What if the RBI runs out of money?

When retired IAS officer Shaktikanta Das was appointed governor of the Reserve Bank (RBI), "Expectations from him were simple: steer the central bank back to the straight and narrow and don't protest about the finance ministry." The previous governor Urjit Patel resigned prematurely citing personal reasons, but everyone was aware of his differences with the government regarding autonomy of the RBI and protecting the reserves the RBI has built up over the decades and which the government wanted to spend before general elections. At the time, the total reserves of the RBI was valued at Rs 9.6 trillion, while its foreign currency reserves amounted to Rs 26.4 trillion. Deputy Governor Viral Acharya also resigned after citing Turkey and Argentina in a speech, where governments interfered with their central banks with disastrous results. The government argued that the RBI is owned by the government and so it has a right to its reserves. Eventually, the RBI transferred Rs 1.76 trillion to the government in August 2019 on the recommendation of an expert committee. As governor, Das has reduced interest rate from 6.5% to 4.4%, injected liquidity of about Rs 7 trillion, reduced cash reserve ratio of banks to free up capital for lending, two tranches of $5 billion swap to provide foreign exchange to banks, reduced reverse repo rate to 3.75% to discourage banks from keeping excess cash with the RBI and Long Term Repo Operations (TLTROs) to help the government by boosting consumption and lending. Not working, prompting Das to say, "Monetary policy, however, has its own limits. Structural reforms and fiscal measures may have to be continued and further activated to provide a durable push to demand and boost growth." He is asking the government to spend more which will put more cash in people's hands. "The economy has been slowing for three years since 2017-18, following the demonetisation in late 2016," wrote Prof Pulapre Balakrishnan. The government must amend the Fiscal Responsibility and Budgetary Amendment Act (FRBM) of 2003, so that it can ignore fiscal deficit limits and vastly increase spending. An editorial in the Mint echoes the same sentiment. "Estimates of Rs 10 trillion needed by way of fiscal relief, once seen as too much by some, could yet turn out to be too little." SA Aiyer suggested that the RBI should print money to finance government spending. But, there is a danger of a credit rating downgrade if the government's debt balloons. The RBI is buying government debt from traders just after government sold it, which is surreptitious monetising of the deficit. Prime Minsiter Narendra Modi is known as a bold leader, not afraid to take decisions, such as the sudden demonetization of high denomination bank notes in November 2016. So, why is he so hesitant is declaring a large spending stimulus? Maybe he wants the RBI to hand over all of its reserves. That way the fiscal deficit and government debt will not rise. But can the RBI go broke, asked Andy Mukherjee. Possible.

A disaster, yes. But not of natural causes.

India has had a total of 33,062 cases of coronavirus, with 1,079 deaths, which is minuscule considering a population of 1.3 billion people, compared to 1,064,572 cases with 61,669 deaths in the US with a population of 330 million. The success has been attributed to the severe lockdown declared suddenly by Prime Minister Narendra Modi on 24 March and then, just before the lockdown was to end on 15 April he extended it for a further 19 days till 3 May. Whether it will be extended further depends on Modi's wishes. "India could see more deaths due to hunger than from the pandemic if it continues to remain in lockdown to halt the spread of Covid-19, according to Infosys founder NR Narayan Murthy." "Murthy said India sees over 9 million deaths due to various reasons, of which a quarter are due to pollution, since the country is one of the most polluted in the world." So 1,000 deaths are nothing. Millions of internal migrants, mainly daily-wage laborers, were suddenly trapped far away from their villages with no earnings. "A 12-year-old girl died while making a 150-kilometer trip on foot from a village in Telangana to her native Bijapur district in Chhattisgarh, officials here said on Monday." She tested negative for the virus. The government is convinced it was right. "Forget caution, India should rapidly ease the Covid shutdown to revive the economy," wrote SA Aiyar. "Otherwise it may suffer the worst of both worlds -- economic collapse without checking the virus." "If lives are priceless, they're worth saving at any cost -- that's the current mantra," wrote Chetan Bhagat. "Except, we Indians have never really applied this principle when it comes to saving lives from causes other than Covid-19." "India is on the cliff's edge of an imminent downgrade by Moody's and an outlook change by Fitch to negative in the backdrop of coronavirus outbreak and lockdowns that have derailed fiscal discipline and are biting into growth, said Japan headquartered Nomura in a research note." State governments are suffering even more as they see a complete collapse in revenue generation, wrote Vivek Kaul. Since people are stuck at home taxes from fuel, air turbine fuel, stamp duty from sale of real estate, registration of properties, registration of new cars have stopped completely or have been severely reduced. Had home delivery of alcohol been allowed, it would offer some respite because "the revenue generated by alcohol funds nearly one-fifth of the budget of most state governments". But Modi will not allow it. States are having to beg Modi for funds to pay salaries and provide assistance for all those who have suddenly been rendered penniless. What gives Modi the right to dictate to states and to completely suppress human rights of citizens? He has cloaked himself in the Disaster Management Act of 2005 to get absolute power over the nation. A disaster manufactured by him.  

If we take full advantage of cheap oil.

On 20 April, "The price of a barrel of West Texas Intermediate (WTI), the benchmark for US oil, dropped 14 percent to $15.65 in Asia trading on Monday, the BBC reported. The oil market has  come under intense pressure during the coronavirus pandemic with a huge slump in demand." "Brent oil, the benchmark used by Europe and the rest of the world, was slightly weaker, down 0.8 percent to $27.87 a barrel." One day later, oil prices in the US turned negative as traders tried to sell off futures contracts for May because "Demand for oil has all but dried up as lockdowns across the world have kept people inside. As a result, oil firms have resorted to renting tankers to store the surplus supply and that has forced the price of US oil into negative territory." The price of a barrel of WTI fell as low as minus $37.63 a barrel. "Globally, nearly 90% of all available crude storage is full. "There were 27 oil supertankers anchored off the coast of Southern California last Thursday." The price of petrol in the US fell to $1.77 per gallon, which works out to about Rs 36 per liter. It should be great news for consumers because they can save money on driving and everything should become cheaper as transport costs fall. But, it is also grim news. "The meltdown in crude oil prices is symptomatic of a deep malaise in the global economy, which is expected to enter recessionary zone in 2020 as countries have shut down normal business activity to fight the covid-19 pandemic," wrote Uday Bhaskar. "With India importing 80 percent of its crude oil requirement, the country will need to shell out a lot less money to buy oil from abroad." That may not be enough to offset fall in exports which fell by 34.6% in March and will remain weak this year as other nations struggle to recharge their economies. "Low oil prices can not only reduce India's oil import bills but it can also give a room to the government to increase fuel taxes, offsetting low tax collection." Petrol prices are unchanged at over Rs 70 per liter in India, compared to Rs 36 in the US, showing the government has already increased taxes. Taxes can be collected only if there are sales but fuel sales are down 50% as people are forbidden from traveling. All flights have been canceled so there is no demand for aircraft fuel. Oil is the most important commodity in the world, wrote Simon Jack. "Right now it is telling us that the world economy is in big trouble -- a crisis not yet revealed in backward-looking economic figures." "The next chapter in the oil crisis is now inevitable: great swathes of the petroleum industry is about to start shutting down." In North Dakota oil producers have closed more than 6,000 wells. China has restarted its factories and some states in the US are cautiously opening from shutdown. Low oil prices are good for India, wrote Indrani Bagchi, but it is killing countries dependent on oil revenues such as Saudi Arabia and Iran. If war breaks out in the Middle East as demand starts improving we could see a spike in oil prices. We should prepare from now.

Why is the government so shy of spending?

'Why is it that a nation that has very low standards for life and living has such high standards in its war against one disease?" asked Manu Joseph about India's reaction to the coronavirus. In 2009-2010, one billion people in the world were infected by swine flu and half a million died. But there was no such panic. So far, this virus has infected over 3 million people worldwide, killing 211,609, much less than swine flu. The panic has been produced by admirers of China, especially US business people, wrote Joseph. India has its very own problems. "On 15 April, the Union ministry of home affairs (MHA)" "allowed e-commerce companies to expand their offering beyond the existing list of essential commodities", wrote Anil Padmanabhan, but "a fresh clarification from the MHA on 19 April reversed the relaxation". "It is the most open secret that the flip-flop was influenced by the powerful lobby of domestic traders." It is a typical example of bureaucratic overreach "reminiscent of the licence raj". Is it? "One of the saddest statements about India's informal Covid taskforce is that of a senior official: "Most instructions come form the PM. Even in technical matters, his vision and knowledge are exemplary. We always feel he is ahead of us," wrote Prof Kanti Bajpai. Yesterday, the government told the Supreme Court it does not want migrant workers to return to their villages. At the same time, over 12,000 laborers were brought back from Haryana by the UP state government which is of the same party as Prime Minister Narendra Modi. "With both geopolitics and the pandemic creating incentives for foreign companies to shift their supply chains from China, the Indian economy has a once-in-a-century window of opportunity to capture some business," wrote Nitin Pai, but "such windows have appeared periodically since 2009, all of which India has missed". "That leaves us with only one answer: get India back to work." That will require widespread testing which will cost a lot of money. Fiscal rectitude should be discarded and the government should spend Rs 9-10 trillion to stimulate the economy, wrote an editorial in the Mint. "This is the time to save the economy by spending big and show the world how a big economy can be salvaged by decisive action and force rating agencies and other finger-wagging busybodies to relearn their economic lessons," said an editorial in the Economic Times. Modi has spent 6 years in power through his ability to mesmerize the masses with his non-stop speeches, the windfall gains from taxes on fuel and the vertigo-inducing rise of the stock market index the Sensex. His bluff has caught up with him and he is petrified of a collapse of the economy if he does nothing or an explosion of new cases if he opens up or a fall to junk status if he spends. Hot air has its limits.

Virus was easy, but what about poverty?

"The Indian lockdown is being regarded as one of the toughest in the world," wrote Chetan Bhagat. The lockdown is estimated to cost Rs 10 trillion. "If lives are priceless, they're worth saving at any cost -- that's the current mantra." However, this principle does not apply at other times. Our infant mortality rate is 3%, compared to 0.3% in the developed world. In Gorakhpur, 30 children died in 48 hours because the government hadn't paid Rs 6 million to the oxygen supplier. People died in Mumbai because footbridges were not repaired. India has 46.6 million stunted children "caused by long-term insufficient nutrient-intake and frequent infections". Despite requests to export rice and wheat to reduce overflowing stocks. And, of course, the Indian state does not hesitate to use extreme violence against citizens at the least provocation. The lockdown will lead to unemployment, with consequent increase in "depression, suicide rates, domestic violence, crime, terrorism". India is in an impossible position because unchecked infection with coronavirus may result in a mortality of 6.5 million people while the economic consequences of the lockdown will hurt the poorest among us, wrote Gurcharan Das. "The worst affected will be half a billion daily wage earners, many of whom may die of hunger." What is the solution? "One approach could be to have generous, but provisional aid program, which is unconditional and reversible," wrote Kwatra and Bhattacharya. "We can call this an EBI (emergency basic income)." But, what if those who have fled to their villages refuse to return? Will any politician be prepared to stop EBI and let starvation force laborers to return to their previous jobs in cities? To make matters worse, many of the over 8 million Indians working in Gulf countries may have to return home due to the precipitous fall in the price of oil, wrote Suhasini Haider. Remittances to India from abroad may decline by 23%, from $83 billion last year to $64 billion this year because of the global recession caused by the virus pandemic. "As per estimates, India is home to 69 million MSMEs  (micro, small and medium enterprises) with micro enterprises accounting for the majority presence in the country." "Mounting expenses, dead stock, no sales, demanding vendors, uncollected payments and mounting expenses -- Covid-19 has been the last nail in the coffin for a host of MSMEs, post demonetization and GST (goods and services tax)." "The Covid-19 crisis has the potential to push around 40 crore (400 million) informal sector workers deeper into poverty" with 90% of workers working in the informal economy. "Domestic remittances, usually from big cities and more affluent areas to India's rural hinterland, plunged about 80%" because of the flight of migrant workers back to their villages. Unlimited problems, increasing poverty. That is the nub.    

Disinfecting with disinfectant isn't crazy.

With the coronavirus ravaging economies worldwide, "economists are recommending that age should be used to determine who returns to work first". "That means the youngest are activated first, while more venerable groups remain sheltered until either a vaccine can be administered or the rest of the population develops sufficient immunity." Although mortality is very low in people below the age of 50 years, large numbers may still require hospital admission creating enormous stress on healthcare systems, especially in poorer nations. Young people may pass the virus to their parents. In India, 25 members of one family, including a 2 year old boy, got infected in Maharashtra in March, while more recently, 31 members of an extended family tested positive in North Delhi. "The World Health Organization is warning that people who have had Covid-19 are not necessarily immune by the presence of antibodies from getting the virus again." Coronaviruses are common in humans and usually cause mild upper respiratory illness, like the common cold. We don't develop lasting immunity to these viruses. Influenza vaccine has to be taken every year because the virus keeps mutating so new vaccines have to be produced according to the new strain. There are already at least three types of the novel coronavirus, named Covid-19. Accelerated human trials of vaccines against the virus have begun in several countries. The Serum Institute of India (SII) in Pune has started manufacturing a vaccine, developed in partnership with Oxford University, even before human trials started. "The SII has started work even as Oxford University on Thursday started clinical trials of the vaccine it has developed." If trials fail the SII will bear the loss of throwing away what it has produced. There was a huge outcry when President Donald Trump suggested injecting disinfectant to cure coronavirus infection. It was immediately assumed that disinfectant means bleach and all sorts of doctors and health experts were unanimous that it was an "absolutely dangerous crazy suggestion". Which is surprising because doctors of all people know that the commonest used disinfectant on human beings is alcohol. Alcohol is routinely used to sterilize the skin for injections and is recommended in hand sanitizers. In olden days, women used to brew beer in Britain because "It provided nutrition and was a safe source of drinking water." This was before safe drinking water was provided by local authorities. Of course, getting drunk won't sterilize the body from the inside. The government in India recommends drinking warm water throughout the day and concoctions of various spices. With Covid-19 we need at least 70% of people to be immune to the virus to get herd immunity, wrote Gideon Meyerowitz-Katz. To vaccinate 70% of 1.3 billion people in India will cost a fortune. Who will pay?

Does the government know the size of the hole?

"Parts of India have recorded dramatic falls in mortality rates after a nationwide lockdown was imposed to fight the new coronavirus, suggesting  there has not been a surge in virus-related deaths." Not just deaths due to the virus, but absolute numbers of deaths have fallen so that Shruti Reddy, chief executive officer of Anthyesti Funeral Services said, "We've declared employee pay cuts if revenue falls below a threshold." "Imposing a nationwide lockdown involving 1.3 billion people for 40 consecutive days is hard enough," wrote Omkar Goswami. "Getting out of it could be harder still." The economy will contract which will reduce tax collections. So, "Basically, we will have to depend on domestic funds, and print money like never before." Former Governor of the Reserve Bank (RBI) Raghuram Rajan also said that it will not be easy to lift the lockdown but it had to be done to save livelihoods and the collapse in oil prices is a huge windfall. You win some, you lose some, however. "The government is readying a lifeline for oil producers such as ONGC and Oil India as the chaos in the global markets deepened on Wednesday, with international benchmark Brent just below $16, the lowest since 1999, before settling at $21.16." In 2016, the government set up a Monetary Policy Committee (MPC) within the RBI that would target an inflation level of 4%, plus/minus 2%. According to Prof Vivek Dahejia, inflation targeting has been a rip-roaring success. "In 2015, the bank (RBI) moved to inflation targeting, raising hopes that the rupee would one day be used and held internationally, giving India a durably lower cost of capital," wrote Andy Mukherjee. "It's time the authority openly bought notes from the government by printing new money." The government should spend at least 10% of GDP, which means Rs 20 trillion, to stimulate the economy, wrote Prof Pulapre Balakrishnan. Strangely, "NK Singh, chairman of the 15th Finance Commission, said the Fiscal Responsibility and Budget Management (FRBM) Act allows the Reserve Bank of India to lend to the government, but he doesn't favor such a move." Why? What does the Commission know about government finances that we don't, and why aren't they telling us? "Crisis often begets opportunity, however, and India should now move quickly to take advantage of a longer term opening spawned by the sudden but inevitable global rush to reduce economic dependence on China," wrote David M Sloan. For that India should concentrate on Make in Global India by inviting foreign companies to invest here, stop tax terrorism, respect verdicts of international arbitration panels and stop belittling foreign investors, as minister Piyush Goyal did. The problem is that our companies are happy with the domestic market and do not want competition, so politicians resort to import substitution, wrote Sneha Alexander. Experts advise on theory. Only the government knows how big the hole is. Or, does it?

Continued pain may be harder to forget.

"More than 4.4 million laid-off workers applied for US unemployment benefits last week", which means that "Roughly 26 million have now filed for jobless aid in the five weeks since the coronavirus outbreak began forcing millions of employers to close their doors." "The enormous magnitude of job cuts has plunged the US economy into the worst economic crisis since the Great Depression of the 1930s. Some economists say the nations output could shrink by twice the amount that it did during the Great Recession which ended in 2009." China, where the pandemic originated, has embarked on a mission to become the biggest economy in the world and is using the outbreak to extend its influence, wrote Richard Pendelbury. "You have to strip the emotion away from it," said Prof Kerry Brown. "If in a few months' time Europe's growth is poor, America is struggling but China is OK, who do we turn to get good returns and find economic possibilities?" China wins. "In perhaps a sign of how China's leaders are determined not to let this moment pass them by, or to be cast as global villain, the response to any such criticism has been forceful and often angry." While western politicians and media get tied up in political correctness, contorting themselves not to appear racist, the Chinese have no such polish. The Chinese embassy in Paris wrote, "The residents of retirement homes were made to sign certificates of 'waiver of emergency care'; the nursing staff of the Ehpad abandoned their posts overnight, deserted completely, leaving their residents to die of hunger and disease." To that the French response was that it does "not conform to the quality of bilateral relationship". "You [Xi], your government and your scientists had to know long ago that coronavirus is highly infectious, but you left the world in the dark about it," wrote editor-in-chief of Bild Julian Reichelt. "You rule by surveillance. You wouldn't be president without surveillance. You monitor everything, every citizen, but you refuse to monitor the diseased wet markets in your country." To which the Chinese accused Reichelt of "nationalism, prejudice, and hostility against China". Why do the Chinese always respond by snarling? Because they do not want the world to discover that beneath their suits and ties they are uncivilized barbarians and because they know that other countries will give in to their uncultured intimidation. Reichelt or Tim Blair in Australia may be sticking two fingers to China, but will their governments collaborate to dissociate from China once this is over? It may happen if their economies really suffer.     

How can it be welfare unless it is for everyone?

The coronavirus pandemic has resulted in greater government support. "Blurring lines between the public and private, right-wing governments are even directly subsidizing private sector wages in rich countries," wrote Puja Mehra. "Countries are spending like never before -- not even during the wars had governments blown budgets to the skies as they are today." Following the subprime crisis in 2008 the Federal Reserve in the US expanded its balance sheet by $4.5 trillion by buying mortgage backed securities and Treasury bonds, named Quantitative Easing (QE). The European Central Bank (ECB) had its own QE program amounting to over $3 trillion over 4 years, swelling its balance sheet to about 4.65 trillion euros. This was done to infuse more money into banks and lower interest rates so that companies could borrow more cheaply to set up new investments as individuals spent more by taking loans. The ECB went even further by cutting interest rate to negative, which meant people in the eurozone had to pay to save money in banks. The coronavirus is many times more destructive because it has stopped all economic activity before economies fully recovered from the previous crisis. This time the US Congress passed a $2 trillion stimulus to protect workers and businesses, following which it passed another $484 billion package to protect workers' wages by supporting small businesses. However, these programs tend to leave out informal sectors and the self-employed, said Mehra. "A welfare state takes on twin roles: it provides (not necessarily produces) merit goods such as healthcare and education to everyone. It also redistributes incomes so as to alter the income distribution created by markets." The National Health Service (NHS) is available to every British citizen and is free at the point of contact. Even Prince Charles was issued a free bus pass on his sixtieth birthday even if its more of a joke. In India the taxpayer has no support. India has a multitude of welfare schemes aimed at the poor, to which Prime Minister Narendra Modi has added his own creations.  "Economic history of other countries with large welfare programs shows that growth slows down after the fiscal burden of the government is increased." "In Denmark, a third of the population was on the boat when welfare programs were started in the 1960s. By 2014, two-thirds of the population was riding on tax money." The danger, as in India, may be that subsidies were decided to win elections than on economic grounds. One reason for difficulties in paying for a welfare state is that giant online service providers, like Google and Facebook, are free and therefore drop out of GDP calculation, wrote Prof Ricardo Hausmann. Other reasons are that these giants avoid paying by (a) not paying for reusing media content and (b) paying almost no taxes by clever use of financial jugglery. Apple is challenging an order to pay $14 billion in back taxes to the Irish government. The rich countries will roll back subsidies once the virus has passed but in India, politicians will continue them for fear of losing elections. Danger to India is far higher.    

So many ironies, but we cannot laugh.

"Markets worldwide were in for a rude shock on March 9, after global crude oil prices fell almost 30 percent, with Brent crude prices falling to $32 a barrel," wrote MG Arun. "Every $10 a barrel decline in oil prices would mean a saving of $15 billion in India's net oil import bill. India spent $111.9 billion on oil imports in 2018-19, up from $87.8 billion in the previous fiscal year." Brent crude has fallen to $17.83 per barrel today. Even worse, couple of days back, "West Texas intermediate crude for May delivery fell more than 100% to settle at negative $37.63 per barrel, meaning producers would pay traders to take the oil off their hands." This has never happened before. Considering that Brent crude was trading at over $50 a barrel in January the government would be saving huge amounts of foreign exchange which should be favorable for the rupee. The rupee has fallen to near 77 to the dollar. When Prime Minister Narendra Modi was first elected in 2014 the price of crude oil was over $100 a barrel but fell to $25 by January 2016. The government increased taxes on fuel and raked in windfall profits of $11 trillion in 4.5 years which should have been used to recapitalize banks, but wasn't. The government should be collecting truck-full of taxes with crude prices collapsing and fuel prices at the same level as before. In the US, petrol is selling at about $1.8 per gallon. One US gallon converts to around 3.8 liters, which means that petrol is selling at Rs 37 per liter in the US, nearly half the price in India. Sadly, fuel sales have collapsed due to the coronavirus lockdown, with petrol sales down 64%, diesel down 61%, and air turbine fuel (ATF) down 94%. "India's economy may be heading for its first full-year contraction in more than four decades after Prime Minister Narendra Modi extended the world's biggest lockdown to contain the coronavirus outbreak," This was necessary because our healthcare system is totally inadequate, said officers of the Indian Administrative Service (IAS), who are responsible for setting up and managing the system. They had already established and escape route by getting the taxpayer to foot the bill of treatment in foreign lands. The irony is that, with flights stopped, they cannot escape the system, just as the government cannot earn from falling oil prices. If millions of people get infected by the virus there is no way of treating them and there could be corpses on streets. The lockdown is a desperate effort to avoid such a calamity and if the economy tanks the Reserve Bank (RBI) is advancing Rs 2 trillion loans to the government to feed the poor. As it is, the government is running a large fiscal deficit and with tax collections expected to fall precipitously there is no way the government can repay the RBI. The irony is that the government looted Rs 1.76 trillion from RBI reserves last year. Which means the RBI will have to write off that loan by printing rupees, so-called monetising the deficit. Expect the rupee to go down. The greatest irony is that the poor will thank the government for handouts. While they suffer. 

Will the economy restart on lifting the lockdown?

In a stirring communication to business leaders, Prime Minister Nanrendra Modi advised that in future businesses should be based on adaptability to survive future crises, primacy to caring for the poor, and unity and brotherhood. Sounds like non-governmental organizations (NGOs) than viable businesses. But Modi is hostile to NGOs which have seen a drop of 40% in funding in his first term and 13,000 have lost their licenses. Modi also added that "the country was already witnessing an encouraging surge in digital transactions". Digital transactions soared in 2016 when Modi suddenly imposed demonetization on the nation, but, according to a Reserve Bank (RBI) report, currency in circulation reached Rs 21.10 trillion in March 2019. Cash is the lubricant which runs the informal economy, like in Dharavi, in Mumbai, probably the largest slum in the world. "Dharavi, spread over 240 hectares and housing more than 700,000 people, including large groups of migrants from all over the country, is familiar with disease -- from asthma and malaria to typhoid and syphilis. Residents, however, have never seen anything like covid-19," wrote Smruti Koppikar. It maybe a slum but it has "20,000-25,000 workshops and units across all economic activity" "worth an estimated $1 billion". "This is a throbbing and thriving manufacturing centre, built by large doses of enterprise and risk, with intricate networks of cash and credit, surviving without formal subsidies, protection or handouts from governments -- parts of it running afoul of law, parts of it falling between the legal and illegal if not the latter." Modi believes that informal enterprises are all cheating on taxes and since 90% of our economy is informal, the loss in taxes must astronomical. Instead of demonising the informal economy India should help it to increase productivity, said Michal Rutkowski of the World Bank. The Economic Survey of 2019-20 noted that "manufacturing units have to conform with 6,796 compliance terms, which is a tedious and time consuming task", forcing businesses to remain small and informal. Formal jobs comprise just 9,98% of total employment in India, said the Economic Survey. which means that the informal economy, like Dharavi, is providing livelihoods to over 90% of people. As the economy was slowing down small manufacturing businesses In Coimbatore were closing down. But, even as payments were delayed they were forced to pay GST on the 20th of every month, having to borrow to pay tax. Then the coronavirus hit. On 24 March, Modi placed the nation under a complete lockdown for 21 days. Businesses have been allowed to open but according to a clause in the home ministry guidelines anyone from the chief executive to the worker may be sent to jail if "there is any violation of measures to contain the spread of covid-19". There is a tremendous climate of mistrust in the country and business cannot revive until trust is restored and only Modi can do it, wrote R Jagannathan. Can he? Delhi police have been arresting activists taking advantage of Modi's lockdown, just like the Hong Kong police has been doing to pro-democracy activists. Homilies with a big stick in hand does not breed trust. Without trust, nothing works.

Target the Party, not the government.

"American lawyer Larry Klayman has filed a USD 20 trillion lawsuit against China for the creation and the release of the novel coronavirus that has infected more than 334,000 people globally." Since then the total number of cases worldwide has reached over 2.4 million and more than 165 thousand people have died. With over 45,000 the US has the highest number of deaths in the world. As anger has mounted against China for rising death levels and lost livelihoods the number of class action suits have multiplied. "The European Union's competition chief told the Financial Times that member countries should buy stakes in companies to counter the threat of Chinese takeovers, with her comments coming as the EU formulates plans to protect its businesses amid coronavirus outbreak." "It's very important that one is aware that there is a real risk that businesses that are vulnerable can be the object of a takeover," said Margrethe Vestager. "The situation now really underlines the need so we work really intensively." The Indian government has tightened its policy on foreign direct investment (FDI) to prevent "opportunistic takeovers/acquisitions of Indian companies due to the current Covid-19 pandemic". It is specifically targeted at countries with land borders with India, meaning China. "French virologist and medicine Nobel laureate Luc Montagnier has made explosive revelations regarding the origin of the coronavirus, saying that the virus was manufactured in a laboratory in China's Wuhan."  He said that "the presence of elements of HIV and germ of malaria" is because of an attempt by the Chinese to create a vaccine against HIV. The head of the research laboratory in Wuhan Yuan Zhiming dismissed accusations as "conspiracy theory" and insisted "there's no way this virus came from us". France has rejected the suggestion of the virus coming from the Wuhan lab which it helped to set up. Pictures released by the official China Daily in 2018 showed broken seals on one of the refrigerators in the lab. The tweet was later deleted. As is usual the Chinese government has reacted with lies and violence. Many of those who exposed the true extent of infections in China have disappeared. "US President Donald Trump has warned China that it should face consequences if it was "knowingly responsible" for the spread of the novel coronavirus, upping the ante on Beijing over its handling of the Covid-19 pandemic. "..China's initial, weeks-long coverup helped spawn the greatest global disaster of our time, sending the world hurtling toward a recession," wrote Prof Brahma Chellaney. "The pandemic has highlighted that only by loosening China's grip on global supply chains -- beginning with the pharmaceutical sector -- can the world be kept safe from Beijing's machinations." The Beijing government can claim sovereign immunity but if a US court orders damages against the Communist Party it may force the US government to seize Chinese assets in the US. With instant retaliation from China. Any destruction of China will be great for India.

Is the RBI speaking with fingers crossed?

"Inflation could recede even further in the months ahead, barring supply shocks and may even settle below the target of 4%, by the second half of 2020-21, providing enough headroom for the central bank to use policy tools to address risks to growth, RBI governor Shaktikanta Das said on Friday, while indicating the possibility of fresh cuts in interest rates." "A sharp fall in vegetable prices has led India's retail inflation to ease from 6.58% in February to a four-month low of 5.91% in March." Vegetable inflation fell from 31.61% to 18.63%. "Inflation, as measured by the wholesale price index, was !% in March, down from 2.26% in the preceding month, while food inflation fell to 4.91% from 7.79% in February, data released by the commerce and industry ministry on Wednesday showed." Constituents of CPI and WPI are different, in that food and beverages account for 45.8% in CPI, while manufactured products constitute 64.3% of WPI. Last month the Reserve Bank (RBI) cut interest rate by 75 basis points to 4.4% so the real interest rate is minus 1.51%, which means savers are losing money because the erosion in the value of the rupee is higher than the interest they get on their savings. Average CPI inflation in 2008 was 8.32% and 10.83% in 2009. Interest rate was around 7% in 2007 and fell to just above 4% in 2009, so while retail inflation was rising the interest rate was falling. Real interest rate fell to minus 1.98% in 2010 when the average CPI spiked to 12.11%. In 2013, CPI was 10.92% and the Congress was trounced in general elections in 2014. The Centre for Monitoring Indian Economy (CMIE), a private sector research organisation, estimates that unemployment in India has climbed to 23.4% due to the lockdown to control the coronavirus, as millions of migrant workers have rushed back to their villages to survive. Trade unions and voluntary organisations estimate that as many as 100 million people have been affected. "In Delhi alone we are giving food to about 40,000 people," BMS leader Pawan Kumar said. The central government has asked states to close their borders to prevent migrants from going back to their villages. But for how long? As soon as the lockdown is lifted migrants will rush back to their homes because they have lost trust in assurances.The sudden loss of livelihood for millions has led to a severe fall in demand. Mobile recharge volume is down 35% as people have no money. "Economists and business leaders are pitching for a massive Rs 10 lakh crore (Rs 10 trillion) stimulus package to support people who have lost their livelihoods..." If the government distributes money to the millions who have lost their jobs it will create a sudden surge in demand, especially for food. As drivers of trucks have also fled back to their homes, supplies could take months to get back to normal. The rupee has fallen to record lows so the cost of imports will increase. Is the RBI sure it can manage inflation? Or is it speaking with fingers crossed?

Same everywhere, aren't they?

While the coronavirus lockdown is causing inconvenience, stress and loss of earnings for humans, wild animals are enjoying our absence, as these lions in Kruger National Park. At other places deer, goats and bears have been seen where, normally, there would be human traffic. People are beginning to rebel against being locked down. "Michigan, Ohio, Kentucky, Minnesota, North Carolina and Utah -- states led by both Democratic and Republican governors -- have all seen protests in recent days as people grow more concerned about the economic fallout of the coronavirus pandemic." Bitterly divided politicians in the US cannot agree on anything despite the number of deaths at 33,049. Democrats would not agree to a $250 billion stimulus bill for small businesses unless it included support for hospitals and key workers. "The new Department of Labor filings bring the number of jobless claims over the last four weeks to more than 20 million." "Many economists warn that elevated numbers will linger, with Goldman Sachs researchers expecting some 37 million claims by the end of May." With presidential election on 3 November 2020, Donald Trump is anxious to restart the economy so as to go into the campaign with the economy growing and people getting back to work. Democrats would be happy to see no growth to be able to blame Trump. Left Wing Vox was outraged when Trump tweeted to liberate Minnesota, Virginia and Michigan, all swing states with Democratic governors. "House Speaker Nancy Pelosi, D-Calif, is pushing for a new stimulus bill that would roll back the state and local tax deduction (SALT) cap, a proposal that would predominantly help wealthy individuals -- including most residents in Pelosi's district and perhaps even Pelosi herself," wrote the right wing Fox News. Last month Democrats voted against a $1.8 billion coronavirus stimulus package, with 5 Republican Senators in self-quarantine and unable to vote, because it contained $500 billion support for big business. Indignant Fox News reported that the House had earmarked $35 million for the "John F Kennedy Center for the performing arts in Washington D.C." While the coronavirus was raging in China and beginning to invade the world, Pelosi was delaying impeachment proceedings of Donald Trump to get maximum mileage out of it. Trump was acquitted by the Senate on 5 February 2020. However, that is still simmering as it is the turn of the Trump administration to investigate whether the allegations of collusion with Russia was a criminal conspiracy to overturn Trump's election victory. The Department of Justice has found that "the FBI has repeatedly violated surveillance rules", despite claims to the contrary by the Democrats and the media. We know our lot. Seems that politicians are not much different in the US as well.

Will Rs 20 trillion be enough?

The Indian government issued guidelines for restarting certain businesses, such as agriculture, road transport and certain self employed professions, including plumbers and electricians, in areas which are deemed to be free of coronavirus. This is designed to help those dependent on daily wages. But will anyone take the risk? After a pizza delivery boy tested positive for the virus, 72 families in South Delhi have been put under quarantine. "None of the 72 families have been tested as of now. They will be tested if they develop symptoms, according to District Magistrate of South Delhi  B M Mishra." "India has quarantined tens of thousands of people in their homes. But some of the measures designed to keep them inside -- like the signs posted outside their houses and releasing their personal data -- have led to unintended and unpleasant consequences," reported BBC. Like living in a zoo, as one sufferer said. "An almost total lockdown till May 3, with very few economic activities permitted, is justified if the marginal benefit exceeds the marginal cost. But does it?" asked Saubhik Chakrabarti. Considering its vast population the number of infections in India has been small and given its youth the dangers are limited. On the other hand, "The Indian state does not have the fiscal capacity to both take care of millions of poor who have been disproportionately hit by the lockdown as well as provide a large stimulus to the economy." India is spending only about 1% of GDP in supporting its economy when the US is spending 10%, Malaysia is spending 16% and Japan is spending a whopping 20%, wrote Prof Pulapre Balakrishnan. Like the US, India should spend at least 10% of GDP, or Rs 20 trillion and this may raise the fiscal deficit to 14% of GDP, same as in the US. The RBI is allowed to buy government bonds from banks but not from the government, wrote Niranjan Rajadhyaksha, but this rule should be set aside and it should be allowed to buy both central and state government bonds. The idea is to lend money to governments so that they can distribute to the poor to increase demand and spend on infrastructure to kick-start the economy. "The country's lenders chose to park a record Rs 6.9 trillion with the Reserve Bank of India (RBI) on Monday for a paltry return of 4%, even though buying government bonds or giving out loans would have got them higher rates," wrote Aparna Iyer. Yields on the benchmark 10-year bonds hardened to 6.5%, when interest rate is 4.40%, and yields of state government bonds were as high as 8%, wrote Sajjid Z Chinoy. The RBI should guarantee losses for banks in purchasing long duration government securities and also purchase corporate papers with suitable discounts. Previous governors of the RBI had stopped banks from hiding bad loans, "But the new RBI regime under Shaktikanta Das has been different. It has already allowed banks to extend MSME (micro, small and medium enterprises) loan recast scheme and allowed restructuring of loans to the real estate sector." The real estate sector has an unsold inventory of Rs 3.7 trillion and may have to lower prices by up to 20% to free up cash. The Center has been borrowing from the RBI to tide over its cash-flow mismatches before the virus. What if Rs 20 trillion is not enough? Sadly, India is not the US.   

Politicians are safe from the smart lockdown.

Prime Minister Narendra Modi announced an extension of the lockdown in India till 3 May to contain the coronavirus epidemic. Areas where the disease has been contained may see some relaxation. As the lockdown is eased gradually, "Labor departments in some states have directed employers providing essential services to penalise employees if they remain absent from work. This can range from salary cut to suspension." "Gujarat had earlier said that employees of companies and shops that are deemed 'essential services' are duty bound to report to their respective workplaces during the lockdown as per instructions issued to them by their employers." When a woman is employed in a shop she is not told that she will have to risk her life because a politician decided that it is 'essential service'. If she contracts the virus and dies will her family receive compensation or pension? The Modi government told the Supreme Court that "the entitlement of former Members of Parliament (MPs) to get pension and other benefits was 'justified' as their dignity has to be maintained even after they complete their tenure as parliamentarian". So, politicians get pensions for being politicians while ordering others to risk their lives for nothing. Doctors and nurses, of course, have seen it as their duty to work with virus patients despite having no protective equipment. Doctors are arrested and harassed if they dare to complain against the callous lack of safety equipment. They have been accused of prescribing expensive drugs in return for favors from pharmaceutical companies. Politicians, civil servants and their adult children should set an example by volunteering at Covid-19 hospitals. "India has evolved the world's largest smart lockdown model through consultation, constant calibration and cooperative federalism, government officials have said after guidelines of the relaxations to lockdown from April 20 were issued." How smart? When rumors that trains will start running again spread in Mumbai, a large crowd of migrant laborers gathered near Bandra Station, desperate to get back to their villages in other parts of India. As is usual in India, the police resorted to beating people with lathis (bamboo sticks) to disperse the crowd. Those stuck in cities are having to face days without food. Migrants who returned to their villages were confined in quarantine centers but have been running away. "India's economy may be heading for its first full-year contraction in more than four decades" according to economists who predict anything from a growth of 0.5% to a contraction of minus 4.7%. The economy will suffer a loss of $234.4 billion this financial year because of the extended lockdown, predicted Barclays. Why take such a risk with the economy? Because our healthcare system is worse than Bangladesh, Sudan and Equatorial Guinea, so with a population of 1.3 billion there is a potential for millions to die of the virus. Even if general elections are not due till 2024 that stigma will stick. Perhaps, the Reserve Bank (RBI) could rescue the government by printing rupees, as Swaminathan Aiyar has suggested. That could cause a fall in the value of the rupee, a jump in the cost of imports leading to inflation and reduced consumption. Mortality or starvation, a stark choice.    

Is the WHO an agent of China?

"In some places in the United States and other developed countries hit hard by Covid-19, the question is when might it become possible to start getting back to work. For much of the rest of the world, the nightmare is yet to start. And part of the horror is that many poorer countries won't have the means to do much about it," wrote the New York Times. The US is estimated to have 160,000 ventilators, Sierra Leone has 13, South Sudan has 4 and the Central African Republic has 3. Of course, these African nations have much smaller populations. The global economy will contract by 3% this year, "the worst financial crisis since the Great Depression", said the International Monetary Fund (IMF). However, it predicts a growth of 5.8% in 2021, albeit on a lower base. Emerging markets do not have the financial means to stimulate their economies like the rich countries are doing, wrote Enda Curran and Michelle Jamrisko, as foreign funds pull out if interest rates fall. "Some $92.5 billion of portfolio investments held by nonresidents flew out of emerging markets over the 70 days starting Jan 21 -- when the coronavirus outbreak began gathering pace in China -- Institute of International Finance data show." The virus originated in a 'wet market', where meat of all kinds of animals is sold in extremely barbaric conditions, in Wuhan in China. China has tried every trick to divert attention from its uncivilized social behavior, from suppressing vital information to blaming others. In a letter to the Daily Telegraph in Australia, the Chinese Consulate General in Sydney wrote, "Recently the Daily Telegraph has published a number of reports and opinions about China's response to Covid-19 that are full of ignorance, prejudice and arrogance." To which Tim Blair wrote a point by point answer published over two pages in the Daily Telegraph. "In the civilised world, 'Bradman bats and bats and bats' is a famous newspaper banner. In Wuhan it's the name of a restaurant," he hit back. The World Health Organization and its Director-General Tedros Adhanom Ghebreyesus have been accused of suppressing a warning from Taiwan that the coronavirus was spreading from human to human, choosing to echo the Chinese denial instead. In a cheap slur, Ghebreyesus accused Taiwan of racism, to which, Taiwan invited him to visit the island personally, knowing he will not do so for fear of upsetting Beijing. Taiwan released an email to the WHO in December 2019, alerting it to the atypical pneumonia originating in Wuhan. Pending review, President Donald Trump has stopped US funding of the WHO. There is plenty of criticism regarding China. China has replaced Russia as "the foreign hand" in the US, wrote C Raja  Mohan. The Daily Mail in Britain demanded a coronavirus compensation of 351 billion pounds from China. Tokyo is offering its companies over one billion pounds to shift production from China back to Japan. Whether we will return to the global supply chain centered on China once the pandemic is under control, we do not know. A global move away from China will be excellent for us in India. 

To gain a state at the cost of the nation.

"Former Madhya Pradesh chief minister Kamal Nath on Sunday alleged that the Modi government delayed preventive measures against coronavirus only to ensure that his government was toppled in Bhopal, underlining that the lockdown was announced hours after Shivraj Singh Chouhan took oath as chief minister last month." "He said it was the reason why coronavirus had spread wide in the country and why MP was the worst hit with 46 health department officials, including the principal secretary, health, testing positive for the pandemic." Around 10 March, 22 Congress members of the legislative assembly (MLAs) in Madhya Pradesh (MP) resigned in support of Jyotiraditya Scindia who had lost his parliamentary seat, held by his father and grandmother before him, in the 2019 general election. The BJP, party of the Prime Minister Narendra Modi, moved its MLAs to a luxury hotel ITC Grand Bharat in Gurugram in Haryana, while the Congress took its MLAs to Rajasthan, which has a Congress government. Scindia was apparently offered the post of deputy chief minister in MP but wanted to nominate someone else. On 12 March Scindia joined the BJP. On 19 March, the Supreme Court ordered Kamal Nath to face a vote in the Assembly. On 20 March, Kamal Nath resigned as chief minister of MP. On 23 March, Shivraj Singh Chouhan of the BJP took oath as the chief minister, vowing to prove his majority in the assembly. On 24 March, Modi announced a nationwide lockdown for 21 days to combat the coronavirus epidemic. Assembly cannot meet in a lockdown so Chouhan is safe to consolidate. We Indians have a healthy disdain for our politicians, but still a charge of allowing an epidemic to spread and people to die is a new low. "I landed in Delhi on the night of March 18-19. By this time, the UK had seen a surge in its cases," wrote Geetanjali Kala who flew in from London. "But we were cleared to go home after thermal screening. Most Covid-19 infections in India have spread from people who have traveled from abroad and did not show symptoms at the time of being screened at the airport." "It is important to note that at no point at the airport, I or anyone else standing ahead of me in the queue was told to self-isolate at home." On 25 March, police were beating or humiliating anyone violating the lockdown order. Had the lockdown been organised over 7-10 days it would not have produced a panicked exodus of migrants from major cities back to their villages,  probably spreading of the virus all over India. "India's prime minister has asked for his country's forgiveness after imposing a sweeping lockdown that he said had hurt millions of poor people," reported BBC. General elections are not till 2024, so there is plenty of time for the economy to recover. Or to tank completely, with high inflation, high unemployment and a collapse in the rupee. We could all become poor.

HCQ is a very useful drug. Stop fake articles.

Two drugs being tried to fight the coronavirus in ill patients. "The first provides grounds for cautious optimism about Gilead Sciences' experimental drug remdesivir, while the second raises questions about the safety of hydroxychloroquin (HCQ), the drug President Donald Trump has recklessly hyped as a potential remedy to Covid-19," wrote Zeeshan Aleem for Vox. Remdesivir is still in an experimental stage and has not been approved for clinical use by the FDA in the US. It has been provided by Gilead Sciences for clinical trials in coronavirus cases. The company tried to get monopoly rights from the FDA by trying to get the drug classified as an orphan drug. The New England Journal of Medicine (NEJM) published an article in which they analysed the results of remdesivir on 53 patients with Covid-19 whose oxygen saturation had dropped to below 94% on air or on oxygen. 36 of the 53 patients, that is 68% of patients improved on the drug, while 7 patients or 13% died. While recognising limitations of the study, "Still the authors of the study and outside experts have described the results as reason to feel hope," wrote Aleem. "On a less optimistic note, France's drug safety agency has released data indicating that hydroxychloroquine, the anti-malarial drug Trump has pushed as a potential miracle drug for treating Covid-19, appears to have serious side effects on the heart when used for Covid-19 patients, and should be used under medical supervision." The constant referral to President Trump shows that this is political denunciation and an excellent example of how not to report on medical trials. Another article written by Kenny Lin MD wrote, "The caution, however, is that hydroxychloroquine, especially when combined with azithromycin, can be associated with visual and cardiac complications including arrhythmias." It is sad when a doctor allows his politics to color his advice. HCQ has been used extensively to treat rheumatoid arthritis and lupus erythematosus for years and its side effects are described in detail. Azithromycin is a commonly used antibiotic in respiratory infections and is used in typhoid in combination with cefixime. Given that rheumatoid arthritis is not uncommon, many patients on HCQ would have received antibiotic treatment with azithromycin and resultant adverse effects would have been described by now. The British National Formulary (BNF) mentions interactions between HCQ and antacids, cimetidine, peniciallamine and certain other drugs but not with azithromycin. These are serious medicines, and not homeopathy, and taking them without medical supervision can result in serious side effects and even death. In the NEJM study touted by Aleem, 12 patients (23%) had serious adverse events, including multiple-organ- dysfunction syndrome, septic shock, acute kidney injury and hypotension. Many drugs are banned years after being approved for public use when unexpected side effects are reported. Medicine deals with life, politics with power. The twain cannot mix.    

The US can spend because it has, we are empty.

Manufacturing, mining, construction, trade, hotels & restaurants and transport, "taken together, account for more than two-fifths of India's gross domestic product (GDP)" and "the same sectors, taken together, also account for more than two-fifths of total employment", wrote Prof Deepak Nayyar. With the economic shutdown due to the coronavirus, millions are out of work. "The poor, identified as 50% and 75% of urban and rural households respectively, should be provided with cash support of Rs 6,000 per months for 3 months", along with free food. Fiscal deficit was Rs 10.36 trillion in February, or 135% of the revised estimate of Rs 7.67 trillion for the last financial year. The government should spend Rs 6-10 trillion (3-5% of GDP), "financed by monetizing the deficit -- RBI buying government T-bills -- printing money, now described as 'helicopter money'", thinks Nayyar. This was also the view of Swaminathan Aiyer who pointed to the $2.2 trillion stimulus in the US to justify "extra borrowing, financed entirely by the Reserve Bank of India (RBI) printing money". In addition to the fiscal stimulus in the US, the Federal Reserve rolled out a "$2.3 trillion effort to bolster local governments and small- and mid-sized businesses..." To infuse more money into the economy the Fed is to buy "more classes of low-rated and riskier bonds", including municipals bonds, which it has never done before. We cannot stitch masks and gowns because we do not have the machines. More than two weeks after the lockdown began the government has decided "to grant exemptions from basic customs duty and health cess" on the import of "ventilators, face masks & surgical masks, PPE and covid test kits". Tax on illness and death. So, we are forced to buy ventilators and masks from China "even though some countries in Europe had complained about the quality of the equipment". Spending dollars to buy rubbish. Robert Subbaraman, Chief Economist at Nomura thinks that India will not feel the slowdown in global trade because it is not a part of the Asian supply chain centered on China. "Indian exports have been in a slump for a large part of the past decade" and "we may need to borrow money from abroad to bridge a hugely enlarged fiscal deficit", wrote an editorial in the Mint. The Budget allocated Rs 24.5 trillion to revenue expenditure out of a total expected spending of Rs 27.86 trillion. Revenue expenditure is comprised of salaries, wages, pensions, subsidies and interest on debt which means that it is fixed. The projected revenues in the Budget were extremely optimistic, if not fanciful. The virus is going to hit tax collections very hard. Print rupees and risk a devaluation or increase taxes and risk a collapse in consumption? If only they hadn't wasted the windfall from oil.