It's a quadruple balance sheet problem.

"The Indian consumer has traditionally been the most dependable source of demand whenever the economy lost momentum," wrote N Rajadhyaksha. The previous slowdown following the financial crisis of 2008 resulted in high inflation and current account deficit because supply was unable to meet the strong demand fueled by government spending. This slowdown is because demand is based on the top 100 million consumers and that has reached a plateau, said member of the Prime Minister's Economic Advisory Council Rathin Roy. We will not be like South Korea or China said Roy, "We will be Brazil. We will be South Africa. We will be a middle-income country with large numbers of people in poverty seeing rising crimes." You can avoid the middle-income trap, but once trapped there is no escape. Roy also said that India is facing a silent fiscal crisis because growth in tax revenue will be weak due weak wage growth and weak consumer spending. "Food accounts for a little more than a quarter of personal final consumer expenditure (PFCE) in India at constant prices." Transport is 17.02% of PFCE, utilities account for 14.11%, clothing and footwear 6.4%, health 4.8% and education 3.9%. The economy is like the Hollywood movie 'Speed', wrote Jethmalani and Pengonda. "The economic growth is dropping speed and a last-ditch effort to defuse the fiscal bomb is on as the government is hawking five of its own companies to strategic investors to achieve its divestment goals." However, it is doubtful that the sale will happen in this financial year (FY) so "the total fiscal deficit including borrowings of public enterprises came to a massive 6.3% of GDP in FY19", said Nikhil Gupta. In addition to cyclical and structural problems "A new renting and sharing economy has sprouted, effects of which have started to show up." These are the millennials. "Studies show that millennials who are not willing to commit on EMI (equated monthly installments) towards buying an automobile instead would prefer to have Ola, Uber and everything else or take the metro." Retail inflation quickened to 4.62% last month, "Yet core inflation which strips out volatile commodity prices, slumped to 3.4% , the lowest since the current price series began in 2012," wrote Andy Mukherjee. All this while we have been hearing about the 'twin balance sheet problem', but the addition of weak demand makes it a "triple balance sheet problem", according to Sonal Verma. Even the blue chip Sahpoorji Pallonji group is on the verge of default, wrote Mukherjee. The Finance Minister assured the nation that India is not in recession. That she is having to say that is itself terrifying. The trust deficit is much more than the fiscal deficit. Which makes it a quadruple balance sheet problem. 

A tussle between good corrupt and bad corrupt.

The "climate of fear" referred to by former Prime Minister Manmohan Singh "is partially caused by a crackdown on corruption, which is choking new projects, investments and bureaucratic decisions", wrote Prof Shruti Rajagopalan. Using public office for private gain is bad for the economy but economists say that one must be careful to distinguish between "good corruption" and "bad corruption". "In countries that have burdensome and pervasive regulation, 'good corruption' -- or rather, the type that increases efficiency -- might actually help improve economic growth. India has a nightmarish regulatory system, inherited from the British Raj and subsequently from its socialist Licence Permit Raj era" The Goods and Services Tax (GST) is supposed to be a single indirect tax for the whole nation but companies are supposed to register in every state they operate in. Such is the suspicion, that GST officers from every small town are asking companies for details. There are 7,935 towns and cities in India and if companies have to answer queries from everyone they will have to spend a fortune on accountants. "In the 2000s, India produced three world-class industries -- software, automobiles and pharmaceuticals. In the 2010s, it hasn't produced a single new world-class industry, mainly because of India's lousy education system," wrote SA Aiyer. "Pending legal cases exceed 35 million, and cases go on forever, so law-breakers have an advantage over law abiders." "Compared to competitors, India has higher costs of land, labor, capital, electricity, tax rates, rail and air freight." Since GST was supposed to replace all indirect taxes and states did not want to lose out on revenue the rate of GST was "estimated by using the concept of a revenue neutral rate (RNR)", wrote Ajit Ranade. This led to multiple rates. "A plethora of rates, such as a lower rate for salted groundnuts but higher for peanut butter, makes space for discretion on the part of tax inspectors, misclassification, interpretation disputes, litigation, corruption, and worse." It is Manmohan Singh, as Finance Minister, who is credited with liberalizing the economy in 1991, but economist Paul Krugman warned that it would merely improve efficiency of utilising resources and give a "one-time economic boost", wrote Prof Ashoka Mody. "The Sensex rose from about 1,400 on the day before Singh's speech in July 1991 to 4,467 on 22 April, 1992", which gave politicians a false sense of progress. The government has reduced corporate tax, increased liquidity, given cash to the rural population and the Reserve Bank (RBI) has reduced interest rates by 135 basis points, but it has helped the stock market and has not increased  the rate of economic growth, wrote Harsha Jethmalani. "At one-year price-to-earnings multiple of 18 times, the MSCI India index is trading much higher than Asian peers." Bereft of any ideas, blaming people for corruption is the only way to divert attention. At least it divides between haves and have-nots and protects votes.

Those who can, go abroad. Those who can't, do as little as possible.

In a regretful article, S Deb wrote about his 80 year old uncle who has been manufacturing precision cutting tools for the leather industry with about 50 workers for over 4 decades. "Throughout his business life, he has had to fight a corrupt inspector raj and tax terrorism. He has faced every problem that a hostile and greedy bureaucracy can pose to an entrepreneur who does not have political connections." But now, "Faced with complex and ever-changing tax regulations, and the onslaught of cheap Chinese products, he seemed to be close to the end of his tether." The Goods and Services Tax (GST) was described as a "Good and simple tax" by Prime Minister Narendra Modi. GST was supposed to incorporate all indirect taxes on goods and services so as to have a single rate throughout India, and avoid cascading effect. In practice, the rules are complicated and keep changing so that small businesses have to employ trained accountants to file returns, increasing costs. "Every tax man in the country is chasing unrealistically steep targets, so queries on returns filed are soaring. And, even after you get a message from the tax department that it is satisfied with your clarification, you may get another one saying, no, it has been 'suo moto rejected'." The Budget estimated a nominal growth rate of GDP of 12% and an increase of 3% on GST. Nominal GDP growth fell to 8% in the first quarter, while real GDP growth, when adjusted for inflation, fell to 5%. Naturally, with GDP growth rate falling, GST collections have dropped to below expectations. Real GDP growth is expected to fall to 4.2-4.7% in the second quarter, ending 30 September. The budget projected a 13.4% increase in government expenditure which cannot be reduced. Salaries of government employees are increased without the slightest increase in productivity. When average retail inflation is still below 4% why they are receiving Dearness (which means expensive) Allowance at 17% is a mystery at best, and plunder at worst. "A total of 60.3 million individuals have worked under the Mahatma Gandhi Rural Employment Guarantee Scheme (MGNREGS) til 23 November of fiscal year 2019-20." The number is expected to reach 90 million till the end of the financial year. MGNREGS gives 100 days of wages to the rural unemployed as a dole. "In the financial year (FY) 2018-19, banks disbursed Rs 12.55 trillion as GLC (ground level credit) to agriculture, surpassing the government's target of Rs 11 trillion," wrote Prof Ashok Gulati. Low rates of interest allows farmers "to take crop loans at subsidised interest rates from the banking sector and then divert them for non-agricultural purposes". Also, farmers take loans in the belief that if they hang on long enough all loans will be forgiven before elections. Since money doesn't grow on trees it has to be extorted. Deb's uncle should retire and send his son abroad. Only solution.

The Chinese of Hong Kong don't want China.

"Pro-democracy candidates appear to have made major gains in Hong Kong's District Council elections" with opposition candidates winning more than 90% of the seats. Dedicated pro-Beijing legislators Michael Tien and Junius Ho both conceded defeat. A highest ever turnout of more than 2.9 million, or 71.2% of the electorate, voted in these elections which were seen as a referendum on Chief Executive Carrie Lam's handling of the protests, with accusations of police brutality. Protests started in June when a bill was passed allowing extradition of Hong Kong citizens and foreigners to the mainland for trial. Though the bill has been withdrawn protesters have added new demands like universal suffrage, independent inquiry into police conduct and amnesty for those arrested as rioters. Carrie Lam has reportedly offered to resign many times but has been turned down by Beijing. "Anyone attempting to split China in any part of the country will end in crushed bodies and shattered bones," warned Chinese President Xi Jinping, but Hong Kong has a large population of foreigners and every shattered bone will be shown all over the world. Not an image Xi wants to project. The One Belt One Road (OBOR) is Xi Jinping's brainchild which has signed up 78 countries in Asia, Africa and Europe. It will cut costs of trade with these countries, bind them in huge loans they cannot repay and allow China to dump its excess capacity in steel, cement and other goods in case the trade war with US intensifies. Also, it could allow China to move troops quickly to subdue any nation that may seem as a threat. Everyone has seen how Hong Kong riot police surrounded Polytechnic University and forced students to surrender when food and water ran out. More than 1,000 students have been arrested and charged with rioting which carries long prison sentence. Leaked papers show how millions of Uighur Muslims are being subjected to violent brain washing in prison camps. A memo orders that: Never allow escapees, Increase discipline and punishment of behavioral violations and Promote repentance and confession. Chinese ambassador to the UK Liu Xiaoming said, " People there are living a happy life with a much stronger sense of fulfilment and security." The US Congress has passed two bills supporting Hong Kong protests and regular certification from the State Department for continuing special trading terms for Hong Kong. If President Donald Trump signs the bills or if he does not veto the bills for 10 days they will become law. As usual, China has reacted with threats of retaliation. Last month the US applied visa restrictions on Chinese officials involved in repression of minorities. North Korea hacked into Kudankulum nuclear power plant and Indian Space Research Organisation (ISRO). Chinese tech giant Huawei has been building wireless networks in North Korea and has worked on various projects for over 8 years. North Korean leader Kim Jong-un is known to have lived in Switzerland. He would surely like to make peace with the US and for his country to be like any western country but China will never allow that. Xi has to react with force to any challenge. But, can he do it forever?

Will we reach a perfect Gini score?

A crop insurance scheme the Pradhan Mantri Fasal Bima Yojana was launched in 2016 to protect farmers from crop damage due to adverse weather conditions and, "Premiums had been automatically deducted from their crop loans accounts held by a public sector bank without their consent," wrote S Bera. "As on 1 November, insurance companies owe farmers Rs 2,511 crore (Rs 25.11 billion) from the kharif 2018 crop season (16% of estimated claims). This amounts to delay of more than a year from the date of harvest." Food inflation has risen to 7.9%, "the highest since 2014", wrote Prof Himanshu. "Urban food inflation was in double digits, at 10.5%, the highest for the Bharatiya Janata Party government's tenure since August 2014, while rural inflation rose to 6.4%." "Given that food still constitutes almost two-thirds of the consumption basket of the poor, rising inflation together with falling incomes places a double burden on them." The government has taken steps to bring prices of certain vegetables down by banning export of onions till February. It is also importing 120,000 tonnes of onions. Onion prices have risen because of heavy late rains in onion growing states of Maharashtra and Karnataka which destroyed crops and interfered with transport to key markets in the north. Poor farmers have not only lost their crops but prices of whatever they can salvage is suppressed by government actions and they cannot get insurance. "Farmer distrust regarding the scheme has only gained strength after four private insurers .... did not bid for insurance clusters in the kharif 2019 crop season." "The challenge for the government is not only to revive growth in the economy, but also to manage inflation so as to protect the poorest of the poor. Fortunately, both these objectives can be achieved through a single solution, which is to raise wages for the poor." The government is ahead of the curve. Prime Minister Narendra Modi promised to waive all loans  to farmers. Farmers are getting a handout of Rs 6,000 per year and have been promised a pension of Rs 3,000 per month on reaching the age of 60 years. Poor people are entitled to free treatment in private hospitals up to total of Rs 500,000 under Ayushman Bharat scheme. From free electricity and gas connections to loans under the Mudra scheme which has a default of Rs 72.77 billion. So much spending needs to be met through taxes. In 2019, 56.5 million filed income tax returns but not everyone earns enough to pay income tax. Saddled with huge debts due to spectrum charges, licence fees and penalties, Idea Vodafone may become bankrupt leaving just two companies in the telecom sector. Tax officials wanted to impose GST on salaries of CEOs of companies even though these officers maybe paying income tax at the highest rates of 42.74% due to excessive surcharge. The order was later canceled. State governments set rates for sale of real estate according to whim, known as 'circle rate'. Prices have dropped but if anyone sells his property below circle rate, due to distress, he will have to pay capital gains on his loss. India cannot export because our products are expensive due to taxes so the government resorted to import substitution through high tariffs, wrote Puja Mehra. Gradually, everyone, except politicians and civil servants, will be poor. Perhaps, we will be the first country to reach a perfect Gini Coefficient of 1. That will be Nirvana of nothingness. 

For now, no news is a reason to enjoy.

Stock markets fell bond yields rose in May and August on fears of a trade war between the US and China, wrote Prof Nouriel Roubini. Roubini is known as "Dr Doom" and "permabear" for his correct prediction of the economic crash of 2008. Recently, he has been predicting a global recession in 2020. "US and other equities are trending toward new highs, and there is even talk of a "melt up" in equity values," he wrote. "Yet there is much to suggest that not all is well with the global economy. For starters, recent data from China, Germany, and Japan suggest that the slowdown is ongoing, even if its pace has become less severe." Fund managers are discounting possibilities of a recession. "I don't see a recession in the near term absent some unpredictable, idiosyncratic event," said Anne Mathias. "Since 1950, all nine major US recession were preceded by an inversion of a key segment of the so-called yield curve," wrote Ben Winck "The yield curve is considered inverted when long-term bonds -- traditionally those with higher yields -- see their returns fall below those of short term bonds." But, when the yield curve corrected itself some saw that as a forecast of recession. "A sudden steepening of the curve following an inversion like the one occurring now almost always happens just before or during US recessions," wrote Thomas Franck. However, "not every instance of yield curve steepening leads to an economic downturn", he conceded. "It looks like the recession is delayed for now," said Torsten Slok. "The yield curve inversion earlier this year was looking for a recession to begin sometime in mid-2020," said Sri Kumar. "And now the steepening is saying that 2021 may be a year when recovery begins." President Donald Trump has refrained from attacking Iran even after it shot down a US spy drone. The US claimed that the drone was flying over the Strait of Hormuz while Iran claimed that it violated Iranian airspace. Attacks on 6 oil tankers in the Gulf were blamed on Iran although it denied having anything to do with them. Saudi oil facilities were attacked by drones and missiles which were blamed on Iran, though the Houthis claimed it. Following which, an Iranian tanker was attacked in the Red Sea. China is grappling with "about $35 trillion in corporate, sovereign and household debt". Poverty is increasing in China's countryside. "The current situation is not optimistic, the countryside is returning to poverty," warned Ma Wenfeng. A bill to link trade with Hong Kong with human rights was passed almost unanimously by Congress. If Trump signs it into law it will surely result in all out trade war with China. So many reasons for a global recession. Enjoy as long as nothing happens. 

The unintended consequences of cooking data.

"The unintended consequences of good policies cannot be foreseen without systems thinking," wrote Arun Maira. Farmers in Punjab have been burning rice stubble since the 1980s but rice needs a lot of water, so "alarmed by by the impact thirsty paddy growth was having on dwindling ground water resources, the government passed the Preservation of Subsoil Water Act in 2009", forcing farmers to postpone planting of rice by one month. This meant that the burning of stubble was also postponed by one month, which coincided with the onset of autumn in Delhi with a change of wind direction. The smoke from stubble burning has turned Delhi into the most polluted city in the world. But, perhaps, we can go further back in time and blame Bhakra Dam, the first big infrastructure project after independence, which provided extra water for irrigation and encouraged farmers in Punjab to shift to rice cultivation. In dry Rajasthan, girls used to stay out of school to help their mothers in collecting water. With improved water supply more girls joined schools, but have started dropping out again, coinciding with the central government campaign to stop open defecation in India. The government has built over 90 million toilets in homes. Toilets need water, so girls in Rajasthan are dropping out of school to collect the increased requirement for water. When industries complained of a lack of trained youth 15 years back, the government started a training program to impart skills to 500 million people. Millions have been trained under the Skill India Mission. Unfortunately, that has coincided with a slowing in the economy, resulting in "unemployment of people with vocational education has gone up between 2011-12 and 2017-18, from 18.5% to 33.0%; of youth with technical degrees, from 18.8% to 37.3%; and of graduates. from from 19.2% to 35.8%". This is embarrassing so the employment survey report by the National Sample Survey Organisation (NSSO) was suppressed. The unintended consequence of that was the public resignation of the two remaining independent members of the National Statistical Commission (NSC). Rising unemployment led to decrease in consumption, so the government had to junk a report on private consumption expenditure from the National Statistical Office (NSO) which showed that consumption expenditure in rural areas fell from Rs 1,587 per person per month (ppm) in 2014 to Rs 1,524 ppm in 2017-18, while in urban areas it fell from Rs 2,926 ppm in 2014 to Rs 2,909 in 2017-18, wrote Prof Himanshu. The unintended consequence of suppressing that report is that the government cannot brag about "the sharp decline in inequality reported in the second part of the article based on the leaked report". The report maybe slightly flawed because the survey began just after demonetization in 2016 which severely affected the informal sector. Trouble is, the government refuses to acknowledge the malign effects of demonetization by cooking up the GDP back series data. Perhaps, the government should get rid of all statisticians and get a chef to report data. He will know how to make it tasty.

A sweetener is of no use if snatched away suddenly.

"To cash in on the ongoing US-China trade war, the Narendra Modi-led government is planning to invite as many as 324 companies, including Tesla and Glaxo, to set up factories, according to a report by Bloomberg." The government will provide land along with power, water and roads to tempt companies moving out of China. Vietnam has benefited from the trade war with high growth rate of GDP based on rising exports but Vietnam is limited by its small size and population. On the other hand, India has failed to profit from the trade war because of poor infrastructure and its own trade dispute with the US. Inducements to companies in the form of Special Economic Zones (SEZs) modeled on China were set up but have failed to generate exports. "Far from turning India into a powerhouse of manufacturing exports, the control-free industrial enclaves have become centers of corruption and scams," wrote Nikita Kwatra. "Local politicians often influence bureaucrats at state-owned industrial development corporations to secure land for personal gains. As such, sites for SEZs are selected based on real estate speculation rather than economic potential of a region." Then there are rules which discriminate between manufacturing and services, restricting growth of IT firms. Perhaps, the thing that would be most scary to investors is the tendency of the government to change rules suddenly, either to collect more tax or to protect a section of Indian businesses. Thus, e-commerce rules were suddenly changed last year to protect owners of small stores, known as mom and pop retailers. This after Walmart had paid Rs 74.39 billion in taxes on its acquisition of Flipkart. Small wonder, "Walmart chief executive Doug McMillon has written to Prime Minister Narendra Modi, seeking certainty and predictability in India's business environment, people familiar with the matter said." "Walmart was particularly disappointed because the changes had come just months after it paid $16 billion to acquire Flipkart." Without exports, "India's trade deficit with China rose from $671 million in FY01 to $63 billion in FY18." Modi has continued trying to extract retrospective taxes from Cairn and Vodafone, initially demanded by the Congress-led government. Tax officials seized shares of Cairn from Vedanta Plc and sold them to meet their demand. It is still pursuing Hutchison for a tax on Vodafone. What the Center does is followed by the states. Vindictive politicians seek to break contracts reached between a previous administration and investors, including foreign ones. Trying to improve manufacturing is laudable. But will foreigners trust our word.

Why argue when solution is so simple?

India's economic growth has slowed down to the extent that the State Bank of India (SBI) is predicting a growth rate of 4.2% in the second quarter ending 30 September. While demonetization and the Goods and Services Tax (GST) caused major disruptions it is the fault of the economists for recommending the use of monetary policy to keep inflation under control, wrote R Jagannathan. Inflation fell because of a collapse in food and fuel prices so the Reserve Bank (RBI) was wrong to keep "real interest rate very high for a long time, tuning a bad situation worse". The RBI is not an independent organisation, like the Supreme Court of India, but is fully owned by the government of India. Earlier this year the RBI was forced to transfer Rs 1.76 trillion to the government from its reserves, built up over many decades under governments of of different parties. A triumphant Jagannathan wrote that it was RBI's "mea culpa" because of the failure of its monetary policy. "There is little doubt that the Monetary Policy Committee (MPC), under the tutelage of the last governor, consistently overplayed the inflation threat and maintained policy rates at very high levels, thus worsening instability in the financial system." Had the RBI lowered interest rate faster businesses could have borrowed at lower rates to pay off previous loans. This is known as ever-greening of loans which the RBI strongly discourages. This practice has resulted in the build up of bad loans in public sector banks which is why they are not lending, so to suggest that the RBI should deliberately encourage ever-greening to support growth of GDP to help this government is extremely irresponsible. The RBI resisted the transfer of its reserves to the government, because it would be used to as handouts to win the general election in April 2019, wrote Latha Venkatesh. Unable to resist this raid on the reserves, the then Governor Urjit Patel resigned his post. It was this government that set up the MPC to set rates in a transparent manner and set an inflation target of 4%, plus/minus 2%. Probably because politicians saw how the Congress lost because of double-digit inflation in the run up to general election in 2014. Since the government owns the RBI it should disband the MPC and set whatever policy rate it thinks is suitable. Especially since the government quickly appointed a retired IAS officer with a degree in history as the new governor of the RBI. "Critics will latch on to demonetization, whose third anniversary was noted this month, as the key villain in this piece, and they would be right." Indeed. Demonetization led to a flood of cash into banks which was then lent to Non-Banking Financial Companies (NBFCs). The collapse of these companies are creating a severe lack of liquidity. Demonetization and droughts in 2014-15 resulted in a collapse of demand in the rural economy which the government neglected, wrote Prof Himanshu. Instead of writing mendacious articles Jagannathan should ask the government to take over the duty of setting interest rates. Stop unnecessary debate.

People want the full glass, not top ups.

The survey of household consumption expenditure was carried out between June 2017 and July 2018, "about half a year after the demonetization move of November 2016" which maybe the reason why it showed that the "average money spent every month by rural residents in 2017-18 was 8.8% lower than six years earlier". "The government has rejected the survey as flawed -- and it may well be," wrote an editorial in the Mint. However, that does not explain why "India's factory output shrank for the second straight month at 4.3% in September, recording its worst show since the present series was launched in April 2012," and "The output of eight core industries in September contracted to a low of (-) 5.2 per cent, due to a decline in coal, crude oil, natural gas, cement, and electricity". The State Bank of India (SBI) predicted that the rate of growth of GDP will drop to 4.2% in the second quarter, ending 30 September. "Optimists, Indian and international, say growth will pick up soon," wrote Prof Ashoka Mody but, "GDP growth could, in fact, fall and languish in the 3-to-5% a year range." Economic reforms following the balance of payments crisis in 1991, when India had to pledge 67 tonnes of gold to meet expenses, forced economic reforms but only the financial and construction sectors benefited. Manufacturing languished. A long list of scams resulted from easy money. India failed to invest in its people by improving education. "The Americans achieved near-universal high school education in the early 20th century and they followed it up after the Second World War with the spread of state-financed universities." "East Asian -- including by now Chinese -- schools got steadily better; the governments there began the task of building world-class universities." India has 3 times the number of schools than China has but the Annual Status of Education Report (ASER) on reading and basic arithmetic makes depressing reading. Many children come to government schools only for the mid-day meal and teachers are burdened with work other than teaching. After coming second last in the Program for International Student Assessment (PISA) test in 2009 India stopped participating in the test. Vietnamese students are "among the very best in the world in science" in the PISA test and "in mathematics, they are at the OECD average, above France". Growth reduces poverty, wrote Rangarajan and Dev. Growth will come by increasing consumption of the poor by supplementing their income so that basic income is at least Rs 20,000 per year. The NYAY scheme proposed by the Congress would have guaranteed an  income of Rs 72,000 per year for the poorest 20%, by supplementing what they were earning. Nobel Prize winner Abijit Banerjee was also consulted about feasibility of the scheme. Trouble is, Congress got thrashed in the general election in May. People don't want supplement, they want lump sum. 

Will foreigners believe in promises?

"The Centre is exploring a law to protect investments affected by state governments' decisions to scrap contracts as it moves to reassure foreign investors who are riled up by Andhra Pradesh's plan to annul some clean energy agreements." This is the new government in Andhra, led by Jaganmohan Reddy, which decisively beat previous Chief Minister Chandrababu Naidu in assembly elections in May. Jaganmohan is the son of late YSR Reddy who was chief minister of Andhra from 2004 to 2009 as a member of the Indian National Congress Party. When his father died in a helicopter crash in September 2009 Jaganmohan wanted to be anointed chief minister in his place, as is the custom in India. When this was denied by the party he formed his own party the YSR Congress and has now succeeded in his quest. As soon as he came to power he decided to cancel renewable energy contracts negotiated by the previous government but this angered foreign investors. The High Court in Andhra asked the companies to approach the regulator, which is why the Center has decided to pass a law to protect contracts in the future. Joganmohan has also canceled a project to build a new capital city for Andhra, because the former capital Hyderabad was given to Telangana on bifurcation of the state. While Jaganmohan has built a palatial house for himself in Amaravati, his government has served notice of demolition on the house of the previous chief minister on allegations of corruption. Jaganmohan is enormously wealthy with huge properties in several states and was previously investigated for corruption. Such is the rotten state of Indian politics, with the party in power using state agencies to allege corruption on politicians of other parties and a tired electorate believing that 'sab chor hain', meaning 'every politician and civil servant is a thief'. Foreign investment is essential if India is to become a $5 trillion economy by 2024, as predicted by Prime Minister Narendra Modi, wrote Punit Renjen. But to get there, "India's economy is now wrapped around the global marketplace so its adherence to a rule-based regime, predictable regulations and due process must remain unshakable. The rule of law, consistency and independent oversight -- will bring in investment." The central government might pass a law to stop states from breaking contracts but it is destroying the telecom industry with unreasonable tax demands, wrote Andy Mukherjee. Vodafone is the last foreign company left in Indian telecom and this government has not given up on retrospective tax demands of the former government. Modi maybe the greatest orator in India but, where money is concerned, foreigners see the facts. Pesky foreigners.

India's motto maybe truth, but it's not triumphing.

Had Ronald Reagan been alive today he would have said, "There you go again" to the Indian government. "The government has shelved a plan to release the Consumer Expenditure Survey results of 2017-2018, a leaked draft of which showed a decline in consumer spending in rural India." Apparently, a survey by the Indian Statistical Office (NSO) showed that "average amount spent by an Indian in a month fell 3.7% to Rs 1,446 in 2017-18 from Rs 1,501 in 2011-12". Excuse? "In view of the data quality issues, the ministry has decided not to release the Consumer Expenditure Survey results of 2017-18," the ministry of statistics and program implementation said in a statement. Once again a bunch of politicians and civil servants are suppressing experts to hide the government's failure. Earlier two non-official members of the National Statistical Commission PC Mohanan and JV Meenakshi resigned their posts for the government suppressing the Annual Employment Survey of 2017-18, leaving just two government appointees. Caught red-handed, the government claimed that the report was just a draft but Acting Chairman Mohanan said that the report was final, accepted by all members. Resort to lies and bluster to win the election. It worked because the Prime Minister's party the BJP increased its seats in the Lok Sabha. There was the shameless massaging of the GDP back series data showing a higher GDP growth under the present government compared to the previous decade under a Congress-led government. Most Indians may not understand what GDP means, or care, crushed as they are by the daily struggle to survive, but foreigners are not to be fooled. And even this government cannot hide all figures. Instead of growing, "India's factory output shrank for the second straight month at 4.3% in September, recording its worst show since the present series was launched in April 2012." Even the Finance Minister admitted that it is "too early to say if the slowdown in the economy had bottomed out". "Output of eight core infrastructure industries contracted by 5.2% in September, indicating the severity of the economic slowdown." When cement, steel and electricity consumption shrink it means basic activity is grinding down. The services sector contributes 54.17% in Gross Value Added but even that shrank for two months, the PMI coming in at 49.2 in October. The government maybe controlling the narrative by constantly repeating its lies but it cannot tax its own bluffs. GST, which is tax on goods and services fell to Rs 954 billion, below Rs 1 trillion that the government hoped for. India's motto is "Satyameva Jayate" which means "Truth will Triumph". When the economy crashes, the lies will also die.     

How frustrating not being able to use violence.

Another death in Hong Kong. This time a 70 year old cleaner, who was taking a break from work, died after being hit on the head by a hard object, apparently thrown by protesters. Four days back a student was shot by a police officer when violence followed the death of a student who had fallen from a ledge in a car park. It is not known how he came to be on the ledge and why he fell, but, such is the animosity against the police, that protesters assumed that the police are somehow responsible. "In a separate incident, a man who confronted a group of pro-democracy protesters was doused in a flammable liquid and set alight" according to a video seen on social media. "The video shows an unidentified and unarmed man shouting expletives at protesters before saying 'you're all not Chinese'." This incident was an excuse for the government to harden its stance. Hong Kong Chief Executive Carrie Lam said, "If there is any wishful thinking that by escalating violence the (Hong Kong) government will yield to pressure to satisfy protesters' so-called demands, I'm making this clear that will not happen." Fearing for their safety, students from the mainland were evacuated by boat by the Hong Kong police as roadblocks made roads too dangerous. Chinese banks have had their windows smashed and Chinese businesses set alight. In a rare comment, China President Xi Jinping said that protesters have "seriously challenged the baseline principle of 'one country, two systems'". On a visit to Nepal last month Xi Jinping warned, "Anyone attempting to split China in any part of the country will end in crushed bodies and shattered bones. And any external forces backing such attempts at dividing China will be deemed by the Chinese people as pipe-deeming." Xi must be taken seriously because the Communist Party has absolute power and does not hesitate to use it against children of Muslim Uighurs or to harvest organs from healthy Falun Gong followers, and Uighurs. China has ruthlessly violated the 'one country, two systems' principle by preventing elections, kidnapping booksellers for publishing books critical of the leadership and passing a law to extradite Hong Kong residents to the mainland. So why has China refrained from crushing bodies and shattering bones? Because, it is offering the same 'one country, two systems' fairy tale to Taiwan. Taiwan President Tsai Ing-wen ruled out any merger with Beijing and "shattered bones" in Hong Kong will rule out any hope of ever uniting the two nations. Taiwan may have voted for Tsai Ing-wen because of the bullying of a 16 year-old pop star who displayed the Taiwanese flag on her blog. Without any crushing of bodies by Beijing and not allowed to compromise with the protesters, Carrie Lam is using the police to subdue the protests, infuriating the students even further. Xi must have felt humiliated having to scrap the extradition bill.  Violence is his only weapon and he can't use it. Xi must be the most frustrated man in the world. How enjoyable.

How much more can they extract?

"Data from the Global Trade Alert (GTA) database shows that over the past three years, among the largest economies comprising the G20 group, India is only second behind Donald Trump-led US in imposing restrictions on trade," wrote Nikita Kwatra. "Even as it sharply criticised rising protectionism in the US under the Trump administration, India itself raised tariff walls in the last two budgets." Tariffs increase prices for consumers and hurt industry by increasing input costs so that our exports become more expensive compared to competitors. "Finally, such unilateral tariff walls end up inviting retribution from trading partners." US Secretary of Commerce Wilbur Ross found that "India is, if not the most protectionist, certainly one of the most protectionist." This government is so hungry for taxes that it has allowed tax officials to create their own rules. If we understand it right, a new interpretation converts salary of a CEO into a service and, therefore, liable for 18% tax under the Goods and Services Tax (GST). A perfect example of double taxation because the top rate of income tax was recently raised to near 45%. Just couple of months back the Finance Minister cut corporate tax rates by about 10%, hoping to increase investments with the extra profits that companies would gain. Those companies which avail of the lower rates would have to give up deductions in earnings due to losses incurred. At that time compliments were fulsome. "A lower rate -- comparable with Asian peers -- and sans any exemptions, will make large Indian companies far more competitive, leave them with more cash for investment and expansion and persuade them to stay in India." If companies have to pay 18% tax on salaries of senior managers, which should be counted as expenses, then surely the rate cut disappears? A recent Supreme Court judgement against telecom companies allows the government to "seek more than Rs 1.3 lakh crore (Rs 1.3 trillion) in dues, penalty and interest from the sector". Investing in India has been a bad dream, said Vodafone India CEO Marten Pieters. "Overall India wants to gouge its shriveled telecom industry of $13 billion. The fund-starved government expects operators to cough up more at 5G auctions next year," wrote Andy Mukherjee. "How long can the Birla boss hang in? With Vodafone Idea saddled with losses and $14 billion in net debt, should he even bother?" No matter. "The Department of Telecommunication (DoT) has asked telcos and internet service providers to pay up license fees and spectrum usage charges after doing their individual assessments on the wider definition of adjusted gross revenue (AGR), as decided by the Supreme Court last month." No wonder, "India's economic growth has moved from not just being a jobless regime but to being a 'job-loss' one, suggests new research," wrote Sneha Alexander. Give with one hand and take double with the other. How will it improve matters? 

No money, no business. No need for electricity.

"India's factory output shrank for the second straight month at 4.3% in September, recording its worst show since the present series was launched in April 2012." Data released by the statistics department on Monday showed capital goods that indicate investment demand in the economy shrinking 20.7% in its ninth straight month of contraction, while both consumer durables and consumer non-durables also contracted, signalling a continued slump in consumer demand." Normally, there should have been a surge in consumer spending in September because of the Hindu festivals of Dussehra and Diwali in October, but more than half of 16 macroeconomic indicators tracked by Mint were in the red. The State Bank of India predicted that GDP growth will fall to 4.2% in the second quarter, ending on 30 September, worse than the 5% in the first. "The country will need to grow by 9 percent every year for five years continuously and raise aggregate investment rate to 38% of GDP to achieve Prime Minister Narendra Modi's target of turning India into a USD 5 trillion economy, EY has said." "India's electricity demand fell 13% in October led by a sharp reduction in offtake from the industrialised states like Gujarat and Maharashtra, which may indicate a deepening economic slowdown although officials said this was just an aberration." This despite decorative lights on almost every building during the week of Diawli. This has happened because Modi's ruling party, the BJP has concentrated all its energy on widening its voter base by continuing with "the welfare schemes of the earlier era even while adding some of their own", wrote P Bhattacharya. "There was hardly any attempt at slashing subsidies." The government used "creative accounting" to hide the increasing fiscal deficit, but, "Once such adjustments are taken into account, it appears that India has had an unstated fiscal expansion since at least fiscal 2017." To finance its extra spending the government "put a laser-like focus on mobilizing resources, ostensibly to correct a 'low tax-gdp ratio". India's biggest success has been the telecoms sector which has created millions of jobs in information technology, wrote Mihir Sharma. The Supreme Court has ruled that telecom companies owe nearly $13 billion to the government, including a "hefty penalty - as well as interest on both". Vodafone Idea has a debt of $14 billion, while Airtel's debt is over $15 billion. This is because of exorbitant charges for spectrum and different types of fees. Indian telecom has been a bad dream for foreign investors, said Marten Pieters of Vodafone. The last foreign investor Vodafone may exit India. Others left long ago. As if to hasten Vodafone's departure the government is to demand 10% more than what the companies owe. Money is finite. If they take all of it there will be none left to pay for electricity. Darkness beckons.     

How can they listen if they are hypnotized?

"This is the power of story-telling, or narratives: keep repeating the same thing and there's a chance it might become a truism," wrote R Singhal. The narrative is that "Demonetization, a bold and historic reform has ensured clean money and a cleaner economy. It has resulted in greater formalization and has pushed the direct taxes in the right direction," said Oil Minister Dharmendra Pradhan. Most people would agree that demonetization was a disaster for all sectors of the economy. "Significantly, millions of farmers were unable to purchase seeds and fertilisers ahead of the Rabi season due to this. The smaller farmers in particular, who rely on cash to make purchases, were left stranded as virtually all the cash they had in hand was suddenly illegal tender." A large proportion of people who file income tax returns do not pay tax. "In AY13 (Assessment Year), only 43.6% of the income tax filers paid income tax. In AY19 this had jumped to 59.5%," wrote V Kaul. Interestingly, "The salaried income declared jumped from Rs 6.27 trillion in AY13 to Rs 20 trillion in AY19, an increase of 220%. On the other hand, the business income declared during the same period has jumped from Rs 4.1 trillion to Rs 9.3 trillion, an increase of around 127%." If total business income in India is only Rs 9.3 trillion in an economy of Rs 203 trillion, it means that business activity in India is pathetically low, which means that the private sector is not creating jobs and most salaried jobs are in government. The Seventh Pay Commission increased salaries of government employees so much that the lowest grade earns more than the threshold for income tax, if we add Dearness Allowance at 17%. In the US, corporate profits in the second quarter of 2019 was over $1.8 trillion, which would come to $7.2 trillion for the whole year, while total salaries earned was around $17.5 trillion in 2018. Politicians and civil servants in India are convinced that millions of people are hiding their incomes to evade income tax. "According to the Credit Suisse Global Wealth Report 2019, just 1.8% of Indians have assets worth more than Rs 100,000 (about Rs 7 million), which is less than what a three-bedroom flat would cost in a big city," wrote an editorial in the Mint. If we take the current circle rates, which is the minimum rate for calculating stamp duty on sales of real estate in Delhi, it is obvious that it is much less. It is true that the government creates narratives to bluff the people. What is worse is that it has convinced itself of its bluff and is not willing to listen to reason, no matter how logical, wrote Prof K Basu. If the government has hypnotized itself there is no way to wake it up. Apart from an explosive crash of the economy.        

It is reserved for few people, extremely few.

Bolivian President Evo Morales has been forced to resign following days of violent protests after he won re-election by over 10%, giving him victory in the first round. Morales was the first president from the country's indigenous population and had been arrested many times for his support of poor and indigenous people. The 1967 Constitution of Bolivia "states that presidents can serve a maximum of two terms in office, but not back to back". He violated this rule in many ways. A change to the constitution in 2009 allowed the president to serve consecutive terms but no more than two. A referendum in 2016 to drop term limits was rejected by voters but a constitutional court scrapped term limits allowing Morales to run for a fourth time this year. Morales was forced to resign when the police guarding the presidential palace left their posts to join protesters and the army advised him to go. Mexico offered asylum to Morales if he should need it. An ignominious end to a leader who wanted to improve his people who were left behind by the whites and the mixed race mestizo who formed the upper class. "On Sunday, the Organization of American States, which monitored the elections, said it had found evidence of wide-scale data manipulation, and could not certify the previous polls." "However, the Cuban and Venezuelan leaders - who had previously voiced their support for Mr Morales - condemned the events as a 'coup'." Of course, they did. Cuba is a dictatorship where the Castro brothers are guaranteed in excess of 90% of votes, as are other dictators in the world. In Venezuela, Hugo Chavez won a referendum in 2007 allowing him to stand indefinitely by discarding the two term limit. His successor Nicolas Maduro won re-election in 2018 with over 70% of the votes, widely rejected as fixed by his cronies on the election board. Maduro has encouraged senior army officers to make money by smuggling drugs and they are now forced to keep him in power for fear of being extradited to the US if a different president comes to power. Communist Daniel Ortega changed the constitution to get rid of term limits in Nicaragua and won a third term in 2016. Since then he has resorted to repression of journalists to control protests against him and has used the police to shoot and beat protesters. All these criminals swear by democracy. India has no term limits so theoretically a prime minister could be around for life. However, our election system was severely tightened by TN Seshan who expired yesterday. India is one of the few countries to use Electronic Voting Machines which are claimed to be tamper proof, but rumors about machines being swapped were rife during the last general election in April-May. Counting is done behind a fence without any cross check. Abraham Lincoln may have promised that "Government of the people, by the people, for the people shall not perish from the Earth." It has not perished. It is now for 'few people'. Very few.

We are too weak to tackle Frankenstein's monsters.

Last week India pulled out of negotiations to create a large Asian trading bloc, named the Regional Comprehensive Trading Partnership (RCEP) comprised of 10 members of the Association of Southeast Asian Nations (ASEAN) and five nations, Australia, China, Japan, New Zealand and South Korea, with which they have free trade agreements (FTA). India was to be the 16th member. "It was meant to be the biggest free trade agreement with 40 percent of global commerce and 35 percent of GDP involving 16 countries, home to 3.6 billion people or half the population of the world." "Refusing to join the RCEP, PM Modi said the pact does not address satisfactorily India's outstanding issues and concerns." The problem with the deal is that "all negotiations occur in secret among member governments, and the public has no idea exactly what is being negotiated", wrote Prof V Dahejia. These deals are like "Frankenstein's monsters that do little to liberalize trade but do a lot to pursue the narrower agenda of stakeholders looking for market access". India has trade deficits with 11 of the 15 countries. "India's trade deficit with these countries has almost doubled in the last five-six years - from $54 billion in 2013-14 to $105 billion in 2018-19." Previous trade pacts have not worked well for India and RCEP is basically a "Chinese gameplan to save its manufacturing industries from crumbling under their own weight". India is the largest producer of milk in the world but, "New Zealand is selling milk powder at Rs 160 per kg. We are selling it at Rs 280 per kg." Besides, a cow yields 13 liters of milk in New Zealand, whereas output of Indian cows is a pathetic 3.5 liters. Also, milk in India is a mixture of cow and buffalo milk and there is no buffalo milk in either the US or Europe. Between 2014-15 and 2018-19, India's trade deficit increased from $13 billion to $22 billion with Asean, from $9 billion to $12 billion with South Korea, and from $5 billion to $8 billion with Japan," wrote Prof D Nayyar. "Over the same period, India's trade deficit with China rose from $48 billion to $54 billion, while that with Australia and New Zealand went up from $8 billion to $9 billion. India does have a comparative advantage in software exports, but that is not true of business services, financial services or telecommunication services, where other RCEP countries, such as Japan, South Korea, Singapore, and China, are far ahead. Much the same could be said about investment." Moody's cut India's credit rating to negative recently, leading to outraged incredulity from our experts. Trouble is that fiscal deficit is already 92.6% of the target for the whole financial year even with a one time raid of Rs 1.76 trillion on Reserve Bank reserves. How can we enter a team when we are weak in every sector? We can only lose.

Pollution of their minds.

During the Great Depression from 1929 to 1932 in the US, sales of new cars from Ford Motor Company fell by 86%, wrote Vivek Kaul. "For those who lost their jobs, it obviously made sense to postpone purchasing a car. Even those who were not impacted by the Great Depression postponed their car purchases (and purchases of other things as well) given that they had a huge fear of losing their jobs." This was the "feedback loop" that entrenched the Depression. India is not in a depression, or even a recession, but a similar feedback loop is operating. Domestic car sales, two-wheeler sales and housing sales are all down. Even, "The total number of passengers carried by the Indian Railways fell by 2.1% year-on-year during the period July to September 2019." The economic slowdown is because people have stopped spending. Increase in retail sales during the festival season in October has been tepid.  Is it purely psychological? No, said Prof Himanshu. "The current crisis is primarily a result of the missteps and misadventures of the National Democratic Alliance regime over the last five years." The windfall from the sharp fall in the price of oil was not used to alleviate the crisis in agriculture during two years of drought in 2014-15. Cutting financial support to farmers, demonetization, poor implementation of Goods and Services Tax, coercive tax administration and suppression of economic data resulted in this loss of confidence in the government. Burning of crop stubble by farmers in Punjab and Haryana is partly responsible for the severe air pollution in Delhi. Asking farmers to pay for labor to remove stubble manually is not fair to them because, "Farmers not being able to recover their costs, especially in cultivation of perishables, such as vegetables, is a regular story in India,' wrote R Kishore. The government is to import onions as prices have shot up because excessive rains have destroyed crops. Farmers have lost a portion of their crop and lowering prices through imports will destroy them financially. There is no escape because there are no jobs. Farmers normally boost their earnings by working in the construction sector but 460,000 flats are lying unsold. The government is to set up an Alternate Investment Fund (AIF) worth Rs 250 billion, with money from the State Bank of India (SBI) and Life Insurance Corporation of India (LIC), to pay builders to complete unfinished projects. Lower consumer spending means lower tax collections putting a strain on the budget. The government is trying to extract $13 billion in past fees, along with penalties and interest, from telecom companies. Voda Idea may go bankrupt. What is the idea of trying to create jobs in the construction sector while losing jobs in telecom is impossible to understand. Seems that they do not understand as well.

Don't tell them, they'll only take the juicy bits.

Defending Modern Monetary Theory (MMT), S Sivramkrishna wrote, "Theoretically and institutionally, an economically sovereign country issuing its own fiat currency cannot face a solvency crisis. The government can issue an unlimited quantum of money into existence through printing, or by means that would be more appropriate today, such as computer keystrokes, which, incidentally, is what the former US Federal Reserve chief Ben Bernanke referred to when he was asked how he bailed our private banks with some $5 trillion after the 2008 US recession." "MMT does not answer how heavy fiscal spending is eventually to be paid for. It cannot be by money printed out of thin air. It has got to be through current or future taxes (i.e. debt). There's simply no other way," wrote A Ranade. MMT argues that taxes are merely "a tool to take money out of an economy that is getting overheated" and to reduce inequality. But inflation is not inevitable. "Japan with a debt-to-gross-domestic-product ratio of 250%, struggles to check deflation, while Zimbabwe, even with an average 75% debt-to-GDP ratio since the 1990s is unable to tame hyperinflation." Exactly. Japan has a population of 126.3 million with a GDP of $5.15 trillion and per capita GDP of $40,847. Japan's fertility rate is just 1.42 which is probably why there is no inflation because there is falling consumer demand, whereas government spending and deficit are high to cover pensions and healthcare of a rapidly ageing population. Zimbabwe, on the other hand, has a population of 16 million but a GDP of only $22.290 billion and a per capita GDP of just $1,424. Clearly, Zimbabwe does not produce enough for a small population, so with a fertility rate of 3.98 per woman, leading to increasing demand, it is unable to control rising prices. India is neither Zimbabwe nor Japan. India has a population of 1.3 billion with a GDP estimated to be around $2.9 trillion. However, even with the fertility rate falling to around 2.3, demand is so huge that when fiscal deficit spiked to 5.91% of GDP in 2011-12, retail inflation soared to over 10%. Trouble with unorthodox ideas is that Indian politicians will pick the parts they like, leaving out essential parts they do not. Prime Minister Narendra Modi suddenly withdrew all high denomination notes on 8 November 2016 in the belief that people were hiding large volumes of cash without paying income tax. Since that failed the government sets enormous targets on tax officials resulting in extortion of money from law abiding citizens. When the previous Chief Economic Adviser suggested that the government use Reserve Bank (RBI) reserves to refinance banks the government virtually forced the RBI governor to resign and appointed a retired civil servant as governor who then transferred Rs 1.76 trillion to the government. Banks have not been recapitalized. These weird  economic theories should stay within textbooks and should never be brought in the open. Once politicians get hold of them we suffer.

How sad we cannot even afford liquid tranquilizers.

Narendra Modi became Prime Minister in 2014 saying that his dream was to make India a $20 trillion economy, "economists lauded his ambition" even though they did not think it would be possible, wrote Pramit Bhattacharya. After winning by a massive margin in this year's general election "Modi came up with a much more modest target: a $5 trillion economy by 2024 (only slightly higher than where the International Monetary Fund , or IMF, expected India to be at that point). This time, economists do not believe him. The problem is the contradiction between improving the economy and increasing vote share of Modi's party the BJP. "The party raised its vote share across rich and poor constituencies but gains were higher in the poorer constituencies, data shows." This was done by continuing with "the welfare schemes of the earlier era" and also by adding more new ones. This resulted in enormous pressure on Indians to pay more taxes so that founder of Cafe Coffee Day VG Siddhartha committed suicide alleging harassment by tax officials in his final letter. When businessmen go to the income tax department "they are told they better pay up. The officers say they have a target to achieve," wrote TVM Pai. To that Modi responded that the government has "compulsorily retired a number of tax officials, and will not tolerate this behavior". As usual, this was completely false because the officers were suspected of not collecting enough taxes in lieu of bribes. In other words they were sacked for not resorting to tax terrorism. Taxes account for more than half of what we pay at the pump. "The dependence on cesses and surcharges, which aren't shared with the states, went up for the same reason." Even so the government is resorting to 'creative' accounting to hide the fiscal deficit. "Despite the pantomime optimism that government functionaries and the media have to display, it is becoming impossible to disguise the sense of doom surrounding the Indian economy," wrote PB Mehta. "Privately, almost no one believes our growth is more than two to three percent." "Part of the problem with the Indian economy is that no one knows what to believe." Even the IMF cast doubts on our fiscal numbers. Incendiary stuff. Bank lending has fallen to a 25-year low, presumably because of falling investment. A committee headed by PJ Nayak had recommended that banks should be removed from "ministerial control while allowing bankers to lend more freely" but banks were kept under government control to force them to implement zero balance accounts under the Jan Dhan Yojana scheme. Things are so bad that people cannot even afford liquid tranquilizers to reduce stress. Sad Indians.