Germans collecting wood pellets.

Major economies diverged in the most-recent quarter, underscored by a second-straight decline in US gross domestic product while results for the euro-zone shocked to the upside." ET. Consumer spending in the US slowed in the April-June period, while Germany's economy failed to keep pace with the rest of the continent." "Meantime, global inflation measures remain broadly elevated, with a closely watched gauge in the US rising the most in 40 years and Europe registering another record high." "Exxon Mobil Corp.'s cash haul overtook that of Alphabet Inc for the first time since 2018," as "Exxon which lost money for the first time in its history during the pandemic, now ranks as the S&P 500 Index's third largest generator of free cash flow, behind only Apple Inc and Microsoft Corp." Oil companies are raking it in from high oil prices as Brent crude is trading at $102.9 per barrel and West Texas Intermediate (WTI) is selling at $97.32 per barrel. oilprice.com.  The result is that, "The global economy is mired in a serious slowdown, with some key economies at high risk of recession and only sparse meaningful cooling in inflation likely over the coming year, according to Reuters polls of hundreds of economists worldwide." ET. "Of the 48 economies covered, 77% of growth forecasts were downgraded for next year with only 13% left unchanged and 10% upgraded." "Russia's cut in supplies through its main gas pipeline to Germany will leave countries unable to meet goals to refill storage and Europe's biggest economy faced with rationing industry to keep its citizens warm during the winter months." Reuters. "Russian gas giant Gazprom said...it was cutting gas deliveries via the Nord Stream 1 pipeline to 33 million cubic meters." DW. "That would correspond to 20% of the pipeline's capacity. The current flow of gas into Germany is only at 40%." The central German city of Hanover "has become the first major European city to switch off hot water in public buildings, with no warm water in washrooms and no hot showers in swimming pools and sports halls." DW. "The owner of this mill in a small town close to Bonn in western Germany removes his headset and begins telling stories of Germans stockpiling wood out of fear of the energy crisis looming due to the war in Ukraine. As "Rosgen's supplier, the pellet plant, has run out of stock. The pellets of compressed sawdust are pumped directly into delivery trucks while still hot. The plant can barely keep up with production." DW. "A scramble to get European Union countries to agree to 'voluntarily' reduce their gas consumption by 15% has highlighted major divisions among member states." DW. National governments have to answer to their voters but the EU does not. US companies are getting rich at the cost of Europe. When will they ever learn?

Too many or too few?

"India is projected to surpass China as the world's most populous country in 2023, according to a report by the United Nations." DW. India's population is projected to reach 1.668 billion by 2050 to China's 1.317 billion. Which means 183 million will be added to the working age population by 2050. Fertility rate is expected to decline from 2.01 at present to 1.78 in 2050 and 1.69 in 2100. Which means an aging population requiring support. "The proportion of unmarried persons within the age bracket of 15-29 years has increased to 23 percent in 2019 from 17.2 percent in 2011, according to a government survey." ET. The percentage of males in that age group who never married rose from 20.8% in 2011 to 26.1% in 2019, and that of unmarried females rose from 13.5% in 2011 to 19.9% in the same period. "A recently published National Achievement Survey (NAS) revealed a nation-wide decline in student's learning levels across all grades and subjects tested." DH. "The 2021 survey reported an average learning level of 59 percent in grade 3; 49 percent in grade 5; 42 percent in grade 8 and 36 percent in grade 10. This shows a trend of steady decline in learning level as one moves from lower grades to higher grades. Such a trend is also observed for all subjects across all grades -- for instance there is a whopping 25 percentage points difference in mathematics scores from grade 3 to grade 10." "India recruited just 0.3% of the candidates who applied for government jobs in the last eight years, highlighting the unemployment crisis plaguing the world's fastest growing economy." ET. "The government hired 722,311 candidates out of 220 million applications it received since 2014, Jitendra Singh, a junior minister in the personnel ministry told parliament." "Data from private research firm Centre for Monitoring Indian Economy Pvt. show joblessness rose to 7.8% in June, from 7.1% in the previous month, with unemployment in the 20-24 age group at 43.7% the same month." The government has started an Agnipath scheme for the army, in which recruitment will be for 4 years, including 6 months of training followed by 3.5 years of deployment. wikipedia. At the end of 4 years they will retire with a tax-free lump sum of Rs 1.171 million. "This has set off a firestorm of protest." wrote Mihir Sharma. "The problem is that, for many young men in the most economically disadvantaged parts of India, the army is their only hope of a career - or, for that matter, of getting married, given that years of sex- selective abortions have caused the gender ratio in those parts of India to skew heavily male." Those who can afford it go abroad. "According to the Ministry of External Affairs, 2,61,406 students from India went abroad in 2020 and 71,769 left last year." TNIE. Poor education means no jobs, so can't marry, so fewer children. Is that good for India?

75 is less than 100. A huge relief.

"Federal Reserve officials raised interest rates by 75 basis points for the second straight month and the Chair Jerome Powell said a similar move was possible again, rejecting speculation that the US economy is in recession." ET. Before the meeting, "Pockets of Wall Street are raising the possibility that the Federal Reserve could go to extreme lengths on Wednesday in an attempt to control the hottest US inflation in four decades." ET. They feared a full 100 basis points rise. "Extreme lengths" was followed by extreme relief as, "Stocks extended a rally Thursday, bonds rose and the dollar held losses as the prospect of a slower pace of Federal Reserve monetary tightening filtered across global markets." FE. "Treasuries advanced, lowering the 10-year yield to 2.76%." In a huge relief rally, "The benchmark S&P BSE Sensex zoomed 1,098 points in the intra-day trade, before settling 1,041 points, or 1.87 percent, higher at 56,858. The NSE Nifty50, on the other hand,reclaimed the 16,900-mark to end at 16,930, up 288 points or 1.73 percent." News18. The rally continued yesterday. "Investor's wealth grew by over Rs 9 trillion in three days of sharp rally in the equity market." BS. In 3 days the Sensex climbed 2,301.76 points or 4.16% to close at 57,570.25 yesterday. The rupee jumped against the dollar. "The rupee gained 45 paise to close at 79.24 (provisional) against the US dollar on Friday as heavy buying in domestic equities and weakness in the greenback bolstered investor sentiment." NDTV. The rupee has strengthened to 79.19 to the dollar this morning. xe.com. "The rupee gained on expectations that the US Federal Reserve may not be very aggressive in rate hikes after the US economy contracted for the second successive quarter." TOI. "The currency appreciation has not diminished expectations of a rate hike by the RBI. Forecasters continue to expect the central bank to hike rates by 35-50 basis points on August 5, when it announces its bi-monthly monetary policy review." However, "India's foreign exchange reserves got depleted by another $1.152 billion in the week to July 22, reflecting the unabated fall in reserves albeit at a lesser pace. The reserves stood at $571.560 as against the all-time high of $642.453 billion seen on September 3 last year, Reserve Bank of India data showed." ET. The relative weakness of the dollar may be short-lived. "It's up 15% against a basket of currencies since mid-2021. And with the Fed determined to keep driving rates up to quell inflation - even if it means sinking the US and global economies into recession - there's little that most long-time currency watchers see to brake the dollar's climb." ET. "India is the most vulnerable economy in the Asia emerging market (EM) space amid high inflation and twin deficits, Societe Generale said in a July 25 note." moneycontrol. "Compared to 2017-18 and 2021-22, the annual imports from China rose from $89714.23 million to $115,419.96 million (a rise of 29%), Union Minister of State for Commerce and Industry Anupriya Patel informed Lok Sabha." TOI. The RBI's efforts to control inflation by a stronger rupee will only increase the trade and current account deficits. Eventually it will have to do the math.

Lost opportunity.

"China's economy contracted (by 2.6%) in the three months ending in June compared with the previous quarter after Shanghai and other cities shut down to fight coronavirus outbreaks, but the government said a 'stable recovery' is underway after businesses reopened." VOA. "China's economic rebound may face greater uphill battle than Beijing would otherwise like the world to believe", but "Economists can't make heads or tails of China's current economic situation: GDP data indicate a sharp slowdown in Q2, but just weeks ago the Hang Seng hit a 3-month high in what some analysts hailed as signs of recovery." Fox. "Chinese authorities are promising to establish an initial rescue fund of $11.8 billion (80 billion yuan) to offset a looming crisis in the real estate sector," wherein "As home prices fell, some buyers found themselves paying mortgages on properties worth less than what they had agreed to pay." VOA. "As of July 18, homebuyers in 80 cities and 200 projects had threatened to stop mortgage payments." ET. "Across China, real estate developers are getting desperate - attempting to sell homes by whatever means possible, even going as far as accepting down-payments in wheat, garlic, watermelons and peaches to cater to farmers." "Total mortgages at stalled Chinese developments amount to 2 trillion yuan ($296 billion), according to analysts at GF Securities Co. and Deutsche Bank AG. In its World Economic Outlook, the IMF said, "Global real GDP growth will slow to 3.2% in 2022 from a forecast of 3.6% issued in April," and "The Fund cut its 2023 growth forecast to 2.9% from the April estimate of 3.6%, citing the impact of tighter monetary policy." BT. It also said that high inflation "could push the world economy to the brink of recession if left unchecked". "The Chinese economy thrives as a manufacturing powerhouse and the nation's products seem to be everywhere." Investopedia. "In addition to its low labor costs, China has become known as 'the world's factory' because of its strong business ecosystem, lack of regulatory compliance, low taxes and duties, and competitive currency practices." Chinese exports are bound to take a hit if the global economy goes into a recession or if growth slows down to negligible levels. So, "A report released...by the top Republican on the Senate Homeland Security and Government Affairs Committee says that China targeted the Federal Reserve for nearly 10 years, working to recruit and influence employees in an effort to obtain information and monetary benefit and to influence US monetary policy." Also, "China-based employees of internet giant ByteDance have repeatedly accessed data about US Tik Tok users, reports say." ET. Despite this, "US Treasury Secretary Janet Yellen said...the Biden administration was looking to 'reconfigure' tariffs on Chinese imports." Reuters. Even if it's weak China still wins. If the US keeps rewarding it.

A sudden outcry.

In a first during our lifetimes, "The Supreme Court (SC)...termed freebies promised by political parties during elections as a serious issue of national importance and asked the Centre to specify by August 3 its stand, in consultation with the Finance Commission, on how to regulate it." TOI. What is astounding is that politicians have been doling out subsidies since before we were born but we cannot remember the SC ever questioning it. There are over 50 social schemes currently running in India, most involving vast sums of money. wikipedia. Prime Minister Narendra Modi has been announcing schemes almost daily since being elected in 2014. Jagranjosh. Modi announced farmers' loan waiver before general election in 2019, DC, and then announced a monthly pension scheme of Rs 3000 for small and marginal farmers and a minimum income support scheme of Rs 6000 per year for farmers costing billions of rupees. ET. "May God save the Election Commission of India (ECI) if it can only wring its hands when electorates are sought to be bribed through freebies, the Supreme Court observed." HT. "The Aam Aadmi Party (AAP) national convener Arvind Kejriwal...promised that his party would provide free electricity up to 300 units per month if voted to power in Gujarat, where elections are due in December this year." TOI. With similar inducements the AAP won a record 92 out of 117 seats in Punjab in March 2022. HT. That is just too big a majority to entice away. Politicians in India are known to switch sides after being elected. About 45 percent of re-contesting MLAs (182 of 405) who switched political parties between 2016 and 2020 joined the Bharatiya Janata Party (BJP), according to a report by poll rights group Association for Democratic Reforms (ADR)." BS. BJP is Modi's party and Gujarat is his home state. In 2020, "The Congress...alleged that the ruling BJP offered monetary and other inducements to its legislators in Gujarat to switch sides." HT. According to the Comptroller and Auditor General (CAG), the Modi government has transferred billions of rupees to agencies in Gujarat which "did not reflect in the Gujarat government's annual finance accounts". The Wire. And not just one bullet train service to Mumbai, but a second one to Delhi will be built. AM. So, winning assembly election in Gujarat should be a slam dunk. A 34-year old man from Mehsana in Gujarat promised to pay Rs 15 million to be smuggled into the US along with his wife and 3 children. Unfortunately, he could manage only Rs 10 million for which he was kept prisoner and tortured by the gang. TOI. The man suffered a stroke and was in a hospital in Cancun in Mexico. At least this family is alive. In February, another family of four from Gujarat froze to death in Canada while trying to cross the border into the US on foot after paying Rs 7.5 million to people smugglers. BBC. Why would people pay such humongous sums for a hazardous passage to the US from the paradise state of Gujarat? Does that explain the sudden outcry over freebies?

An $87 billion gift.

"India received $87 billion in remittances in 2021, the top remittance recipient, and way ahead of countries like China and Mexico, according to a World Health Organisation report." ET. "The United States was the largest source country for remittances in 2020, followed by the United Arab Emirates, Saudi Arabia and Switzerland. Remittances increase or maintain consumer spending and soften the blow of economic hardship, such as during the COVID-19 pandemic." If it wasn't for Indians working abroad our current account deficit (CAD) would have gone out of control. "The country's foreign exchange reserves declined by USD7.541 billion to USD572.712 billion in the week ended July 15 as the Reserve Bank (RBI) continued to intervene in the market to curb the fall of the rupee. In the previous week ended July 8, the reserves shrunk by USD8.062 billion to USD580.252 billion," RBI data showed. ET. "External debt (private and sovereign) of about $267 billion will mature in the next 12 months; that might cause a big hit on the forex reserves," wrote RP Gupta. "CAD is more damaging compared to Fiscal deficit. Typically, CAD is financed by global investors through external debt (private and sovereign) and equity investments. Hence forex reserves are accrued by expanding 'international liabilities'." Structural reforms to boost exports and improve global competitiveness are necessary. "All types of taxation in the 'intermediate goods' such as, energy and minerals, must be reduced which have a multiplier impact on the production cost of entire goods and services." Forget cutting taxes. Instead rates of GST have been hiked on packaged foods, solar water heater and system, petroleum and methane and on hospital beds. NDTV. "India's economic activity showed early signs of cooling off in June as acute price pressures, rising interest rates and a falling rupee dampened sentiment." BS. "India's trade deficit widened to a record $26.2 billion in June as imports rose faster than exports, raising concerns about a further slide in the rupee and a bigger current account deficit." Why? "Japanese yen, Euro, Swiss franc, British pound have depreciated much more against the dollar (than the rupee)," said Chief Economic Advisor V Anantha Nageswaran. This makes our exports more expensive to these nations while making imports cheaper. The RBI is "justified in using the country's foreign exchange reserves" to smooth out rupee volatility, said Sanjeev Sanyal. The IMF has cut its global growth forecast to 2.9% from 3.6% and warned of a possible recession. BT. The RBI and the government may be gambling on a strong rupee to control inflation by reducing import prices until global recession brings down commodity prices and relieves inflationary pressures in India. However, if the US Federal Reserve continues to raise interest rates it may spark a huge outflow of dollars from emerging markets, said Swaminathan Aiyar. "This will create other problems where the exchange rate will go down, our imported inflation will go up and we would feel a bigger need to raise interest rates." Playing Russian roulette. Can have only one outcome.

Who wins the mess.

"The prospect of Rishi Sunak becoming the next British prime minister has sparked fervor in India, where some social media users are rooting for him because of his Indian Hindu ancestry," wrote Taniya Dutta. "The British ruled over the Indian subcontinent for more than two centuries before it earned independence in 1947 after a long battle for freedom. Mr Sunak is seen by many in the country as an answer to British rule over the Indians." Not really. Sunak was born in Southampton, his father was born and raised in Kenya, while his mother Usha was born in Tanganyika, now part of Tanzania. wikipedia. Hence, he is British by birth and has no real connection to India. He said he is Hindu. Sunak's candidature actually highlights the diversity in the Conservative Party in Britain. "Of those originally in contention, half were of ethnic-minority backgrounds and half were women.Until today's initial selection, Britain could have had in Rishi Sunak or Suella Braverman its first Asian prime minister, in Kemi Badenoch its first Black prime minister, or in Nadhim Zahawi its first Kurdish and Muslim prime minister." The Atlantic. Exactly opposite to what the cheering Bhakts would like to see in India. 'Bhakts' are fanatics who believe whatever they read on social media about the supremacy of Hindus and the divinity of cows. DH. In the last stage Conservative Party members across Britain will choose between Rishi Sunak and Liz Truss. "Foreign Secretary Liz Truss has extended a commanding lead 28 (point) lead over British-Indian ex-minister Rishi Sunak in the race to be the UK's next Prime Minister, according to the latest YouGov survey." BS. Bookies are also betting on Truss to win handsomely over Sunak. bettingodds.com. It is not nice to lose but victory in this election could end up as a classic 'poisoned chalice'. "Inflation in the United Kingdom has accelerated to a new 40-year high, driven by rising food and fuel prices that are contributing to a cost-of-living crisis. Consumer prices rose 9.4% this year through June, up from 9.1% the previous month, the Office for National Statistics said." News18. In June, the Bank of England raised interest rate for the fifth consecutive time to 1.25%. BBC. Some are even pushing for a 50 basis point rise in the next meeting of the Bank. Reuters. "British Prime Minister Boris Johnson's chaotic government and its equally chaotic collapse two weeks ago, are not the only source of panic," Prof Barry Eichengreen. "Since peaking in the spring of last year, the pound has depreciated by about 10% against the US dollar." "Traders appear to view sterling more like the currency of a troubled emerging market than of a stable advanced economy." Then there is Brexit, which was Britain's exit from the membership of the European Union (EU). BBC. "(Boris) Johnson bungled Brexit and the country could be paying the price for years," wrote Clive Crook. The Northern Ireland Protocol in which customs checks are done in Northern Ireland, a part of the UK, and not at the border with the Republic of Ireland, a member of the EU, has been causing problems. BBC. "Yet, the candidates to replace Johnson are mostly arguing about taxes and spending, experience and leadership, competence and integrity, aiming to position themselves as effective modern conservatives as though Brexit was done and dusted." A big mess. Whoever wins will inherit it.

It's to help poor countries.

"US Treasury Secretary Janet Yellen said on Sunday that US economic growth is slowing and she acknowledged the risk of a recession, but she said a downturn is not inevitable." Reuters. "US hiring remained robust in June, with 372,000 jobs created and the unemployment rate holding at 3.6%. It was the fourth straight month of job gains in excess of 350,000." "Top economist Mohamed El-Erian said inflation has likely hit its ceiling in the US after warning last month it had yet to peak." BI. "He noted that the global economy is slowing rapidly while central banks are tightening policy, which should have their intended effect on inflation." In the US, "Real gross domestic product (GDP) contracted in the first quarter of 2022, faster than previously expected, according to the second estimate from the Bureau of Economic Analysis (BEA). GDP decreased at an annual rate of 1.5% in the first quarter of this year." Fox. A recession was defined as two consecutive quarters of GDP contraction, but the National Bureau of Economic Research (NBER) defines it as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Forbes. Inflation in the Euro zone hit a record high of 8.6% in June. CNBC. "The European Central Bank...increased interest rates for the first time in 11 years in an attempt to cool rampant inflation in the euro zone. The ECB, the central bank of the 19 nations that share the euro currency, surprised markets by pushing its benchmark rate up by 50 basis points, bringing its deposit rate to zero." CNBC. The US Fed has already hiked its rates by 25 basis points (bps) in March, by 50 bps in May and by 75 bps in June, for a total of 150 bps to take borrowing costs to 1.5-1.75%. CNBC. In 2008, one euro bought 1.47 dollars but has weakened to 1.08 in 2022. Macrotrends. If the Fed raises its Funds rates higher the euro could weaken further against the dollar. In the euro zone, "S&P Global's flash Composite Purchasing Managers' Index (PMI), seen as a good gauge of overall economic health, fell to 49.4 in July from 52.0 in June, well below all forecasts in a Reuters poll that had predicted a more modest dip to 51.0." Reuters. Raising interest rate is fraught with danger. Already the spread between 10-year government bonds of Germany and Italy has reached -240.6 bps. worldgovernmentbonds.com. Hungarian Prime Minister Viktor Orban said that Europe "shot itself in the lungs" by imposing sanctions on Russia. inshorts.com  First the EU allowed unfreezing of some funds of top Russian banks to "ease bottlenecks in the global trade of food and fertilizers". Reuters. Yesterday the EU decided "to allow transactions needed for Russian state-owned companies to sell oil to third countries". ET. By increasing global supplies of food, fertilizers and oil the EU is cunningly trying to reduce prices for itself. "A tanker carrying a liquid fertilizer from Russia is about to arrive in the United States." Reuters. There is no end to hypocrisy. There should be a special CAATSA for hypocrites.

It's taken 23 months.

"India's central bank has zero tolerance for volatile and bumpy movements in the rupee and will continue to engage with the foreign exchange market to ensure the rupee finds its level, chief Shaktikanta Das said. The rupee has been hitting a series of record lows in recent weeks and has broken past the psychological 80 per dollar mark earlier this week and prompted heavy dollar selling from the Reserve Bank of India (RBI)." ET. "The country's foreign exchange reserves declined by USD 7.541 billion to USD 572.712 billion in the week ended July 15 as the Reserve Bank continued to intervene in the market to curb the fall of the rupee." ET. "On Friday, the rupee fell by 5 paise to close at 79.90 against the US dollar. It had touched an all-time intra-day low of 80.06 against the US dollar on Thursday." Clearly, the RBI is not just smoothing over volatility, it is actively trying to keep the rupee strong against the dollar. In fact, "India's central bank is prepared to sell a sixth of its foreign exchange reserves to defend the rupee against a rapid depreciation after it plumbed record lows in recent weeks, a senior source aware of the central bank's thinking told Reuters." ET. Chief Economic Advisor (CEA) V Anantha Nageswaran said that "unlike earlier crises, the depreciation of the rupee against the US dollar was lower than other major global currencies such as the Swiss Franc, the Euro, the British pound and the Japanese yen." BS. "While many of us are anxious about RBI raising interest rates, India's interest rate increase is somewhat milder and smaller compared to other nations." That is the crux of the matter. Do anything, including selling off our reserves, to keep interest rates low. "The American greenback is hovering at a 20-year high against its fellow major currencies, creating a huge problem for everyone outside America buying dollar-denominated goods, like crude oil. And no commodity is more important than crude oil," wrote Javier Blas. "India the world's third-largest oil consumer behind the US and China, is paying about 45% more than it was 14 years ago due to the steep depreciation of the Indian rupee against the dollar." "If rupee fails to follow when other EM currencies are depreciating, India's exports will lose competitiveness. Already, rupee has appreciated significantly against other Asian currencies such as the Korean won, the Thai baht and the Taiwanese dollar," wrote Prof Rajaswari Sengupta. "Economic theory says under ideal conditions - no transport costs, no tariffs - the price of an identical (similar) commodity will be the same in both trading partners' domestic markets, when expressed in the same currency," wrote Prof Nilanjan Banik. This is the 'law of one price or LOOP' which means that if something costs Rs 80 in India the same thing should cost $1 in the US. But, "if inflation in India is higher than it is in a trading partner, then the real exchange rate will reflect that - that is, the rupee will depreciate against the dollar." By keeping interest rate unchanged at 4% for 23 months, even as retail inflation continued to be at about 6%, which led to the rupee falling against the dollar, which will send inflation skyrocketing by increasing import prices, especially oil, and which the RBI is trying to control by selling off our wealth. Then what happens? 

So many things.

"Over 3.92 lakh (392,000) Indians gave up their citizenship in the last three years and 1.70 lakh (170,000) of them, the highest, took up American citizenship." Zee News. "A total of 3,92,643 Indians gave up their citizenship in 2019, 2020 and 2021," "Of these, 1,70,795 people took up American citizenship, 64,071 took up citizenship in Canada, 58,391 in Australia, 35,435 in the United Kingdom,...and 48 in Pakistan." "Enough anecdotal signs exist of well-off residents looking to move abroad in exasperation over how much they must fork out in taxes. With our top rate now at nearly 43% of one's annual income, after counting surcharges on the rich, this levy has entered a zone that's close to 'half-my-earnings' than 'one-third', thus crossing a point after which taxpayers begin to feel over-squeezed if not extorted." Mint. Ease of travel is another strong motivation because the Indian passport is ranked 87th in the world, giving access to 60 countries, including Bhutan, Nepal, Indonesia and Macau. ET. Rampant inflation is rapidly eroding the buying power of incomes. "Consumer price inflation (CPI) in June came in at 7.01%, a tad lower than 7.04% in May, News18. "India's wholesale price-based (WPI) inflation eased to 15.18% in June on a year-on-year basis from 15.88% in May." ET. The Reserve Bank of India (RBI) has deliberately kept interest rate lower than the rate of inflation to transfer our money to the government. "Financial repression is a term used to describe a policy environment where central banks and governments deliberately keep interest rates below the rate of inflation." MInt. "It was necessary to tolerate high inflation, we stand by our decision," said RBI Governor Shaktikanta Das. As the rupee buys less and less every year it is no surprise that the value of the rupee against other currencies, especially the dollar, keeps declining. "Indian rupee has declined by about 25 percent since December 31, 2014, and is nearing 80 against the dollar." ET. "The value of the rupee declined from 63.33 against a dollar on December 31, 2014, to 79.41 on July 11, 2022." This leads to serious erosion of wealth. "The RBI is of the view that cryptocurrencies should be prohibited. And given concerns expressed by the central bank on the destabilising effect of cryptocurrencies on the monetary and fiscal stability of a country, it has recommended framing of legislation on this sector, Finance Minister Nirmala Sitharaman said." TOI. That is because cryptocurrencies are valued in dollars and would let citizens escape the egregious financial repression by the RBI. It provides a hedge against the fall of the rupee. Then there is the Criminal Procedure (Identification) Bill of 2022 which compels citizens to provide "finger-impressions, iris and retina scans, biological samples and their analysis, behavior attributes including signatures, handwriting or any other examination" to any official who demands, wrote Gautam Bhatia. What parents would want their children to be in the hands of these goons? Save your family and your wealth. Run away if you can.

Friends of China.

"Sri Lankan MPs have elected Prime Minister Ranil Wickremesinghe as the country's new president, despite his unpopularity with the public." BBC. He was appointed prime minister by the former President Gotabaya Rajapaksa who fled the country first to Maldives and then to Singapore, when protesters stormed his official residence on 9 July. BBC. Protesters also called for Wickremeshinghe, a close ally of the Rajapaksas, to resign and "last week burned down his private home and also stormed his prime ministerial office in Colombo in demonstrations against his leadership". Sri Lanka's economy is in a mess. In May it defaulted on a $7 billion foreign debt repayment, its inflation rate is over 50%, with food inflation at over 80%, and its foreign currency reserves are down to $50 million so that it is unable to buy fuel, food and medicines from abroad. NDTV. "As foreign investments dried out, India emerged as the top lender to Sri Lanka, with assistance worth $3.8 billion during the course of this financial crisis." News18. As president, Gotabaya enjoyed immunity from prosecution so he fled abroad before resigning his post. BBC. So, why would Wickremesinghe want to become president when the economy is in shambles, the vast majority of people don't want him and its talks with the International Monetary Fund (IMF) for a bailout were inconclusive? CNBC. 1. Maybe because he desperately wants to be president, having run twice for president in 1999 and 2005 and lost both times. BBC. "He has been prime minister six times, but has never seen out a full term." 2. He is fearful of being involved in any criminal charges against the Rajapaksa family and will be immune from prosecution as president. 3. He wants to teach protesters a lesson for burning his house down. He has called them "fascists", declared a nationwide emergency, and trotted out the hoary old chestnut of restoring democracy. Firstpost. On 14 July, "the military establishment refused acting president Ranil Wickremeshinghe's directive to use force on the protesters." "The army said that it was unanimously maintained that the 'peaceful protests should not anyway be dealt with full force, but with minimum force as long as those protesters do not resort to violence or damage the public property'." HT. "One has to revisit the Latin American debt debacles decades ago to even conceptualize the loss in income that Sri Lanka will undergo in the next few years," wrote Rahul Jacob. "Creditor agreements will be complicated by Beijing's apparent rejection of the global convention of writing down loans when a borrower can't repay." Another country running up huge debts to China is 'Iron Brother Pakistan'. CGTN. "There are many developing countries, including Pakistan, which confront a similar predicament." Dawn. "Foreign exchange reserves are fast depleting. The country needs some urgent help for its external debt-servicing obligations that are projected to be $23 billion in 2022-23." India has not taken any loan from China. We just gave a gift of $72.9 billion to China in 2021-22 in trade deficit. BI. All friends of China. In different ways.

Will $100 billion be enough?

"After more than 20 years of low stable inflation, it's come roaring back in the US - at more than 9% - and it may never return to its pre-pandemic levels," wrote Allison Schrager. "Between more trade and  globalization, especially with goods coming from cheap-labor countries, the global economy had an over-abundance of stuff. Technology made stuff even cheaper." Inflation was driven by demand and central banks knew how to manage it. Now, "The inflation problem we face is a supply and demand problem." "As per the minutes, the FOMC reaffirmed its commitment to lowering inflation to 2% by continuing to raise the federal funds rate and long term interest rates," wrote Vivek Kaul. "As the Fed raises rates, it will end up creating a problem for those who are overleveraged." They will cut expenditure which will lead to a demand shock and cause an economic recession. "In this scenario, there will be great pressure on the Fed and other central banks, from politicians and people at large, to go back to quantitative easing." "The American greenback is hovering at a 20-year high against its fellow major currencies, creating a huge problem for everyone outside America buying dollar-denominated goods, like crude oil. And no commodity is more important than crude oil," wrote Javier Blas. Brent crude is down to $106 per barrel this morning. oilprice. com. The price of petrol in the US has fallen from near $5 a gallon to around $4.5 per gallon. eia.gov. The Indian rupee has fallen to a low of 80.02 to the dollar this morning. xe.com. So, even if the government has to pay less in dollars to import crude, the price of petrol and diesel in India will remain high because the rupee is weaker and may fall further. "Central banks across the world have been issuing mea culpas, having fallen behind the curve," wrote Rajrishi Singhal. No such apology from the Reserve Bank of India (RBI). RBI Governor Shaktikanta Das insisted that RBI was absolutely right to tolerate inflation in pursuit of economic growth. ET. Naturally it ignores why its strategy failed. "Unfortunately, the RBI's latest annual report does not provide a critical assessment of why the investment rate continues to languish; instead, it sings hosannas to the government." "A weaker Indian currency will drive inflation up, which is already a grave concern due to high commodity prices. India's dollar debt will also face the music," wrote Rajani Sinha. RBI's duty is to lower inflation and for that it should support the rupee. But, how? "In an indirect call for an interest rate hike, veteran banker Uday Kotak has sounded caution over central banks not following the US Federal Reserve in monetary measures. Kotak said that those who had gone out of line had faced severe depreciation." TOI. The US Fed has raised rates by 150 basis points this year whereas the RBI has raised by just 90 basis points. Instead the RBI has been selling dollars to keep the rupee higher, ET, and thus control inflation. And is prepared to spend $100 more if it so desires. ET. And then the rupee will collapse.  

We hope they understand each other.

"The rupee hit 80 per dollar for the first time ever on Tuesday (yesterday), as traders focus on central bank meetings this week, especially the US Federal Reserve." NDTV. "The real fear is not that the rupee breached 80-to-a-dollar level, the fall could be even steeper, as a break of key psychological rate increases bets in favor of a free fall after, as we have witnessed since the rupee weakened beyond the 77 per dollar rate." "Indian rupee has declined by about 25 percent since December 31, 2014," which means it has declined from "63.33 against a dollar on December 31, 2014, to 79.41 on July 11, 2022, Finance Minister Nirmala Sitharaman said." ET. Mr Narendra Modi was first elected prime minister with absolute majority in the Lok Sabha in May 2014. wikipedia. "Global factors such as the Russia-Ukraine conflict, soaring crude oil prices and tightening of global financial conditions are major reasons." These excuses are rather thin. The average cost of crude oil was $92 per barrel in 2008, $102 in 2011, $101 in 2012 and $98 per barrel in 2013, The Balance. From 2014, it dropped to below $50 per barrel, rising to $65 in 2021 and $94 this year. A weaker rupee is good as, "Indian exporters of carpets, handicrafts and engineering goods expect up to 10% benefit from the ongoing rupee depreciation." ET. The depreciation of the rupee "could increase cost of imports, raise overseas education costs, make foreign loans costly and has the potential to stoke inflation, which is already ruling at 7%." TOI. A research paper from the State Bank of India "projected that India's inflation rate is expected to come closer to 5% by March 2023." ET. "CPI inflation moderated slightly to 7.01 percent in June 2022 as compared to 7.04 percent in May 2022 due to moderation in food inflation. The June data now confirms the fact that peak has passed." "The Reserve Bank of India (RBI) has been intervening in both the spot and forwards markets to slow the rupee's fall and has taken several measures in recent weeks to boost foreign fund inflows." ET. Why? The dollar has gained only 7% against the Indian rupee whereas the "Dollar index has gained 13% this year against six major currencies - euro, pound, yen, Swiss franc, Canadian dollar and Swedish krona." ET. Which means that our imports priced in dollars will become more expensive and increase inflation while our exports to 6 major economies will become more expensive and decline. This is happening because the US Fed has hiked its key interest by 1.5% since March, CNBC, while other nations are lagging. The RBI has an almost religious belief that India's economy can only grow if it keeps interest rates low, no matter what the inflation. RBI Governor insists that he is right to tolerate soaring inflation. ET. While the Finance Ministry insists that the economy is to grow by 8-8.5% in 2022-23. ET. India's forex reserves topped $642 billion in October 2021, TOI, but they had dropped to $580.3 billion by 8 July, ET. The rupee is falling, no it's strong; inflation is soaring, no it must be tolerated; growth will suffer, no it will be highest in the world; the Tower of Babel was lucid by comparison. Do they even understand each other? We certainly don't.  

Loony Tunes for Babies.

In June, "Euro-zone inflation accelerated to an all-time high." ET. "The scale ranges from Malta - where consumer prices advanced 5.6% last month, to Estonia - where inflation hit 20.1%. That's a difference of more than 14 percentage points, more than at any time since the dawn of the euro in 1999." "The risk of a euro area recession is growing as the likelihood of natural gas shortages rises and inflation remains at record levels, according to economists polled by Bloomberg. The probability of an economic contraction has increased to 45% from 30% in the previous survey and 20% before Russia invaded Ukraine." ET. "In 2014 with deflation looming, the ECB (European Central Bank) launched a bond buying stimulus program." ET. "The tool worked by buying up bonds on the market, and thus holding down borrowing costs for states, businesses and consumers alike, who are then more likely to spend and invest." "From a situation in which the inflation was obstinately low, refusing to respond to ECB measures, outside forces are now keeping it persistently high. Inflation in the eurozone reached 8.6 percent in June." "The era of ultra-low and finally negative interest rates in Europe began when the ECB was battling the global financial crisis triggered by the US bank Lehman Brothers in 2008, and the European sovereign debt crisis that followed in 2010." DW. "A trigger for the ECB to cut its deposit rate...to a record low of -0.5% was a renewed drop in the eurozone inflation rate to 1%." Unfortunately, US President Joe Biden messed up his visit to the Middle East including Saudi Arabia. "US President Joe Biden failed to win oil and security commitments from the Gulf leaders during the Arab Summit in Jeddah, Reuters news agency reported." Wion. "According to Arab News newspaper, the 30- minute discussion ended with Saudi Arabia saying that it did not have any additional capacity to increase oil production beyond 13 million barrels per day." The trouble is, when you are begging for something you should suppress that stupidity that Americans seem to possess naturally. Psychology Today. "US President Joe Biden on his visit to Saudi Arabia...raised the murder of Jamal Khashoggi during his meeting with Saudi Crown Prince Mohammed bin Salman (MBS) and said he believes the Saudi leader was responsible for the murder." abp. "MBS countered with the sexual and physical abuse of prisoners at Aby Ghraib prison by US military personnel." CNN. Saudi Minister for foreign affairs Adel Al-Jubeir told journalists that he "did not hear" Biden blaming MBS for Khashoggi's murder. BI. Biden claimed that Al-Jubeir was not telling the truth. Fox. "Did not", "Did too", Baby Loony Tunes. wiki. With Europe following the babbling loonies of the US recession is certain. Stupidity, it seems, is catching.

That's why it is impossible.

The economic crisis in Sri Lanka "arose from years of high fiscal deficits (government overspending) translating into high current account deficits (national overspending), empty foreign exchange reserves and hence soaring inflation and debt default. This holds lessons for India," wrote SAA Aiyar. The Finance Ministry's "monthly report for May said India faces near term challenges in managing its fiscal deficit, sustaining economic growth, reigning in inflation and containing the current account deficit. This while maintaining a fair value of the currency." TOI. But, "It asserted that the country faces low risk of stagflation owing to its prudent stabilisation policies." How reassuring. "India already has a combined fiscal deficit of 11% for the center and states. The current account deficit looks like doubling this year to 3% of GDP. Consumer inflation is 7% and wholesale price inflation at 15%." The US is using monetary policy to control inflation. "Speaking to Congress...(US Federal Reserve chair Jerome) Powell pledged that the Fed wouldn't hesitate to keep raising rates at a fast clip - and further than projected - if higher inflation continues to persist." Forbes. But the Reserve Bank of India (RBI) is dragging its feet. "As the government's debt manager, RBI has a strong incentive to tolerate inflation as long as possible, and keep yields on long-dated government securities as as low as possible," wrote Pramit Bhattacharya. "In prioritising its debt management role, the central bank ends up compromising its inflation fighting role." Foreign investors are selling Indian shares. "Total withdrawals from the secondary market by foreign investors during the first half of 2022 stood at a staggering Rs 2.24 trillion." MC. "A return of foreign money to emerging markets hinges to a large part on inflation and interest rate hikes by central banks." "The world's central bankers are unleashing what may prove to be the most aggressive of tightening of monetary policy since the 1980s risking recessions and roiling financial markets as they rush to tackle the surge in inflation they didn't see coming." ET. As funds withdraw money from India in foreign currencies the exchange rate of the rupee falls which pushes up the cost of imports and inflation. The RBI has been selling dollars to prevent the rupee falling below the psychological 80/dollar level. ET. Our foreign exchange reserves fell to $580.252 billion as of 8 June. ET. "Policymakers are aware that India's reserves are 'borrowed'. Reserves of China, Japan and South Korea are 'earned' as a result of sustained current account surpluses. India's reserves are due to excessive capital inflows, which in theory can also leave," wrote Neelkanth Mishra. The RBI is fighting Mundell's Impossible Trinity which says that a central bank can have any two out of three - a fixed exchange rate, free movement of capital and an independent monetary policy - but not all three, wikipedia. Monetary policy is controlled by the government, capital outflow can't be stopped, so the rupee must fall. We are at the mercy of other central banks. Can't fight the impossible.  

Our poor memory.

"Prime Minister Narendra Modi...slammed opposition parties 'for adopting a culture of distributing revadi (freebies) to gather votes' and asked people to be wary of it, saying it is detrimental to the country's development as it will keep the nation deprived of facilities that require hard work to be put in." ET. "They think that by distributing freebies, the public can be bought. We have to together defeat this belief and remove this culture from the country's politics." He may be sore because the Aam Aadmi Party (AAP) promised 300 units of electricity free and Rs 1,000 every month to every woman above the age of 18 years in the lead up to the assembly elections in Punjab in March 2022, The Print. The AAP swept the election with 92 seats out of a total of 117 seats, relegating Modi's party, the BJP to just 2 seats, NDTV. People have short memories. About a month before general elections in 2019, held 11 April to 19 May, wikipedia, "Modi will inaugurate on February 24 the government scheme of giving Rs 6,000 annual financial assistance to farmers which was announced in the interim budget," NDTV. In the middle of elections , "He announced that the BJP government was planning to provide loan waivers to farmers of all categories after returning to power in the Lok Sabha polls." DC. In 2017, the Election Commission delayed announcing dates for assembly elections in Gujarat by close to two weeks ostensibly to allow for flood relief work, NDTV. This allowed Modi to announce projects worth billions of rupees, BT, before the so-called 'Model Code of Conduct' kicked in. "It is one of India's tragedies that a hypercompetitive, first-past-the-post populist democracy has helped gain faster traction than good ones. You need only one state to start offering something 'free', and soon it becomes a national obsession," wrote R Jagannathan. "For his part the PM has proposed the idea of one-nation-one-poll in order to reduce the pressure on governments to be perpetually in election mode. But so far he has found no takers." With good reason. It will allow Modi to travel the country announcing handouts in the guise of 'projects' in various states and win total control of the nation. "When industry defaults and a non-performing asset (NPA) is created, the payout indirectly comes from bank funds, which includes deposits. With no NPAs, depositors could get better returns and borrowers could be charged lower rates, as NPA provisions and write-offs raise the cost of intermediation. Farm loan waivers involve payments made to lenders from state budgets," wrote Madan Sabnavis. If it is alright for rich industrialists it should be alright for poor farmers. "Most so-called freebies are given by the Center rather than the states." The government has set a fiscal deficit, which is the amount the government borrows to meet its expenditure, target of 6.4% of GDP for 2022-23, NDTV, and the current account deficit, which is the excess spent on imports over what is earned by exports, "is likely to touch USD 105 billion or 3 percent of GDP this fiscal, mainly due to continuously widening trade deficit", ET. This is the dreaded 'twin deficit' problem which could seriously undermine the rupee, BS. That's why Modi wants us to forget his freebies. However, Google never forgets.   

Protection for the 1%.

"With a $3.2 trillion economy, India aims to achieve a $5 trillion economy within this decade," wrote Naveen Jindal, Chairman of Jindal Steel and Power Ltd and a former member of Parliament. India's GDP was $3.173 trillion at the end of 2021, World Bank. To achieve a $5 trillion economy we need to increase our ease of doing business while lowering the cost of doing business, upskill our workforce and increase productivity. "Manufacturing productivity in Indonesia is twice India's, while in China and South Korea it is four times higher, though they have costlier labor." "Last but not the least, Indian enterprise should be given support and encouragement to expand their operations on a global scale here in India." You cannot have "global scale" only within India. Does Mr Jindal want more protection from competition? In Budget 2020 customs duty was hiked on hundreds of imports. "Consumers can expect to pay more for imported food and grocery items, shoes, ceiling fans, wooden furniture, kitchenware, appliances, hairdryers, shelled walnuts and other items with the budget raising basic customs duties to as much as 100% on some of them to encourage local producers." ET. "As many as 350 customs duty exemptions have been withdrawn in the Budget 2022-23 to boost domestic manufacturing. A comprehensive review of customs duty exemption on capital goods and project imports undertaken and more than 40 customs exemptions to be gradually phased out," in this year's Budget. ET. Protected from competition domestic industries can sell low grade products at high prices to Indian citizens. Indians have shown their contempt with their wallets. Imports from China have increased by 34.5% compared to last year to $57.51 billion while exports to China have fallen to a pathetic $9.57 billion. "The trade deficit at the half-year mark stood at USD 47.94 billion." ET. In 2021, India imported $97.52 billion from China and exported $28.14 billion. Trade deficit was $69.38 billion. "India's import tariffs for the electronics sector are higher compared to countries like China and Vietnam that is negating the support provided through PLI schemes and is adversely impacting competitiveness a report by ICEA and IKDHVAJ Advisers LLP said." ET. "Whereas Indian leaders routinely express regret at having signed free trade agreements (FTAs) even with countries accounting for minuscule proportion of the country's trade, tiny Vietnam has boldly embraced such economic giants as China and the European Union in FTAs," wrote Prof Arvind Panagariya & Deepak Mishra. "Its electronic goods exports stood at $122 billion in 2020 against India's $12.8 billion." "But what good is 100% indigenisation if it makes the smartphone so costly that only a few captive domestic consumers with sufficient income to buy it?" asked Prof Panagariya. "The reasoning reveals the folly of policies such as India's phased manufacturing program,  tried even in the pre-reform era with disastrous consequences." The result is that "The top one percent of the population in India owns more than one-fifth of the total national income in 2021, while the bottom half earns just 13.1 percent, said the World Inequality Report." BS. The 1% want protection. To stay there.

They thrive on support.

At last, "Gotabaya Rajapaksa has resigned as president of Sri Lanka after fleeing to Singapore in the face of mass protests at home over his rule. He is believed to have wanted to leave Sri Lanka before stepping down in order to avoid the possibility of arrest under a new administration." BBC. "Gotabaya was believed to hold dual citizenship of Sri Lanka and the US, where he worked as an IT professional." The Print. He claims to have given up US citizenship to become eligible to be elected President of Sri Lanka but this has not been confirmed by the US State Department. The Hindu newspaper has reported that Gotabaya has been denied a visa to travel to the US. The US Embassy in Colombo has not confirmed that report. His brother Basil Rajapaksa haughtily refused to give up his US citizenship even as he took up his seat as member of parliament. Colombo Telegraph. Gotabaya's net worth is estimated at $10 million, Jagran Josh. "Protesters discovered 17.85 million rupees (about $50,000) in crisp new banknotes but turned them over to police following Saturday's storming of the Presidential palace." TNIE. Poor starving Sri Lankans proved to be so much more honest than the greedy treacherous Rajapaksas. However, the real claim to fame for Gotabaya was the massacre of 40,000-75,000 Sri Lankan Tamils to end the decades-long civil war. HT. That made him a cult hero for the majority Buddhist Sinhalese. The majority of Tamils were Hindus. Ultimately, it was the economy that ended Gotabaya's status as hero. "Many of Sri Lanka's 22 million people are facing acute shortages of food, fuel and medicine as the island nation finds itself battling one of the worst economic crises since it became independent in 1948." DW. "India has extended a support of $3.8 billion", "A $400-million currency swap with the Reserve Bank of India was extended by three months in April," as well as 400 metric tonnes (MT) of urea, 25 tonnes of drugs and medical supplies, 1,600 MT of rice and 400,000 tonnes of fuel. News18. Sri Lanka's economy from 2000 to 2020 is interesting. "In 2001, there was a sharp nosedive into negative territory with minus 7.55 percent and minus 5.75 percent in 2013, followed by minus 5.82 percent in 2020. The peak growth rate was a modest 5.51 percent in 2003 and 4.48 percent. The other years which recorded growth ranged below two percent." DH. "Meanwhile, along with Sri Lanka, Argentina, Venezuela, Zambia and others have also defaulted and many more are likely to follow, with a visible Chinese connection." India Today. "There are many developing countries, including Pakistan, which confront a similar predicament." Dawn. "Foreign exchange reserves are fast depleting. The country needs some urgent help for its external debt-servicing obligations that are projected to be $23bn in 2022-23." Shows how the unscrupulous thrive in democracies. People keep voting for scoundrels. India strongly favors Sedition Law enacted in 1860 to protect Queen Victoria from any criticism. We are safe from protests.  

We are in a sweet spot.

In the US, "Consumer prices soared 9.1% compared with a year earlier," "further pressuring households and likely sealing the case for another large interest rate hike by the Federal Reserve, with higher borrowing costs to follow." In June, "The Fed raised its benchmark interest rate by three-quarters of a percentage point - the biggest rate hike since 1994. That follows a quarter-point jump in March and a half-point jump in May." NPR. In total, the Fed has raised its Funds rate by 1.5% since March to 1.5-1.75%. "The Fed would like to see weaker growth, which should help bring down inflation. Healthy job gains in June point to an economy that is still expanding with little sign of an imminent recession." "Nonfarm payrolls increased 372,000 in the month, better than the 250,000 Dow Jones estimate and continuing what has been a strong year for job growth," so that "The unemployment rate was 3.6%, unchanged from May and in line with estimates." CNBC. "The rupee has been steadily falling with no signs of revival in the near future. The Indian currency touched 79.37/Dollar during the weakest ever session and fell over 5.4% since the start of the year because of evolving concerns, foreign investors pulling out money, interest hikes in the USA, inflation owing to supply chain concerns from the never ending Russia-Ukraine conflict." FE. One dollar buys Rs 79.80 this morning. xe.com. The benchmark Brent crude is trading at $100 per barrel. oilprice. com. Most of the supply chain problems are not because of the war but because of savage sanctions imposed by the US and Europe with the intention of wiping out the Russian economy and bringing Russia under total control of the Western cartel. Sanctions will not be lifted until the West achieves total victory, even if the war ends. "Monetary policy affects the economy with a lag of about a year, so what a central bank does today has implications for the economy much down the line. That is why forecasts of the economic situation a year later - especially inflation - matters so much for the practice of central banking," wrote Niranjan Rajadhyaksha. "There is no doubt that central banks did not anticipate such a rise in inflation, and now have to make tough calls on whether to move cautiously because of the uncertainty or aggressively to quickly bring inflation back into their mandated comfort zones." Central banks all over the world may be worried about soaring prices but not the good old Reserve Bank of India (RBI). "Inflation may ease gradually in the second half of 2022-23, RBI Governor Shaktikanta Das said." TOI. Government owned State Bank of India has gone further and predicted that inflation in India will drop to 5% by March 2023, even though rates of GST have been increased. ET. India's retail inflation eased to 7.01% in June from 7.04% in May on the back of lower food prices. CNBC. The rupee may fall below 80 to the dollar, oil may rise again and there may be a global recession but we are in a sweet spot. So they say. And we thought cannabis is illegal in India.    

Too big to fall.

"The economic crisis in Sri Lanka has engendered a melange of complex, seemingly sophisticated analyses - around populism, illiberalism, majoritarianism, social harmony (or the lack of it) and how they militate against sound policymaking. With the inevitable undertone that India should be 'careful' about falling into a similar trap," wrote Somnath Mukherjee. However, that is not possible because India has a "world class regulatory framework to manage external risks", is a "large, sophisticated economy" and does not issue International Sovereign Bonds (ISBs). Indeed. But, India is a poor country with per capita GDP at $2,277.4, World Bank. "India's per capita income is projected to take a minor lead of $38 over Bangladesh's in 2021-22." ETNow. "India is likely to trail its neighbor by $200 in 2027-2028, as per IMF projections." "India is set to become the world's most populous country next year, overtaking China with its 1.4 billion people, according to UN figures." BBC. The struggle for survival of such a huge population keeps the economy chugging along. "India's total employment fell by a massive 13 million to 390 million in June 2022 compared to 403 million in May, the lowest level since July last year." ET. "However, a huge part of the workforce consisting of the agricultural laborers and small traders exited the labor market resulting only in a small increase in unemployment rate last month." "In 2014, there were 300 to 400 startups in the country, but in eight years their number rose and now there are 70,000 recognised startups the prime minister said." BS. "Startups across the board are trying to keep the lights on as investors look to ring-fence their investments from the global turmoil," wrote Ranjani Raghavan & Anuj Suvarna. "In India, employees, as usual, have become the first casualties in the rush to cut costs as startups brace for the 'long winter'." "Almost every day, news reports appear on technology startups firing people," wrote Vivek Kaul. "Until just a few months ago, all was well." "The media was fawning over startup entrepreneurs. and politicians were using them to tell us that India's economic story was going great guns." "2021 was all about high risk, high return," wrote Vivek Kaul. "Stock prices continued to rally in 2021 with the Sensex closing at an all time high of 61,766 on 18 October." "2021 is the year when the average Indian discovered investing in cryptos." Prices have crashed. "The chaos has spooked investors, erasing more than $2 trillion in value in a matter of months - and wiping out the life savings of retail traders who bet big on crypto projects billed as safe investments." CNBC. India is not Sri Lanka. "But having done so much to inspire this retail investor mania, governments and central banks could face a major backlash when the next bear market inevitably arrives," wrote Ruchir Sharma. "There is logic. And then there is 'mogic' - the special kind of logic patented by our Prime Minister," wrote Yogendra Yadav. Sri Lanka is tiny. India is huge. Size matters.

To Vostro or not.

"The Reserve Bank of India (RBI)...announced an arrangement for domestic traders to settle imports and exports in rupees," which apparently, "would promote global trade growth with an emphasis on exports from India and will support the increasing interest of the global trading community in the domestic currency." HT. "Under the mechanism, Indian importers will make payments in rupees, to be credited to the Vostro account of the correspondent bank of the partner country. Similarly, Indian exporters will be paid the export proceeds in rupees from the balances in the Vostro account of the partner country." "A Vostro account is an account a correspondent bank holds on behalf of another bank." Investopedia. Problem is, India runs a trade deficit with most countries perennially. "India's trade deficit swelled to a record $25.63 billion in June," and "The trade deficit during the first three months of this fiscal year (April-June) widened to $70.25 billion." ET. "The current account balance recorded a deficit of 1.2 percent of GDP in 2021-22 as against a surplus of 0.9 percent in 2020-21 as the trade deficit widened to US$189.5 billion from US$102.2 billion a year ago." RBI. India's trade deficit with China "surged to an all time high of $73 billion in FY22". CNBC. Why would Chinese companies accept payment in rupees when they may have to buy raw materials in dollars? "In 2021-22, India had a trade surplus of $32.8 billion with the US." BS. India has total external debt of $620.7 billion. "Officials clarified the debt position following concerns over India's external debt as $267 billion repayments are due in less than one year." ET. Of this "the Center's share is just $7.7 billion or less than 3%". The rest must be external commercial borrowing (ECB) by companies and bank deposits by non resident Indians (NRI) which must, presumably, be repaid in the foreign currencies in which they were borrowed. Companies will buy foreign currencies from the RBI in rupees which will reduce foreign currency reserves of the RBI and also result in a fall of the rupee. To preempt that the RBI has doubled the limit of ECB via the automatic route from $750 million to $1.5 billion and "Banks borrowing in foreign currency (are) allowed to expand the end use of funds beyond export." Telegraph. The US Federal Reserve has hiked its Funds rate by 150 basis points since March 2022. CNBC. So the RBI is allowing companies and banks to borrow at higher rates to repay cheaper loans, which are maturing this year, thus storing problems for the future. Plus, "One, the rate of growth of gross incoming FDI (foreign direct investment) fell sharply in 2021-22 to 2% from 10% in the previous year and 20% the year before that." "Two, FDI outflows, which includes divestment of Indian assets by existing foreign investors and overseas investments made by Indians, also hit a record high of $44.3 billion, a growth of 16%." Mint. Actually, "India's real effective exchange rate, measured by the 40-currency basket favored by the RBI, is overvalued by 4%," wrote SAA Aiyar. Which means the rupee has more room to fall. A Vostro by any other name still means rupees. Why would anyone want it?