An income for everyone, can we afford it?

Former Finance Minister of Greece, Yanis Varoufakis is an ardent supporter of Universal Basic Income, or UBI, in which every citizen is given a certain amount of money by the government. There are many objections to such an idea. People will stop working, labor costs will go up, people will stop fighting for their rights and the rich will not have to explain how they acquired their wealth. But, how will governments finance such a scheme? Varoufakis suggests that a portion of shares offered for sale at Initial Public Offerings, by new companies going public, should be deposited in a central fund, which will distribute dividends paid by these companies to all citizens. The recent economic survey by the Chief Economist, Arvind Subaramanian suggested a UBI in India to replace all the social schemes that exist at present. But it is not really universal. He recommends Rs 7,620 every year to 75% of the population. This will apparently bring down absolute poverty from 22% to less than 0.5%. Anantha Nageswaran thought that UBI would be a bad idea because people will want the extra money on top of all the handouts they are getting at the moment and it will be no different from distributing free television sets and laptops to win elections. The fiscal deficit will go out of control. G Sampath is also against UBI and has written an angry article condemning it as a sly way to cheat the poor of their deserved rights. "The growing chorus for a universal basic income is a ruse to eliminate or role back significantly the public distribution system and signature welfare programmes," he writes. He sees a deep conspiracy to deprive the poor. "The most eloquent advocates of UBI today are free-market enthusiasts -- the same lot branded as new-liberals for their advocacy of deregulation, privatisation, and cuts in welfare spending," he fulminates. Who are these villains? Milton Friedman is the guru, followed by Tesla owner, Elon Musk and Facebook co-founder, Chris Hughes. Saksham Khosla cites studies, showing that giving money to the poor does not increase bad behavior, like alcoholism, but increases levels of nutrition, the greatest benefits enjoyed by the most vulnerable. However, 4 authors studied the MGNREGA scheme, which most closely resembles UBI in India, in which the rural poor are paid for 100 days of fictitious employment every year. The authors found that it reduces the availability of labor in local factories as people rejected working hard at minimum wage when they can get much greater amounts for doing nothing. Professor Pulapre Balakrishnan sees nothing wrong in the government borrowing, provided it is used for building public assets. He thinks UBI is a bad idea because it gives the government an excuse to do nothing. India's GDP per capita was a paltry $1750.60 in 2015. Just reduce the number of people and it will jump. Easy really.

Can we be creditworthy if our government insists we are poor?

Arvind Subramanian, Chief Economic Adviser to the Government of India, and Josh Felman, former representative of the International Monetary Fund in Delhi, have criticised international credit agencies for refusing to upgrade our credit rating. S&P stuck with its rating of BBB-, and said that there would be no upgrade in the next 2 years. Although it praised the government's economic reforms it had problems with the low per capita GDP, the debt:GDP ratio of over 60%, and the inability of the government to recapitalise the non-performing assets of public sector banks. Moody's also confirmed India's Baa3 rating, with a positive outlook. Both ratings are just above junk status. Ratings agencies arrive at their conclusions on various parameters, based on comparing our economy with those of our peers. India's per capita GDP is the lowest among BRICS nations at $5,238, while the nearest, South Africa boasts a per capita GDP of $12,106. The authors contend that this parameter is faulty because over the last 45 years real per capita GDP has increased by an average of 2.5% per year so it will take 57 years to get to middle-income status. Moody's pointed to high fiscal deficit, government debt of 68.6% of GDP and very high levels of bad loans in banks. The authors point out that China's credit has grown to 86% of GDP, while its growth has fallen to 6.5%. Yet China's rating was increased to AA- from A+ in 2010 and has not been revised downwards. True, but the authors ignore the fact that 6.5% growth of a $10 trillion dollar economy earns more than 3 times in dollar terms than 7.5% growth of a $2 trillion economy. China has foreign currency reserves in excess of $3 trillion, 3 times that of ours which is a shade over $360 billion. India consistently runs a trade deficit, while one month's trade surplus earned by China is more than double our entire year's exports. Not much comparison, is there?  Strangely, the authors are silent about the role played by India's credit rating agencies in the accumulation of bad loans in banks. Our banks are laden with nearly Rs 15 trillion of distressed loans, a large chunk of which will never be repaid. Credit Suisse identified 10 corporate groups which together accounted for around Rs 7 trillion in 2010. Yet from 2011 to 2013 all these companies were rated as 'low risk' to 'no risk' by all our agencies, which enabled them to borrow massive amounts from banks. If politicians insist India is poor what is the fault of credit agencies? Surgical strikes are another example of shameless boasting by politicians. First the BJP boasted of a surgical strike against Pakistan last September. Now a former Congress minister boasts of 3 surgical strikes during Congress rule. Soldiers risked their lives in these strikes, not contemptible politicians who terrorise us with gun-toting bodyguards. What is the rating of humbug?

Is it the second civil war in the US?

What is going on over there? As he had promised during his campaign Donald Trump banned citizens of 7 countries from visiting the US, for 3 months. The countries all happen to be in the Middle East and north Africa, and so was promptly dubbed a Muslim ban. Protesters are not swayed by the fact that 6 of the countries on Trump's list ban visitors from Israel. Iran bans any passport that has an Israeli visa stamp on it. A judge in Seattle has blocked the order nationwide. How the judge will enforce his order is a puzzle. US embassies abroad can just sit on visa applications from citizens of these countries without giving any reason. Others maybe blocked at airports of countries through which they are passing, as has happened in Egypt and the Netherlands. While there is so much drama regarding Trump's order there has been not one word about Kuwait banning citizens of Syria, Iraq, Iran, Pakistan and Afghanistan since 2011. Tunisia is the only democratic country in the Arab world, and is not on Trump's list, but is an active center for recruiting jihadists. However, what is happening in the US is almost like civil war. Acting Attorney General, Sally Yates ordered her staff not to defend Trump's order in courts. The department's Legal Counsel had passed the order as legal so it was her duty to defend it, as long as she is drawing a salary from the government. If she had moral objection she should have resigned. Encouraging mutiny in her staff was gross dereliction of duty. Senior Secret Service agent, Kerry O'Grady made disparaging remarks about Trump on Facebook and said she would not take a bullet for him. That essentially means that she would cooperate with an assassination attempt on Trump. She has since been suspended. Even worse are the leaks from the White House and from government departments. "Every time something got to one of the agencies, it got out," said an insider. But even worse, someone or some people have been leaking Trump's conversations with world leaders. When Edward Snowden revealed how the Obama administration was spying on friendly governments he had to take refuge in Russia, where he is still living. Obama pardoned Chelsea Manning who leaked 750,000 pages of defense documents, but not Snowden who leaked Obama's dirty work. Uber CEO, Travis Kalanick was forced to step down from Trump's economic advisory council because people boycotted his taxis and Nordstrom, a department store in Seattle has discontinued Ivanka Trump's clothing line and accessories. Mean. Who knew that the US also has a Loony Left, which strongly believes that Trump is bent on "crushing various groups -- Muslims, Latinos, the black and trans communities, academics, the press". Who is financing this hysteria? Perhaps, billionaires who are afraid of being forced to bring their money back from abroad and pay taxes. All about black money. Just like India.

Optimistic assumptions, or just guesswork.

The annual tamasha, the central Budget, has been presented and was greeted with a vault of 486 points in the stock market index, the Sensex. Why the euphoria? Because it was a nothing budget, a bit of this and a bit of that, but no big announcements. That was such a relief that, along with the promise of keeping the fiscal deficit at 3.2%, it resulted in a collective exhalation of breath, followed by jubilation. Jaitley promised to restrict market borrowing to Rs 3.48 trillion, net of buyback. Since the government is the largest borrower, an increase in government borrowing sucks liquidity out of the market and puts upward pressure on interest rate. The vast amount of money deposited in banks during demonetisation, coupled with restricted government borrowing, means an excess of funds to lend, so that interest rate will remain soft. But, some people are already questioning the Finance Minister's arithmetic. Estimate of Rs 725 billion from disinvestment looks too optimistic, while revenue expenditure has been probably understated by Rs 100 billion. The budget has allocated Rs 1.29 trillion for rural development, Rs 10 trillion for farm credit, Rs 524 billion for welfare of Dalits, Rs 432 billion for the North East, Rs 570 billion for agriculture and allied activities and Rs 480 billion for MGNREGA. Any or all of these could demand more spending. The bond market signaled that it does not believe interest rate will fall. Yield of benchmark 2026 bonds increased slightly from 6.41 to 6.43%. To be fair to the Finance Minister, he had to prepare the budget 2 months before the end of the financial year on 31 March so he does not have the final figures for the year, so he has had to assume a lot. The budget estimates that tax receipts will rise from Rs 17 trillion to Rs 19 trillion. Demonetisation has caught a lot of people with black income in the income tax net while the Goods and Services Tax, or GST, will increase indirect tax collections. Only 1.5% of 1.25 billion people pay income tax, the number has actually fallen from 270 million in 2002-03 to 190 million in 2014-15, although tax collection has increased from Rs 369 billion to Rs 2.58 trillion. That is because 93% of Indians earn below Rs 250,000 a year and there is no tax on agricultural income. The tax:GDP ratio is only 16.6%, lower than other BRICS nations and the ratio of taxpayers to voters is less than 10%. Over 500 million people are between 25-54 years of age, a large chunk of whom should be paying income tax. Of them around 251 million are women. Only 27% of women in India work, the number is declining. GST will have 5 rates, from 5 to 28%, with added cess, so could decrease consumption. GST will catch the informal sector in the tax net, so some relief has been provided. A lot of this sector will not survive, which will increase unemployment. Which may increase spending on the social sector. Lots of unknown unknowns.  

Technology created wealth, but also people power.

Former Prime Minister of Canada, Stephen Harper gave a keynote address in Delhi on 19 January, writes Professor Vivek Dahejia. In his speech Harper mentioned his meeting with Lech Walesa, who founded Solidarity, an independent trade union, and was the President of Poland from 1990 to 1995. On being asked how confident he was about the success of his protest in 1980, Walesa said that he was very confident because the Poles did not believe in Communism, because Pope John Paul II was Polish and because the controls of the Soviet Union would not cope with improvement in technology, especially Information Technology. The forces of globalization that destroyed the Soviet Union have turned against globalization itself. "In the Western world, the battle lines have been drawn, as Harper argued, between a transnational, multicultural, polyglot elite -- an elite who believe in open borders, migration and free trade because 'we are the people who can cross borders' -- and folk who 'live within borders, on the ground, in flyover regions'. These are people whose concerns are local, not national nor global, and who cherish local not multicultural, identities -- identities which they believe are threatened by the flattening and homogenizing forces of globalization," writes Dahejia. People are getting more polarized because they can receive and transmit their views over the internet which enables people with similar beliefs to congregate. Harper advised against labeling these people as 'stupid or bigoted'. But that is precisely what is happening. In UP politicians are openly asking Muslims to vote against the BJP, which is labeled as a Hindutva party. Mobilising Muslims against Hindus is their version of secularism and if Hindus protest they are labeled as fascist. Harper probably had Brexit and the election victory of Donald Trump in mind when gave that speech. Professor Barry Eichengreen wrote that Trump most closely resembles Enoch Powell who warned against open immigration in his famous "Rivers of Blood" speech in Britain in 1968. Why was Powell not as successful as Donald Trump? Because he did not have access to Twitter to spread his views over those of the establishment, he was not against the establishment as Trump is and the people were not as dissatisfied with the system. The reason is that economies were growing prior to 1970 and benefited the lower third the most. Since 1980 the rich have got richer while the poor have stagnated. The sixties were also the years of the hippy movement, which was against the establishment, but was more against conscription and the brutal war in Vietnam. Perhaps, Bob Dylan's words are more true today than when he wrote them. The times really are a changing. 

Why the rage when we know what to expect?

Ever since Donald Trump was elected president experts have been trying to predict what policies he is going to follow. He is being portrayed as an unpredictable lunatic given to passing Executive Orders on a whim. There are leaks from inside the White House about how he gets angry at negative coverage in the media and how he watches television because he is easily bored. There is a long article about how he is vengeful and is taking decisions based on his "intuitions, grudges, impulses, and obsessions". Studies apparently show that politicians in the west tend to keep their campaign promises. Trump is doing exactly what he promised in numerous speeches, during the campaign, and was elected on the basis of those promises. So why the outcry? There is even talk of restricting his access to the nuclear button. What do they intend to put in place, a debate in Congress? His cabinet members disagree with his policies. So is his term going to be full of arbitrary decisions and fights with cabinet members? An article by Professor WPS Sidhu explores 5 scenarios that may unfold during Trump's first term in office. The first is called Concert Redux where the US makes loose alliances with other powers, as happened in Europe in early 19th century. This will be prone to break up. The second is a world divided by regional powers into zones of influence. In Asia there could be competition between India and China, with India losing out. The third is a Fortress America scenario, which happened before and after World War I, leading to World War II. Ruchir Sharma drew a parallel with protectionism in the US from 1914, which led to the Great Depression and then to World War II. The fourth scenario is a coalition of western countries to contain Russia and China. That would be foolish because both countries have strongmen in power, who are unlikely to want to be contained. Russia is economically too weak to mount any serious challenge to US hegemony but China is an aggressive nation, intent on subjugating its neighbors. China has been enslaving nations in Asia and Africa by giving them huge loans and then forcing them to surrender to its demands when they cannot repay. The fifth and last scenario is probably the most likely, writes Sidhu, in which Trump will take "improvisational, seat-of-the-pants" ad hoc decisions which will be confusing for everybody. So far Trump has not taken any decision that he did not promise during the campaign so why this fear of him becoming ad hoc? Not just the US, countries in Europe may also elect leaders from outside mainstream parties. Therein lies the terror. Since the War a cozy club of politicians and wealthy elite have ruled the world to their own advantage. They are afraid that this may disappear. Fear leads to rage. That is what we are seeing. It will be fun.

Customers are for service, surveys are for feedback.

Treating taxpayers as customers may be more productive than the present system of treating people as dishonest, writes Aurodeep Nandi. "The problem is that the dishonest citizen doesn't roam around with a label around her neck," he writes. "So when the government decides to go after her, it inadvertently comes with such a heavy hand that a majority of the honest ones become collateral casualties." What if the tax dodger does not consider herself to be dishonest? Since all politicians are dishonest and use our money to finance their lavish lifestyles there is no guilt in avoiding taxes any which way. It cannot be wrong to pick the pocket of a pickpocket. Not just Indians, Americans hate paying taxes too. The reasons are curiously very similar. The laws are complicated, the adversarial system was inherited from the British, a colonial power, and the rich can use the laws to reduce their tax burden. The best example is Warren Buffet's assertion that he pays a lower rate than his secretary. Buffet was third on Forbes' list of the richest billionaires in the world last year. In India the rules are so complex that we have to take the help of a chartered accountant to file returns, who has to pay service tax on his fees. In effect, we have to pay a service tax to pay income tax. Isn't that nice? How to make taxes a pleasure? Collect feedback from citizens on the functioning of tax officers, suggests Nandi. Nobody will dare to complain against a government officer because the revenge will be vicious and anonymous feedback is of no use because it will be rejected as gossip. Tax fellows are agitating against the Goods and Services Tax because they may become redundant. Surely that is good for us ordinary people, but the Finance Minister has assured them that their jobs are safe. Still, all officers at the Central Board of Excise and Customs are going to wear black armbands from today. Oh dear, no one trusts politicians. Experts read books but do not understand what people feel. India has the largest number of VIPs at over 500,000. These people have all kinds of perks. To continue their grip on power they need to bribe voters with handouts. So, we pay taxes for the luxuries of VIPs who use our money to bribe voters to stay in power permanently. In a recent survey only 3% of the top 20% of those surveyed saw themselves as rich. Only a small fraction of the middle 60% considered themselves as middle class. Only 23% of households have private health insurance. 36% of the top 20% have private health insurance. Politicians and civil servants can get treatment abroad, we pay for every service. Over 400 police stations do not even have a telephone. No need to protect us from criminals but tens of thousands of tax fellows to extract the last drop of blood. Give us full health cover and pensions, we will gladly pay. Else continue the oppression.

Why go to the US if you don't like the way of life?

President Donald Trump has stopped entry of citizens from 7 countries for 90 days, including Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen. So called liberals are up in arms. "This not who we are," tweeted Hillary Clinton. Strange. There was not a peep when the previous incumbent of the White House, Barack Obama was merrily blowing people away in the same countries, with drones. How many innocent people did he kill? Obama claimed the he had killed 116 innocent civilians, although they did not have precise figures. Conor Friedersdorf in the left wing, The Atlantic, started by praising Obama but then wrote that over 1,100 civilians could have been killed by drones. An article by the the Bureau of Investigative Journalism in 2014 estimated 2,400 killed in 5 years. The Russian news channel, rt.com, says that drones killed over 4,000 civilians. Whatever the true figure it is enough to have made Obama the inspiration for a new superhero in American comics, called the Drone Master. Citizens of Pakistan, Afghanistan and Saudi Arabia will undergo extreme vetting. Pakistan is the epicenter of terrorism in the world today and the Inter-Services Intelligence, or ISI, actively supports the Taliban, while 15 of the 19 hijackers during 9/11 attacks were Saudi nationals, supported by Saudi officials. The Pakistani army openly threatens terrorist attacks on India, vowing to bleed our nation through a 'thousand cuts'. These countries openly call themselves Muslim nations and the people identify themselves as Muslims, everyone else being either 'kafirs' or 'infidels'. If they accept every religion as equal, respect secularism in the US and stop demanding special rights for themselves there will be no conflict. Muslims in India refuse to accept the Uniform Civil Code, claiming that their religion is higher than our constitution. Secularism is guaranteed in Turkey's constitution but President Erdogan is making it more Islamic everyday, using the staged coup as an excuse. He has wide support among the Islamists in his country and easily wins elections on the Islamic vote. Trump has stopped migrants from Syria indefinitely. We read accounts of horrific injuries to children in Syria, which is taken as reason to allow refugees into the US and Europe. No one asks as to why over 3.7 million children have been born during the civil war. Why are ordinary people giving birth under bombing from both sides? Because their religion says so. When people behave in an illogical manner because of religion it is fanaticism. If the US is giving you refuge it has every right to demand respect for its constitution and way of life. You cannot demand one while rejecting the other. That is why people voted for Trump. Surely it is easy to understand.

Assets can be inherited, can democracy?

A new study by the Economist Intelligence Unit ranks the US as a flawed democracy, with a score of 7.98 out of 10. Australia, New Zealand, Canada, Ireland and the Scandinavian countries top the list with near perfect scores. The drop in rank for the US started from 9/11, according to the Pew Research Centre. People have lost faith in their institutions. Maybe, that is why they voted for Trump, because he is completely from outside the establishment. India seems to be ranked the same as the US, which is a puzzle. Marks are awarded according to 5 parameters: electoral process and pluralism; civil liberties; the functioning of government; political participation and political culture. India will score top marks in electoral process and pluralism, mainly because of the work done by our Election Commission. One of the reasons why people in the US are losing trust in their government is because of the growing inequality. The chart shows its Gini coefficient higher than that of India, which is puzzling because the International Monetary Fund warned that our Gini index has risen from 45 in 1990 to 51 in 2013. Political participation is limited to casting votes every 5 years but no ordinary person has a hope of standing or winning a seat in assembly or parliament. Parties choose criminals as candidates because they have the money and the goons to win seats. People vote for them in the belief that since all politicians are corrupt it is better to have one's own villain in power and possibly, a criminal will be able to extract services from crooked civil servants, who demand bribes for every service. But the biggest obstacle to a clean polity are the families who are in control of political parties through a system of patronage and extreme sycophancy. Power passes down succeeding generations, without any test of competence. It started with the Congress reverence for the Nehru-Gandhi family and spread to other parties. Dynasty politics is not restricted to India but voters in the US recently rejected both Jeb Bush and Hillary Clinton. Civil liberties depend on the legal and judicial system which is deliberately slow, so as to allow criminals to bribe or threaten witnesses into denying any knowledge of the crime. Functioning of our government is dictated by the need to win elections. Since the poor are in the majority they are bought with various tricks. The Congress used farmers' loan waiver, Nitish Kumar promised complete prohibition of alcohol while Modi resorted to demonetization, apparently to distribute black money among the poor. Cass R Sunstein cites Friedrich Hayek who wrote that the government must be tied to rules or else people suffer. At least an independent candidate in UP is honest. He said that he wants to win to make money. Don't they all?

It should be known as the Fiscal Irresponsibility Committee.

The government must address some moral imperatives in the coming budget, writes Rajrishi Singhal. India has signed up to the UN's Sustainable Development Goals, two of which are "Build resilient infrastructure, promote sustainable industrialization and foster innovation," and "Promote inclusive and sustainable economic growth, employment and decent work for all." To build great infrastructure and industries to provide jobs with decent wages will cost a lot of money and that can only come from high rates of economic growth. How to stimulate growth? "There are two ways to revive growth: either through consumption or through investment," writes Singhal. The government could try to increase consumption by reducing taxes but credit rating agencies would take a jaundiced view of rising fiscal deficit. India's credit rating is just above junk status, though stable in outlook. In the absence of consumption private sector will not invest so the government should increase capital expenditure. A recent survey found that Indian employers are most pessimistic about the effect of digitisation on employment. A World Bank report predicts that India will lose 69% of jobs due to automation and artificial intelligence. The report also suggests that China's one child policy improved nutrition of children, while 38.7% of children in India are stunted, which means that they will be unlikely to attain the desired level of education. Ajit Ranade suggests that tenant farmers should be given loans by the government, even though they have no assets. Apparently, such a scheme already exists in Andhra Pradesh. This is totally absurd because Ranade should know that this loan will never be repaid and what he is suggesting is really another handout. The Congress is promising a loan waiver in UP worth Rs 490 billion while the Akali Dal is promising a waiver of Rs 570 billion for its farmers. Punjab is already bankrupt. The budget for MGNREGA was Rs 385 billion this fiscal, the total spending since it was started must be around Rs 4 trillion. What is alarming is that the Fiscal Responsibility and Budget Management Committee has recommended that the government may exceed the fiscal deficit target of 3% this year. This is because the debt to GDP ratio is lower than before. When the government keeps borrowing in excess of 20% of its expenditure what magic keeps its debt ratio so low. It is inflation. Politicians force the Reserve Bank to lower interest rate. This reduces the rate of interest it has to pay on its borrowing and the resulting high inflation reduces the debt:GDP ratio. We get less interest on our savings, spend more on essentials and transfer our money to the government. Monika Halan cautions against a high fiscal deficit. There is only one answer. Reduce population, give handouts to those with no children. Will they do it? No. Increase the vote bank, to hell with the nation.

Should the US accept globalization with 'Chinese characteristics'?

Just as Bill Clinton reset trade policy with Japan, a quarter of a century ago, so Donald Trump is beginning to reset trade policy with China, writes V Anantha Nageswaran. In 1973, one dollar equaled 360 yen, by April 1995, the yen had strengthened to 79 to the dollar. "Japan was battling a recession, an enfeebled banking system stuck with a mountain of bad debt from collapsed real-estate and stock-market bubbles and several other economic woes. To offset the domestic economic stress, the country needed a weak currency. The US worked hard to ensure a different outcome for Japan. I do not recall 'Liberal' commentators despairing at the American treatment of democratic Japan," he writes. Japan's woes started with the Plaza Accord in 1985, by Ronald Reagan, when Japan was forced to accept a devaluation of the dollar relative to the yen. Liberals are enraged that Trump is accusing China of 'currency manipulation'. "Now, suddenly, China is the champion of global integration, President Xi Jinping is the only adult in the room and he is the darling of the Davos crowd," writes Nageswaran. Doing business in China is very difficult as its laws are vague and vary between local governments. Counterfeiting is very big business in China and western companies lose billions of dollars every year. Why then do they want to protect China? Probably because 1.36 billion people with a $10 trillion dollar economy gives it a lot of buying power. Goldman Sachs estimates that overall credit growth in China was 20% in 2016 and effective fiscal deficit was in excess of 6%. The government is battling to stop flight of currency abroad as citizens try to protect their wealth against a falling currency. The central bank apparently spent near $1 trillion last year in trying to protect the renminbi, which devalued 8% last year. Just a few months back the renminbi was included in the basket of currencies that constitute the Special Drawing Rights of the IMF, which means that the currency should be freely tradable. If that happened currency flight could become a torrent, leading to a precipitous fall in the value of the renminbi. That would give Trump a reason to declare China a currency manipulator and impose punitive taxes on its products. That is why Xi Jinping landed up at the World Economic Forum jamboree in Davos, the first time a Chinese president has attended a Davos conference. Capital controls mean that foreign companies find it difficult to repatriate their profits back home and China protects its industries with opaque laws so that foreign companies, like Google and Uber, cannot do business there. Globalization with 'Chinese characteristics' is a fake. It is time someone called their bluff.

How can you have digital cars, or even toothpaste?

India should "Leapfrog Beyond Manufacturing" to digital services, write Jayant Sinha and Arindam Bhattacharya. Jayant Sinha is Minister of Civil Aviation, having qualified from IIT Delhi and Harvard Business School. Arindam Bhattacharya is Managing Director of the Boston Consulting Group in Gurgaon, having qualified from IIT Kharagpur and IIM Ahmedabad. To become middle-income country with a per capita income of $12,000 we must grow at 7-8% per year for the next 3 decades. That will be almost impossible. So what is the answer? "All large countries have followed the twin strategies of (1) manufacturing growth and jobs, and (2) merchandise exports which typically added 1-2% to GDP growth," they write. "We differ from this consensus and believe that India must proceed on a different development journey, which accounts for different global circumstances and leverages India's strengths." They give the example of Uber which has created more jobs than all car rental companies put together. So should all of us become taxi drivers? Manufacturing industries are shifting to Internet of Things so we should forget about manufacturing and shift to providing digital services. They seem to forget that India has 1.30 billion people, 84 million children do not attend school, and of those that do, learning levels are very poor. Apparently, 900 million Indians cannot access the internet, although with people changing over to smart phones that number could decrease rapidly. As we change over to digital technology we will be open to hacking, not just by criminals, but by intelligence services of hostile neighbors, of which India has plenty. Prof Tyler Cowen blows the myth of economic miracles. He cites the example of Denmark, which has been growing at around 1.9% for over 100 years and has a per capita income of $52,000. Even if all of us became taxi drivers, someone has to produce cars. And bricks and cement to build houses, toothpaste and soap to clean ourselves, and clothes and shoes to protect us from the weather. Prof Ricardo Hausmann wrote that if we are to buy all these products we have to sell something in return and such trade is essential for innovation and productivity. While Donald Trump is forcing US companies to manufacture in the US we are looking to go beyond. Who will give us the money to buy all the products that we need for daily living? The world is suffering from technological stagnation. Airplanes go no faster, air conditioners have the same type of compressors and household goods are much the same as before. Connecting them digitally is not going to make them work better. All doctors are taught to follow the principle of 'Do No Harm'. The authors should be wary.

Getting elected should have been the beginning, not the end.

"Was Obama a Transformational President?" asks Professor David Greenberg, writing in Politico, which has been an ardent admirer of Barack Obama. What is a 'transformational' leader? "In contrast to 'transactional' leaders, who serve their constituents' interests as best as they can in exchange for political support (and leave the constituents essentially unchanged), transformational leaders bring their constituents aboard a moral or spiritual project, revising in some fundamental sense who they are," writes Greenberg. In the way that FDR, LBJ, Ronald Reagan or even Bill Clinton did. LBJ was from Texas, a racist who openly addressed blacks as 'niggers', who got Congress to pass the Civil Rights Act of 1964, smashed Jim Crow laws of the South, and tackled poverty by starting Medicare and Medicaid programs, which are in effect to this day. Greenberg finds similarities between Clinton and Obama, both Democrats, struggling with a hostile Congress, but the difference was foreign policy. " Where Obama broke from the Clinton script was in foreign policy, and not, alas, for the better," writes Greenberg. For those of us who live outside the US his foreign policy was a disaster. He used drones in thousands of extrajudicial killings. In 2014 the government admitted in a court filing that 469,000 people had been included in a database of "known or suspected terrorists", which means they were all fair game. Chilling. The newly created state of South Sudan is locked in civil war. Obama confessed that the aftermath in Libya was the "worst mistake" of his presidency, but insisted that it had been "the right thing to do". It is shocking that he learnt nothing from the disaster in Iraq consequent to the removal of Saddam Hussein. If this was a 'cerebral president' give us Donald Trump any day. At least we know what we are getting. If we don't he will let us know on Twitter. The Iran deal is suspect in many people's eyes as it allows Iran to certify its own program. If Iran is not making nuclear bombs why is it guarding its Fordow enrichment facility with S-330 anti-aircraft missiles, bought from Russia? Obama's classification of 'good terrorists' and 'bad terrorists' is plain stupid and his support for the rebels in Syria not only prolonged the civil war but resulted in the deaths of 300,000 people, and a flood of refugees into Europe, which could mean Angela Merkel losing in German elections and Marine LePen becoming the President of France. For all his talk he could not resist the temptation of 'regime change', engineering an armed coup in Ukraine, which prompted Putin to annex Crimea and a de facto division of the country. The world has become much more dangerous during his tenure. "To this day, the very fact of getting elected remains Barack Obama's greatest achievement," writes Greenberg. Exactly. The first black president. And maybe the last.

FRBM or no FRBM, that is the question.

Sajjid Z Chinoy, Chief India Economist at JP Morgan, cautions against a fiscal stimulus in the coming budget. The reason for his caution is that demand is going to pick up sharply as new notes replace the old ones. The effect of a fiscal stimulus will take a few months to kick in by which time demand will be rising anyway, which will be inflationary. Demonetization has hurt small and medium industries, which operate on cash, so supply will not pick up with demand. The gap could be filled by increased imports from China, since the rupee has appreciated by 10% against the Chinese yuan. That would increase our trade and current account deficits. However, a big unknown is what effect Donald Trump's economic policies will have. If the US erects barriers to free trade the dollar will become stronger and foreign funds will sell out Indian stocks and bonds. As this money is repatriated to the US the rupee will fall even lower. At the same time, the consolidated deficit of the states has gone up from 2.2% of GDP in 2014 to 2.9% in 2015 and is expected to be 3.3% in 2016. "...to completely abandon fiscal consolidation next year -- as some in the market are advocating -- will dent credibility, trigger a tightening of financial conditions and, therefore, neither be efficacious nor optimal," writes Chinoy. Professor Sudipto Mundle comes to an exactly opposite conclusion from his analysis of the same data. The real GDP growth in the present financial year could be 6.8%, or even as low as 6.1%, but the budget cannot take this into account because it has been brought one month forward, which is 2 months before the end of the financial year on 31 March. Housing sales have fallen by 44% in 8 largest cities, automobile sales are the lowest in 16 years, revenues of small and medium industries have dropped 50% and jobs by 35% and demand for relief under the MGNREGA has increased by 20%. So, "....if the fiscal deficit target of 3.5% for 2016-17 is breached and the 3% FRBM target for 2017-18 is eased in the forthcoming budget, this would not be a bad thing," writes Mundle. FRBM stands for the Fiscal Responsibility and Budget Management Act which was passed in 2003 to stop irresponsible spending by governments. This was blatantly ignored by the Congress, resulting in double digit inflation, a collapse of the rupee and a fall in GDP growth. Since the FRBM Act was passed by the previous BJP government it would be ironic indeed if the present BJP government breaks it. India has benefited hugely from globalization, if not as much as China, while the US and the European Union have seen their share of the world GDP shrink. If the US puts up trade barriers our growth could fall sharply. No jobs and no money, it will be tough.

What use is a right when the supply is broke,

The Annual Status of Education Report, or ASER, makes for very dismal reading. In 2016, only 47.8% of students of Class V in India were able to read a Class II textbook. Standards vary wildly between states, from 70.7% in Manipur to 25.5% in Arunachal Pradesh. Both are northeastern states so why such difference in standards? Class VIII students able to do simple division varied from 78.6% in Manipur to a low of 28.1% in Chhattisgarh. The only good figure was that 97% of students are enrolled in schools. On the other hand a government census in 2011 showed that 840 million children do not attend school at all and 7.8 million have to earn a living, even as they attend school. Sadly the BIMARU states of Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh have some of the worst figures. In UP only 7.2% of Class III students can read Class II text and a pathetic 7.9% could subtract a two-digit sum. Despite such dire figures it seems that MP is even worse. Poor children. Bihar and UP have the highest fertility rates in India. Educated women, even those who are just about able to read, have fewer children so illiteracy is a cause of high fertility. On the other hand, parents with a large number of children are unable to feed them, so send them out to work. Those who do attend school learn little as teachers in government schools are burdened with other tasks, such as census duty, election duty, Aadhar card registration, opening bank accounts and supervising midday meals. Mark Tully found that even poor rural folk preferred to send their children to private schools rather than government ones because of the difference in teaching standards. Sadly, cynical politicians do not hesitate to use little children to create a class divide, so as to get votes. The Congress passed the Right to Education Act, which forces independent private schools to reserve 25% of seats for children of poor people. This acted as a sly tax on the middle-class as school fees soared. Unfortunately, a lot of teaching is done at home and children of illiterate parents would be at a disadvantage. To prevent these children from failing in exams the Congress stopped all exams in schools. In the absence of exams teachers had no incentive to teach and since no one could judge whether children were learning anything at all in lower classes the failure rate at higher levels were shocking. Even a simply talking to babies results in permanent changes in the way the brain handles languages. No wonder then that cheating in exams is not seen as anything wrong. With Artificial Intelligence poised to take over 70% of jobs education of a high standard is absolutely essential. But, it is a game for politicians. To win votes.

Give them an incentive and people will pay, happily.

Milind Murugkar has written an article, in which he says that Prime Minister Narendra Modi got the idea of banning high denomination notes, known as demonetization, from a NGO, called Arthakranti, founded by one Anil Bokil. 'Artha' means 'money' and 'kranti' means 'revolution' or 'trying to proceed by subjugating others'. According to Arthakranti the only way to get rid of black money is to get rid of all notes. If every transaction has to pass through banks people will not be able to hide their incomes, and so will be forced to pay their share of income tax. Arthakranti also recommends replacing direct taxes with an indirect tax of 2% on every transaction. However, such tax will have a cascading effect on everything we buy and will be the exact opposite of the Goods and Services Tax, or GST, which the government is trying to bring in. "A government enjoying a majority support feels emboldened to disregard the advice of experts and plays with radical ideas, ignoring their long term impact. We have seen the consequences of such foolhardiness with the demonetization decision. It is a catastrophe," writes Murugkar, advising against acting without a rigorous study. It is a universal belief in India that most people avoid paying income tax. Income tax is easy to collect from salaried people, but only 20% of bread-winners are in salaried jobs. Of these, 16% are Grade IV employees, such as peons and sweepers, 1% are clerical staff and 3% are officers. Even among these lucky individuals up to 71% do not have written contract, which means they may not be working regularly. Why does the government need to raise taxes? Because 30% of the population lives below the poverty line and would suffer without government handouts. There are more than 1,000 schemes to support the poor so some are recommending a Universal Basic Income scheme. This will be easy to implement as everyone is paid the same amount and there will be no leakage as it will go straight into bank accounts. However, it will be too costly if given to every citizen so some selection of who deserves to be paid is inevitable. No one likes to pay taxes, especially in the US, but taxes are necessary to pay soldiers, police and firemen who are essential for our security. Income tax rate in India is less than that in the US and much lower compared to Sweden, Denmark or Germany. Why do Indians avoid paying tax? Because no one thinks that politicians pay their fair share and paying for their luxuries is infuriating. The most important reason for not paying income tax is that we receive nothing in return. Instead of treating us as thieves the government could allow people to pay as much as they can. Of that government will deduct, say 20%, as tax and treat the rest as investment in health insurance and old age pension. The more you pay the more you get. People will pay as much as they can, for themselves and also for family. Make it an investment. 

Will Trump be a disaster, as everyone says?

He could be the best president, he could be the worst president, depending on whether his policies work, whether he has the courage to push all his policies through, and on how much opposition he gets from his own party, the Republicans, in Congress. Donald Trump will be sworn in as the 45th President of the US today and many of the senior positions in his cabinet are as inexperienced in government as he is. The Republicans have a majority of 241-194 in the House of Representatives and a 52-48 majority in the Senate. This should make it easy for him to get his legislation passed by the Congress but the problem is that many in his party hate him, whether for personal reasons or because his policies will hurt their campaign contributors we do not know. While building a wall on the border with Mexico will not affect us in India Trump's views on H1B visas will affect our IT firms directly. Some of the larger companies are already hiring Americans to serve customers in the US. Will it be such a bad thing? It might reduce the number of Indians working as cyber coolies but, Americans being better trained, may help these companies move up the value chain and a stronger dollar may increase profits. However, Trump's views on trade have caused the greatest heartburn. Trump has promised to renegotiate the North American Free Trade Agreement, or Nafta, which has angered Prof Ricardo Hausmann, who argued that productivity gains from Nafta created 333,000 jobs in the US. During campaigning Trump proposed a 45% tax on goods imported from China. Experts are almost unanimous that it will cause a great deal of harm to the US because China will immediately impose tariffs on US goods and inflation in the US will rise. Speaking at the World Economic Forum annual jamboree at Davos, China's President, Xi Jinping warned of the dangers of protectionism. The irony of a brutal communist dictator, lecturing a roomful of rampant capitalists about free trade, is delicious. But is Trump such a lunatic as every expert is making him out to be? Levying a duty on Chinese imports will surely increase inflation rate but that is what the Federal Reserve has been trying to do since 2008, with near zero interest rate at first and then quantitative easing. A strong dollar will reduce some of the cost. If the Chinese economy slows down commodities will become cheaper, but energy costs for the US will be kept under control by shale oil and a strong dollar. Ruchir Sharma writes that economic growth is directly linked to population growth, so a strong growth in the US is impossible because of falling fertility rate. Maybe not. Future manufacturing is going to be highly automated and US companies are loaded with cash. Low running costs, along with cheap energy and no taxes on exports could be a real stimulus. As for India, our choices are simple, but stark. With a huge and exploding population there is no land. Maybe Trump will show the way.

We are completely exposed. Hackers have nothing to boast about.

Writing for Bloomberg, Leonid Bershidsky finds that hacking seems to have become a public sport, which is bad. While the world was fixated on the hacking of emails of the Democratic National Committee, by someone calling himself Guccifer 2.0, no one noticed that another group calling itself Shadow Brokers were boasting of acquiring a huge cache of malware, by hacking into another group of hackers, they called the Equation Group. The malware obtained from the Equation Group was targeting Iran, Russia, Pakistan, India, Afghanistan and China. This led to the conclusion that the Equation Group is none other than the National Security Agency, which was tapping into phone calls of heads of state of friendly nations, such as Germany, for decades. What goes round, comes round. Shadow Brokers announced that they were 'going dark' after failing to attract any buyers for their material. On the same day Guccifer 2.0 reappeared, denying that he had any connections to Russia and accusing US intelligence of fabricating evidence. While Russians like to disguise themselves the US is open with its accusations. "The tools that have been revealed and analysed so far are meant for intelligence gathering and disrupting critical infrastructure," writes Bershidsky. "Now that knowledge is in the open, used for threats and innuendo-filled media reports. This is no longer cyber espionage, it's a publicity war." Since this is a new type of warfare its rules have to be written. Couple of weeks back Pakistani hackers defaced the National Security Guard website. The NSG is an elite anti-terrorist unit whose training is so tough that up to 70% of recruits are forced to drop out. Israelis are experts in hacking into any smartphone that exists. A US company, calling itself NSO, has its offices in Israel and was apparently responsible for creating the Stuxnet virus that disrupted Iranian centrifuges, enriching uranium. An Israeli company, called Cellebrite, sells its services to police forces around the world, to break into phones used by criminals. They claim to be able to break into any phone that exists. If the US is unable to protect its servers, what hope has India got? Turns out, not much. In October, 3.2 million ATM machines were hacked. A hacker group, Legion, claimed responsibility and said that our banks' security is deeply flawed. Another group, Suckfly, has targeted government systems. The Scorpene submarine systems were hacked. Firewalls are expensive so banks and government agencies are not going to update them. The government is forcing us to link our biometric Aadhar details to our bank accounts. As identity theft is the commonest form of cyber crime anyone will be able to steal our details from banks. Terrorists will use stolen identities and government goons will persecute innocent citizens. They should use identities of politicians.

Are Indians the most amused people in the world?

India is a loincloth economy where everyone, except politicians and civil servants, is expected to live in loincloths, because of the example set by the Father of the Nation, MK Gandhi. Our leaders are proud that the Hunger Index for India has dropped from 46.4 in 1992 to 28.5 in 2016. We are above Pakistan and Zambia but below Bangladesh, Laos, Mali and Guinea. Naturally our leaders work tirelessly round the clock to serve the numerous poor who vote them back to power, in their gratitude. The recent demonetization of high value notes was solely for the benefit of the poor, who cheered to the rafters because it was perceived to be hurting the rich by delegitimizing their black money, even though Frank Holmes wrote in the Forbes that it reduces our freedom and Pronab Sen wrote that it will damage the economy, perhaps permanently. All this service for the poor needs a lot of money. One way of getting money is to borrow from the market. This year the government set a target Rs 4.2 trillion. This leads to fiscal deficit, which means that the government spends more than it raises in taxes. At 6.70% our deficit is less than that of Saudi Arabia, Brazil and Argentina but more than other emerging market nations. At 28.1% of GDP the government expenditure is less than that of China and Vietnam but higher than other countries so, naturally, at 68.5% of GDP our debt is the highest in the region. For some reason revenue calculation is done in Purchasing Power Parity against the dollar. Why that is relevant when most of the debt is in Indian rupees is difficult to understand. Expenditure is only going to increase as politicians keep increasing handouts in a bid to bribe the poor but the government is committed to keeping the fiscal deficit below 3.5%. According to Professor Himanshu of JNU in Delhi, the government does not publish relevant figures on expenditure and tax data, so the figure for economic growth is a bit of flimflam. The other way of financing expenditure is to raise taxes. That is where the annual circus, The Budget, comes in. Everyone begs for lower taxes. The Finance Minister must feel like a God, floating high above us, throwing manna down to the begging populace. Naushad Forbes, President of the Confederation of Indian Industry writes about how more investment is required to create more jobs and then begs for lower corporate tax at 18%. We the people are begging for a reduction in personal income tax because an income of Rs 250,000 is totally inadequate for survival. The auto industry is begging for some help, while real estate fellows beg for 'tax incentives'. Meanwhile, the GST will probably be a nightmare for companies, with multiple rates and horrendous paperwork, while Andy Mukherjee, writing for Bloomberg, is incensed by a presumed tax on sale of Indian assets by foreign investment funds. Aren't we lucky to have a bunch of jokers keeping us amused?

Rejection is so painful to bear.

Professor WPS Sidhu discusses two reports published recently: 'The Global Risks Report 2017, published by the World Economic Forum and the 'Global Trends: Paradox of Progress', published by the US National Intelligence Council. Global Trends is more pessimistic, and even predicts a nuclear war between India and Pakistan in 2028. Anything is possible, but it is perhaps more possible that Pakistan will descend into civil war or break apart before then. With the economy faltering the government is allowing China to build an economic corridor from Kashgar in Xinjiang Province to the Gwadar Port in Balochistan. This will hand over vast tracts of land to the Chinese. Balochistan is rich in natural resources which are being looted by the government. The Baloch have been fighting for independence from Pakistan which has been ruthlessly put down by eliminating suspected separatists. The army is raising a special unit to guard the Chinese workers along the Corridor. Both the reports talk about rising disparity in income and wealth, about rising polarization of societies and the rapidly growing use of disruptive technologies. Both reports agree that there is a problem with democracy and that "democracy can no longer be taken for granted". Those who are mourning the end of liberal democracy fail to acknowledge that the problems of the world today are precisely because of such policies. Clearing Zuccotti Park, of Occupy Wall Street protesters, in a night time raid was easy but a price had to be paid in the victory of Donald Trump. What were they protesting against? They were angry because the fortunes of the top 1% increased after the financial crash of 2008, while ordinary people were losing their homes to foreclosures. Today, just 8 billionaires have as much wealth as the poorest 3.6 billion people in the world. The richest 1% in India own 58% of the total wealth of the nation. How has this happened? Globalization allowed multinationals to transfer manufacturing to poorest corners of the world. Avoid taxes by taking advantage of tax policies of different countries, which allows fat bonuses for the executives. Import of cheap goods keeps inflation low, allowing central banks to keep interest rates at low levels. This allows the rich to borrow cheap money. The total debt of the world has reached $152 trillion, 225% of the total GDP of the world. The rich buy up assets by borrowing cheaply, which makes them richer. As for democracy, it has long lost its Greek meaning of 'rule by the common people'. It has come to mean an election every few years where people have the opportunity of electing opposing sets of villains. That is why Trump's slogan of "drain the swamp" has resounded with Americans. If only he would get rid of the bunch of criminals who have grabbed power in India. It is hard to accept rejection. We understand.