Forget patients, give oxygen to the economy.

"Like quantitative easing, a lockdown is easy enough to enter, but much harder to exit," wrote Prof Vivek Dahejia. "India's case is perhaps unique among major countries in having locked down early, and then having started to open up after a long lockdown even though coronavirus cases continued to rise." The lockdown was imposed from midnight of 25 March with a notice of just 4 hours. This set off a mad rush in grocers and chemists shops as people panicked.  Desperate crowds of migrant workers packed into train and bus stations to try and get back to their villages. On 24 March, the day Prime Minister Narendra Modi suddenly declared a 21-day lockdown at 8 pm, the total number of coronavirus cases was 564, whereas, 18,522 new patients, with 418 deaths, were registered in the last 24 hours, taking the total number of cases to 566,840. India is easing lockdown restrictions even as cases are predicted to peak in mid-July to around 260,000 active cases. "Meanwhile, Western countries with generally successful lockdowns had locked down while infections were rising and then unlocked once cases began to fall." "An analysis of countries with the highest Covid-19 cases shows most of them have not relaxed lockdowns without a decline in daily cases," wrote Abhishek Jha and Jamie Mullick. "India is a case in point because it imposed the earliest and strictest lockdown, but eased restrictions before cases peaked." Why? Because it resulted in a jump in unemployment, a fall in electricity consumption, reflecting an almost complete cessation of business activity, and falls in mobility indices in various sectors, reflecting a collapse in consumer demand and in investment, according to members of the Monetary Policy Committee (MPC) at the Reserve Bank (RBI). Delhi registered much cleaner air as PM 2.5 levels fell in a further sign of life grinding to a halt. "By some estimates, the loss of three months' income would leave nearly half of the country's population mired in poverty, reversing all the gains made since the economy was liberalized in the early 1990s," wrote Mihir Sharma. "Tax revenues are set to crash and India's hitherto relatively stable debt-to-GDP ratio may spike up toward 90%," "leaving little for the welfare measures that will be essential in coming months". "Such economic pressures help explain why the government lifted India's stringent lockdown even though the spread of Covid-19 clearly hadn't been controlled." "The needle on a dial measuring so-called animal spirits swung to the left last month, reflecting weakness in the majority of eight high-frequency indicators compiled by Bloomberg News," wrote Anirban Nag. All this confusion begs the question, why was the lockdown imposed without thinking of consequences? Who will pay by resigning?

Why the hysteria over absolutely nothing?

"President Trump is denying knowledge of an arrangement in which Russian military officials reportedly offered to secretly pay Taliban fighters for killing American troops in Afghanistan," wrote Riley Beggin in Vox. "A pair of explosive reports from the New York Times indicates that United States officials learned months ago of a Russian intelligence unit secretly offering bounties to the Taliban for killing US and other coalition forces in Afghanistan, as peace talks to end the war continue." Both Vox and the New York Times are left-wing Trump-hating media companies but they should not indulge in dressing up something totally inconsequential to create hysteria. From 1979-1989 the US Central Intelligence Agency (CIA) financed, armed and trained Afghan mujahideen to fight against Soviet forces in Afghanistan, named Operation Cyclone. Mujahideen leaders were photographed talking to the then President Ronald Reagan in the Oval Office. "Pakistan Prime Minister Imran Khan on Friday expressed his regret over Pakistan's involvement with Mujahideen, an infamous outfit know for their terrorist activities. They were trained by Pakistan and funded by the CIA, he said. That led to the civil war in Afghanistan from 1989-1992, with various US funded groups fighting against each other. Thousands died. The New York Times has been accused of propagating allegations against Trump which turn out to be completely false. "The United States has also routinely criticized Pakistan for supporting the Afghan Taliban and Haqqani Network (a US-designated terrorist group) both of which frequently attack US troops and coalition forces in Afghanistan," wrote Sahar Khan. Why were these channels silent when the Obama administration was supplying F-16 fighter jets and other advanced weapons systems to Pakistan, reported by Seema Sirohi, even though there are credible allegations of 9/11 funds originating in that country. Then there are hysterical fulminations on alleged Russian interference in 2016 elections in the US which was won by Donald Trump. There was an investigation by Special Counsel Robert Mueller who did not find any evidence of conspiracy between Trump campaign and Russia. Why is it wrong for Russia to interfere in US elections while it is fine for the US to bring about regime change in Libya through an illegal bombing campaign, resulting in the death of up to 30,000 civilians? While the Left in the US gets hysterical over imagined crimes by Russia there seems to be almost total silence over China's covert activities in the US. Is the Left trying to cover China by creating hysteria over Russia? That would be betrayal.

Is it fair to burden our farmers?

"The finance ministry on Tuesday said the agricultural sector would be the foundation of the country's economic growth and 'early green shoots' of economic revival are visible with pickup in agricultural procurement, fertiliser sales, energy consumption, freight movement, digital transactions and forex earnings." Procurement of wheat has been a record 38.2 million tonnes and that of minor forest produces in 16 states hit a record Rs 794.2 million. The southwest monsoon is expected to be better than normal this year according to the India Meteorological Department (IMD) which has increased planting of oil seeds, coarse cereals, pulses and cotton. "As urban India witnesses large job losses and declining incomes, businesses are looking at rural consumers of Bharat to rise to the occasion," wrote Sayantan Bera. "A wide range of businesses, from manufacturers of tractors and two-wheelers to those selling fast moving consumer goods like biscuits, beverages and soaps, are pinning their hopes on rural India." While the gross domestic product (GDP) of India as a whole is expected to contract by 4.5% this year, the agriculture sector is expected to grow more then 2.5%. Unfortunately, a bumper crop due to a good monsoon is not always good for farmers as prices drop and they are unable to recover their costs. The sudden lockdown announced on 24 March by Prime Minister Narendra Modi resulted in a precipitous drop in prices of farm products. "Farm gate prices plunged due to a supply disruption -- from transporters quoting a higher price to ferry the harvest and mandis (wholesale markets) scaling down operations -- coupled with a fall in consumer demand and petty retailers disappearing from the roadside," wrote Bera. "While farmers were selling carrots for Rs 2 per kg and spinach for Rs 5 per kg, a few hours away in Delhi and Noida, consumers were paying over Rs 30 per kg." Farmers' incomes depend on whether the government is able to buy produce at minimum support price, mandated for 22 crops plus sugarcane. Tax collections, both direct and indirect, are expected to fall this year as consumer confidence plummets and inflation expectations increase. Over 50% of Indians are dependent on agriculture, even as this sector contributes just about 15% to the GDP so it is important to support it. Fuel prices in India have been skyrocketing even as the price of crude oil in international markets has stayed below $40 per barrel. This is because India now boasts of the highest taxes on fuel in the world. This, combined with a shortage of trucks due to an absence of drivers who have returned to their villages, will naturally feed into retail prices of everything. High prices means a weaker buying power of the rupee, so the rupee may fall, especially if foreign institutional investors (FIIs) stop investing in our share and debt markets. A weak rupee will raise price of imports, including oil, raising retail inflation even further. Our poor farmers are expected to shoulder the burden of rescuing the economy. Is it fair?

Do we need a large dose of 'irrational exuberance'?

"The global economy is in a new expansion cycle and output will return to pre-covid crisis levels by the fourth quarter, according to Morgan Stanley economists," wrote Enda Curran. "Predicting a 'sharp but short' recession, the economists say they expect global GDP growth will trough at -8.6% year on year in the second quarter and recover to 3.0% by the first quarter of 2021." "Data from the Fed (US Federal Reserve) on Thursday showed its peer banks around the world this week tapped it for the fewest dollars in nearly three months", which "Coupled with other indications of slackening demand for the Fed's bevy of emergency liquidity facilities, the reduction in currency swap usage is for many analysts a sign that global financial markets are returning to near-normal after being upended by the coronavirus outbreak in February and March," wrote Dan Burns and Megan Davies. "The German economy should return to a growth path in the third quarter after an expected double-digit contraction between April and June, Klaus Wohlrabe, an economist at the Ifo institute said on Wednesday." The German economy suffered falling output for two quarters, which qualifies as a recession. "Gold, forests, property stocks, inflation-linked bonds - these are just some of the assets investors are pouring money into on the view that the recent explosion of government spending and central bank stimulus may finally rouse inflation from its decade-long slumber." In 2008 governments relied mainly on monetary policies by central banks, but this time, fiscal spending has also increased. The International Monetary Fund (IMF) predicts a 4.9% contraction of global GDP this year and is not so sanguine about recovery next year. A majority of 160 economists polled by Reuters predict a weak inflation because they expect a "deep slump in demand" as the virus hits livelihoods. Governments love inflation because it reduces national debt. However, if prices rise too far or too fast it may make people angry and there is a danger of losing elections, as the Congress discovered in 2014. "UK debt is bigger than GDP for the first time in 57 years" as "Public sector debt was fractionally below two trillion pounds at the end of last month - equivalent to 100.9 percent of GDP." "The Federal Reserve struck the right tone in its first pandemic-era economic outlook, suggesting years of extraordinary policy support for an economy facing a slow and long slog back, according to a majority of economists in a Reuters poll," wrote Shruti Sarkar. Recovery can take many shapes but investors will not risk their money until they know what to expect. That might slow things down even further. Perhaps, some irrational exuberance might help.

Who would have thought we need viruses?

The total number of cases of coronavirus in the world has risen over 9.7 million with 491,797 deaths, according to Worldometer. In comparison, the H1N1 flu pandemic in 2009, also known as Swine Flu, affected "700 million to 1.4 billion people -- or 11 to 21 percent of the global population of 6.8 billion at the time". Some 150-575,000 people died. The Spanish Flu, also a H1N1 virus, in 1918, infected 500 million people worldwide, killing at least 50 million. Though the coronavirus has infected far fewer people it has caused much more economic pain due to lockdowns of entire economies, with the International Monetary Fund predicting "the world's gross domestic product (GDP) is set to contract by 4.9% in 2020". The stimulus package, amounting to a total of Rs 20 trillion announced by the Finance Minister Nirmala Sitharaman over 5 days in May was actually just 1-2% of GDP. "The impact of the Atmanirbhar Bharat (self-reliant India) on fiscal deficit is unlikely to be over 1-2% of GDP, say experts." "State Bank of India chief economist Soumyakanti Ghosh and EY's chief policy adviser DK Srivastava pegged it at 1.01% of GDP or Rs 2.02 lakh crore (Rs 2.02 trillion)." Such a weak stimulus is likely to depress demand for a prolonged period leading to a weak recovery, wrote an editorial in the Mint. "The West's mega-stimulus, meanwhile, might have the unintended effect of inflating asset price bubbles everywhere", as shown by the buoyant share markets in India. Viruses cause a lot of misery to people. Smallpox killed 200 million people in the 20th Century alone. So, wouldn't it be marvelous if all viruses disappeared? wondered Rachel Nuwer. "If all viruses suddenly disappeared, the world would be a wonderful place for about a day and a half, and then we would all die -- that's the bottom line," says Toby Goldberg, an epidemiologist at the University of Wisconsin-Madison. Zayed and colleagues analysed viral DNA found in the world's oceans and "found nearly 200,000 populations in five ocean zones around the globe, with the species in each zone comprising their own viral community". Some viruses are 'phages', which means 'to devour', because they kill bacteria. "Phages are the primary regulator of bacterial populations in the ocean, and likely in every other ecosystem on the planet as well. If viruses suddenly disappeared, some bacterial population would likely explode; others might be outcompeted and stop growing completely. This would be especially problematic in the ocean, where more than 90% of all living material, by weight is microbial. These microbes produce about half the oxygen on the planet -- a process enabled by viruses." The old problem: can't live with them, can't live without them.    

What if it doesn't work, that's the fear.

The jobs market in India is beginning to pick after lifting of the lockdown, wrote Gautam Das. "Now, with India opening up, delivery jobs continue to remain hot -- in fact, today, the entire logistics supply chain signals some sort of green shoots in India's employment market. "BPOs are rebounding" and "a higher demand for collection professionals in the financial industry is expected soon". On site healthcare for those quarantined at home and online education are also in demand. "Modern governments depend heavily on large surveys as well as administrative data to track their respective economies," wrote Niranjan Rajadhyaksha. "Such data is the bedrock of estimates on gross domestic product (GDP), industrial production, farm output, inflation etc." "The covid-19 shock has disrupted the usual business of national statistics." Harvard University economist Alberto Cavallo has built an "alternative consumption basket" of spending by an average family in the US during the pandemic, showing "that consumer inflation in the US is higher than the official government estimate based on the country's traditional consumption basket". Usually, economic crises in emerging market (EM) economies are characterised by high inflation and current account deficit due to loose monetary and fiscal policies, but this time it is different, wrote Jehangir Aziz, so we need to "cut interest rates, increase liquidity support, and allow the fiscal deficit to widen". The Reserve Bank (RBI) has cut interest rate to its lowest level since 2000, to 4%, down from above 6% at the beginning of 2019. Though the government has earmarked Rs 3 trillion to recompense banks in case of defaults, banks are reluctant to lend, especially to small businesses. Instead, banks are happy to earn a meager 3.75% by keeping their money safe with the RBI. Aziz wants the RBI to cut interest rate more aggressively to forestall "the coming deflation" but a survey by the RBI showed that 85.3% of households expect inflation to accelerate in the next three months. Aziz suggests increased government spending. Because, "Just like in any other EM economy, what matters today is assurance of medium-term growth and not a few higher or lower points of GDP in this year's fiscal deficit." "India's economy has entered the coronavirus crisis with multiple wounds; and without tactical support of the government, growth would be tough to come," agreed Aparna Iyer. What would be the point of the government spending more to stimulate the economy if it takes the money back in higher taxes on fuel, which would reduce spending by increasing costs of goods and services? The government always seeks to milk as much tax as it can from citizens, to finance its promised subsidies, so it has no extra money for a stimulus. A conundrum.   

Who knew we are so precious?

In claiming a forest of green shoots, "The finance ministry listed as many as 14 separate indicators across manufacturing, services, finance and agriculture to back this up in a statement entitled 'Increase in Economic Activity-Improvement in Economic Indicators' issued on Tuesday, which saw the BSE Sensex breaching the 35,000 point mark for the first time since March 11, closing at 35,430, up 1.5%."  "The unemployment rate in India fell to its pre-lockdown level of 8.5% in the week ended June 21 from the peak rate of 23.5% in April and May after the nationwide lockdown was imposed resulting in job losses for millions of workers," according to the Center for Monitoring Indian Economy (CMIE). However, a major reason for this drop is improvement in agriculture, and a subsidy MGNREGA. The Chief Economic Adviser Krishnamurthy Subramanian predicted a V-shaped recovery if a vaccine for coronavirus is discovered. Hallelujah! He did not say how you would vaccinate 1.3 billion people, how much it would cost and who will pay for it. "India's economic recovery is more likely to be a 'U' or 'W' shaped rather than 'V' as the impact of Covid-19 will be profound on a nation that was already struggling for growth prior to the pandemic, analysts said." Fortunately, no one predicted a 'L' shaped recovery for India, although such a probability is being discussed for the US. Probably because, in India, "Nearly 90% of the country's workforce is in the informal sector with no minimum wages or any kind of social security." So, they must do something to avoid hunger. But not just the poor. "In a peculiar trend, the inequality gap in India is expected to narrow after the Covid-19 pandemic even as per capita income (PCI) is projected to decline by 5.4% during the ongoing fiscal to Rs 1.43 lakh, according to a State Bank of India (SBI) Research report released on Tuesday." We are becoming equally poor. "The Imperial College model shows that sustained moderate social distancing can save up to 1.9 million lives in India, roughly one-third of projected casualties," wrote Chairman of the PM's Economic Advisory Council Bibek Debroy and President of Copenhagen Consensus Bjorn Lomberg. But they estimate that "the total economic cost of long-term moderate social distancing in India would likely be Rs 91 trillion and could reach Rs 231 trillion", which, they think, is "a poor idea as social costs will outweigh benefits 7 to 1". If Debroy is Chairman of advice, why did Prime Minister Narendra Modi impose a draconian lockdown without consulting experts and why was it being lifted when cases were rising exponentially? If Debroy now thinks that 1.9 million Indians are worth sacrificing should he not lead the way by resigning his post? Rs 91 trillion for 1.9 million is Rs 45 million per Indian. We are so precious. Hallelujah in spades. 

Surely, India practices ethics of Dharma?

"The rising concern over the uneven distribution of the fruits of capitalism forewarned of a future when capitalism would eventually need saving from itself," wrote Prof Amit Kapoor and Harshula Sinha. Any alternative system may not "eliminate these problems as long as individuals do not change their motivations and practices, and we might end up with neither equality not efficiency. The solution instead lies in reworking the ethics underpinning capitalism." The Hindu principle of Dharma is based on including the community at large whereas capitalism is based on the Western concept that "puts the individual at the center". "Liberalism, political doctrine that takes protecting and enhancing the freedom of the individual to be the central problem of politics," says the Encyclopedia Britannica. "In the United States liberalism is associated with the welfare-state policies of the New Deal program of the Democratic administration of Pres Franklin D Roosevelt, whereas in Europe it is more commonly associated with a commitment to limited government and laissez-faire economic policies." "The largest corporations have reached the pinnacle because of the toil of its employees, who are sold the idea of corporate slavery as a prerequisite for success." "The resentment of the super-rich is probably not simply envy," wrote Noah Smith. "It likely has to do with notions of fairness." Tech billionaires provide new services for the people and athletes and entertainers provide entertainment but "about 38% of Americans billionaires inherited at least a substantial part of their fortune". The concept of "maximizing shareholder value" is at the root of widening income inequality, wrote Joe Nocera. "It explains why so few companies subsidize the local symphony or art museum any more. It is why drug prices have risen so obscenely, why airlines have made flying such a miserable experience and why wages have remained stagnant even as profits have soared." "Thirty years ago, economist William Baumol suggested that the future of capitalism might well belong to unproductive businesses, which use power and influence to profit without necessarily benefiting society," wrote Mark Buchanan. Such concerns are legitimate but the great danger is that in countries like India politicians use them to justify repressive policies in the name of helping the poor. India is the only country in the world where companies are required by law to spend 2% of profits on social projects. During the coronavirus-induced lockdown the government ordered companies to continue to pay workers for three months even though production was shutdown. The order was withdrawn probably for fear of mass bankruptcies and consequent unemployment. However, Prof Kapoor's critique of capitalism is irrelevant to us because India is a socialist country with Socialism written into the preamble of the Constitution, where inequality can be seen from space. Capitalism creates inequality where some people are obscenely rich, whereas socialism creates equality in poverty. Politicians and civil servants are rich. 

The desperate dance by the RBI.

"According to World Bank forecasts, the global economy will shrink by 5.2% this year. That would represent the deepest recession since the Second World War, the largest fraction of economies experiencing declines in per capita output since 1870, the World Bank says in its June 2020 Global Economic Prospects." "About 84 percent of Indian households saw their incomes fall last month under the world's strictest shelter-at-home rules, and many won't survive much longer without assistance," a study showed last month. In rural India, "A significant 68% of households said they had reduced food items in their meals, 50% of households had reduced the number of times they were eating in a day and 24% of households had borrowed food grains." "Having inflated balance sheets once again to keep a lid on long-term borrowing costs during the pandemic, central banks now face a conundrum over how to keep the steep rise in government and company debt affordable as markets anticipate the recovery," wrote Mike Dolan. "The Fed (US Federal Reserve) is debating on targeting the different parts of the yield curve to ease financial conditions in the economy," wrote Murthy Nagarajan. "The 10-year US yields are trading at 0.80 percent and the 30-year yield is close to 1.80 percent." The Japanese central bank is committed to keeping 10-year yield below 0.10 percent. The Reserve Bank (RBI) has been trying to bring down borrowing costs for the government by cutting interest rate aggressively, bringing it down to 4% in an emergency meeting last month. However, "The spread in government securities between the five-year yield and 10-year is 80 basis points and the spread between 10-year and 30-year is another 60 basis points," which makes the 30-year yield very high considering the yield on 10-year bonds "has remained around 6 percent even after the 115 basis points repo rate cuts". The RBI has been twisting and switching to help the government. First it resorted to Operation Twist, at which it bought Rs 100 billion worth of 10-year bonds with yield of 6.45% and sold bonds paying 6.65%, 7.80%, 8.27% and 8.12%, all maturing in 2020, wrote George Mathew. But, short maturities mean that the government will have to redeem these bonds very soon, so the RBI attempted a 'switch auction', during which it wanted to buy bonds worth Rs 270 billion maturing in the next two years for longer term bonds because, otherwise, the government will have to redeem bonds worth Rs 2.29 trillion in the next two years. Investors were not enthused. "As governments and central banks shift from rescue to recovery mode", "After rolling out trillions of dollars worth of measures to prevent their economies and markets from collapsing, they are now doubling down with even more spending to backstop a recovery as coronavirus lockdowns ease," wrote Enda Curran. Sadly, our piggy bank is empty. So the dance by the RBI. Not pretty.

A policy of masterly inactivity is most desirable.

Ever since Finance Minister Nirmala Sitharaman released the Rs 20 trillion stimulus package, as promised by Prime Minister Narendra Modi to kickstart the economy after the coronavirus lockdown, a debate has been raging about whether enough money has been allocated to increase cash in the hands of people. One report put the "actual fiscal impact of all the steps announced over the past few days to Rs 1.50 lakh crore (Rs 1.5 trillion) or 0.75% of the GDP". This was because of communication failure, wrote Sudipto Mundle. "The 2020-21 budget, for instance, had provided for a demand-stimulating fiscal deficit of 3.5% of GDP." The government has announced additional borrowing of another Rs 4.2 trillion, or 2.1% of GDP, while states are running a fiscal deficit of 2.8% of GDP, with a possibility of borrowing an additional 2% of GDP if they agree to certain conditions. "All this adds up to a demand stimulating combined fiscal deficit of 9.7% of GDP; nearly 11.7% if we also count the additional borrowing headroom for states." "The government plans to bridge the fiscal deficit by borrowing more money this year. Initially, it had planned to borrow Rs 7.8 trillion. On May 8, it said it will now borrow Rs 12 trillion to finance the fiscal deficit," wrote Vivek Kaul. To help the government the Reserve Bank (RBI) has pushed interest rates down so that banks are paying just 5.8% for a 5-year fixed deposit compared to 8% in 2015. The economic standstill has given rise to bizarre ideas of how to deal with an expected recession in the economy, wrote Andy Mukherjee for Bloomberg. "Pro-labor academics, activists and social workers who think it's morally justified to expropriate private property to support India's pandemic-flattened economy should know that such extreme measures are unwarranted. The proposal from the fiscally conservative, pro-business side to use people's gold as collateral to raise emergency public resources is also indefensible." "An otherwise well-meaning memorandum by a group of economists and trade unionists asked the government tot treat all cash, property, bonds and real estate held by Indian citizens or in the country as national resources during the Covid-19 crisis. Amid trenchant criticism, the idea was quickly dropped." That Indians, with degrees in economics, can actually propose such communist drivel maybe the reason why this country is so poor. "Indian remittances overseas surged to a record in March as many wealthy Indians shifted a part of their savings to safe haven assets and to purchase popular technology company stocks, taking advantage of the sudden collapse in valuations, said experts." Any imbecile move to confiscate private property or gold will result in an exodus of wealthy people in India leaving only the poor and the newly impoverished middle-class behind. Foreign investors will stampede to get out. As in most patients of Covid-19, masterly inactivity is the best course of action. Don't kill the economy. It will recover.   

How green are the shoots?

Prime Minister Narendra Modi "pointed to the 'green shoots in the economy' such as rising power consumption which was earlier falling, doubling of fertilizer sale in May compared to last year, a 13% increase in Kharif sowing this year, two-wheeler demand and production reaching 70% of prelockdown level, increase in toll collection in May and bouncing back of exports in June to last year's levels after three months of downfall." "India's electricity generation during the first half of June fell at a slightly faster rate than in May," as "Power generation fell 14.5 percent in the first 15 days of June, a Reuters analysis of daily load despatch data from federal grid operator POSOCO showed, compared to 14.3 percent fall in May." So, power consumption is rising while generation is falling. Miracle! Exports fell 36.47% in May after a 60.28% fall in April. Suddenly it jumped, when "The global economy, which has plunged into a severe contraction, will shrink by 5.2 percent this year due to the massive shock of the coronavirus pandemic and the shutdown measures to contain it, the World Bank said on Monday." Another miracle. The question then is, why were exports falling for seven straight months last year before rising in February 2020? who is responsible? Toll collection maybe bouncing but, "Gross tax collections were estimated to be over 30% lower till mid June on the back of a sharp decline in advance tax payment," which were in line with "GST collections during April and May, which were estimated at 45% of the average." The best news is that, "Data drawn from the Centre for Monitoring Indian Economy (CMIE) has revealed that India's unemployment rate fell to 11.6% in the week ended 14 June, down from 17.5% in the previous week," wrote an editorial in the Mint. "Let us not forget that economic growth was on a downslide even before the covid crisis." "Private consumption, which was already weakening, appears to have taken a heavy blow this financial year." Global securities research firm Sanford Bernstein said that the Rs 20 trillion economic stimulus package was a "lost opportunity". "Government programs of $173 billion includes $132 billion of loans, $24 billion of fiscal support (0.9% of GDP) and rest largely for foodgrains etc, which is from Food Corporation of India (FCI) stock and other schemes." Increase free food to the poor through the Public Distribution System (PDS), wrote Prof Himanshu. "As on 31 May, government stocks of foodgrains stood at 97 million tonnes, including unmilled paddy." Buffer requirement is "30 million tonnes as on 1 October". Lack of storage space means that "India wastes around food worth $14 billion each year, according to government figures." Distribution of the extra food stocks will reduce hunger and increase disposable incomes, which will increase spending and give a boost to the economy, suggests Prof Himanshu. But, will increased food distribution bring down prices of food grains and hurt incomes of farmers? Not easy to solve a problem when you are the cause.  

Can't complain against its own invention.

Twenty Indian soldiers were killed at Galwan Valley in Ladakh in an unprovoked ambush by savage Chinese troops, using clubs with barbed wire, stones and metal rods. Even though the Chinese had used similar weapons recently in Eastern Ladakh sector the Indian army was taken by surprise that they were so unprofessional. Why are they surprised when China used Panchsheel to lull India before taking over vast tracts of Indian territory by its blatantly illegal genocidal attack in 1962. However, only 3 soldiers, including their Commanding Officer Colonel Santosh Babu, were killed by the Chinese while 17 injured soldiers froze to death. Why? Space blankets are light, easy to transport and cheap and have been used for patients suffering from hypothermia for over 50 years. China released 10 soldiers, including three officers, they had captured. Is this the end of hostilities? Absolutely not. An uncivilized barbaric nation which tortures children and subjects thousands to brainwashing in prison camps and forced labor in factories is not going to feel any hesitation in killing any number of Indians. Why we are still surprised that China breaks various agreements whenever it feels like is a mystery. It is difficult to fathom why our politicians, civil servants and strategists cannot understand that they are dealing with barbarians who do not respect nature or any living creature and will not respect Indian territory or lives. We must guard our borders, of course, but the only way to finish China is to destroy its economy and that has to be a concerted international effort. "In April, New Delhi tightened its foreign investment laws, a move widely interpreted as aimed at Beijing," wrote David Fickling. "One study of late 20th century conflicts by economists at Sorbonne University in 2008 found that while openness to trade doesn't automatically prevent war, there's greater risk of conflict when countries grow less economically dependent on each other, as appears to now be happening with China and India." That is only going to suit China because it will use trade as war and will put up barriers to Indian exports while insisting on open access to Indian markets. Trouble is we are so dependent on imports from China that any boycott will create shortages and hurt us more, wrote Aparna Iyer. If we are dependent on imports from China, the US is even worse as it had a negative trade balance of over $345 billion with China in 2019. US politicians are working on ways to hold China accountable for its dishonesty and treachery. China has even infiltrated US universities to steal research data on technology. The European Union is looking at means to reduce unfair competition from China. Even Australia, with its tiny population, is looking at ways to diversify away from trade with China. The Chinese invented 'death by a thousand cuts' as a form of torture. It thinks it is too big and powerful but it may succumb to its own invention. We hope.

How to plug the huge hole in the economy?

"The United Nations Conference on Trade and Development (UNCTAD) has said that India's economy could prove the most resilient in South Asia and its large market will continue to attract market-seeking investments to the country even as it expects a dramatic fall in global foreign direct investment." This is good because, "Due to the Covid-19 crisis, global FDI flows are forecast to nosedive by up to 40% in 2020", but South Asia consists of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, so it is not really like for like. "India received USD 51 billion in foreign investments in 2019 and was the world's 9th largest recipient of foreign direct investments (FDI) in 2019, according to a report by the UN's trade body," behind China, Hong Kong and Singapore, and well below remittances from Indians living abroad which, at $79 billion, was highest in the world in 2018, according to the World Bank. "India's economy to shrink by 3.2 percent in the current fiscal, the World Bank said." The wholesale price index (WPI) fell by 3.21% in May which shows a collapse in demand and could be a sign of oncoming recession, wrote Aparna Iyer. "The biggest contributor to WPI deflation was crude, petroleum and natural gas, which showed a fall of 46.21%, a fallout of the crash in global prices." "A collapse in consumer spending in India, the bedrock of the economy, shows very little sign of rebounding anytime soon," wrote Anirban Nag and Srushti Madre. Retail sales, number of credit card transactions, spending on credit cards and consumer confidence are all down sharply. "Our economy was hit by both supply and demand shocks. If an unlocked India were to suddenly see a production outstrip consumption, we would have too much on sale for too few buyers. This could send prices sliding at the retail level too," wrote an editorial in Mint. "The textbook response to such an economic seizure is for the government to play spender-in-chief." Instead of a fiscal stimulus the government is draining the economy of cash by eye-watering taxes on fuel. "The price of petrol in Delhi on 7 June was Rs 71.86 per liter, according to BPCL. Of this, Rs 32.98 went to the Center as excise and Rs 16.58 to the Delhi government as value-added tax (VAT). In other words, taxes amounted to nearly 69% of the price." "An 11-year low trade deficit is portending a current account surplus for India in FY21," wrote Aparna Iyer. This is unwelcome because it shows a collapse in demand. R Jagannathan has found a simple solution to the threat of recession. Change the fiscal year to 1 January - 31 December from 1 April - 31 March, as at present, and present the annual budget in October. By October we could have a more accurate picture of the economy. Firstly, the government may not want to acknowledge dire economic figures and, secondly, what if external factors, like oil prices rising above $100 a barrel in October, causes the recession to become worse. Will we have another budget in December and another change in fiscal year? Not easy to repair a hole in the bucket. Especially, when all the money has leaked out.  

They just have to pay their bills.

"Exports bounce back to last year's levels," was the headline. However, the second paragraph reads, "Exports in May shrank 36.47% to $19.05 billion against a 60% contraction in April, which was largely due to overseas orders' cancellation." Since these are calculated year-on-year, the headline is clearly misleading. "Merchandise exports in March stood at $21.41 billion, down by 34.57 percent compared to $32.72 billion in the same month last year." "Export target will be down by at least 30% this financial year," said Mahavir Pratap Sharma of Carpet Export Promotion Council (CEPC). "We are hopeful to start production from June in our units as well, so that we can meet the international season cycle." Which means Christmas. Apparently, 56% of Americans expressed a desire to gift diamonds, which is goods news for the polishing industry in Surat. States in India are demanding that the Central government should pay them a compensation for a shortfall in Good and Services Tax (GST) collections. "The GST Act extends a guarantee to states that any loss in revenues in the first five years of GST implementation (2017-2022) will be made good through a cess. If states' actual revenues are less than projected revenues, the difference would be compensated." "Data presented at the GST Council meeting on Friday showed that GST collections had shot up to over Rs 62,000 crore (Rs 620 billion) in May -- almost twice the level seen in April -- but 38% lower than a year ago." "The Center is not going back on its promise, but should it not enforce the force majeure clause since this is an event triggered by things beyond anyone's control," an official told TOI. 'Force majeure' is "a contractual provision allocating the risk of loss if performance becomes impossible or impracticable" due to "an event or effect that can be neither anticipated nor controlled". However, government officers were known for intentionally not paying bills on time long before anyone had heard of the coronavirus. "More than availing of the benefit of new credit lines and loan related schemes announced by the government, nearly 63.3 million micro, small and medium enterprises (MSMEs) are hoping to get delayed payments from the government in the next 45 days." "The Center must deliver on its promise to compensate the states for five years from 2017-18 for any shortfall in goods and services tax (GST) collections in relation to the past trend. There can be no ifs and buts and act of God appeals on the subject," wrote an editorial in the Economic Times. "Other tax collections have taken a severe hit as  well. That being the case, our states should be ready to accept significantly reduced sums as compensation," wrote an editorial in the Mint. By persuading states to give up their power to levy taxes on goods and services with a promise of compensation the Central government gained control of most of finances of the states and, by extension, on their governments. It must, therefore, honor its commitments. But, the government is known for not honoring contracts. The government is clearly higher than God. In India.

Drugs maybe cheap, but hospitals hard to find.

"The Food and Drug Administration (FDA) ended its emergency use authorization for two coronavirus treatments touted by President Donald Trump, citing lack of evidence of efficacy." The two treatments are chloroquine and hydroxychloroquine and it was done on the advice of Gary Disbrow, acting director of Biomedical Advanced Research and Development authority (BARDA), which is an interface between the US government and the biomedical industry. There is great opposition to the use of hydroxychloroquine, a cheap drug, used very safely for years in autoimmune diseases, because of the highs stakes for Remdesivir, "a new-on-the-block prohibitively expensive, patent-protected antiviral agent", wrote Maj Gen (Dr) VK Singh. "Business interest is prime mover, researchers can act in complicit, and at times active, collaboration out of both need and greed. It is now cancerous." Meanwhile, "Indian patients have started importing Remdesivir from Bangladesh, even as domestic companies await the drug controller's clearance to begin local manufacturing." In India, "What should be clear now is that state governments do not want people to be tested. Doctors and labs have been sent the message," wrote Sandipan Deb. "What's going on is that states are in competition to flatten the number-of-cases curve." "Meanwhile, bodies are stacking up in hospital morgues and crematoriums and graveyards cannot cope with the rush." Although the number of cases are still rising the rate seems to have decreased and the mortality rate remains low. News of people dying after being refused admission into hospital is being reported abroad. A few days back the Delhi government reprimanded a few private hospitals for testing asymptomatic patients to prevent shortage of testing kits. Chief Minister of Delhi Arvind Kejriwal directed hospitals not to treat patients from outside the capital but was overruled by the Lieutenant Governor Anil Baijal who was appointed by the Cetral government. When a total lockdown was declared with a 4 hour notice on 24 May, millions of migrant laborers were suddenly caught in cities far away from their villages without jobs or money. 85% of these people had to pay for their journey home with whatever money they had left. Those that could not find or afford transport walked hundreds of miles to get back to their home villages, often dying on the way. Now a lot of the same people want to return to their old jobs because of the threat of hunger as there are no jobs in villages and because 67% of farms are below 1 hectare and so cannot support extended families. Fortunately, the Indian Council for Medical Research (ICMR) has no stake in Remdesivir and recommends judicious use of hydroxychloroquine. However, all this is relevant only if people can be tested and admitted to hospitals. And, that is not assured. 

What if maids get infected from the middle class?

Sagarika Ghose thinks the middle class response to the coronavirus is irrational. "In Mumbai and Delhi, some residential complexes have barred entry of domestic workers and in Gurgaon, irrational conditions are being imposed on helpers, such as barring them from using lifts or touching lift buttons, sitting on benches or walking in parks." Human beings are known to suffer from irrational fears which, if leading to anxiety or panic attacks, are called phobias. When lockdown is imposed with such humiliating violence it does lead to fears that the virus is deadly. In fact, middle class people in India are dependent on domestic help and do not restrict their entry without valid reasons. And, old people living alone are most dependent on domestic help even though they are also the most vulnerable to the virus. Some people are fighting against resident welfare associations (RWAs) of their gated societies to be allowed to resume services of their maids. Families with young children would be especially fearful when they read about Kawasaki Disease and toxic shock syndrome. What about the reverse? What are the risks of a maid becoming infected if she enters an apartment where one or more are going out to work? "Of the 246 million households in Census 2011, about 103 million households average more than three people to a room," wrote Rangoli Agrawal. "As many as 74 million of these 103 million households occupy a single room, and the number of family members vary from three to above nine." If a maid gets infected she would pass it onto her entire family instantly. India is a brutal state. Those in home quarantine have a sign posted outside the homes by authorities, inviting abuse and rejection by neighbors. Ms Ghose relapses into her favorite Hindu bashing when she compares treatment of maids with untouchability. "The National Health Authority (NHA) has decided to cover Covid-19 treatment of the poorest of the poor in private hospitals under Ayushman Bharat -- the Central government's health insurance scheme for the deprived." The middle class will have to shell out tens of thousands of rupees that they may not be able to afford because, believe it or not, even those with managerial posts are losing their jobs. Going to government hospitals is not an option as you get treated "worse than animals", as the Supreme Court observed recently. The solution is for the government to support the urban poor like it supports the rural poor through the MGNREGA scheme. "As in the battle against Covid, in its battle against poverty, India has imitated foreign solutions that do not work here, and treated its own cultural instincts as inferior to Western ideas," wrote Manu Joseph. Especially lazy journalists with an axe to grind.

Only anemic growth can come from anemic consumption.

"India's forex reserves crossed $500 billion for the first time ever in the week ended June 5, 2020. Unlike in 1991, when India had to pledge its gold reserves to stave off a major financial crisis, the country can now depend on its soaring foreign exchange reserves to tackle any crisis on the economic front." It could be because our demand for oil slumped by 70% in April, reducing the need for foreign exchange. However, "India's gasoline and diesel demand is expected to return to pre-lockdown levels in July, an executive at the country's second largest fuel retailer Bharat Petroleum Corp said on Thursday." Crude oil prices have fallen to below $40 per barrel, with the benchmark Brent crude at $38.73 a barrel, but the price of fuel is rising in India because, "According to a report by Care Ratings, the hike effectively meant that the Central government is collecting around 270 percent taxes on the base price of petrol and 256 percent in the case of diesel." Economic growth fell to 3.1% in the March quarter, which included one week of lockdown, and was 4.2% for the whole of 2019-20. Reducing transport costs would reduce prices, stimulate demand and increase job creation. Especially as, "currently almost 60 percent of India's GDP is determined by consumption. But this primary component of the economy has dropped from double digits in the second quarter of the last fiscal to 3.1 percent and 5.1 percent in the first two quarters of the current fiscal respectively. Such worrying trends had not even occurred as a result of the 2008 crisis," wrote Prof Amit Kapoor in December 2019, showing that the economy was falling even before the pandemic. Why hit consumers now that the World Bank predicts that, "It expects India's gross domestic product (GDP) to contract by 3.2% in 2020-21. There will be a moderate recovery to 3.1% growth in 2021-22, " wrote Roshan Kishore and Abhishek Jha. "However, the impact of the contraction will vary across sectors, states, even social groups." "For example, it can be expected that at least two sectors, agriculture and government, will not see a contraction. In 2019-20, these two sectors had a share of almost 30% of Gross Value Added (GVA). This means that the economic pain will be far more severe in the rest of the economy." The government has passed ordinances allowing farmers to sell their produce directly to customers anywhere in India, without having to go through wholesale markets, known as 'mandis', wrote Sayantan Bera. Perhaps, hoping that farmers can get a higher price without raising prices for consumers because middle-men will be eliminated. Greater tax collection on oil will help the government to spend more. "In 2017-18 and 2018-19, the government expenditure has grown by about 15 percent and 9.25 percent respectively. This is what makes the Indian growth numbers -- even in their low state -- unsustainable if status quo is maintained," wrote Kapoor. That is because the government spends money on revenue expenditure, which includes salaries and subsidies, estimated to be Rs 24.5 trillion out of total expenditure of Rs 27.9 trillion. Our very own vampire squid.

Why not expose our fundamentals to the world?

"Expressing confidence in India's ability to bounce back after the Covid crisis abates, Standard and Poor's retained India's sovereign rating at BBB- with stable outlook." Earlier, Moody's had downgraded India's rating from Baa2 to Baa3, the same level as S&P's BBB-, but with a negative outlook. "India's above average real GDP growth, sound external profile, strong democratic institutions that promote policy stability that led S&P retaining the sovereign rating", but, "The risk to fiscal slippages at a time of higher government borrowing and low per capita income adding to the general government debt are some of the factors that pose a risk to long term stability." "India's foreign exchange reserves rose $8.2 billion in the week of June 5 and has now crossed the milestone $500 billion mark for the first time in country's history." India's strong fundamentals deserve higher ratings said the government and the Chief Economic Adviser Krishnamurthy Subramanian said that though the economy will contract till October there will be a V shaped recovery thereafter, as happened after the Spanish Flu in the 1920s. The Spanish Flu came just after World War I and many states in the US responded by "closing schools and churches, banning mass gatherings, mandated mask-wearing and other restrictions", wrote Noah Smith. However, things are different now as international supply chains have been disrupted and "both consumes and businesses are more highly leveraged than they were a century ago". Prof Deepak Nayyar seems unimpressed by our fundamentals, writing, "For 2019-20, annual GDP growth at 4.2% was also the lowest in 11 years since the global financial crisis in 2008-09. This is no surprise as the economy has been in a downturn for the past three years. But the economic slowdown and downturn began 10 years ago." The economy did grow at 7.9% from 2014-15 to 2016-17, but that was because of a sharp drop in oil and commodity prices. "The announced support of Rs 20 trillion is an illusory claim." Why? Because, "PSBs (public sector banks) are expected to play a key role in the execution of this strategy," wrote Hardayal Singh, former additional secretary Central Vigilance Commission (CVC). But, although the Reserve Bank (RBI) has flooded banks with liquidity, banks are reluctant to lend, choosing to park the money back with the RBI, wrote Aparna Iyer. "Over the past 20 years, they have oscillated between reckless lending borne out of irrational exuberance, and extreme caution borne out of the fear psychosis of four Cs -- courts, CVC, CAG (Comptroller and Auditor General of India) and CBI (Central Bureau of Investigation). At the moment they are in the latter phase," wrote Singh. "Our 50 year experience with government ownership of banks leads us to only one conclusion: Banks cannot be run on political and bureaucratic directives." Amen to that.

The Reserve Bank is just an extension of the government.

Former Governor of the Reserve Bank of India (RBI), from 5 September 2008 to 4 September 2013, Duvvuri Subbarao, wrote that "the RBI, in exercise of its regulatory power, permitted banks to defer repayments on term loans till the end of August 2020. It was not a mandate, it was just regulatory forbearance. The RBI, in fact, left the final decision to banks." However, the interest on the loan will continue to accumulate so that at the end of the moratorium period the borrower will have to pay a larger amount. Vivek Kaul gives an example of one who has borrowed Rs 3 million at 8.4% to be repaid over 15 years. After the period of moratorium the borrower will have to pay 196 monthly instalments, rather than the original 180. "A borrower approached the Supreme Court praying that the court should order RBI to ask banks to waive the interest during the moratorium period as they had no income during the lockdown period." That seems entirely logical as the RBI is an extension of the government under Section 7 of the Constitution and it was the government which imposed the draconian lockdown on the nation. The RBI was forced to transfer Rs 1.76 trillion from its reserves to the government in August last year even though the then governor Urjit Patel resigned in protest. The RBI maybe responsible for regulating currency in circulation by printing banknotes, but the RBI board did not object when Prime Minister Narendra Modi scrapped 86% of currency in November 2016, wrote Tamal Bandopadhyay. The economy had not recovered from the disaster of demonetization before the coronavirus hit. "Banks are commercial institutions and bankers are expected to make decisions on commercial considerations." Are they? "Finance Minister Nirmala Sitharaman on Tuesday asked state-run banks to help businesses with loan requirements," "to enable small businesses to pay for salaries, rent and restocking". "At Rs 2.1 trillion, the estimated waiver amount is far too large for banks to absorb in their profits. They will be forced to pass on most, if not all, of the burden to savers." In fact, the RBI is actively involved in financial repression of savers through the Statutory Liquidity Ratio (SLR) which compels banks to buy government bonds, thereby increasing price and bringing down yields, and by maintaining a negative real interest rate which reduces value of wealth. As governor, Subbarao kept interest rate persistently lower than rates of inflation, which often exceeded double digits. The present governor Shaktikanta Das has reduced interest rate to 4% even though retail inflation was 5.91% in March. The rate of inflation for April is not known as survey of prices could not be carried out due to the coronavirus lockdown, but a Reuters poll predicts that inflation in May will be at a six-month low. Both Subbarao and the present incumbent Das are retired Indian Administrative Service (IAS) officers and are used to being our lords and masters. Repression comes easy to them. No harm in writing though.     

Will education be the biggest casualty of coronavirus.

Defending the most stringent lockdown enforced by Prime Minister Narendra Modi, R Jagannathan wrote, "True, the lockdown sent the economy tumbling, but not only India's." Misery is not comparable. Seeing pictures of the long queues for food parcels in the US, will not decrease the misery of our domestic migrants who had to walk hundreds of miles, often with little children, without food or water. Jagannathan wrote his article in response to industrialist Rajiv Bajaj who gave four reasons for not understanding why the lockdown was imposed on the nation. The math does not add up, said Bajaj. The lockdown was imposed on 24 March when the total number of confirmed cases were 564, with 10 deaths, and most cases in those coming from abroad. It is ridiculous that the lockdown is being lifted when the total has reached 287,155 and there were over 12,000 new infections in the last 24 hours. Delhi may need 150,000 hospital beds by the end of July, said Chief Minister Arvind Kejriwal. According to a group of epidemiologists, the government did not consult experts before imposing this "draconian" lockdown. Had the government run special trains from 25 March to take migrants home they would not have been infected. Now migrants, who have been infected by being helplessly incarcerated in cities, are carrying the virus home to their villages where they will have little or no access to any hospital and certainly none to any intensive care unit. "Small businesses in industrial enclaves across India are confronting the harsh new realities of a post-Covid world as they count their losses from the pandemic," wrote Zia Haq. "Cash is short. Supply lines are frayed. Export markets are shut. And workers have vanished." Around 80 percent of working Indians have experienced income loss and over 90 percent of them are bracing themselves to bear more hardship in the future, said a study by Generali on consumer sentiments during the Covid-19 crisis." "Out of all the countries, India remains in a particularly precarious position being one of the most unequal countries in the world with a significant burden of poverty as well," wrote Prof Amit Kapoor and Chirag Yadav. "The access to education, for instance, is becoming more challenging for children from poorer households." "Then there is the question of access to digital devices like smartphones and computers and also a reliable electricity connection to operate them," which means that distant education will not be accessible to the poor. There are no jobs in villages, so the threat of hunger is forcing many migrants to return back to their jobs in cities but the memory of the hardship they suffered may cause many to leave their families behind. That would mean their children will have to attend village schools and not better ones in cities. The future will be even more unequal.

An end to extraction would be a good start.

"Cathay Pacific has said it will get a HK $39 bn ($5 bn) in state-backed bailout, as the airline struggles in the face of the coronavirus pandemic. Under the deal the Hong Kong government could take a 6% stake in Cathay and can have two observers on the board." "Airlines globally will lose over $84 billion during financial year 2020, the biggest in aviation history, due to the outspread of covid-19 and a muted travel appetite is expected to lead to at least $16 billion losses for airlines during financial year 2021, Alexander de Juniac, director general and chief executive of industry body International Air Transport Association (IATA) said on Tuesday." This is nearly one-fourth of the earlier estimate of $314 billion of losses by the IATA. Not just home governments. "Switzerland and Austria pledged to help Lufthansa with state-backed loans as the German airline pursues talks with Berlin over a $9 billion euro ($9.8 billion) rescue package." Singapore Airlines is to get a package worth S$19 billion ($13.27 billion) arranged by sovereign investment fund Temasek. So, what about India's national carrier Air India? The government tried to sell it in 2018 but did not receive a single bid for it. That was because the buyer was expected to take on debt of Rs 330 billion and the government intended to retain a 24% stake. This year the government has put 100% of the airline up for sale and reduced the debt load to Rs 232.86 billion. The lockdown due to the coronavirus grounded all flights, which are just beginning to take off again. Once the initial rush of people stuck away from home for two months abates, we will see how many are keen to put up with all the inconveniences of social distancing mandated by the minister. Since the sale is in abeyance for the time being the government is using Air India for mercy missions for Indians stuck abroad, which has been named Vande Bharat, meaning 'Hail to India'. Unfortunately, "Air India's special international service, which ferries Indians stranded abroad as well as flies some Indians to global destinations, is getting flak for what customers say exorbitant and arbitrary pricing and a poorly run website." "A Vande Bharat economy class ticket from Delhi to Houston starts at Rs 1.03 lakhs (Rs 103,000), twice of normal economy class fares." As far as our government is concerned, the quality of mercy is twice blest for it that takes and takes. While other governments are supporting their airlines our government has increased the price of jet fuel by 48%. "To rebuild the economy, we must focus on rebuilding social capital. To rebuild social capital, we need greater compassion across society," wrote Nitin Pai. Compassion is very far. We could do with an end to extraction. it's not 'Hail to India', it's 'Hail to the extractors'.