Who is gaining?

"Europe is a garden and most of the rest of the world is a jungle that could invade this garden. Thus spake Josep Borell, foreign policy chief of the EU some days ago, addressing a gathering of young European diplomats," wrote Sandipan Deb. Starting in 5000 BC, there has not been one day that people were not slaughtering each other in this garden of Europe. wikipedia. Borell claims that the EU is not "blindly following" orders from the US but, "EU countries are buying gas at sky-high rates from the US and China, which is reselling Russian gas to them at a nice profit." On 26 September 2022, Nord Stream 1&2 pipelines, supplying Russian gas directly to Germany, were attacked in a series of explosions resulting in severe leakage. wikipedia. Who benefits? "One, Russia loses quite a bit of the leverage it still had over Europe, which has been scrambling to find other gas supplies to tide over the winter. Two, the EU gets locked into the sanctions regime, since lifting embargoes will still keep it cut off from Russian gas transported directly and at a much lower cost. Both Russia and Europe are losers here." Deb. "Even if the Ukraine war ends tomorrow and Russia's connections to the global energy market are 'normalized', the energy dependence of Europe on Russian natural gas will never be the same again." Mint. "With oil it's a similar story. When Russia was shut out of oil markets after the invasion, it began offering oil at a discount and found many buyers - among them India." "According to a report in Reuters," in September, "India's imports from the Middle East fell to about 2.2 million bpd (barrels per day), down 16.2% from August" while "imports from Russia increased 4.6% to about 896,000 bpd after dipping in the previous two months." TOI. "Fueled by a surge in import of oil and fertilisers, India's bilateral trade with Russia has soared to an all-time high of $18,229.03 million in just five months (April-August) of this financial year (2022-23)," with fertiliser imports surging by 666.24% to $1,236.96 million. TIE. Despite that, "India's crude oil import bill surged 76% to $90.3 billion in the first half of 2022-23 (April-September) even as the total import quantity increased by 15% to 116.6 million tonnes." HT. While selling to Europe at exorbitant prices, the Biden administration "thought they had struck a secret deal (with Saudi Arabia) to boost oil production through the end of the year" "as the Democratic Party struggles to deal with inflation and high gas prices heading into the November elections." ET. Apparently, "The Biden administration asked Saudi Arabia, the de-facto leader of oil-producer group OPEC, to delay its decision on oil output by a month, the kingdom said in a statement." CNBC. Mid-term elections in the US are on 8 November. wikipedia. So, the Biden administration was just trying to deceive the world and American citizens to win the elections while making handsome profits from selling oil and gas. To win elections. Duplicitous and dishonorable. How pathetic. 

Burning dollars won't cool.

"The Reserve Bank of India's (RBI) monetary policy committee (MPC) will meet on November 3 to decide on the contents of a letter to be sent to the government following its failure to keep inflation below the tolerance band of 6% for three consecutive quarters since January 2022." TOI. Mythili Bhusnurmath imagines what excuses the RBI might come up with: "It is always difficult to own up to failure," "But like the US Fed and other central banks, we believed high inflation would be a temporary phenomenon, driven by supply-side factors." "We had then hoped we would be able to tread the fine line between supporting growth and keeping prices under control in the coming months." ET. Why is the RBI so worried about growth when, in August 2022, "A government source...said that India is likely to be the fastest growing economy in the world this year." ET. Then, in September, "India has overtaken the UK to emerge as the fifth-largest economy in the world and is set to become third-largest by 2029, reports said." TOI. "In a separate report, State Bank of India (SBI) said in a note that India had surpassed UK as the fifth-largest economy as early as December 2021." Surely the RBI should have been aware of the blistering growth rate and taken steps to cool the economy from January. We hope that the RBI was not tolerating inflation deliberately to increase government revenue. Since, higher the prices, higher the taxes collected on goods and services (GST). "The gross GST revenue collected in the month of April, 2022 was Rs 1,67,540 crore (Rs 1.675 trillion), which was higher by 18% as compared to Rs 1,42,095 crore (Rs 1.42 trillion) recorded in March 2022." BS. The consumer price index (CPI) rose by a whopping 7.79% in April 2022 compared to 6.95% in March. Trading Economics. CPI inflation was 7.41% in September, so that the GST revenue "collected in September totaled Rs 1.47 lakh crore (Rs 1.47 trillion)". TOI. The US Fed is not so tolerant of high inflation. In September, "The US Federal Reserve raised its benchmark interest rate...by 75 basis points for the third consecutive time to fight record inflation." AA. To a total of 3-3.25%. In March 2020 the Fed slashed its Funds rate by 100 basis points to 0 to 0.25%, till 17 March 2022 when it first raised its rate by 25 basis points. Forbes. The Indian rupee was around 75 to the dollar in February but started creeping up to over 76 to the dollar by April. exchangerates.org. The Fed hiked interest rate by 50 basis points on 5 May, and then by 75 basis points on 16 June, 27 July and 21 September and the rupee fell in tandem against the dollar, reaching a nadir of 83 to the dollar on 19 October. This despite the RBI selling $118 billion dollars to support the rupee. ET. "Analysts say it is unlikely that the government will hold the MPC accountable (for inflation) as the central bank and the government have been working together." TOI. In other words, the RBI was just obeying orders. The cost of importing crude oil jumped 76% to $90.3 billion in the first half of the current financial year, from April to September. HT. A weakening rupee will only add to transport costs, further increasing inflation. The economy is overheating. Don't burn dollars. It will not cool.      

No UAPA for Interpol.

"India ranked 107 out of 121 countries in the Global Hunger Index 2022 with its child wasting rate at 19.3% percent, being the highest in the world. ET. "With a score of 29.1, the level of hunger in India has been labeled serious." The "Ministry of Women and Child development 'rejected' the ranking, claiming there were serious methodological flaws in how the research was conducted." DH. "We continue to rank low on the human development index (132 out of 191 countries), and are the bottom of the ladder of the global gender gap report (135 out of 146 countries) in addition to our abysmal ranking on the GHI. A World Bank report concluded that 80% of those who fell below the $2.15/day poverty line were Indians." The government's Press Information Bureau hinted at a conspiracy, as "a consistent effort is yet again visible to taint India's image as a nation," wrote Alok Sheel. "The unfortunate fallout of such politically charged debate on global indices such as the Global Hunger Index, Global Freedom Scores, World Press Freedom Index, Democracy Index, V-Dem Index, etc, is that policymakers end up expending their intellectual energies on worsting the indices rather than using the data as valuable inputs for policy corrections, such as in the case of nutritional deficiencies. Ironically, the same policymakers highlight global indices that show us in good light." They can try to trash global indices but how do they suppress the deaths of innocent children? "The deaths of nearly 70 children in The Gambia, linked to cough syrups made in India, are being investigated amid concerns about effective regulation of the manufacture and trade in medicines." BBC. The WHO confirmed that the syrups contained "unacceptable levels of diethylene glycol and ethylene glycol as contaminants". Indians dare not complain. The Supreme Court may have stayed the infamous Section 124A, which labeled any protest as sedition, but there is no respite for Indians as "There has been a 72% increase in UAPA cases in the last five years." DH. The Unlawful Activities (Prevention) Amendment Act (UAPA) has "stringent requirement for the grant of bail, coupled with how criminal trials take years, even decades, to complete, mean that individuals spend long periods in jail without being found guilty of any crime. Indeed, a 2% conviction rate shows how, in an overwhelming number of UAPA cases, it is the process that is the punishment." HT. "Finance Minister Nirmala Sitharaman defended the actions of the Enforcement Directorate (ED) on private capital and civil societies and negated that it is being used as a political weapon." Mint. "ED is completely independent in what it does." she said. The oracle has spoken. So it must be alright. No surprise that "The International Criminal Police Organization,or Interpol, has rejected India's request to issue a Red Corner Notice on terror charges against Khalistan separatist Gurpatwant Singh Pannun." The Wire.  Meanwhile, "Asia's second-wealthiest man Reliance Industries Ltd Chairman Mukesh Ambani, is setting up a family office in Singapore, according to people familiar with the move." ET. In 2021, he bought Stoke Park for $79 million in Britain. HT. Never know when you might need a bolt-hole. Sadly, there is no shelter for us ordinary Indians.    

Venezuela awaits.

"US Federal Reserve Chair Jerome Powell faces a crucial choice as the central bank battles the worst bout of inflation since the 1970s: What kind of chair will he be? A Paul Volcker, who took interest rates ever higher in an uncompromising effort to get prices under control? Or an Arthur Burns, who acted more timidly, in the ultimately futile hope that a less austere approach might be sufficient to do the job?" ET. Fed officials foresee "rates increasing 75 basis points in November, 50 in December and 25 in January to a peak of 4.50% to 4.75%." "There's no free lunch." "This Fed rate-increase cycle, which has already delivered a total of 3 percentage points in just over six months, is the most front-loaded one in a long time," wrote Mohamed A El-Erian. "After two years of quantitative easing (QE), under which central banks buy long-term bonds from the private sector and issue liquid reserves in return, central banks around the world have begun to shrink their balance sheets," wrote Profs Raghuram Rajan & Viral Acharya. This can cause accidents. "After all the financial system did what it was incentivized to do" as "The system's optimization of that regime involved large debt and leverage; over adherence to unrealistic return objectives; and, for many, venturing well beyond their natural investment habitat and expertise." El Erian. In short, free money encouraged reckless  borrowing and speculation in dubious financial instruments. "Don't expect inflation in the US to fall below 3% within two years, according to Deutsche Bank." BI. "Deutsche Bank relied on 50 developed and emerging market economies, with the data stretching as far back as 100 years in some cases." The European Central Bank (ECB) which is "The central bank for 19 countries that use the euro raised its deposit rate by a further 75 basis points to 1.5% - the highest rate since 2009." Reuters. "It also cut a key subsidy to banks - an attempt to force them to repay trillions of euros' worth of ECB loans." "Germany staved off the threat of recession in the third quarter with unexpected growth," but "Consumer prices harmonized to compare with other European countries, were up 11.6% on the year in October." Reuters. "Are we about to get QT?" Reuters. "Euro zone banks sit on 2.1 trillion euros of cash handed out by the ECB at ultra-low, sometimes even negative rates, aimed at boosting the economy. But quick and big rate hikes mean banks can park this cash back at the ECB, earning risk free profit, irking policymakers who view it as gaming the system." Narayan Ramachandran listed 5 phases of central bank action - from large QE to controlling inflation whatever it takes in phases 1 to 3. Phase 4 may be control inflation but prudently and may even resort to  phase 5 "where the received wisdom of maintaining 2% inflation for developed markets and 4% inflation for emerging markets begins to drift upwards". Permanently high inflation will be disastrous for the poor. As emerging markets have more poor people they will suffer more. More Hugo Chavez , more Venezuelas.            

How much longer?

"The value of the rupee has more than halved since early 2008. Would rupee depreciation help raise exports and provide a cushion for India's economic growth during the global slowdown that is upon us?" asked Profs Vidya Mahambare & C Veeramani. Exports depend on price and on income of buyers. Depreciation leads to higher cost of imported inputs and domestic inflation raises prices thus hurting exports. In 2021, "India's consumer price inflation was higher at 5.1% compared to the averages for middle-income countries (4.1%) and high income countries (2.5%)." And, although the rupee has fallen against the dollar, it has "consistently appreciated against other major currencies, including the pound, yen and euro, during the same period." That's because the Reserve Bank (RBI) has sold $114.08 billion dollars so that our reserves have fallen from $642.453 billion to $528.37 billion. ET. The relative strength of the rupee against other currencies helps imports while hurting exports. The trade deficit with China was $72.9 billion in 2021-22 and is already up to $87 billion this year. Outlook. "It is growing across the board, meaning we are importing a lot more than we are exporting," said Finance Minister Nirmala Sitharaman. Savage Chinese soldiers killed 20 Indian soldiers in an unprovoked attack in Galwan Valley in Ladakh in June 2020. BS. And yet India gave in to Chinese demands as locals said that "the disengagement that had been doing the rounds as 'de-escalation' was essentially India 'surrendering control' of it own territory by approving China's demand for 'buffer zones'." The Wire. Though we still have enough foreign exchange reserves to cover 8.6 months of imports "both the trade and current account deficits have widened sharply, pointing to a balance-of-payments deficit which could linger for the foreseeable future," wrote Pranjul Bhandari. "India's current account deficit (CAD) widened to 2.8% of gross domestic product (GDP) in the three months through June," to a total of $23.9 billion. Mint. CAD is expected to widen to 5% of GDP in the September quarter before ending at 3.5% of GDP for the 2022-23 financial year. BS. "We believe that India's saving rate has fallen, and that lies at the heart of the current account deficit widening to unsustainable levels." Higher interest rates will encourage household savings while discouraging borrowing and a weaker rupee will reduce imports by making them more expensive. India is to see the greatest rise in salaries in real terms, which means in addition to the rate of inflation, MBN, with real increases in India at 4.6%, followed by Vietnam at 4.0% and China at 3.8%. ET. A stubbornly high inflation is an "invisible" tax on the vulnerable and RBI's monetary policy is ineffective, wrote Prof Deepanshu Mohan. As long as we can fool the people about the myth of being the fastest growing economy. But for how long?

Value of collecting firewood.

Labor force participation rate (LFPR) "is the percentage of our working age population engaged in work or making tangible efforts to seek 'work' or being available for 'work' if it is available," wrote V Anantha Nageswaran, Chief Economic Advisor to the Government of India, and Harish Kumar Kallega & Deeksha Supyaal Bisht, Indian Economic Service Officers. "The LFPR declined between 1999 and 2011-12 from 40% to 30% and has risen from 2017-18 to 2020-21." So it should be above 30%. However, female LFPR in India was 20.3% in 2021. World Bank. The female LFPR "in India has been falling steeply in the last two decades - from about 30.5% in 2000 to 21.1% in 2019 (pre-pandemic) and 18.6% in 2020 (post-pandemic) as per ILO estimates." FE. In July, "Reserve Bank of India's (RBI) deputy governor Dr Michael Debabrata Patra stated that the female workforce participation in India is among the lowest in the world and continues to fall. India stands lower than even Pakistan." India Times. A dubious honor, indeed. "According to the Union Budget 2022" the female LFPR "in India was at 19% in 2020 from over 26% in 2005, even lower than in Bangladesh (35%) and Sri Lanka (31%)." So many figures, all different. No doubt the authors have a handful of PhDs among them and have access to government resources. They should carry out a thorough survey and publish honest figures which can then be used to guide economic policies. What is work? " 'Work includes self-employment (subsistence agriculture and collection of firewood, poultry farming, etc, for self consumption), regular wage-salaried employment, and casual labor." As well as "women's unpaid domestic labor, which can be seen as expenditure-saving work such as collecting firewood, cooking, tutoring children, etc, and contributes significantly to the household's standard of living." "The central government has disbursed 8.05 million deposit free cooking gas connections this financial year (2020-21) until December 1. These connections have been distributed under the second leg of the Pradhan Mantri Ujjwala Yojana (PMUY)." BS. If collecting firewood is defined as profitable work then millions of women have been rendered unemployed by the PMUY scheme. Moreover, firewood is free but refilling a gas cylinder costs in excess of Rs 1000, goodreturns.in, so the "household's standard of living" has taken a significant hit. "About 200,000 Indians die every year due to inadequate access to safe water,...the government think tank Niti Aayog said." Reuters. "On an average, a rural woman walks 5 kilometers to 20 kilometers a day just to fetch water, according to estimates by campaigners." Thus adding to household wealth by saving on medical bills. The government's Jal Jeevan Mission is to provide piped water to every household, BS, rendering millions of women unemployed and reducing their standard of living. Government officers must serve the people. Not as megaphones for government propaganda. So sad.           

Scuttled ship of state.

"Rishi Sunak has been officially announced as United Kingdom's Prime Minister after he met King Charles III at Buckingham Palace. Sunak will be the country's youngest Prime Minister in two centuries and the third one this year after Boris Johnson and Liz Truss." ET. Indians are rejoicing because "His parents came to the UK from east Africa and are both of Indian origin. Mr Sunak was born in Southampton in 1980," "He went to the boarding school Winchester College, then studied Philosophy, Politics and Economics at Oxford, and business at Stanford in America." BBC. As thoroughly British as anyone can be. "'Free ports' are one of his long-time favorite ideas: areas near ports and airports where goods can be imported and exported without paying taxes, to encourage trade." Sunak has to make sure that his appointment does not turn out to be a classical poisoned chalice, as that of his predecessor Liz Truss, who now holds the record of being the UK's shortest-serving prime minister. npr. "The United Kingdom was already sliding towards a recession when Truss took office in September, as soaring energy bills ate into spending." CNN. And yet the UK will "still need to find between 30 and 40 billion pounds in savings to bring down public debt as a share of the economy in the next five years, according to calculations by IFS, an influential think tank." "Productivity growth has dropped to half the rate it was in the early 2000s, real wages are falling, the pound is nearing record lows and an aging population is placing a growing strain on public services, even as the government tries to rein in public spending that soared during the Covid-19 pandemic," wrote Max Colchester. And then, there is the thorn of Brexit. Former Prime Minister Boris Johnson "said the Tories were elected to 'get Brexit done'. He said he duly delivered. But then he called the deal he struck unsustainable because of its most conspicuous feature: an economic border separating Northern Ireland from the UK," wrote Clive Crook. But Brexit cannot be reversed. "The idea that Britain might turn supplicant for renewed membership - presumably on terms that would be less favorable than those it secured through years of grudging and obstreperous participation - is unthinkable." "First, London would be negotiating from a position of weakness; second, the EU would be pleased to see Brexit fail, and conspicuously, to discourage other rebellions." "The Conservative Party made itself the party of Brexit, but they were never honest about the inevitable trade-offs of leaving the European Union." Vox. "You are going to create trade barriers with your biggest trading partner, even though you are going to be able to sign new trade deals with other countries." To add oil to the fire, the Catholic Sinn Fein party won the largest number of seats in the election to the Northern Ireland Assembly in May. BBC. "The ultimate goal of Sinn Fein is for Northern Ireland to leave the UK and become one country with the Republic of Ireland." Also, First Minister of Scotland Nicola Sturgeon wants another referendum for independence from Britain. BBC. The British ship of state has been scuttled economically. Can Sunak bail it out? 

The cost of selling.

"Sounding a note of caution, the Finance Ministry's Economic Review said...that inflation may witness another resurgence in case of deterioration of geopolitical situation leading to higher global energy prices and supply chain pressures." "Retail inflation for India during these six months stood at 7.2 percent, lower than the world inflation of 8 percent, as represented by the median inflation of major economies, it said. During the same period, it said, the INR had depreciated by 5.4 percent against the USD, less than the depreciation of 8.9 percent of six major currencies in the DXY index." That may be because no other central bank has burned $114.08 billion to strengthen their currency as the Reserve Bank of India (RBI) has done. ET. "Market analyst Sunil Shah...said even though the rupee as a currency has weakened in comparison to the US dollar, but it is still far stronger than other currencies." ET. As a result, "Indian exporters are holding back on dollar sales on hopes of a further slide in the rupee, eyeing a windfall as the local currency plumbs record lows this year." ET. "The swift depreciation of the rupee against the dollar in the recent sessions saw it breach the psychologically-crucial 83-mark." ET. "Year-to-date, the USD/INR is down by nearly 6%, and experts see further depreciation in the Indian unit, triggered by imported inflation." So, as the rupee falls imports become more expensive and higher inflation causes further weakness of the rupee. The World Economic Outlook (WEO) report of the International Monetary Fund (IMF) in April 2021 projected India's nominal GDP for 2026-27 at Rs 389.01 trillion and $4.534 trillion. However, in its October WEO the IMF revised its forecast to Rs 392.84 trillion and $4.393 trillion, wrote Prof V Anantha Nageswaran, now the Chief Economic Advisor (CEA) to the Government of India since 28 January. pib.gov.in. "So, secondary-school arithmetic will tell us that the Fund has become relatively more pessimistic on the Indian rupee versus US dollar (USD). From 70.9 in 2020-21, the Fund sees the rupee depreciating to 89.4 against the US dollar by 2026-27," wrote an outraged Nageswaran. Looks like the IMF was a better judge of our economy than our CEA. "One school of thought that prevails is that inflation is largely driven by food and fuel prices, and hence, there isn't much the RBI can do to control inflation by raising the repo rate," wrote Vivek Kaul. However, "The core inflation in September was 6.5%." "A possible explanation could lie in the high inflation that has seeped into wage inflation as people have demanded higher wages to compensate for higher prices." While the RBI is reluctant to raise rates, the liquidity in banks "is approaching pre-Covid-19 level of Rs 3 lakh crore (Rs 3 trillion) and adjusting for the cash balances of the government (which lies with RBI), the surplus liquidity with banks has come down to just above Rs 1 lakh crore (Rs 1 trillion)," wrote Samiran Chakraborty. The negative real interest rate means that growth of deposits in banks is 9% while credit growth is 16%. Banks will be forced to increase lending rates. The RBI has sold $114 billion which has sucked out Rs 9.427 trillion from the system at an exchange rate of Rs 82.7 to the dollar. xe.com. So, we have lost dollars, lending rates will rise, the rupee will fall and inflation will rise higher. Well done RBI.    

Global breakup.

"The war in Ukraine, gyrating gas prices, skyrocketing mortgage rates, the continued fallout of the covid--19 pandemic and the looming prospect of a recession - all these factors seem to be coalescing into chaos." DH. "The fear is real." The reason is that, "For roughly half a century, our political economy has been based on the governing concept of neoliberalism - the idea that capital, goods and people should be able to cross borders in search of the most productive and profitable returns." This created inequality as money moves easily but people cannot. "The world is beginning to reset." "French President Emmanuel Macron...said US trade and energy policies created a 'double standard' and Europe was left paying higher prices for its natural gas," as "The OilPrice.com report revealed that US natural gas exports to France increased 421% during the first eight months of 2022 but energy prices are soaring and increased by 1094% in August alone." News18. A direct result of sanctions on Russia, BBC, whose cheap oil and gas was making Europe richer. Europe was importing 40% of its natural gas "from Russia because it is both cheap and convenient," and "Germany alone accounted for around 20% of Russia's total gas exports in 2020 - but Germany also distributes Russian gas to other European countries." Time. Europe thought the US would gallop to its aid, and got shafted. Et tu, Brute? wikipedia. Not just that. "The decline in the global oil benchmark from nearly $128 a barrel has dovetailed with a jump in the dollar of about 15% over the same period." ET. "With next to no local crude supplies, each of the currency (euro) bloc's five biggest economies - Germany, France, Italy, Spain and the Netherlands - is at least 90% dependent on foreign purchases to run refineries." "The squeeze on energy supplies from Russia's moves to cut gas deliveries has driven huge increases in consumer prices, running at a record 9.9% in September." The US is raking it in. "Data released Wednesday (19 October) showed that overall consumer prices rose at a rapid pace in September from a year earlier, climbing nearly 11% in the European Union and 10.1% in Britain." ET. Bread prices are up 19% in the EU. "Across Europe, soaring inflation is behind a wave of protests and strikes that underscores growing discontent with the spiraling cost of living and threatens to unleash a political turmoil. ABC. "Despite natural gas prices falling from record summer highs and governments allocating a whopping 576 billion euros (over $566 billion) in energy relief to households and businesses since September 2021, according to the Bruegel think tank in Brussels, it's not enough for some protesters." "With another US Federal Reserve meeting scheduled for early November, experts are predicting another aggressive rate hike." CNET. That will make dollar even stronger, and inflation worse. Today is Diwali, the festival of lights. Hope and pray that it enlightens everyone. Remove missile threats. Make peace. Enrich the world. Happy Diwali.  

Asking questions.

"British Prime Minister Liz Truss resigned Thursday (20 October) after just six weeks in office, following a disastrous and rapidly reversed economic plan that sent the pound plunging and her government into chaos." NBC. Before Truss, Boris Johnson was forced to resign even though, "Less than three years ago, Boris Johnson led the Conservatives to their biggest election victory since 1987." BBC. Because, Johnson tried to protect the Conservative deputy chief whip Chris Pincher who "was accused of groping two men, which led to a flurry of allegations, some dating back years." "In April of this year, the prime minister was fined for breaking lockdown rules, after attending a gathering on his birthday in June 2020." Also, "Boris Johnson will be investigated by a Commons committee over claims he misled Parliament over parties in Downing Street during lockdown. MPs approved the Privileges Committee launching an inquiry once the police have finished their own investigation into the gatherings." Unbelievable in India. Even more unbelievable, "Former President Donald Trump was issued a subpoena Friday by the House select committee investigating the Jan 6 riot at the US Capitol." CNBC. Not just that, "Former President Donald Trump invoked his Fifth Amendment right more than 440 times...in refusing to answer questions at a deposition by lawyers for New York Attorney General Letitia James, who is investigating Trump Organization's business practices, a source with knowledge of the session told NBC news." In June last year, "Across India, amid a devastating second wave of Covid-19, hospitals ran out of beds and critical supplies, contributing to the deaths of untold thousands of people and worsening an already tragic outbreak. By one count oxygen shortages alone have killed at least 600 people over the past two months." New York Times. Many Indians "were sickened by him (Prime Minister Modi) addressing tens of thousands of people at state election rallies and letting Hindu devotees congregate for a festival." Reuters. In May 2021, "India's holiest river, the Ganges, has been swollen with bodies in recent days. Hundreds of corpses were found floating in the river or buried in the sand of its banks." BBC. We are not talking parties here, we are talking of millions of hapless citizens gasping to death. Hence, "Around 300 top officials of the central government participated in a workshop titled Effective Communications", to learn how to create a "positive image of the government", manage "perception through effectively highlighting positive stories and achievements", and making the government "be seen to be sensitive, bold, quick, responsive, hard-working etc." HT. "The Indian High Commission in Australia has sent out a bristling rejoinder to The Australian newspaper for an article criticising the Indian leadership's handling of the pandemic." Telegraph India. Indian newspapers wouldn't dare. During the Spanish flu, "In September 1918, the Ganga started to bob with corpses as the Bombay Fever returned with manic vengeance." TOI. The British and Americans can ask questions. We are still a conquered people.   

IMF's sound advice.

"US Treasury yields held near multiyear highs on Friday (yesterday) with markets seeing no let-up in tightening from the Federal Reserve, causing shares to slip and the dollar to stay strong, particularly against the embattled Japanese yen." Reuters. "The benchmark US 10-year yield edged up as high as 4.276%, its highest level since June 2008, having risen nearly 10 basis points overnight." "Global markets have been extremely volatile as investors worry that hefty rate hikes will push major economies into recessions before inflation is tamed, while the resulting strong dollar could wreak havoc in emerging markets." The International Monetary Fund (IMF) data shows "the US dollar, by virtue of being widely used in trade and financial transactions, remains first choice of reserve currency," but its share in global foreign exchange reserves has dropped "from about 72% in 2000 to about 60% in 2022", wrote Uma Gupta. Even so, "Nearly half of world trade is still happening using the dollar," and "Nearly 90% of India's foreign trade is invoiced in dollars." "India's inflation worries will compound as a stronger dollar makes India's imports more costlier." ET on 14 June. At the time one dollar was worth Rs 78.28. Today, one dollar buys Rs 82.54. xe.com. "While, as per bankers, even if India's trading partner's currency has dropped in tandem with the rupee, imports will still be more expensive because billing is still done in dollars, and most importers lack bargaining strength." "The foreign exchange reserves of Asia's third largest economy fell by $4.50 to $528.37 billion for the week ending Oct 14, according to data released by the Reserve Bank of India. The spot forex reserves have fallen from $607 billion in end-March and depleted by $114.08 billion from $642.453 billion seen on September 3 last year." ET. "On average, the estimated pass-through of a 10 percent dollar appreciation into inflation is 1 percent. Such pressures are especially acute in emerging markets." IMF. "Given the significant role of fundamental drivers, the appropriate response is to allow the exchange rate to adjust, while using monetary policy to keep inflation close to its target." Which means higher interest rates. "Specifically, foreign exchange intervention should not substitute for warranted adjustment to macroeconomic policies." Means, don't sell dollars. The foreign exchange reserves are now enough to cover 8 months of imports, wrote Niranjan Rajadhyaksha. "A six-months import cover is the bare minimum required. So, in effect the RBI now has a maximum of $120 billion to support the rupee. Second, India will also have a balance-of-payments deficit of around $120 billion this financial year." "However, a central bank with a formal inflation-targeting mandate should ideally use its interest rates only to manage domestic demand and not exchange rate." That is exactly what the IMF is advising. Do one and the other will follow. Same as black or white cats.  

A matter of trust.

"RBI Governor Shaktikanta Das...called the communication between the central bank and government privileged and said that the letter it would be writing for missing the inflation targets will not be made public." ET. "The Reserve Bank of India Act mandates that in the case of the inflation target not being met for three consecutive quarters, the central bank has to submit a report to the government explaining the reasons and detail the remedial actions it will be taking to check the price rise." ET. The RBI has a mandate to "keep the retail inflation at 4% with the margin of 2% at either side" till 31 March 2026. ET. Which means the government has given it a wide latitude of 2-6% but the consumer price index (CPI) inflation has been higher than the upper margin of 6% since January of this year. Trading Economics. The RBI's "letter to the government triggered by its failure to keep inflation within the target band, will likely blame supply side- issues for the runaway price rise, economists said." Mint. Since the RBI has no control on supplies it is helpless, so why is the letter a secret? Is it because it was following orders and can't say so publicly? "The US Federal Reserve, in charge of monetary policy in America, has been tightening financial conditions for six months now and inflation still doesn't seem to be budging," wrote Allison Schrager. "Inflation is largely self-fulfilling [in the US], so if people expect higher inflation, they ask for more money at work, raise prices on what they sell or on the rent they charge." "Many economists believe that inflation was so mild and stable for so many years because former Federal Reserve Chairman Paul Volcker demonstrated that the Fed was serious about controlling it in the 1970s [and 80s], even if it meant bringing on a recession." Consumer inflation in the US was 8.2% year-on-year in September compared to 8.2% in August. NBC. Despite that, "The median one-year-ahead household inflation expectation was lower at 5.4% in September. The three-year-ahead inflation expectation was even lower at 2.9%, only about 1% higher than the US inflation target," wrote Prof Vidya Mahambare & Praveen Kumar. In contrast, in India, "in July 2021, the median household inflation expectation for a year ahead was 11.5%. When the RBI did the survey a year later in July 2022, the median expectation for the same month was 9.3%. This is despite retail inflation during the previous 12 months being much lower, between 4.6% and 7.3%." Clearly, Americans trust their Fed while Indians have no trust in the RBI at all. Which is why, "India's gold imports, which have a bearing on the country's Current Account Deficit (CAD), rose 6.4 percent to USD 12.9 billion during April-July." ET. A study "Analysing returns of financial assets between June 1999 and March 2021" shows that "gold is an effective hedge against inflation," wrote Pramit Bhattacharya. Hiding behind the draconian British Official Secrets Act of of 1923, TOI, dating from a time when dogs and Indians were not allowed in selected places, BS, is unlikely to increase trust and lower inflation expectation. Put people first. At least once. 

Strong dollar and grey market.

"The dollar is up 18% this year and last month hit a 20-year high, according to the benchmark ICE US Dollar Index, which measures the dollar against a basket of currencies." ET. Because, "To combat soaring US inflation, the Federal Reserve has raised its benchmark short-term interest rate five times this year and is signaling more hikes are likely." "Ordinarily, countries could get some benefit from falling currencies because it makes their products cheaper and more competitive overseas. But, the soaring dollar "is adding to global inflationary pressures at a time when prices were already soaring." "Around the world, countries that rely on food imports are grappling with a destructive combination of high interest rates, a soaring dollar and high commodity prices, eroding their power to pay for goods that are typically priced in the greenback." India's neighbor "Pakistan is facing a deflating economy, spiraling inflation, the rising arc of terrorism and a political system near paralysis." Dawn. "Pakistan's credit rating has been downgraded by Moody's with a blistering statement, saying the country's ability to afford its own debt is 'one of the weakest among the sovereigns' that the rating agency deals with." That will push up borrowing costs as lenders seek a risk premium. While the official exchange rate is 1 USD for 220.87 Pakistani rupees (PKR), xe.com, the dollar is changing hands for 232 PKR in the grey market. Dawn. "The widening gap between the open and interbank markets has also threatened remittances sent through banks by Pakistanis working abroad." If there is a wide gap in exchange rates between official and grey markets, expatriates, especially those with low incomes, may resort to 'hawala' transfers which is an informal method of transferring money without any physical records. Investopedia. "Hawala originated in South Asia during the 8th century and is used throughout the world today, particularly in the Islamic community, as an alternative means of conducting funds transfers." Since the funds cannot be traced terrorist groups use hawala "to move and distribute funds to their cadres and sympathisers across the globe". Quartz India. "For instance, in the July 2006 Mumbai train bombings carried out by the Indian Mujahideen (IM), the Pakistan-based handlers of the group used the hawala route to transfer money to IM cadres to execute the attack." "Pakistan is expected to finally exit the 'increased monitoring list' - commonly known as the grey list - of the Financial Action Task Force (FATF) on October 21, after languishing in the infamous category for almost 52 months." Dawn. It was in the FATF grey list because of "deficiencies in its legal, financial, regulatory, investigations, prosecution, judicial and non-government sector to fight money laundering and terror financing". Hunger, inflation and falling currency will make it easier for terrorist groups to recruit more cadre. Worrying for India.   

It's so simple.

"In 2023-24, according to IMF, India's GDP is likely to grow 6.1%, the highest in the G20. In general, India's trend growth is estimated to be closer to 6% by many international organizations," wrote Chief Economic Advisor to the Government of India V Anantha Nageswaran. "India's average annual growth could be between 6.5% and 7% rather than close to 6%." Nageswaran compares with 1998-2002 when there were sanctions on India due to the nuclear test, drought and 9/11 happened. That led to reforms which led to economic growth at 8-9% from 2003-2008. Structural reforms by the present government could push economic growth to "8% and beyond", if external factors turn favorable. "India's labor force participation rate for all age groups is around 41.6% (57.5% for males, 25% for females)," wrote Prof Amit Kapoor and Chairman, Economic Advisory Council to the Prime Minister Bibek Debroy. Which means 58.4%, more than half, of our workforce are not working or even looking for work. Our working-age population is projected to grow by "roughly 9.7 million per year from 2021 to 2031 and 4.2 million annually in the 2031-2041 period". So we have to create lots of paid jobs, get more women into the workforce and increase productivity. A paper by Amit Basole of Azim Premji University says that, "Our growth elasticity of employment, a measure of how output expansion generates jobs," "is so weak that a 10% growth in gross domestic product (GDP) is associated with only a 1% rise in employment." Mint. "Numerous studies have shown that India's productivity problem is reflected by substantial disparity across India's firms," wrote Ram Shivakumar. Using revenue per employee (RPE) as a metric for measuring labor productivity he found that RPE has been falling for firms in all classes, as per size, and across wholesale, manufacturing, construction and retail. The Print. "The degree of informality in the employment structure in the Indian economy continues to be a key impediment to ensuring inclusive and sustainable growth." The Quint. "Among the five South Asian countries, the informalisation of labor is disappointingly the highest in India and Nepal (90.7%). Bangladesh (48.9%), Sri Lanka (60.6%) and Pakistan (77.6%) doing much better on this front." "India's statistics ministry generates only one high-frequency gauge of economic activity," wrote Pramit Bhattacharya, and that is the Index of Industrial Production (IIP). However, in a research note, Credit Suisse analysts "show that the IIP has consistently understated growth in industrial output over the past decade". Because, "India also needs a reliable gauge of services activity, given that the services sector accounts for more than half of India's economic output." "We should not have to rely on a small-scale survey (PMI) to gauge the level of services activity in a large and diverse economy as ours." If this or that happened, India could become the richest country in the world. If we grew feathers we could fly. We could also fall like Icarus.

This indicator is flashing red.

"Finance Minister Nirmala Sitharaman has said that the rupee has not weakened but it is the dollar that has strengthened, as she defended the 8 percent slide in the value of Indian currency against the greenback this year." BS. She also "asserted that the fundamentals of the Indian economy were strong and that inflation was low compared to other parts of the world". "Stung by decadal-high inflation, US Federal Reserve promptly turned hawkish. This, coupled with US economic strength and haven demand, has helped the US dollar notch multi-decade highs against prominent peers while the Indian rupee and pound are languishing around record lows." ET. The rupee has not plummeted even lower only because the Reserve Bank (RBI) "had to burn $110 billion in desperate attempt to arrest rupee's slump to a lifetime low, dragging the forex reserves to the lowest level in over two years." ET. "The market sees the greenback as the ultimate haven and experts suggest that amid worries of global recession fears and the ongoing Russia-Ukraine war, the bull run of the dollar is not yet over." The reason the dollar is "the ultimate haven" is because the US Fed is serious about controlling inflation and has raised its funds rate by 300 basis points since March. AA. Inflation means higher prices which also means that the currency is able to buy less than before. So the currency is weaker. "The RBI has now raised rates by a total of 190 basis points since its first unscheduled mid-meeting hike in May but inflation continues to remain stubbornly high." TOI. Yesterday, "RBI Monetary Policy Committee (MPC) member Jayanth R Varma said that the impact of monetary policy tightening on inflation will be felt after five to six quarters." TOI. Which means after one-and-a-half years. Why is the RBI so frivolous about controlling inflation? Because the higher the prices the higher the indirect tax collection. "From 44.4% in 2014-15 the share increased to 53.1% in 2020-21. Although there was a slight drop in 2021-22, indirect taxes' share of 50% in total collections was still about 5.6 percentage points higher than in 2014-15." TOI. One way the rupee could become stronger is if foreigners invested in Indian government bonds which would bring in dollars. "For months, India prepared for a remarkable milestone: getting its bonds listed on global indices." Bloomberg. "Banks penciled in inflows of as much as $40 billion for a country that has long lagged behind peers in tapping international wealth." But, "India has ruled out any changes to tax policies that will make it easier for the nation's bonds to be included in global indexes, according to people familiar with the matter." ET. Naturally, "JP Morgan has opted not to include India's government bonds in one of its flagship emerging market indexes after investors cited ongoing problems with capital controls, custody and settlement and other operational snags." Reuters. Mistakenly, "the government had hoped its 'Fully Accessible Route' (FAR) plan announced in March, which makes $115 billion of its bonds freely investible, would overcome these issues." The US Fed wants to protect Americans. The RBI is busy transferring citizens' money to the government. The rupee is an indicator. It's flashing red.   

Shades of masquerading.

"Optimism is a rare trait, especially amongst the 'intelligentsia'. This is acutely the case with sections of the Indian intelligentsia, which forever ignore the many positives and only zoom on selectively sampled negatives," wrote Mr Krishnamurthy Subramanian. Apparently, opinion of Indian intelligentsia is influenced by politics. Prof Subramanian was the Chief Economic Advisor to the Government of India and has been appointed by the government "to the prestigious post of Executive Director (India) at the International Monetary Fund, with effect from November 1, 2022 for a period of three years or until further orders." NDTV. In Washington DC no less. He is therefore not at all influenced by politics. What is the reason for his fury at the Indian intelligentsia? "As a recent example of politics masquerading as expert commentary take the claim that Sri Lanka's economic crisis is because of their persecution of Tamils decades back." He says the crisis is because Covid slashed tourism and remittances which together contribute 30% of Sri Lanka's GDP. Actually, the civil war between the Sri Lanka government and Tamil separatists lasted from 1983 to 2009, wikipedia, and no economy can grow during a civil war. Sri Lanka's tourism industry was already suffering massive cancellations following bomb attacks on churches on 21 April 2019, well before Covid. AA. Another major reason for economic collapse was that President Gotabaya Rajapaksa "banned synthetic fertilizer and pesticide imports practically overnight, forcing Sri Lanka's millions of farmers to go organic." Vox. Because he wanted to save $400 million. "It proved disastrous, as a group of scientists and agriculture experts had warned." 'Intelligentsia', oh dear. Gotabaya was elected president in November 1991. He was the defense minister responsible for crushing the Tamil rebellion which made him a hero among the Sinhalese Buddhist majority. TOI. Cause and effect. "Next, consider farm reform as another instance of politics masquerading as expert commentary." At last, the real reason. Apparently there is an "unimpeachable principle that greater competition enhances welfare". Provided competition is genuine. In May, the Union government banned export of wheat to bring down prices within India. TOI. In August, it banned the export of "wheat flour, maida, semolina and wholemeal aata with a view to curb rising prices". BS. High food prices reduce votes. So, farmers' income was sacrificed. This is pure politics and definitely not competition. In 2020, farmers from Punjab started protesting in Delhi against 3 farm bills which aimed to increase competition. wikipedia, They were withdrawn in November 2021. A study by the Punjab Agricultural University found that 9,291 farmers committed suicide in just six districts in Punjab from 2000 to 2018 whereas the official National Crime Record Bureau (NCRB) counted only 1,805 suicides in the whole state in the same period. The Wire. 'Intelligentsia' should not be influenced by politics. But, Subramanian should not be just a mouthpiece for the government. As a citizen he has a duty of truth to the nation. Which should override gratitude.

We will go past as they limp.

"Inflation in the United States accelerated in September, with the cost of housing and other necessities intensifying pressure on households," as "Consumer prices rose 8.2% in September compared with a year earlier, the government said." "On a month-to-month basis, prices increased 0.4% from August to September after having ticked up 0.1% from July to August." "Inflation at the wholesale level rose 8.5% in September from a year earlier, the third straight decline though costs remain at painfully high levels." ABC News. "Inflation continued to wallop Americans in September, with a key measure of price increases hitting a 40-year high last month, the Labor Department reported." CBS News. "Core inflation, which tracks average price increases except for volatile food and energy costs, rose 6.6% over the past 12 months - its highest since 1982." "More troubling, the monthly price change showed that cost pressures are building." "Once those price increases are registered, it is very difficult to take them back, like it is difficult to give a whole bunch of workers raises and then have pay cuts, the same way it is difficult for landlords to expect less rent in the future," said Jose Torres. So, "the market is expecting the Fed to not only deliver a 75 bps rate hike in November but also at the December meeting." "The decade ahead may well be a stagflationary debt crisis the likes of which we have never seen before," Prof Nouriel Roubini said in a Time essay. "He emphasized that private and public debt, as a share of global GDP, has soared from 200% in 1999 to 350% today." BI. "The pace of sales at US retailers was unchanged in September from August as rising prices for rent and food chipped away at money available for other things." ET. "Consumer spending accounts for nearly 70% of US economic activity." India is not far behind. "India Private Consumption accounted for 61.1% of its Nominal GDP in Jun 2022, compared with a ratio of 59.2% in the previous quarter. India Private Consumption contribution to Nominal GDP ratio is updated quarterly, available from Jun 1996 to Jun 2022, with an average share of 59.5%." ceicdata.com. "Slower growth in the advanced economies may help reduce crude oil and other commodity prices, in turn helping reduce the fiscal burden on India, senior government officials have told Business Today Television." Maybe, but slower growth in India's major export markets such as the US, Europe and China may hurt the government's $750 export target for this financial year. ET. "Exports, which hit an all-time high of $422 in the last financial year are now slowing down," and "The number of new unicorns, startups with a valuation of $1 billion, has sharply come down in the recent months, with foreigners tightening their purse strings anticipating a recession." The Week. "India is likely to become the third-biggest economy behind US and China by FY28." ET. If we become third, not because we have become much richer, but because they have become poor, is it something to cheer about? Might win elections though.  

A standout performance.

"In a world of uncertainties, India is one of the very few standout performers, Union Finance Minister Nirmala Sitharman said..., a day after the International Monetary Fund (IMF) described the country as a bright spot in a global economy which is facing a imminent recession." ET. "India deserves to be called a bright spot on this otherwise dark horizon because it has been a fast growing economy, even during these difficult times, but most importantly, this growth is underpinned by structural reforms," IMF MD Kristina Georgieva said. "The size of the Indian economy is projected to cross $5 trillion in 2026-27 and likely to become $20 trillion by 2040, chief economic advisor Anantha Nageswaran said." TOI. "India is on the path to become a USD 30 trillion economy in the next 30 years on the back of strong GDP growth, said Commerce Minister Piyush Goyal." BS. India's nominal GDP at current prices was about $3.2 trillion in 2021. World Bank. It is astonishing, therefore, that despite glowing tributes to our economy by such luminaries, "In a message to major global powers, particularly in the West, finance minister (FM) Nirmala Sitharaman has said that advanced nations must take responsibility for the global spillover 'for their political and economic policy decisions'." HT. She complained that the "triple shock" of the pandemic, the conflict in Europe and rising prices of energy, fertiliser and food will affect growth and inflation for India.  However, she is confident that, "We expect India's growth rate to be around 7.0% this financial year." Of course, foreign countries cannot be blamed for the cut in corporate tax rate from 30% to 22% in September 2019, bringing the effective tax rate to 25.17% including surcharges and cess. BT. In March this year she said that "corporate tax reduction has helped the economy". Corporate tax collections stood at Rs 7.3 trillion in this financial year. BS. In September she asked why the private sector is not investing when foreign companies are keen to invest in India. TOI. "It is widely believed that capex by the Centre will eventually lead to private-sector plough-ins, which are critical for providing the final push to economic growth." Mint. But, the private sector is shy because, "One, a distaste for a jerky policy environment, which renders private plans and projections infructuous. The second is a broader systemic apprehension of an emerging institutional framework that has fostered a forbidding hierarchy of power." Which means ad hoc changes in policy and increasing misuse of power. The share of corporate taxes in overall tax collection fell from 34.5% in 2014-15 to 22.6% in 2020-21, while the share of indirect taxes jumped from 44.4% in 2014-15 to 53.1% in 2020-21 and then fell slightly to 50% in 2021-22. Of this, taxes on petroleum products contributed a total of Rs 21.8 trillion from 2015-16 to 2021-22. TOI. This is highly inflationary, so that retail inflation was 7.41% in September. NDTV. Either we are booming or we are slowing. Tell us which. Please.  

A massacre of the innocents.

"The deaths of 69 children from acute kidney injury in Gambia is linked to four cough syrups made in India and imported into the West African country via a US-based pharmaceutical company, the Gambian police said in a preliminary investigation report." Reuters. "The Indian authorities and the cough syrup manufacturer, Maiden Pharmaceuticals, say these syrups have been exported to The Gambia only." BBC. Thank god. The massacre has been limited. "Maiden Pharmaceuticals says it adheres to internationally recognised quality control standards." But, It "was blacklisted by Bihar state, in 2011," "was subject to legal proceedings by India's drug regulator, in 2018," "failed a quality-control test in Jammu and Kashmir state, in 2020," and "has failed quality-control tests in Kerala state four times in 2022." "When the Gambian authorities sent 23 suspected medicine samples for quality testing, results showed that the batches of the four Maiden Pharma brands had high levels of diethylene glycol (DEG) and ethylene glycol, both of which are deadly toxins that attack human kidney tissue," wrote Priyanka Pulla. Ethylene glycol is commonly used as anti-freeze and coolant in radiators of motor cars. wikipedia. Because it is sweet, it would be easy to poison babies with it. "Many importing countries require Indian manufacturers to provide a 'WHO-GMP' certificate, an assurance that the plant is following practices recommended by the WHO." GMP, which stands for Good Manufacturing Practices, specifies a set of guidelines for manufacturing medicines. WHO. "Maiden Pharma had such a certificate, according to CDSCO's (Central Drugs Standard Control Organisation) website." Wonder how much it cost. "The CDSCO and Haryana's Food and Drugs Administration (FDA), both of which were responsible for overseeing the quality of products sold in The Gambia, have so far shared very little information." That's the Indian way. In 2021, during the Delta wave of the coronavirus, when about 3.4 to 4.9 million people died, The Conversation, some patients developed high temperature and died when treated with Remdesivir "manufactured by Gujarat-based firm Zydus Cadilla". wrote Pulla. The Bihar regulator "found Cadilla's batch V100167 to contain bacterial endotoxins - compounds present in protective envelopes of bacteria, which cause fever, chills and life threatening septic shock in humans." Cadilla denied any responsibility and alleged that the saline used to dissolve their product was responsible. Life is cheap in India. In 2014, 13 women and two men died in Chhattisgarh when given Ciprofloxacin injection after surgery which was found to contain zinc sulphide, a rat poison. Seattle Times. A massacre of the innocents in The Gambia. GMP, with Indian characteristics.

We are much better off..

"While it doesn't spell out the dreaded term 'stagflation' ," the International Monetary Fund (IMF) "has sharply cut its global growth forecast - from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023." pipanews.com. "At first glance, India is in a better position." But "Higher crude oil and fertilizer prices will drive up domestic inflation; The global recession will hurt exports, drag down domestic growth and worsen the trade deficit; A stronger dollar will put pressure the rupee's exchange rate, which will likely result in depleting our foreign exchange reserve and reducing our ability to import goods." The government will have to spend more on subsidies which "will worsen the economic condition of the government". "Driven by rising food prices, India's retail inflation accelerated to 7.41% in September," while "Core inflation, excluding volatile food and energy prices, was estimated at 6.07-6.1 percent". Mint. "Meanwhile, industrial growth, as measured by the Index of Production (IIP), contracted 0.8% in August as compared to 2.4% in July." "The IMF predicted that India's current account deficit will be 3.5% and that is way over the danger mark of 3% and well above what the RBI predicts," said Mythili Bhusnurmath. And, "India has been experiencing jobless growth over the past many years and this is not a recent phenomenon." In its zealous belief that a low interest rate will help stimulate growth by encouraging borrowing, the RBI has sold $110 billion in a desperate attempt to jack up the exchange rate of the rupee and thus arrest imported inflation. ET. Foreign exchange reserves fell to $532.66 billion in the week ended 30 September. That was long ago. Since then, the rupee slumped to 82.69 against the US dollar, BS, but is trading at 82.31 this morning. xe.com. We will know the cost in coming days. High inflation hurts the poor and low interest rate helps the rich. While the US Federal Reserve has raised its interest rate by 300 basis points since March, AA, the RBI has grudgingly raised its repo rate by a cumulative 190 basis points, thus lagging way behind the Fed. TOI. While soaring prices have forced rural customers to restrict spending on essential items like "cooking oils, laundry products, biscuits and chocolates, as well as personal hygiene products", BS, "The pandemic has not impacted affluent consumers' income levels in the country is clear from the fact that the top 20 percent of the population account for the bulk of discretionary consumption - 59 percent in rural areas and 66 percent in urban areas." ET. While sales of passenger vehicles (cars) have grown by 9.71% in September compared to the same month last year, sales of two-wheelers have grown by 9% and tractor sales have fallen by 1.5%, showing the widening gap between the upper and poorer classes. India Today. The current account deficit (CAD) has already reached 2.8% of GDP at $23.9 billion. TOI. Affluent spending will only increase imports of luxury products and CAD. Are the government and RBI losing control? Hope not. 

Even the rich can't fight markets.

"The boss of the Bank of England has said a bond-buying scheme to stabilise pension funds must end on Friday, despite pleas to extend it." BBC. "Earlier the Bank of England made a fresh bond-buying move to try to calm markets." Purchasing securities from the open market to increase money supply and bring down interest rates is also known as 'quantitative easing'. Investopedia. "The pound dropped sharply against the dollar to below $1.10 after Mr Bailey's statement." This turmoil is a result of a mini-budget presented by Prime Minister Liz Truss's Chancellor of the Exchequer Kwasi Kwarteng which proposed "a combination of 45 billion pounds of unfunded tax cuts, a removal of bonus caps on financial firms and the reversal of a corporate tax increase from 19% to 25%," wrote Narayan Ramachandran. The duo was forced into an embarrassing u-turn on the proposal to abandon the top income tax rate of 45% by the huge negative reaction. TOI. "Liz Truss's budget plan was spectacularly ill-timed, was defended in doctrinaire terms and at cross-purposes with the action plan at the Bank of England (BoE)." "Pension funds are designed to be dull." CNN. "As the price of government bonds crashed, the funds were asked to pony up billions of pounds in collateral." The pension funds were using derivatives to hedge their bets. When bond prices crashed their 'mark to market' value fell. "Mark to market (MTM) is a method of measuring the fair value of accounts that can fluctuate over time, such as assets and liabilities." Investopedia. When MTM falls below a certain level it triggers a 'margin call'. "A margin call occurs when the percentage of an investor's equity in a margin account falls below the broker's required amount." "When a margin call occurs, the investor must choose to either deposit additional funds or marginable securities in the account or sell some of the assets held in the account." "In a scramble for cash, investment managers were forced to sell whatever they could - including, in some cases, more government bonds. That sent yields higher, sparking another wave of collateral calls." "And across the Atlantic, the market for US Treasuries is raising liquidity concerns," wrote Profs Raghuram Rajan & Viral Acharya. Between March 2020 and March 2022 the US Federal Reserve was buying $80 billion worth of US Treasuries and $40 billion of mortgage-backed securities (MBS). From September the Fed started to reduce its balance sheet by not reinvesting what it receives from maturing $60 billion worth of Treasuries and $35 billion of MBS. stlouisfed.org. This is quantitative tightening or QT. Problem is that funds, including pension funds, "compensate for the QE-induced low return on long term gilts, they increased the risk profile of their other assets, taking on more leverage and hedging any interest risks with derivatives." As happened in the UK. In India the Reserve Bank "had to burn $110 billion in desperate attempt to arrest rupee's slump to a lifetime low, dragging the forex reserves to the lowest level in over two years." ET. Perhaps we should learn from rich countries. Can't fight markets.          

Congratulations Ben Bernanke.

"Ben Bernanke who led the US central bank during the 2008 financial crisis, is one of the three recipients of this year's Nobel prize in economics." BBC. Bernanke was a tenured professor of economics at Princeton University from 1996 to 2002 and the Chairman of the Federal Reserve from 2006 to 2014. wikipedia. "Mr Bernanke's research showed how bank runs had prolonged the Great Depression in the 1930s." "When the (2008) financial crisis hit, he pushed the Federal Reserve to intervene aggressively, slashing interest rates and helping to organise bailouts of some of America's biggest banks - moves that were politically controversial." During the financial crisis of 2008 Bernanke pushed the Fed to lower its funds rate to near zero and proposed a 'quantitative easing' program in which the Fed purchased Treasury bond securities and mortgage-backed securities, which increased their prices by creating a scarcity, and pushed down yields. This pushed interest rates down enabling businesses and individuals to borrow at extremely low rates. Investopedia. Bernanke even considers the use of 'helicopter money', which is providing cash handouts to people as a last resort. "First, in theory at least, helicopter money could prove a valuable tool. In particular, it has the attractive feature that it should work even when more conventional monetary policies are ineffective and the initial level of government debt is high," he wrote. Prof Raghuram Rajan was not impressed. "The bottom line is that unconventional monetary policies that move away from repairing markets or institutions to changing prices and inflationary expectations seem to be a step into the dark," he said. Right. On 28 August 2013, the Indian rupee fell 3.7% to an all-time low of 68.85 to the dollar, Reuters, when Bernanke proposed reducing the bond buying program, in what is known as the 'taper tantrum'. The subprime crisis of 2008, caused by excessive mortgage lending to people with limited income, wikipedia, was because of low interest rates to protect the stock market by previous Chairman of the Fed Alan Greenspan in what is known as the "Greenspan put". Investopedia. A chastened Greenspan acknowledged his error in front of a Congressional hearing in 2008. NYT. In a speech on 27 August 2005, Prof Rajan highlighted excessive risk taking based on easy monetary policy and deregulation. IMF. Excessively loose monetary policy by the Fed along with stimulus checks of a total of $3,200 by the US government, CNBC, has led to inflation jumping from 2.6% in March 2021 to 8.3% in September 2022. US Inflation Calculator. That has resulted in the Fed raising interest rate by a total of 300 basis points to 3-3.25%, CNBC. The US may be on the brink of recession with the GDP contracting by 1.6% in the first quarter and by 0.6% in the second. BBC. Rising interest rates in the US has caused the rupee to fall to 82.38 to the dollar. xe.com. Greenspan created the problem by keeping interest rate too low for too long. Bernanke lowered interest rate to zero and added quantitative easing. Which may cause a global recession in 2023. World Bank. He gets a Nobel prize. Congratulations.