Maybe sovereign at home but will it be immune from US courts?

"US-based electric vehicle maker Tesla has registered with the Registrar of Companies in India as Tesla Indian Motors and Energy Private Ltd." However, before we start getting excited, "It incorporated itself in Bengaluru on January 8 with an authorised capital of Rs 15 lakh (Rs 1.5 million) and a paid-up capital of Rs 1 lakh (Rs 100,000)." Just for show, so far. "For all the hype, Tesla's foray into India is far from a done deal." Because, the cheapest Tesla car, at Rs 5 million, will be beyond the reach of most Indians. At present, electric cars cost almost double their petrol engine-driven counterparts even though the government has reduced GST on electric vehicles from 12% to 5%. There is also a dearth of charging stations. CEO of Tesla Elon Musk has strong views which may not conform with those of our government which does not tolerate any difference of opinion. Musk transferred both Tesla and SpaceX from California to Texas because he disagreed with the government of California. He said that government is a "monopoly that cannot go bankrupt", that "regulations are immortal", and that the government should "just get out of the way". Already, Tesla will route its investment into India through the Netherlands which will give it "tax benefits related to capital gains and dividend payments, say experts". The Indian government does not respect laws of, or agreements signed with, other countries. "Earlier this week, it authorized Antrix Corp to ask the National Company Law Tribunal (NCLT) for the winding up of Devas, a private firm to which the commercial arm of state-run Indian Space Research Organisation (ISRO) owes $1.2 billion, awarded by an international arbitration court in 2015 for a broken contract and confirmed by a US federal court last October," wrote an editorial in the Mint. In December 2020, "The Permanent Court of Arbitration at the Hague... not only invalidated India's $2.74-billion 2015 tax claim on Cairn Energy, but also ordered it to return up to $1.4 billion in funds withheld, interest and costs to the firm." In September, the court in Hague ruled that $2 billion tax claim on Vodafone "as well as interest and penalties, were in breach of an investment treaty agreement between India and the Netherlands". "A three-member tribunal at the Permanent Court of Arbitration in The Hague cited statements by the Prime Minister Narendra Modi and other ministers pledging not to use retrospective taxation to overturn a Rs 10,247 crore tax demand on British oil and gas company Cairn Energy Plc." Promises are meant to be broken. "India has challenged in Singapore an international arbitration court's verdict against it over a $2 billion tax claim involving Vodafone Group Plc, a senior government official told Reuters." India is steadfast in its demand for taxes, fair or unfair, but it is reluctant to pay its dues. "Multinational telecom gear vendors have again urged state-run telco BSNL to clear dues and said that it is becoming challenging for them to continue supporting the telco's pan India wireless network." BSNL owes nearly Rs 10 billion to Nokia, over Rs 10 billion to ZTE and Rs 4.80 billion to Ericsson. An international arbitration tribunal's ruling cannot override laws of a sovereign government, said solicitor general Tushar Mehta. Maybe, but US courts have the power to enforce judgement by attaching property. Does the government want to take on the US courts?           

Do they think we sit on our brains?

"In 1996, Michael Jackson played to a packed audience in Mumbai in what was to be his only performance in India," reports BBC. The then Shiv Sena government waived entertainment tax on the concert because $1 million was to be donated to a youth employment project run by the Shiv Sena. A consumer group challenged the waiver in court which froze the waiver and asked the government to "examine its merits". After 24 years, the present government led by Shiv Sena has reinstated the waiver and asked for the money to be deposited with the government because the youth project no longer exists. $1 million equals about Rs 73 million at today's exchange rate. This mocking story by BBC reflects our justice system. Why can't judges pronounce a judgement in 24 years? Recently the Supreme Court (SC) temporarily suspended the new farm laws and appointed a committee consisting of 4 experts to resolve the impasse between the government and farmers. Strangely, all 4 members appointed by the Court are strong supporters of the laws and the Court did not ask farmers to nominate their members to the committee. The day after it was set up Bhupinder Singh Mann resigned from the committee saying that he wanted to remain neutral.  The farmers promptly rejected the committee and refused to appear before it. Speaking in an unrelated case Chief Justice SA Bobde said, "There is lack of comprehension about the composition of a committee. This is not a situation where somebody alleges bias towards a person whose relative is a beneficiary." Indeed. And we sit on our brains. This was clearly to provide an escape for the government. "Although the court's move is a bit embarrassing for the Government because of its aggressive position during the deadlock, this is perhaps the best way to get out of the crisis," said a senior BJP leader. "Two key BJP leaders expressed hope that public sentiment would shift if the protesters did not accept the court's order." "India is the most centralised large economy in the world," wrote Prof Neelanjan Sircar. Wealth has concentrated in the hands of a few corporates during this government's tenure and has "weakened the political financing environment for opposition". The farmers are steadfast because they "understand that they have little opportunity to raise grievances through bargaining within the parliamentary or electoral system". "On the ground in Punjab, Reliance Jio telecom towers have been vandalised while Adani products are being boycotted," wrote Rajdeep Sardesai. "The SC simply refuses to hear constitutional challenges to far-reaching State actions, sometimes for years," wrote Gautam Bhatia. "By virtue of the electoral bonds scheme, thousands of crores of anonymous corporate donations have been funnelled to political parties (for structural reasons, a vast bulk of these donations go to the ruling party), setting up an entire system of opaque electoral funding." It is a sad state of affairs that citizens do not trust the government, the political system or the Supreme Court. How long before anarchy sets in.        

The stigma of inequality.

"The ongoing key reforms such as sops for manufacturing, easier labor laws, wooing FDI inflows and privatisation will help improve productivity and support long term-growth at 7.5-8 percent levels, which if played out well, can help India contribute 15 percent of global GDP growth by FY2026, says a report." It is not clear whether the report is talking about nominal or real GDP growth and "if played out well" depends on politics and on winning elections. Kawoosa, Jha and Sachdev put some numbers on what to expect 10 years from now. "According to the World Bank's projection, India will overtake China to become the most populous country in 2023, when its population  reaches1.42 billion." This is the last decade when "India's working-age group population is projected to increase from 55.8% this year to 58.8% by 2031", which is supposed to provide a 'demographic dividend', with increased productivity, increase in consumption and faster growth in GDP. Climate change could have a deleterious effect and delimitation of the Indian parliament could set off tensions between states with low and high fertility rates. While some are predicting growth rates of 7.5-8% others predict rate of growth at 4.5%, wrote Kawoosa et al. "Higher job losses among those below the age of 40 years has resulted in an ageing workforce, which is not favorable for a strong recovery of the Indian economy, according to the Centre for Monitoring Indian Economy (CMIE)." A weak growth means increasing poverty and inequality. "India's billionaires reported a rise in their combined net worth by more than a third during the first four months of the coronavirus-induced nationwide lockdown i.e. between April and July, defying the impact of the global economic fallout of the pandemic." Uma Shashikant details how her friend married into a nouveau riche family who waste vast quantities of food and buy gadgets that they do not use because they "lack respect for money". "The family began as simple salary earners. But the son associated himself with the powerful and politically well connected, and was soon dabbling in real estate, media, films, television, and such multiple enterprises that seem to be bringing more money than any of them know how to use, manage or protect." Previous Chief Economic Adviser Arvind Subramanian may bemoan "stigmatised capitalism" characterised by a complete mistrust of the private sector but you cannot blame people if politicians depend on crony capitalism to finance elections. "India's per capita income in 2019-20 was Rs 1,26,968, according to provisional estimates published on January 7," wrote Abhishek Jha. In 2017-18, annual per capita income in India was Rs 29,896 according to the Periodic Labor Force Survey (PLFS), Rs 44,901 according to the Longitudinal Ageing Study in India (LASI) and Rs 115,293 according to the National Accounts Statistics. These numbers show that the vast majority of Indians earn very little and after the lockdown "the bottom 10% of India's households lost 30 percentage points more of their income than the top 10%. Even individuals with secure, salaried jobs -- the cream of India's workforce -- saw their income decline by about 12% in 2020", wrote Lahoti, Jha and Basole. The real stigma is that of inequality. It is real.           
   

Whose patriotism is it?

Finance Minister Nirmala Sitharaman will present this year's budget to the parliament on 1 February. With the National Statistical Office (NSO) predicting a 7.7% contraction of the economy for 2020-21, "all eyes will be on the magnitude of fiscal stimulus the 2021-22 Budget will provide", wrote Roshan Kishore. Three numbers, which are tax buoyancy, share of direct and indirect taxes and share of total revenue given to states, need to be watched. "Overall tax buoyancy, measured as percentage change in gross total revenue divided by percentage change in GDP, has been falling continuously since 2016-17." While direct taxes are considered progressive, because the rich pay more, indirect taxes are regressive because the poor also are forced to pay equally. Even though consumption of petrol and diesel fell due to the lockdown, "Excise duty collection during April-November 2020, was at Rs 1,96,342 crore (Rs 1.96 trillion), up from Rs 1,32,899 crore mop-up during the same period in 2019, according to data from the Controller General of Accounts (CGA)." "The 14th Finance Commission set the share of states in central taxes at 42%." "States' share reached a peak of 36.6% in 2018-19 and has fallen sharply since," wrote Kishore. The Central government refused to pay compensation for shortfall in goods and services tax (GST) collection and asked them to borrow a total of Rs 2.35 trillion instead. "India is considering hiking import duties by 5% -10% on more than 50 items including smartphones, electronic components and appliances in the upcoming budget, three government sources privy to the discussions on Monday." This is being dressed up as support and protection to Indian industry under Prime Minister Narendra Modi's vision of 'Atmanirbhar Bharat' or 'self-reliant' India. "Tesla CEO Elon Musk kept his word of making debut in India in 2021 by setting up its first office in Bengaluru." As if on cue, the government intends to increase duties on furniture, hurting Swedish furniture maker Ikea which invested in India in 2018, and on electric cars which are what Tesla makes. The idea is to raise Rs 200-210 billion ($2.7-2.8 billion) in taxes. Musk, however, is a genius. "US automaker Tesla has chosen the tax-friendly jurisdiction of the Netherlands to route its India investment." "This corporate structure in India would offer Tesla tax benefits related to capital gains and dividend payments, say experts." The result will be that Indians will have to pay huge taxes to buy carbon-friendly electric cars, while the government loses out on taxes on the company because rates here are so high. Netherlands gains at the expense of Indians. "I would say keep the direct taxes stable, please do not change them. Please go easy on protectionism," advised Swaminathan Aiyar. In 2019, Sitharaman reduced corporate taxes from 30% to 22%, but increased the surcharge on individual income tax and dividends from shares were made taxable in the hands of the receiver, thus increasing tax liability. By increasing prices of imports the government is allowing Indian companies to increase prices on their products and the government will merrily suck up huge amounts in ad velorem GST. This Atmanirbhar Bharat is a great wheeze. Collect from import duties and from higher GST from citizens. All in the name of patriotism.   

Which is the true face?

"Reserve Bank of India (RBI) governor Shaktikanta Das has yet again said that equity valuations do not reflect reality and has even linked it to financial stability," wrote Aparna Iyer. "Analysts at Kotak Institutional Equities pointed out that the stress model relied heavily on past trend and the report offered little clarity on the extent of stress beyond the headline numbers." "The report has warned that bad loans on bank balance sheets may double by September 2021 to 13.5%." Rajya Sabha MP Subramanian Swamy tweeted, "Trapeze Artist Adani now owes Rs 4.5 lakh crores (Rs 4.5 trillion) as NPA (non-performing assets) to banks. Correct me if I am wrong. Yet his wealth is doubling every two years since 2016. Why can't he repay the banks? Maybe like with the six airports he might soon buy out all the banks he owes money." To that the Adani Group said that the allegations are not true and that "it maintains an impeccable record of not a single NPA in three decades of its existence". Former US Federal Reserve Chairman Alan Greenspan called it "irrational exuberance", meaning that asset prices did not reflect fundamentals of the economy. "While the economy is expected to contract this year, the stock market has rallied 80%. How's this possible?" asked Vivek Kaul. It could be because investors expect economic growth to roar back in 2021, or excellent corporate earnings growth despite the slowdown, but also because, "Since February 2020, the RBI has pumped in a massive amount of money into the financial system through various measures, some of which involve the printing of money." The RBI said that "it has drained Rs 2 trillion of liquidity from the system via the 14-day reverse repo auction as it begins the process of normalizing liquidity operations," wrote Gopika Gopakumar. "I believe that we will see a strong wave of growth as any country has to grow after being down 25% of GDP," said Prof Raghuram Rajan. India's GDP contracted by 23.9% in April-June quarter of 2020. "I also worry about the structural damage done and you know damage done to households, damage done to children who now have been taken out of school for a long time or who have not been able to keep up with their classes and we need to prepare for all that," said Rajan. "Looking at the Sensex, one thinks problems are over. No they are just starting." The economy needs structural reform which has to start with good governance, said Rajan. About the RBI he said, "We in India tend to be very, very two-faced about institutions. On the one hand, we want to improve the institutions and on the other hand, we resent any potential constraints they place on us." "American brokerage BofA Securities on Friday said the Indian economy continues to be 'weak', pointing to activity indicators tracked by it." Rural India is no better off. "Surprising as it seems, the average employment per household was 48.40 days in 2019-20 when the number of families that worked under the job scheme was 5.48 crore (54.8 million). In contrast, the employment per household has gone down to 44.38 days in 2020-21 when the number of families has  zoomed to 6.90 crore." This is under the government MGNREGA scheme to help the rural poor. So, is the economy strong as shown by the stock market, or weak as shown by the increasing number of poor needing help? Janus-faced economy.        

Its complex because they are not fools.

"GST (goods and services tax) is still a complicated tax regime with varying slabs, not easy to comprehend or comply with, and open to interpretation, harassment and avoidable litigation," wrote Captain GR Gopinath. "The GST council has fitted over 1300 goods and 500 services under four slabs of 5%, 12%, 18% and 28% under GST. This is aside the tax on gold that is kept at 3% and rough precious and semi-precious stones that are placed at a special rate of 0.25% under GST," explained Kotak Mahindra Bank. The system is complicated because it was intentionally designed to be so. There is a 10% customs duty on gold and a service tax of 1% for having to pay the duty, GST at 3% and VAT at 1.2% on the price of gold, customs duty and service tax , taking the total tax burden to 13.3% on pure gold, explained Aditya Birla Capital. On gold jewellery total tax works out to 24.85%. "India imports 800-900 tonnes of gold annually," wrote PB Jayakumar. "Various agencies estimate over 200-250 tonnes of gold is smuggled into India every year and that represents about one-fourth of the gold consumed in India." "According to Customs sources, the Customs and DRI seized 550 kg of smuggled gold in Kerala in 2019-20." The government can and does add taxes as it pleases under various pretexts. A tax on GST, varying from 3% to 204%, known in India as cess, is added on various products, depending on whether they are classified as 'luxury' or 'sinful' or both. No wonder, there are apparently 400,000 businesses which have been deemed to not having paid proper amount of GST, amounting to a total of Rs 9.3 trillion. The government introduced a 'Vivaad se Vishwas', meaning 'From Dispute to Trust' which promises not to persecute anyone who pays up whatever they demand. So far 45,855 have surrendered to the terror and paid a total of Rs 724.80 billion. Indian flatbreads, known as chapatis, are taxed at 5%, but when they are fried they are known as 'parotas. "A clever tax sleuth came up with the brilliant finding and slapped 18% GST, arguing that chapati and roti are flatbreads whereas parotas are layered breads and hence do not qualify for the lower tax slab," wrote Gopinath. Then there was the case of a GST raid on a poor 'kachoriwala' in Aligarh accused of hiding annual income of Rs 7 million. 'Kachoris' are fried savoury snacks. While the US government is to provide $17 billion to US airlines, in addition to the $25 billion they have already received, for coronavirus disruptions, jet fuel prices have been increased by 7.6% on 1 December, 6.3% on 16 December, 3.69% on 1 January and again by 3% on 16 January in India. Charges at Delhi Airport have also been increased making it more expensive to fly in or out. The outcome of exorbitant taxes is that most goods and services are out of reach of a vast majority of Indians who are grateful to receive handouts thrown at them if they are seen to be politically correct. Americans pay less tax so they are rich, we are taxed into poverty. Why is it so difficult to understand?                 

Is it a good idea to pour oil on fire of inflation?

"The rising trend in commodity prices calls for greater efficiency in inflation management, and makes an achieved real growth more important than ever, so that the additional liquidity created to support growth does not end up merely raising the prices of a static supply of goods and services. Ironically, the spurt in global commodity prices comes just when inflation finally seems to be coming down in India, consumer price increase now being 4.59%," wrote an editorial in the Economic Times.  Inflation in India is down because "overall food inflation has come down sharply from more than 9% in November to 3.4% in December, cereal inflation is now less than 1% on an year-on-year basis" and vegetable inflation in December was at -10%, wrote Prof Himanshu. "World food prices rose for a sixth month running in November, hitting almost a six-year high with the index posting its biggest monthly increase since July 2012," the Food and Agriculture Organization (FAO) said. Global inflation is about to pick up soon and strongly, wrote Richard Cookson and, "As has been the case for many years, global inflation has 'Made in Asia' stamped all over it." Retail inflation in India fell to 4.59% in December 2020 from 6.93% in November. Petrol and diesel prices have been rising to record levels almost on a daily basis and as transport costs rise so will prices of all goods. "According to data released by the Reserve Bank of India (RBI), currency in circulation grew by Rs 5,01,405 crore (Rs 5.01405 trillion) between January 1, 2019 and January 1, 2020." "Currency in circulation in 2020 grew by 13.2% to Rs 27.7 lakh crore as on Jan 1, 2021, from March 31, a year ago, according to recent data released by Reserve Bank of India," reported Bloomberg Quint. The Federal Reserve in the US has been pouring money into markets and this excess liquidity, along with a weaker dollar will cause inflation in the US. "The ECB's (European Central Bank) survey of professional forecasters in the final quarter of last year assigned more than 70% probability that inflation remains at or below the ECB's near 2% target over the next 5 years -- even though it also ascribed only a 3% chance of deflation persisting over that timeline," reported Reuters. "But many in financial markets remain convinced that rising global inflation will yet be a legacy of this crisis -- even if it largely relies on the United States for evidence and is the flipside of overwhelmingly bearish views on the US dollar." No wonder foreign investors are avoiding Indian bonds. Foreign investors hold $475 billion of Chinese bonds, $138 billion in Korea bonds, $55 billion in Malaysian bonds and just $41 billion in Indian bonds, wrote Aparna Iyer. They sold $13.7 billion of Indian paper in 2020 even as they bought Rs 1.4 trillion of Indian shares. They probably expect inflation to rise further with consequent increase in bond yields. The fire of inflation may just be simmering. Why is the government pouring oil on it? 

The odor is distinctly suspicious.

"India's Supreme Court has put one hold three contentious farm laws that have sparked weeks of protest," reported BBC. "The farmer groups have repeatedly said that they will settle for nothing less than a repeal of the laws, and the government has ruled out any rollback." "At least four farmers have killed themselves, and several others have died from ailments and the harsh winter cold." "Mr Modi has built a reputation for tough talking and playing hardball with his critics and his party is widely believed to have its ears to the ground," wrote Soutik Biswas. "The protests have originated in Punjab, the relatively prosperous farming heartland of India." Not so, said Dr Varinder Sharma. "Farmer's income registered a downward trend in the '80s which continues till today." Also, "Punjab's farmers have raised loans of more than Rs 30,000 crore (Rs 300 billion) to meet the expenses after they failed to maintain the requisite income level and failed to repay the loans." In 2017, farmers from Tamil Nadu protested in Delhi for 107 days after severe drought destroyed their crops but Modi ignored them. The protests are "about a lack of trust in the government and an assertive articulation of of federalism," said Prof Pratap Bhanu Mehta. "The Supreme Court on Tuesday constituted a 4 member committee for the purpose of holding talks between the Central Government and the farmers to resolve the protests over the three contentious farm laws. A notable feature of the composition is that all four members have expressed open views in support of the implementation of the farm laws." "Even as the Government called on all sides to 'honour' the Supreme Court's ruling on the agricultural laws, there was palpable sense of relief within the establishment and the BJP, which were desperate to end the stalemate without being seen as 'anti-farmer'." In fact, there is great pleasure as farmers may lose public support if they carry on with their protest. "The court's order putting on hold the farm bills is terrible constitutional precedent, bereft of judgement. It has an odour of cynicism behind it," wrote an angry Mehta. Perhaps to guard against contempt of court Mehta does not blame it directly. "The court is, perhaps unintentionally but damagingly, seeking to break the momentum of a social movement." "Over the past few years, the SC has shown a marked lack of urgency and, in fact, distressing inattention to cases that have involved important constitutional questions and lined up at its door," wrote an editorial in The Indian Express. "Now, its alacrity in taking into its own hands the ongoing impasse between government and farmers on the three farm laws, and its enthusiasm in playing arbiter, therefore, raises questions." In short, it doesn't pass the smell test. 

They took our rights one by one. What's the use now?

"Explaining the concept of minimum government and maximum governance, "Prime Minister Narendra Modi said, 'Earlier my Cabinet note would take six months to reach the entire Cabinet. But now it takes only 15 days. This is what minimum government and maximum governance is'." Just as minimum government, signifying reform, is good for the economy, "That same policy must guide India's social policy framework", wrote an editorial in the Mint. But, "Witness the surfeit of laws and policies we have seen that invade our private space, baring a tendency towards a maximalist state all too keen to impose itself on our personal lives. The most invasive of these relate to marriage, as seen in decrees issued by Uttar Pradesh (UP), Uttarakhand and Madhya Pradesh (MP) that go under the oxymoronic rubric 'love jihad' laws." "The turn at which the country stands today, the role of you bureaucrats is of minimum government, maximum governance. You have to ensure how to reduce your interference and also ensure empowerment of common people," Modi told probationers for the Indian Administration Service (IAS). "There is no criterion by which marital motive can be judged, but even if there were, freedom of faith and conscience constitutes a fundamental right granted to everyone by India's Constitution." Indeed, but The Qu'ran (2.221)  states, "And do not marry Polytheist women (Hindus are polytheist) until they believe (meaning convert to Islam). And a believing a slave woman is better than a Polytheist women, even though she might please you." Which means a marriage between a Muslim man and a Hindu woman is void unless she converts. This is direct pressure. "Oh ye who believe! Take not the Jews and Christians as your friends and protectors; they are but friends and protectors to each other," Qu'ran (5.51). "I did not hear him (the Prophet Muhammad) permit untruth in anything people say except for three things: war, settling disagreements, and a man talking with his wife or she with him," (Sacred Hadith, Muslim). So, a Muslim man may lie to his wife or to the woman he intends to marry. "Enslaving the families of the kuffar (unbelievers) and taking their women as concubines is a firmly established aspect of he Shariah (Islamic law) that if anyone were to deny or mock, he would be denying or mocking the verses of the Qur'an and the narrations of the Prophet," the Islamic State said to justify rape of Yezidi women. There was no such outrage when the government forced everyone to become a number supported by prints of all 10 fingers and iris scans in Aadhaar. New laws permit locking up in prison indefinitely without having to establish guilt. "Then they came for me -- and there was no one left to speak for me." No use fulminating now.        

How is the economy growing if people have less to spend?

"Belying many doomsday predictions, the Covid struck Indian economy has proven to be resilient," wrote Prof Ram Singh. "The economy is expected to grow at 10% in the next fiscal year to become one of the fastest-growing economies in the Asia-Pacific region." The Ministry of Statistics and Programme Implementation (MOSPI) released "the First Advance Estimates (FAE) for the current financial year". It predicts, "For the full year of 2020-21 then, India's GDP is likely to be Rs 134.4 lakh crore (Rs 134.4 trillion) as against Rs 145.7 lakh crore in 2019-20." At Rs 55,609 the private final consumption expenditure (PFCE), which gauges consumer demand, "will fall below the 2017-18 level" and at Rs 37 trillion, gross fixed capital formation (GFCF) (or the investment demand in the economy) will be even below 2016-17 level. "According to an estimate we need an investment of Rs 500 lakh crore (Rs 500 trillion) over the next seven years." "Weak domestic demand, anemic export growth, and subdued private investments mean that three of India's growth engines are malfunctioning today," wrote Nikita Kwatra and Pramit Bhattacharya. "Government spending remains the last engine of hope for the economy," but "India's public debt-to-GDP ratio has jumped to 89% and would remain at similar levels till at least 2025," according to the IMF. The government needs to spend wisely. "A likely revival in the investment cycle on the back of strong growth in corporate profits will be well supported by capital inflows from the developed world," wrote Prof VA Nageswaran. "Under these circumstances, compared to the situation some three-four months ago, the risk now is that the government overdoes its fiscal stimulus for 2021-22 rather than under-provides it." "Many of us have faced health scares, income disruption, economic uncertainties, debt security default worries in this period," wrote Suresh Sadagopan, but senior citizens have been particularly hit because of low interest rate and high retail inflation, which is down to 4.59% in December from 6.93% in November, but real interest rate is still in negative territory, hitting savings collected over of a lifetime of labor. "About 75 million people above 60 in India suffer from some chronic disease, shows the first part (2017-18) of the world's largest study on the aged -- the Longitudinal Aging Study in India (LASI)" and 78% over the age of 60 years get no pension. Price of petrol in Delhi shot up to a record high of Rs 84.20 so that "central government's receipts from excise duty, the bulk of which comes from petrol, diesel, and crude oil, saw a sharp 40% year-on-year jump in the first seven months of this fiscal year". When the government and the RBI conspire to extort as much as possible from the people there is no avenue of escape. People try to protect what little they have by buying gold. They say the economy is growing. Strange.              

Why no atmanirbhar in finances?

"For most investors, equities are the only game in town precisely because the current Fed (US Federal Reserve) has pretty much said that far from taking the punch bowl away, it will pour as much of the hard stuff as it can keep markets partying," wrote Richard Cookson. Foreign portfolio investors (FPIs) poured over Rs 1.53 trillion into Indian share markets in 2020 which closed at record highs yesterday. FPIs invested Rs 51.56 billion in the first week of January 2021. "On 18 December, the price to earnings (PE) ratio of the Nifty 50 stock market index reached an all time high of 37.84," wrote Vivek Kaul. "Last year, the Fed went all in by buying corporate bonds, there by cutting corporate borrowing spreads," wrote Cookson. "Flows into equity exchange-traded funds smashed records. So did issuance of investment grade and high-yield debt." "Junk bond issuers borrowed $432 billion in the US alone." The Reserve Bank of India (RBI) has refused to sell bonds at higher yields. "The devolvement at four consecutive auctions led bond traders to conclude that RBI does not want the 10-year bond yield (or interest rate) to cross 6%," wrote Aparna Iyer. One reason for high share and bond prices is that the RBI has "flooded the financial system with money. The total liquidity support announced between 6 February and 30 September 2020 was Rs 11.1 trillion." Trying to force lending rates down to help government borrowing is one thing, but how do you control it from collapsing? "Alarm bells must have started ringing on Mint Street (RBI headquarters) overnight after lending rates dropped below RBI's reverse repo rate of 3.35%," wrote an editorial in the Mint. "With overnight rates going below even reverse-repo rates, neither the MPC (Monetary Policy Committee) nor RBI seem to have a handle on the market. This could be the final straw." "The continuing overhang of excess systemic liquidity, estimated at around Rs 8 trillion, has depressed interest rates in the short-term, but also threatens to ignite inflationary fires in the medium-to-long term." "The banking stability indicator has improved on all five parameters but as investors chase returns in the low interest-rate scenario, the disconnect between the real economy and the financial markets is getting worse, the central bank said in its Financial Stability Report (FSR) Monday." "Real interest rates on bank deposits in India are currently in negative territory," and this is fueling a bubble in asset prices. How do you undo the damage without a collapse of the market? "I think inflation is about to pick up sharply, especially in the US, a problem compounded by the falling dollar," wrote Cookson. If that happens, the Fed will have to increase interest rates and there may be an outflow of dollars as in August 2013, known as 'taper tantrum'. The RBI has been accumulating dollars for that eventuality. Foreigners are taking charge. If you do the same as the US don't blame the world if the economy turns turtle. Should have been atmanirbhar in finances as in manufacturing. Be consistent.       

Democracy is the biggest irony in the world.

"A 45-year-old immigrant from India and Twitter's top lawyer, Vijaya Gadde, spearheaded the decision to permanently suspend US President Donald Trump's Twitter accounts." "US House Speaker Nancy Pelosi said Sunday she would push ahead with efforts to remove President Donald Trump from office during the final days of his administration after his supporters' violent attack on the Capitol." Trump is blamed for exciting his followers to attack US Congress after claiming that Democrats stole the election held on 3 November. Four people died in the incident, including a 35 year old veteran of US Air Force, shot by the police. Many officials in Trump's cabinet resigned following the assault on Congress.Worst dictatorships of the world, like China and Iran, are enjoying US discomfiture. However, "The key question to be asked now is whether Trump's successor will have the toughness to take on China, who, under Xi Jinping, allowed the coronavirus to spread worldwide from the wet market in Wuhan," wrote Raghu Krishnan. To hide its crimes China denied entry to a team from the World Health Organization (WHO) and then proceeded to lie about reasons for doing so. Political leaders of many countries expressed their horror for this "attack on democracy" and called for orderly transition of power. Problem is that democracy has come to mean winning an election every few years for one group of politicians to enjoy enormous power and privilege till the next election. British Prime Minister Boris Johnson condemned "disgraceful scenes" and called for "peaceful and orderly transfer of power", while Scottish First Minister Nicola Sturgeon found events "utterly horrifying". Sturgeon wants a referendum in Scotland on independence from the United Kingdom after Brexit, but Johnson has said that another independence referendum will not be allowed till at least 2050. This despite the fact that 62% of Scots voted against Brexit but it scraped through because of higher population of England and Wales. "But let's not forget that fundamental institutions of checks and balances still held firm in the US," wrote Sandip Roy. Arhitiyas in Punjab have been raided by Income Tax officials after supporting farmers' agitation. "Most of the arhitiyas who faced raids informed that some officials of the I-T team told them that they found no reasons to conduct the raids but have to follow the instructions of their bosses." Many of India's current draconian laws have their ancestry in the British era where they were very frankly instruments of repression," wrote Manoj Joshi. The US President is not above the law. But our politicians are. There is no freedom in India, wrote Tavleen Singh, because "Modi has done more to curb press freedom than any prime minister since Indira Gandhi". The loudest voices for democracy come from countries where freedom is curtailed. It is the greatest irony. 

Shouldn't we protect the trust in our vaccines?

"The controversy over speedy approval for Covaxin developed by Indian Council for Medical Research (ICMR), National Institute of Virology and Bharat Biotech exemplifies the risk of damage to the nation's vital interests that single-minded criticism of the government entails," thundered an editorial in The Economic Times. "Opposition parties must give up their knee-jerk response of spreading doubt to delegitimise every effort made by the Modi administration." Then it suggests that the government could have communicated better with the public and the regulator could have published all trial data so that experts could give their opinion. "The recommendations of the Indian drugs regulator's subject expert committee (SEC) released on Tuesday  show that the panel asked Bharat Biotech International Ltd to present more efficacy data for its Covid-19 shot before it could consider approving the treatment," reported Reuters. "The very next day, the committee recommended approving Bharat Biotech's vaccine for 'restricted use in emergency situation in public interest as an abundant precaution'." "How can a coronavirus vaccine be cleared for emergency use by millions of vulnerable people in a 'clinical trial' mode?" asked the BBC. Dilip D'Souza explained the trial numbers. "Covaxin's Phase 1 trial was registered on 1 July 2020." It was to run for 15 months on 1,125 volunteers. Phase 2 was registered just over two months later on 8 September to run on 124 volunteers for 8 months. Phase 3 was registered on 9 November to run till 9 November 2021 on 25,800 volunteers. It has been approved for 1.4 billion people when not even Phase 1 has been completed.  "Covaxin is made of an inactivated vaccine, meaning the vaccine is made up of the virus that had been killed and can no longer cause infection," explained The Print. "On 22 December, Bharat Biotech published data from its phase 2 trial with a follow-up on its phase 1 trial, on a non-peer reviewed website." Suspicion is justified by a letter written by Director-General of ICMR Balram Bhargava in July asking for all trials to be completed by 15 August 2020, India's Independence Day, and threatening "non compliance will be viewed very seriously". "Like many things in India nowadays, the science of vaccine approval has also run into the politics of chest-thumping nationalism," wrote Andy Mukherjee. "China and Russia appear more desperate to beat the West in saving the world," but " as Clara Ferreira Marques has noted, both these countries' vaccine candidates face a transparency deficit, which could limit their global acceptance. That's a risk that India, which manufactures more than 60% of the world's vaccines, should avoid at all cost." This is the only thing that we manufacture better than China. Should we sacrifice it on political propaganda?   

Indians are highly susceptible to bromide.

"We have retained our growth for the current financial year at -7.6 percent, but there are signs, beginning in late November of a stronger economic recovery. Our 2021-22 GDP growth forecast is at 11 percent plus," wrote Saugata Bhattacharya. Based on "signals from an extensive set of 39 leading and concurrent indicators which we track," show that "economic activity has pretty much come back to pre-lockdown levels". First, half of electricity "demand is from industry, suggesting that activity has accelerated across all geographies". "India's power consumption grew by 6.1 percent 107.3 billion units (BU) in December, showing spurt in economic activities, according to official data." But, "Power producers' total dues owed by distribution firms rose over 35 percent to Rs 1,41,621 crore (Rs 1.41621 trillion) in November 2020, reflecting stress in the sector." Second, "Mumbai, a weather vane of overall housing demand, recorded a massive increase in registrations (and hence sales) of housing units." "The last few months have seen the luxury home buyers making a comeback after the pandemic enforced lockdown made many buyers defer their buying decisions." The Maharashtra government has earned Rs 3.67 billion by reducing stamp duty on real estate by 3%, from 6% to 3%. Since properties in Mumbai are the most expensive in India, a 3% reduction in tax amounts to considerable savings, and this, along with negative real interest rate, is a great incentive for the wealthy to invest in real estate. However, "Housing sales in the national capital region (Delhi-NCR) plunged 50 percent year-on-year during the 2020 calendar year to 21,234 units on low demand," and "sales of residential properties fell 37 percent to 1,54,534 units in 2020 across eight major cities as compared with 2,45,861 units in the previous year". Third, "digitalisation and big-tech developments of the last few years". "The Direct Benefits Transfer (DBT) initiative is a technology induced step in improving financial inclusion among other stated goals," wrote R Narayanan and S Dhorajiwala. "More importantly, the workers/beneficiaries have rarely been consulted regarding their preferred mode of transacting. This has created new forms of corruption as has been recently evidenced in the massive scholarship scam in Jharkhand, where many poor students were deprived of their scholarships owing to a nexus of middlemen, government officials, banking correspondents and others. These exclusions are digitally induced." If recovery is broad-based why has unemployment rate risen "sharply to 9.1 percent in December 2020, highest since the beginning of India's recovery from lockdown in June, the Center for Monitoring Indian Economy (CMIE) said on Monday". Why tell people they are better off when clearly they are much worse off? Because bromide works. In India.             

It is the Chinese virus, after all.

 "An international panel of scientists and social scientists, convened by the Wellcome Trust, recently constructed four pandemic scenarios," wrote Erik Berglof. "Not even in the most optimistic of the four scenarios -- characterized by a relatively stable virus, effective vaccines, and improved antiviral therapies -- will SARS-CoV-2 be eradicated in all five settings within five years, though community transmission could be eliminated within certain boundaries." "Already, the pandemic is fueling inequality both among and within countries. Wealth has amounted to the most potent protection from covid-19, as it facilitates social distancing and all but guarantees quality health care." "In the year leading up to the covid-19 crisis, 84% of stock market wealth in the US was held by 10% of shareholders (and 51% by the top 1%) whereas the bottom 50% held barely any stock at all," wrote Prof Nouriel Roubini. In India, stock markets have been hitting record highs almost everyday despite the pandemic. New investors are piling into stocks because they are working from home and most have seen a drop in earnings. "Industry data showed that a million new dematerialised or demat accounts  were opened for a fifth straight month in October, taking the total tally to 47.6 million." "And the action is shifting from metros to tier II and III cities, which is a positive sign, say brokerage firms. More demat accounts in non-metros reflect deeper penetration of equity markets." This means a large number of people will lose money when the market tanks. "In the seven-month period between April and October, when businesses were shut and jobs were lost," "the top 50 companies in India's stock market increased their value by $200 billion combined," wrote Praveen Chakravarty. "Excesses of financialization and financial markets are a real threat to social stability and harmony, not just in India but in many other countries such as the United States and United Kingdom." "Globally, private and public debt has risen from 320% of gross domestic product (GDP) in 2019 to a staggering 365% of GDP at the end of 2020," wrote Roubini." "Over time, the world will be firmly divided between two competing systems -- one controlled by the US and Europe, and a few democratic emerging markets, the other controlled by China, which by then will dominate its strategic allies (Russia, Iran, and North Korea) and a wide range of dependent emerging markets and developing economies." India was given a bloody nose by China, wrote Prof Brahma Chellaney. "In the previous six years, Prime Minister Narendra Modi had met with Chinese President Xi Jinping 18 times, in the hope of fostering friendlier relations (and weakening the China-Pakistan axis)." But China occupied Indian territory in Ladakh, Having sickened the world China will gain. Rest will suffer. Or fight.   

Of, by and for the people cannot be transplanted on India.

Prof Arvind Panagariya makes four recommendations for the Union Budget to be presented by Finance Minister Nirmala Sitharaman on 1 February 2021. "One, in the next six months, the government must speedily clear the payments it owes in the form of pending tax refunds, overdue GST revenue to states and payments for goods and services received from private companies." That will need enormous revenues. "If the gross domestic product (GDP) for this year contracts by 10% over last year, the government will lose an estimated Rs 5 trillion (or $60 billion) in potential tax income," wrote Prof Amir Ullah Khan. "An estimated 190 million Indians sleep hungry on most days." Hungry children or private companies? Tough choice. "Second, the government must recapitalise in advance public sector banks (PSBs) on a sizable scale." The Reserve Bank (RBI) has said that "banks will need additional capital of up to one and a half percentage points of risk weighted assets". "Given that total bank loans are around Rs 104 lakh crore, the capital requirement would be Rs 1 lakh crore (Rs 1 trillion)." To generate revenue, "Third, there is now little excuse for foot dragging of a large number of public sector enterprises (PSEs)." Prime Minister Narendra Modi should bypass bureaucratic hurdles and set up a disinvestment ministry like former PM Vajpayee did. But, it is not just bureaucrats. There are ministers who would see a reduction in portfolio without PSEs. In addition to Modi, there are 21 cabinet ministers, 9 minsters of state with independent charge, 6 of whom are also ministers of state under cabinet ministers, and 23 other ministers of state, making 53 in all. If petroleum, natural gas and steel are privatized Mr Dharmender Pradhan will have nothing to do, as will Mr DV Sadanand Gowda if chemicals and fertilizers are sold off. In the US, a $21 trillion economy in 2019 according to the World Bank, the President appoints 15 Secretaries in the cabinet and 7 officials of cabinet rank, making 22 in all. There are an additional 20 heads of various departments. "Finally, in the Budget, the government must commit to a program of phased tariff reductions such that average tariff comes down to 10% from its current level of 14% by 2024." The outgoing US Ambassador to India Kenneth Juster said that the two sides could not finalise even a "small trade package" because of "growing restrictions on market access for some US goods and services, increasing tariffs, new limitations on free flow of data and 'less than predictable regulatory environment for investors'." The US is one of very few countries with which we have a positive trade balance, which was $28.8 billion in 2019. Modi believes that all Indians cheat on taxes which led to demonetization of high value banknotes in 2016. The government is constantly seeking to 'widen the tax base', when the vast majority of Indians earn less than the threshold for income tax, wrote Praveen Chakravarty. Panagariya has been out of India too long. He has probably ingested the "of the people, by the people, for the people" opium. In India, it is for the government, by the police, up the people.

Short term gain for long term pain?

In the annual game of speculation about the Budget, SN Sharma advises the Finance Minister Nirmala Sitharaman to analyse what previous finance ministers did in times of crisis. The natural tendency is to ask citizens to sacrifice by paying higher taxes. Already a surcharge ranging from 10% to 37% is levied on those earning from above Rs 5 million to Rs 100 million. People over the age of 60 years have to pay tax on income above Rs 300,000, instead of Rs 250,000 for those younger than 60 years of age, but receive no pension or healthcare guaranteed for all elected politicians for life. While most are arguing for increases in personal and corporate tax rates, economist Pronab Sen feels that "The economy itself is the patient today. The budget can't tap into this economy to save the economy." The government must increase expenditure on investment in infrastructure and development, wrote Prof Amir Ullah Khan. "A one percent slowdown in growth rate in India typically results in a 0.5% decrease in employment potential." "An estimated 190 million Indians sleep hungry on most days." Businesses have to comply with too many regulations. To manufacture cosmetics, "As I went through the Gazette Notification, I was struck by what can only be called an Orwellian obsession with details, with rules for manufacturing space and laboratories, for the maintenance of equipment, etc," wrote Prof VA Nageswaran. "The Indian regulatory landscape has 1,536 Acts, more than 69,233 compliances and 6,618 regulatory filings across the Center and states," wrote Remya Nair. The US has only 3 pages of regulations on cosmetics and "About 97% of the toiletries, perfumes and cosmetic products that have commercialization authorized in Brazil are exempt from registration". Regulations are to trap people into breaking the law. Although the "IHS Markit's Manufacturing Purchasing Managers' Index (PMI) rose from 56.3 in November to 56.4 in December" there is concern about rising input prices. While inflation eased in most countries due to the pandemic it remained higher than the upper limit of 6% for India. As the global economy begins to grow again prices of commodities are rising which can only add to inflationary pressures. The Nomura Business Resumption Index for India reached its highest level of 94.5 for the week ending 3 January but labor force participation rate (LFPR) fell to 40.3% from 40.9% in December. The Reserve Bank has flooded the market with cash. "The size of the India's central bank's balance sheet has increased by Rs 14.2 trillion since December 2019 -- from Rs 42.6 to Rs 56.8 trillion," wrote Niranjan Rajadhyaksha. That is causing inflation. With elections coming up in 4 large states in April-May what will Sitharaman do? Increase handouts or increase taxes? Inflation or unemployment? Conundrum. 

Biden will increase China's danger.

Instead of slowing down due to the coronavirus, "Exports from China increased by 21% in November and the country is the only large economy in the world on track to register growth in 2020 of about 2% and likely 8% in 2021," wrote Rahul Jacob. "In fact, China's global trade surplus for the first 11 months of 2020 was $460 billion, up by a fifth. The surplus is more than India's total annual merchandise exports." "China, over the past year, has strategically captured the entire supply chain of the US, making it vulnerable and dependent on Beijing, said Lucas Kunce, the national security director at the American Economic Liberties Project. "Last week, in another major setback for China, the US designated 58 Chinese companies out of 103 companies as foreign entities with military ties thereby restricting export, re-export and transfers with them." "The New York Stock Exchange plans to delist three state-owned Chinese telecommunications companies from US stock exchanges by Jan 11, following President Donald Trump's November executive order prohibiting US investment in companies that Washington says support the Chinese military." A change of administration to Joe Biden will not change US suspicion of China as new legislation "could remove Chinese companies from US exchanges if American regulators are not allowed to review their financial audits". The European Union (EU) has rushed to conclude an investment deal with China before Joe Biden is sworn in as president. "For the EU, this was an opportunity to display its 'strategic autonomy' in foreign relations before the US administration set in. For China, it was a way to drive a wedge between the EU and the United States." At home, "In just five years, China says it has lifted from extreme poverty over 50 million farmers left behind by breakneck economic growth in cities." Local cadres fanned out to identify impoverished households -- defined as living on less than $1.70 a day. They handed out loans, grants and even farm animals to poor villagers. Officials visited residents weekly to check on their progress." "The Biden administration is likely to retain the tariffs and technology restrictions and the forward posture in the South China Sea and then negotiate a rollback of tariffs in exchange for Chinese cooperation in a range of areas like climate change, pandemics and international trade," wrote Manoj Joshi. "As for India headwinds will only increase in the coming years." Ominously for India, Chinese President Xi Jinping has assumed total control of the military which probably portends more aggression against neighbors, including India. Biden will need to form a coalition of democracies to confront China's territorial ambitions, wrote Shreejay Sinha. But, does he have the nous?    

When there is so much smoke, there has to be a fire.

Farmers are suspicious of the new farm laws. "The protesting farmers fear they could be exploited by private players who buy crops at cheap prices," reported The Washington Post. "But there is one, somewhat disturbing, quality of the discourse at the protest site and in Punjab that merits more scrutiny," wrote Chanakya. "In the process, they have adopted a rhetoric that is opposed to Indian capitalism in general, and specific corporate groups perceived to be close to the government and beneficiaries of the government's approach in particular. This has even taken form of calls for mass boycotts of corporate products and sporadic attacks on corporate assets." "Farmers and their kin have allegedly cut the power supply to a little over 1,500 Reliance Jio mobile towers amid the ongoing protest against the Centre's farm laws." Andy Mukherjee agrees with the farmers. "Like in South Korea, people may one day realize how a few conglomerates are sapping the entrepreneurial energy of everyone else. By then, it will be too late, and the country may be burdened with the equivalent of a 'chaebol discount'." "The private sector is much more than the price for the farm produce, it's much more than a guaranteed MSP, and it's much more than Jio. For starters, it's the first step towards being 'Atmanirbhar' (self-reliant), as a farmer, as a community of farmers, and consequentially as a nation," fulminated Tushar G. "There has been no democracy which has grown economically without corporate capitalism." "Contrary to what is often believed in India, corporate capitalism can even aid, rather than, weaken, democracy," wrote Chankya. Trouble is  that India is not a capitalist state. Socialism was written into our Constitution by former Prime Minister Indira Gandhi. "It means that the socialist economic construction will be based on the socialised means of production and central planning," wrote Communist leader Sitaram Yechury. "The market forces, however, shall be subsumed under the guidance of central planning." Former Chief Economic Adviser Arvind Subramanian said that opinion of the Indian public "has changed from the popular 'crony socialism' to 'stigmatised capitalism'. "The survey said that the public formed a negative perception of the Indian capital which was little liability instead of limited liability." Regarding hate speech rules on Facebook, it's powerful director of public policy for India, South Asia and Central Asia Ankhi Das allegedly told "staff members that punishing violations by politicians of Mr Modi's party would damage the company's business prospects  in the country, Facebook's biggest global market by number of users", reported the Wall Street Journal. "We lit a fire to his (Modi's) social media campaign and the rest of course is history," wrote Ankhi Das in an internal memo to the company's employees. Modi introduced 'electoral bonds' with just one purpose: "To conceal the identity of the donor of political funds". India's politicians and business fellows have been scratching each other's backs since the beginning. Now, they are 'butt buddies'.          

Legions of devotees. Why should he care?

Punjab farmers, protesting against new farm laws at the borders of Delhi, have sent legal notices to 2 union ministers Giriraj Singh and Nitin Patel as well as to BJP leader Ram Madhav "seeking unconditional apology and unambiguous withdrawal of the alleged defamatory and derogatory statements made by the three leaders". Earlier, BJP leaders alleged that farmers are linked to Sikh separatist movement of Khalistan. To counter false propaganda from the government an alliance of farmers' groups called Kisan Ekta Morcha has launched a Facebook page, which has 312,000 followers, and its channel on YouTube has 1.22 million subscribers. Data released by the fifth National Family Health Survey (NHFS5) shows an increase in child malnutrition in some states between 2014 and 2019. In NHFS4 survey in 2015-16, 36% of children in India were underweight, more than Bangladesh at 22% and Nepal at 27%, wrote Prof Jean Dreze. The present survey shows that "Child nutrition indicators have not improved between 2015-16 and 2019-20." Economist Surjit S Bhalla, an ardent supporter of Prime Minister Narendra Modi, took exception to Dreze's analysis. Actually, "The data show that there has been considerable improvement in many of these 131 indicators of social welfare" and the article by Dreze is full of "typos, falsehoods, misinterpretation of the data". He is disgusted that "Not one of the authors looked at the data on wasting (weight for height)." In his rejoinder Dreze notes that "this is not Bhalla's first self-goal". He dismantles Bhalla's arguments and writes, "I ignored wasting because it is a tricky indicator of child nutrition: It has the odd effect of classifying stunted children as well-nourished if they have adequate weight for their height." Former Broadcast Audience Research Council (BARC) Partho Dasgupta was arrested on 24 December for taking hundreds of thousands of rupees from editor-in-chief of Republic TV Arnab Goswami to alter its viewership ratings. In November, Arnab Goswami, another ardent supporter of Modi, was released on bail by the Supreme Court after being arrested for abetting suicide of Anvay Naik and his mother in 2018. At this, Supreme Court Bar Association President Dushyant Dave wrote a letter to the secretary general of the court expressing "strong protest" at the expedited hearing of Goswami's case. In the last few years, the Supreme Court has displayed "judicial evasion, judicial deference, and judicial inconsistency" and "The effect of each one has been to benefit the State,"wrote Gautam Bhatia. "Modi has done more to curb press freedom than any prime minister since Indira Gandhi. Foreign correspondents who have written critical pieces on him have found restrictions imposed on their visas. Within India editors have been summarily dismissed for having the wrong attitude," wrote Tavleen Singh. Non-stop propaganda through complete control of the media, a compliant judiciary and surveillance of citizens using any excuse, has elevated Modi to the most popular leader in the whole world. He can do whatever he likes. He does.    

Shouldn't Indians expect anything more than food?

"India has kept its fiscal stimulus at no more than 2% of GDP. I have been a critic of this," said SA Aiyar. "If you do not have a large enough fiscal stimulus, you will not revive the economy fast enough either." But now he thinks that "India has proved far more resilient than expected", "despite having the smallest fiscal stimuli among major nations" and " Indian growth was steadily falling even before the pandemic -- from 8.3% in 2016-17 to 7%, 6.1% and 4.2% in subsequent year".   "In March Aiyar wrote that the fiscal package was "Outrageously small," and "At least triple the relief package and put more money into the bank accounts of the needy." "This mega stimulus should be financed by RBI, just printing the money needed." So, why the change of tune? Because, "Inflation has exceeded the RBI's range of 2-6%." This is mainly because of high vegetable prices and exorbitant taxes on fuel in excess of 60%. Which should be a big relief because earlier we were paying 275% taxes on petrol. Although price stability is important, for India, "there is enough empirical evidence to suggest that a 4% inflation rate is too low a target", wrote Prof VA Nageswaran. The Monetary Policy Committee (MPC) of the Reserve Bank (RBI) may have been too focused on inflation which may have affected growth of the economy, wrote Bhattacharya, Kwatra and Devulapalli. Governor of RBI Prof Raghuram Rajan's contract was not renewed because of his public comments and "growing frustration in the government, especially in the Finance Ministry that was led by Arun Jaitley at that time, about the RBI not bringing down interest rates in the economy", wrote Udit Misra. Rajan was replaced by Urjit Patel, who resigned, and retired IAS officer Shaktikanta Das was appointed Governor of RBI to "repeatedly cut the repo rate" as he was expected to do. Naturally, barring March 2020, inflation has stayed above 6% since December 2019 and growth has not picked up as well. Now the RBI is worried that interest rates have been cut too low and this is a threat to financial stability. A research paper from the RBI itself recommends that inflation target should remain at 4%. Because "Experts believe retail inflation is likely to average 6.3 percent this fiscal and mostly will remain sticky going forward owing to pick-up in demand across sectors." The accepted wisdom is that the RBI consistently  overestimates inflation by focusing on household inflation expectations which is based mainly on food inflation. Food and beverages constitute around 45% of the basket of items in the consumer price index (CPI), but since this is dependent on supplies, which depends on rainfall, it cannot be controlled by raising rates, which damages growth without controlling inflation. GST collection rose to a record high of Rs 1.15 trillion because of 27% increase in import duties, resulting from an increase in tariffs on imports. Naturally, when cost of imported goods rise, local manufacturers also raise prices, which increases tax collections. By concentrating on food and ignoring other household goods and services, it maybe that the CPI is underestimating rise in prices. After all, man shall not live by bread alone. RBI is right to be alarmed.