If only he could blow away all sanctions.

President Donald Trump abruptly terminated a summit with North Korean leader Kim Jong Un because Kim wanted sanctions lifted without offering much in return. "it was all about sanctions," Trump told reporters. "They wanted the sanctions lifted in their entirety and we couldn't do that." "Sometimes you have to walk and this was one of those times." North Korean Foreign Minister Ri Yong Ho said, "What we proposed was not the removal of all sanctions but the partial removal." He said that North Korea was willing to "permanently and completely dismantle all the nuclear productions facilities in the Yongbyon area, including plutonium and uranium, in the presence of US experts", which is the "biggest nuclear denuclearization measure we could take". "However, during the meeting, the United States insisted that we should take one more step besides the dismantlement of nuclear facilities in the Yongbyon." Kim's opinion of Trump must have been influenced by the venomous attacks by his enemies in the US who portray him as a "clownishly incompetent and willfully ignorant buffoon" After winning control of the House of Representatives in November's mid-term elections the Democrats have launched a series of investigations on Trump and his officials, hoping to tie him down and damage him before his re-election bid next year. Kim has shifted nuclear enrichment facilities to other sites and thought he was being very clever by offering Yongbyon as bait to get Trump to agree to lift sanctions. He would have been stunned when Trump walked out on him. "I think they were surprised we knew," Trump said. "They have to give up more." In a gloating article A Mitchell wrote that Trump failed for "ignoring warnings from your own intelligence chiefs that Kim Jong Un would never give up his nuclear weapons". Indeed, nuclear weapons are the only bargaining chip Kim has and he cannot relinquish them without real concessions from the US. But, the US will not remove sanctions unless it is satisfied that all such weapons have been dismantled, and that means that Kim will remain subservient to Xi Jinping of China. 90% of North Korean trade is with China and Kim has to dance to Beijing's demands, which must be humiliating for someone used to blowing away anyone who disagrees with him with anti-aircraft guns. At the very least, Kim has lost an enormous amount of face in front of his officials at being so contemptuously dismissed by Trump. He will not sleep easy from now on for fear of a coup. Those who are expert at bargaining know the art of when to walk away, wrote N Patel. "Pretend inferiority and encourage his arrogance," advised Sun Tzu. "If your opponent is of choleric temper, irritate him." Trump has done both. Up to Chairman Kim.

It's not economics, it's an understanding.

In 1942, Joseph Schumpeter asked, "Can capitalism survive?"  "This prophecy has been unfolding over the last few decades with the slow decay of capitalism as reflected in the rise of the welfare state and increasing regulation," wrote R Saraogi. Schumpeter predicted that hostility towards capitalism will be led by the intellectual class, which grew from literacy, made possible by the printing press which was created by capitalism. "But why does the intellectual class bay for capitalism's blood?" Because, "Capitalism is an evolutionary system in which old methods of production are destroyed and new methods introduced by recurring cycles of entrepreneurial energy." Called "creative destruction". "The only policy that seems capable of significantly countering the dissatisfaction espoused by liberals is universal basic income (UBI)." Curiously, many billionaires in the US have publicly supported UBI. Just three men, Bill Gates, Jeff Bezos and Warren Buffett, "are worth more than the 160 million poorest Americans, or half the population of the United States". Prof Y Varoufakis is an ardent supporter of a universal income for the poor but thinks, "If a universal basic income is to be legitimate, it cannot be financed by taxing Jill to pay Jack." So what is his solution? "A simple policy would be enact legislation requiring that a percentage of capital stock (shares) from every initial public offering (IPO) be channeled into a Common Capital Depository, with the associated dividends funding a Universal Basic Dividend." UBI is a bad idea, wrote M Ezrati, "Because UBI would have a broad distribution, using it to substitute for welfare and other entitlements aimed at the poor would constitute a transfer from those in need to everyone, many of whom are quite comfortable." Similarly, the disabled will lose out to the able-bodied and the old to the young. UBI is a bad idea in India because, "a UBI offering even poverty-line income will cost maybe 10% of GDP, and the entire net revenue of GOI is barely 8% of GDP," wrote SSA Aiyer. "In theory, non-merit subsidies could be abolished, freeing funds for UBI. In practice, politicians dare not eliminate existing freebies, and keep expanding the list." UBI will not increase well-being, good jobs will, wrote A Maira. The government should eliminate restrictive labor laws and give tax relief to companies which employ more people than spending on automation which reduces employment. Automation increases productivity in manufacturing without much reduction in jobs. There is a shortage of skills in Indian workforce because companies are not interested in spending money on training their workers who maybe poached by other companies, while most workers are too poor to attend private training institutes, wrote A Ranade. Handouts are a contract between politicians and the poor. We will distribute taxpayer money so that you enjoy a higher living standard and in return, you vote for us so that we can enjoy untold luxury of life in Lutyens Delhi. The taxpayer is an onlooker.

Seigniorage is like the goose that laid golden eggs.

A few days back, interim Finance Minister Piyush Goyal suggested that fiscal deficit should be financed by printing currency notes. This was a few days after presenting this year's Budget which "focused on doling out handouts", "backed by questionable estimates of additional revenue generation", wrote R Singhal. "The fiscal deficit for the year has been revised upwards to 3.4 percent of the gross domestic product (GDP)." "As finance ministers we are always in need of money," said Goyal. "I have heard that the US does deficit financing only by printing currency." He was speaking at the Security Printing and Minting Corporation of India (SPMCIL) which made a profit of Rs 6.3 billion last year, of which Rs 2 billion was handed over to the government as dividend. SPMCIL prints banknotes, stamp papers, postage stamps, passports and bonds and also engages in refining of gold and silver among other activities. It is silly to compare India with the US, the only country which can print the dollar which is used as national currency by sovereign nations, like Ecuador and El Salvador. It is also the reserve currency of the world because "it makes up nearly 62 percent of all known central bank foreign exchange reserves". "Around $580 billion in US bills are used outside the country. That's 65 percent of all dollars." US Treasuries and institutional bonds constitute the major portion of our foreign exchange reserves. By August last year, the Reserve Bank (RBI) had sold around $25 billion for rupees to stop it sliding below 69 to the dollar. By September, the RBI was selling dollars to protect the rupee from sliding below 72 to the dollar. The rupee is trading at 71 to the dollar today. Printing money to pay for deficit just causes inflation to rise and a depreciation of the currency. "By 'printing currency', Goyal is referring to what traditionally was called money finance or monetizing the fiscal deficit," wrote Prof V Dahejia. The government sells bonds to domestic and international investors to finance debt, whereas "money finance is possible because of what is known as 'seigniorage' -- the profit the central bank makes as the monopoly provider of fiat currency". Therefore, the more notes the RBI prints the more it earns from seigniorage, which it can pay as dividend to the government. Sadly, not so simple. Despite supplying dollars to the world "average annual rates of seigniorage in the US were merely 0.4% as a share of GDP and a little less than 2% share of government spending". Emerging economies have a much larger share. "For example, for Argentina, average annual rates of seigniorage in the 1971-90 period were about 10% as a share of GDP and a huge 62% as a share of government spending." Argentina's economy is in deep crisis, with inflation at 50% and a 50% depreciation of the peso. Deputy Governor of RBI V Acharya warned of situation like Argentina which infuriated the government. Goyal should have read Acharya's speech. Or about the goose that laid golden eggs. Easier to understand.

There is nothing to fear from Pakistan's threats.

Indian Air Force jets apparently bombed targets within Pakistan at 4 o'clock this morning. "The Pakistani military claimed that an Indian jet dropped a payload (bomb) at Balakot without causing damage. Balakot is located well within Pakistan and not in Pakistan Occupied Kashmir." This is partly confirmed by the fall in the Bombay Stock Exchange the Sensex by around 350 points. On Valentine's Day a suicide bomber used a car bomb to kill 40 soldiers of the Central Reserve Police Force (CRPF) in Kashmir. Most Indian pundits have been against any military retaliation by India. GK Pillai wrote, "I don't think war is an option for India right now." He recommends winning hearts and minds of local Kashmiris by giving a portion of the state budget to Panchayats, which are elected bodies managing village affairs. "India does not have the capability, capacity and political will for war," wrote P Sawhney. He thinks that China will immediately take Pakistan's side and will open another front, leading to a defeat for India. A war results when armed forces of both sides use full force and are willing to take heavy casualties. Having lost every war with India, it is unlikely that Pakistan's army is going to risk another humiliation. Hence, it has been using the threat of nuclear weapons as a first response to any attack by India. "We should pray that such an option never arises, but if we need to use them (nuclear weapons) we will," said Defense Minister Khwaja Asif in 2017. That is absolute rubbish. Because the possibility of Mutually Assured Destruction has kept peace between superpowers for over 60 years. The Pakistani army is totally corrupt and the generals are hardly going to risk their lavish lifestyles by inviting a nuclear counterstrike by India. In a mocking response to the terrorist attack on CRPF, Pakistan Prime Minister Imran Khan advised Indian Prime Minister Narendra Modi to "give peace a chance" and said that he would act immediately if India provided "actionable intelligence". "In his speech, Khan was eager to cut to the chase and suggest that cracking down on the Jaish-e-Mahammad or Lashkar-e-Taiba is not going to happen just because India wants it," wrote Pakistani analyst Ayesha Siddiqua. She suggested that Pakistan is so important to global powers that India will never be able to isolate it diplomatically. Siddiqua's chutzpah is not surprising when Indian R Kumar held the actions of the Indian government responsible for terrorism. Pakistan will continue to use terrorists because India has no options, wrote Prof CC Fair. Pakistan has used various cards, from its Muslim identity to terrorism to its close relations with China and Saudi Arabia, but India will ultimately triumph through economic growth, wrote C Rajghatta. "Nearly, ten times the size of Pakistan's economy, India is adding one Pakistan to its GDP each year, and will have an economy 40 times larger by 2050." Every pundit is sure that India can do nothing against Pakistan. Actually, it is Pakistan which can do nothing. 

Can the cost of electricity save citizens of India?

The Indian government has come out with a new e-commerce policy, which is ostensibly for creating new jobs, but is actually to control data of Indian citizens. "The aim of this draft policy is national interest and that our citizens' data is ours. Data is business, everything else is ancillary," said a senior official. "Under the new regime, businesses collecting or processing sensitive data in India which is stored abroad will not be allowed to share it with other businesses outside the country, third parties and foreign governments without prior permission, the draft policy read." In December the government permitted 10 central agencies, including Delhi Police, to "intercept, monitor and decrypt 'any information' generated, transmitted, received or stored in 'any computer'", which gives politicians and civil servants total control over us. Any refusal to cooperate will result in a fine and jail for 7 years. Experts denounced this order because it creates a total surveillance system without any safeguards or accountability. Government officials were surprised at the outrage the order generated because "these agencies already had these powers under the Information Technology Act and the rules framed under the act, according to current and former government officials". The Information Technology Act was passed in 2000 by the previous BJP led government under Prime Minister AB Vajpayee but the infamous sections 66A and 69 were passed without any debate by the Lok Sabha in 2008 when the Congress led government was in power. Section 66A, which penalized any 'offensive message', was struck down by the Supreme Court in 2015. Shows that politicians of all parties cooperate to gain total control over citizens. "Before the order was issued, there was no bar on any agency, which could approach the competent authority, Union home secretary in their case, seeking interception or monitoring of computer traffic, the officials added." We should be so grateful. This government forced every citizen to obtain a unique identity number, based on prints of all 10 fingers, photographs and iris scans, which is being massively misused, according former Supreme Court Justice PB Sawant. The same coterie of politicians now seeks to set up a DNA databank which will leave every citizen completely naked to surveillance. There is only one thing that can protect citizens by preventing data centers in India. And that is electricity. Servers generate huge amounts of heat requiring 24/7 air-conditioning. Storage servers in the US use 70 billion kilowatt hours of electricity per year, wrote C Helman. By 2025, "152,000 new devices will be jumping, directly or indirectly, onto the internet every minute". India produces 1,423 terrawatt hours of electricity every year but supplies are still very erratic in villages, Microsoft is locating servers on the seabed near coastal towns. Spending so much on surveillance will not leave any money for handouts. Which means losing elections. We can only pray.

Venezuela is no Panama and Maduro is no Noriega.

At least two people have been killed and 15 others injured when Venezuelan armed forces opened fire on protesters who were trying to blockade army vehicles from going towards the border. Opposition leader Juan Guaido declared himself interim president in January and is trying to organize humanitarian aid for the people. Around 65 countries support Guaido while around 50 still recognize Maduro as president. President Nicolas Maduro is vehemently against any aid as this would show that the economy has collapsed. "If the aid gets in, Maduro is shown to have lost control of the situation; if it doesn't get in, we show that Maduro doesn't care for the suffering of the people," said an MP for the opposition JM Matheus. Politicians play games while people suffer. Maduro has managed to convince the army that the aid is a US attempt to take over Venezuela and so far the army is standing by him. Yesterday, the army set fire to two trucks carrying aid and two more were hijacked by soldiers. Why is the army still backing Maduro, although some low ranking soldiers have crossed over into Colombia? After all, soldiers also have families who must be suffering. All they have to do is to stand aside and refuse orders to shoot at their own people. Probably because mutiny is a serious offence and those suspected of plotting against the government, and their families, were tortured. Senior officers have been given control of businesses and the army has been given control of food distribution. When there are no jobs young soldiers are probably reluctant to give up what little they are getting in salaries and perks. Officers accused of drug smuggling have been promoted by Maduro because they would try to defend him at all costs, as they will end up in prison if he falls. Finally, soldiers could be suspicious of aid from the US because it supported a coup against Hugo Chavez in 2002. It was Chavez who created a new National Assembly to change the constitution to enhance his own power and corrupted the Supreme Court by appointing cronies. Maduro has just taken it further. Instead of aid, Maduro is asking for Venezuela's gold to be returned so that he can sell it to buy some more time. "They should send a convoy with the dollars they have stolen from us," he said. Maduro still has support from those who have gained from the system and from some who see the crisis as a plot by Yanqui capitalists to control Venezuela's natural resources. The US invaded Panama in 1998 and captured its president Manual Noriega on a charge of smuggling drugs. He was tried and imprisoned in the US before being extradited to France where he was imprisoned for money laundering. Not surprising that the US maybe seen as a bully in the region. Guaido has called on the international community to keep all options open probably implying an armed invasion of Venezuela. But Maduro is not Noriega and Venezuela is not tiny Panama. Depending on the US maybe making Maduro stronger. 

Most people don't want the headache of black money.

Three government reports have estimated the amount of black money stashed abroad at anything between $3 billion and $490 billion, wrote S Chatterji. According to two agencies the amount of black money abroad is between 0.2% and 7.4% of India's gross domestic product (GDP). "It appears that a greater proportion of the concealed wealth is lying within the domestic economy and only a small fraction is outside the country." Previously most of the black money was invested in real estate. This was most convenient for the rich because they could pay tens of millions in cash, on which they had not paid income tax. On 8 November 2016 Prime Minister Modi resorted to demonetization of high value banknotes so as to neutralize all those sitting on large piles of illicit cash. Modi thought that most of the currency held by individuals will not be returned to banks for fear of being arrested for not paying taxes and the Reserve Bank (RBI) would be able to pay at least Rs 3 trillion in dividend to the government, equivalent to the amount of notes extinguished. Unfortunately, Modi's hopes were belied when 99.3% of banknotes made their way back to the RBI. The other hope was that people will switch to digital payments which can be easily tracked by the government. That also did not materialize as the amount of currency in circulation returned to levels higher than before demonetization. The amount of currency in circulation was Rs 17.97 trillion before the ban, which had risen to Rs 20.15 trillion by November of 2018. Instead of paying a higher dividend, the RBI was able to pay $5.5 billion less to the government, after paying for the cost of printing new notes. In an effort to eradicate black money from real estate transactions the government passed two acts, the Real Estate Regulation Act (RERA) and the Benami Transactions Amendment Bill, and the RBI is to stop printing Rs 2000 notes and gradually withdraw them from circulation. However, most people cannot afford to buy real estate because of astronomical costs and because it is not possible to invest small sums. Hence, ordinary people, including the poor, invest in gold in the form of jewellery. According to the World Gold Council, Indian households own 23,000-24,000 tonnes of gold, valued at around $800 billion. This is useless as investment because there is no income, a large component of the value of jewellery is labor cost and the value of gold may fall. So, why do people waste money on gold? Because they have no trust. Mutual funds do not disclose investments in risky assets. India has the highest number of companies with triple A ratings, most of which are probably dubious. And, the government deliberately falsifies data to make them look better. If politicians respect citizens instead of treating us as crooks and trying to trap people with sudden changes in rules it will earn our trust. Else, people will try to protect what they have.

Which is more dangerous, echo chamber or thought police?

"Social media platforms give us the ability to mute opinions we'd rather not hear," wrote R Matthan. We delete any news item that we do not agree with. This is picked up by the algorithms which remove such items form future content we receive. "This results in permanently blocking content form anyone whose belief system differs from ours, allowing us to choose to not hear what they say rather than deal with the discomfort of having distasteful views clutter our newsfeed." So we interact only with people we agree with. On social media, this is known as an echo chamber which is said to be a source of fake news. If people associate only with those they agree we end up with a sharply divided Balkanised society. On the other hand, some studies have shown that most people tend to read divergent political views online, though that may not change their opinions. There is no such thing as objectivity as "Donald Trump has exposed US intellectuals and the most hallowed brands of American journalism, like the New York Times, as being incapable of objectivity when things don't go their way", wrote M Joseph. "They had consistently underestimated his popularity when he was running for president, and have since reported on his presidency with venom." In an effort to be objective journalists resort to 'balance' wherein they report opposing views but then try to nudge readers to agree with their own view. Richard Thaler won the Nobel Prize in Economics in 2017 with his 'nudge theory' which shows how people can be made to change their behavior by subtly changing their options. The other way to appear to be objective is through 'over-compensation' in which liberals use more extreme language to condemn a terrorist attack to compensate for their support of a certain community. Denouncing social media for fake news politicians try to censor content to impose their own version of 'truth', thus taking away our right to free speech, wrote K Wagner. But, what is truth? "For this word is a religious concept not a scientific one," wrote D Pattanaik. "In science, there is no truth, there are only measurable and verifiable objective facts that inform knowledge." "In fact, new facts can render old facts and old knowledge, invalid." Researchers cannot understand why poor Southern whites vote for conservative politicians who then enact laws benefiting rich landowners. It maybe because human beings are social animals and feel comfortable with people who are similar. Even though no one has seen God religion gives a sense of belonging and comfort that we are not alone. Perhaps, social media has given a voice to people independent of what we are told by politicians. Maybe, that is why they want to censor it.

If everyone is bankrupt will it cancel out?

Last month Jet Airways defaulted on its bank loans, with the State Bank of India (SBI) being the largest lender. Five planes obtained on lease were grounded and 19 flights canceled as lessors attempted to repossess those aircraft. Why is Jet in such trouble? Because, as a full service airline, it needed one rupee more per seat kilometer than its low cost rival Indigo, wrote A Mukherjee. When Indigo reduced prices by 0.9 rupees per kilometer Jet tried to compete by reducing its fares by 0.3 rupees per kilometer and ended up charging passengers less than the cost of flying. Prime Minister Modi cannot let Jet go bankrupt with the loss of hundreds of jobs so close to general election. On the other hand, if SBI, a public sector bank takes a haircut to keep Jet flying Modi will be accused of helping the rich while ignoring the poor. In an effort to rescue the airline banks are converting loans into equity at the cost of one rupee. This move may reduce its debt burden by Rs 25-30 billion but its total debt is around Rs 85 billion so it will need massive funding to plug the gap and give it operating capital to pay its staff, wrote A Mukherjee. Converting debt into equity means Jet is being taken over by public sector banks and if the government uses money from the National Investment and Infrastructure Fund it will amount to a de facto nationalisation of the airline. The taxpayer is already having to grapple with Rs 550 billion debt of the national carrier Air India. Last year the government tried to sell off Air India to get its debt off its books but there were no offers. Whether the lack of interest is due to Air India planes being used by politicians for private flights we do not know. Rescuing Jet with public funds means going in the opposite direction. Indigo is the market leader with 43% market share, while Air India, Jet and Spice Jet have 12% each and Go Air has 9%. The only solution to Jet's problem is to merge it with Air India, wrote R Jagannathan. This move will provide a market valuation for Air India as it will get listed with Jet, costs will be reduced through consolidation of assets and pricing power will improve by reducing competition. In a commendable exercise Air India has reduced its employee-to-aircraft ratio to 106 which can compare with the best in the industry. The taxpayer will not only have to pay for Jet Airways but Indian Railways may need massive cash injection after the election. The Railways is to hire 127,000 new workers to add to the 1.3 million it already has. The Railways spends Rs 111.51 to earn Rs 100, so adding so many employees will only increase its losses. Government employees are to be given an additional 3% as Dearness Allowance. 'Dearness' means 'expensive'. When retail inflation is said to be 2.05% where is the dearness? To pay for all this the Reserve Bank is to transfer Rs 280 billion to the government. So, after the elections we will have a bankrupt Jet Airways, a bankrupt Air India, a bankrupt government and a bankrupt Reserve Bank. How jolly.

Only a fair system can survive.

"The end of communism, the collapse of the Berlin Wall and the disintegration of the Soviet Union were supposed to have ended history," wrote Prof VA Nageswaran, but an article in the Economist "depicts the rise of 'millennial socialism'". A poll by Gallup last year found that "51 percent of young people are positive about socialism". Why? Because, "Capitalism -- both of the arm's length variety and of the relationship variety (pejoratively referred to as 'crony capitalism') -- has failed to prevent unfairness from becoming the foundation of the interaction of capitalism with the rest of society." "Despite today's strong economy, many young Americans are struggling to make ends meet." "Because salaries aren't going as far as they used to to cover basic necessities, Americans are also taking on more work. About four in 10 Americans hold some kind of second job, according to a 2018 Bankrate survey." What is scaring some in the US is that "one in five Americans in the 20s consider former Soviet dictator Joseph Stalin a hero". Maybe, because 7 out of 10 Americans confuse communism with socialism. But, young people can see what is going on in Venezuela where socialist policies of Hugo Chavez and Nicolas Maduro have resulted in hyperinflation, shortage of food and medicines and millions of citizens migrating to surrounding countries in search of food. When they see that the richest 1% of the world earned 82% of wealth generated when wages of workers in the US are not growing even though unemployment is at 4.1% they must feel that the system is loaded against them. In an experiment, brown Capuchin monkeys showed their displeasure when one was given a superior reward for the same task. They were upset at, what they perceived as, unfair treatment. "Both forms of capitalism -- arms-length and arms-around -- stand discredited because they abandoned the invisible hand of morality that under-girded interactions between members of the society." It was competition between Catholic and Protestant churches that resulted in capitalism giving rise to "a shift from agriculture to manufacturing and services; rationalization of laws; the rise of entrepreneurship; rise in income tax revenue and social safety nets". With increasing inequality, climate change and degradation of the environment we could be hurtling towards a collapse of civilisation. wrote L Kemp. If we are going to self-destruct socialism or capitalism will not matter. Is it already too late to correct our course?













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The original people of India are the poorest.

"The Betta Kurumbar are among the particularly vulnerable tribes of India and number not more than 10,000 people in all," wrote S Arasu. "Vignesh is among the first set of people form his tribe to receive a formal education." He is 19 years old and yet to complete school because he had to drop out to work as a laborer at a construction site to supplement his family's income. "Opportunities for us adivasis to develop are non-existent," he said. 'Adivasi' means 'original inhabitant'. Vignesh is not alone. Adivasis, or tribals, are treated very badly in India presumably because they are hunter/gatherers who want to preserve their ancient way of life. Trouble is, the forests they inhabit are rich in mineral deposits, coveted by politicians in the name of development. "In mineral rich Orissa, over 72% of all adivasis live below the poverty line. At the national level, 45.86% of all adivasis live below the poverty line." They have their own culture and customs but are looked down upon by other Indians as backward. Oppressed by the government they are easy prey for Maoist rebels, called Naxals, and then suffer reprisal attacks by the police. No wonder, Vignesh is contemptuous towards all politicians and intends to vote 'None of the Above' (NOTA) in the coming election. To alleviate poverty the economy must create jobs "But there is a deeply insidious problem at work in the form of shrinking employment opportunities, shrinking formal jobs, and a shrinking labour force," wrote M Vyas. The 'Make in India' program of Prime Minister Modi was supposed to "pull up the share of manufacturing in gross domestic product (GDP) to 25% by 2022 (from 16%) and create 100 million jobs in manufacturing". Instead "growth in new investment projects has plunged since 2015". 2015 was the year Modi launched two schemes to increase employment by increasing employability. 'Skill India' was meant to impart vocational training to 400 million young people. Rs 170 billion was allocated to the project, and another Rs 40 billion was earmarked for "market relevant training to 350 million young Indians". Mudra Yojana was set up to "provide loans up to Rs 10 lakh to non-corporate, non-farm small or micro-enterprises". By March of last year Rs 72.77 billion in Mudra loans had turned bad. All these schemes have to be paid for, which means trying to increase tax collections. In December tax officials demanded up to 50% in 'angel tax' from startups. In order to protect themselves from whimsical tax demands startups are registering in other countries. Which means less tax in future. Multinational companies are receiving two sets of tax notices. In a Catch 22 situation, the second demand gets activated if the company successfully fights the first demand on transfer pricing. Foxconn is waiting for a Rs 10 billion in tax refunds under GST rules which is hurting its operating capital. Why would anyone want to invest in India when "a rampaging tax bureaucracy has become more and more obsessed with attaining ever-elusive targets"? Poor Vignesh is a casualty of politics.

You don't win by begging others.

Four days back at least 40 soldiers of the Central Reserve Police Force (CRPF) were killed in Kashmir in a suicide attack when a car packed with explosives rammed a bus they were traveling in. Jaish-e-Mohammed (JeM), a terror group based in Pakistan, claimed responsibility. According to script, Pakistan condemned the attack, denied any link to it and condemned the Indian government for blaming Pakistan without any proof. In a show of leadership Prime Minister Modi revoked the Most Favored Nation (MFN) status to Pakistan which is really cosmetic because India's trade with Pakistan is only 0.31% of our total trade with the world. The MFN status was granted to Pakistan in 1996 but Pakistan never reciprocated by granting a similar status to India. In 1999, Pakistani forces occupied Kargil disguised as Kashmiri shepherds. We regained Kargil with a loss of 527 soldiers and 1,363 wounded. In 2001, the same JeM, along with its best friends in Lashkar-e-Taiba (LeT), attacked the Parliament in New Delhi killing 14 people. In 2008, LeT terrorists attacked Mumbai killing 174 people. One terrorist Ajmal Kasab was captured alive and after denying for over a year Pakistan admitted that he was indeed its citizen. This when his father had already identified him from photographs. In 2016, 17 soldiers were killed in Uri in an attack on Brigade Headquarters by 4-6 JeM terrorists. In response, Modi sent soldiers across the border in, what has been celebrated as, 'surgical strikes'. The second anniversary was jubilantly celebrated last year. The major who led the strike described how difficult it was to get his men back to India under heavy firing from Pakistani forces. "At one point, the bullets were so close, they were whistling past our ears," he wrote. It is easy to celebrate when you risk nothing. In all this time Pakistan was still a most favored nation for trade. We are so generous. In addition to withdrawing the MFN status Modi has vowed to isolate Pakistan internationally. How exactly? The Foreign Secretary has met the heads of missions of 25 countries to tell them how bad Pakistan is. A confident Pakistani Foreign Minister SM Qureshi said that Modi will never be able to isolate Pakistan. "India should prioritise peace and stability in the region," he taunted. Pakistan has supporters in the West. In 2015, Barack Obama accepted invitation to our Republic Day parade. How he threatened Modi we do not know but since then Modi has resorted to the old 'constructive dialogue' routine. He called it "constructive engagement', but it is the same old same old. The sacrifice of our soldiers may not be in vain. It has taken jobless growth, plight of farmers and the Rafale controversy away from public debate. It gives Modi an opportunity to fulminate till elections in April. Verbal surgical strikes.

Lingchi will eventually rebound on the Chinese, We hope.

Even after 40 Indian soldiers were killed in suicide car bomb attack in Kashmir, China is still protecting chief of Jaish-e-Mohammed Masood Azhar. Azhar is a protege of the Pakistani army and is apparently a patient at an Army base hospital in Rawalpindi. By supporting a terrorist, who is supported by the Pakistani Army, China shows its friendship for Pakistan. In return Pakistan is taking on a massive debt of around $60 billion for the Chinese to build road and rail corridor from Kashgar in Xinjiang province in China to Gwadar Port in Pakistan. The Pakistani government has approached the International Monetary Fund (IMF) for loans to save it from defaulting on its international obligations. The US will not allow any of the money lent by the IMF to be used to repay the Chinese so the Imran Khan government is looking at ways to reduce the amount it borrows, although the Planning Commission claimed recently that the debt will not be a problem. Pakistan has long been following a strategy of 'death by a thousand cuts' against India, a barbaric form of punishment known as 'Lingchi', perfected by the barbaric Chinese. The Chinese probably see terrorist attacks on India as a perfect solution. It keeps India weak, the Indian army is occupied on the western border with Pakistan, allowing Chinese troops to repeatedly cross into India in the north, and allows it to imprison over 1 million Muslim Uighurs to prevent any protest against the Chinese state. Following the disappearance of an Uighur musician Abdurehim Heyit, a Turkish Foreign Ministry spokesman Hami Aksoy said, "The reintroduction of concentration camps in the 21st century and the systematic assimilation policy of the Chinese authorities against the Uighur Turks is a great embarrassment for humanity." Stung by the criticism China released a video showing Heyit in good health which has prompted all the Uighurs living abroad to demand living videos of their loved ones who have disappeared. In the past, China was supporter of the murderous Khmer Rouge regime of Pol Pot in Cambodia. Before we get angry with China we should remember that the Chinese regime is even more brutal with its own people. The Great Helmsman Mao Zedong killed over 30 million Chinese during the Great Leap Forward and millions more were killed in the Cultural Revolution. Whereas Mao wore pajamas, President Xi Jinping wears a Western style suit and tie. He has instituted a 'social credit' system in which citizens earn points for good behavior, mainly subservience to the Communist Party. A public facial recognition system allows authorities to monitor virtually every citizen without them being aware of being under surveillance. The only good news is that China's economy is slowing and, hopefully, if things get really tough at home its capacity to make mischief abroad will be weakened. Ultimately a brutal barbaric state always collapses. We hope it happens soon.

Why be handcuffed by a fiscal council?

"Historically, interim budgets in India have consistently overestimated revenue growth and underestimated expenditure growth," wrote P Bhattacharya, because "the finance ministry's overall record in forecasting projections has been consistently poor under successive finance ministers". "One way to fix these problems is to institute an independent and statutory watchdog to oversee the state of public finances and to come up with its own assessments." A working paper from the International Monetary Fund showed that "the presence of an independent fiscal council tends to boost accuracy of fiscal projections even as it helps countries stick to fiscal rules". That is precisely what politicians in India do not want. "Every political party, while announcing the vote-on-account budget, uses the opportunity to grandstand, launch a mini-manifesto and deliver a political scorecard that is economical with the truth, the extent and degree varying with the leadership," wrote R Singhal. "And yet there are some major embellishments which have become this government's hallmark." "If India has a fiscal council, it would probably have stated the fiscal deficit for this year at 4 percent of the GDP," wrote L Venkatesh. "The central government will borrow Rs 7.1 lakh crore and the states another Rs 5.5 lakh crore. That is a tall Rs 12.5 lakh crore or 25 percent higher borrowing than the current year." In the first two years of its term this government was fiscally prudent but in the last two years it has hidden its profligacy by using extra budgetary financing, wrote Prof VA Nageswaran. In its first budget in 2014 this government promised to do away with "mindless populism", but 5 years later, "Mindless populism is all that the NDA will go to the polls with," wrote Y Aiyer. "Fiscal prudence has been compromised in favour of pleasing every conceivable vote bank the NDA can appeal to." "The worst part is that there isn't really any great crisis that would justify breaching fiscal rules, only electoral considerations," wrote M Sharma. "Perhaps because, when judged by his own promises, Modi's term has been a failure." In his election campaign Prime Minister Modi promised to create 10 million new jobs, of which the Congress keeps reminding him. The latest report from the National Sample Survey Office said that not only has unemployment increased but the Labor Force Participation Rate has fallen to 49.8%. The government suppressed the report but it was leaked after the acting Chairman of the National Statistical Commission PC Mohanan resigned. Then a flunkey claimed that the report was not released because it was a draft but Mohanan maintains that the report becomes final once he has signed it. The higher the education level the higher the unemployment rate. It will be difficult to distribute handouts if a fiscal council disapproves in the background. That is why no party will appoint one.

The kingdom seems more divided than untied.

British Prime Minister Theresa May suffered a second defeat in the House of Commons yesterday in a non-binding vote which rejected a motion to support her plan to seek changes from the European Union (EU) on her Brexit deal. May had hammered out a deal with the EU over 2 years of negotiations but earlier, in January, this deal was rejected by the Commons by a historic 230 votes. The Brexiteers, those who support Brexit at any cost, want an option to leave the EU without a deal, the so-called 'hard Brexit'. However, most politicians and business leaders fear a catastrophic damage to the economy if Britain left the EU without a deal. "Leaving the European Union without a transitional trade deal would cost Britain about 6% of GDP -- roughly fours years of economic growth -- compared with staying in the bloc," the International Monetary Fund warned. "Britain's economy has slowed since the Brexit vote" from near top of the G7 group of nations to near bottom. It will not be one sided. A German institute claimed that a hard Brexit could see a 50% drop in exports from the EU to Britain. Germany could lose 57% of current exports to Britain at a cost of 3.3 billion euros. The Netherlands would lose 12 billion euros by the year 2026. Denmark could lose 1% of GDP in the event of a hard Brexit, its economy minister warned. India's exports to the EU, worth 44.2 billion euros in 2017, should not be affected but the CEO of Jaguar Land Rover (JLR) warned that a hard Brexit could cost the company $1.6 billion a year and thousands of jobs. JLR was acquired by Tata Motors for $2.3 billion in 2008. The biggest sticking point is the only land border between Britain and the EU, which is between Northern Ireland, a part of the UK, and the Republic of Ireland, a member of the eurozone. In the event of a hard Brexit there would have to be customs and immigration check posts at this border. To avoid that May and the EU agreed on a customs union between Northern Ireland and the EU for 2 years, until a new trade agreement is reached. This is the 'Irish backstop'. The fear is that a hard border could reignite violence between Catholics and Protestants, which was stopped by the 'Good Friday Agreement'. "Goldman Sachs, JP Morgan, Morgan Stanley, and Citigroup have moved nearly $300 billion of balance-sheet assets from London to Frankfurt, and Barclays has won approval to move another $215 billion to Dublin," wrote Prof B Eichengreen. London acquired "its international financial prominence sometime in the eighteenth century" so it is not going to lose that advantage in a hurry but a hard Brexit will surely weaken that prominence. The most serious consequence of a Brexit will be an exodus of professionals from Britain, wrote E Campanella, which will hurt its economy. France suffered serious decline for decades when Huguenots were driven out when Louis XIV revoked the Edict of Nantes in 1685. Britain tried its old successful policy of 'divide and rule' but has failed so far. In the process it is hopelessly divided itself. Will the United Kingdom fall apart? We shall see. 

Who will dare to implement UBI?

Universal Basic Income (UBI) is the solution to India's poverty, according ti BJ Panda. Apparently, it can be funded by reducing fraud in present schemes and it will eliminate the need to tailor help to select groups of needy people. The recent agitation by farmers and the protests, often violent, for various groups for reservation in government jobs is the result of the failure to create enough meaningful jobs, wrote Prof P Bardhan. "One idea is that of a Universal Basic Income Supplement (UBIS)" which "should be looked upon not as an anti-poverty programme, but mainly as part of the citizen's right to minimum economic security". The Economic Survey of 2016-17 also supported a UBI scheme. "A just society needs to guarantee to each individual a minimum income which they can count on, and which provides the necessary material foundation for life with access to basic goods and a life of dignity. The trouble is that experts cannot even agree on what constitutes poverty, how many people should be covered and whether UBI should be in addition to, or instead of, all the present social schemes. A guaranteed UBI would encourage people to increase consumption which was predicted by Milton Friedman in 1957 in his permanent income hypothesis (PIH). A two-year study in Finland, in which unemployed workers were given 560 euros per month in addition to unemployment benefit, found that it did not encourage them to find jobs, even though they would have continued to get the extra money in addition to their salaries. Unemployment benefit would have stopped if they started working. However, some see the experiment as a great success because "it made recipients feel happier and less stressed". Since it is easy to be charitable with taxpayer money politicians compete in announcing handouts to tempt people to vote for them. Congress President Rahul Gandhi announced a Minimum Income Guarantee, if elected, in which the government will pay a top up to those earning below a certain level. Does it mean that if someone is earning zero the government will pay the entire sum to bring him to the guaranteed level? Being in power, Prime Minister Modi was able to announce a lot of handouts in this year's Budget. To show that the fiscal deficit will be controlled the Budget has assumed unjustified levels of revenue, wrote V Kaul. Modi has turned out to be like former President of Argentina Cristina Fernandez in controlling institutions which publish bogus statistics so as to hide massive spending on populist programs, wrote Prof V Dahejia. The electoral advantage of announcing welfare schemes outweighs the value of providing better services through institutions, wrote Y Aiyer. The rapid growth in 1980s-90s was due to fall in fertility rate in India, a UN report said. Perhaps, all this debate is moot. Those benefiting from present handouts will resist a transfer to UBI. Politicians will not dare.

Why are we growing so fast despite losing money?

2019 started well with a rally in US and global equities, strong growth in the US and an easing in the Chinese slowdown, but Prof N Roubini lists 7 reasons why there could be trouble ahead. Strong wage growth in the US because of a very low unemployment rate of 4% in January 2019 could push inflation up, forcing the Federal Reserve to increase its Funds rate. An unemployment rate of 4.1%-4.7% is considered close to full employment, which leads to debate about whether the Fed should increase Funds rate now or hold off until inflation starts to rise above its target of 2%. In its last meeting in January the Fed left rates unchanged at 2.25%-2.5%, wrote JJ Kinahan, while issuing a statement which read, "In light of global economic and financial developments and muted inflation pressures, the Committee will be patient." Political stalemate in the US, a rise in interest rate, a trade war with China or a fall in oil prices could hit US stock markets. The Governor of the Bank of England mark Carney has been warning about the disastrous consequences of a no-deal Brexit for Britain. The eurozone is slowing down, with growth expected to be only 0.3% in the first half of this year. Growth in Germany, the largest economy in the eurozone, was 1.5% in 2018 but it managed to escape a technical recession in the last quarter. This, despite an export surplus of 228 billion euros in 2018. India on the other hand is expected to grow at 7.3% in 2018-19, according to the World Bank, despite a trade deficit of $141.2 billion from April-December 2018, a jump in current account deficit to 2.7% of GDP in the first half of the current financial year and a fiscal deficit which is expected to be higher than the target of 3.3% for 2018-19. Other countries should learn from us. "Globally, debt-induced economic growth has brought forward growth for quite some time." wrote Prof VA Nageswaran. Central banks have stopped monetary tightening. The Reserve Bank of India just reduced its repo rate by 25 basis points, from 6.5% to 6.25%. Wages in the US are stagnant. "After a 10-year-long expansion and a very tight labour market, the rate of growth in the average hourly earnings of production and non-supervisory workers is only 3.4%," but workers will be disappointed because of a "monetary policy that targets inflation in wages but not in asset prices and leverage-enabled growth that favours those with assets, as only they can avail of loans with cheat financing". So, low interest rates help the rich and increase inequality. No wonder 51% of young Americans now believe in socialism. Maybe they are jealous of us.

Are we the worst people in the world?

People in other nations obey rules or they have to pay hefty fines, but Indians have no such culture wrote D Pattanaik. The Abrahamic religions followed by people in the Middle East and the West and Confucianism in China condition them to follow rules, in contrast with Hindus because, "There is no single Hindu ritual that all Hindus are expected to follow." Since all religions go back thousands of years one would expect discipline to be so ingrained in Western nations that fines should not be necessary. This disrespect for rules is apparently the reason that Indians cheat on income tax. "According to the Economic Survey, there are only 7 income tax payers for every 100 voters in India. This number is 100 for Sweden and Norway, and over 60 for USA. India is ranked near the bottom on a list of 55 countries," wrote A Ranade. In 2017, 93% of Indian households earned less than Rs 250,000 per year, which was the lowest threshold for paying income tax. Of these, 93.3% earn less than Rs 1 million per year. The threshold was raised to Rs 500,000 in the Budget on 1 February to persuade these low earners to vote for the BJP, the party of the Prime Minister. "No wonder politicians don't care about taxpayers as most of the votes come from non-payers," wrote Ranade. The reason why people are happy to pay taxes in Sweden is because taxes act as insurance premiums for medical benefits, child care and old age pensions. The same applies to Norway. All these countries also score very high on the index of happiness because they have no worries about dying in agony, because they cannot afford the high cost of treatment, or starving in old age. Also, the Indian government keeps changing rules to trap people. Thus, in 2004 the government abolished the long term capital gains tax (LTCG) on sale of shares and introduced a Securities Transaction Tax (STT), presumably because there will be no LTCG if share prices have fallen and the taxpayer booked a loss, whereas STT would be applicable on all share transactions. Last year the government reintroduced LTCG at 10%, so now people are having to pay double taxes on their investments in shares and mutual funds. The same tax is now applied to Equity Linked Savings Schemes which were sold for their tax savings. Since these schemes have a lock-in period of 3 years people are trapped. An analysis by Cleartax showed that taxpayers pay an average of Rs 20,000 in unnecessary taxes every year. Indians pay the highest rate of income tax up to an annual income of Rs 6 million but lower than the UK and Australia for those earning Rs 125-500 million. Warren Burrett famously claimed to pay a lesser rate of tax than his secretary. It is not that the people are cheating on paying taxes but they are getting trapped because the government keeps changing rules. And we get nothing for the taxes we pay. Indian households borrowed Rs 6.74 trillion in 2017-18, compared to Rs 3.77 trillion in 2014-15. We would not break rules if they were fair and consistent. Maybe, we are not the worst people in the world.

Will technology evolve like dogs?

"Without productive and dependable employment for the vast majority of a country's workforce, economic growth either remains elusive, or its benefits end up concentrated among a tiny minority," wrote Prof D Rodrik. A good job "is typically a stable formal-sector position that comes with core labour protections such as safe working conditions, collective bargaining rights, and regulations against arbitrary removals." The problem is, "Production is becoming increasingly skill intensive while the bulk of labour force remains low-skilled." Because, "Technology and globalization have conspired to widen the gap, with manufacturing and services becoming increasingly automated and digitized." Technology has given rise to an app-based gig economy where people are working long hours for little earnings and no security. If we take the history of the universe, "Recorded history has lasted for the last tenth of a second, and the industrial revolution for the last five-thousandths of a second.." wrote T Chatfield. Although, many animals use tools only humans have combined older tools to produce new ones which means development of new technology resembles evolution of human beings. Not just the job market, technology is changing human behavior and psychology, wrote S Deb. Fifty years ago we imagined that "by the early part of this millennium, space travel would be routine; machines would be terrifyingly intelligent; and computers and humans would have intelligent conversation", wrote S Chitnis. This has not come to pass. "Our phones have become smarter, interfaces slicker, and communications faster. But other predictions haven't come to pass." Most of the recent advances in technology is concentrated in creating apps to provide services to people at home and in social media companies which aim to capture more eyeballs so as to sell more advertising. "A generation of our best engineers are spending their productive output on building behavioral nudges that manipulate users to stay on their platforms." But, since technology is evolving like a biological entity along with humans, maybe it will evolve slowly, like dogs have evolved from wild wolves. Dogs have become such a part of human society that, among all animals, they excel in "interpreting human behavior", wrote W Saletan. So, how to create more jobs? "Tourism and non-traditional agriculture" suggests Rodrik. However, tourism is causing havoc to the environment and to local wildlife. Perhaps, the only solution is to reduce the number of humans as technology evolves to do our jobs. Won't be easy.   

Will the stimulus work in time?

Couple of days back the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) voted 4 to 2 to lower interest rate by 25 basis points to 6.25%, and changed its stance to 'neutral' from 'calibrated tightening'. Noted policy hawk Michael Patra and dove Ravindra Dholakia both voted for the cut. "In signs of RBI/MPC policy line aligning itself more decisively with the government's and that Das, a long-time finance-ministry bureaucrat before assuming governor's role, is indeed putting his foot down, RBI raised collateral-free agricultural loans to Rs 1.6 lakh from Rs 1 lakh." In 2016, the government set a target of 4%, plus/minus 2%, retail price inflation rate for the RBI, but the MPC was more concerned about growth in the economy because it is expected to soften to 6.65% in the second half of the financial year. "In a move to increase liquidity flow to non-banking financial companies (NBFCs) in the country, the RBI on Thursday announced that banks assign differential risk-weighted to their exposures to NBFCs, based on ratings assigned by credit rating agencies, as against the existing practice of a uniform risk weight of 100%." NBFCs borrow short term debt and lend long term loans and retail customers are not protected by deposit insurance, so they are shadow banks," wrote A Mukherjee. 30% of new credit over the last 3 years have been from NBFCs. "The RBI is finicky about who gets a banking license, but even owners of bankrupt power firms are welcome to write home loans." The RBI relaxed rules for companies to buy assets of bankrupt companies by borrowing money overseas. But, is lack of financing holding back sale of bankrupt firms? Almost three years later, "Litigation has tied down some big restructuring deals and bankers are starting to sell bad debt at fire sale prices rather than wait for the system to work better." "The billionaire Ruia brothers have used every trick in the book to ensure their prize asset stays in the family, despite owing financial creditors Rs 50,800 crore ($6.3 billion) in unpaid dues," wrote A Mukherjee. Despite a Supreme Court ruling allowing Arcelor Mittal to go ahead with its takeover of Essar Steel another appeal has been filed at the Supreme Court which will delay the deal for months. The RBI was persuaded to cut its policy rate because of increased consumer confidence, lower inflation expectation and capacity utilization still lower than the optimum of 82-85%, wrote A Iyer. Will this move by the RBI stimulate growth or raise inflation rate? More to the point, will it help Prime Minister Modi win general election in 2 months time? May depend more on what happens in the rest of the world. We shall see.

The government is there to please the people. That's what they do.

It was unwise of the government to try to suppress the unemployment data from the National Sample Survey Office (NSSO) which showed "the unemployment rate at a 45-year peak of 6.1% in 2017-18", wrote R Jagannathan. Actually, high unemployment is a good thing because, "The rise in open unemployment may be indicative of a degree of returning optimism in the job market." "If people think the economy is sinking, many of the unemployed may temporarily drop out of the job market," while unemployment peaked at 9.23% in May-August 2016 "when a good monsoon had improved the jobs climate". This theory is belied by the Labor Force Participation Rate (LFPR) which has dropped from 55.9% in 2011-12 to 49.8% in 2017-18. "LFPR is the section of working population in the age group of 16-64 in the economy currently employed or seeking employment." Why would fewer people be looking for work if the economy is growing? "Indian statistics often resemble a hall of mirrors that the bewildered have to walk through," wrote N Rajadhyaksha, even though Prasanta Chandra Mahalanobis "had built a statistical system that was once the envy of the world". With general election in a couple of months the government wants to hide the fact that "almost 11 million Indians lost their jobs in 2018". "Over the years, electoral politics has forced Bharatiya Janata Party (BJP) to start looking a bit like the Congress, the main opposition party," wrote R Singhal. BJP is the party of Prime Minister Modi. "And yet, there were some major embellishments which have become this government's hallmark." The government transferred its capital expenditure to public sector companies (PSUs) by forcing them to employ more people and, in a sleight of hand, showed revenue of Rs 800 billion by forcing one public sector company to buy another. By grossly overestimating revenue the Budget forecast fiscal deficit at 3.4%. "If India had fiscal council, it would have probably stated the fiscal deficit for this year at 4 per cent of the GDP," wrote L Venkatesh. The government is able to claim that fiscal deficit is under control by grossly overestimating nominal growth of GDP, on which it collects taxes, wrote Prof A Lahiri. "Indeed, the combined public sector deficit including central, states and PSUs is above 8 per cent." "Governments finance their fiscal spending and deficit usually through market borrowings," wrote Prof VA Nageswaran, and by borrowing from small savings schemes. But this government has found a third source, which is "internal and external budgetary resources of public enterprises". "Without sound data, no policy response will be adequate to meet the burgeoning employment crisis," wrote Jagannathan. But, sound data will show that this government is responsible for the fiscal mess, as A Mukherjee wrote. Politicians know that the majority of people don't understand statistics. But they love handouts. So, they please the people.