Will it be better if we leave it to the stars?

After spectacular fireworks displays to greet 2018 we start the new year with old desires of lower taxes, so that we can spend more, fewer crimes, so that we are safe and are not forced to pay bribes, better public services, such as roads, electricity and water, and a less oppressive government, which does not treat citizens like criminals. 2018 is important for us in India because there are elections in 8 states, 4 of them in Northeastern states bordering Bangladesh and Myanmar, and in large states, like Karnataka, with a Congress government, and Chhattisgarh, Madhya Pradesh and Rajasthan, with BJP governments. General elections in 2019, so this year's budget is going to be the last full one before the country votes on the performance of the present government. Is the Prime Minister spooked by results in his home state of Gujarat, where his party, the BJP, won a majority, but with a reduced margin, in last month's election? Accusations of tampering with voting machines by the BJP have cast a shadow on the victory. Such accusations have been circulating for sometime despite repeated denials by the Election Commission. Sadly, most Indians will believe any accusation against politicians and civil servants. After all there can be no smoke without fire, can there? BJP may have won in Gujarat, "But  BJP's victory in Gujarat elections has been underscored by a vicious rout in the rural belt," wrote Aurodeep. "Farmers with rising input costs, increasing debt burdens, random export restrictions, almost non-existent safety nets and underwhelming floor prices set by the government -- have grown increasingly impatient." There is also "disenchantment of youth" who cannot find jobs. "India has possibly the world's largest cohort of under-35 adults, yet companies struggle to find decently skilled candidates." The only way is to create millions of new jobs that will utilize our youth and allow farmers alternative opportunities for earning a living. Unfortunately, "India has no history of industrial-scale innovation -- no world historical inventions that it has scaled up," wrote Prof K Bajpai. So what should we do? We should rely on "agriculture and food processing" and "crafts such as textiles, garments, leather products, and jewellery". In short create more artisans and not inventors. Why not learn from the US, the richest nation on earth? "Between 2000 and 2017 there have been as many as 25 train mishaps in the US," wrote Prof D Gupta. "56,000 US bridges that need urgent repair" and the "2015 Programme for International Student Assessment (PISA) shows that 15 year old Americans are at 38th position in science when compared with those of the same age in 71 countries". So, we can't be like China and shouldn't be like the US, we can only be India. But not to worry, "Hope floats in 2018" wrote R Deshpande. Good thing we believe in astrology. It's all in the stars.

As long as it is not much worse.

J Tolentino wrote a long list of reasons why 2016 was probably the worst year ever, because of the North Pole being hotter, human rights abuses in Turkey and deaths of innocent civilians in Aleppo, but the main reason for her was the election victory of Donald Trump. She expected hate crimes and Swastikas everywhere. "Power is accruing everywhere to the hard and heartless right," she wrote in anger. That is to imply that the left is soft and cuddly. 2017  was the centenary of the October revolution which created the Soviet Union. Socialism, collectivizing private property and central planning can be imposed only through extreme coercion, wrote Prof S Rajagopalan. "It is this level of violence, economic and social coercion that has become the lasting legacy of communism." The war in Syria is almost over. Does that mean and end to terrorism? Absolutely not, but the reconstruction of Syria can begin. Will it? The defeat of ISIS is a victory for Iran whose forces and militia, the Hezbollah, were fighting for Assad. Iraq also announced victory over ISIS but that was also with the help of Iran and Shia militia. Now Iran has extended its influence over an enormous territory with long borders with Israel and Saudi Arabia. Iran's Supreme Leader was called a 'new Hitler' by the Crown Prince of Saudi Arabia. In the last 3 days protests have broken out all over Iran, calling for more jobs, improved living conditions and the removal of the regime. If Europe wants to stop the deluge of migrants from Syria and even repatriate some of the refugees, it should start the process of rebuilding Syria on a war footing. Otherwise far right parties will gain more support from the people. The Austrian Freedom Party is part of the new coalition in Austria, and the Alternative for Germany Party won seats in the German parliament. Angela Merkel has been unable to form a government and Germany may see new elections to solve the deadlock. Donald Trump is still there despite a vitriolic campaign against him. The US economy grew by 3.3% in the third quarter and may grow even faster if corporate tax cuts stimulate new investments. The global stock markets are within touching distance of $100 trillion valuation for the first time, with very low volatility, and European government bonds offer negative returns. China used debt to take over large chunks of assets in vulnerable countries. Pakistan plans to become a vassal state of China by agreeing to use the yuan instead of the dollar. As for India, politicians will argue about growth rate while pleading for low interest rates. There will be more handouts to prepare for general elections in 2019 and the government will become more intrusive and despotic about collecting taxes. In short, 2018 promises to be more of the same. A Happy New Year to the world.

What if the piggy bank is empty?

Fiscal deficit between April and November hit 112% of the full year target, the highest for 8 months since 2008. This was due to revenue shortfall, as tax collections reached Rs 5.46 trillion instead of the expected Rs 6.12 trillion. The government is to borrow an extra Rs 500 billion which may raise the fiscal deficit to 3.54% instead of the promised 3.2%. Bond prices fell instantly, raising yields to 7.33% on benchmark 10-year government bonds. Higher bond prices also signal higher inflation expectations from increased government spending. High inflation lowers the buying power of the currency which means by the time the bonds mature the value of their principal will be lower although the amount will be the same. Increased borrowing is a worry, though fiscal deficit is expected to stay within 3.2%, warned Bank of America Merrill Lynch. The new Goods and Services Tax, or GST, is being blamed as total collections in November came in at Rs 808 billion, compared to Rs 923 billion in July. But it is not just the GST. Economic growth has been slowing since June 2016 quarter as oil prices started to rise and imports jumped when demonetization disrupted supply chains., wrote M Chakravarty. As this government came to power in 2014 the price of crude oil started falling from over $100 per barrel to around $30 per barrel. As the price of crude fell the government increased taxes on fuel, keeping pump prices the same. This provided enormous windfall gains to the government, allowing it to spend lavishly without adding to the deficit. A kind of inverted resource curse. Although tax revenues rise from higher oil prices the government might have to lower tax rates on fuel to keep pump prices and inflation in check, wrote P Pengonda. A reduction of Rs 2 in rates results in a Rs 250 billion fall in tax collections. Cooking gas price was being slyly increased by Rs 4 per month but has now been stopped to preempt anger of consumers. Poor people were provided with free gas connections and cylinders from the oil bonanza but are unable to refill their cylinders even at the subsidised rate of Rs 485 per cylinder. Not good for elections. Once a social scheme is started it is impossible to stop without causing an uproar, so plans to phase out subsidy on gas has been shelved. The only solution is to go after taxpayers. Surveillance on taxpayers is to become severely intrusive with officials accessing any information they want. People will be interrogated on the source of money deposited into banks due to demonetization. To raise tax collections the government must treat taxpayers with respect, wrote Prof K Jha and give us services, such as old age pensions, healthcare and education for children. Paying huge taxes to subsidise luxurious lifestyles for politicians and their broods is hardly an incentive. This war will not end any time soon. 

The US will remain top. Certainly safer for India.

"A new breed of American declinists argue that by alienating old allies, President Donald Trump is undermining his nation's standing in the world and ceding the mantle of leadership to China," wrote financier Ruchir Sharma. People have been predicting the Chinese economy replacing the US as the global leader but, "America is a tested economic super-power, having survived 23 recessions and a Great Depression since 1900. China remains untested, having suffered not one outright recession since its modern renaissance began around 1980." Central banks buy US treasuries as a major part of their foreign currency reserves. China holds over $3.1 trillion in reserves. "Having the world's favourite reserve currency is an economic advantage and a symbol of great power status, which is why China has been eager to establish the renminbi as a reserve currency." The renminbi was added to Special Drawing Rights of the International Monetary Fund on 1 October 2016, which meant that the currency should have been freely tradable. Several experts were unimpressed. "The IMF announcement is likely signalling a turn for the worse in the Chinese economy," predicted VA Nageswaran. He was right, because almost straight after the IMF announcement China tightened controls over exchange of renminbi for foreign currencies. "China's new rules on yuan transfers are not capital controls," lied the official news agency, Xinhua. Having built up its reserves China relaxed currency controls in September this year and it fell 0.5% immediately. China should not try to open up before restructuring its debt, wrote M Pettis. The government controls all banks so there is no danger of default but debt can shackle economic growth, so local governments should be forced to reduce debt by selling assets and money should be transferred to households to increase domestic consumption. Moody's cut China's credit rating because its debt has reached 260% of GDP. China is using economic imperialism to take over strategic assets of poorer countries, by first lending money at high rates of interest and then forcing countries to hand over assets to prevent default, wrote  B Chellaney. The National Security Strategy document names China as the major danger to US supremacy, wrote S Sirohi. Perhaps, the greatest danger to China's ambition to conquer the world may come from a tiny impoverished state, namely North Korea, wrote Prof WPS Sidhu. Some Chinese say that a nuclear war in Korea is inevitable but this maybe an attempt to scare South Korea into breaking relations with the US. Romans, Ottomans and the British had great empires but they are marginal nations today. Empire building is much tougher now. Perhaps China will not even be the greatest economic power, wrote C Balding. A collapse of China will certainly be a sigh of relief for us in India. Will 2018 be the year it happens?

How and what to tax?

"There is a fundamental problem with India's current tax system. India simultaneously has a tax base for direct taxes that is too small; and a tax base for indirect taxes that is too large," wrote Prof S Rajagopalan. Direct taxes comprise personal income tax, corporate tax and property tax. Direct taxes are said to be good because they are based on the 'ability to pay' principle, which means that those who earn more pay more than those who earn less. Rates of tax on income rise with rise in earnings. No tax accrues if income is less than Rs 250,000 in one financial year, which in India, runs from 1 April to 31 March. From Rs 250-500,000 the rate of tax is 5%, from Rs 500,000 to Rs 1 million the rate is 20%, and above Rs 1 million the rate jumps to 30%. Indian companies pay 25-30% corporate tax, while foreign companies have to pay 40%. The rate goes up to nearly 50% with surcharge and cess. Indirect taxes can be passed on to another entity, for instance, although a merchant pays sales tax on the goods he sells, he adds the tax to the price so that the consumer is made to pay. There are many types of indirect taxes in India, many of which have been combined under the Goods and Services Tax. Whereas direct taxes are paid by those who earn more, which is considered fair, indirect taxes are paid at the same rate by rich and poor, and so are considered regressive. Around 27.9 million people filed tax returns this year, which is nothing in a population of 1,300 million. In comparison, nearly 140 million, in a population of 300 million in the US, pay federal income tax. Even worse, in 2016-17, the government collected Rs 8.5 trillion from direct taxes, while indirect taxes raised Rs 8.6 trillion, the first time since 2006-07 that the proportion of indirect taxes have been higher. Just last week corporate tax rate in the US was reduced from 39.1% to 21%, which makes it considerably lower than that in India. US firms manufacturing in India will be tempted to transfer profits to the US and pay taxes there, wrote Prasad and Nair. So far US companies were keeping there profits overseas to avoid high taxes in the US but now they will move them back to the US, wrote D Kanabar. How much foreign exchange will flow out we do not know. So what to do? "I propose that Indian states should rely more on property tax, which is economically efficient, incentive compatible, and progressive," wrote Rajagopalan. In India, stamp duty varies from 0.5% in Madhya Pradesh to 8% in Haryana and Rajasthan. There are separate registration charges. At today's real estate prices states collect taxes on properties in advance, at the time of sale, so higher rates of property tax will be resisted. People in India are poor. Only way to collect higher taxes is to make us rich.

Maybe an outsider can see things.

"Donald Trump won the US presidency with the backing of working-class and socially conservative white voters on a populist platform of economic nationalism," wrote Prof N Roubini. "But while Trump ran as a populist, he has governed as a plutocrat, most recently by endorsing the discredited supply-side theory of taxation that most Republicans still cling to." Trump has done everything wrong. Deregulation is "blatantly biased against workers and unions", he has not imposed 50% taxes on imports from China, he is less aggressive on immigration than he says, and he has not abandoned the North American Free Trade Agreement or Nafta. But doesn't it show that, as President, he is willing to listen to other points of view and compromise where necessary? Apparently not. He will "continue to tweet maniacally" and "if gassy rhetoric alone does not suffice" he may take "trade action against China", double down on "harsh immigration policies" or embark on "foreign military adventures" against North Korea or Iran. In short he is a liar for having won the election by promising these things but if he actually fulfills his promises he is a "Caligula or Nero". Trump is an outsider and so is unable to govern because he has no idea, wrote Prof S Schier. "Trump is so repulsive not because he offends our civilisation's most basic values, but because he embodies them," wrote G Monbiot. Is it wrong to be an outsider? Sirimavo Bandaranaike, Corazon Aquino and Cristina Fernandez became presidents of their respective countries after their husbands died. Nelson Mandela was in prison for 27 year, George Washington would probably have been hanged if the British laid their hands on him and Jawaharlal Nehru was the first Prime Minister of India after over 1000 years of brutal invader rule. Lee Kuan Yew transformed Singapore from a dirt poor state into a rich modern one. South Koreans rank Park Chung-hee as their greatest president but he came to power in a coup, eliminated opponents and was assassinated. The Republicans in Congress just passed a tax reform law that will apparently add $2 trillion to the federal deficit, wrote D Floyd. The law reduces corporate tax to 21%, from 39.1% currently, and US firms will have to pay taxes on intellectual properties held overseas, which they have been doing to avoid taxes altogether. What if lower taxes tempt US multinationals to shift operations back home? Won't that increase tax collections from companies and from individuals as new jobs are created? The Democrat Party actively worked to suppress Bernie Sanders, which backfired. They are now furious at Trump and probably terrified that his policies might succeed. Outsiders can be good. 

'Bold' means more of the same.

"NDA plans bold move to fix rural distress," was a headline yesterday. What is this "bold move"? "The central government, in consultation with states, proposes to launch a new price support scheme for farmers to prevent distress sales at prices below minimum support price (MSP)." This scheme is to be called the "market assurance scheme". Around 25 crops are covered by MSP, which is fixed by the government to protect farmers from losses, in case market prices drop too low due to bumper crops. Trouble is that states do not have sufficient funds to buy excess crops at higher prices and, even if they do procure a crop, they do not have facilities to store them. Perhaps, India is the only country in the world in which 38% of children are stunted and 51% of women are anemic, due to malnutrition, and where hundreds of tonnes of food are allowed to rot every year. When prices drop too low it costs more to harvest and transport food to markets than the sale price, so farmers are forced to let their produce rot in the fields. Farmers plant their crops in response to last year's prices which results in excess and prices crash. This is apparently called the 'cobweb phenomenon'. Surely if production is low farmers must be getting lots of money? Farmers are forced to sell their produce through wholesale markets called Agricultural Produce Market Committee or 'mandis'. These are operated by cartels of traders who charge high prices to customers, while forcing farmers to sell at very low prices. Why not allow farmers to sell directly to customers which will eliminate fees for middlemen and allow discovery of fair prices? Because agricultural income is completely free of any tax in India, so politicians get round that by levying taxes on mandis. High cost of food feeds into high retail inflation and makes voters angry. The government spent Rs 1.4 trillion on imports of agricultural products last year, but this year has slapped a 30% tax on imports of pulses to raise market prices in India, to please farmers. The late Sharad Joshi demanded open markets and consistent policies on farmers which he called a "Marshall Plan". Clear policies that farmers understand, allowing farmers to sell their produce where they want, giving them information on expected weather changes, information on international prices of various crops and providing them with good quality seeds could reduce farmer distress. Instead, about Rs 2.5 trillion will be spent in loan waivers and rural poor are paid for 100 days a year for building rural assets. The central government has promised to bear 30% of the market assurance scheme but fiscal deficits of the states are already causing concern and that of the center will, most probably, be greater than projected in the budget. Farmers don't pay taxes but they vote, that is why they have to be pleased and controlled at the same time. Not easy.

What if some people do not believe in fairness?

"The alarming level of economic inequality globally has been well documented by prominent economists," wrote Prof K Basu. The rich work hard while the poor are lazy, is a myth. "The reality is that the poor, more often than not, must work extremely hard, often in difficult circumstances, just to survive." But, are we really aware of this extreme inequality that Prof Basu writes about? The rich live in such luxury, protected by private security, that is impossible to imagine. We may see a huge building from the outside but we can never imagine what is inside. We never see the super-rich getting their passports renewed, queuing to get visas to Europe or the US, so difficult for us, and we never see them being frisked at airport security. There are companies to cater to their whims, however extreme they maybe, although a demand to detonate a nuclear bomb was politely refused. So, if the super-rich are invisible to us can we really be jealous of them? Perhaps, people are offended by the disparity because it seems immoral that some people can afford $600 gold toothpicks or have luxury showers for their pet pooches, while others are sleeping rough on pavements, very often without sufficient food. Human beings have an innate sense of fairness and altruism which help us live in societies, wrote Prof R Hausmann. So, what is the solution? "A first step would be to give all of a country's residents the right to a certain share of the economy's profits." Instead of competition, monopoly production is to be encouraged because "a monopoly of production need not mean a monopoly of income, as long as the shares in each company are widely held." Someone has to run those monopolies and then distribute profits to the people and only governments have that kind of reach. This is communism with sugar-coating and the lessons learnt from the Bolshevik revolution 100 years ago is that a centralised system results in extreme coercion, wrote Prof S Rajagopalan. Those of us who are old enough remember the days when a telephone call to another part of India was called a 'trunk call' and cost Rs 100 per minute. Prof Y Varoufakis recommends a share in capital wealth for everyone, because "wealth was always produced collectively and privatized by those with the power to do it: the propertied class". Every time there is an Initial Public Offering of shares in a company, a portion will go into a public fund which will distribute dividends to the people. Utilitarianism is of no use because although the utility of a handicapped person maybe less than that of one who is fit, his need is greater, so there must be some sort of redistribution, wrote S Subramanian. Perhaps, instead of such complicated theories we should rely on simple demand and supply. To increase the value of the poor we must reduce numbers. 

Only few paying taxes? It is called inequality.

The Income Tax Department has announced that 8.2 million people filed tax returns on income less than Rs 250,000 in 2015, compared to nearly 14 million in the previous year. Why did so many taxpayers disappear? Turns out they promoted themselves into the Rs 250-350,000 bracket, which had 13.4 million people, a jump of 65%.,  This is important because we start paying income tax on earnings above Rs 250,000 in the whole year, which comes to about Rs 21,000 per month. 59,830 people earned more than Rs 10 billion and 4,499 declared  income of over Rs 50 million. Total collection rose from Rs 18.41 trillion to Rs 21.27 trillion. Only one person declared an income of over Rs 1 billion in 2015. Why is the news being released after 2 years? Strange. This year, 27.9 million filed income tax returns, compared to 22.3 million last year. So Indians are getting richer. Surprising, when the rate of defaults on education loans has risen by 47% because there are not enough jobs paying respectable wages. Children do not incur education loans for BA, BSc or BCom courses but for professional degrees in engineering, medicine or management, and there are not enough jobs for them. So who are all the new taxpayers? The Finance Minister said that retail inflation increased in November because of the enormous pay increases awarded to civil servants under the 7th Pay Commission, which increases the basic salary in the lowest grade from, Rs 7,000 to Rs 21,000. Retail inflation increased to 4.88%, while core inflation was 4.83%. Government employees are already receiving Dearness Allowance of 5%, which is a cushion against price increases. They will also get annual increments of 3%. Although direct tax collections jumped to Rs 8.5 trillion in the last financial year, over Rs 7.42 trillion the previous year, it was still below indirect tax collections of Rs 8.6 trillion. Collections from GST, the new indirect tax system introduced in July, fell in October. So, how to fill the insatiable demand for money? On the one hand tax officers will visit those paying GST for individual assessments, while refunds for tax on exports is being done manually. On direct taxes, 8,000 prosecution notices are to be sent to terrorise people into paying up. This government has decided on tax terrorism at its most coercive possible. The middle class in India earns between $2 and $10 dollars per day, which is below Rs 20,000 per month, so not taxable. Total wealth of this middle class is less than $10,000, or Rs 650,000. So, civil servants earn a lot and, of course, politicians. Perhaps we need a Magna Carta specially for India. 

Can we at least hope that it was not a political decision?

As expected, all the accused in the 2G scam case were found not guilty by a special CBI Court, which not only shows our premier investigating agency in poor light but leaves us wondering if politicians and civil servants have got away again. The CBI has been called "the handmaiden of the government". This judgement comes 2 months after another CBI Court judge was savaged by the Allahabad High Court as "math teacher" and a "film director" as it set aside the guilty verdict in the Aarushi murder case. The chief accused in the 2G case, A Raja, the Telecoms Minister during the scam, is the husband of Ms Kanimozhi, who is the daughter Mr Karunanidhi, chief of the DMK Party. It is pure coincidence that the Prime Minister met Mr Karunanidhi last month at his home. Why did the case collapse? Because civil servants did not speak the truth as witnesses. Civil servants were "evasive", "mischievous", "irresponsible", who "tried to disown official record", which means they were lying on the stand. Will they be put in prison for perjury? Were they instructed to lie under oath? We will never know. But, as taxpayers, we may suffer huge damages as foreign telecom firms, which lost billions of dollars, may now sue the government for compensation. The Supreme Court cancelled all 122 telecom licenses in 2012, awarded by A Raja, in response to several Public Interest Litigations. An investigation by the Indian Express found how serious cases of rioting, violence against public officials and destruction of public property against politicians in UP were quietly withdrawn by the government. What happens in one state happens everywhere in India. Occasionally our fellows are exposed when a foreign firm admits to paying bribes but no one ever seems to go to prison. It is not just a question of waste of taxpayer money due to shoddy investigation, India maybe losing up to 500,000 children every year to traffickers because of police apathy and inadequacy. 75% of people do not report crimes because the police are seen as unfriendly. According to the government we need another 500,000 police officers in the country, but there is no shortage of police in protecting our VIPs, many of whom are violent criminals. It would be an irony if our children were not suffering. Why is crime tolerated by the government? Because the threat of prosecution keeps opposition under control and helps those in power, wrote Prof K Basu. In despair helpless people seek solace in so called 'godmen' who listen to their woes. Verdict in the 'fodder scam case' today. Not guilty, as usual?

Can you create wealth from dross?

"Reviving manufacturing has become a prime policy objective for national leaders from Washington to Beijing to New Delhi," wrote M Schuman. But it is becoming difficult as competition increases. "At least one country seems to have figured out how to do just that, however, and a highly unexpected one: Japan." Japanese factories had to shift to countries like China where labor costs were low but are now coming back. Wages for workers rose by just 0.6% in October compared to last year but in manufacturing wages rose by 1%. How did Japan do it? Japanese managers invented "lean manufacturing" in which "companies continue to invest heavily in manufacturing innovation, automation and job training". Unemployment is down to 2.8% but the main threat to Japan's economy is its extremely low birthrate. However, after bottoming out at 1.26 births per woman in 2005 the rate has increased to 1.43, which is higher than that of South Korea, Singapore and Germany. Germany gets round its problem of low birthrate by extensive training and skilling of workers through its apprentice system. "In Germany, everything from selling cars to building pianos and harpsichords has its own practical technical schooling, testing and qualifications." India is the exact opposite with almost 60% of the population between 15 and 54 years of age and fertility rate still bombing along at 2.45 per woman. Although we have one of the highest GDP growth rates in the world the economy is still not creating enough jobs to absorb the growing numbers of job seekers. Which means children have only a 33% opportunity of climbing out of their social class, wrote T Kundu. Increasing mobility may lead to inequality but is more important in increasing prosperity by increasing opportunities. wrote Prof T Cowen. Forget manufacturing and leapfrog to digital services to achieve sustained growth of 7-8% over the next decade, wrote J Sinha and A Bhattacharya. That is what A Maira warned against as he wrote, "India cannot take shortcuts to development." He said that we are in this predicament because of 4 shortcuts taken in the past. Not investing in education and healthcare, ignoring manufacturing in favor of information technology, investing in Artificial Intelligence instead of training people and lack of coherent government policy. And yet Indian scientists are quietly making their mark in the field of science globally. Sadly, they are kept under control by politicians and civil servants. Why? Because India has 75 ministers, while the US has the Vice President and 22 of cabinet rank. The more the dross, the less the progress.

Since nothing is working, why not try something new?

An unspoken class war has resulted in the election of Donald Trump and the vote for Brexit, wrote an angry Prof Y Varoufakis. He thinks that "the key to understanding what is going on: the unceasing class war unleashed on the poor since the late 1970s". Two pieces of data are proof of class difference. "In the US, more than half of American families did not qualify, according to Federal Reserve data, to take out a loan that would allow them to buy the cheapest car for sale (the Nissan Versa sedan, priced at $12,825). Meanwhile, in the UK, over 40% of families relied on either credit or food banks to feed themselves and cover basic needs." Shocking indeed. A recent study in the US showed that one in two of millennials would prefer to live in a socialist or communist country rather than in capitalist United States. "Nearly 45 percent of millennials polled said that they would prefer to live in a socialist country compared to the 42 percent who said they preferred a capitalist one. Another 7 percent said that they preferred living in a communist country." One in five admire Stalin, Putin and Kim Jong Un. Worrying. Not surprising, seeing that inequality in earnings has increased since 1980, as per Piketty and Saez. The US, China and Japan are resorting to protectionist policies instead of enacting bold economic reforms, wrote W Pesek. The US alone has lost 5,000 manufacturing jobs since 2000. Jobs were lost partly due to advances in technology but mainly due to increase in imports, especially from China, wrote MC Klein. There is widespread anger in the world as globalization is blamed for increasing inequality, wrote S Saran. Poor people have gained from globalization but the rich have gained even more. "There is widespread public perception that rising wealth is not so much a reward for talent and excellence but more the result of sheer greed and market manipulation." The Indian economy has grown much faster from globalization but we are more vulnerable to the actions of the central banks of rich nations, wrote R Singhal. The US Congress passed a tax reform bill which reduces corporate tax from 35% at present to 21% so that US companies will pay higher salaries to their workers and manufacture inside the US, instead of hunting for low tax countries. European countries are worried about the Base Erosion and Anti-Abuse Tax provision which will tax companies for holding the intellectual property abroad. Apple, which has a sweetheart deal with Ireland which reduces its tax liability to almost zero, will now have to pay tax in the US. Companies might decide to bring all their tax liability to the US and save on tax accountants and lawyers. This is what worries Europe. Socialism and communism have failed, capitalism is not trusted. Who knows, Trump's policies may work. 

Is it a job if it doesn't pay?

"India's jobless growth is a myth," wrote R Gopalan and MC Singhi. They examine data from the National Sample Survey Office, or NSSO, and the Labour Bureau which showed that from 1993-94 to 2011-12 employment growth averaged 1.1% per annum which was lower than the number of people joining the workforce. Unemployment levels stayed at low levels because fewer people were willing to work. "Labour Bureau data indicates that between 2009-10 and 2015-16 incremental jobs created exceeded the number of people who entered the labour force by a wide margin. At an aggregate level, 75 million jobs were created, against 61 million who were added to the list of jobs seekers." Examining the same set of figures R Kapoor comes to exactly opposite conclusion. "Our study confirms the languid pace of job creation in India over the last few years," she wrote. Total employment declined from 480.4 million in 2013-14 to 467.6 million in 2015-16. Employment in retail went up from 43.7 million to 48.1 million but employment in manufacturing fell from 51.4 million to 48.1 million. The difference maybe because Kapoor examined a shorter timescale and because "Most of the workers, 84% of all, whether self-employed, regular wage earners, contract workers or casual workers, were getting an income of less than Rs 10,000 per month". Majority was doing whatever they could to survive. "Enough work was also not available for nearly 40% of workers; they were being employed for only a part of the year." The ICE 360 survey showed that only 20% of workers are salaried, but 71% of them do not have a written contract. The crisis is especially hard in farming. "Some 50% of Indians depend on agriculture, but agriculture accounts for only 15% of our GDP," wrote R Jagannathan. The late Sharad Joshi argued for a "Marshall Plan" for farmers, wherein he proposed an end to subsidies and to all the laws that restrict farmers from selling their land and exporting their products and market prices for farm produce, including a futures market. Trouble is, food inflation is lethal for winning elections. N Bhargava fears that humans will have to compete with robots for jobs. Campus placements show a rise for 2018 but these are graduates of top colleges, so a tiny elite among job-seekers, and many of the enquiries are from abroad. Jobs maybe lacking but salaries of those in regular employment have been climbing, increasing inequality between employed and unemployed and between CEOs and employees at lower levels. Clearly, people need jobs. But first we need correct figures.

If you say it often enough.

"She could have gone down in history in a better way had she persuaded herself and her colleagues to raise the Federal funds rate by 50 basis points. That was not to be," wrote A Nageswaran about Federal Reserve Chair Janet Yellen, who chaired her last meeting of the Federal Open Market Committee, or FOMC, on 12 December. Although Yellen could have stayed on till 2024 she has chosen to resign from the board of the Federal Reserve. Why the disappointment with Yellen? Because the world apparently faces a huge asset price "bubble in everything". Loose monetary policy by the FOMC after the crisis in 2008 was "timely and effective" but since then "policy predictability and transparency had compressed risk premiums as investors felt confident that they would not face monetary policy surprises. That results in excessive risk-taking, build-up of debt and speculative positions in financial markets". Not just in financial markets, there is a "bubble in everything from Leonardo da Vinci and impressionist-era paintings and cryptocurrencies to technology stocks". From $800 in January 2017 the price of Bitcoin has risen to $17,900 today. Since the total number of Bitcoins can ever be only 21 million some are predicting a price of $300,000-400,000 in the future. But some are predicting a huge crash in its price because futures trading in Bitcoins started on Chicago Mercantile Exchange offering investors a chance to short the currency, governments may start regulating it and other cryptocurrencies will offer competition. In February this year the Bank of America Merrill Lynch reported that 26% of global fund managers thought that stocks are overvalued and that they were holding 4.9% of their portfolios in cash, wrote M Chakravarty. By November a record 48% thought that shares are overvalued but their cash holdings had come down to 4.4%. This shows the confidence of investors that central banks will not cause an upset. Rise in asset prices means that inequality of wealth between rich and poor is getting wider because the rich possess more assets. In 1980, the top 1% in Europe and the US held 10% of income, but by 2016 the top 1% in Europe held 12% of income, while in the US it was 20%. Independence of central banks has become a problem for them because they have no controls over fiscal policies and so are being unfairly blamed for rescuing financial institutions while people are still under economic stress, wrote Prof B Eichengreen. Nageswaran predicted a stock market crash in 2016 and again in 2017 but it did not happen. He is predicting the same for 2018. If you keep on saying the same thing you could be right some time. 

How can we cope without denial?

The end of the year is nigh, so it is time for stocktaking. 2017 has been "The year of being in denial" according to Prof WPS Sidhu. Emmanuel Macron's popularity as the President of France dropped from over 65% to 36% in record time because of perceived elitism, wanting to make his wife the official First Lady of France and a public spat with the chief of the armed forces. However, Macron could learn from his mistakes and try not make any new ones. "US President Donald Trump created history of sorts by registering a majority of disapproval rating of 51% just eight days after assuming office." This could be considered pretty good ratings given the constant stream of attacks against Trump in the mainstream media. Recently CNN had to retract a story against Donald Trump Jr and a reporter at the Washington Post had to apologize after a photograph tweeted by him, showing an empty arena for a Trump meet, was proved to be at the wrong time. Former agents on Robert Mueller's team, investigating alleged Russian links to Trump campaign, were found to have exchanged emails extremely biased against Trump. Actually, the Democrats seem to be in denial of Hillary Clinton's defeat and their constant attacks only solidify Trump's core support. There is no question of denying Xi Jinping's consolidation of power as the Communist Party incorporated his 'thoughts' in its constitution. Having doubts about the effects of Brexit is not really denial. Parliament will get a binding vote on the final deal struck by the government, to see that Britain's interests have been protected. This is like in any divorce where opposing lawyers try to maximise their clients' share of conjugal assets. Pakistani generals definitely seem to be in denial of the dangers of the China-Pakistan Economic Corridor or it maybe that the generals will do anything, including betraying the nation, to get funds from China because the Trump administration is demanding real action against terrorists before releasing aid money. But even for them the Chinese demand of allowing use of the renminbi in Gwadar proved to be too much. China showed its displeasure by halting funding for 3 infrastructure projects along the CPEC corridor. India will probably not get a permanent seat on the UN Security Council or membership of the Nuclear Suppliers Group but there is no harm in continuing to demand them. Everyone knows that North Korea is a nuclear weapons state but the regime must not be rewarded for its reckless behavior. China is to blame for protecting and encouraging the regime all these years so it should suffer the most. Although poor people in India suffered hugely from demonetisation they still support it because they have been fooled into believing that the rich suffered through loss of black money. Not politicians, we are the fools in denial.

It is certainly possible, but is it doable?

"Imagine a world in which rich and poor alike have unlimited food, live in excellent health, and can zip through the streets of Delhi, Bangalore, or Mumbai in minutes in driverless cares -- and enjoy affordable clean energy, education, and comfortable housing," wrote Prof V Wadhwa in an article -- "The amazing possibilities of a technology enabled future". Unlimited cheap solar power will enable unlimited water from desalination, indoor farms and synthetic meat will provide cheap food, advances in diagnostics will lead to designer treatments for each individual and digital education will provide unlimited knowledge for little cost. Sounds seductive but it is somewhat 'chicken and egg'. How can we have such advances without education or healthcare? Thousands of children drop out of school for reasons, varying from poverty to a lack of toilets, wrote G Sampath. 4.34% dropped out of primary school in 2014-15 and 17.85% dropped out of secondary school. 35,000 children were pushed out of the education system in Delhi, the capital city. Politicians and civil servants are obsessed with GDP growth, with the CEO of Niti Aayog, A Kant saying that 10% growth will make India a $10 trillion economy by 2032 and eliminate all poverty. Indeed. A 100% growth rate will do it in 5 years, but the question is how to achieve it with a semi-literate population in poor health. "Most trends are positive, but my biggest disappointment when it comes to India is the education," said Bill Gates politely, "It should be far better." No wonder M Bhusnurmath advises, "The obsession with GDP numbers must stop." When education is substandard there is enormous pressure to stand out from the crowd. Parents spend large sums of money to put their children through engineering courses, their only aspiration being to get government jobs. Enormous demand leads to corruption. Large numbers of engineering colleges just took money but taught nothing, so now there are no applicants for over half the seats. According to the trade body Nasscom, only 17.5% of engineering graduates are employable. Medical education in private colleges can be even more expensive. A recent report notes that 50 million Indians were reduced to poverty because of healthcare costs. A private hospital in Gurgaon, near Delhi, charged Rs 200 for a syringe costing Rs 15.29 and a drug costing Rs 400 was charged at Rs 3,100. This apparently is normal practice. Hospitals are behaving like hotels which are allowed to add a charge for service by the Supreme Court. We may choose not to drink bottled water at a restaurant but we have no choice in choosing what treatment would be beneficial in a hospital. Our children dream of a fantastic future. Can we make it possible? 

Jugaad in economics?

Korea is the first country in Asia to tighten interest rate from 1.25% to 1.5% in keeping with its "hurry, hurry" culture, wrote W Pesek. "...Korea is among the closest things the region has to a canary in the proverbial coalmine. When global trade runs out of gas, Korea tends to be the first major economy to flash warning signs. The same goes for when the economic tank is being refilled." Getting back to normal monetary policy will be risky but Asia is ready. In the past 20 years the region has been "strengthening financial systems, increasing transparency, building up currency reserves, tightening corporate governance and reducing crony capitalism". So we can relax? Unfortunately, a report by the World Bank highlighted "the divergence of winners and losers is growing dangerously acute among workers", wrote Pesek. Inequality is increasing. Why? Because after the "taper tantrum" in 2013 Asian nations resorted to economic stimulus which left the poor behind. So, what about India? The rupee slumped to 68.85 to the dollar at one point in August 2013, before finding support. "Here Reserve Bank of India governor Urjit Patel deserves a shout-out for holding his fire on 6 December. Despite two members of Prime Minister Narendra Modi's economic advisory council arguing real interest rats are too high, Patel's team kept the benchmark at 6%. Cutting rates would've taken pressure off Modi to get busy addressing land, labour and tax laws undermining growth." Although, "We are in a period of high political uncertainty both at home and abroad", the World Economic Outlook, or WEO, of the IMF predicts 3.6% growth in global GDP, wrote Prof S Mundle. The WEO also forecast that the EU will grow at 2.2%, the US higher than 2.2%, Japan by 1.5% and China by 6.8% in 2017, all higher than in 2016. India is mixed, with exports, government and private consumption expenditures and growth rate falling, but gross fixed capital formation increasing, which could herald a revival. Even though October was a festival month, sale of consumer durables fell by 7%, mining was stagnant and manufacturing was weak, wrote an editorial in The Hindu. Retail inflation climbed to 4.88% in November and oil prices are a worry. The International Energy Agency forecast a glut in oil inventories in 2018, which is an enormous relief, unless of course, the tension between Iran and Saudi Arabia spills over. C Ahya and D Kam enumerate a list of reasons why investments by the private sector should improve in 2018 . Seems like everyone is guessing. 'Jugaad' is the biggest business activity in India, so why not jugaad in economics?

Courts maybe special, but what about results?

The government will set up 12 special courts to try 1,581 criminal charges against elected politicians in India. Apparently each judge is dealing with 4,000 cases in lower courts so the Supreme court advised setting up of special courts last month. Sadly, we Indians find it hard to believe that much will be accomplished. Firstly, India has over 16,000 judges and we need at least 25,000 to clear all pending cases. The Law Commission recommended around 65,000 based on the number of judges as per population in the US. If some of the existing judges are appointed to the special courts there will be fewer for routine work and the list of pending cases will grow. Secondly, convicted politicians will go on appealing, stretching cases for years, witnesses will be coerced and evidence could disappear in mysterious fires. Recently a judge of a CBI court was described as a "math teacher" and "film director" by the Allahabad High Court, while overturning his guilty verdict. Aarushi and Hemraj are still waiting to know who killed them. Courts can only act on evidence presented to them. Our premier investigating agency, the Central Bureau of Investigation, or CBI, had a success rate of 66.8% in 2016 said the government. It did not cover itself in glory in 2 cases of extradition in London and in his testimony in the Vijay Mallya extradition case, Prof L Saez cast doubts on the honesty of Special Director of the CBI, R Asthana. Ottavio Quattrocchi, of Bofors fame, always seemed to slip through the fingers of the CBI at the last moment, although CBI officials had a party costing Rs 2.5 billion chasing him through all the fleshpots of the world. After 3 years Delhi Police still hope to find clues in the hotel room where Sunanda Pushkar was murdered. About 75% of people in India do not report crimes to the police because they are discouraged. Police are under control of state governments and are understaffed, probably deliberately so. Most officers work for over 8 hours per day and it must be totally frustrating to see criminals freely roaming around because cases drag on forever. Why work hard if there is no result? Most people will also try to avoid lawyers because of the cost and a lack of trust. No wonder 45% of Indians admit to paying a bribe in the last one year. The last month has seen stormy scenes in the Supreme Court, with the Chief Justice being accused of conflict of interest. About 34% of members of the present Lok Sabha face serious criminal charges and they will surely do everything to scupper any effort to put them away. Political parties like criminals because they have the money and goons necessary to get elected, wrote an editorial in the Mint. Special courts are purely window dressing. Just for show.

If Europe is worried, we should be terrified.

Republicans in the US Congress are racing to pass a tax reform bill ahead of the Christmas break that will reduce corporate tax rate from 35% as at present to a new rate of 21%. Top rate on individual income tax will come down from 39.5% to 37%, estate tax will be reduced and tax relief for interest on mortgage will be capped. Republicans hope to pass the bill by Wednesday next week but they may struggle to get the required numbers in the Senate. The top 5 economies in Europe have warned the US about effects on international tax treaties. "The inclusion of certain conventional international tax provisions could contravene the US's double taxation treaties and may risk having a distortive impact on international trade," they wrote in a letter. Europe is worried about the Base Erosion and Anti-Abuse Tax provision in the Senate Bill which seeks to shop 'tax shopping', in which multinationals shift their registered office to a country with very low tax rate in a process known as 'inversion'. Ireland has a corporate tax rate of 12.5%. In a 'sweetheart deal' with Ireland Apple reduced its tax liability to almost zero, earning the wrath of the EU Commission which ordered Apple to pay 13 billion Euros, or $14.5 billion, to Ireland in back taxes. Both Ireland and Apple are appealing the decision. Apple is a US company but pays virtually no tax in the US so if it starts paying taxes in the US then Europe could get less. While warning the US about wanting to increase tax collections the EU has published a blacklist of tax havens presumably as warning that if they continue to assist in tax avoidance sanctions will follow. The European Central Bank cut interest rate to negative in 2014, in an effort to force people to spend and reduce the exchange rate of the Euro to increase exports. India charges 30% corporate tax for Indian companies with a surcharge of 7-10%, depending on income, and 3% cess. For foreign companies tax is at 40%, with surcharge of 2-5% and cess of 3%. Companies will prefer to pay the lower tax rate in the US and if India levies its own taxes our companies will be priced out of the market, wrote D Kanabar. Instead of exporting textile imports have jumped. India should also lower corporate tax rates to be competitive and help our companies, wrote H Ramakrishnan. But, how? Indian politician freely dish out taxpayer money to win elections. Rs 110 billion was showered on Gujarat to bribe voters before assembly elections and Rs 100 billion have been promised to universities in Bihar to reward the Chief Minister for ditching the RJD of Lalu Prasad in favor of the BJP of the Prime Minister. Tax terrorism can never disappear from India. We have to wait till the economy tanks.

Isn't it better to worry before it is too late?

The government is about to pass a Financial Resolution and Deposit Insurance, or FRDI, Bill which seeks to define liabilities of failing financial institutions, such as banks. The bill has a provision for 'bail in', which means that a failing bank can use depositors money to write off bad loans, creating enormous alarm among depositors, who fear that in the event of the collapse of a bank they will lose their money. Unions of bank employees have threatened to go on strike against the bill. This is especially frightening at this time because Indian banks, mainly public sector ones, are struggling under huge bad loans, which could amount to Rs 20 trillion, according to former RBI governor, KC Chakrabarty. Even HDFC Bank, which is the most richly valued lender in the world, may have large non-performing assets on its books, wrote A Mukherjee. The slow growth in the economy means that banks are unable to increase their lending which means their income from interest is weak. Bad loans in banks have been likened to the Titanic by T Bandopadhyay. The government is to spend Rs 2.11 trillion to recapitalize banks, without adding it to the fiscal deficit. During demonetization people deposited Rs 15.28 trillion into banks, which was 98.96% of high value notes in circulation. The government will sell bonds to banks and then lend that money to the same banks to write off their bad loans. This, it is hoped, will allow the banks to start lending for new projects, kick-starting the economy. Having once lost trust in the government due to demonetization, people probably think that the government intends to use depositors money to pay off those bad loans. The FRDI bill will fully protect all depositors assured the Finance Minister. Under old rules depositors are insured for only Rs 100,000, regardless of the total amount invested in a bank and people lost major parts of their deposits when cooperative banks failed in the past but not when private banks, such as Global Trust Bank and Nedungadi Bank, failed, as they were taken over by public sector banks and deposits were covered 100%. "No, you do not need to worry that your deposits will be lost in a bail-in," wrote M Halan. "Your deposits will be insured, just as they are today and there is an additional protection for depositors because the bail-in can be invoked, and your deposits be lost, only if you have given your consent for this to the banks when you signed the deposit forms." "The government must bail out of the bail-in," disagrees A Nageswaran. The government owns public sector banks and is paid dividends from profits. Depositors get fixed interest and lose money because high inflation is tolerated in India. To ask depositors to share in the risks when they do not share in profits is highly unfair. Depends on whether you trust, or not.

Shared secrecy makes it truly global.

"Bitcoin is a bubble because it has no inherent value, and the price is determined solely by the balance between buying and selling," wrote D Kumar. He compares bitcoin with gold which also has "no inherent value". Maybe, but gold can never tarnish, rust or discolor, whereas fiat currencies, like the rupee, keep losing value due to inflation and can be suddenly made worthless at the whim of a repressive politician. Bitcoin started the year at $966 but was trading at $16,200 yesterday, naturally giving rise to predictions of an almighty crash. "If you're stupid enough to buy it, you'll pay the price one day," said Jamie Dimon, CEO of JPMorgan Chase, in October, when the price of one bitcoin reached $5,800, noting that his bank moves $6 trillion around the world everyday. People are comparing it to tulip mania of the 17th century and the dotcom bubble but a bitcoin crash will have limited effect because so few people own it. Prof NN Taleb does not rule out a level of $100,000 for the bitcoin. "No, there is NO way to properly short the bitcoin 'bubble'. Any strategy that doesn't entail options is nonergodic (subjected to blowup). Just as one couldn't rule out 5K, then 10K, one can't rule out 100K," he tweeted. The Winklevoss twins are probably the world's first "bitcoin billionaires" and predict the value will go up 20 times. They have been collecting bitcoins for a long time. On May 22 2010, Laszlo Hanyecz paid for 2 pizzas with 10,000 bitcoins, which would have been worth $22 million on 22 May this year. May 22 is celebrated as the Bitcoin Pizza Day. It is easy to understand fiat currencies or gold, because we can see and hold them, but what is a bitcoin, which exists only on the internet and is known as a cryptocurrency? 'Crypto' means 'secret'. It is 'mined' by using complex mathematical calculations and transacted using 'blockchain technology'. Because maths problems get more complex with use, mining bitcoins need large specialized hardware which consume vast amounts of electricity. Bitcoin is very attractive to criminals because it offers a high degree of anonymity and is being used for extortion and selling drugs and guns on the dark net. However, because all transactions are recorded openly on the net it is easy for the police to trace all the activities of criminals, wrote J Bohannon. The success of bitcoin has led to the development of other cryptocurrencies. This is alarming for politicians because they cannot loot citizens by manipulating these as they can with paper currencies. The Indian government is thinking of levying capital gains taxes on bitcoins and China has banned new mining of it. As governments have become more intrusive with CCTV surveillance and forcible collection of biometric details, so people are inventing ways of protecting their privacy. Bitcoin technology maybe impossible to understand but it could be a way to freedom. This is true globalization. 

How can we grow any faster if there is no output gap?

A survey conducted by the Reserve Bank in 6 metropolitan cities showed that consumer confidence in India fell to 91.1 in November from 95.5 in September, both values indicating negative sentiment. Confidence for the next 12 months, although positive, fell to 114.7 from 118.8 in September. These are the lowest levels in 4 years showing people are despondent about employment prospects. If consumers lack confidence they will hesitate to spend. Britannia, which derives 70% of its sales from biscuits, said that demand is sluggish, especially in rural areas. In a country of 1.3 billion people, where 27.71% of the people are between 1 and 14 years of age, one would expect sale of biscuits to be immune from changes in economic cycles. A few days back the RBI left policy rate unchanged at 6%, raising the possibility of higher retail inflation. Apparently, "The output gap and the pace at which it will close has been the main difference of opinion between the proponents of a cut in policy rates and those that desire a pause within the monetary policy committee (MPC)," wrote A Iyer. The 'output gap' is the gap between actual output and potential output in an economy and as such is linked to GDP growth and unemployment rate. If the economy is growing strongly unemployment will be low and the gap will narrow, while if the economy is sluggish the gap will widen. In 2016 a paper from the RBI suggested that output growth had fallen from 7.2% to 6.7% but the government was adamant that it was as high as 8%. That being the case why is the government exerting pressure on the RBI to reduce policy rates, especially since the Minister for Labour and Employment told parliament that unemployment had risen a smidgen, from 3.4% in 2013-14 to 3.7% in 2015-16. Any figure of unemployment less than 5% is considered full employment so a figure of 3.7% would denote an extremely tight labor situation which should lead to a very low output gap and a rise in wages. However, to be called employed in India you need to work for just 30 days a year. Unemployment rate among women is said to be 8.7%, when only 27% of women are in employment, the rate has been declining since reaching a high of 36.9% in 2005. The government is a victim of its own hype, wrote M Sharma, having boasted about GDP growth increasing from 5.7% in the first quarter to 6.3% in the second. This is not high enough to generate jobs but not low enough for the RBI to cut rates. Even more worrying is the decline in the rate of export growth, given that global growth has accelerated and we have an excess of labor, wrote A Kapoor and C Yadav. Previous governor of RBI, C Rangarajan has some words of advice for the government on how to revive the economy. But how? If there is no unemployment there is no output gap and hence no potential for increasing growth. That is the mystery of India.