Are the pundits willfully blind?

With the advantage of hindsight people are suddenly waking up to the economic mess created by the present government, led by the Congress. The puzzle is where were these people when the Congress was wasting trillions of rupees on social schemes just to win elections. The government has raised Rs 2.3 trillion in 5 years from spectrum auctions and sale of shares in PSUs.  Last week it sold the cancelled 2G spectrum for Rs 500 billion. It has raised taxes, especially taxes on every kind of service, so severely that the sector has been shrinking. The Purchasing Managers' Index for services for January was 48.3 which is higher than the December figure of 46.7. Although anything below 50 denotes contraction this rise is seen as encouraging. Not worth boasting about in Davos is it? Now the Central Statistics Office has announced that the GDP will grow by 4.9% this fiscal. When our most revered Finance Minister and the World Famous Economist were predicting 5.5-6%. However, even this figure maybe suspect because the GDP growth for 2012-13 was revised downwards from 5% to 4.5%. The GDP in 2012-13 was Rs 54.8 trillion and not Rs 55.03 trillion as projected by the CSO in February 2013, thus providing a lower base to calculate this year's growth. How did the Congress manage to destroy the economy? The Congress has spent a total of Rs 2.3 trillion on the MNREGA scheme which pays the rural poor for 100 days of fictitious work every year. This has been whitewashed as a rural employment scheme but in reality is a blatant handout of cash. But surely the scheme has improved the quality of life for the poor and, by increasing their purchasing power, has increased consumer demand, thus helping manufacturing? Initially it did spur an increase in rural wages but by providing a base for wages it increased costs for farmers and resulted in double digit food inflation, harming the poor who spend a greater part of their earnings on food. Real wage growth, adjusted for inflation, has fallen from 11% in 2011 to 3% in 2013. Earnings of consumer goods companies show a marked slowdown in rural areas compared to previous years. Had this money been spent on infrastructure people would have had better access to markets, to education and healthcare. Question is when we have been writing since 2009 why did the pundits not see it? Or did they stay blind to support the Congress?

More states lead to more corruption.

The Congress is set on dividing Andhra into Telengana and Seemandhra. Some say that it is to reduce the power of the Reddys, who own most businesses in the state, and others say that it is to defang Jaganmohan Reddy who could grab a large chunk of parliamentary seats in April. Whatever the reason we can be sure that it is not in the interest of the people of Andhra. It is the old divide and rule that the Congress inherited from the British and has been using with great success since. Divide the country into states depending on language, divide the people according to religion by giving special privileges to ' minorities ' and divide Hindus by classifying different groups into Scheduled Caste or Other Backward Castes. Jains are to be classed as a ' minority ' group although they are mostly extremely rich and there has never been any quarrel between Hindus, Buddhists and Jains as these religions were born in India and were not imposed by murderous conquerors who converted locals by force. The other reason to create smaller states is to give second rung politicians a chance to get a share of power and the spoils that come with it. Thus when Uttarakhand was carved out of UP it got a separate assembly with 70 seats and Dehradun as its capital. Land prices immediately began to soar as opportunities for collecting sacks full of black money were gleefully exploited. When Maj General BC Khanduri became Chief Minister he started to crack down on corruption and on the land mafia. This created enormous opposition and even people of his own party, the BJP, went against him. The crooks poured vast amounts of money into general elections in 2009 and the BJP lost all 5 seats in the state to the Congress. In panic the BJP forced Gen Khanduri to step down but as corruption spiraled out of control people became increasingly angry and disenchanted with the BJP government. So Gen Khanduri was brought back in 2011 to clean up the mess but could not prevent losing state elections in 2012. Indeed his opponents within the BJP worked against him to ensure that he lost his seat. The best solution would be to get rid of state governments and municipalities elect small councils to govern each district in the country. That will give power to local communities to manage their own affairs at grassroots level without being imposed upon by distant tyrants.  

We desperately need proper economists.

The Finance Ministry is so keen for domestic investors to buy stocks of Indian companies that it has started a Rajiv Gandhi Equity Savings Scheme which will give tax relief on investment up to Rs 50,000, in shares. If numerous people invest small amounts in company stocks it will increase market capitalisation of the companies, allowing them to invest in new projects creating more jobs, there will be less money for buying gold, which will help the Current Account Deficit, and reduce the influence of Foreign Institutional Investors who can move their money to other markets causing our markets to tank. But people are not buying. Why? Because our markets are highly manipulated by large brokers, such as Ketan Parekh, because the government is not to be trusted and because the hot money brought in by the FIIs can flee at any time. As a relic of the socialist era we still have government companies which are known as PSUs. Some of them are very good and make excellent profits. To reduce the fiscal deficit to below 4.8% the Congress is desperate to raise funds by selling of some of its stake in these companies. In 2012, the government put 427 million shares of ONGC on the block but priced the issue so high that there were no takers. Eventually, the Life Insurance Corporation, another PSU, bought 377 million shares at a total cost of Rs 114.26 billion to save the Congress. This time round shares are being sold off at discount rates to entice buyers. Individual investors have lost Rs 500 billion because of the resultant fall in market prices. Last January Engineers India was selling at Rs 229.50 per share but now the same share can be had at Rs 140-150. Thus EIL has lost 40% of its market capital worth Rs 30 billion. " It is not good market economics to sell family silver at discounted prices, which is detrimental to investor interest. The government is discovering sale price of PSU companies at lower levels; we fear this will destroy the market capitalisation of state-run companies," said Deven Choksey, MD of KR Choksey. So on the one hand the Congress wants people to buy shares and on the other by destroying market value they are scaring off investors. Because they are desperate for money because they have wasted the country's finances. When we could see it why did our pundits miss it?

All of us cannot be politicians.

Politicians are a special breed. To be successful in politics you need to start early. Find a leader that you can latch onto. Serve the leader without questioning his crimes, including plunder, rape and murder, always taking care to have an alibi so that you can deny any knowledge later. At the appropriate time stab the leader in the back and take over his constituency, tell any lie to deceive the people and embrace the nastiest villains with unctuous smiles, always prepared to betray or be betrayed. Once in power loot the treasury, travel the world in first class comfort and start grooming your vile children to take over whichever party you belong to. If, due to serious bad luck, your crimes are exposed deny everything, allege conspiracy by your opponents and the police or darkly hint at black ops by an unnamed foreign power. Be totally shameless at all times. Keep repeating that you have dedicated your life to the service of the people and the huge bungalows, Z+ security and first class foreign travel are all a huge sacrifice even as patients die because they are stuck in traffic while your cavalcade with flashing lights takes precedence over all other citizens. All politicians are of the same ilk but Indian politicians are special in that they have absolutely no qualms about sacrificing the nation with its 1.25 billion people, to win elections. The Congress won elections in 2009 by embarking on a colossal spending spree to bribe voters. The MNREGA scheme has cost over Rs 2 trillion since 2006, the farmers' loan waiver cost over Rs 700 billion and the Sixth Pay Commission increased civil service salaries apparently by 21% and cost Rs 480 billion. However, these figures hide the facts that MNREGA is linked to inflation and has already more than trebled, farmers have taken new loans which they have no intention of repaying and civil servants are given a non-performance bonus, called Dearness Allowance which is equal to their basic salaries. Not only that. An officer earning Rs 10,000 per month will not dare to demand bribes exceeding Rs 1 million but if he is paid Rs 100,000 per month his Bribe Price will increase to Rs 100 million adding to corruption costs. The Congress is up to its old tricks again, announcing a Seventh Pay Commission, education schemes for Muslims worth Rs 160 billion and increase in subsidised domestic gas plus other schemes. Only the really lowdown can betray their country. Not easy.

Rich countries always control inflation.

Since 2009 we have been writing that inflation was the biggest danger to the economy and that the Reserve Bank was woefully slow to increase interest rates. In fact the blunder was committed in 2007 when inflation was just above 4%, oil was around $65 per barrel and the rupee was 39 to the dollar. That was when the RBI should have increased interest rates above the rate of inflation which would have brought inflation down to below 3% and encouraged savings by giving positive returns on bank deposits. That would have reduced the Current Account Deficit or CAD and increased genuine investment, as banks would be flush with funds to lend, while discouraging a debt boom which is causing Non Productive Assets of banks to rise to uncomfortable levels. The RBI should have bought dollars, building up reserves of over a $1 trillion, which would have protected the rupee today when the Federal Reserve is reducing its bond buying program. The lower value of the rupee would have made exports cheaper, earning more foreign currency, and imports more expensive, curtailing consumption, thus  reducing both inflation and CAD. Instead the RBI acted as an agent of the Congress using the strong rupee to control inflation by keeping imports, especially oil and gold, relatively cheaper. At last someone has had the courage to speak up. Maybe because he is a Managing Director ( Research ) at Morgan Stanley and could be living abroad. He has made the same point that the RBI was too slow in raising interest rates and has advised adoption of the Urjit Patel committee report which recommends controlling the Consumer Price Index which is around 10% rather than the Wholesale Price Index which is much lower at around 6%. The Congress would like interest rates to be brought down to make consumer loans cheaper, to encourage sales, and cheaper housing loans, to increase black money, and create a false feelgood factor before the coming elections. Inevitably a stooge writes that the Bank of England is concentrating on growth rather than on inflation. Absolute lie. The CPI in Britain is at 2%, food inflation at 1.5% and shop prices have actually fallen by 2.7% in January creating deflation fears. It maybe amazing for us that there are people still willing to lie for the Congress when it has betrayed the country so spectacularly. It is people like this that has made India weak.

India could be conquered easily.

In an incomprehensible attack Nido Taniam, a 19 year old student from Arunachal Pradesh was killed by some men last week. Apparently the teenager got into an argument when a shopkeeper in Lajpat Nagar made comments on his hair and appearance. The attack is incomprehensible because the shopkeeper had no business making any comments on Nido's appearance, should have apologised when Nido objected and then, what is absolutely impossible to forgive, should not have instigated an attack of such severity that the boy ended up with severe injuries to his brain, lugs and internal organs. Then couple of days ago 2 women from Manipur were beaten up at Kotla Mubarakpur. People from Bengal, Assam, Manipur, Nagaland, Tripura and Mizoram are Indian citizens with as much right to travel, work or study in any part of India. The press claims that the locals call them ' chinkis ' which is derogatory for Chinese. But it is not that these people are mistaken for Chinese and so ill treated because China is seen as an enemy of India. After all the same thugs have no qualm buying goods made in China. In December 2011 a young woman from Uttarakhand was gang raped and almost disemboweled in a bus in Delhi. She died a few days later. And she looked no different from Delhi people. In the beginning politicians took no notice of her but when thousands started to protest her corpse was sent for a round trip to Singapore, in a waste of public money, to fool the people. This time, with elections round the corner politicians, in an act of utmost hypocrisy and cynicism, have joined protests. Is it something in the air and water of Delhi that makes people behave like mad dogs or are all Indians such vicious savages? Is it because our politicians are constantly dividing people based on region, religion and caste to get elected? The irony is that China claims Arunachal Pradesh as part of itself. Do these morons want to drive the people of Arunachal into China? Meanwhile 3 policemen have been suspended because 7 buffaloes, belonging to Azam Khan of Samajwadi Party in UP, went missing. The police went into emergency mode and the buffaloes have been found within 24 hours. When buffaloes are more important than citizens is it any wonder that our diplomat was sexually assaulted in the US on false charges?
 

You cannot control fire with petrol.

Seems that Indians are unable to save as much as before as they are having to pay ever increasing costs to maintain their standard of living. The reasons are purely due to actions by our government. School fees have risen by a mind-numbing 433% between 2004 and 2013. Why? Because the Congress has increased salaries of teachers in government schools, who are not properly trained and do not come to work half the days, by over 80%. To get their votes. Naturally salaries of teachers in private schools have risen, although by not as much. Then the Congress passed the Right to Education Bill which forces private schools to reserve 25% of seats for students from poor families for which the government pays token amounts to each school. To raise money for the handouts taxes have been increased by equivalent amounts, raising costs still further and forcing consumers to reduce consumption. The other way the government has been financing its wasteful spending is by forcing public sector companies to increase dividend payouts instead of spending on new projects which will increase employment. The MNREGA scheme which hands out packets of cash to the rural poor, for doing nothing, is linked to inflation. It started by paying out Rs 69 per day for 100 days in a year but last year Haryana was paying Rs 214 per day and is probably paying even more this year. Since this puts an ever rising lower level on wages for rural labor farmers have been increasing prices for their produce to make profits. The Congress has introduced a Right to Food Act which seeks to provide rice at Rs 3 a kilo and wheat at Rs 2 a kilo to 800 million poor people. To do this the government offers a Minimum Support Price to farmers for producing cereals. This underpins the market price at a higher level and encourages farmers to demand even higher prices at the next harvest. High cereal prices lead to higher prices for milk, eggs and meat as the price of fodder rises in conjunction. Couple of months back sugar mills in UP were refusing to buy cane at the price set by the government because the international price of sugar was so low that they would make losses. Farmers are encouraged to divert land to the production of cereals so costs of vegetables soar. The government then hoards cereals to distribute it just before elections, leading to rotting of vast quantities. When inflation is stoked by the government it cannot be controlled.

Raymond and Amanda are both Americans.

On 1 November, 2007 a 21 year British student Meredith Kercher was found dead on the floor of her apartment in Perugia in Italy. Her roommate, an American called Amanda Knox, and her Italian boyfriend Raffaele Solicito were charged with the murder. Under questioning by the police Knox changed her story several times and her alibi did not hold up. They were tried and sentenced to 26 and 25 years in prison. One Rudy Guede of Ivory Coast is serving a 16 year sentence for the sexual assault and murder of Kercher. However, in October, 2011 an appeal court overturned the guilty verdict and Knox promptly flew back to the US where she has been appearing on TV and has earned lots of money from a book. No wonder she was known affectionately as Foxy Knoxy by her friends. The Italian prosecutors appealed and now a higher court has set aside the earlier verdict and has sentenced Amanda Knox to 28.5 years in prison and Sollecito to 25 years. On hearing the news Knox said, " I'm going to fight this until the very end. And it's not right and it's not fair and I'm going to do everything that I can." No remorse or any conscience. And why should she? Isn't she an American and don't Americans have the right to kill and torture anyone in the world? How dare any court convict an American? Raymond Davies killed 2 Pakistanis in cold blood in Lahore, Pakistan in January 2011 and a car coming from the US Consulate on the wrong side of the road killed a third man in a hit and run. The US claimed retrospective diplomatic immunity for Davies and forced Pakistan to release him after paying blood money to the families. In 2007 an Apache attack helicopter went hunting over Baghdad and shot dead 12 innocent people, including 2 Reuters journalists. The murderers went unpunished. The US government has committed more mass murders and genocides than any other nation in the history of the world. Hydrogen bombs on Hiroshima and Nagasaki, napalm on Korea, napalm and dioxin on Vietnam, and depleted Uranium and Phosphorus bombs on Iraq. However, Americans do not kill only foreigners. Unarmed 16 year old, Trayvon Martin was shot dead by a much bigger man, George Zimmerman in Florida in February, 2012. Zimmerman walked free under the ' Stand Your Ground Law '. Unarmed Martin was not allowed to stand his ground. Every year 20,000 are killed by guns because it is sanctioned by the 2nd Amendment of the Constitution. Yet we die to go to this country of killers.

Quality education. But how?

In a reasoned op ed piece titled ' Body Of Unequal Evidence ', Sunil Khilnani, Avantha Professor and Director, King's Indian Institute, London says that every politician in India has his own agenda but " each leader sidesteps a glaring fact about the country they seek to lead: rising economic inequality threatens our future." Although inequality is growing everywhere, as evidenced by the ' Occupy Wall Street ' movement in the US, which was brutally put down by authorities, the rapid growth in numbers of young people with little prospect of escaping the poverty trap is widening the gap between rich and poor to unbearable proportions. He says that inequality in India is " rooted in the two-tier education system that primes wealthy students to become global crorepatis while granting poor students skills as flimsy as their certificates ( if they are lucky to enough to get one )." A survey of 100,000 students showed that only 30% are fit to be employed. Prof Khilnani writes," Indian and Chinese growth is viewed as a direct threat to the West's well-being in terms of jobs, environmental conditions, access to resources, and more." We beg to differ. China and India are completely different. While China grew by building a world class infrastructure which supported an industrial explosion of such magnitude that it became the factory of the world, India's growth was based on construction of private and commercial properties, fed by vast amounts of cheap debt, a soaring stock market boosted by billions of dollars from Foreign Institutional Investors and bundles of notes distributed by politicians seeking to buy votes to win elections. The growing inequality in the west is partly due to multinationals shifting production to China, Thailand and Vietnam in the quest for cheap labor and the resulting loss of secure jobs, with health insurance and pensions. The good professor should surely know that students have very different capabilities and those with high intelligence will seek premium institutes and centers of excellence, such as Harvard, Oxford and the IITs, will automatically rise to cater to this market. As in everything in the world it is a matter of supply and demand. To increase the worth of human beings we must reduce supply which means reducing population. By reducing competition for low paid jobs it will reduce exploitation and bring equality. Someone has to have the courage to say so.

Why Indians want to emigrate to the US.

In his State of the Union address President Obama bragged about how the US is now producing more oil and gas than it is importing and how manufacturing is returning to the US for the first time in 20 years. As the world's largest energy user the US is now able to maintain a steady supply of energy because it has adopted hydraulic fracturing in a massive way and is not as dependent on unpredictable supplies from the middle east and Venezuela. The US has been suffering bouts of extreme cold weather with temperatures dropping to -30 Celsius in places resulting in a huge demand for heating but unlike other years electricity and gas rates have held relatively steady. Compare that to Delhi, the capital city of India, which suffers daily blackouts because the previous Congress government did nothing to increase production of electricity and transferred transmission to private monopolies which have increased bills to astronomical levels. The present Chief Minister wants rates to come down so the duration of blackouts have increased, whether as a warning to the government is not known. Gujarat has the same rates but there bills are much lower which is a puzzle. Most of our more than 7,000 kms of coastline have not been explored for oil or gas. The reason is the demand by politicians for personal bribes and for massive amounts of money to be paid to the government to be granted any contract. This is then used for social schemes to buy votes. This is called Private Public Partnership but in reality companies do not invest any money at all but borrow every penny from public sector banks. Thus taxpayer money is being borrowed by private companies to pay the government to obtain contracts and the companies then repay the banks by charging toll from taxpayers in the case of roads or exorbitant rates in the case of electricity. The result is soaring inflation, rising labor costs and falling industrial output. Ten years back the cost of hiring a plumber, mason or electrician would have been 20% of the cost of materials but today the cost of labor is the same or more than the cost of materials. Bribes paid to politicians are invested in properties, raising the property prices and rents. Social schemes, such as the NREGA, are linked to inflation and so wages rise with inflation which then leads to rise in prices, raising inflation, in a mad cycle. Today rural inflation is higher than urban inflation which means higher food prices to come. That is why Obama can boast but our lot want to be treated as VIPs by airlines so that they can smuggle in contraband in complete safety. Is it any wonder Indians die to go to the US.

We must write our own fate.

Couple of years back India was one of the BRICS countries but today we are one of the ' Fragile Five ' comprised of Turkey, Indonesia, South Africa, Brazil and India. Dangers to the country are very high fiscal deficit, persistent inflation and a hung parliament in the general elections in April. To this list we would also add a massive property price bubble waiting to collapse, unknown amounts of circulating black money and a lack of manufacturing, leading to import of almost all items of daily use. " I am concerned that we have not been as successful as we need to be in generating employment in the manufacturing sector," said our most revered Prime Minister. Which is inexplicable because we have enough natural resources, large numbers of young people looking for employment and thousands of educated and talented Indians working abroad because there is no prospect of advancing at home. The British built the first railway line in 1853. In the 66 years since independence India has added 13,000 km of new railway lines while China has added 14,000 km between 2006 and 2011. For years passenger fares have not been increased even as cost of fuel has jumped. The reason is the socialist vision of our politicians who seek to protect the poor with policies that lock them into poverty for generations. Thus, a person can travel from one side of the country to the other for Rs 200 if he is prepared to fight for an unreserved seat in an overcrowded carriage in a passenger train, which will crawl to its destination in 3 days, often late by 6 hours or more. This person will be cooked in summer and frozen in winter as the carriage will not be air conditioned, will have to pinch his nose to use a filthy toilet, often without water and sleep sitting up as there will not be any space to lie down. To subsidise these passengers fares in air conditioned trains and first class have to be very high but not so high as to encourage passengers to fly instead of going by train. To maintain a difference in price between first class train fare and air fare taxes of air tickets, airport charges and taxes on fuel have been kept at exorbitant level. So poor people can only see planes fly high above them but can never hope to set foot in one. Although we have been making engines and carriages the designs have remained almost static while other countries have advanced way ahead. It is time we started to aim high, higher than the world.

The democracy trap.

Couple of years back people were talking about the rise of emerging nations and ' convergence ' with rich countries. Brazil, Russia, India and China were lumped together as BRICS nations. Our ministers were strutting around the world, drunk with hubris. The only argument was about when India will overtake the US to become the richest country in the world. No longer. Growth rates of emerging nations have tumbled from 8.7% in 2007 to 4% in 2013. Only China grew at 7.7% but even here there are doubts about how long the Chinese can continue to stimulate growth with debt, especially in the shadow banking system. Now the talk is of a ' middle income trap ' in which a poor country grows up to a certain level, often based on high commodity prices, and then stops growing or sinks back into poverty when conditions reverse. Perhaps it would be better to call it a ' democracy trap ' where politicians refrain from undertaking reforms needed to continue growth for fear of losing elections. It is easier to distribute largesse to the poor under the umbrella of ' inclusive growth ' which helps in winning elections. Slowing growth in China and falling commodity prices have slowed growth in Brazil. The Bovespa stock index has fallen by 20% in the last 12 months and the Real has fallen 8.63% in the last 3 months. This has been blamed on broad concerns over economic fundamentals, erratic policy implementation and heavy-handed government meddling in the private sector. " I want to emphasize that we will not be weak on inflation," said Dilma Rousseff, President of Brazil. " Today, the stability of our currency is a central value of our country," she said at the World Economic Forum at Davos. That is where our most revered Finance Minister has gone as is his wont. But that is where the similarity ends. Our ministers have shrugged off all responsibility by blaming the slowing economy on ' external factors ', have allowed inflation to increase out of control by pressuring the Reserve Bank not to increase interest rates and have increased government expenditure recklessly on social schemes. Instead they have passed on responsibility to private companies in the form of the Corporate Social Responsibility Act. However, the recent defeats in state elections have come as a sudden jolt to the Congress which is now trying to present free handouts as health schemes. They may call it what they will but it is definitely unhealthy for the nation.

The poor rupee.

Like the national flag and the national anthem the rupee is a symbol of the nation of India. At independence the rupee was at par with the dollar but today one dollar will buy you Rs 62.76. It did rise to 39 to the dollar in 2007 but irresponsible spending by the Congress to buy votes has squandered all the gains. Partly it is because it suits our politicians to show excessive sympathy for the poor, especially during election times, so that they announce large numbers of handouts, such as cheap food, free electricity, free televisions and so on. During the last assembly elections in Gujarat the Congress announced distribution of free apartments for the poor, called the ' Ghar nu Ghar ' scheme. When one party announces freebies other parties follow suit to counter it. This results in mounting deficits and soaring inflation which leads to a fall in the value of the rupee against other currencies because of falling purchasing power. Had the same amount of money been used on infrastructure we would have continuous, cheap power supply and world class roads without toll which would make our industries the most competitive in the world. The other reason is rampant corruption by politicians, civil servants and the police which results in accumulation of vast amounts of black money which can only be invested in property or sent out of the country to secret bank accounts in tax havens. These activities also act as a drag on the rupee because the Reserve Bank is unable to control money supply as no one knows how much black money is circulating in the country, the government cannot tax black money transactions and so has to increase taxes on legitimate activities and there is a huge property price bubble waiting to collapse. Hence the weakness of the rupee. Last year the rupee fell to below 68 to the dollar when the Fed announced a reduction in its bond buying program which was injecting $85 billion into the market every month. The RBI acted by guaranteeing interest paid on dollar accounts, drawing dollars into India. This has now been stopped and the rupee is falling again, not as fast a the Argentine peso or the Turkish lira but gently subsiding like an autumn leaf. In 3 months to January it has fallen by 1.94% and will probably fall more as the US economy gains steam. The World Famous Economist blames external factors for the looming crisis but he is solely responsible for the sorry state of affairs. Poor rupee. Poor India. Poor us.

On Republic Day we wish to become a genuine republic.

The Congress loves the aam aadmi or the common man. Indira Gandhi used ' garibi hatao ' which means 
' remove poverty ', to win elections  and then went on to increase income tax levels to 98.75% which created more poverty. In 2004 the Congress used the slogan, ' what did the aam aadmi get ' to win against the BJP. It then went on to start a host of social schemes paid for by the growth engineered by the BJP. In 2009 the slogan was ' Congress hand with the aam aadmi ', sweetened by the farmers' loan waiver at a cost of Rs 600 billion, NREGA scheme, which has cost Rs 2 trillion since 2006, and more trillions spent on the Sixth Pay Commission, which increased civil service pay by 80%. We all know that it led to increasing fiscal and Current Account deficits and to double digit inflation, hurting the aam aadmi and leading to a thrashing in elections in 4 states in December 2013. This time round the Congress is in a fix. If it builds a campaign around the aam aadmi uneducated people might think that it is campaigning for the Aam Aadmi Party or AAP which has formed the government in Delhi, with Congress support. Also. the AAP is promising even more handouts, than even the Congress dares to promise, secure in the knowledge that it has no chance of forming a government at the Center. Our most revered President is so peeved with the upstart laying claim to the old con trick that he said," Government is not a charity shop. Populist anarchy cannot be a substitute for governance." Oh dear, amnesia strikes again. As Finance Minister Mr Mukherjee invented numerous direct and indirect taxes to pay for social schemes.  So this time the advertisement says," No hand has a magic wand that can be waved to achieve progress. We have to form a great India together. Therefore, the Congress's aim is to give power to every hand so that everyone gets full opportunity for progress." The question rises as to why the Congress did not give full opportunity in the 10 years since 2004 and in the total of 56 years since independence. The answer is because the only aim is to win elections any which way and then to use taxpayer money to build massive assets so that the next 10 generations will not need to work and to bequeath seats to sons and daughters in a hereditary transfer of power. The king is dead, long live the king. Today is Republic Day. Sadly, we are yet to become a republic.

The urge to meddle.

Doctors have long been aware of the dangers of polypharmacy wherein sympathy for a patient's suffering leads to prescription of many types of medication, resulting in toxicity and even death of the patient. Trying to do good without understanding the finer nuances of a problem often results in more harm. The same applies to nations. Saddam Hussein is a vicious dictator so his removal should bring peace and stability to Iraq.That simplistic theory was behind the attack on Iraq based on lies about Weapons of Mass Destruction but in practice Iraq is now on the verge of civil war as Sunni extremists have taken over parts of Anbar province in western Iraq, including Fallujah, where the US used chemical weapons in the form of phosphorus to win in 2004.  Sectarian violence led to the deaths of 9,000 people with 25,000 injured in 2013.The same has been the result in Lybia where NATO bombing, fraudulently using a UN Security Council resolution permitting use of force only to protect civilians, led to Gaddafi being ousted and killed along with 30,000 civilians. Libya is now divided along tribal lines and the national government is confined to Tripoli. Now it is Syria's turn. Here the situation is complicated by Russian and Iranian support for the Assad regime. Russia has a base at Tartus and Iran is sending in fighters from the Republican Guards as well as the Hezbollah. While the western media has portrayed Assad as a vile dictator, which he is, they are quiet about the equally odious friends of the US, such as Saudi Arabia, which is the financier of global jihad, and Pakistan which is the epicenter of terrorism in the world. They were predicting Assad's removal within weeks but 2 years on it seems that Assad's forces, with Hezbollah reinforcement, are pushing back the rebels on many fronts. To make matters worse for the west various rebel groups are fighting among each other. So now they they have arranged a conference in Geneva but can they really understand that the middle east survives on hatred. The Shias and the Sunnis hate each other. Tribes hate each other even if of the same religion. The sheikhs hate each other. Sometimes they just hate. When the protests in Tahrir Square in Egypt brought down Musharraf they were predicting a democracy like Turkey. Today Egypt is more like Pakistan, with the Muslim Brotherhood playing the role of the Taliban, and Erdogan is becoming a dictator everyday. Physicians have learnt the value of masterly inactivity. Perhaps politicians should take lessons.

The RBI wants to impose financial discipline.

A committee set up by the Reserve Bank, chaired by Deputy Governor, Urjit Patel says that the RBI will set its monetary policy in relation to the Consumer Price Index and not the Wholesale Price Index, which is lower. The report recommends the CPI be gradually reduced from 9.87% in December to 4% plus, minus 2%. The aim will be bring it down to 8% in 12 months and 6% in 24 months. The report also recommends abolishing the Statutory Liquidity Ratio or SLR.  Already the government is trying to undermine the report. Economic Affairs Secretary, Arvind Mayaram said," It is a little premature for India to consider CPI index for nominal anchor for monetary policy." He said this because a strict control of the CPI would mean higher interest rates for longer which means that the government will have to pay more for its borrowings. The increased payments will add to government expenditure and increase the fiscal deficit which the Congress has promised to keep below 5%. But surely low inflation helps the poor who are the greatest love of the Congress? Therein lies the paradox. The Congress loves the poor so much that it wants more of them by taxing the middle class into poverty so that it can earn their gratitude by giving handouts on taxpayer money. If that wins them elections that only proves how much the poor appreciate being treated as beggars. SLR is the money that banks have to hold in reserve in the form of government bonds, gold and cash. SLR is set at 23% at present. In an effort to control the spiraling Current Account Deficit the Congress has increased taxes on gold to 10% and on jewellery to 15% and severely restricted its import. Since banks are forced to buy government bonds it maybe keeping yields lower than they would have been. This keeps borrowing costs lower. The real reason why the Congress does not like the report is because it will impose discipline in government spending which it does not want. Our politicians think that taxpayer money is their property to spend as they like which is why our most respected Finance Minister is even now enjoying the annual jamboree at the World Economic Forum at Davos in Switzerland. Use taxpayer money to bribe the electorate to win elections and then enjoy yourself all over the world with wife and family, paid for by the hapless taxpayer. Better than being Bill Gates isn't it?

We must not wait for famine.

Agriculture Ministers meeting in Berlin have issued a statement saying that food production in the world will have to rise by 60% by 2050 to feed an expected population of 9 billion people. The Food and Agriculture Organization estimates that 870 million people were undernourished in 2011-12. These would probably be those who are not receiving an adequate number of calories everyday. However, vast numbers are surviving on cheap carbohydrates but cannot afford adequate amounts of proteins, such as meat, fish and eggs, milk, fruits and vegetables, which are more expensive. These are known as ' empty calories '. In rich countries rates of obesity are higher in the poor than in the rich, who can afford a balanced diet, adequate in calories but high in nutrients. That is why lifestyle diseases, such as diabetes, hypertension and heart attacks which were once thought of as diseases of the rich, are commoner in the poor. The statement is both stupid and defeatist. The ministers have accepted that they will do nothing to control and reduce populations of their countries. The World bank provides a list of the total amount of arable land in each country of the world. Arable land is used for temporary crops, such as grains, vegetables and legumes, as opposed to agricultural land which is used for permanent crops, such as fruit trees, rubber, coffee, and for pasture. Percentage of arable land in Algeria is 3.1%, Angola 3.3%, Bahrain 1.8%, Bhutan 2.4%, Egypt 2.9% and Costa Rica 4.9%. All these countries will probably be importing food and if populations continue to grow increasing demand will raise food prices to unaffordable levels, leading to famine. Arable land is not only limited but is being lost at the rate of 38,610 square miles every year. Exposures by WikiLeaks show how Syria suffered drought from 2006-10 and its UN representative, Abdullah bin Yehia predicted social unrest in 2008. One alternative is Genetically Modified food but these have not been tested for safety. Bacillus thuringiensis produces Cry proteins which are toxic to insects. While BT cotton maybe safe surely BT Brinjal needs to be thoroughly tested over years before being allowed. More ominously GM food is controlled by huge multinationals who do not allow production of seeds. If we do not reduce populations famine and epidemics will. Do we really want that?

Monopolies and corruption increase costs for us.

Around 20 years back, when Rs 100 bought you so much vegetables that you would not be able to carry them, a phone call from one part of India to another was called a trunk call and cost Rs 100 per minute. At the time the government operated a monopoly in which MTNL supplied Delhi and Mumbai while BSNL supplied the rest of the country. Then, under pressure from the US, the telecom sector was privatised and prices have fallen to Rs 2.50 per minute for the same call today. The Electricity Act of 2003 privatised the distribution of electricity in Delhi but unlike in Mumbai, where Tata and Reliance compete for customers, the city was divided into 3 zones of which Reliance has 2 and Tata has one. Thus instead of a government monopoly Delhi has a private sector monopoly which is much worse because of the predatory nature of all private companies. Now add massive corruption in the distribution of coal mines to people with absolutely no experience in mining, such as gutka manufacturers, and it means that India has to import coal from abroad despite having 250 billion tonnes in reserve. A bemused Supreme Court has asked the government to explain how 11 private firms were allocated blocks without screening even when the ' Honest Man ' was heading the Coal Ministry. So we have coal mines given to unsuitable people, which have not been developed, leading to import of coal at much higher costs, increasing cost of production, plus private sector monopoly, plus the hidden rent seeking, all leading to exorbitant electricity charges. When a minister claims to have been threatened by an oil import mafia, which blocks development of oil and gas wells, we can understand why coal is imported rather than mined inside the country. The same goes for Delhi Airport where charges are so high that airlines are reluctant to use it. Charges were increased by 346% in 2012 so an aircraft landing at Delhi has to pay Rs 2,97,543 while at Dubai it is only Rs 85,769. No wonder Delhi has ceased to be a hub and Indian passengers are now using Dubai or Abu Dhabi as hubs when travelling abroad. A private consortium developed the airport and is supposed to recoup its expense from charges and developing the surrounding land. So if the government did not spend anything why is it levying such high taxes? The Indian citizen is a blood donor to thousands of parasites. Will we survive?

Slavery is still here, only hidden..

During the age of slavery human beings were completely fungible, that is they were harvested in poor countries, transported in ships to the rich world where they could and were bought and sold like any commodity. Overt slavery is not politically correct these days so it is contracted out by multinationals to national companies. Deaths of more than 1000 people in the collapse of the Rana Plaza building in Bangladesh was caused by workers being forced to work inside the building which was known to be unsafe. Suicides at the Foxconn factory in China, manufacturing the latest Apple products, was because of very long working hours with very low wages. In India, the much hyped growth during this Congress led government was based mostly on a frenzy of construction fueled by a humongous property price bubble. However, the bricks required for the booming construction industry were made by slave labor, some as young as 4 years old. These bricks have now been labelled as ' blood bricks '. But surely human beings have the choice of refusing to work as slaves in today's world? Seems that they cannot. A loan taken from a moneylender in an emergency can bind succeeding generations to slave labor. But there are governments, pundits, NGOs and do-gooders to protect the poor and the vulnerable from exploitation. Why are they failing? Maybe it is their actions that keep the poor where they are. In India, the last BJP government reduced the level of social schemes relative to the GDP by economic reforms which led to the ' India Shining ' campaign. This was a disaster as the Congress grabbed power by promising free handouts to the poor. Since 2004 spending on social schemes has risen as parties have competed to give handouts. The result has been massive fiscal and Current Account Deficits, leading to soaring inflation harming the very poor that social schemes are supposed to help. The Right To Education Act has resulted in falling levels of literacy among children while increasing the numbers going to school. More than half the children cannot read or do basic level math. What the Act has done is to increase school fees by 433% as 25% reservation in private schools for poor children has acted as a tax. The only way to stop slavery is to reduce numbers of the poor. Social schemes increase the numbers of slaves by encouraging births. But they win elections.

Only term limits can protect our politicians.

An illegal multi-storied building on defense land in Mumbai where politicians, ex army generals and civil servants own apartments, often not in their own names, has come to be known as the Adarsh scam. Just one among the myriad scams perpetrated on the nation by this Congress led government. So what? The Congress has been looting and betraying the nation for over 50 years so what is the big deal? Like the Commonwealth Games scam and the Coalgate scam, and unlike the 2G scam, the Adarsh scam is a purely Congress enterprise without any help from its coalition partners. Much like the Bofors scam in days of yore. And much like Bofors, the CBI wants to drop the case against the previous Congress Chief Minister, Ashok Chavan because the governor is refusing permission for his prosecution. So, so different from Gujarat where the governor has not stopped any of the scores of false charges against Narendra Modi of the BJP. In UP, which has always been known as a lawless state, members of the ruling party are now being shot dead in public in broad daylight. Leader of the Samajwadi Party Youth Brigade, Arvind Yadav, with 16 criminal cases against him, was shot dead in Barabanki, 25 kms from the state capital, Lucknow. He was chased through a busy street, shot thrice and the killers left after making sure that he was dead. Good riddance it maybe but it reinforces our complete contempt for all politicians. Meanwhile in Bihar, the other state also renowned for its criminals, the Chief Minister, Nitish Kumar is looking to sack 576 government officials for taking bribe. Mr Kumar was elected with the support of the BJP but his ambitions to become Prime Minister made him break off the alliance to get " minority votes ". The Congress naturally encouraged him by promising special status for Bihar, with increased allocation of funds from the center. The Congress will do anything, including destroying the economy, to keep Mr Modi from becoming Prime Minister because he may look into the affairs of The Family. Having broken up the alliance the Congress is now embracing Mr Lalu Prasad Yadav. Mr Yadav has been released on bail after serving just 2 months of a 5 year sentence for the Fodder scam while Mr Kumar is hanging on as head of a minority government with Congress support, ready to be a sacrificial lamb at Congress's choosing. Poor politicians. Only term limits will save them.

Indians are ignorant of what is going on.

India has the largest number of newspaper readers in the world, around 330 million. Shocking fact, considering that the Congress has proudly taken out half page advertisements in newspapers boasting of a
" 3 fold increase in food subsidy " to 810 million people. Seems that in their quest for knowledge Indians would rather buy newspapers than food. The tragic death of Sunanda Pushkar, wife of Union Minister, Shashi Tharoor has been front page news for the last few days. All articles focusing on her illnesses, on her tweets regarding her husband's relationship with a Pakistani journalist, Mehr Tarar and on whether she took her own life. Not one article has questioned the propriety of a minister corresponding privately with a Pakistani woman, ISI agent or not. In 1963, the British Secretary of State for War, John Profumo had to resign because he had relations with a call girl, called Christine Keeler who was also entertaining the Soviet Naval Attache at the time. Indians in sensitive posts falling for Pakistani honey traps are well known. The usual refuge for any Indian politician caught in the act is to get admitted to hospital and Mr Tharoor took refuge in AIIMS. AIIMS is perhaps the most premier medical institute in India, handling only difficult cases so Mr Tharoor would be suffering from something very serious, yet it did not stop him from carrying his wife's body for cremation. While we invite Pakistanis with open arms our armed forces lack basic necessities. They need howitzers, helicopters, anti-tank guided missiles, assault rifles and night-vision devices. As we know all purchases of defense equipment is full of bribes and waste. While China has commissioned its first aircraft carrier and is rushing ahead with a second the Scorpene submarine, marred by Rs 5 billion in bribes, will be delayed yet again. By the time the navy gets its first submarine it will be obsolete. We are continuing to buy obsolete Tatra trucks at Rs 5 million a pop which Tata or Ashok Leyland can supply at Rs 1 million each. Pakistan blatantly sends terrorists across the border to kill Indian citizens, the Chinese army comes across our borders at will and even Sri Lanka shoots at our naval vessels. From Kashmir to Tashkent to Shimla to Sharm al-Sheikh, it is a long story of betrayal. Meanwhile our newspapers advertise more alms for the beggars.

Gini coefficient measures equality but not wealth.

Equality is against the laws of nature. There is the whale and there is the mouse, both mammals. A cheetah kills a gazelle for food and then is chased off its kill by a hyena. Even a herbivorous animal like the elephant is unaware of how many ants it crushes at every footstep as it forages. Human beings are the top predators and the only animal that preys on its own species. Thus the powerful control land, resources and finance while the poor survive by physical labor. The Gini coefficient measures the inequality in any society where zero indicates complete equality and one indicates very high inequality. It should be the effort of every government to bring down the number as close to zero as possible. This they do by taxing the rich and helping the poor through social schemes such as income support, health benefits and free education to help the poor to step up to middle class where they can control their own finances. However to distribute wealth it has to be created. The collapse of the Soviet Union, the high inflation and lack of basic commodities in oil rich Venezuela and the aggressive capitalist policies of China prove that socialism produces equality by making everyone poor. In an article " Gini Coefficient and India ", Mr Rajwade shows how Margaret Thatcher and Ronald Reagan increased inequality in the UK and the USA by destroying trade unions, reducing the role of manufacturing and deregulating financial institutions, leading to a small number of people with enormous wealth while the majority has seen no rise in living standards in over 30 years. The Gini coefficient in these countries is higher than that of India but Germany, which has a thriving manufacturing sector, and Sweden, which has an efficient social support system, have much lower coefficients. At around 68 South Africa has the highest coefficient in the world, probably because a tiny elite controls its rich mineral resources . But what is most interesting is that the coefficient of the whole world is also at around 68. Which means that the rich countries are exploiting the poorer ones. They are doing it by spending very little by manufacturing in poor countries and making huge profits by selling the finished products in their own countries. However, by destroying manufacturing in their own countries they have produced high inequality there. The only way to stop exploitation and make people equal will be by controlling population in poor countries. Our government works to keep everyone poor so that our coefficient is around 38.

The economy does not forgive bribery.

Having created very high inflation by dumping our money on useless social schemes the Congress is in a fix. General elections must be held by May and the people are furious as recent elections in 4 states have shown. To prevent a credit rating downgrade to junk status the fiscal deficit must be controlled, which means cutting expenditure, but if you stop giving handouts you have started it will be bye bye vote bank. It is not enough to bribe voters. Smaller parties must also be bribed to hang on to power because without power you cannot lay your hands on taxpayer money to bribe voters. Thus there are 51 ministries with 79 ministers with legions of civil servants, all sucking the blood out of the economy. For comparison, the US, a $16 trillion economy, functions very well with 15 Secretaries and 7 of cabinet rank, making 22 in all. If you cannot reduce expenditure you are forced to increase revenues. So the Congress has increased taxes on everything, which has increased prices further and reduced consumer demand. The RBI wants to the Wholesale Price Index to come down to 5%. WPI consists of manufacturing which constitutes 55%, fuel group at 15% and primary articles, which are raw food, processed food and minerals, at 30%. Cost of fuel has been rising because the government has been reducing ' subsidies ' on fuel without reducing taxes. Food costs cannot fall because the MNREGA scheme is index linked, thus setting an ever higher floor under rural wages, bribing farmers with the Minimum Support Price and hoarding food grains for the Food Security Act. Thus, if the WPI is to fall to 5% from 6.16% in December manufacturing will have to keep prices low. With raw material, fuel and electricity prices increasing and labor demanding higher wages to compensate for inflation the only way to make profits will be to increase productivity and cut costs. This was shown by  a fall in new investments in the quarter ending December 2013. Manufacturers shelved investments worth Rs 2 trillion. While the stock market is reaching for the stars because of foreign investors the Foreign Direct Investment, which is stable inflow, dropped by 36.6% in October compared to 2013, from $1.94 billion to $1.23 billion. This will naturally reduce employment. If bribery is a crime for us it must be made a crime for the politicians.

Such joy, all because of onions.

Wholesale Price Index fell to 6.16% in December from 7.52% in November. The Sensex jumped up by 1.22% or 256.61 points. Couple of days back the Sensex zoomed 375 points or 1.8% because the Consumer Price Index came in at 9.87% in December from 11.16% in November. Both the indices have fallen because onion prices had fallen from its highs. Onion prices increased by 190% in November compared to 2013 and but was higher by 39.56% in December compared to the previous year, showing a fall in the price. So, our stock market has risen by 625 points on the back of a fall in onion prices. This is no laughing matter because the market capitalization of a company depends on the price of its shares, based on which it can raise further financing or loans from banks. The market capitalization of the 30 companies that make up the Sensex would have increased by hundreds of billions of rupees. All for the price of one vegetable. Does this make the Indian economy a joke? Even though markets are rejoicing at the fall in the indices the rate of inflation is still inexplicably high because consumer demand has collapsed as shown by the Index of Industrial Production which fell by 2.1% in November. If demand is low surely prices should come down equally but that is not happening as shown by the Core Inflation, which excludes fruits, vegetables, milk and edible oils, from 2.66% in November to 2.8% in December. The reason is excessive government spending, not on productive investments such as infrastructure, but on unproductive social schemes. This is money handed out to buy votes in elections and, apart from increasing fiscal deficit and inflation, does not add to public assets. To balance its books the Congress is raiding public sector companies. Coal India is being forced to pay a special dividend of Rs 29 per share which gives Rs 164.85 billion to the government but also Rs 10.01 billion to Foreign Institutional Investors. This is our money which should have been invested in boosting coal production so that we do not waste hundreds of billions of dollars buying coal form other countries for our power plants. So many Mir Jafars. The Congress is also raiding public sector banks although our banks will need capital infusion to guard against bad loans. Perhaps the Congress wants to burden the next government because it knows it is going to lose. Diabolical isn't it?

India is a land of coincidences.

The Congress is so, so lucky. After misusing the CBI to hound Narendra Modi, who is the BJP candidate for Prime Minister in the coming general elections, the Congress was terrified of a BJP victory in case Mr Modi repaid The Family in kind. Out of nowhere a new party called AAP has suddenly transformed the landscape. The AAP has created a frenzy with its anti corruption stand and its rejection of all perks that politicians have shamelessly awarded themselves all these years. If the BJP fails to get sufficient number of seats because of the AAP the Congress will try to cobble together a third front, comprised of smaller parties, and offer it outside support to keep Mr Modi out any which way. Riots between Hindus and Muslims in Muzaffarnagar in August last year are being blamed on the BJP and the SP, which governs UP, as though Hindus should always consent to being slaughtered and never put up any self defense. Freeloading journalists further fanned flames by sensational reporting alleging lack of compensation. The Congress can form an alliance with the BSP, after having dropped corruption charges against Ms Mayawati. An intern brought unsubstantiated charges of sexual harassment against retired Supreme Court judge, Ganguly who was forced to resign from his post as Chairman of the Human Rights Commission. Justice Ganguly cancelled 2G licenses and fined a Congress Chief Minister of Maharashtra Rs 1 million. Strange that another judge, whose family was accused of making billions from being presented with government land at dirt cheap rates, is still occupying a similar post. Now another intern has made allegations against another retired Supreme Court judge, Swatanter Kumar. Supreme Court judges had been against the Judicial Acountability Bill. Then in June last year Mr Nitish Kumar, who was elected Chief Minister of Bihar with the help of the BJP, broke off his 17 year old alliance with the BJP apparently because he wanted ' minority ' votes. He is now hanging on in power with the support of the Congress. However, if he thought that the Congress would naturally form an alliance with him he was mistaken because Mr Lalu Prasad was released on bail after serving only 2 months of a 5 year jail term in the fodder scam case. So many coincidences helping the Congress. Miraculous.

Clutching at straws.

The stock market jumped 1.81%, that is over 375 points, yesterday when the Consumer Price Index for December came in at 9.87% as compared to 11.16% in November. Vegetable prices have been falling in recent weeks, some vegetables which cost Rs 80 per kg are now available at Rs 20 a kg. The Congress has been pushing for lower interest rates, saying that retail inflation was due to the high cost of food which is driven by seasonal supplies and not controlled by monetary policies. Vegetable prices have dropped by around 30% but retail inflation has dropped by just 10%. That is because food grain prices cannot drop as they are set by the government, which pays higher than market rates to farmers, and then hoards the grains to be distributed at very low rates under the Food Security Act to buy votes. Since grains are also used as fodder for animals prices of meat and milk continue to rise. By March when the effect of the abundant monsoon starts to fade vegetable prices will rise again. So what explains this exuberance of the stock market? The markets are rejoicing because they feel that this will reduce pressure on the Reserve Bank to increase interest rates, never mind that at almost 10% retail inflation is still higher than interest paid by banks on term deposits, which means that savers are still losing out. The reason is the growth that the Congress keeps banging on about was mainly due to extraordinary borrowing by companies. As of September, 2013 3700 companies had a combined debt of Rs 24 trillion, which is one quarter of our GDP, and of this Rs 8 trillion was with companies whose interest payments exceeded their operating profits for that quarter. Scary stuff. " We are learning the lessons of growth," said Arundhati Bhattacharya, Chairperson of SBI, India's largest lender. What she means is that the growth was a mirage fueled by debt. If inflation stays high, pushing interest rates higher, companies may default on their loans leaving banks struggling with massive bad debts. Another reason for cheer is that if interest rates were to remain high property prices may crash as people will refrain from taking mortgages to invest in properties. Since most of the black money is invested in properties any fall in interest rates causes euphoria. People tend to clutch at straws when they are drowning.

Crisis? What crisis?

It is very puzzling how economists seem to live in a state of denial all the time. Maybe that is why they can never predict any crisis that hit the world regularly. For years everyone, including the World Famous Economist, has been denying that the Indian economy is in deep trouble, arguing about decimal points on the growth rate, when it is obvious that it is sinking. Now suddenly people are talking about a crisis when the November Industrial Production has come in at -2.1%. " It is disappointing that growth is so lacklustre despite a favorable base effect and festival demand," a note from India Ratings said and added that " sustained and high inflation appears to be acting as a spoiler ". What it is saying that growth was low last year, giving us a low base, but industrial production has fallen even lower than that. They seem surprised that it is because of inflation. India is not an exporting nation. Helped by a weaker rupee our exports rose by 3.49% in December to $26.35 billion which means our total export in the financial year will be around $300 billion, an amount that China exports every month. Since our economy is driven by domestic consumption inflation is bound to affect growth by reducing consumption. Surely you do not need a PhD in economics to see that. Car sales fell by 9.6% in 2013, the first time in 11 years. It shows that people are not changing their cars and not enough young people are getting lucrative employment. It also has a knock on effect on dealers, manufacturers of components and transporters. The reason we are in such trouble is only because the Congress wasted trillions of rupees on social schemes to buy votes to win elections, running up huge fiscal deficits, causing inflation and then pressuring the Reserve Bank not to increase interest rates. But surely distributing handouts to the rural poor, plus generous monsoons, will increase their buying power and thus increase demand? Seems that rural folk are also choosing to spend carefully. The world is full of examples of how excessive social spending causes inflation and increases poverty because it is not productive and diverts funds from productive infrastructure projects. See Venezuela, an oil producer, and Zimbabwe, once the bread basket of Africa. Are all economists blind?

We are insulted because we are poor.

Credit rating agency, Moody's says that high inflation combined with low growth could lead to a rating downgrade for India. That seems paradoxical because India's debt to GDP ratio fell to 66% in 2012-13 from 83% in 2002-03 despite an average fiscal deficit of 7% over that period. Indian government borrowing is mostly domestic so foreign lenders such as banks, sovereign funds and the IMF cannot exert any pressure. All the government has to do is print some more notes to pay its debt. This causes inflation but that helps by reducing the overall value of the debt. So what are Moody's gripes? Uncontrolled inflation reduces consumer demand by making everything more expensive. This, in turn, reduces sales and forces companies to stop new investments, maybe even to fire employees, increasing unemployment. Reduced consumption reduces indirect tax collections while lower employment reduces direct taxes, hitting government revenues and increasing deficit. This causes the rupee to drop in value increasing prices further. In an attempt to curb inflation the Reserve Bank increases interest rates which increase borrowing costs for businesses, further reducing new investments. Although it has fallen, India's growth to GDP ratio is highest among developing countries. In 2013 it was 67.9 compared to 60.3 for Brazil, 42.9 for Philippines, 24.5 for Indonesia and 34.4 for Turkey. Moody's is warning that high inflation with high interest rates will suppress growth and this will reduce tax collections leading to uncontrolled fiscal deficit, at which point we will be reduced to junk status. The Congress says that this is due to ' external environment ' which is a complete lie because the deficit is due a massive increase in spending on useless social schemes to win elections. The Food and Agriculture Organization says the food prices fell globally by 4.4% in November and 3.5% in December. Over the whole of 2013 it was down to 209.9, 1.6% lower than in 2012. Food inflation in India was 20% in November and has been running at over 10% for years. That is because the government pays a higher price to farmers for grains and has been hoarding grains for the Food Security Scheme to bribe voters. With elections due shortly there is not hope of cure. When you are junk status other countries will sexually assault your diplomats.

Promises are easy to make but hard to keep.

The first lesson in reality. The Aam Aadmi Party won 28 out of a total of 70 seats in the assembly elections in Delhi, by making many promises to the ordinary people. They promised severe punishment for corrupt politicians and civil servants. This will take time. They promised to do away with VIP perks that politicians have awarded themselves in the 66 years since independence. That they have done, forcing Vasundhara Raje of the BJP to reduce security personnel in Rajasthan by 300. They also promised permanent status to all contract workers of Delhi, regularisation of unauthorised colonies, 700 liters of free water everyday for every household and reducing the cost of electricity by half, up to 400 units per month. Today they held the first ' janta darbar ' or public hearing to interact with the public. More than 50,000 people turned up creating such chaos that the police had to rescue the Chief Minister and other ministers for their safety. Most were contract workers wanting to be made permanent. That will cost vast sums of money as their salaries will increase, they will have to be paid Dearness Allowance at 90% of basic salary, healthcare costs and pensions. Contractors will refuse to bear such burden so either they will sack all workers or ask the government to take them over. Some people wanted water connections so that they can avail their free water straight away. When AAP was campaigning against high electricity charges they advised people not to pay their bills. Some people took them literally and had their electricity discontinued. They say it is not their fault and want their electricity supply to be resumed straight away. Auto-rickshaw drivers campaigned vigorously for AAP before elections. The Congress led central government raised gas prices by over 10% after the elections. Autos run on Compressed Natural Gas so they want their meter charges to be doubled so that they are rewarded for their loyalty. That will increase commuting costs for the people of Delhi, resulting in anger. The Congress at the center has been distributing handouts since 2004 to win elections bringing the economy to its knees. The AAP tried to outdo the Congress government in Delhi in making promises. It is now finding that winning an election is only the beginning. It is our misfortune that politicians are ready to sacrifice the nation only for personal wealth. Today people have become much more aware. There is not place to hide.

Taxes are legalised extortion.

Everyone in the world hates paying taxes. Rich people buy politicians through campaign contributions, hire lobbyists to ensure plenty of loopholes in tax laws and then hire armies of accountants to take advantage of these loopholes. The poor do not pay any tax because their income is too little to be taxable. Only the middle class, especially salaried ones, earn enough to be taxable but not enough to hire top accountants. In India only 35 million people file tax returns and over 80% show income less than Rs 500,000 per year. Rural income is completely tax free so large numbers of politicians have taken up farming to hide their black money. However, the government is hungry for money, partly to spend on the armed forces, infrastructure and diplomats but mainly to fund foreign junkets for politicians, salaries for a vast army of corrupt civil servants and for useless social schemes to bribe voters. Since so few people pay income tax money is raised through very high indirect taxes such as sales tax, customs and excise and services taxes. Trouble is that they raise the cost of goods and services and depress demand, thereby reducing growth and hurt poor people. That is why the new proposal by the BJP to do away with all direct and indirect taxes in favor of a banking transaction tax is very exciting.  This will tax every bank transaction at a rate of 1% and will apparently raise Rs 15 trillion. Since there will be no tax there will be no need for black money. The Reserve Bank will be able to control money supply and get a grip on inflation. Property prices will fall to realistic levels. Trillions of rupees stashed abroad in tax havens will return, making the rupee stronger which will reduce prices of imports, especially oil, and bring down inflation. With a stable rupee and low inflation people will have no need to buy gold and that will reduce the strain on the Current Account. With no indirect taxes prices of goods and services will fall, encouraging consumer spending, which will lead to more investment, higher employment and wealth creation. Daily wage earners are paid in cash and spend it on daily needs so they will not be affected. There will be opposition to such proposals as vested interests will find all sorts of reasons to criticise. This can only happen if the BJP wins elections in April. Let us pray they do. 

Anything bad for China can only be good.

Economists frequently warn us that if something seems too good to be true then it probably is. This is usually a warning to keep away from Ponzi type schemes which promise mouth-watering returns to tempt gullible investors. A similar logic operates in relation to China. Starting from desperate poverty after Mao's Cultural Revolution China has grown at a phenomenal pace for 4 decades to become the second largest economy in the world. A fantastic infrastructure has been built and millions of people have been dragged out of poverty, not through corrupt social schemes as in India, but by providing jobs in an export driven manufacturing sector, as China has become the factory of the world. With rising wealth has come rising consumption but inflation is at a comfortable 2.5%. All of this looks too good to last and some, including billionaire investor, George Soros, have been warning that a fall could come at any time. Are these people carping because they are ' running dogs of capitalism ' or is there some truth in what they say? Seems that China's total debt has risen from 125% of GDP in 2008 to 215% of GDP in 2012, from a total of $9 trillion in 2008 to $24 trillion today, which is more than the total debt of the US which is at $18 trillion. Thus China's debt has grown by $15 trillion in 5 years which is equal to the entire US commercial banking sector. Such a huge debt needs more money to be serviced so when the People's Bank of China decided to limit further lending the financial system came to a halt as interbank lending rate soared to over 10% in June and then again in December last year. The PBOC hastily injected $55 billion to calm the market. A large part of the economy is dependent on construction, whether of domestic residences or infrastructure and is heavily reliant on debt. Banks only show bad loans of less than 1% but this is because most of the debt is rolled over with more debt. If this is true of China it is true also of India. Indian banks show Non Performing Assets of 4.2% at Rs 2.30 trillion but how much is hidden by evergreening, which means issuing new debt to cover the old one and taking it off the books, is not known. At least China has built up a state of the art infrastructure while a large part of our debt has just been stolen by the very rich who have political support. The only good thing is that China being a harsh dictatorship any economic slowdown could lead to social breakdown. Let us pray it happens.

The Congress has killed the goose.

With growth stagnating and inflation very high India is in stagflation. Even though the fall in the value of the rupee has made exports cheaper manufacturing activity is still tepid. PMI for manufacturing in December was 50.7 from 51.3 in November. Any number above 50 means growth so it is just about in positive territory. Not so the services PMI which came in at 46.7 in December compared to 47.2 in November. New orders index fell to 47.3 in December from 48.2 in November. For a $16 trillion economy like the US a 3% growth is huge because it amounts to about $500 billion but for a $1.9 trillion economy like that of India a growth of 5%, although higher in percentage terms, amounts to only around $100 billion. Thus while India will become a $2 trillion economy the US will jump to $16.5 trillion this year and, given the same rate of growth, to $17 trillion next year. The US has a population of about 300 million with 7% unemployment while we have humongous population of 1.2 billion with such poverty that the Food Security Bill aims to distribute cheap food grains to around 800 million people. In order to encourage high grain production the government buys from farmers at an artificially raised price, called the Minimum Support Price, instead of at the market price. This, plus other social schemes, need vast sums of money that can only come through taxes but with growth stagnating tax collections are below that predicted in the budget, increasing fiscal deficit. High inflation decreases consumer spending and reduces tax collections. Inflation can be controlled through monetary tightening but high interest rates, along with severe reduction in non-plan expenditure by the government, reduces investment and affects growth. Another way would be to try and increase the value of the rupee by facilitating inflows of foreign currencies by offering very high interest, which the RBI has been doing, but that would reduce exports and increase the Current Account Deficit. With elections in April the Congress is desperate for more money to bribe voters and would happily increase taxes but taxes are already so high that raising them further will only add to inflation and reduce consumer demand. It is the old story of the goose that laid golden eggs. The Congress has succeeded in killing it.

We can make rockets but not helicopters. Why?

Two days back, on Sunday, India successfully launched its first Geosynchronous Satellite Launch Vehicle, or GSLV, from Sriharikota. India has been successfully launching the Polar Satellite Launch Vehicle, or PSLV, for a long time but it took 20 years of hard work to make this a success. The GSLV can carry a much bigger payload but needs a cryogenic engine using liquid hydrogen at -253 Celsius and liquid oxygen at -183 Celsius and is a difficult technology to master. The reason why it has taken so long is because the US applied pressure on Russia not to transfer the technology to India and the scientist, Nambi Narayanan, who was in charge, was arrested on trumped up charges of espionage. US enmity is nothing new for India and did not start with the sexual assault of our diplomat. While it blithely turned a blind eye to Pakistan acquiring nuclear weapons, masterminding the 9/11 attacks on the World Trade Center and constantly assisting the Taliban in killing US and NATO soldiers in Afghanistan it has consistently taken a hostile stance against India. Trouble is that many of our politicians have large amounts of money stashed away in western countries and like to travel frequently to the US where their children are studying or working, so they are unable and unwilling to take retaliatory measures. Already the worms are gnawing away at the achievement, saying that it was only partial success because the payload was not big enough. The mystery is that while we seem to have mastered rocket and missile technologies we are unable to develop our own aircraft or helicopters. Tejas, a light combat aircraft is being developed since 1983. The government has just announced that it is canceling the contract for Agusta Westland helicopters worth Rs 36 billion because the company had paid bribes to obtain the contract. Only 3 of the helicopters have been delivered but the government has already paid for 5. The government is now looking for more luxury helicopters for VVIPs because they do not have enough spares for the Agusta copters. We could have been making our own helicopters, aircraft, both military and civil, ships and submarines if they encouraged our private sector to make them. When we are buying from private companies in other countries there can be no reason why our companies should not be in the business. But then there would not be billions of rupees in bribes. When you have sold your soul it is easy to sell the nation. 

Honesty is a terrifying proposition.

Share prices have been falling in the last few days and the Sensex is down some 60 points today although it is still at 20,790. Apparently this is because the Aam Aadmi Party or AAP has formed a government in Delhi which is giving away 20,000 liters of water free every month to every household and has reduced electricity rates by 50% only for those who consume up to 400 units a month. These populist policies have spooked the markets. " AAP has started on a wrong note, and if its surge continues, it could be a disaster for the economy and stock markets," said Deven Choksey, MD of KR Choksey Shares and Securities. " Markets are wary of AAP. The party must give a clear road map on how and why it will fight corruption. How is Kejriwal different from other popular governments." Exactly. In the downward race to national bankruptcy every party promises free goodies to bribe its perceived ' vote bank '. One party was handing out free color televisions, another promised free laptops, a third promised gold mangalsutras and all promised food grains almost free. States distributed free electricity to farmers leading to massive debts for the electricity companies, long periods of blackouts, destroying manufacturing activity, and gross waste of ground water as farmers ran pumps for unnecessarily long periods. However, nothing compares to the handouts that the Congress has been dishing out for the last 10 years to win elections. The MNREGA scheme, the Sixth Pay Commission, farmers' loan waiver, Backward Areas Grant, Food Security Bill and many others, costing the taxpayer tens of trillions of rupees. But no one was complaining. The stock market was zooming ever higher and the same fellows, who are moaning now, were gleefully predicting record territories. When Lehman Brothers failed markets all over the world crashed but, whereas other markets started to get back to pre-crisis levels towards the end of last year, the Sensex rebounded almost instantly in a V shaped recovery. The difference this time is not that the AAP is promising more populism, which it is, but that it is talking about zero tolerance to corruption. It is auditing books of the private sector electricity suppliers in Delhi who were given monopoly contracts by the previous Congress government. That is truly terrifying.