It's called quid pro quo.

India has many celebrations but nothing generates the excitement as the annual budget, as television presenters and assorted pundits analyse each sentence dropping like gems from the lips of the Finance Minister. Today is the day of the budget and the whole nation is holding its breath as cameras follow each step of the Finance Minister and microphones try to catch any word that he may speak. In the past the major part of the speech used to concentrate on indirect taxes because this is the greater source of revenue for the government. In the 2011-12 budget customs duty on bamboo and cranberry products were reduced from 30% to 10%, causing much confusion for ordinary people like us because bamboo grows everywhere in India and cranberry is not used in any Indian cooking. With the adoption of the Goods and Services Tax, or GST, indirect taxes have been taken out of the budget, so the Finance Minister is expected to talk about direct taxes, which comprise personal income tax, property tax and corporate taxes. Even poor people are forced to pay indirect taxes, which is considered regressive, and high prices stop the poor from affording luxuries. Politicians and civil servants are convinced that all citizens of India are thieves and avoid paying taxes. India is "a tax non-compliant society and too many people evade taxes" said the Finance Minister. To catch all the imagined tax evaders the Prime Minister turned 1.3 billion people into crooks when he suddenly withdrew high denomination notes from circulation. Wealth owned by 770.7 million people out of a total of 1.3 billion is less than $10,000, and of the 60.1 million who own between $10,000 and $100,000 most will be at the lower end of the scale. Comparing with economies at a similar stage of development and with developed economies, Kundu and Bhattacharya found that "the idea that India is a nation of tax evaders is a myth". They also looked at corporate taxes and found that, "Firms with profits less than Rs 1 crore end up facing a tax rate slightly above 30% while those with profits above Rs 500 crore face a lower tax rate of 26%, data released by the finance ministry as part of its budget documents show." One section of the population can multiply its wealth by 500% in complete safety and these are our politicians. Around 45% of people had to pay bribes to civil servants last year to avail of services. Indians see the system as grossly unfair because we get nothing in return for the taxes we pay. "If my future is secure, we are happy to pay the government," said a businessman but "while it's my duty to pay they don't respond with anything". Don't treat us like crooks. Give something to pay for.

Should we just forget our doubts?

Two days back, the Chief Economic Adviser, Arvind Subramanian presented this year's Economic Survey to parliament, as a prelude to the annual Budget which will be unveiled tomorrow. It is very encouraging. Growth rate this year will be 6.75%, rising to 7-75% next year. Industry growth was at 4.4% while farm growth was 2.1%. Rural demand is recovering. Exports grew 13.5% in the third quarter. Services exports and private remittances are rebounding. Non-food credit growth was 4% in November. The Survey also said that India has no export superstars. The top 1% of firms in Brazil, Germany, Mexico and the US account for 72%, 68%, 67% and 55% of exports respectively, while in India it is only 38%. The top 5% of companies accounted for 91%, 86%, 91% and 74% of all exports while in India it was only 59%. Average inflation dipped to 3.3% in 2017-18. True but retail inflation surged to 5.21% in December. The price of oil could pose a problem by adding to inflation. Curiously, economic growth was accelerating in India from 2014 to 2016, while the rest of the world was slowing down but after that India started to slow while global growth accelerated. This has been blamed on high policy rates in India in comparison to other countries, indirectly blaming the Reserve Bank. The RBI has been set a target rate of 4% in retail inflation, plus/minus 2%, giving it a range of 2-6%. The RBI will surely try to target the ideal of 4% set by the government and set policy rates accordingly. In fact, the policy rate has been reduced from a high of 8% in January 2014 to 6% in August 2017. It is disingenuous to compare us with the US which has a much lower inflation target of 2% but has been struggling to achieve this despite reducing interest rate to almost zero and its bond buying program. The Survey celebrated a 50% increase in businesses registering under the Goods and Services Tax, or GST, which will increase government revenues. While GST will probably be good for business in the long term, by eliminating multiple taxes, increasing taxes in the short term will result in increasing consumer prices. If that happens the RBI will have no choice but to tighten monetary policy. Only 28% of urban dwellers live in rented housing, down from 54% in 1961. This is because 500,000 dwellings are lying vacant in Mumbai and 300,000 in Delhi. Why? Because Rent Control laws are so hostile to landlords. Delhi High Court did not allow rent to be increased from a paltry Rs 150 per month, despite enormous rise in property prices. This hampers migration in search of better jobs and increases costs for students, studying in colleges. Current account deficit will be 1.5-2% which means we will be spending $40 billion more on imports than we earn from exports. What is this growth where you lose money? So, everything is fantastic, but who will explain our doubts.

Is the problem too big to solve?

"Not only do vast numbers of young Indians face a dearth of decent jobs, it now turns out that many of them are unemployable too," wrote M Chakravarty. Why? A recent report by the Annual Status of Education Report, or Aser, found that "after eight years of schooling, only 43% of 14- to 18-year-olds could do a simple division; slightly less than half couldn't add weights in kilograms; over 40% couldn't tell hours and minutes from a clock; 46% didn't know which city was the capital of India". Dire indeed. Aser stated that our "examination systems were worse than those of Nigeria and Uganda". In the US 10.1% of the labor force is self-employed, whereas in India nearly half the labor force is self-employed, wrote Prof G Singh. Not because they are all entrepreneurs but because they have no choice. Those who have no savings and little education have to take menial jobs to survive, while those with some savings but poor education "use their funds in owner-manager enterprises". This class divide is because the bottom 5% of rural population spends Rs 7.54 per month on education while the top 5% of urban Indians spends Rs 908.12. Prof S Mundle believes that the "growth cycle had bottomed out and moved on to a recovery phase". The economy has moved on from demonetization, the problems with the GST are being ironed out, labor and land laws will have to be changed, banks are being recapitalized and the global economy is growing. The price of oil is a worry but the biggest long-term constraint is education. 95% of children are now enrolled in schools but only 13% of population have tertiary education. "Thus, the elitist bias of India's education policy has resulted in a missing middle in its education profile," wrote Prof Mundle. He has missed the point totally. The bias in not elitist, the bias is to enroll all children of the poor in schools, to provide them with cooked mid-day meals, and to tax the middle class by reserving 25% of seats in private schools for disadvantaged children. The other 75% end up in government schools where teachers are used for census, election duties and other work, required to run the school. Our economy faces storms ahead as "robotics, Artificial Intelligence (AI), 3D printing and Internet of Things (IoT) are reducing the importance of low wage labor, wrote Hallward-Driemeier and Nayyar. These will need new type of skills "but there is no reason why the top echelons of the Indian population won't be able to master those skills". Trouble is, while discussing AI and IoT the government is trying to get the rural population to use toilets and not defecate in the open. Cannot improve the economy without education and hard to fund education without the economy growing fast. Huge problem.

How to balance this year's budget?

In another 3 days the Finance Minister will present next year's budget, which is usually an event of great excitement in India. In previous years most of the speech had to do with tinkering of excise duties and sales tax on various goods and services, but with the introduction of the Goods and Services Tax last year, indirect taxes are fixed by a GST Council independent of the budget. This year the focus is on direct taxes, personal income tax and corporate tax, and on government expenditure. After the elections for Gujarat assembly where the BJP, the party of the Prime Minister, won with fewer seats people are of the opinion that the government has to increase spending on rural voters. Rural distress is purely man made, wrote an angry AV Jakhar. When prices of food products rise the government blocks exports and increases imports to prevent a rise in prices because food inflation causes hardship to the poor who are considered the 'vote bank'. But when prices crash because of surplus production the government does not recompense farmers adequately, leading to financial losses and hardship. Potato farmers lost Rs 300 billion collectively in 2014 and 220 billion in 2016. In 2017 average loss for potato farmers was Rs 1,04,000 each. So where is the extra money going to come from? The government is having to borrow an extra Rs 200 billion this year to meet its expenses. The price of crude oil has risen from the lows of 2016. As the price of crude fell, the government increased excise duties so that consumer prices on fuel in India remained high. High transport costs will increase prices of all goods. Either the government has to forego taxes to reduce fuel costs or face the prospect of the Reserve Bank increasing interest rate. The US cut corporate tax rate to 21% last month which makes India less attractive for US business investment. Naturally, companies in India also want a cut in corporate tax rates in India. The Indian pharmaceutical industry earned $33 billion in the US in 2016 and hopes to earn $55 billion this year. However, some big pharma companies are planning to increase production in the US to take advantage of lower taxes, which means lower taxes in India. There is one source which could yield a lot of taxes and that is long term capital gains on shares, wrote R Singhal. At present shares held for longer than 1 year have to pay a securities transaction tax but no tax on capital gains, which can be huge with the market soaring. This is a bizarre handout to the rich, wrote A Nageswaran, which should be stopped. A tax on capital gains on shares could raise Rs 450 billion. If foreign investors start taking money out it will worsen the current account deficit and weaken the rupee. It will be an interesting tightrope walk.

Maybe because there's not much they can do.

"Asia's four biggest economies all saw significant currency gains," wrote W Pesek about China, India, Japan and South Korea. "What's peculiar, though, is the lack of panic." Despite a 13% rise in the won Bank of Korea raised "short-term interest rates for the first time since 2011", on 30 November. Although China, India and Japan are unlikely to follow suit "tolerance in China and India of last year's roughly 6% currency gains -- and Japan's of a nearly 4% advance -- is reason to be optimistic". Or maybe they are unable to weaken their currencies due to other reasons. Japan introduced a negative interest rate of minus 0.1% in 2016 and has been maintaining it since. This is to discourage savings and encourage spending which will increase demand and inflate retail inflation to 2%. A negative interest rate also discourages investment funds from buying into Japanese bonds, which would strengthen the yen. After reaching a peak of 79 to the dollar the in 2012 the yen was around 116 in 2016. Today it is trading at around 108 to the dollar, although it has hardened a little bit in the last few days because of the weakness of the dollar. As for China, it is protecting the yuan to reassure its own citizens and stop them from moving money abroad. It restricted currency exchange to $50,000 per person per year. The government relaxed some controls on the renminbi last September. It is not just the currency. The government brought in stringent restrictions on selling stocks when the market collapsed in January 2015. The Chinese market was giving 50% returns last year which makes it very tempting to scamsters. So, what about the Indian rupee? From 1:1 against the dollar in 1947 it collapsed to 69 against the dollar in August 2013, during, what came to be known as, 'taper tantrum'. It is presently trading at 64 to the dollar. It is not surprising that the rupee keeps dropping in value as the rate of inflation in India is consistently much higher than in the US. Which means that the purchasing power parity of the rupee is dropping continuously. Successive governments in India have tolerated a high inflation rate because it reduces their borrowing costs and increases indirect tax collections. At 7.3%, yields on the benchmark 10 year government bonds signal the bond market's expectation of inflation. It is a warning to the government to keep the fiscal deficit under control. The US economy is doing very well yet money continues to pour into India with foreign investors buying over Rs 2 trillion of Indian securities. Our foreign exchange reserves have jumped to $414.78 billion because the Reserve Bank keeps on buying dollars to keep the rupee rise under control. Perhaps it is not that Asian central banks have suddenly become adventurous. Perhaps, at daily currency transactions at over $5 trillion, they are a bit helpless.

Same word, but different meanings.

The Indian media is cheering the Prime Minister's speech at the annual jamboree at Davos in Switzerland, in which he presented India as a promising place for new investments. He emphasised terrorism, global warming and protectionism. "Many countries are becoming inward focused and globalisation is shrinking and such tendencies can't be considered lesser risk than terrorism and climate change," he said, taking a swipe at the US President Donald Trump, who is also in Davos and is expected to reiterate his "America first" policy. Trump has been consistent in repeating his belief in putting America first, first at the United Nations General Assembly in September, and then during his tour of East Asia in November. Not everyone was impressed with Modi's speech. This was India's moment to grab leadership of the world on climate change and free trade, wrote M Sharma, but he failed to unveil any new ideas, repeating tired old claims of diversity and Pakistani perfidy. Angela Merkel of Germany bitterly condemned right wing populism as "poison". That is because a fourth term for her is looking increasingly unlikely as she has been unable to find coalition partners to form a government after election in September. Completely without any shame she mentioned the bailout of Greece, forgetting to mention that it was her iron-fisted austerity that impoverished the people of Greece, as Y Varoufakis wrote. "We believe isolationism won't take us forward. We believe that we must cooperate. that protectionism is not the answer," she said. Of course she did. At 8.3% of GDP Germany had the largest current account surplus of $285 billion in 2017, which was described as "very bad" by Trump. "You can defend and protect your citizens, your workers, your companies, but we live in a framework given by trade agreements...," said Italian Prime Minister Gentiloni, probably also angered by Germany's selfishness but unable to say so. Chinese billionaire Jack Ma of Alibaba said that there will be war if globalisation stops. We do not know if this was a message from the Chinese government but his version of globalisation means that Alibaba can operate in any country but Amazon has been shut out in China. The Chinese have been blatantly stealing intellectual properties of other countries by force and are angry that the US is objecting to their theft. So Germany and China are gaining hugely from globalisation but why is India jumping up and down when we export basic commodities and have virtually no manufacturing. Our trade deficit has jumped with countries with which we have signed free trade agreements, because we have reduced duties on manufactured products while they blocked our services industries, wrote A Ranade. Slogans are good, only if you benefit. 

Why do they think that people don't know maths?

"Exits in India's venture-capital market, according to data compiled by Chennai-based researcher Venture Intelligence, touched $2.7 billion last year, up an impressive 56% from the year ago," wrote S Sengupta. Venture capital investors, usually very wealthy individuals or investment banks, take calculated risks by investing in startups with the expectation of selling their stakes for hefty profits once the business becomes profitable. The risks are huge, with 3 out of 4 startups failing to return the original investment amount. According to one Israeli startup investor 95% of investments are not returning enough money to justify the risks. Whereas some startups do become highly profitable, in India, "There isn't even a single success story that can claim to be a category leader or pioneer in any market globally," said a Hong Kong based official in a fund-of-funds. So how did venture capitalists make $2.7 billion last year in India? "New York-based hedge fund Tiger Global Management has reportedly sold parts of its stakes in e-commerce firm Flipkart and ride hailing company Ola, and Delhi-based venture capital firm SAIF Partners sold its stake in One97 Communications Pvt Ltd, the firm that owns online payment platform Paytm. The reported payout from just these three deals is $1.7 billion and all of that has come from a single buyer -- Japan's Softbank Group Corp." Venture funds raised a lot of capital in 2015 and 16 but there was a slump in funding internet-startups in 2017 and the volume of deals was lower, wrote M Dalal. "The number of new internet and technology start-ups launched in the first nine months of 2017 fell to 800 from more than 6,000 in all of 2016,..." However, the biggest impediment to any wealth creation in India is the tax department. The government sets targets for tax officials who then resort to intimidation based on twisted interpretation of the rules. E-commerce company, Flipkart has been making losses because of huge expenses in marketing and discounts. Marketing is an expense and discounts mean selling at below cost price, and so is a straightforward monetary loss, but the Income Tax department has asked Flipkart to spread the expense over 10 years and pay a tax of 30% on the rest. Why? Because venture capitalists are buying shares in the company at high valuations so it cannot be making losses. One startup has been asked to pay a tax of Rs 4 million on an investment of Rs 10 million, which means the investment by the venture capitalist is cut to just Rs 6 million. People attending the jamboree at Davos may applaud politely but surely they would rather pay 21% in the US than 40% in India. Why would anyone invest in India?

Britain is totally safe. It has little worth.

"Russia could initiate hostilities sooner than we expect," warned Head of British Army, Sir Nick Carter, saying Britain's ability to respond "will be eroded if we don't match up to them now". Russia has gained battlefield experience in Syria and has tested "eye-watering" military capabilities. He wants British troops to "race to Eastern Europe" if war breaks out. We hope that the British Army Chief does not indulge in marijuana before lecturing. There is no strategic, economic or military reason to attack Britain. With 11% of the total land, Russia has the largest landmass in the world. Russia has huge natural resources, much of it probably still undiscovered. Britain is a tiny island in the North Sea with limited resources because of its size. North Sea oil will probably run out in another 10 years. Britain is reducing its budget for its armed forces to control the rise of its national debt, which has risen to 88% of GDP. Britain is negotiating a deal to leave the European Union by 29 March 2019, known as Brexit. What kind of trade deal it can negotiate with the other 27 countries remains to be seen but its importance will surely decrease. Britain is to grow by 1.5% in the next two years, while the global economy will grow by 3.9%, said the IMF. Ciaran Martin, Head of National Cyber Security Centre said that a major attack on Britain was a question of "when not if". Nearly every person in the UK has been hacked already, including the police officer in charge of preventing cyber crime. Surely, the question to ask is why is it so easy. Even a bankrupt country like North Korea, with limited internet access, has been hacking Bitcoins lately in an effort to evade sanctions. As people transact all their business online the extent of hacking is only going to grow. The problem is that the British have been unable to forget their empire which stretched across the world, giving rise to the description of "the empire on which the sun never sets". Spain's empire stretched from Mexico all over Central and South America, except Brazil, and even tiny Portugal had an empire stretching from Brazil to countries in Southern Africa to Macao in China and Goa, Daman and Diu in India. The difference is that Britain is one of the permanent members of the UN Security Council while Spain and Portugal are not. France is also a permanent member but is independent of the US while Britain has a 'Special Relationship' with the US based on a common language and unconditional British support for America's attacks on other nations, including Korea, Vietnam and Iraq. Putin is not mad and probably does not even think about Britain. The Army Chief can take off his uniform and relax.

Mode 2 can be tricky, better enjoy Davos.

India's IT industry is facing problems, wrote Kher and Gupta. " "The Indian IT industry is already witnessing the uncertainty caused by the Hire American-Buy American movement unleashed by the Donald Trump administration. The EU General Data Protection Regulation (GDPR), which is set to kick in from May, will also create difficult challenges for the outsourcing industry." The problem is that, "So far India's focus in trade negotiations has been mainly on temporary movement of professionals (mode 4) and outsourcing using telecommunication services (mode 1)." We should concentrate on Mode 2 instead, which is comprised of telecom services, tourism, education services and medical tourism. Tourists will only come here if they can enjoy themselves and that can only be if they, especially women, feel safe. Stories of rape of foreign women make lurid headlines. But horrific as they are, cases against our girls are even worse because the brutal behavior of police forces them to take their own lives. A site on the internet advises foreign women to avoid or be extremely careful when visiting certain cities in India, including the national capital, Delhi. Foreign countries caution their female citizens from travelling alone or using public transport. Medical tourism is very successful but there are problems with "touts who leave no stone unturned in fleecing them". Recently, parents of a 7 year old girl suffering from dengue were charged Rs 1.6 million for 15 days in hospital. Of the total, doctors fees amounted to only Rs 50,000, the rest were ancillaries. The girl died. Hospitals charge an excess of 200-1,700% on drugs and consumables, like syringes and gloves. The Supreme Court has allowed hotels and restaurants to charge more for bottled water but a hospital is not a hotel, even if it provides rooms with beds and kitchen and laundry services. We can choose not to eat in restaurants but the only choice is between getting admitted in a hospital or dying at home, when seriously ill. Besides the drugs we are paying for may not be genuine, as the World Health Organisation reported that India produces 35% of all the fake drugs in the world. To show that it cares for the people the government asks doctors to prescribe generic drugs, to keep costs down. When you have a population of 1.3 billion people become disposable. As for education, if our own companies find only 7% of engineering graduates fit to be employed, isn't it immoral to ask foreigners to pay for something which is useless? The reason why the government does not talk about Mode 2 is because it will not be able to answer questions by foreign governments. Better to lecture about "engagement with international community", whatever that means. At least one can enjoy a knees-up at Davos.

The US is our friend, China is not.

" For the past few weeks, we've been deluged by various retrospectives on Donald Trump's first year in office," wrote P Khanna. "Yet all had the same fatal flaw: the fashionable trait of heaping blame on Trump for America's abdication of global leadership." So, what is the flaw in "America's self-centric world view"? "China is the top trading partner of more than 120 countries, versus just over 50 for the US, Europe exports more in capital around the world than America does. Japanese capital is funding AI research around the world. Russian are again selling weapons." Which means that the world has become multipolar" and "Trump, like Obama before him, is really just an accessory". Maybe, but, purely from India's point of view a strong US is infinitely better than a strong China. Perhaps, Khanna is young and does not know how India averted millions of deaths from famine only due to US help under its Public Law 480 program in the sixties. It is only natural that the US would want India's diplomatic support against its enemies in return, but this is seen as humiliating by Indians. While begging for US help our leaders made friends with the Soviet Union, signing a friendship treaty in 1971, and criticised US bombing in Vietnam. And what has China given us? The humiliation of the 1962 war is still raw among all of us who are old enough to remember. Even today China taunts us about 1962. It is building infrastructure in Doklam, probably in preparation for an armed attack at a future date. An aggressive nation, China has no real friend except perhaps Pakistan, a failed state which breeds terrorists within its borders, wrote Prof B Chellaney. So loving is the friendship that China sealed its border with Pakistan to stop terrorists infiltrating into its territory. "The thing is: China doesn't need allies," wrote one Zhou Bo. "Today, China is the second largest economy in the world and a nuclear weapon state." "More importantly, China is not a hegemonic power with an ambition to police the world with a Pax Sinica." Indeed. While its army continually threatens India with incursions into our border China is forcing other countries to follow its diktats by using debt as a weapon. Complete opposite to what the US did to help India despite our hostility. South Africa is waking up to the Chinese threat and there is anger in Australia regarding bullying by Chinese students to respect Communist Party propaganda. China is far from replacing the US as an economic power and will not do so in the medium term, wrote R Sharma. Thank God for that.

What use are numbers if we cannot calculate?

Prof S Mundle is pleased that "the growth cycle had bottomed out and moved on to a recovery phase". GDP growth for 2017-18 will be 6.5%, lower than "7.1% growth recorded in 2016-17", but this hides the fact that growth had fallen to a low of 5.7% in the first quarter and has accelerated to 7% in the third and fourth quarters, to improve the average number. Growth in Gross Fixed Capital Formation, or GFCF, has increased from 2.4% in 2016-17 to 4.5% in 2017-18, signifying greater investment in capital goods, which would indicate greater economic activity. GFCF as a ratio of GDP has been falling since 2008 reaching a nadir in 2017, so an uptick is welcome. The Goods and Services Tax is a work in progress and "will have a strong positive impact on growth". Direct taxes may also be reformed, "with a further positive impact on growth". The government is tackling the "twin deficit problem" of companies unable to service their debts and banks struggling with bad loans, which could amount to Rs 10 trillion. That is all good, so what is the bad news? The price of oil is flirting with $70 a barrel, and headline inflation is rising. Retail inflation rose to a 17-month high of 5.21% in December. India jumped 30 places, from 130 to 100, in the World Bank's Ease of Doing Business rankings and "the employability of the Indian workforce had gone up from 34% to 40% in four years. Ironically, this also implied that 60% of the workforce was not employable". Even those with MBA degrees are not getting jobs. Excluding the top 20 MBA colleges, only about 7% of graduates get jobs immediately. Large numbers of children are getting into engineering colleges, with the aim of getting any government job on qualifying. If higher education is bad then school education is abysmal. "According to some estimates, only about 2% of Indian workers have skill certificates compared to about 70% in Europe and 80-90% in East Asian countries like Japan and Korea." 57% of 14-18 year olds cannot do a simple division and 40% of 18 year olds cannot read a simple sentence in English. More teenagers are staying back in school but are learning nothing. More girls drop out of schools because of a variety of reasons, from having to help with housework to lack of clean toilets. Prof Mundle blames "the elitist bias in India's education policy" for the mess but actually it is because of the Right to Education Act which has destroyed small private schools which cost less in terms of per-pupil expenditure than government schools, and have seen a rise in enrolment by 17 million while that in government schools fell by 13 million. About 20% of the workforce are "employed in well-paid jobs" and will earn 10% rise in salaries in 2018. There is great anguish that income inequality is widening. Actually it is learning inequality which is yawning.

Is our civil society not so civil?

"Is the Gujarat model of civil society mobilisation replicable in other parts of India?' asked Prof N Chandhoke. She compares the social revolution in East European states in 1989, that resulted in the collapse of Stalinist governments, with the situation in Gujarat. "Democratic theory holds that citizens have the political competence to participate in political process through public debates, campaigns, and non-violent direct action in civil society." What is civil society? It is said to be a coalition of non-governmental organisations and citizens which are independent of government and businesses and constitutes the "third sector" of society. The present government is hostile to protests, so civil society was in danger of disappearing under "the indomitable and relentless attack of the government". "But a kindly fate intervened. At a time when the future of India's democracy appeared bleak, three young men heading social movements in Gujarat catapulted core issues of well-being, rights and solidarity onto the political platform." Who are these 3 men? Jignesh Mevani, Hardik Patel and Alpesh Thokore might just aid in replenishing the energies of the sphere." Mevani is a lawyer who is championing rights of Dalits, who are described as Scheduled Caste for receiving reservations in government colleges and jobs. After first denying it, Mevani admitted to receiving Rs 51,000 from the Popular Front of India, a militant Muslim organsation. Thakore is from Other Backward Caste, or OBC, who also benefit from reservation policy. Patel, on the other hand, is from a higher caste not eligible for reservation, and is demanding a share of the reservation pie for his caste. According to the points system to decide how backward a caste is, Patels do qualify, wrote Prof D Gupta. However, "No other caste dominates both the urban and rural economy the way the Patels do." The Supreme Court has set a maximum limit of 50% in reservation so Patels can be included only at the expense of others. Thakore has already rejected a reduction in quota for his caste and suggested 100% reservation with every caste getting a share. Marathas have been protesting for reservation in Maharahstra. They are also demanding a repeal of the SC/ST Atrocities Act. Both Mevani and Thakore have been elected to the Gujarat Assembly in recent elections so they have personally benefited from their activism. While the 3 men have narrow focus on benefits for their caste, which benefits them personally, a survey by ASER showed that 14-18 year old children in rural areas have trouble with reading and simple math. At the age of 18 years, 32% of females and 28% of males are not even enrolled. The democratic system of government has become outdated and needs to be changed, wrote R Nuwer, to reflect change in communications and globalization. With civil society divided into tiny groups of self interest that is not going to happen in India. We will limp along.

Yo-yo economy. It will go up and down.

"The year 2018 has started like 2017 ended," wrote SZ Chinoy, Chief Economist at JP Morgan. The global recovery is continuing and unemployment in the US has dropped to 4.1%, but markets have priced in a rise of just 60 basis points in interest rate in the US. Federal funds rate are expected to rise to above 2%, from 1.25-1.5% at present. What about India? Unfortunately, imports are likely to grow by 10% this year, compared to 3% last year, while exports will grow at 4.5%, same as last year, shaving off "a whopping 120 basis points from growth in 2017-18". The problem is oil. Although rising oil prices are a sign of global economic growth, with opportunities for increasing exports, a price of $70 per barrel will cut our growth rate by 40-50 basis points. It depends on why oil prices are rising. "A surge in oil prices driven by supply constraints typically hurts economic activity over a long period of time," wrote N Rajadhyaksha. But it is the opposite if prices are driven higher by demand, which is likely because of "the shale oil revolution". The government can spend more by allowing the fiscal deficit to increase more than the target but that could "do more harm than good". The bond market is flashing red, wrote Chinoy. Corporate bond yields are directly related to yields on government bonds, or G-Secs, which means that lowering of interest rate by the Reserve Bank is not transmitted to the market. Although policy rates have decreased by 200 basis points, yields on G-Secs have come down by 51 basis points and on corporate bonds by only 44 basis points. Having decided to borrow an extra Rs 500 billion this financial year, the government has quickly reduced its requirement to Rs 200 billion because of better than expected tax collection. Or, maybe, the government chickened out when bond yields jumped to over 7.4%, but have now softened to 7.222%. The bond market will immediately punish any fiscal imprudence, wrote T Kundu. This being India, traders are devising new ways to avoid paying the Goods and Services Tax. One way is to reduce the price to the level of a lower tax rate and the other is to bill an item in two halves and charging each at the lower rate. Poor people are unable to repay loans given at soft rates to help them buy their own homes, built at low cost specifically for them, wrote A Nag. People maybe poor but are no fools. If farmers can get loan waivers at a cost of Rs 2.5 trillion then surely there should be a waiver for housing. Current account deficit and core inflation are flashing amber, wrote Chinoy. Emerging markets are more volatile, wrote Prof G Gopinath. That is because of the itch to spend more to win elections and the terror of angering the 'vote bank' by fueling inflation. Yo-yo policies lead to yo-yo in growth. 

Are people really so irrational?

Citigroup declared a loss of $18.3 billion after it paid a tax of $3 billion on its earnings held abroad and wrote down deferred tax credits, it has accumulated since the crisis of 2008, under the new tax law passed by Donald Trump. Over the longer term its net profits will rise as its tax rate will come down to 25% from 30%, at present. With corporate tax falling to 21% from 35% there is debate about whether companies will use the extra profits for new investments, which will lead to increase growth of the economy and new jobs, or will spend the money in paying extra dividends on their stocks and rewarding shareholders through share buyback. Some large companies, like Comcast, Boeing and AT&T, have already declared salary increases and bonuses for their workers. Even Walmart announced it is raising minimum wage to $11 per hour and paying a bonus of $1,000 to some employees. No big deal, wrote J Johnson. Walmart was forced to raise minimum wage because it has been compelled by laws in some states and the bonus is only for workers who have managed to last in the company for over 20 years. Very few. CEO of Blackrock, which manages $6 trillion in investments, Larry Fink has written to CEOs of companies to help society. "Society is demanding that companies, both public and private, serve a social purpose," and not concentrate solely on making money. Warren Buffet has donated $27.54 billion of his assets to charities over 10 years. All this would tend to suggest that there is a definite support for greater redistribution of wealth in the US. The tax bill is unpopular even among people who will see a reduction in their tax bill, with more money in their hands. This is due to a feeling of "relative deprivation", wherein people feel cheated because they see the rich getting a lot more benefit. However, once they actually get the extra money they will be reluctant to lose it because of the human need for "loss aversion". Dislike for loss overwhelms the pleasure from a potential gain of similar magnitude. A study among 2,000 young people found that 45% would prefer a socialist state and 7% would like to live in a communist one. Trump has solid support among workers and unions, which used to support the Democratic Party earlier, wrote Prof D Gupta. 62% of his supporters still believe that he has done nothing wrong. Even the liberal Washington Post believes that he will win reelection because his core support is solid. Support for Trump is because the white working class votes for him to maintain class superiority over blacks, wrote J Zeitz. So angry are the liberals that they are contemplating impeaching Trump by using the 25th amendment. Whatever happens it is certainly fun to watch.

Government should have followed Milton Friedman's hypothesis.

"It's about that time in the life of a government: the economy appears to be losing its sheen and elections are fast approaching. The first law of political economy, which the politicians understand better than economists, is to spend your way out of trouble," wrote Prof V Dahejia on the state of the Indian economy. "As the growth numbers continue to be lacklustre, with inflation ticking up, and with literally no room for manoeuvre on the fiscal consolidation map, the Union government of Prime Minister Modi faces its sternest test as steward of the macroeconomy." But increased spending will worsen fiscal deficit, raise inflation and prompt the Reserve Bank to tighten policy rates. The result will be very bad, so Prof Dahejia advises the government to stick to its fiscal deficit target. Not so, wrote Prof D Nayyar. The reason why the government had spent 96.2% of its projected fiscal deficit by August is because of revenue shortfall due to the new Goods and Services Tax and not due to increased spending so there is no harm if the deficit rises as long as the spending is on infrastructure. Credit to industry is not growing, wrote A Iyer, meaning that companies are not investing in new projects which will boost growth and increase jobs. Growth is dependent on government spending and even the Chamber of Commerce wants the spending to continue. There is a simple explanation why the government has spent 112% of fiscal deficit by November, wrote TCAS Raghavan. It is because expenditure has been front-loaded because the budget was brought forward but revenue from taxes continue to come in throughout the year depending on earnings of companies and individuals. Retail inflation rose to 5.21% in December from 4.88% in November due mainly to vegetable prices rising by 29%. Strangely, Wholesale Price Index fell from 3.93% in November to 3.58% in December due to a decline in vegetable price index. How can vegetable prices be higher and lower over the same period? Higher inflation is unlikely to result in wage inflation, analysed Bloomberg, because the job market is soft, as reflected by rising defaults in repayment of education loans. Fuel prices are rising worldwide. The government has given up its plan to phase out subsidy on cooking gas. Those people who had been provided with free gas connections are not refilling their cylinders because they cannot afford it. The suffering of the rural sector is going to get worse, wrote Prof Himanshu, because poor winter rains have forced farmers to reduce area of planting. It is the government's fault for squandering the windfall from the collapse in crude oil prices in 2014-15. A rise in fiscal deficit may not be bad by itself but, rising international price of oil and rising bond yields signalling a rise in inflation, may force the RBI to tighten monetary policy, wrote Rangan and Nayak. The Permanent Income Hypothesis by the great Milton Friedman says that people save windfall profits but latest research shows that it is not true, wrote Prof N Smith. Our government should certainly have saved its windfall gains.

Just seeing shadows?

"Twenty years ago, Lawrence Summers came up with a particularly graphic analogy for market crises: airplane crashes," wrote W Pesek. Markets, like jet planes, are usually safe and beneficial, but when they crash the result is spectacular. Summers used to believe that the core center of developed countries can withstand a fall in peripheral markets, but no longer. Now he thinks that any serious event will affect the whole world. Markets "are going gangbusters" and so are vulnerable, " Say if Wall Street hit a 2008-like wall. China's debt meltdown arrived or Washington started a trade war. A major terrorist attack, conflict on the Korean peninsula, confrontation in the South China Sea or troubles in Iran or Pakistan could slam markets." While Pesek is critical of "the US being in the hands of of a leader threatening trade wars, redistributing wealth to the top 1%", Prof D Rodrik wrote, "Multinational corporations and investors have increasingly shaped the agenda of international trade negotiations" and have captured "autonomous agencies by the industries they are supposed to regulate". Rodrik thinks that while one should be wary about political populism, "Economic populism, by contrast, is occasionally necessary." Rodrik has been warning about the dangers of globalization for sometime. China has ambitions of making its currency, the yuan, a reserve currency like the dollar. The International Monetary Fund added the yuan to its basket of Special Drawing Rights in 2016 with a weight of over 10%, which means that the yuan should be freely tradable, but that has not happened. Only Pakistan central bank has allowed trade based on the yuan. Instead of allowing free exchange of the yuan China restricts its citizens from converting yuan to other currencies. Even as the IMF added the yuan to its SDRs, VA Nageswaran wrote that there is no chance of it becoming an international currency in the near future, because the power of the Communist Party means that it can never become fully open. Emerging markets could see a "reality check" in 2018, said an article in Bloomberg, as the Federal Reserve tightens its monetary policy, growth slows in China and the chance of high inflation in Turkey. Higher taxes to balance the budget led to riots across Iran, with protesters calling for death to the Supreme Leader, Ayatollah Ali Khamenei. However, some good may come out of economic problems. North Korea held talks with the South and has pledged to send a delegation to the Winter Olympics which start next month. A military intervention could become necessary in Venezuela to free the people from the scourge of Nicolas Maduro, wrote Prof R Hausmann. "As the Venezuelan situation becomes unimaginable, the solutions to be considered become inconceivable." Diverse septic spots could merge into a collapse. The danger is real. 

Does it really matter?

"Four top judges revolt against CJI; SC on trial," was the headline in one newspaper yesterday, referring to a press conference called by the 4 senior most judges of the Supreme Court, Justices J Chelameswar, R Gogoi, MB Lokur and K Joseph, to highlight their unhappiness at the way the Chief Justice of India was allocating the most important cases only to certain judges. The dispute started with the MCI case which was a Public Interest Litigation, or PIL, by the Judicial Accountability and Reforms, when the CJI overruled Justice Chelameswar's  order of constituting a constitution bench by selecting his own bench without consulting the judge. In that case there were allegations of bribery of a judge at Orissa High Court. That is surely insulting. In a letter signed by all the 4 judges they wrote, "There have been instances where cases having far-reaching consequences for the nation and the institution had been assigned by the Chief Justices of this court selectively to the benches of their preferences without any rational basis for such assignment." "Certain judicial orders passed by this court has adversely affected the overall functioning of the justice delivery system and the independence of the high courts besides impacting the administrative functioning of the office of the Hon'ble Chief Justice of India." Are the judges accusing the CJI of bias due to outside pressure? The final affront to the 4 judges came when a PIL regarding the sudden death of Judge BH Loya, who was hearing a case on the fake encounter which killed a known gangster Sohrabuddin Sheikh in 2005 in Gujarat, under suspicious circumstances, was assigned to a judge junior in rank to the four. This government tried to take control of appointing judges to high courts and the Supreme Court by setting up a National Judicial Appointments Commission which would include politicians. The amendment was struck down by a majority of 3 judges to one, Justice Chelameswar upheld it. At present judges to higher courts are selected by a secret collegium consisting of the Chief Justice and other senior judges. The present controversy will allow politicians to say "we told you so". The Supreme Court is acutely conscious of the abject surrender of its dignity to Mrs Indira Gandhi during the Emergency (1975-77) when she appointed AN Ray as Chief Justice, superseding more senior judges. The bar council, a collection of top lawyers, is to meet judges today to try to resolve the rift. Lawyers earn phenomenal amounts of money just for appearing before the court for a few minutes to request postponement of cases. The longer a case continues the more they earn. Recently the Supreme Court had to apologize for delaying resolution of a case for 13 years during which the petitioner died. What use is the court?

You can spend but you can't hide.

"There is a distinct slowdown in economic growth. Employment creation, already too little, has slowed down even more," wrote Prof D Nayyar. "The good news is that inflation is moderate and world oil prices are still low." India is to grow at 7.3% in 2018 and at 7.5% in the two years after that, said the World Bank a few days back. This would be faster than China, making India the fastest growing economy in the world. The price of crude oil has risen from around $30 a barrel to hit $70, before falling back a little. Retail inflation increased from 4.88% in November to 5.31% in December, mainly due to hardening vegetable prices. However, the Index of Industrial Production jumped to 8.4% in November from 2% in October. The economy cannot revive without growth in the rural economy which is contracting, wrote Prof Himanshu. Acreage under cultivation has fallen in December so there maybe further fall in earnings. The Finance Minister is faced with a fiscal "impossible trinity" when dealing with rural distress, wrote an editorial in the Mint. He can pay higher support prices to farmers while holding retail prices, but this will raise fiscal deficit. He can control retail inflation and fiscal deficit by offering lower support prices to farmers but that will only add to anger among farmers. Or, he can pay higher prices and control deficit by letting food prices rise but that again will cause anger, especially because higher food prices hurt poor people the most. The Finance Minister cannot increase revenue by increasing indirect taxes because the Goods and Services Tax has fixed rates for all consumer goods and services. Growth in agriculture is only 2.1% and rural wages grew by 6.6% compared to 17% in 2014 and 17.6% in 2013. Higher growth rates in rural wages coincided with high retail inflation, as the Congress found to its cost in elections in 2014. To augment their income landless labor used to work in the construction sector but the slowdown in this sector has hit the rural poor very hard. 54 million rural households are landless, which means around 250 million of the rural population of 850-900 million. This is an underestimate because 84% of those who posses land are small and marginal farmers. According to a survey by Mercer, there will be an increase in hiring across industries and salaries will rise by 10% this year. Which will only increase inequality. Choices are limited for the government, wrote M Sharma. So what to do? "Counter cyclical fiscal policies" advised Prof Nayyar, meaning spend more to stimulate economic growth. Unfortunately, the bond market is signalling its displeasure at prospects of increased government borrowing, wrote T Kundu. Too many people analysing what the government does. Therein lies the problem.

The docile or the undead.

The unique biometric number, called Aadhaar has apparently uncovered 130,000 ghost teachers in Indian colleges. Isn't that a great advertisement for Aadhaar? It has uncovered a great swindle in which people were collecting wages for teachers who did not exist. Or it could be the old story about showing fake teachers to get recognition as a teaching institution and then charging hefty fees from teenage children, desperate to get any degree, so that they can earn a living. Exactly a year ago 3 girls committed suicide in SVS Yoga Medical College in Tamil Nadu for charging exorbitant fees and not teaching anything. After fake education there are fake jobs to cheat our children. How will Aadhaar stop something that does not exist? Strange the government has not made any attempt to identify ghost employees in municipalities, state and central government services which would really save taxpayer money. Why was this fake news suddenly released? Because, in a sting operation, R Khaira for The Tribune could access complete information about anyone for Rs 500 and, for just Rs 300, could create an Aadhaar card in anyone's name she chose. The most horrific identity theft anyone can imagine. Those opposed to Aadhaar have focused mainly on the poor, who maybe deprived of subsidies, either because of lack of knowledge or because of physical limitations, as in loss of ridges on fingertips because of manual labor, and on identity theft. The government's response is keep on lying that all the data is safe, when it is repeatedly been shown to be easily available. The second method is to use legal violence against anyone who exposes its lies. The third is to create confusion in people's minds by proposing a technological fix, such as a virtual number, aiming to dazzle people with science because most people have little knowledge about digital technology. If people do not understand virtual numbers and give their numbers anyway then it is not the fault of the government, is it? Then there is Mr Nandan Nilekani, a brilliant man who created this abomination. He is a dollar billionaire and so cannot be bribed. So what does the government have on him that he is subverting his own people? Aadhaar is a danger to India, said a RBI report. "Thanks to Aadhaar, for the first time in the history of India, there is now a readily available single target for cyber criminals as well as India's external enemies. In a few years, attacking Aadhaar data can potentially cripple Indian businesses and administration in ways that were inconceivable a few years ago," it said. So, why are politicians so determined to put national sovereignty in danger? Because it gives absolute control over citizens. If anyone protests his Aadhaar will be deactivated and suddenly he will not be able to access his bank accounts, use his phones or buy air or train tickets. He will cease to exist -- an undead.

"Annus mediocris" doesn't sound too bad, considering.

"The good, the bad, and 'the Donald'. For Latin America that was 2017 in a nutshell," wrote Prof JG Castenada. "The highlight of the year was, without question, the historic peace forged in Colombia. After a half-century-long insurgency fueled by drug cartels, Cubans, and money launderers, the Revolutionary Armed Forces of Colombia (FARC) laid down their weapons and entered the political mainstream." Colombian President Juan Manuel Santos won the Nobel Peace Prize in 2016. There were corruption charges against many Latin American leaders. President of Brazil Dilma Rousseff was impeached and former President Luiz Ignacio Lula da Silva received a prison sentence. However, the present President Michel Temer managed to get the Congress to vote against being impeached. There are corruption cases against former President of Argentina Cristina Fernandez, against Guatemala President Jimmy Morales for trying to protect his son from prosecution, against Venezuela President Nicolas Maduro for receiving illegal payments, and against several former state governors in Mexico. The election of Donald Trump as President of the US had enormous effect on the continent. His comment about using military force on Venezuela may have helped Maduro to claim foreign interference in the country's internal affairs. After then President Obama reopened the US embassy in Havana in 2015, as a sign full diplomatic relations with Cuba, the Trump administration issued a travel advisory against going to Cuba after US diplomats in Havana were attacked with a mysterious sonic weapon, causing deafness, "brain swelling, severe headaches, loss of balance and 'cognitive disruption'". The travel advisory has just been softened. Trump insists on renegotiating the North American Free Trade Agreement with Mexico and Canada because it caused loss of jobs in the US. A study by Public Citizen found that 1 million jobs in the US were lost due to NAFTA, wages were depressed and Mexican farmers suffered losses due to imports of cheap corn from the US, increasing immigration into the US. Not true say others who point to the increase in trade within NAFTA and insist that the US has made modest gains. "Millions of Venezuelans left the country, ad many more are trying to flee from hunger, disease, and oppression," wrote MC Machado. The economy has collapsed and President Maduro has resorted to increasing oppression and blatantly illegal practices, such as replacing the National Assembly in a fraudulent referendum, to hang on to power, wrote Prof R Hausmann. All Latin American countries should join the US in dislodging Nicolas Maduro from power and bringing him to justice. Their silence means condoning his crimes. Why blame Trump?

CD Deshmukh didn't have to look over his shoulder.

"If the tax department goes to the extent of going through your Instagram handle to check if you have posted any photo of a purchase you did not account for, it shows a major distrust between the government and the taxpayer," wrote an editorial in the Economic Times. "About seven decades ago, when India had just started out as an independent country, the government believed taxpayers were vulnerable to moral appeals and did not require extreme measure." The first Finance Minister of India, CD Deshmukh had every confidence in "our people to sustain and support the government in whatever measures may be necessary to maintain the finances of the country in a sound position". The present government is spending vast sums of taxpayer money to scan social media and analyse "satellite pictures of farms". This mistrust between politicians and people was dramatically illustrated by the demonetization of high denomination notes on 8 November 2016 which stigmatised the entire nation of 1.3 billion people as thieves. Caught off guard people resorted to any means to convert their money into new notes and this turned usually law abiding people into money launderers. Plane loads of cash were sent to northeastern states, like Nagaland, to take advantage of different tax rules, prompting BJP politician, Arun Shourie to call it the "largest money laundering scheme' the world has seen. Does it mean that every Indian is a crook? Are Indians the only people in the world to have a gene for corruption? 34% of Members of the Lok Sabha have criminal charges against them, 20% of them are for murder, kidnap and rioting. Parties choose criminals as candidates because they have money and goons required to win, wrote M Vaishnav, while the people vote for criminals because they can deliver essential services for which they have to pay bribes to civil servants and the police. Taxpayers get nothing in return for their taxes, no pension, no healthcare and no education. Around 50 million people get pushed into poverty by healthcare costs every year. Essential medicines, for blood pressure, diabetes and cancer, get taxed at 12%, while civil servants and family can get treatment abroad at taxpayer expense. Politicians can of course spend taxpayer money anyway they like, as a Karnataka Minister showed. Children die in hospitals for lack of oxygen. A mysterious fire burnt all the files, which could have proved responsibility. The case against the 2G scam accused collapsed because it was deliberately undermined by politicians and civil servants, said an angry judge. Arms dealer Sanjay Bhandari was able to escape from India without his passport, and no one knows his whereabouts. There were no criminals sitting behind CD Deshmukh when he presented his budget in 1952. That is the difference.