$699 per month tax free.

According to a pre-Budget survey by C-Voter, "Close to 77% respondents said an income of up to Rs 50,000 per month was required to run a household with four members," Mint. "Speaking in pure statistical terms, the magical figure is Rs 52,073 per month, or Rs 6,24,881 per year." At today's exchange rate of about Rs 74.5 to the dollar, Rs 52,073 converts to $699 and Rs 6,24,881 converts to $8387. The per capita gross national income (GNI) is the GNI of a country divided by its population, masterclass. India's per capita GNI in 2020 was $1,920 per year, World Bank. In terms of purchasing power parity (PPP), which compares the cost of a basket of goods in India and the US, or how much goods the same number of dollars will buy in India and in the US, India's PPP was $6,440 in 2020, World Bank. So, Indians want their earnings to increase four times and "More than 83% wanted this income to entirely tax free." At present income tax is levied on any income above Rs 250,000 per year, with slightly lower rates at higher levels of income if they give up all exemptions, ET. But, very few people have opted for the new rates, moneycontrol.  Rising rates of surcharge and a 4% cess means that any income above Rs 50 million in the financial year will attract tax at 42.7%, HT. "More than 76% respondents want a universal basic income for all residents," and more than 91% want benefits to be paid to the unemployed. Universal basic income is a financial grant by the government to every citizen regardless of wealth or earning, wikipedia. This is because "200 million jobs are missing from the economy". "For India's employment-to-population ratio to be at the global average, nearly 600 people need to be at work. Currently, only a little more than 400 million are," wrote Andy Mukherjee. The pandemic has hurt the informal economy which employed 92% of the participating labor force, ORF. "Of late this pandemic-exacerbated 'formalization' has led to a fiscal mirage. New Delhi's tax bounty -- net of what it shares with state governments -- has swelled by 26% in the fiscal year ending ending March 31, according to Bloomberg Economics." Because, "Producer price inflation at a three-decade high has stretched the nominal gross domestic product by 17.6%, giving a further boost to the activity that can be taxed." The Economic Survey of India for 2020-21 was revealed yesterday and projected a growth rate of 8-8.5% in the financial year 2022-23, taking the price crude oil at $70-75 per barrel, ET. India is the fastest growing economy in the world, retail inflation is at 5.59%, wholesale inflation is at 13.56%, unemployment is at 7.9% but labor participation rate has dropped from 46% in 2016 to just over 40% in 2021 and fiscal deficit is dropping because of buoyant tax collections, TOI. The US is facing stagflation, the People's Bank of China (PBOC) reduced interest rate because the property sector is in distress, but "a steady-state average real GDP growth rate of around 6.7% to 7% can be a reasonably conservative assumption for India for the rest of the decade", wrote Prof V Anantha Nageswaran. Nageswaran has been appointed the new Chief Economic Adviser to the government, ET. The Indian economy is doing better than the US and China and yet people want a universal basic income. And tax free income of $8387. Strange.       

First duty is to stand still for national anthem.

"Prime Minister Narendra Modi...said that people talking about rights since India's Independence, while ignoring their duties, has kept the country weak," Scroll. "The coming 25 years are the period of utmost hard work, sacrifice and penance." Penance for what? Is Modi accusing the entire Indian population of being sinful criminals? People want to work, but they can't find any. "An international comparison of some of India's peers and neighbors using World Bank data shows that India has among the worst labor market outcomes for the young (the 15-24 year old population)," wrote Abhishek Jha and Roshan Kishore. Last week, "Thousands of youngsters in India have burned down empty coaches and blocked rail traffic...in protest against what they call irregularities in recruitment by the mammoth railways department, one of the world's largest employers," Reuters. This after, "test results for different job categories showed the names of the same people appeared multiple times, which unsuccessful candidates felt wrongly excluded them". "New reports suggest that at least 10 million applicants were hoping to get the roughly 40,000 jobs on offer." "We are graduates, we are jobless, we are hungry. Don't kick us in our stomachs," a young man in Bihar told the BBC. "Why are you asking graduates to fry pakodas?" Pakodas are snacks of deep fried vegetables coated in batter, wikipedia. In 2018, Modi suggested that selling pakodas as street food is also employment, FPJ. "Fundamental duties were not part of our Constitution that came into effect in 1950," wrote S Ananth. "It is imperative to note that historically, every authoritarian regime and dictatorship -- Hitler, Stalin, Mussolini to present day North Korea -- talk about duties to 'fatherland' or 'motherland' and rights being subservient to duties." Rights of citizens depend directly on the government doing its duties. Ten fundamental duties of Indian citizens were added to the Constitution through the 42nd amendment by Indira Gandhi during the Emergency in 1976, and the 11th was added by Atal Behari Vajpayee in 2002, The Wire. "When in Moscow in 2015, Modi himself decided to start walking while the national anthem was being played, and had to be restrained by his Russian hosts." He "has made nonsensical claims about ancient plastic surgery and Ganesha's head, and using wind turbines to extract water from air." Since Modi has no respect for the national anthem he has no respect for the national currency. In 2016, Modi canceled Rs 1000 and Rs 500 notes with just 4 hours notice, leading to desperate citizens queuing up for hours outside banks to exchange old notes for new, wikipedia. "The Israeli software Pegasus and a missile system were the 'centerpieces' of a roughly $2 billion deal of sophisticated weapons and intelligence gear between India and Israel in 2017, according to a report in the New York Times," ET. Pegasus promises to "consistently and reliably crack the encrypted communications of any iPhone or Android smartphone". The FBI in the US decided not to use it but in India it was used against "politicians, activists, businessmen and journalists". Perhaps, if Modi concentrated on his own duties we would not have to fight for our rights. They will come automatically.

17.9 million refunds, with interest.

"The Income Tax (I-T) department...said it has issued refunds worth Rs 1.62 lakh crore (Rs 1.62 trillion) to Rs 1.79 crore (17.9 million) taxpayers this fiscal," ET. Which works out to an average of Rs 90,500 per taxpayer. This would be about the median monthly salary of an I-T Inspector, which ranges from Rs 44,900 to Rs 142,400, SSC. "This includes 1.41 crore (14.1 million) refunds for 2020-21 fiscal amounting to Rs 27,111.40 crore (Rs 271.114 billion)." These refunds were pending since the last financial year and the I-T department would have had to pay interest at 0.5% per month or part of a month on each refund, tax guru. "This includes personal income tax refunds of Rs 57,754 crore (Rs 577.54 billion) issued to over 1.77 crore (17.7 million) entities," which works out to about Rs 40,000 per individual. The I-T department has about 46,000 officers (2016-17 estimate), wikipedia, each earning double of each refund every month. To calculate the refunds. "Nearly 5.89 crore (58.9 million) income tax returns for the 2020-21 fiscal (ended March 2021)have been filed on the new e-filing portal till December 31 deadline, the I-T department said," ET. In February 2021, "The number of taxpayers in India is reportedly 1.46 crore (14.6 million), as confirmed by the Central Board of Direct Taxes (CBDT) in a tweet," yahoo. "CBDT further clarified that one crore (10 million) taxpayers reported income between the range of Rs 5-10 lakh (Rs 0.5-1million), while only 46 lakh (4.6 million) reported income over Rs 10 lakh." "Not surprisingly, 4% of the taxpayers pay 60% of the tax revenue generated." ""India's tax-to-GDP ratio steadily increased from approximately 14% to over 20% in 2021," said Prof Suranjali Tandon. France has a ratio of 30%. "In fact, if we control for India's per capita GDP, then the tax-to-GDP ratio for Indians is higher than its peers." This despite agricultural income being free of income tax. At $2,227, the per capita GDP of Bangladesh was $280 higher than that of India at $1,947 in 2020-21, News18. There are about 32 million Indians living abroad, the largest diaspora in the world, and every year 2.5 million migrate overseas, wikipedia. They are known as non-resident Indians or NRIs. Till 2020-21 NRIs were allowed to stay in India for up to 182 in a financial year without being liable to pay income tax. However, from 1 April 2020 any NRI earning more than Rs 1.5 million per year, which would be the vast majority, will be liable to pay income tax in India if her stay is longer than 120 days, ET. "Tax experts say that this has backfired as many rich Indians would rather take up citizenship elsewhere and save taxes they would have to pay in India," ET. "As many as 7,000 HNIs (high net-worth individuals) left India in 2019. In all, about 30,000 to 35,000 rich Indians would have left the country in the past five years or so." With so few people earning enough to pay income tax the government resorts to indirect taxes to fund its extravagance. Revenue from the good and services tax (GST) was Rs 1.30 trillion in December, ET. GST directly increases the cost of goods and services and adds to inflation. Since 1 January, GST has been increased from 5% to 12% on clothes and shoes, India Today. Tax collections will only increase if people become richer. But, taxes must be reduced to make people richer. Else they will run away.           

Misplaced complacency.

"Persistently high inflation will haunt the world economy this year, according to a Reuters poll of economists who trimmed their global growth outlook on worries of slowing demand and the risk interest rates would rise faster than assumed so far," ET. Three months back economists and central banks agreed that inflation was transitory but, "While price pressures are still expected to ease in 2023, the inflation outlook is much stickier than three months ago." "After expanding 5.8% last year, the world economy is expected to slow to 4.3% growth in 2022," and "is seen slowing further to 3.8% and 3.2% in 2023 and 2024 respectively." In Britain, "Businesses...told of the grim impacts of soaring inflation, with hotels forced to close floors to save money on energy bills, shops locked in a 'fight to survive' and Iceland warning rising prices were forcing customers to food banks," DM. Iceland is a company that sells frozen foods in the UK. "The rate of Consumer Price Index inflation in Britain has increased by more than expected to 5.4 percent - up from 5.1 percent in November and its highest rate in 30 years." In December, "The Bank of England...hiked interest rates for the first time since the onset of the pandemic, increasing its main interest rate to 0.25% from its historic low of 0.1% as inflation pressures mount," CNBC. "Economists expect rates to then rise perhaps three more times this year, reaching as high as 1% by the summer," BS. "Prior to the financial crash, 'normal' rates were about 5%. We might now see a new normal at around 2%." Food, skincare products, furniture and used cars are contributing to high inflation in Britain, BBC. Grocery prices have risen 3-4%, skincare products by 9.6%, furniture by 7.4% and used cars by 28%. "US economic growth likely accelerated in the fourth quarter as businesses replenished depleted inventories to meet strong demand for goods, helping the nation to log its best performance in nearly four decades in 2021," ET. "The momentum, however, appears to have faded by December." "The Federal Reserve on Wednesday said it is likely to hike interest rates in March and reaffirmed plans to end its bond purchases that month," and "a decision would be made soon on when to start shrinking the central bank's more than $8 trillion portfolio of US government bonds and mortgage backed securities", Reuters. "South Korea has increased its base rate of interest to where it was before the pandemic, as it tries to contain inflation and soaring household debts," BBC. Consumer inflation for the whole of 2021 jumped to 2.5%. While, "India's benchmark inflation rate, measured by the Consumer Price Index (CPI) firmed up to 5.59% year-on-year in December 2021," ET, the Reserve Bank (RBI) stubbornly stuck to 4% interest rate at its last meeting in December, ET. "Yes, there has been criticism that RBI has fallen behind the curve but only time will tell whether or not India got it right. So far, the approach has served us well," said Deputy Director of RBI Michael Patra. Served who, pray? Income of the poorest 20% of the population has fallen 53% from 2015-16 levels while income for the richest 20% jumped 39%, TIE. The RBI may have time but, with falling income and rising prices, the poor certainly don't. Perhaps, pompous RBI officials should be made to meet the poor. May not be so complacent.

Missed Railways? Opportunities in Gaushala Economy.

"Thousands of youngsters in India have burned down empty train coaches and blocked rail traffic this week in protest against what they call irregularities in recruitment by the mammoth railways department, one of the world's largest employers," Reuters. "The violence erupted on Monday (24 January) after test results for different categories showed that the names of the same people appeared multiple times, which unsuccessful candidates felt wrongly excluded them. Millions of people had applied for some 150,000 jobs in Bihar and neighboring Uttar Pradesh (UP) state, they said." Elections to the UP Assembly will be held in 7 phases from 10 February to 7 March 2022, wikipedia. Predictably, "The Ministry of Railways said on Wednesday a committee had been formed to look into the concerns of the candidates." "While youngsters in the age group of 20-24 years reported an unemployment rate of 37%, graduates among them among them reported a much higher unemployment rate of over 60%," said CEO of Centre for Monitoring Indian Economy (CMIE) Mahesh Vyas. "This is India's real challenge. An equally important challenge is that graduates of all ages put together also have a very high unemployment rate of 18.5%," The Wire. "For India's employment-to-population ratio to be at the global average, nearly 600 million people need to be at work. Currently, only a little more than 400 million are," wrote Andy Mukherjee. Despite this, "New Delhi's tax bounty -- net of what it shares with state governments -- has swelled by 26% in the fiscal year ending on March 31, according to projections by Bloomberg Economics." "Producer-price inflation at three-decade high has stretched nominal gross domestic product by 17.6% giving a further boost to the value of activity that can be taxed." This year's fiscal deficit, around Rs 15 trillion ($200 billion), or 6.5% of GDP, was financed by the Reserve Bank (RBI) buying government bonds to increase liquidity and push down borrowing costs. "The money it printed in the process flowed into stock markets and created wealth for a tiny section of society." "India's Goods and Services tax (GST) revenue posted another strong month, rising 13% from a year ago to Rs 1.30 lakh crore (Rs 1.30 trillion) in December, official data...showed," ET. "This is telling of the nature of the recovery, where sectors and products consumed by the rich have lifted GST collections," said Prof Suranjali Tandon. "The higher revenue collections seen are a combined  result of rising prices, higher imports and, possibly, the pattern of consumption." However, a solution for unemployment is in sight. "Niti Aayog is working on a road map to develop the 'gaushala (cow shelter) economy' to enable commercial use of cow urine and cow dung for multiple purposes, both in India and abroad, said people aware of the matter," ET. Many are not waiting for such exciting employment opportunities. Young people are queuing up for jobs in Canada. "There are not enough jobs for us here, and whenever government vacancies come up, we hear of cheating, leaking of test papers," said Srijan Upadhyay. "I am sure we will get a job in Canada, whatever it is initially." At least there will be no cheating for shoveling dung in Canada. That's the attraction.

How many will lose their shirts?

"Foreigners are cutting and running in some key Asian emerging markets amid turbulent trading ahead of this week's Federal Reserve meeting, where policymakers are expected to signal an interest-rate liftoff in March," ET. Overseas funds sold a net $3.1 billion worth of shares in Taiwan, South Korea and India this week, following $4.9 billion selloff last week. "In India, where the benchmark stock gauge slumped the most in two months on Monday (24 January), consumer technology names were among the biggest losers." By November, "Foreign institutional investors (FII) have offloaded $7 billion worth of shares in the last two months and since the beginning of the financial year, FIIs have sold nearly $13 billion worth of shares," BI. As of 1 November, FIIs held Rs 54.7 trillion worth in companies listed on the NSE but their share had declined to 21.5% of total value because domestic institutional investors (DII) had increased their share to Rs 33.4 trillion, TOI. "For the last two decades foreign portfolio investors have been the dictators of the Indian market," ET. In 2021, FIIs net sold Indian stocks worth more than Rs 470 billion in the secondary market, but this has made no dent on the market because, "The tsunami of retail investors has resulted in close to Rs 90,000 crore (Rs 900 billion) of net inflows from retail investors in 2021 through September 2021, according to the NSE." Not just the secondary market, "Sixty-three companies raised Rs 1.19 trillion through initial public offerings (IPOs) in calendar year 2021-- a record for any year," BS. This was almost double the previous best of Rs 688.27 billion raised in 2017. Unfortunately, "The selloff in the market in the past few weeks has wiped out over Rs 2 lakh crore (Rs 2 trillion) from recently listed stocks that include leading ones like One97 Communications (Paytm), FSN E-Commerce Ventures (Nykaa), Zomato, PB Fintech (PolicyBazaar) and CarTrade," TOI. "Private equity and venture capital firms invested $77 billion in 1,266 deals in 2021, a 62% increase from the $47.5 billion they pumped in 923 deals a year ago, according to a report by Indian Venture and Alternate Capital Association (IVCA) and consultancy firm EY," Mint. "During the same period startups attracted close to $29 billion." "Of the amount raised through IPOs, a substantial part (Rs 75,736 crore or Rs 757.36 billion) was towards Offer for Sale (OFS)" which are a sale of "securities held by the existing shareholders", Mint. "Fintech platform Barat Pe's founder Ashneer Grover criticised rival platform Paytm founder Vijay Shekhar Shama's for mispricing its recent IPO," Outlook. "He stated that the Paytm IPO returned the money to its Chinese investors at the cost of public markets in India." "2021 has seemed eerily similar to 2000," wrote Shankar Sharma. "Between 1995 and its peak in March 2000, the Nasdaq Composite stock market index rose 400%, only to fall 78% from its peak by October 2002, giving up all its gains during the bubble," wikipedia. This was the infamous Dot-com bubble. Statistically, we are set up for a down year in global markets," wrote Sharma. "I do believe that there is an 80% chance that most 'new age' companies will be reverse compounders." In short, millions of Indians are going to lose their shirts. And their pants as well.    

An island of economic growth.

In the US, for more than a year, "Lower income workers were seeing the biggest pay increases, while gains for better-paid employees lagged behind," wrote Lisa Abramowicz. But, "The five biggest banks boosted compensation by 15% last year, more than twice as much as consumer price inflation, with an expectation of more to come." And, even as fatcats in business services, finance and information tech are receiving huge increases in salaries, consumers are suffering with "America's real disposable income now 3% below its pre-covid level and real wages deeply negative". The US Federal Reserve must address this rising inequality by controlling inflation, says Abramowicz. " "Note that the German economy has entered a recession," wrote Prof V Anantha Nageswaran. "The US too is not in a position to allow interest rates to go up by much, not only because debt levels are high but also because its economy may be facing a situation of stagflation." The Chinese economy relies on the real estate sector for growth which is in trouble. Its biggest property developer, "Evergrande is still trying to appease growing anger among its offshore creditors who have threatened to take legal action over the embattled Chinese developer's plans to restructure the business," CNN. The company asked for more time, saying legal action could result in a "destructive outcome". While other countries are increasing interest rates, "China has unexpectedly cut a key interest rate for the first time in almost two years as official figures showed its economic growth had slowed," BBC. Because, "The country's property sector is attracting less investment as some of its biggest developers face a debt crisis," and "Consumers also seem to be feeling less optimistic". "As far as India's economy is concerned, it appears that an average real gross domestic product (GDP) growth rate around 9.0% can be assumed for the financial years 2021-22 and 2022-23." "The Indian economy has recovered 'handsomely' from the pandemic- induced disruptions, former Niti Aayog Vice Chairman Arvind Panagariya said.., while expressing hope that the recovery will be sustained and the growth rate of 7 to 8 percent will be restored," ET. He would like a wind down of the fiscal deficit. "India's overall macroeconomic situation is in recovery mode but the growth is concentrated at the top end," said Prof Kaushik Basu. The country maybe facing stagflation and youth unemployment touched 23%. The Indian economy is doing well but, "My greater worry about the economy is the scarring to the middle class, the small and medium sector, and our children's minds, all of which will come into play after an initial rebound due to pent up demand," said Prof Raghuram Rajan. India's "economic growth is producing fewer jobs than it used to", so "disheartened jobseekers instead take to menial roles or look to move overseas", ET. India, an island of growth in a stagnating world? Or maybe not.

It will be good if it remains the same.

From below $30 a barrel in 2015, benchmark Brent crude oil prices have risen to over $80, with a drop to $15 per barrel in 2020, eia,gov. "Oil prices fell about 2% on Monday (yesterday), hit by investor concerns over the possibility of quicker than expected interest-rate hikes by the US Federal Reserve that took down risk markets such as equities while the dollar rallied," Reuters. That one sentence encapsulates all the problems India could face this year. "Brent crude fell $1.62, or 1.8%, to $86.27 a barrel." West Texas Intermediate was trading at $84.15 yesterday and futures point to a slight softening in November 2022 to $77.20 per barrel, marketwatch. "India imports 85% of its domestic oil requirements," wrote Rituraj Barua & Subhash Narayan. "Already India's oil import bill has more than doubled to $71.1 billion between April and November 2021. A $10 per barrel increase in crude raises India's inflation rate by around 50 basis points and widens the fiscal deficit by about 40 basis points." Current account deficit (CAD) will also rise. Petrol prices in India skyrocketed from Rs 67.51 per liter in Delhi in 2016 to Rs 99.86 in 2021 and have come down slightly to Rs 95.41 since December, mycar. Taxes make up 50% of the price of petrol and 40% of the price of diesel paid by consumers at the pump, The Hindu. "Price of domestic cooking gas doubled to Rs 819 per cylinder in the last seven years," said Oil Minister Dharmender Pradhan in March 2021, BS. Today one cylinder of cooking gas costs Rs 899.50 in Delhi, goodreturns. Higher fuel costs raise the cost of goods by increasing the cost of transport. In the US, "In December, the Consumer Price Index for all Urban Consumers rose 0.5 percent, seasonally adjusted, and rose 7.0 percent over the last 12 months, not seasonally adjusted," bis.gov. The US Fed is expected to raise interest rate four times this year. "Traders are pricing in nearly 95% chance of a rate increase at the March meeting, and a more than 85% chance of four moves in all of 2022, according to CME data," CNBC. As interest rates go up in the US the dollar is expected to strengthen against other currencies. According to Fitch Solutions, the Indian rupee will weaken to Rs 76 to the dollar in 2022 and to 78 to the dollar in 2023, ET. The International Monetary Fund predicts a steeper fall. "From 70.9 in 2020-21, the Fund sees the rupee depreciating to 89.4 against the US dollar by 2026-27. In April the implied exchange rate for 2026-27 was 85.8," wrote Prof V Anantha Nageswaran. A fall in the exchange rate of the rupee will raise the cost of imports, including that of oil, and raise prices further. Indian companies raised $6 billion selling offshore bonds during January 1-14," which was "more than a quarter of the $22 billion raised in the whole of 2021, which itself was a record," ET. If the rupee falls the cost of servicing these debts will also rise. What happens this week could presage what happens for the rest of the year. Unless there is conflict. It could get worse.

63 percent popularity.

The Mood of the Nation poll has once again highlighted the popularity of Prime Minister Narendra Modi, as "Close to 63 percent rate his performance between good and outstanding," India Today. "Close to 58% of respondents are very satisfied or satisfied with the performance of his government." Less than one year back so many people were dying of coronavirus that cremation grounds could not cope. On 22 April 2021, Jitender Singh Shunty said that "60 bodies had been cremated at the makeshift facility in the parking lot and 15 others were still waiting," Reuters. "Children who are 5 years old, 15 years old, 25 years old are being cremated. Newlyweds are being cremated. It is difficult to watch," said a teary-eyed Shunty. 63% popularity, so who cares. "Indians have expressed shock and anger after a junior health minister told parliament that no Covid deaths had been reported due to oxygen shortages," BBC. "Hospitals across the country ran out of oxygen in April and May during a deadly second wave - there were daily reports of people dying from lack of oxygen." 63% popularity, so who cares. In the 5-year period between 2015-16 and 2020-21, the annual income of the poorest 20% fell by 53%, income of the 20% in the lower middle category fell by 32%, while the income of the richest 20% rose by a whopping 39%, TIE. 63% popularity, so who cares. "India's GDP - at a high of 7-8% when Mr Modi took office - had fallen to its lowest in a decade - 3.1% - by the fourth quarter of 2019-20," BBC. "Unemployment climbed to a 45-year high - 6.1% - in 2017-18," and "more than 75 million Indians have plunged back into poverty." "While one in five persons above the age of 15 was unemployed during April-June 2020, the unemployment rate among the 15-29-year-olds was 34.7 percent -- every third person in the 15-29 age group was unemployed during the same period," wrote Prof Himanshu. "At every town square, I met young men and women, all seemingly unemployed and disengaged from economic activity, wrote Vivan Marwaha in October 2021. And yet, nearly 40% of those aged 18-35 years voted for Modi. Because he speaks in Hindi even when abroad. So, 63% popularity is partly due to ignorance of English. Congress leader P Chidambaram enumerates 12 points of what is wrong with the economy, and yet "the Modi government has not been called to bear the political price", he laments. What explains 63% popularity? "It is curious that the Modi government openly lies -- lies that are open and blatant," The Print. "People are expected to believe as true what is clearly false, and also take at face value what is mutually contradictory statements." "What's happening here is a plain assertion of power." That power is also asserted through apps like Tek Fog which "is used by political operatives affiliated with the ruling party to artificially inflate the popularity of the party, harass its critics and manipulate public perceptions at scale across major social media platforms", The Wire. Those who are not 63% try to escape and may end up frozen to death at the border between the US and Canada, NDTV. Including a baby. But then, 63% popularity, so who cares?  

Strongmen of submerging markets.

"Examining the tea leaves for 2022, one prediction seems quite straightforward: Emerging markets may need to be renamed submerging markets," wrote Rahul Jacob. "Exhibit A in this investment class to avoid is Turkey whose currency lost almost 40% against the dollar last year, in large part because, prodded by its erratic president, its central bank has been cutting interest rate as inflation soars." "Turkey's annual inflation rate surged to 36.1% last month, its highest in the 19 years that Tayyip Erdogan has ruled, laying bare the depths of a currency crisis engineered by the president's unorthodox interest rate cutting policies," Reuters. Turkey's Monetary Policy Committee of its central bank said "it decided to keep its policy rates 'constant' at 14%, putting on hold rate-cutting policy that has reduced borrowing costs by 5 percentage points since September despite soaring inflation," AP. Erdogan believes that high interest rates cause inflation by raising borrowing costs. On 4 January, the Turkish lira slipped to 13.5 against the dollar, Reuters. When the lira fell to 18.4 against the US dollar Turkey started a foreign currency deposit protection scheme which guarantees against further fall in the value of the lira, DS. So far the scheme has collected 107.6 billion lira. A similar scheme to protect value of gold deposits will hopefully draw in gold items estimated at $280 billion hoarded by citizens. The Indian government has been after gold holdings of citizens since 2015 in exchange of sovereign gold bonds, SBI. The bonds have a duration of 8 years and a lock in period of 5 years which is unhelpful because gold is seen as an insurance against a financial emergency. "Indian households may have accumulated up to 25,000 tonnes of gold, thereby retaining the tag of the world's largest holders of the metal, according to the World Gold Council," BT. "India's gold imports, which has a bearing on the country's current account deficit (CAD), more than doubled to USD 38 billion during April-December this fiscal on account of higher demand," ET. A gold savings account, if it transpires, will be really citizen friendly. "Customers can open such gold accounts in banks and put in money on a regular basis," and can "withdraw the deposit at prevailing prices at any time," ET. It will earn interest at 2.5%. Sri Lanka is in paralysing coils of the Rajapaksa family which controls almost every branch of government, wikipedia. "Sri Lanka consumer prices shot up a record 14 percent in December, surpassing a previous high of 11.1 from a month earlier," and senior ministers warned parliament "of a growing food crisis with rice harvests due in March expected to be drastically lower after an agrochemical ban last year saw farmers abandoning 30 percent of agricultural land," ET. In India wholesale price (WPI) inflation was 13.56% year-on-year in December, slightly lower than 14.2% in November, ET. Analysts are predicting that oil prices could climb to $100 a barrel this year adding to inflationary pressures, DW. Adding to the fun, the US Federal Reserve is to increase its Funds rate 3-4 times this year, CNBC. The stronger the strongman the weaker the economy, it seems. Perhaps, if we could make them weaker.    

Don't worry, they know already.

"PM Modi on Thursday targeted naysayers saying there is a tendency to tarnish India's image, both within the country and internationally, and exhorted non-state actors to make an effort to change this 'perception building' while conveying the correct picture of the country to the world," TOI. What does 'image' mean? Should we talk about the Harappan civilization which existed between 2500-1700 BCE? "Among the world's three earliest civilizations -- the other two are those of Mesopotamia and Egypt -- the Indus civilization was the most extensive," Britannica. India is a living nation of 1.40 billion people, Worldometer. Should people not speak of their problems? Also, foreigners are not stupid. "The capital of India, New Delhi hosts 150 embassies/high commissions and 18 other representations in India," wikipedia. It is their duty to report to their governments about the economy, defence, politics, and social relations in the host country, renaca. "Every embassy in the world has spies," said Prof Anthony Glees, BBC. "Genuine diplomats gather information using entirely legal methods and stick to the code set out in the 1961 Vienna Convention." "But some people are listed as diplomats but are actually intelligence officers." "The actual spying is done by an agent - who can be paid for, blackmailed or who's doing it for ideological reasons." "All countries spy and most if not all send spies overseas disguised as diplomats -- including the US," AP. In fact, foreign governments know much more about what's going on in India than Indian citizens who are kept ignorant of the activities of politicians and civil servant by the draconian Official Secrets Act, inherited from the British and lovingly made more virulent, Firstpost. Allegations against former Prime Minister Indira Gandhi, being paid for information, by a KGB spy Vasili Mitrokhin have been published, Opindia. Is there no Mitrokhin or Maxwell lurking in Delhi even today? At the same venue, Chief Minister of Rajasthan Ashok Gehlot said, "There is a need to strengthen peace, harmony and brotherhood in the country because it is being seen that there is an atmosphere of tension and violence, and it is the desire of all to get rid of it." "What should be an ordinary commercial dispute between Amazon and the founders of a near bankrupt retailer is shining a harsh light on the quality of legal and regulatory protection investors actually receive in India," wrote Andy Mukherjee. Amazon is a US company. "Vodafone Idea has been bleeding both cash (it hasn't made a profit in five years) and customers (253 million after losing 10% of its base last year) for years now," BBC. "The government is now likely to pick up a third -- nearly 36% of the stake in the ailing operator." This after running the company to the ground, by trying to compel the company to pay completely irrational revenues to the government, through the Supreme Court, BT. Billions of taxpayer money wasted in first destroying Vodafone Idea and now in picking up a stake in it. Vodafone is British. No wonder economic growth fell from 8.2% in March 2018 to 3.1% in March 2020, HT. No need to tell foreigners. They can see what's happening. And smell it as well.

FPIs are irrelevant.

"After a steep fall of over 23% in March 2020, the Sensex and Nifty recorded their best monthly gain of 2020 in April. As indices recovered 15%, the FPIs turned net sellers, to the tune of Rs 6,884 crore (Rs 68.84 billion) during the month," wrote Aprajita Sharma. In 2021, net foreign portfolio investor (FPI) inflow was around Rs 26,000 crore (Rs 260 billion), down 84% compared to 2020, but "The Sensex and Nifty rallied over 24%, the best gains in four years." FPI ownership of Indian equities has slipped from above 20% since "the fourth quarter of 2012-13 to 18.4% as of 31 December 2021. The reason for the exuberance of our stock markets is, "An army of retail investors - led by savvier 20- and 30- somethings - bought and sold shares frantically during the year as the bull run gave them an opportunity to make money in stocks at a faster pace than traditional asset classes," ET. The number of demat accounts, which hold shares in 'dematerialized', or electronic form, instead of physical certificates, more than doubled from 36 million in 2018-19 to 74 million by the end of November 2021, ET. The problem is that "Several newcomers in the market who want to speculate are buying options because they think it's cheaper," said B Gopakumar, MD, Axis Securities. "When they lose their capital, 95% of them do not come back." The Sensex hit its highest ever level of 62,245.43 on 19 October 2021, BS. "As of 17 December, the Sensex has given a return of 19% during 2021," wrote Vivek Kaul. But "Much of the action happened beyond Sensex stocks. Take the case of the BSE Small Cap Index, which has gone up 57% this year (after going up by 32% in 2020)." A similar story is playing out elsewhere too. "Sri Lanka is facing a debt crisis, and yet its stock market is up more than 60% in the last year," wrote Alison Schrager. "The US Federal Reserve will tighten policy at a much faster pace than thought a month ago to tame persistently high inflation," Reuters. Higher rates in the US are supposed to be bad for emerging markets and, "Yet, emerging market funds are up 25% from before the pandemic. Yields for low-quality BBB-rated bonds are less than inflation." Government bonds are taken to be risk-free because one is certain to get one's investment back. Central banks have been buying bonds to drive up prices so that "Since 2008 financial crisis, the real (inflation-adjusted) risk-free rate has been consistently negative, and now it's even more so." "But if interest rates do suddenly rise either from persistent inflation, Fed policy or concerns about debt, markets could get shocked back to reality." So, are FPIs irrelevant to our markets because of the euphoria of domestic investors? What happens to the rupee if FPIs are significant sellers? With foreign exchange reserves of $632.73 billion, ANI, there should be no anxiety. Why then did the government borrow $17.86 billion from the IMF to meet balance of payments (BOP) obligations in August 2021? Mint. A record $256 billion foreign debt will come up for repayment in the next 12 months, ET. Non-resident Indians deposited $2.6 billion for April-November 2021, down 62% from $7 billion in the corresponding period a year ago, ET. If crude oil breaches $100 per barrel, HT, and the rupee weakens, retail prices of fuel, already at record levels, could skyrocket. Foreign exchange comes from foreign countries. So, FPIs matter.     

Why should it be any different?

In an interview with Business Today, economist and Member of Parliament Subramanian Swamy said, "Firstly, I would announce that effective from April 1, no income tax will be paid by anybody. And once normalcy comes, I think we should start making it permanent." He also says that the prime lending rate that banks charge on loans should be brought down from 12% to 9% and the interest that banks pay on fixed deposits should be increased from 6% to 9%. He does not say how banks will make any profit to pay their staff. Diametrically opposite, "Indian billionaires saw their combined fortunes more than double during the COVID-19 pandemic, and their count shot up by 39 percent to 142, while the wealth of the ten richest is enough to fund school and higher education of children in the country for 25 years," ET. A report by the British charity group Oxfam said that, "142 Indian billionaires collectively own wealth of USD 719 billion (over Rs 53 trillion), while the richest 98 of them now have the same wealth as the poorest 55.5 crore (555 million) in the bottom 40 percent (USD 657 billion or nearly Rs 49 trillion)." This is the central theory of Communism, stated simply as "From each according to his ability, to each according to his needs", Britannica. It is impossible to find the salary of the present director of Oxfam but in 2016/17, then CEO Mark Goldring received compensation of 127,753 pounds, DM, which would convert to about Rs 12.80 million at today's exchange rate of Rs 101 to one pound, xe. To be fair, bosses of US charities are paid in excess of $1 million, about five times what Goldring received in 2017, Charity Watch. Will redistribution produce jobs paying a living wage, which will provide for all the necessities for daily life and insure against falling into poverty due to an emergency (Investopedia), for millions of unemployed young people? If not, redistribution will keep India permanently stuck in a cycle of poverty and handouts. "To get out of this poverty trap, we first need to raise incomes which require job creation. On the one hand, our 'growth' is jobless, and on the other, there is a lack of structural change with the share of the workforce in agriculture actually increasing. This does not bode well for our demographic dividend," wrote S Irudaya Rajan. The Periodic Labour Force Survey (PLFS) 2019/20 showed that 38.5% of people over 15 years of age had secondary school education and 11.8% were graduates and above, but just 4.1% have technical training. Lack of jobs is because "India bypassed the manufacturing stage and witnessed a rather atypical rise in the share of services in its gross domestic product (GDP), wrote Dharmakirti Joshi. About 67% of the population, or 930 million people, are in the working age group of 15-64 years of age. So we need to set up labor intensive manufacturing. "India's growth has been powered by high-end services like software and finance manned by highly skilled workers. There have been few manufacturing or factory jobs that can absorb a large number of unskilled and low-skilled workers," BBC. Unfortunately, instead of increasing trade with other countries,  the government has resorted to import substitution to protect domestic manufacture, but this phased manufacturing program was tried in the pre-reform era with disastrous consequences. wrote Prof Arvind Panagariya. Same action will deliver the same result. Why should it be different this time?    

This trinity seems just as impossible.

"The global economy may slowdown, from 5.5% growth in 2021 to 4.1% in 2022 and 3.2% in 2023, as pent-up demand fades and monetary policy becomes less favorable, the World Bank said," wrote Tauseef Shahidi. "Market hysteria reached an all-time high last year, suggests data from YouGov-Mint-CPR Millennial Survey." Inflows into equity mutual funds in December "rose to a record Rs 24,990 crore (Rs 249.90 billion) -- 2.3 times the amount in November, and 20% more than the previous high of July". "It rained unicorns last year; another 22 startups may follow suit this year," and "'Soonicorns' raised funding in 2021 at a valuation greater than $500 million but less than $1 billion." "Consumer confidence in India hit historic lows due to the virus outbreak, according to the Reserve Bank of India (RBI)," Fortune. "Consumers' perception of the prevailing economic situation and their expectation for the future also influence their spending, saving and investment behavior, says the central bank." "Rural areas, which support nearly 60 percent of the population by some estimates, saw an increase in the average unemployment rate to 7.3 percent in 2021 from 6.8 percent in 2019," ET. Due to structural factors, the economy was slowing down from a growth rate of 8.2% of GDP in 2016-17 to 4% in 2019-20 when Covid struck, wrote Prof Himanshu. "Between 2019-20 and 2020-21, real per capita GDP declined at 0.4% per annum, but real per capita private final consumption expenditure (PFCE) declined by 2.5% per annum." "Industrial growth fell to a nine-month low of 1.4% in November as festive demand fizzled out while retail inflation accelerated to a six-month high of 5.59% in December," ET. If consumer prices are rising despite falling demand then it cannot be due to supply side problems, as the RBI has been arguing. "The RBI expects fiscal and other supply side measures like excise duty cuts to address inflation concerns though it expects inflationary pressures to build up through rise in input prices," ET. If the RBI expects inflation to come down due to duty cuts and go up due to higher input prices, does it mean that retail inflation will remain fixed at around 6%? Input prices are sizzling as "December wholesale inflation eased to 13.56% year-on-year after it hit a record high in November 2021 at 14.2%," ET. The US Fed is not going to wait. "Treasuries slid and yield-curve premiums shrank to the lowest in almost two years amid increased speculation the Federal Reserve will deliver more than a quarter percentage-point rate hike in March," Bloomberg. If the Fed hikes rates by 0.50%, the ordure will really hit the fan. "A tighter Fed poses the risk of capital outflows from India, along with the associated worries over exchange and interest rates," wrote an editorial in ET. If foreign capital flows out of India the rupee may depreciate. This should help exports by making our goods cheaper but, "Imports will become costly." This will add to already high inflation. "So, RBI must act in line with other central banks, not stand in isolation." RBI will obey government orders. The government wants a strong rupee to check imported inflation, lower interest rate to lower its cost of fiscal deficit and low inflation to win elections. An impossible trinity (wikipedia), as it were. 

Shades of 1991.

"As of 2020, China was the largest exporter in the world, with an approximately 15% share of global trade, according to UNCTAD statistics," ET. But, as global supply chains were disrupted by the pandemic countries are looking to diversify to other countries. India is seking to become self-reliant through 'Armanirbhar Bharat' and "more specifically, the PLI (Production Linked Incentive) schemes that have been announced for diverse key industrial sectors". Self-reliance has been tried in the past with the result that our manufacturing sector has shrunk from 17.9% of GDP in 1995 to to 13% in 2020. "The word atmanirbhar can be translated as self-reliance or it can be translated as self-sufficiency. Self-sufficiency is what Nehru and Indira Gandhi tried in the 1960s and 1970s. It was a horrible and a terrible flop. We had only a 3.5% Hindu rate of growth. The number of poor people doubled in 30 years after independence," said Swaminathan Aiyar. The world has experienced a severe shortage of semiconductor chips affecting everything from smartphones to video games to cars, wikipedia. It takes a lot of money and time to set up a chip fabricating plant, Outlook. "According to The Indian Express, India has tried setting up chip manufacturing units in the past but it never took off due to lack of long-term vision and government incentives, and poor planning." Now, "The government is planning to provide incentives worth Rs 76,000 crore (Rs 760 billion) towards setting up over 20 semiconductor design, components manufacturing and display fabrication (fab) units over the next six years, in a bid to make India a hub for electronics," ET. Continuous steady electricity supply is absolutely essential in chip manufacturing plants, said Dr Sanjay Banerjee, after an electricity outage in Texas, Spectrum News 1. Toxic gases flow through double-walled stainless steel tubing which are constantly monitored, the air in the manufacturing room has to pass through HEPA filters and temperature must be kept constant, or else mask aligners may go out of alignment. Mask aligners can cost $10-100 million. In October 2021, people were warned of "intermittent rotational load shedding", which is a euphemism for black out, in Delhi, due to shortage of coal, news18. A few days back Tata Power DDL published a schedule of power shutdown in parts of Delhi, lasting from 2-9 hours due to maintenance work. And Delhi is the capital of India. To encourage self-reliance, "More than 3,000 tariff increases have affected 70% of imports. India entered 11 trade agreements in the 10 years under previous Prime Minister Manmohan Singh. On Modi's watch it hasn't signed even one," wrote Andy Mukherjee. "India is parched for capital expenditure, and its trade deficits are ballooning, particularly with China." So high is the deficit that, "Of the accretion of $31.2 billion in July-September 2021 in foreign exchange reserves, $17.86 was by way of Special Drawing Rights (SDR) support it received from the International Monetary Fund on 23 August 2021," wrote Jagdish Shettigar and Pooja Misra. "Importantly, IMF support comes with a baggage of conditions as was the case in 1991 -- the support came with the condition that India initiate big ticket economic reforms." 2021 was a bit like 1991, when we had the balance of payments crisis, wikipedia? We are blissfully ignorant.       

Strange, but not funny.

"As per the First Advance Estimates of GDP released by the National Statistical Office, the economy is projected to grow at 9.2% in FY22 (2021-22)," ET. However, "There are several headwinds that we are likely to face in FY23, the most important ones being high inflation, newer strains of coronavirus, continued challenges on the consumption expenditure of households and micro, small and medium enterprises (MSMEs), unorganised sector stress and private sector investments." The solution lies in increasing capital expenditure in infrastructure, increased support to MSMEs and the unorganised sector, "Increased MGNREGA allocation" and "Cash transfers to BPL households and food security support". BPL, or 'below poverty line', has been defined as those with spending below Rs 33 per head per day in urban areas and Rs 27 per head per day in rural areas, cleartax. Unfortunately, "The government is looking to trim its overall subsidy in 2022-23, and is likely to peg food and fertiliser at about Rs 2.60 lakh crore (Rs 2.60 trillion) and Rs 90,000 crore (Rs 900 billion), respectively, in the upcoming budget, lower than the revised estimates of FY22. Total subsidy bill for the current fiscal (1 April 2021-31 March 2022) is likely to be around Rs 5.35-5.45 lakh crore and the government is keen to lower it next financial year, officials said," ET. On the positive side "because of the tremendous global demand, any exporting industry is starting to do really quite well and of course the IT industry is gangbusters at this point," said Prof Raghuram Rahan. On the other hand, "we have a real consumption problem and that is because of the lower end, the really less well-off segments have done really quite badly in this recession". Inflation is high and "consumption falling while the upper middle class is growing quite strongly means the lower middle class as well as the poor have suffered quite substantially". "India's overall macroeconomic situation is in a recovery mode but the growth is concentrated at the top end," said Prof Kaushik Basu. "Amid the rising inflationary trends, including the sharp increase in retail inflation last month," "the country is facing stagflation and 'very carefully curated policy interventions' are required to address the situation". But, "it was sad that the country's policy over the last few years has been largely focused on big business", and "the youth unemployment rate in the country touched 23 percent, among the highest globally" even before the pandemic. Fifteen years back inflation was near 10% but real growth was near 9%, so per capita income of households was growing by 7-8%, but now we have 5% inflation with falling per capita income. Grim. "Industrial growth fell to a nine-month low of 1.4% in November as festive demand fizzled out while retail inflation accelerated to a six-month high of 5.59% in December," giving the Reserve Bank (RBI) an excuse to keep interest (repo) rate at 4% where it has been stuck since May 2020, ET. The bond market is not as forgiving as hapless citizens. Auction of the new benchmark 10-year bonds failed because traders demanded a yield of 6.54%, higher than the RBI was willing to give. "The paper closed at a discount of 6.56% while that on the current 2031 jumped two basis points to 6.58%," Mint. This means that banks can borrow at 4% from the RBI but the government must pay 6.56% to borrow from the market. Strange situation. Not funny.

Off to a flying start.

"According to the pre-budget survey by Deloitte Touche Tohmatsu India LLP, that collated a total of 163 responses from 10 industries, more than 75 percent respondents were positive about India's growth and expansion," ET. "The survey further noted that about 91 percent respondents (compared with 58 percent last year) believe that the 'Atmanirbhar Bharat' initiative, coupled with monetary policy actions by the Reserve Bank of India (RBI) did contribute to bringing the economy back on track." "As per the survey, about 59 percent of respondents believe that India provides a favorable atmosphere to run a business." 'Atmanirbhar Bharat', meaning 'self-reliant India', is an initiative of Prime Minister Narendra Modi, wikipedia. "When India speaks of becoming self-reliant, it doesn't advocate a self-centered system. In India's self-reliance, there is concern for the whole world's happiness, cooperation and peace. Hon'ble PM, Shri Narendra Modi," mygov. The world must be so grateful. Of course, India cannot be self-reliant without the 'Make in India' project, another initiative of Modi, wikipedia. In accordance with this policy, the government "is going to shelve a number of defence import projects being acquired through the Buy (Global) route", ET. At a high level meeting of the Defence Ministry (MoD) "all the import projects under Buy (Global) category would be reviewed and are likely to be scrapped or put on hold by the government". "The foreclosure and deferment lists include deals like the Very Short Range Air Defence Systems, towed artillery guns. vertically launched surface-to-air missiles, shipborne unmanned aerial systems, additional P-81 surveillance aircraft along with the MIG-29 combat aircraft," TOI. "The multi-billion-dollar Kamov-226 helicopter deal with Russia has also been put on the list." Meanwhile, "According to satellite imagery posted by the Twitter user who uses the handle @detresfa_, China has built at least four new villages nearly three to four kilometres within disputed territory along the border with Bhutan," HT. "The satellite imagery showed several rows of houses and new roads at all the four villages." "New satellite images accessed by NDTV show that China has constructed a second enclave or cluster of at least 60 buildings in Arunachal Pradesh." This enclave is 93 km east of the first encroachment and did not exist in 2019. China's new land border law took effect from 1 January 2022, which "specifies that the People's Liberation Army (PLA) and the paramilitary People's Armed Police (PAP), both under the command of the Central Military Commission, will bear the major responsibility for safeguarding land border, resisting armed invasion, and responding to major contingencies," Brookings. In a display of impolite audacity, "China's embassy in Delhi, in a show of impudence, sent a letter to Indian lawmakers and ministers castigating them for attending a dinner reception hosted by the Tibetan Parliament-in-exile on December 22. It expectedly triggered a strong reaction in India," Firstpost. The MoD notified "a list of 2,500 items indigenised by the defence public sector undertakings (DPSUs) and another 351 items that will be indigenised by them by December 2024", saving Rs 30 billion, wrote Amit Cowshish. "The list includes several types of nuts, bolts, screws, bushes, washers, gaskets, pins, hoses, sealing rings, rivets, clamps, plugs, elbows, valves, nozzles, pipes and jets," You need buts, bolts and rivets to hold a helicopter together. The MoD has hit the ground running. Well done.      

The Fed should not matter.

"India's fiscal deficit is expected to be around 7.5 percent of the GDP in the current fiscal," more than double of the Budget estimate (BE) of 3.5%, ET. "The finance minister in Budget 2020-21 had pegged the gross market borrowing, which is also a reflection of fiscal deficit, at Rs 7.80 lakh crore (Rs 7.80 trillion) for the current fiscal." "The government's total receipts stood at Rs 8,30,851 crore (Rs 8.31 trillion) (37 percent of BE 2020-21) till the end of November 2020. This included Rs 6,88,430 crore tax revenue (net to Center), Rs 1,24,280 crore non-tax revenue and Rs 18,141 (Rs 181.41 billion) of non-debt receipts. Non-debt capital receipts consist of recovery of loans and disinvestment." "With the state governments' fiscal deficit projected at a relatively modest 3.3 percent of GDP in FY2022, the general government fiscal deficit is estimated at around 10.4 percent of the GDP," rating agency iCRA said, ET. And yet, it was so different just two months back. "Separate data showed that the Center's fiscal deficit at the end of November narrowed to 46% of the full-year target as robust revenue receipts helped in a better fiscal outcome," TOI. "India's goods and services tax (GST) revenue posted another strong month, rising 13% from a year ago to Rs 1.30 lakh crore (Rs 1.30 trillion) in December, official data showed," ET. GST revenue was 26% higher than in December 2019, that is before the pandemic. Nearly 58.9 million income tax returns for the year April 2020-March 21 were filed till December 2021, compared to 59.5 million filed by 10 January 2021, ET. Despite modest borrowing, "The cost of debt-funds for the states has touched the highest level so far this fiscal with the weighted average cut-off crossing the 7.16 percentage points at the latest auctions, up 11 bps (11 basis points) over the past week, reflecting the hardening of yields even for the government securities," ET. At such high rates of interest, servicing debt could become a problem in coming years. This is despite the repo rate, which is "the rate at which commercial banks borrow money from the RBI (Reserve Bank) by using government bonds as collateral," BHF, being held at 4% at the latest meeting of the Monetary Policy Committee of the RBI, ET. The benchmark 10-year bond yield rose by 5 basis points (0.05%) to 6.59%, indicating that the market is hedging against high inflation in the future, despite the rupee strengthening to 74.03 to the dollar, TIE. The RBI sells bonds to finance  central government borrowing, or fiscal deficit, and a stronger rupee should control rise in prices of imports. Exports rose by 38.91% to $37.81 billion in December, the highest ever monthly figure, but imports surged by 38.55% to $59.48 billion so that trade deficit widened to $21.68 billion, TOI. Trade with China rocketed by 43.3% to a record $125.66 billion in 2021. We exported just $28.14 billion and imported a whopping $97.52 billion, with a trade deficit of $69.38 billion, ET. What a generous gift to China. Our foreign exchange reserves fell by $897 million to $632.7 billion in the week ended 7 January, ET. Even though reserves seem ample, "India's enormous foreign exchange reserves faces its biggest test in the next 12 months as a record $256 billion of total overseas debt comes up for repayment amid a possible flight of capital due to monetary tightening by the Federal Reserve," ET. What the Fed does should have no effect if domestic finances are secure. Only the government and RBI know if they are. We are ignorant.     

We need jobs, not decimal points.

"India's GDP will likely grow 9.2 percent in FY22 (2021-22), according to the Ministry of Statistics and Programme Implementation," moneycontrol. "While the estimated GDP growth rate of 9.2 percent for FY22 is the highest in at least 17 years, it has been aided by an extremely favorable base effect, with the GDP having contracted by a record 7.3 percent in FY21 on account of the Covid-19 pandemic." "India's GDP growth rate for the year 2021-22 will be 9.5 percent, according to Arvind Virmani, former Chief Economic Adviser (CEA) of India," india,com. "India's economic growth is expected to be 8.3 percent in the current financial year and 8.7 percent in 2022-23, according to the World Bank," NDTV. Wonderful to know India is booming, but how does this argument about percentage points affect the quality of life of 'We the People'? "India's unemployment rate hit a four-month high in December, data from the Centre for Monitoring Indian Economy CMIE showed," ET. The Unemployment rate rose to 7.9% in December from 7.0% in November, its highest since 8.3% in August," ET. Urban unemployment rose to 9.3% from 8.2% and rural unemploy-ment went up to 7.3% from 6.4%. "Rural areas, which support nearly 60 percent of the population by some estimates, saw an increase in the average unemployment rate to 7.3 percent in 2021 from 6.8% percent in 2019, the inaugural Rural Business Confidence Index showed," ET. As a result, delinquency rates on rural loans deteriorated with "the microfinance books showing the maximum stress despite a reduction in loans outstanding". "In fact, according to the National Sample Survey Office (NSSO), in 2019, when India had the highest unemployment rate in the last 45 years, this rate was particularly high among India's youth; 34 percent for those between 20 and 24 years. For urban dwellers in this age group this rate was 37.5 percent," wrote Profs Trishali Chauhan and Christophe Jaffrelot. Private investment has been dropping since 2011. "It has dropped from 34.3 percent then to 27 percent in in 2020." "An overwhelming 93 percent of CEOs, business leaders, and startup entrepreneurs polled in an ET survey said India is on the cusp of an investment boom, helped by strong post-pandemic economic growth, government incentives for manufacturing, emerging business opportunities and low interest rates." 94% promised to increase capital expenditure over the next 3 years starting in 2022. Lacking regular employment, people have been joining the gig economy which "has been responsible for a huge proportion of job creation, which is only projected to increase in the coming years," wrote Prof Amit Kapoor. This provides income during economic hardship. "However, when the labor supply is high and more disposable, as in the case of blue-collar workers, the gig workers have no power to influence payment offerings, and freedom to choose becomes but an illusion. In the interplay of demand and supply mechanisms, the gig workers always lose out." So, "As international borders began opening up around July and August this year, we saw a multitude of Indian students rushing to the consulates of various countries in order to get their study visas approved," wrote Shilpa Menon. They are looking for a way to settle abroad. Few understand GDP and no one cares about few points of growth. What people want are settled income and money in their pockets. As Ruchir Sharma wrote "among advanced economies, higher income does show a clear tie to higher happiness score." Give us jobs. Keep your decimal points.  

Normalising abnormal policies is proving to be difficult.

"Prices in the US are rising at their fastest rate in almost 40 years, with inflation up 7% year-on-year in December," BBC. "Strong demand and scarce supply for key items such as cars are driving the increases, which are putting pressure on policymakers to act." In the UK, figures published last month showed that "the cost of living rose by 5.1% in the 12 months to November, its highest rate in 10 years", BBC. The Bank of England was quick to respond by raising "interest rates for the first time since the onset of the pandemic, increasing its interest rate to 0.25% from its historic low of 0.1% as inflation pressures mount," CNBC. In the US, "The pressures pushing prices to multi-decade highs are likely to last till the middle of the year, and the US central bank is ready to respond to this risk, but policymakers are committed to extending the economic expansion to promote employment, Federal Reserve Chief told" the Congress, TOI. "We're going to end our asset purchases in March, meaning we'll be raising rates over the course of the year," Powell said....at his confirmation hearing before the Senate Banking Committee. "At some point, perhaps later this year, we will start to allow the balance sheet to run off, and that's just the road to normalising," BS. The process of normalising is to happen in three steps. The Fed has already started reducing its bond buying program. "The Fed will be buying $60 billion of bonds each month starting in January, half the level prior to the November taper and $30 billion less than it had been buying in December. The Fed was tapering by $15 billion a month in November, doubled that in December, then will accelerate the reduction further come 2022," CNBC. The second step will be to increase rates from near zero percent. Earlier the Fed predicted three rate rises this year, CBS, but Goldman Sachs recently predicted that the Fed will be forced to raise interest rate at least four times, by a quarter percent each time, which means a full 1% rise this year, CNBC, Mohamed A El-Erian is not impressed. "The US Fed is already seriously lagging developments on the ground and associated policy imperatives. It should have, as I have argued for months now, moved much earlier to ease its foot off the 'pedal-to-the-metal' accelerator," Mint. "Introduced as an emergency response for a severe fall in aggregated demand at the end of 2008 and the beginning of 2009, quantitative easing (QE) has since become the main policy tool of of advanced economy central banks," wrote former Bank of England Mervyn King. "Central banks have seemed to assume that any adverse shock justifies another round of bond buying." "Today, policymakers are struggling to explain how or even whether QE will be unwound." However, in the slowdown in economic activity due to the virus, "a lot of money has found its way into stocks and real estate, leading to a rapid increase in their prices -- or asset price inflation," wrote Vivek Kaul. Abnormal conditions required abnormal policies. Normalising will not be easy.