage earners are informal. The Sixth Economic Census found that 94.6% of non-agricultural businesses hired less than 5 workers, two-thirds do not hire any worker at all. Politicians hate the informal sector because a large section of this economy does not pay any tax, wrote V Kaul. so they want to eliminate it totally, claiming that they want to protect workers from exploitation. But, whereas the formal sector is not growing the informal sector continues to grow. This sector is unable to cope with the imposition of the Goods and Services Tax and those working in this sector do not have the education or skills to find jobs in the formal sector, wrote M Mastani. Paradoxically, while GST is designed to formalise all such businesses the government wants to amend labor laws so that they become less restrictive and informal, wrote Prof R Kamath. Indians are cutting down on wedding expenses as vendors insist on payment by cheque and cards, which has led to much higher costs and elimination of all the small suppliers who survived on cash. No wonder that share values of big companies have risen as they look to increase their profits. Why was the informal sector surviving all these years when large companies have the money and trained manpower to manufacture everything that this sector was providing? Because the informal sector was able to provide cheap goods and the death of this sector means that there is no competition preventing large companies from raising prices as they like. Hence the jubilation. Labor intensive manufacturing, which enabled the east Asian economies to rapidly become wealthy, is dead and India must look to hi-tech exports to revive growth, wrote SA Aiyar. As robots and Artificial Intelligence change how we work, gig and platform economies are emerging even in developed countries, wrote Slaughter and Hruby. So, as we change towards formal rich nations are becoming like us. We were the future. 

Will immaturity lead to fireworks?

"I never thought I'd live long enough to write this sentence: The most significant reform process underway anywhere in the Middle East today is in Saudi Arabia," wrote Thomas L Friedman. Crown Prince, 32 year old Mohammed bin Salman, known as MBS, is behind these 'reforms'. Women have been allowed much greater freedom. They will be allowed to enter sports stadiums and will be allowed to drive from  next year, for the very first time,  But, it is the arrest of princes and high ranking officials on charges of corruption that has made the headlines in the last few weeks. MBS told Friedman that it is "ludicrous" to suggest that his anti-corruption crusade is a power grab. "Our country has suffered a lot from corruption from the 1980s until today. The calculation of our experts is that roughly 10 percent of all government spending was siphoned off by corruption each year, from top levels to the bottom. Over the years the government launched more than one 'war on corruption' and they all failed. Why? Because they all started form the bottom up," he said. Indeed. In Saudi Arabia, succession to the throne is from brother to brother, but MBS broke that by ruthlessly forcing seniors to renounce their claims. Buying a yacht for $550 million, when the country is running hefty budget deficits, while lecturing about corruption, is a bit rich. Prof K Basu wrote that strong leaders love widespread corruption. "It is not hard to see that for such leaders, nothing is as advantageous as pervasive corruption." "This gives the leader the capacity to arrest those who publicly oppose him, not for the criticism, or at least not openly so, but on the grounds of corruption." The arrest of the elite in the opulent Ritz Carlton Hotel maybe eyewash if the rumors of torture by experts from the US are to be believed. But MBS may not be as clever as he thinks. The war in Yemen is turning into a collective punishment for the people, with victory against the Houthis nowhere in sight. The war in Syria has been won by Assad, with Iranian and Russian support. The Lebanese Prime Minister, Saad Hariri reversed his decision to resign, giving rise to speculation that he had been forced into it by the Saudi government. MBS called Iran's leader, Ayatollah Ali Khamenei, "the new Hitler". MBS is "immature", was Iran's riposte. Meanwhile, an Israeli cabinet minister revealed that Israel is in covert contact with Saudi Arabia. Israel is deeply worried about Iran's nuclear program and, if it had not been Obama's threat to shoot down its planes, would have bombed Iran's nuclear facilities. With Trump in the White House a combined Israeli/Saudi attack on Iran does not look so far-fetched. Kim Jong-un is 33 years old and MBS is 32 years old. No wonder they are so gung-ho.  

What fiscal policy when inflation is always lurking?

"There is growing concern that India will miss the fiscal deficit target of 3.2% of the gross domestic product (GDP) set in the Union budget for the year to 31 March," wrote Sinha and Morankar. Fiscal deficit is the excess government expenditure over government revenue. The government borrows from banks by selling bonds through the Reserve Bank to finance this shortfall. Banks are required to hold a certain portion of deposits in the form of government bonds, known as Statutory Liquidity Ratio. The RBI determines how much money banks have to set aside for SLR and presently that is set at 19.5%. Indian banks buy much more than the prescribed amount of these bonds because sovereign guarantee means that they are totally safe. The problem is that higher government borrowing leaves less money for private borrowing and the government borrows to pay interest on the bonds. "India has a debt-to-GDP ratio of 68%, which is highest among its emerging market peers. Indonesia has a government debt-to-GDP ratio of 24%, while this ratio for Thailand is 41%." The US has a debt-to-GDP of 108% and Japan's ratio is 240%, but the interest rate in the US is 1.25% and 0% in Japan, while it is 6% in India. Thus, interest payment is 24% of total expenditure for our government, while it is 9.5% for Japan and 11.2% for the US. That means the government has less to spend on development. Capital expenditure is 12-14% of total expenditure. So government spending should be counter-cyclical, which means that it should decrease expenditure when the economy is growing strongly and increase it, along with a higher fiscal deficit, when growth is down, as now. Growth in recent years has been due only to the drastic fall in oil prices, wrote M Chakravarty, as the price of crude oil fell from $114 per barrel in June 2014 to $39 in March 2016. The government increased taxes on fuel 11 times which helped in controlling fiscal deficit. Oil prices have risen to around $60 per barrel lately and this is already creating problems, wrote T Kundu. The government will either have to reduce taxes on fuel, which will reduce revenue, or allow prices to rise, fueling consumer inflation and making voters angry. A high interest rate increases government expense, so should there be a hefty cut in policy rate? Using interest rate for inflation targeting is bad for the economy, wrote P Sen. The sudden rise in the price of eggs by 50% is due to the Minimum Support Price, a higher price paid to farmers to increase their profits. Even so farmers are committing suicide because of financial distress. Inflation is inbuilt in the Indian economy. Any discussion must include that.

Fantasies of an Indian politician.

"With tectonic changes, 21st century is India's," wrote NK Singh. A former IAS officer, Singh is now a Rajya Sabha MP for the BJP. Members of the Rajya Sabha are not elected by the people, but are there as a gift from the leader of the party. He gives reasons for his optimism. "First, 67 years ago, we gave ourselves a unique Constitution, not just to create a Republic but put in place basic laws and institutions. A robust parliamentary democracy with periodic elections ensures accountability," he wrote. No, it most certainly does not. Indian politicians believe that winning an election puts them above the law to enrich themselves and their families. So lucrative is politics in India that it has attracted assorted criminals who have the money and the goons to get elected. Why do people vote for criminals? Because they can provide services that 50% of Indians had to pay a bribe for last year, and 75% of people do not report crimes because police are unfriendly. In fact, Singh's own party selected criminal candidates in UP election early this year, and at 64% the BJP had the largest number of criminals in the Bihar election, in 2015. "Today, India is a young nation. For the next few decades, India will have a youthful and productive labour force." The same old chestnut about 'demographic dividend'. People are of no use if there are no jobs and economic growth is merely a number, wrote N Anand. Jobs cannot be created in manufacturing because land is too expensive, wages are too high because of MGNREGA, and industrial electricity is too expensive, wrote SA Aiyar. And then, there are taxes. Per capita consumption of electricity in India is 1,100 Kwh, while in Iran it is 2,500 Kwh and in South Africa it is 4,000 Kwh. 60% of our power generation capacity depend on coal but taxes add 65% to Coal India's basic price. Apparently, Micro, Small and Medium-sized Enterprises contribute over 10% of India's output, 40% of exports and 111 million workers, wrote J Rodrigues. Most of these enterprises employ less than 5 workers each, pay no taxes and survive on cash. There is great joy that these will now have to pay GST which will apparently allow them to borrow from banks to expand. These enterprises have survived on keeping prices low, which will surely rise, and depress exports further. The "new middle-class" will "usher in fundamental changes in India and around the world", wrote Singh. What is this vaunted middle class? They consist of people earning between $2 and $10 per day, considered poor in the rest of the world. Do Indians really believe in Singh's fantasies? 85% of Indians trust the government, the rest do not matter. Enough to win elections. 

Why rejoice if "the crocodile" is to take over?

After refusing for a week, 93 year old Robert Mugabe resigned as President of Zimbabwe, formerly a British colony called Rhodesia, after 37 years in power. Rhodesia is named after Cecil Rhodes, a brutal British adventurer who believed that the British were the "first race in the world" and the Africans were the "most despicable specimen of human being". Mugabe is still credited for rescuing Zimbabwe from British rule but in the end he was labeled an "archetypal African dictator". While Mugabe mercilessly put down any opposition he allowed his family and close friends to loot the nation. His second wife was known as Gucci Grace for her fondness for buying luxuries. His youngest son posted a picture of his watch, with the caption, "$60,000 on the wrist when your daddy run the whole country ya know!!!" Mugabe's ouster is reminiscent of that of Zine El Abidine Ben Ali, President of Tunisia, whose wife Leila Trabelsi was despised by the people and blamed for the corruption. Leila was Ali's second wife and also had a fondness for luxury. Just a few weeks back, L Bershidsky wrote, "Dictators are prone to self-destruction." He quoted a recent paper by Daniel Treisman who "analysed 218 episodes of democratization between 1800 and 2015 and found they were, with some exceptions (such as Danish King Frederick VII's voluntary acceptance of a constitution in 1848), the result of authoritarian rulers' mistakes in seeking to hold on the power". Bershidsky has a personal dislike for Vladimir Putin of Russia and described him almost as a genius. "His suppression has been timely and cleverly measured, his election manipulation always sufficient, his temporary successor, Dmitry Medvedev, avoided the liberal slippery slope, and he's only started wars against much weaker rivals. He helps his regime's propaganda by treating it as truth, but he doesn't buy it to the point of losing his vigilance." So perfect in fact that Putin still enjoys 82% popularity, that most western leaders would die for. Zimbabwe erupted in joyous celebration when Mugabe resigned, believing that a change in leadership will improve their lives. Will it? The former Vice President, Emerson Mnangagwa, sacked for "treachery" by Mugabe, will take over. Known as "the crocodile" because of his shrewdness, he is alleged to have masterminded attacks on opposition supporters in the past. One veteran described him as, "He is a very cruel man, very cruel." People are no better off in the Democratic Republic of Congo after Laurent Kabila took over from Mobutu Sese Seko and Egypt is back to where it was with former field marshall Abdel Fattah el-Sisi as President. Total power is like a baton. It passes from one hand to another.

Have we learnt nothing from Indira Gandhi?

"Indira Gandhi: a life of courageous conviction," wrote former President of India, Pranab Mukherjee. Speaking at a meeting to celebrate Indira Gandhi's 100th birth anniversary Mukherjee said that she was the best prime minister India ever had. Mukherjee is the ultimate insider, having been in the Congress almost all his adult life and rewarded with plum ministerial posts, apart from a few years when he was sidelined by Rajiv Gandhi. Mukherjee thinks it was a good thing that she nationalized banks, which is why the Indian banking industry escaped the subprime crisis in 2008. Bad loans in public sector banks are like an iceberg, most of which is hidden under water, wrote T Bandopahyay. Indira Gandhi showed her commitment to socialism "through the 42nd Amendment by inserting the two words 'socialist and secular'" in the constitution. We could argue that socialism led to the economic crisis of 1991, when India had to pledge 67 tons of our gold reserves to survive, and secularism has been derided as 'minority appeasement', allowing the BJP to win elections by appealing to the Hindu majority in India. Indira Gandhi stood up to the coterie of men who were ruling Congress at the time and had an emotional rapport with the masses but her populism destroyed the institutions of the nation, wrote Prof N Chandhoke. Her imposition of Emergency in 1975 is still seen as the darkest period in our post-independence history. Indira Gandhi wanted to be a dictator with absolute powers but also wanted to be seen as a democrat, which is why she called for general elections in 1977, in which she was trounced, only to be re-elected with a huge majority in 1980, because the opposition was so poor, wrote Z Masani. "Indira Gandhi lived and died for India, and she thought she knew better than any other Indian what was good and best for India," wrote Ramachandra Guha. The present Prime Minister, Narendra Modi is a lot like Indira Gandhi, in that he is suspicious of an independent media and does not give interviews, like her he has little respect for parliament, like her he absolutely dominates his party, like her he appoints his favorite civil servants to senior positions and like her he wants to eradicate the opposition, referring to the Congress as "termites" to be exterminated. So how should Indira Gandhi be remembered? "Durga who broke Pakistan into two. Tyrant who suppressed democracy. Insecure leader who split her party to get rid of dissenters. Control freak who ran from Delhi a party that spanned the nation, as well as chief ministers. Dynast who foisted her progeny on her party as leaders," asked TK Arun. Perhaps all of those. Perhaps, in the end, she was a woman, shaped by her birth and her nation's history, doing what she thought was best for her people. We should learn from her not to repeat her mistakes. But, it seems that we are doing precisely that.

Is it a pat on the back or a warning? Depends.

About 3 weeks back India jumped 30 places in the World Bank rankings in 'Ease of Doing Business'. Then a few days back Moody's upgraded India's credit rating by one notch to Baa2. Demonetization, GST, low inflation and increased foreign reserves are expected to increase growth and make the economy stronger in the longer term. Although government debt will increase by 0.8% of GDP in the next two years due to injection of capital into public sector banks to deal with bad loans, it will help the economy by helping banks to increase lending for new projects. The new rating implies investment grade with moderate risk, much better than the speculative grade with substantial credit risk that we enjoyed till 2004, but much lower than A2 that we had in 1988. Why is it important? Because it will reduce borrowing costs for our companies and encourage foreign funds to invest in our stock market. Naturally, business leaders are cheering the government of Prime Minister Narendra Modi. Some are urging caution. Only Moody's increased our rating and not Fitch and S&P, our debt to GDP ratio is about 70%, much higher than China's 46%, fiscal deficit could increase because of recapitalization of banks, current account deficit will increase because of high oil prices, and more loans will turn sick in our banks. Moody's believes that reforms will reduce corruption and banks will become stronger with extra capital. Markets are rejoicing because increased foreign investment and a stronger rupee will increase profits of punters. Ten charts show why this upgrade became necessary. At 8-10% our GDP growth will be the strongest in Asia, inflation will remain stable, investment will strengthen, exports will increase as the global economy grows, and the rupee is strong. There are some contradictions. If the rupee becomes stronger exports will become more expensive, or the rupee may collapse if foreign investors flee for external factors, say, if war breaks out in the Middle East or if a North Korean missile hits a Japanese town or a US ship by accident. A weaker rupee will immediately increase cost of imports and result in a spike in inflation. Our garment industry, which exports worth $17 billion and creates jobs, is suffering because of GST. Doing business remains as challenging as ever because corruption is rampant at lower levels, even if it has largely disappeared from upper levels of government. After indicating that fiscal deficit discipline may slip the Finance Minister was forced into a smart about turn, saying, "We'll continue to maintain the glide path." This rating upgrade could be a challenge because the government cannot afford to slip up in any way. So, a deserved reward or golden handcuffs? We shall see. 

Can someone own parts of US companies at gunpoint?

In a secret deal the US, UK and the Kurds allowed ISIS fighters to escape from their headquarters in Raqqa, with their families and heavy weapons, a BBC investigation uncovered. 50 trucks, 13 buses and more than 100 ISIS vehicles were used to transport about 250 fighters and over 3,500 family members to safety. The deal was brokered by Syrian Democratic Forces and coalition aircraft dropped flares to guide the terrorists to safety. It is the same old stupid American belief that some terrorists are good, which saw Ronald Reagan invite Jalaluddin Haqqani to the White House. Today the US wants Pakistan to eradicate the Haqqani network which would allow it to get its troops out of Afghanistan. Russia maintains that there are no good terrorists in Syria. Early this month at least 11 members of the Saudi royal family and dozens of officials were arrested in a kind of palace coup. Apparently, these arrests are linked to a massive corruption scandal involving a bank, called International Banking Corporation, operated by one Maan al-Sanea, through which he defrauded his in-laws, the Gosaibis. Sanea was arrested in a police raid in October. The bank's CEO was an American, called Glenn Stewart, who was in Bahrain at the time of Sanea's arrest but managed to escape in a yacht to Iraq, from where he has reached the US. The US has a huge naval base in Bahrain and the Iraqi government is indebted to the US for getting rid of Saddam Hussein. The coup in Saudi Arabia was organised by the Crown Prince, 32 year old Mohammad bin Salman, whose father is the king at present, in a ruthless power grab. Analysts think that falling oil prices are putting the Saudi economy under great pressure. So the arrest of these extremely wealthy individuals is actually intended to grab all their wealth. Apparently, these people have been asked to buy their freedom in exchange for their wealth. One of them, Prince Alwaleed bin Talal owns large numbers of shares in the Savoy in London, and in US companies, like Citi group and Apple. Why are the US and UK governments allowing someone to take over large numbers of shares in their companies, with seats on their boards, through force and blackmail? Extraordinary. Meanwhile, Saudi Arabia is blockading ports in Yemen preventing vital aid from reaching its people. No US or UN sanctions on the Saudis. However, the US is contemplating levying sanctions on Myanmar for the Rohingya refugee crisis. Where are the Rohingya jihadists coming from? From Saudi Arabia. So, the US and its allies are in bed with terrorists, but sanctions on anyone who resists. A strange world. 

A lesson from Bill Gates.

Times of India roped in Bill Gates, founder of Microsoft, as guest editor for a series of articles about problems faced by India as a nation. The Bill and Melinda Gates foundation has been working in India for many years, concentrating on public health, sanitation and nutrition. Gates showed an amazing amount of knowledge about social problems in India, talking about Swachh Bharat programme, about disposal of waste and about malnutrition. Not that all his efforts have been successful. His foundation wasted $258 million on HIV/AIDS prevention program , maybe because its approach was American which was viewed with suspicion by the people it was trying to help. The Indian government took over the foundation's vaccination program apparently because it is associated GAVI, an alliance of WHO, UNESCO, various governments, and large pharmaceuticals, which is working to eradicate communicable diseases through vaccination. Gates is disappointed with the state of education in India. "Most trends are positive, but my biggest disappointment when it comes to India is the education system. It should be far better," he said. "The total spending on public health is too low. Every other country that moved to middle income status spends over 3% (of its GDP) on public health (the corresponding figure for India is about 1%)." Health and nutrition are vital for rapid economic growth because they enhance 'human capital', wrote Gates. "Human capital has always been important. For example, research shows that investments in fundamentals like health and nutrition account for almost 40% of China's growth since the 1970s." Of course, a large part of that improvement in China was due to its one child policy, since 1980. China prevented 400 million new births, which improved health of women, allowed women to join the workforce, prevented epidemics, improved childhood nutrition and protected the environment. Gates is careful not to mention that because it would be politically incorrect and precipitate a hysterical reaction. Our politicians love the vote bank which they can influence through reservation in education and jobs, and by increasing social schemes. Gates chose an article on filariasis, which incapacitates affected people, and the steps being taken to eradicate it. Prof Banerjee and Duflo who run a poverty action lab in MIT, in the US have devised an evidence based system to measure effectiveness of social programs. Their organisation, known as J-PAL, is working with central and state government departments to bring greater efficiency into social policies. The failure of the government forced Union Home Minister to ask Bill Gates to adopt 1,000 villages hit by Maoists. Should we ask Americans to run our government?

How can you find rich people, if the middle class is poor?

"Is India's middle class actually poor?" asked S Biswas. A study by S Krishnan and N Hatekar puts 600 million people, out of a total population of 1,300 million, in the middle class category. They have reached this huge number because they define middle class as those with daily income between $2 and $10 per day, the lower middle living on $2-4 per day and the upper middle on $6-10 per day. At today's exchange rate $10 equals Rs 650, which gives a total income of Rs 2,37,250 per year, below the income tax threshold of Rs 2,50,000 per year. "The composition and character of the new Indian middle class is indeed unique because it now has people who are typically not considered to be belonging to middle class," said Krishnan and Hatekar. Credit Suisse has published a wealth pyramid for India which shows that 92.3% of people have wealth less than $10,000, which is Rs 650,000, or one heart attack, with 3 days in ICU and 2 stents. And all the wealth disappears. Just 7.2% of people possess wealth between $10,000 and $100,000, the majority of whom will be at the lower end. The ICE 360 survey showed that 42% of Indians are self employed, 32% are labourers and 20% are salaried, of whom 16% are Grade IV employees, which means peons or gardeners, wrote P Bhattacharya. Around 70% of salaried people do not have a written contract and so have no guarantee of employment. Although about half the people with low incomes consider themselves as middle class, the majority of people, who are considered rich by income, consider themselves to be middle class. No wonder that only 27.9 million people filed tax returns this year, a jump of 5.6 million from last year, and considered a triumph of the Prime Minister's sudden demonetization of high value notes on 8 November 2016. The Prime Minister is obsessed with black money, vowing to root it out any which way. He is unable to comprehend how more people can travel abroad on holidays than pay income tax. Take the all the rich businessmen and highly paid managers and add all the civil servants, politicians and their families and you will have your numbers. Simple. But, why this obsession? With so many poor people and the need to win elections politicians need to finance a plethora of social schemes. So the government instructed income tax officers to widen the tax base, which means terrorise people into paying more taxes. Sadly, the number of taxpayers may fall as 75,000 have lost their jobs in telecom, and more may go. The Goods and Services Tax, or GST, is a "good and simple" tax, gushed Modi. Maybe, but it is still an indirect tax and will hurt the poor by increasing prices and closure of small enterprises, which employ the poor. Call us middle class, but we are still poor. Numbers tell the truth.

Is the anger due to weakness?

Ever since Donald Trump won the presidential election last November, there has been an hysterical outpouring of venom against Russia, with accusations of trying to influence elections of at least 27 European and American nations. Unable to understand how Hillary Clinton could have lost, Democrats blamed Russia for exposing how they actively undermined Bernie Sanders in favor of Clinton. A book recently published by former Chair of the Democratic National Committee, Donna Brazile claims that the DNC allowed Clinton to control its finances. There was even an attempt by hackers to link Trump to a Russian Bank. At least 3 Congressional Committees are investigating allegations of Trump's collusion with Russia. A special prosecutor has been appointed to probe members of Trump campaign team for links to Russia. Paul Manafort, previous Chairman of Trump campaign, and his assistant, Rick Gates have been arrested for money laundering for Ukraine. Manafort is said to have helped President Victor Yanukovych, who fled to Russia after an armed coup in 2014, and to have lied to investigators, but what this has to do with Trump is not explained. British Prime Minister, Theresa May accused Russia of hacking British election and also apparently influencing the Brexit referendum. US agencies are convinced that Russian hackers tried to influence French elections against Emmanuel Macron. Russia tried to hack Britain's national grid and tried to penetrate telecoms company. Strangely, the British seem happy to have handed over their CCTV business to the Chinese, giving them unparalleled right to monitor the activities of anyone they want to. Europe's stability is threatened as "Russia is destabilizing the Continent on every front", wrote J Kirchik, and the only solution is for the Russian regime to be "resisted, contained and ultimately dethroned". In an outpouring of pathological paranoia he accuses Russia of everything from attacking Georgia, interfering in Ukraine and taking advantage of the instability in Iraq. No one asked George Bush to kill Saddam Hussein or Obama to kill Muammar Gaddafi, thus throwing both countries into civil war. The paranoia has reached levels not seen since Joseph McCarthy's 'Reds under the Beds' campaign of the 1950s. While US banks are buying up Venezuelan bonds, also called 'Hunger Bonds', cheaply in the hope of extracting full repayment through US courts, Russia has just signed a deal worth $3.15 billion to restructure Venezuelan bonds. Perhaps, the rot is inside. Someone within the National Security Agency has leaked hacking tools to a group called the Shadow Brokers, who are releasing them online. The solution is simple. Lift sanctions and make friends with Russia. The real threats lie elsewhere.

They want to be in surplus, we want to be in deficit.

Monetary policy, which means interest rate, is ineffective in controlling inflation, as "it is amply clear that central banks have influence only over one sort of inflation -- and that is the inflation of asset prices -- and not over goods and services that they ostensibly are targeting," wrote A Nageswaran. "With their unconventional monetary policies, they have been remarkably successful in stoking asset price inflation and have been disasters in stoking inflation of the regular variety." Possibly, central banks have failed to stoke inflation because governments were working against them. Europe resorted to austerity, imposed by Germany, which severely limited government spending, increased unemployment and cut economic growth. Paul Krugman has been a vociferous critic of European austerity, blaming it for the fall in growth rates. Austerity is the exact opposite of what John Maynard Keynes  recommended, which are increased government spending and lower taxes to stimulate economic growth, even if it increases fiscal deficit. Krugman is opposed by B Steil, who shows that nations with independent monetary policy can grow despite tight fiscal policy. That is the problem with Europe. The 19 countries of the Eurozone are bound by a common monetary policy set by the European Central Bank. The Republicans in the US want to cut trillions in government spending on social programs to balance the budget. Interest rate worked in controlling inflation in the US when Paul Volcker increased it to 15%, causing 2 recessions. So policy rates do work if central banks have guts and governments cooperate. While rich countries are battling with low inflation, deflation in Japan, India is consistently battling high inflation, which jumps to double digits at times. K Shashidhar argued that raising policy rate in India is of little use because inflation is driven by supply side constraints and high interest rate may make inflation worse by increasing house rents. That implies that the Reserve Bank should remain a passive spectator as retail inflation zooms out of control and the rupee dives. High inflation between 2009 and 2014 "had a lot to do with a reckless fiscal policy kept too loose for too long, one which also dominated monetary policy by forcing the central bank to monetize a portion of the fiscal debt". Since the government borrows to fund its fiscal deficit a high policy rate will concentrate the minds of politicians before indulging in wasteful spending. "Despite very low unemployment rates in the US, UK and Japan and in many countries in the Eurozone, wage growth remains remarkably restrained," wrote Nageswaran. But in India, salaries are projected to grow at 10% despite there being no growth in jobs. A high policy rate is essential in India. To bring discipline. 

Do we have the courage?

"Today is Children's Day. For India to have a future, our children deserve a present that is safer, healthier and more empowering," wrote Nobel Peace Prize winner, Kailash Satyarthi. "But we Indians seem to have a peculiar gift of transforming solemn celebratory occasions into sham rituals devoid of any real substance." In traveling 12,000 km across India he discovered, "Indian children are bubbling and bursting with dreams and aspirations. But we are failing them politically, economically, socially and legally." Not everyone. Many people, especially educated ones, the ones who have the means to educate and care for children, have decided not to have any. A survey by the National Sample Survey Organization in 2011 found that 42% of families in rural areas, with both parents working, belong to the DINK (double income no kids) group. Clearly, the cost and difficulties of bringing up children are overwhelming a lot of people. The irony is that these are the people who have the means to provide all the things Mr Satyarthi is demanding. BR Ambedkar was a genius, who was the mastermind behind India's constitution, despite facing discrimination for being low caste. Vidyasagar was a Brahmin who became a renowned scholar by studying under a streetlight. For most of us are ordinary people, with ordinary capabilities, these examples seem impossible. More inspiring are the examples of children, like Kinshu, who was rescued from child slavery and is now an engineer, Manisha, who was sold as a sex slave, and implored the President against exploitation of children, Ajay, son of an illiterate driver, who is now an enthusiastic student, and Ramesh, who was a slave but is now a gifted singer. Therein lies the problem. Too many children are being born to parents who cannot afford to look after them, and sell them into slavery. Although enrolment of children in schools is almost 100% large numbers drop out. Some because they have to work to supplement family income, some because they cannot cope with the curriculum and girls because of lack of clean toilets. Thousands of children in Delhi have failed their school exam and their future is unknown. Those who are unable to compete in the formal education system try to get any kind of degree, and then find that all the money has been wasted as their degrees are canceled by the Supreme Court. Not just in India, a study by Unesco found that children in developing countries are not learning enough after attending schools. And what is the point of getting an education if there are no jobs? No wonder, there are 75,000 beggars with Class XII degrees. It is the law of supply and demand. Reduce the supply of children and their value will jump. Else we will be reading similar article in 2050.

Should have been wary of a windfall?

"As a large importer of crude oil, India benefited significantly from lower prices," wrote an editorial in the Mint.  "It helped contain inflation and has a favourable impact on both the fiscal and current account deficits. But a sharp reversal in prices can roll back some of those gains." Current account deficit improved because we had to pay less in dollars for our oil imports but the reduction in fiscal deficit was because the government increased excise duties on petrol and diesel 11 times in 3 years. Excise duty on diesel increased from Rs 3.56 per liter to Rs 17.33 per liter, an increase of 380%, while that on petrol increased from Rs 9.48 per liter to Rs 21.48 per liter. States joined the central government in the feeding frenzy by increasing VAT and sales taxes on fuel. Hapless consumers paid a total of Rs 3.21 trillion in taxes on fuel in 2015-16, to states and the center, and have already paid Rs 2.81 trillion in the first 9 months of 2016-17. The reason why high taxes did not have any effect on retail inflation was because high prices had already been factored in and the government was keeping prices at the same level by increasing taxes, even as crude prices fell. The price of crude climbed to over $100 per barrel in 2014, as this government came to power, and fell sharply in 2016 to below $30 per barrel, allowing the government to rake in windfall gains. The price of oil has risen to around $60 a barrel recently and some predict that it could go as high as $70, but the upside is limited because production of US shale oil will increase as prices rise. According to Nomura, every $10 rise in the price of crude will worsen India's fiscal balance by 0.1% and the current account balance by 0.4% of GDP. As prices rose the government came under severe criticism and, as is usual, chose to bluff its way out of the problem saying that it had no control over international prices. However, elections to several state assemblies were coming up, notably in Gujarat, the Prime Minister's home state, so the government was forced to cut excise duty by Rs 2 on both petrol and diesel in October. The bluff was exposed when it was reported that oil revenue will rise by 13% this year, despite the cut in duty. Maybe because a slightly lower rate of tax on a much higher price amounts to more income. As the international price of crude rose economic growth fell from over 9% in early 2016 to 5.72% in July of this year. If the price rises higher what will the government do? If it passes the cost on to the consumer retail inflation will rise which will make people angry. If it asks oil companies, which are state owned, to reduce prices it will get less dividends from these companies and they will have less money for investing in increasing capacity. And if it reduces taxes the fiscal deficit will rise. Just like people suffer after winning a lottery, the government is also suffering from its greed. Should be wary of a windfall.

Smog in the brain.

United Airlines suspended its flight from Newark in the US to New Delhi yesterday, citing poor air quality in India's capital city. "Due to air quality concerns in Delhi, India, we anticipate possible delays and cancellations throughout the weekend. For the safety of our employees, we may also need to close outdoor work areas at times," said the airlines. Any criticism from a white western country is very painful for us. Most of the pollution is due burning of stubble in Punjab after the rice harvest. Why do farmers burn stubble? Because rice stubble has a high silica content, making it toxic for animals, and it is too expensive to uproot because labor has become very expensive. With so many poor people why is labor so expensive? Because of the floor set by MGNREGA, which pays the rural poor for 100 days a year, said the Reserve Bank. Now the Punjab government in Pakistan urged a quick end to stubble burning. We understand. Pakistan sends terrorists into India, we hit back with pollution. Revenge. Of course, aircraft use an enormous amount of fuel to get over 500,000 kg off the ground, and thousands of cars have to drop or pick up passengers everyday, adding significant amounts of pollution. A Boeing 747 needs up to 5,772 pounds of fuel just for takeoff, 50 times a full tank of a SUV. However, our VIPs and VVIPs may need to travel abroad first class, with family, to see Christmas decorations, so a second airport is planned close to Delhi. But, something needs to be done, so the Delhi government closed all schools, banned all construction activities and announced odd-even scheme for cars with male drivers. The ban on driving did not apply to women and two-wheelers. Unfortunately, the National Green Tribunal ruled out any exemptions to women, two-wheelers and government officers. Banning two-wheelers will bring Delhi's economy to a complete stop, and since they are mainly used by the vote-bank, it is unthinkable. Women demanded better alternatives to public transport because of safety concerns. Another incident like the gang-rape on a Delhi bus in 2012, will result in riots and may result in loss in a future election. Horrible thought. As for government officers, how can our masters travel in buses with the plebs? Anyway, Delhi has only 4,000 buses, totally inadequate to carry so many additional people. Delhi makes a loss of over Rs 34 billion each year running its buses. Any addition to its present fleet will only add to its losses. The good thing about the odd-even scheme is that the government could have added to the Rs 1 billion in penalties from hapless drivers. Poor fellows. Cannot take any action without losing revenue or alienating the vote-bank. No wonder they fly first class with family to see Christmas decorations in western countries. Need to relax.

Only a foreigner can safely ask questions.

"Is the BJP still the party with a difference?" asked R Sardesai. "The image was telling: Union law minister Ravi Shankar Prasad effusively welcoming the newly-inducted BJP member, Mukul Roy with flowers at the party headquarters. A former Trinamool Congress leader, accused in the Saradha and Narada, scams, now being treated as a prize catch by no less a figure than the law minister." Not just Roy, the BJP has also allied with Narayan Rane, "whom the BJP once projected as one of the prime symbols of political corruption in the Congress", it has taken supporters of Shankarshinh Vagela, "whom the BJP leadership once scathingly described as integral to the Congress's corrupted culture", and it has inducted Anil Sharma, son of Sukh Ram, found guilty of corruption by a Delhi court. Sardesai is surprised that BJP under Prime Minister Narendra Modi is associating with corrupt. "After all, didn't the prime minister ride to power proclaiming, 'na khaoonga, na khane doonga'?" (Meaning, I will not take, nor let anyone take, bribes). In India, there is no concept of 'accessory to crimes', as there is in the US, so personal honesty is seen to wash away all criminal acts of colleagues. As previous Prime Minister, Manmohan Singh claimed. Modi masks failures of his policies by turning any question into an attack on himself and hardships he has endured, wrote G Sampath. That is why his reputation has taken a beating in recent times, wrote an editorial in The Economist. "Mr Modi's recent setbacks, however, stem in large part from his preoccupation with presentation over substance," it wrote. That is the English way of calling him a bombast. No journalist in India would dare criticise the Modi government. "Media firms are anxious not to offend it; journalists who take it on often lose their jobs." "Even comedians who imitate Mr Modi have mysteriously disappeared from the airwaves." A study by UM Rodrigues, from the safety of Australia, has found that Modi "used social media as a 'one-way communication' tool to inform his followers. That way he is able to bypass mainstream media and avoid uncomfortable questions. "Why can't Modi speak a little bit more to Indians journalists?" lamented K Thapar. He has cleverly built up a mythical past about being poor and selling tea at Vadnagar station in Gujarat as a six year old. The railway line definitely existed but was the station built in 1973, when Modi would have been 23 years old. If Modi wants the spotlight to be on him then let us help him by concentrating on him. He has never held a job in his life, so probably never paid income tax. he is a classical apparatchik, having always been in the RSS, and then the BJP. Who paid for his frequent trips to the US and China, before he suddenly became Chief Minister of Gujarat? Only foreigners can ask these questions. We would be eliminated.

If you cry wolf often enough.

The combined market value of Amazon, Alphabet, Microsoft and Intel stocks is around $2.1 trillion -- a little short of India's gross domestic product (GDP)," wrote A Nageswaran. Market capitalization has jumped 36% from $1.55 trillion a year ago, while their earnings were higher by only $3 billion in the three months till end of September 2017, compared to the same quarter in 2016. "Irrational exuberance is back with a vengeance." Central banks are responsible, especially in China, for growth financed by excess borrowing. Total Social Financing, "the most comprehensive official measure of credit in the economy", grew by 15% in 2015 and 2016, in China. Investors have low risk perception because central banks are running liquidity at $1.5 -2.0 trillion per annum, with little chance of reversing, and China's investments in real estate and infrastructure are acting as "risk buffers". With a 30% rise in the past one year, the Nikkei in Japan needs to be watched, wrote W Pesek. The Bank of Japan is set to continue its loose monetary policy. Interest rate in Japan is negative. Corporate Japan has a huge pile of cash, at least $2.7 trillion, but reforms have not been carried out as promised. "Brazil is back on track" wrote Michel Temer, President of Brazil. Inflation has dropped from 10% in May 2016 to 2.54% in September this year, interest rate has dropped from 14.25% in May last year to 7.5% now, and trade recorded a surplus of $58.477 billion. Industrial output, vehicle exports and business confidence have all increased and 163,000 jobs have been created this year. The increase in capital investment, or capex, is an indication that the global economy is probably picking up at last. Capex is running at 8% according to JP Morgan Chase. Total debt in China reached 260% of GDP in 2016 and is expected to reach 320% by 2021. The retiring Governor of the Peoples' Bank of China, Zhou Xiaochuan warned of a "Minsky Moment" for China. However, President Xi Jinping is unlikely to let that happen during his term, so stimulus financed by debt is likely to continue. A 'Minsky Moment' need not come only from China, but could come from Japan or the US, and take down all three, wrote Pesek. Growth in global markets will continue for a while longer, wrote Y Sharma. For the first time since 2010, analysts are predicting a 15% growth in earnings this year. In India, on the other hand, market capitalization has risen by 42.67%, the highest among the top ten markets, despite earnings downgrades for five years in a row. Experts failed to predict the East Asian Crisis, the dot com bubble collapse and the subprime crisis, so they maybe predicting a Minsky Moment, thinking that if they do it often enough they can claim to be right if and when it happens. After all, the wolf did come, finally.