A sip, or a large gulp from the poisoned chalice?

Congratulations Ms Nirmala Sitharaman for being appointed the new Finance Minister of India, the second woman to occupy the post after Indira Gandhi. Whether this leads to greater glory or is a poisoned chalice remains to be seen. Today's headlines make grim reading. Economic growth fell to 5.8% in the last quarter of the last financial year ending on 31 March and "India's per-capita income increased 10% to Rs 10,534 per month in 2018-19 from Rs 9,580 in FY19. The per-capita income is an indicator of the prosperity of a country." By that indicator Indians are very poor. This is about half of Rs 21,000 per month, which is the lowest threshold for paying income tax, and converts to a paltry $150 per month. Unemployment is at a 45 year high, said the National Statistical Office (NSO) but, "This is a new design and uses new metric and it would be unfair to compare it with the past," said Pravin Srivastava, chief statistician. In January, PC Mohanan and J Meenakshi resigned from the National Statistical Commission (NSC) over suppression of unemployment figures. GDP growth fell "as demand for cars and consumer goods slumped, while farm output contracted". "We expect growth to lift in fiscal 2020, particularly from the second half over a weak base, as normal monsoon, softer interest rates and budgetary measures kick in to support consumption," said an economist. The monsoon is expected to be below normal over North and South India this year. However, rainfall over the country as a whole is expected to be normal. Does it mean that other areas will have excess rainfall, leading to floods? Ms Sitharaman is to present a full budget on 5 July but she has been preempted already. The first cabinet meeting announced extension of PM-Kisan scheme of Rs 6,000 handout per year to all 145 million farmers and a pension scheme for 100 million farmers. A new pension scheme was also announced for 30 million traders with turnover of less than Rs 15 million per year. Fortunately for the new finance minister, the government said that it has met its fiscal deficit target of 3.4% in the last financial year. This was done by reducing expenditure by Rs 1.5 trillion and by postponing payment of bills, such as those of the Food Corporation of India, to this budget. Foreign Direct Investment (FDI) fell by 1% in the last fiscal, and India is to lose its tax benefits under the Generalized System of Preferences program on $5.6 billion of exports to the US. Business leaders would love a reduction of corporate tax rate to 25% and they are pleading for a stable tax regime with no sudden changes, as has been the practice so far. Fat chance of that. Tax terrorism will continue as Modi continues with rampant handouts to keep the Congress out. The poisoned chalice is very deep indeed.

Who is trying to effect regime change in the US?

Special Counsel Robert Mueller, who investigated if there was any collusion between Russia and the Trump campaign, gave a speech before he steps down from his post. Mueller said in his speech that he will not provide any further information than what was contained in his report. "Beyond what I have said here today and what is contained in our written work, I do not believe it is appropriate to speak further or comment," he said.  "I would not provide information beyond what is public in any appearance before Congress," Mueller said. The Democrats, who would like to displace President Donald Trump before next year's presidential election, are more eager for Muller to testify in case they can find some excuse to start impeachment proceedings against Trump. Mueller broke rules that govern special counsel conduct wrote Rich Lowry. "He invented an extraconstitutional legal standard for his obstruction investigation and acted, at the very least, in violation of the spirit of the special counsel regulations. Mueller did not find any evidence of collusion but he was non-committal on whether Trump was guilty of obstruction of justice. "If we had had confidence that he clearly did not commit a crime we would have said so," Mueller said. Comedian Trevor Noah wondered what conclusion to draw if he received a similar answer on asking a person if he had genital herpes. Naturally, Democrats interpreted Mueller's speech as enough evidence to impeach the president. For over two years Democrats were preparing to impeach Trump because they were sure that Mueller would find conclusive evidence of collusion between Russia and the Trump campaign. They were bitterly disappointed when Mueller did not find any such evidence but Mueller wrote that Trump could have obstructed justice by wanting to fire him on several occasions. Why would it be obstruction if he was fired and replaced by someone else? Surely he is not the only person capable of acting as special counsel? Trump is incensed at, what he sees as, Democrats attempts at not letting him function and attempts to overturn the result of the 2016 election through dubious means. Attorney General William Barr has started an investigation into who started the Russia collusion rumor and why the Mueller investigation was instigated. Barr should appoint a special counsel to investigate how Britain interfered with the election in 2016. First, there was the fictitious dossier from ex-British spy Christopher Steele and then there is US citizen Stefan Halper who has been a professor at Cambridge university for years and was trying a sting operation on members of Trump campaign. British Prime Minister Harold Macmillan thought that the British were Greeks to the Romans in the US, and the Brits are very proud of Margaret Thatcher who told George HW Bush that it was "no time to go wobbly" on Saddam Hussein's invasion of Kuwait. Trump has declassified documents relating to the Russian investigation. Hopefully we will learn how Britain is running the US.

Which will roar first? That is the question.

Since the overwhelming election victory of Prime Minister Narendra Modi experts have been proffering advice on what he should do to stop the economy falling off a cliff. "Fixing the economy needs policies for the short term (fiscal 2019-20) and reforms for the longer term," wrote R Jagannathan, a supporter of Modi. Economic growth may have fallen to 6% in the last  quarter of the last financial year ending on 31 March, said a report from the State Bank of India (SBI). This is important because, "About 84 million young people became eligible to vote in a general elections for the first time since 2014 polls," wrote Prof S Rajagopalan. "They are entering the workforce full of hope, looking for strong leadership to fulfil their aspirations."  The first thing to do is to recapitalize the banks. On 31 December 2018, public sector banks (PSBs) had Rs 8.64 trillion in bad loans on their books, which are loans in which default has been longer than 90 days, wrote V Kaul. The only painless way to recapitalize PSBs is to link it to Reserve Bank of India's (RBI) excess capital, said Jagannathan. The RBI earns a lot of money from seigniorage, from which it pays a dividend to the government.  "We do not pay interest on our liabilities," said former governor of the RBI Prof R Rajan. "However, the financial assets we hold, typically domestic and foreign government bonds, do pay interest." If the RBI prints notes, as it is empowered to do, it can lose control of inflation, "exemplified by Venezuela in the 1980s and 1990s," wrote A Mukherjee. "The trouble is that the central bank can't reduce one side of the balance sheet without a concomitant decrease in the other." So, if it pays a higher dividend to the government it will have to sell an equivalent amount of its assets, creating a "cataclysmic deflationary shock for the economy". The goods and services tax (GST) should be simplified and, "A third focus area should be to restore infrastructure spending." To win, Modi promised Rs 100 trillion of capital investment in infrastructure by 2024, "along with tax cuts for middle class Indians", wrote Beniwal and Mazumdar. Rs 30 trillion will be spent on railways, highways and in linking rivers in India, which is intended to provide cheaper transport as well as water for irrigation in dry regions of the country. Trouble is "the government spending more means the government is borrowing more to finance the higher fiscal deficit" which will push up interest rates, said Kaul. No problem, wrote Jagannathan, the RBI should cut interest rates by a huge 75 basis points. By next year, "demand should be roaring ahead" so revenues will rise and the government will need to borrow less. Modi earned Rs 11 trillion in 4.5 years because of very low prices of crude oil since the end of 2014. The price of oil has doubled and there is a danger of roaring inflation which will suppress demand. Who knows what will roar?

Despite similarities, the EU and India are very different.

The general elections in India ended on 19 May and results were announced on 23 and 24 May. Elections to the European Parliament in Brussels were held on 23 and 26 May and the results came out by 27 May. India has 29 states and 7 Union Territories, whereas the European Union (EU) has 28 nation states, which will be reduced to 27 when Britain leaves the EU in, what is known as Brexit. India has 22 official languages and hundreds of dialects, whereas the EU has 24 official languages. An Indian citizen can travel freely anywhere within India and so can citizens of 26 countries that make up the Shengen area. Europe is much cooler, with highest temperatures seldom exceeding 30 Celsius, whereas in India temperatures can reach 45 Celsius, or higher. Europe used ballot papers for its elections and counting is done by hand, whereas India uses electronic voting machines (EVMs) in the belief that it cuts out cheating. Election officials can misguide illiterate voters, machines can be switched, and results can be easily altered when counting the votes. Trouble with fixing elections is that officials don't know how many results to fix and it invariably ends up in a landslide victory for the political party in power. The US and European countries have been reverting back to paper ballots but Indian officials are adamant about the safety of EVMs. India follows a first-past-the-post system, in which the person with the highest number of votes wins the seat even if the winning margin is just one vote. Though different countries in Europe follow different systems of elections, "The most important common rule, however, is that countries must use a proportional system", which means that seats are divided according to the proportion of votes each party gets. This results in a fragmented parliament. This time the European People's Party (EPP) of the center right and Socialists and Democrats (S&D) of the center left, which used to rule Europe, have both lost seats. "The Greens and Liberals have made gains, as well as the right-wing nationalist and populist groups." Which means Europe must always be governed by a coalition of parties. In India too the Nationalist Democratic Alliance (NDA) won the elections, but actually the Bharatiya Janata Party of Prime Minister Narendra Modi won absolute majority with 303 seats, which gives him absolute power for the next five years. "Elections in India and the European Union in recent days have resulted in gains for politicians with strident nationalist messages," wrote J Griffiths for the CNN. "In some EU countries the out-of-touch elites were savaged", whereas in India voters responded to Modi's "doubling down on Hindu nationalism and anit- Muslim rhetoric". So despite huge differences the peoples of the EU and India are quite similar. Of course, India is poor while the EU is rich. That is what matters. 

How can the old Congress beat the new Congress?

After Prime Minister Narendra Modi's landslide victory in the recent general elections there has been enormous attention and praise of Modi's tireless campaigning and his ability to connect with the people. But what about his vanquished opponent Congress President Rahul Gandhi? Gandhi's problem is his "evident discomfort in the company of seasoned Congress leaders", so he "replaced the seasoned leaders with 'lightweight outsiders'", and hence "he ended up reforming the Alsatian into a Poodle", wrote CL Manoj. Actually, the real problem of Gandhi is that Modi has borrowed all of Congress's ideas and policies, so that Gandhi cannot criticise his policies without blaming previous Congress premiers, including his own ancestors, whereas Modi is free to criticise Gandhi and his family. Modi veered to the left to win a second term, whereas Bill Clinton and Tony Blair moved to the right to win consecutive elections. Bill Clinton, the first two-term Democratic president since Franklin Delano Roosevelt, "signed more consequential conservative legislative than any president since -- and perhaps anyone before him". Blair, who won three elections, the first two by landslide, was loved by the Conservative Party leadership because they believed 'he was one of us', albeit trapped by the Labour Party". On the other hand, "He is reviled by many in the party, and his supporters are in decline as a new generation of Labour MPs has entered parliament, rejecting Mr Blair and the way he tried to rid their party of its left-wing elements." Modi projected himself as a strongman, the only person capable of protecting India. Only he had the guts to launch a surgical strike on Pakistan after a terrorist attack at Uri and to order an air strike on a terrorist camp in Balakot, inside Pakistan. Gandhi did not mention the war in 1965, when Prime Minister Lal Bahadur Shastri ordered the invasion of Pakistan and Indian forces almost conquered Lahore. In 1971, 90,000 Pakistani soldiers surrendered to India when Indira Gandhi was the prime minister. East Pakistan became independent Bangladesh. Surely, these were much larger victories, so why was Gandhi silent? Because India returned all Pakistani territory in 1965 and 90,000 Pakistani soldiers were returned to Pakistan in 1971, for nothing in return. Our soldiers died in vain and Lal Bahadur Shastri was killed in Tashkent. Modi is said to have a Hindutva agenda and apparently wants to turn secular India into a Hindu rashtra. To counter that and to garner Hindu votes Rahul Gandhi has been visiting temples to show that he is a Hindu. Modi has done nothing to stop the plunder of Hindu temples by releasing them from control of politicians, while churches and mosques are free. Gandhi cannot say anything because this was started by the Congress. Modi is the new Congress and Gandhi is helpless.

We can analyse forever but it is still inexplicable.

"Mawanella experienced a spate of violent anti-Muslim attacks in 2001 that shook the town," wrote M Srinivasan. "In 2018, Digana, located 40 km east of Mawanella, witnessed one of the worst targeted attacks on Muslims in years. Following a road rage incident, at least one Muslim youth died, and Muslim-owned property worth millions was burnt down. Many saw the incident as a crude expression of a resurgent Sinhala-Buddhist extremism." In 1990, Tamil Tigers, who were Hindus, evicted 90,000 Muslims from Jaffna who settled in refugee camps in Puttalam district, wrote N Subaramanian. New mosques were built with money from Saudi Arabia. A cable from the Saudi foreign minister to the Saudi Ambassador in Sri Lanka asked "the ambassador to ensure Saudi citizens did not travel outside near churches on Easter Sunday, while asking him to delete all documents related to it", wrote I Bagchi. But, why target churches? It was "to attract maximum international attention" and the attacks on hotels were designed to hurt tourism. At $4.4 billion, tourism provides 5% of Sri Lanka's gross domestic product (GDP). Most of the bombers were well educated and had traveled abroad. "There was a time when Muslims went to the UK and came back "anglicised", speaking English in an accent unfamiliar in Pakistan," wrote K Ahmed. "Today, they return transformed into what a medieval Muslim man would have looked like -- bearded and clad midway between Saudi Arabia and India, a total stranger to spoken English." "The ground for current terrorism was laid in the 80s when Mujahideen were manufactured in the Salafi mould with Saudi money, American training and equipment and hundreds of Pakistan built madrasas along the Afghanistan-Pakistan border primarily to expel the Soviets from Afghanistan," wrote S Naqvi. After the Soviets were expelled, the Americans went home and terrorists spread to "Kashmir, Egypt and Algeria". Now the enemy is Shia Iran. "The sudden establishment of the Islamic State in Mosul remains an uninvestigated mystery. When the IS charged towards Baghdad wielding the latest arms mounted on Humvees straight from the showroom, my sources in Najaf were convinced of their American sponsorship." Which maybe why Russia was so successful in defeating IS in Syria while the US was not. Sri Lanka refused to believe intelligence from India about possible attacks because they believed that New Delhi was "trying to pit Colombo against Pakistan by pointing fingers at the island's Muslim community". The bombs used in Sri Lanka were made of "triacetone triperoxide, an unstable but easily made mixture favored by Islamic State militants who call it "Mother of Satan". All this analysis still does no explain why so many innocent people, including children, were killed. They were only enjoying themselves.  

It's only words, and words are all I have.

"The finance ministry and other departments have already prepared measures aimed at stimulating the economy that need to be taken by the new government." The budget will "cut personal taxes to put more money in the hands of the middle class, thus persuading people to spend more and drive up demand". Hallelujah. But how? "The Bharatiya Janata Party pledged cash handouts to farmers,  Rs 100 lakh crore ($1.44 trillion) to build roads, railways and other infrastructure, a boost to manufacturing, and a doubling of exports. Those promises , along with tax cuts for middle class Indians, resonated with voters, who gave BJP a majority of the seats in parliament, according to official results on Thursday." Of the Rs 100 trillion, Rs 30 trillion will be spent on transport, Rs 20 trillion on energy, Rs 12 trillion on housing, 10 on health and 9 on defence. "Finding the money to pay for the populist pledges will be Modi's immediate challenge." Private consumption has fallen, which means lower tax collection. Foreign direct investment (FDI) is down and "Any further widening in the fiscal deficit would jeopardize the nation's credit rating. Fitch Ratings Ltd said on Thursday improving the nation's finances will be crucial for the new administration." Pesky furriners. They know more than Indians who are celebrating in their hope for the future. The interim budget in January concealed the fiscal deficit by shifting money from one pocket to another and showing that as revenue. The Rs 11 trillion the government earned by increasing taxes on fuel, taking advantage of low crude oil prices, helped in increasing revenues. Oil is now at around $70 a barrel and high taxes will hit consumers, further reducing spending, and cause anger on the streets. Low retail inflation has helped to bring down interest rate but now that core inflation is also down, underlining the economic weakness, it is beginning to worry the government. To increase spending the government needs money, and that means higher taxes. Thousands of taxpayers were terrorized into paying more than their tax liability by threatening notices. A sudden change in taxes on e-commerce companies hit Amazon and Walmart, which had just bought Flipkart for $16 billion. This after collecting Rs 100 billion in taxes from the sale. Foreign companies have been issued two different tax notices, in case it a company successfully contests the first notice. Modi has failed, or has not tried to end, tax terror. Before talking about reducing taxes Modi should stop changing tax laws at whim and make the laws clear so that we are not at the mercy of tax officials. We need to have a tax on words.

He won because they lost.

Results are in and the Bharatiya Janata Party (BJP) of Prime Minister Narendra Modi has won in a landslide, winning 303 seats, enough to give it absolute majority on its own. The Congress came second with 52 seats which is a slight improvement on its performance in 2014 when it got just 44. This is less than 55 seats, or 10% of the total, required to appoint a leader of the opposition. Of those elected, 300 will first term members of parliament (MPs), 12% of MPs are below 40 years of age, and 78, that is 14%, are women. The largest number, 39%, declared politics as profession, which means they will do anything to win, and 38% are engaged in agriculture, which means tax free income. Modi came to power in 2014 promising development and economic growth but the economy has been slowing down with fall in consumer demand. India had hoped for a reforming prime minister like Shinzo Abe of Japan but Modi's first five years were a waste, wrote A Mukherjee. So, why did he win with an increased majority? Because Modi was able to change the narrative from development to nationalism, wrote I  Marlow. The suicide bomb attack at Pulwama in Kashmir that killed 40 soldiers in February provided Modi the opportunity he wanted. Air strikes on a terrorist training center at Balakot inside Pakistan was used by Modi to claim that only he has the guts to take on the enemy. Pakistan claimed that bombs had missed their target and only destroyed 19 trees instead, but the return of Wing Commander Abhinandan Varthaman, whose plane was shot down over Pakistani territory, united the nation in the joy of victory. The Congress failed to highlight that there was a rise of 93% in the number of security personnel killed in Kashmir between 2014 and 2018. The number of civilians killed also rose. Killings by Maoist terrorists, known as Naxals, have also been rising. In Uttar Pradesh, India's largest state, quick implementation of welfare schemes helped to win votes of the poor and lower castes. Instead of creating jobs India has lost 11 million jobs in 2018 alone but Modi was able to convince people to vote for him by distributing handouts, wrote S Chakrabarti. Modi announced Rs 6,000 per year to all farmers with less than 2 hectares of landholding. The Congress went one better and announced a scheme to pay Rs 72,000 per year to 50 million of the poorest families. But it didn't work. Maybe because people could not be sure if they would be included in the scheme, they may have thought that this would be instead of the benefits they are getting already or because of past experience. Prof V Dahejia saw a parallel between Modi and the landslide victory of Argentina's Cristina Fernandez de Kirchner because of fragmented opposition, by fudging economic statistics and generous welfare schemes. You are only as strong as the opposition allows. The opposition was fragmented and did not focus on Modi's failures. They allowed him to win.

Will grey hair escape the Thucydides Trap?

While addressing Western delegation in Beijing, Chinese President Xi Jinping argued that the US need not worry about the "Thucydides Trap", "so named [after] the Greek historian who chronicled how Sparta's fear of a rising Athens made war between the two inevitable", wrote Prof N Roubini. Graham Allison of Harvard University "examines 16 earlier rivalries between an emerging and an established power, and finds that 12 of them led to war". While the US accuses China of cheating on trade rules, "the Chinese suspect that the US's real goal is to prevent them from rising any further or projecting legitimate power and influence abroad". What is legitimate power? Is the nine-dash line, which grabs large tracts of South China Sea (SCS) from other nations, legitimate power? China has built military bases on artificial islands in the SCS and refused to accept a ruling by the Permanent Court of Arbitration in the Hague. The state-controlled media referred to the US and Japan as "worrying eunuchs" and "paper tigers". In response the then President of the Philippines Benigno Aquino compared China to "Nazi Germany's expansionism before World War Two". China blatantly cheats on trade by creating non-tariff restrictions on foreign companies, by subsidising its companies, by awarding state contracts to Chinese companies and by stealing technology secrets by forcing foreign companies to transfer sensitive technology to local companies. "From Richard Nixon to Barack Obama, successive US presidents regarded aiding China's economic rise as a matter of national interest," wrote Prof B Chellaney. No longer. President Donald Trump has started a trade war that has upset China's smooth transition to a high-tech economy by 2025. "Now, Xi's undivided attention is on making this year's growth numbers. Trump's trade-policy grenades are sending a few too many market forces Beijing's way for comfort," wrote W Pesek. Xi Jinping actually refused to dye his hair as is the custom in China and showed streaks of grey on his head recently. Whether this was a refusal to use cosmetics made by US firms, as part of the trade war, or an effort to save money to help the economy, we do not know. Australia, New Zealand, Canada, Britain and the US have formed a Five Eyes alliance which will cooperate with other nations to resist China's expansionism. Trump has declared a national emergency to protect US computer networks from "foreign adversaries". Chinese scholars and professors have been denied US visas to prevent them from spying on US research. If things get out of hand "full-scale cold war will ensue, and a hot on (or a series of proxy wars) cannot be ruled out". Maybe, China is already in Thucydides Trap. We watch from the sidelines.

We know what to do, but how?

Votes in India's general election are being counted and the National Democratic Alliance (NDA), which includes the Bharatiya Janata Party (BJP) of Prime Minister Narendra Modi, is leading as expected. "The two most important items on the NDA agenda should be reflation and reform -- the two 'R's," wrote R Jagannathan. "Modi's first term, despite official gross domestic product (GDP) numbers showing robust growth, had deflationary tendencies." It is another matter that government figures are suspect and, "Economists and investors are voting with their feet - by using alternative sources of data and in some cases creating their own benchmarks to measure the Indian economy." Like, China's Li Keqiang index. "What the economy needs now is calibrated loosening of fiscal and monetary policies in the short term, and a focus on reforms." Sure, but how? "With retail inflation below 3% and real interest rates above 3%" the Reserve Bank (RBI) can reduce interest rate, but will it stimulate demand? Consumer demand for fast moving consumer goods (FMCG) is down. Household savings have dropped to 17.2% of GDP from 23.6% in 2011-12. Car and two-wheeler sales are down. People take loans to buy vehicles but not to buy toothpaste or shampoo so reducing interest rate is not going to increase private consumption which contributes 62% to the GDP. With demand falling, manufacturing activity slowed down in April after slower growth in March. Services sector activity also dropped in April. The services sector contributes 54.40% to India's gross value added (GVA), while manufacturing contributes 29.73%. A Finance Ministry report admitted "declining growth in private consumption, slow increase in fixed investment and muted exports". Weak consumption means a fall in new investments and that means fewer jobs. "Indian companies, both public and private sector, announced projects worth Rs 1.99 trillion in the quarter ending March 2019, 16% lower than what was announced in the quarter ending December 2018, and 46% lower than the year ago period." So, what about some " "Keynesian pump-priming" by increasing government spending? The government has already resorted to "massaging the fiscal deficit" to achieve the predicted figure of 3.5%, wrote V Kaul, and has to balance its books before spending any more. The interim budget in January was a long list of handouts and once these are started they cannot be stopped. India is a big importer of commodities but it exports very little so any increase in the price of oil is going to result in a huge hole in government finances, wrote N Rajadhyaksha. Brent crude is trading at $70 a barrel, compared to $30 in 2015. India should have a fiscal council to improve its budget calculations, wrote P Bhattacharya. Fiscal stimulus is impossible and monetary stimulus will not work. If only wishes were horses.

They had it good while it lasted.

Couple of days back the conservative Liberal-National coalition of Prime Minister Scott Morrison of Australia won a shock majority over the left-wing Labor Party in general elections, when exit polls predicted a defeat. "Most people who vote for conservatives do not reveal their choice to pollsters who might, for the most part, be 'left' or liberal," wrote Prof VA Nageswaran. "It is considered 'wrong' to vote for conservatives because that is the narrative that is considered to be politically correct." Liberals believe in freedom of the individual without constraints from the government. They are wary of democracy because "it might generate a tyranny by the majority". "We live in an age of the minority mob," wrote Q Letts. "The forces of political correctness impose their unyielding views everywhere." Such has been the campaign for gender neutrality that children in Britain are asking for sex change treatments. The UK government takes children away from their parents if the parents refuse to cooperate with sex change operations. Though liberals believe in freedom from government they want the government to provide cradle to grave social services financed by income tax and inheritance tax. They also want "an end to the tariffs and restrictions that governments imposed on foreign imports to protect domestic producers". Unfortunately for liberals, other nations took advantage of low tariffs while erecting barriers of their own. "In the early 1970s, China began pretending to be friends with the United States," wrote S Deb. "The West thought that freer markets would lead to a flowering of democracy, but the Chinese do not believe either in free markets or in democracy."  The migrant crisis in Europe has strained the open border policies of liberals. Hungary erected a high tech border fence at its southern border to keep out migrants. The left wing media labels anyone dissenting with their views as far-right, fascists or even Nazis. People have had enough. Across Europe nationalist parties are winning more seats in elections. Europe is to hold elections to the European Parliament in Brussels in the next few days.The far-right parties in Europe are expected to more than double the number of their seats and "control as much as 18% of Parliament". "Brexit, Trump election, trade tensions, Merkel announcing retirement, Macron's troubles, arrest of Huawei CEO, US self-sufficiency in oil -- may be coincidence but the confluence suggests end of globalization era. Can't put Humpty Dumpty back together," tweeted S Thiruvadanthai, director of research at Jerome Levy Forecasting Center in New York. The liberal world order, that was at its height after World War II, may be coming to an end, wrote R Kagan. Not because of Russia and China, but because of the arrogant elite who pursued their own interests and refused to listen to the masses. The masses are striking back.

It is just too lucrative. And safe.

"This year's elections have seen 8,048 candidates from 679 parties contest; 15 years ago, it was 3,262 candidates representing 157 parties," wrote A Srinivas et al. With so much competition candidates have become richer and more criminal. The median wealth declared by 436 candidates of the Bharatiya Janata Party (BJP) is Rs 350 million, while that for 421 candidates of the Congress is Rs 440 million. "In reality, these numbers are likely underestimates since this is merely self-declared data from election affidavits and not a comprehensive measure of wealth. By comparison, wealth of 91% of the Indian population is less than $10,000, a paltry Rs 700,000, according to Credit Suisse. "And as competition gets tougher and constituencies get more crowded, more money is needed." "According to research by Association for Democratic Reforms (ADR), the chances of winning for a candidate with criminal cases in the Lok Sabha 2014 elections were 13% whereas for a candidate with a clean record they were 5%." ADR analysed affidavits of all 119 Members elected to the Telangana Legislative Assembly (MLAs) and found that 73 (61%) declared criminal cases against themselves. "47 (40%) MLAs have declared serious criminal cases including cases related to attempt to murder, a crime against women etc." In December, the Supreme Court  "was informed that there were 4,122 criminal cases pending, some for over three decades, against present and former members of Parliament and legislative assemblies". To convict anyone you need evidence and that has to be collected through meticulous investigation. India's top investigative agency the Central Bureau of Investigation (CBI) was described as a "caged parrot" by Justice Lodha of the Supreme Court in 2013. It is not much better in 2019, with Prime Minister Narendra Modi being accused of targeting opposition politicians and parties. In February, police in Kolkata arrested 8 CBI officials and took them to the local police station for questioning. While accusing West Bengal Chief Minister Mamata Banerjee of protecting corrupt officials the BJP should answer why the CBI has suddenly gone soft on two Bengal politicians who joined the BJP. Meat exporter Moin Qureshi, accused of money laundering through hawala transactions is said to have bribed several directors of the CBI. "The credibility of all institutions of accountability from the CVC to the CBI, judiciary to police, is in worse shape than five years ago," wrote Prof PB Mehta. "So most anti-corruption politics will remain confined to slash and burn exercise, useful for knocking down opponents, but with no lasting impact on the sinews of power." Hence, "Criminals themselves tend to enter politics for both the potential protection and the potential financial benefits it offers." Why change a winning system.  

No one is talking of the economy. That is reform.

The general elections ended yesterday and immediately there was an outburst of exit polls most of which give a clear majority to the National Democratic Alliance (NDA) which includes the Bharatiya Janata Party (BJP) of Prime Minister Narendra Modi. Except for one, all polls predict the NDA will get more than 272 seats required for majority in the Lok Sabha. Because elections are held in phases spread over 6 weeks the Elections Commission bans exit polls until completion of all the phases, so there is an explosion when poll booths close on the last day. When Modi won his first term in 2014, Prof V Dahejia predicted that he will shun 'big bang' economic reforms in favor of "relentless gradualism" like Canadian Prime Minister Stephen Harper. Modi gave up on reforms after "monogrammed bespoke suit debacle during President Barack Obama's Republic Day visit in January 2016" which invited the jibe of "suit boot ki sarkar", which meant a government of the elite, from Congress President Rahul Gandhi. "Gandhi's taunt, and his own flamboyant sartorial zeal, made the erstwhile common-man-turned-prime-minister  appear aloof and arrogant, he and his government having occupied with alacrity the Lutyens bungalows of departed Congress apparatchiks." "The Central Public Works Department (CPWD) has spent more than Rs 100 crore (Rs 1 billion) on the renovation and furnishing of the bungalows and offices of Union Ministers over the last five years," was the answer to a Right to Information (RTI) query. In 2014, Modi promised "minimum government, maximum governance" but has a total of 74 ministers in his cabinet. Foreign and domestic travel by ministers cost a total of Rs 3.94 billion while Modi's foreign visits cost a total of Rs 20.21 billion. As for maximum governance, Modi started new welfare schemes while continuing with all the old ones. "The deeper reason for the drift away from reforms (however fitfully attempted) toward an eventual U-turn to welfarism, is the lack of an ideological core -- of an idea, a theory of where Modi wanted the nation to go in terms of economic policy." High retail inflation was blamed for the election defeat of Congress in 2014 but persistent low inflation is the problem for the Modi government. Price pressures have fallen because of falling consumption levels, as shown by falling sales of cars and fast moving consumer goods (FMCG). There are two ways to manage bad news. One is to appoint lackeys as heads of government institutions who suppress key information, and the other is to spend $640 million on advertisements to glorify oneself. The country may have to pay a steep price if "the Overton window has shifted, or narrowed, and economic reform vanishes from acceptable public discourse for years to come". The most successful 'reform' is to win elections. Modi seems to have succeeded.

Singapore had LKY, we had PL480.

"In less than sixty years Singapore has transformed from a poor developing country into one of the richest -- its per capita income is now double that of Australia," wrote S Sabhlok. This is because of Lee Kuan Yew (LKY) who was prime minister of Singapore from 1959-1990. Both Jawaharlal Nehru and LKY started off as socialists, but while Nehru said, "Never talk to me about the word profit; it is a dirty word," LKY learnt free market economics from Friedrich Hayek and Milton Friedman. LKY thought that colonial students who followed Harold Laski's socialist ideas "were to achieve power and run their underdeveloped economies aground." "It was my good fortune that I had several of these failed economies to warn me of this danger before I was in a position to do any harm in government," said LKY. India was one such, having to beg the US for food under the PL480 program. "The year was 1966 and independent India had just embarked on its first experiment with broad-based economic liberalization with a characteristic combination of whim, status-quoism and bad economics," wrote A Mital. India's food shortage was alleviated by an American named Norman Borlaug who introduced a shorter wheat plant with a "compact stalk that supported an enormous head of grain without falling over from the weight". Socialism was added to the Constitution by Indira Gandhi in 1976, and while communist China adopted neoliberal policies under Deng Xiaoping, India still continues to be a socialist country with "Corruption, cronyism, nepotism, investment and divestment based on patronage and not profit," wrote M Kilcoyne. The economy reached such a state that the Reserve Bank of India had to pledge 46.91 tonnes of gold with the Bank of England and the Bank of Japan in 1991 to avoid a balance of payment crisis. "Long before Milton Friedman held up Hong Kong as a model of a free enterprise economy, I had seen the advantage of having little or no social safety net," said LKY. India has a plethora of social schemes, and political parties are promising more schemes to get votes of various groups, without explaining how they will pay for all of them without ruining our finances, wrote PS Jha. Naturally, taxes are low in Singapore while taxpayers in India are subjected to terrorism to frighten them to pay more than they should. Taxpayers end up paying an average of Rs 20,000 more in taxes every year. Civil servants are paid very well in Singapore but there are "extremely strong mechanisms of accountability". In India, civil servants are paid much more than the private sector but no civil servant can even be investigated without permission of the department, giving complete immunity to rogues. So, there we are. India is not Singapore, and never will be.

Sell your donkeys and girls to your iron brother.

"The technical teams of the government and the International Monetary Fund (IMF) have reached an agreement on a bailout package for Pakistan, Adviser to Prime Minister on Finance, Revenue and Economic Affairs Dr Abdul Hafeez Shaikh announced on Sunday." "Pakistan to receive $6 billion over three years," as well as, "$2-3 billion from World Bank, ADB etc", provided it carries out "decisive policies and reforms necessary for growth". Following the agreement the Pakistani rupee fell "3.6 percent on Thursday to close at 146.2 against the dollar in the interbank market, dropped further on Friday, dealers said, selling at 149.50 in the interbank market and 150 in the open market". A depreciating rupee will increase prices of imports and raise inflation. The Asian Development Bank (ADB) said that inflation had "accelerated sharply from 3.8% in the first 8 months of FY18 to 6.5% in the same period in FY19", foreign exchange reserves were just $8.1 billion in February 2019 and GDP growth will fall to 3.9% in fiscal year 2019. The IMF helps countries in financial difficulties, but why is it necessary? In January the Eurasian Times reported that "Saudi Arabia and the Untied Arab Emirates (UAE) have already committed $6 billion worth of loans as well as $6.4 billion in oil credit to support Pakistan's balance of payments position. Then there is China with foreign exchange reserves of $3.073 trillion. "In China, Pakistan has a unique name of Batie, which means 'iron brother'. Meanwhile, in Pakistan the China-Pakistan relationship is described as 'higher than the mountain, deeper than the sea and sweeter than honey'," wrote Yao Jing. This 'higher, deeper, sweeter' iron brother offered just $2 billion to add to the mountain of debt that Pakistan already owes to China for the China-Pakistan Economic Corridor (CPEC). In January, the government apparently diverted Rs 24 billion "for discretionary spending on parliamentarians' schemes" from CPEC funds. Unfortunately, innocent donkeys have to pay for the government caught with its hands in the cookie jar, after African governments woke to the dangers posed by China. But, that is not enough. Chinese men are trafficking poor Pakistani Christian girls and treating them as slaves. China sent a 'task force' to Pakistan to help stop trafficking of women. "If Pakistan doesn't take the IMF loan, it is in a mess. If it takes the loan, it is in a bigger mess. Either way, the news is bad," wrote Prof S Akbar Zaidi. Can the IMF rescue Pakistan from the iron grip of the iron brother?

The unintended consequences of Sod's Law.

"English speakers are very much India's elite, and their proportion may be shrinking, new data on the demographic profile of English language speakers in India suggests," wrote Rukmini S. "528 million speak Hindi as a first language." "The 2011 Census showed that English is the primary language -- mother tongue -- of 256,000 people, second language of 83 million people, and the third language of another 46 million people, making it the second-most widely spoken language after Hindi." Only 20% of people are bilingual, though a survey by Lokniti Foundation puts the figure at 37.5%. That is most surprising because, "India has 22 official languages with 6,000-plus dialects and 55-plus languages with 1 million-plus speakers." With people free to move to anywhere within the country one would expect people to move to more prosperous areas in search of jobs and learn the local language. "On the face of it, internal migrants represented 30 percent of India's population in 2001. But this number is deceptively large: two-thirds were migrants within districts, and more than half were women migrating for marriage," wrote Z Kone et al. Accounting for barriers such as "physical distance and linguistic differences between districts", "state borders still emerged as critical impediments to mobility". State borders were found to inhibit migration of men more than women, of younger men of working age and "the more educated were more reluctant to cross state lines". The authors suggested that it maybe because "many social benefits are not portable across state boundaries". A survey of India's consumer economy (ICE 360 survey) found that 97% of the poorest fifth, or 20%, of the population live in their own homes, compared to 81% for the richest 20%. "A mere 28% of India's city dwellers live in a rented house, compared to 1961 "when a majority of them (54%) used to live in a rented house instead of owning one", wrote A Sreevatsan. The Economic Survey 2017-18 found that "12% of the total housing stock in urban India remains vacant. Mumbai has 500,000 vacant houses, followed by Delhi which has 300,000 vacant houses". The reason why people are reluctant to let their properties out on rent is because of the draconian rent control laws which were enacted to protect poor tenants. Since court cases take forever in India it is almost impossible to evict a tenant. The result is that people are forced to live in slums in Mumbai even as half a million properties lie vacant. While the Right to Education Act has failed to improve standards of learning in our schools, the upper classes are spending a fortune on extracurricular activities of their children. Thus, measures to help the poor are keeping them tied to poverty. The law of unintended consequences. Or, we can call it 'Sod's Law'.

You've got to take a punch to land two.

Yesterday, President Donald Trump declared a national emergency which authorises the administration to block telecom equipment "from foreign adversaries who are actively and increasingly creating and exploiting vulnerabilities in information and communications technology infrastructure and services in  the United States". Although the order is against "foreign adversaries" and does not pick out any particular country, there is no doubt that it is aimed against the Chinese company Huawei. This was confirmed when, "The US Commerce Department said on Wednesday it is adding Huawei Technologies Co Ltd and 70 affiliates to its so-called "Entity List" -- a move that bans the telecom giant from buying parts and components from US companies without US government approval." "We are willing to sign no-spy agreements with governments, including the UK government, to commit ourselves to making our equipment meet the no-spy, no back-doors standard," Huawei Chairman Liang Hua said. However, China is expert at manipulating the truth and making promises without any intention of fulfilling them. Any deal with China is one-sided because it breaks its commitments as it pleases and resists measures to reinforce rules as an infringement of its sovereignty. Chinese do not see stealing of intellectual properties of US companies and blocking them from operating in China, while Chinese companies trade freely in the US, as infringement of US sovereignty. "Huawei would have no choice but to hand over network data to the Chinese government if Beijing asked for it, because of espionage and national security laws in the country, experts told CNBC." Australia and New Zealand have banned Huawei equipment. Huawei CEO Ren Zhngfei used to work in the Peoples' Liberation Army, which has specialized units trained to hack into government and business computers, and is a member of the Communist Party. Huawei took out full-page advertisements in the US denying charges of spying and says that the US will lose without its equipment. On the other hand, "Huawei has filed a lawsuit against the US government against a ban that restricts federal agencies from using its products." So, Huawei has the temerity to sue the US government for not getting government contracts but the Chinese government defends its right to deny all foreign companies from getting Chinese government contracts. Having negotiated a large part of a trade deal with the US China decided to rewrite key parts of the deal. Trump increased tariffs to 25% on $200 billion worth of Chinese imports and threatened to impose 25% tariffs on the remaining $300 of imports. Enemies of Trump constantly harp on the fact that tariffs will increase prices for US consumers. True, but, as every boxer will tell you, you must be prepared to take a punch to knock out your opponent. And, US has the best boxers.

It is a trans-economic problem.

"There will be a large economic problem to solve when India elects a new government in May 2019," wrote S Chakrabarti. Just as there was in 2014, but at that time there were macro problems, with high inflation, fiscal deficit and current account deficit, and low growth. This time, numbers show "reduced spending by consumers, and relatedly, the squeezing of consumer credit, flatlining incomes of rural workforce, low price realisation by farmers, slimmer order books for infrastructure companies -- that is, microeconomic issues". Not so. This time, there are macroeconomic problems as well. The fiscal deficit target was revised up to 3.4% of GDP in the interim budget from the promised 3.1%. "Call it desperation or pragmatism, but finance minister Piyush Goyal's smoke-and-mirror interim budget echoes his predecessors' wizardry in large parts," wrote R Singhal. "The deficit was Rs 8,51 lakh crore as against the revised estimate of Rs 6.34 lakh crore as per data from the Controller General of Accounts. That's 4.5% of the GDP, assuming the GDP meets the revised target," wrote D Datta. But the Economic Affairs Secretary insisted that the government will meet its target of 3.4%. How? "One is to simply delay payouts until the next financial year." "The government is squeezing public sector companies for a second interim dividend", forcing one public sector company to buy another, thus transferring money "from one government pocket to another", and forcing the Life Insurance Corporation to buy shares of failing government companies. "Indian governments have always gamed the fiscal deficit data, but never on the same scale as in 2018-19." India's GDP growth is said to be in excess of 7% per annum, but there are doubts. "Once a globally renowned institution, India's Central Statistics Office (CSO) now faces the gravest credibility crisis in its history," wrote an editorial in the Mint, because "its new series of gross domestic product (GDP) is riddled with gaps, large enough to distort final output figures". Prime Minister Modi is suspected of manipulating statistical data because of his tendency to suppress any report that is negative. India's retail inflation was a tad higher at 2.92% in April, well within the Reserve Bank target of 4%, +/- 2%, but that could be because domestic consumption is falling. India is in danger of falling into a lower middle income trap with per capita gross national income (GNI) between $1006 and $3955. Seems an infinite distance from a GNI of $12236 which would make us a high income nation. The reason is that "India's growth has mostly been driven by demand generated by 100 million-odd people at the top of the country's socio-economic pyramid. But that demand is beginning to exhaust itself". The problems are micro, macro and everything in between. We will know later.

Modi surely knows, doesn't he?

Yesterday was the penultimate day of India's general election, starting on 11 April and ending on 19 May. Only UP, Bihar and West Bengal vote in all 7 phases, UP because it is the largest state in India and Bihar and Bengal because of extreme political violence. Why do Indians bother to vote at all? Naturally, in a country with 29 states and 7 union territories and 22 official languages, the reasons for voting are varied. Economic performance has a major effect on how people vote, but regional biases, religion, caste, and recognition of certain families, all have influence on voting trends. Being a criminal is a vote-winner because 36% of our elected representatives have charges of serious crimes against them. This is not only because criminal thugs have the money to distribute gifts to voters and goons to prevent opposition candidates from standing, by physical intimidation, but also because people actively vote for criminals as they can force delivery of services for which civil servants were demanding bribes. Indian politicians, on the other hand, firmly believe in distributing handouts which is an easy way to buy votes without any personal liability. Thus, Prime Minister Modi announced a scheme to distribute Rs 6,000 to 120 million farmers at a cost of Rs 750 billion which was trumped by the Congress when its President Rahul Gandhi announced Rs 72,000 per year for 500 million poor families. "They made a hue and cry by giving Rs 52,000 crore in 10 years while the PM-KISAN scheme will disburse Rs 7.5 lakh crore (7.5 trillion)," said Modi. Gandhi responded by promising to deposit Rs 72,000 directly in bank accounts of women. Since elections are held in phases over such a long period, the Election Commission bans publishing of exit polls because they may influence voting in the next phase. We may expect absolute frenzy on media channels as soon as voting closes on 19 May. However, it is not stopping people from making predictions or giving dark hints. D Sinha estimates that the Congress will increase its seat tally from 44 in 2014 to between 140 and 150 this time, while the BJP will come down to 170-180 seats from 282 it won in 2014. Even if we do not know what exit polls are showing "the signs of who has won and who has lost are all around us if we are alert to them", wrote Aakar Patel, no friend of Modi's. There is a theory that minister for road transport, shipping and Ganga rejuvenation Nitin Gadkari would be more acceptable than Modi, who is equally revered and reviled, to other parties in case the BJP has to depend on a coalition to maintain power. Is Modi panicking? Is his disgraceful attack on former Prime Minister Rajiv Gandhi, who was assassinated by the LTTE, a sign that he knows that the voters have given him the boot? The suspense is building.

Iran needs a sugar daddy like North Korea has.

About a week back the US sent "the USS Abraham Lincoln Carrier Strike Group and a bomber strike force to the Middle East". This was to send a "clear and unmistakable message to the Iranian regime", according to National Security Adviser John Bolton. "The United States is not seeking war with the Iranian regime, but we are fully prepared to respond to any attack, whether by proxy, the Islamic Revolutionary Guard Corps, or by regular Iranian forces," he said. "If these actions take place, if they do by some third party proxy, a militia group, Hezbollah, we will hold the Iranian leadership directly accountable for that," said Secretary of State Mike Pompeo, warning against any attack on US interests in the Middle East. One day back the US sent Patriot missiles, which are anti-missiles, to the Middle East, "And US B-52 bombers have arrived at a base in Qatar, the Pentagon said." All this is because in 2018 the US unilaterally withdrew from the Iran nuclear deal signed by previous President Barack Obama. In addition the US imposed economic sanctions on Iran to target the "energy, shipping and shipbuilding, and financial sectors". The US had allowed 8 countries, including India, China and Japan, to import oil from Iran but withdrew the waiver from 1 May 2019. Since India is dependent on imported oil, total stoppage of import of Iranian oil is a severe inconvenience to us. In 2012, oil exports contributed about 80% of Iranian government revenue, so the imposition of sanctions has caused the economy to contract. Iran's GDP contracted 3.9% in 2018, oil exports fell to 1.1 million barrels per day (bpd) from 2.3 million bpd, traders are offering 143,000 rials to the dollar as opposed to the official rate of 42,000, and inflation shot up to 31% in 2018, compared to 9% in 2017. Washington's suspicions about the regime in Iran go back to 1979, when students broke into the US embassy in Tehran and took 60 Americans hostage. As is usual, ordinary people are paying for the ambitions and perverse policies of the administration. As the economy goes down further anger is going to grow. How will the regime respond? It cannot dismantle its nuclear and missile programs, as Trump demands, because that will be seen as capitulation. The US says that it had credible intelligence of attacks being planned on US troops in the Middle East. Iran could restart its uranium enrichment but Israeli Prime Minister Benjamin Netanyahu has vowed never to allow Iran to possess nuclear weapons. If the US thinks it can subdue Iran by force it is a "pipe dream. Iran has stood up to unprecedented sanctions for four decades and remained unbowed," wrote Prof M Ayoob. What if Iran keeps lobbing shells into the Gulf waters without hurting anyone. Oil prices will shoot up and the global economy will tank. Will the US attack Iran for splashing water? Unlike North Korea, Iran does not have China to support it. That is its main problem.

There isn't enough sand for all Indians.

"India's factory output entered negative territory in March after a gap of 21 months, contracting 0.1% to signal a slowdown in consumption, as well as in investment." In February, the Index of Industrial Production (IIP)  grew by a meager 0.1%.  "The IIP print surprised analysts because data released on 30 March showed the eight infrastructure sectors, which constitute 40.3% of the IIP, has recovered to post 4.7% growth in March" and "data released last month by the commerce ministry, which showed exports growing at double digits". "Indian exports hit a new high of $331 billion in the last financial year" and in March, "exports expanded 11% to reach $32.5 billion, the highest in a month in recent years". Unfortunately, cumulative imports grew "to a soaring high of $507.44 billion", so that "India's trade deficit reached a record high of $176 billion in 2018-19". India is running at a loss. Fortunately, remittances from non-resident Indians (NRIs) was the highest in the world at $79 billion, according to the World Bank. If March was bad, "The Nikkei India Manufacturing Purchasing Managers' Index (PMI), declined to 51.8 in April from 52.6 in March". Above 50 shows expansion. And also, "Nikkei India Services Purchasing Managers' Index (PMI) dropped to 51 in April from 52 the previous month." Soft earnings growth in March showed that the economy has slowed down in 2018-19, "because of declining growth in private consumption, tepid increase in fixed investment and muted exports" according to the finance ministry's 'Monthly Economic Report'. So, while commerce is bragging about record exports, finance finds it "muted". Extraordinary. "Consumption is sputtering across a range of products including cars, two-wheelers, air travel and fast moving consumer goods (FMCG). with volume dropping to multi-quarter lows." "You can't say FMCG is recession proof but it is recession resistant," said Hindustan Unilever Chairman Sanjay Mehta. Oh please, don't mention the 'r' word when the government was predicting economic growth in excess of 7.5% in 2018-19. Growth in the FMCG sector is likely to remain weak because "households may have gradually reduced consumption due to insufficient income growth". "One reason is the dearth of jobs, along with job insecurity and meagre wage hikes," wrote D Tripathi. Consumer demand may pick up if the monsoon is good. According to R Roy, "India could soon get ensnared in the middle-income trap". "The risk, Roy said, now runs deeper; the possibility that India will remain stuck in the middle-income range has now started appearing more and more real, which indicates that India will never be another China or South Korea but could begin replicating basket cases like South Africa or Brazil where large swathes of poor population are powering not growth, but crime." No wonder the government has been frantically cooking GDP data. The government would love us to bury our heads. With 1.3 billion people there isn't enough sand.