Where are the ingredients for a bigger cake?

The Prime Minister Narendra Modi wants India to be a $5 trillion economy by 2024 when he will face the next general election. So let it be written, so let it be done. The Budget has been designed to stimulate private investment but the supply side cannot improve unless demand increases, wrote R Menon. When pigs fly, said some pundits. In response, Modi called them "professional pessimists". "The size of the cake matters," he said. "The bigger the cake, the bigger the share of everybody in it." Except taxpayers, who have to pay surcharge and cess for the privilege of being threatened with extreme prejudice. A $5 trillion economy is possible "If the Indian economy does really well, the rupee should appreciate and that's good for striking the target," wrote economist Bibek Debroy. There has to be high growth with low inflation. In 1973-74 nominal growth touched 22%, but "In that remarkable year, the inflation rate was around 18.4%." Since government expenditure cannot increase without increasing fiscal deficit investment has to increase to 38% and household savings to 24% of GDP. "Therefore, we are probably going to witness a gradual inching up of growth to 8% and even 8.5%." India can never emulate East Asian economies which were "run by autocrats who favored a powerful but small government focussed almost exclusively on supporting export manufacturers, which meant investing in roads and factories, not welfare for the poor and weak", wrote Ruchir Sharma. "Contrast those attitudes to India, where government is suspicious of the private sector, and elections are fought on promises for the poor, the elderly, farmers and many others." Not the whole private sector. There is a large segment of friendly crony capitalists who are thriving. So much so that Modi's party the BJP raked in Rs 2.10 billion from anonymous electoral bonds before the election. If India is to double its economy in 5 years, "It would need to roll back government, reduce taxes, cut welfare spending and reallocate funds for new roads, bridges and other infrastructure, which is turn would boost private investment." The government has been reduced from 77 ministers in 2014 to 57 this time round, but this is just the beginning of this government. The government announced Rs 6,000 per year to all farmers at a cost of Rs 870 billion. When farmers spend the money on groceries the government counts that in the gross domestic product (GDP). In effect, the government is buying those products with taxpayer money. How can that be growth? The size of the cake can increase only if all the ingredients increase. Not by throwing stuff around.

Dismembered is surely worse than dysfunctional?

The British Ambassador to the US has made nasty comments about US President Donald Trump in memos leaked to the Mail on Sunday. "We don't really believe this Administration is going to become substantially more normal; less dysfunctional; less unpredictable; less faction riven; less diplomatically clumsy and inept," he wrote. He said that "something could emerge that leads to disgrace and downfall" but also wrote that Trump could "emerge from the flames, battered but intact, like (Arnold) Schwarzenegger in the final scenes of The Terminator". While the British stick to a story of a  'special relationship' with the US they are unable to adjust to the fact that the US is by far the stronger nation and Britain will probably fade into irrelevance with nostalgic memories of a brutal empire. So they resort to mockery. Trump is no Obama who took orders from the then British Prime Minister David Cameron to bomb Gaddafi in Libya, killing at least 30,000 civilians and leaving behind an unstable country locked in a perpetual civil war. Obama probably realised, much too late, that he had been had. Trump's state visit to the UK was greeted with more hostility than friendship. However, if the Trump administration is dysfunctional the entire British political establishment is in complete disarray over Brexit, with the House of Commons repeatedly voting to reject a deal reached with the European Union (EU) after months of negotiation, and also voting against 8 non-binding resolutions put before members of parliament (MPs). Prime Minister Theresa May announced her resignation in a tearful address. The Conservative Party is to elect a new leader who will become the next prime minister and will presumably be able to reach a deal with the EU that the MPs can stomach. The race is down to two men -- Boris Johnson, who is the favorite, and his challenger Jeremy Hunt. The Conservative Party has been swollen by 36,000 new members who get to vote in the election. Whether these are the same people who gave a resounding victory to the new Brexit Party of Nigel Farage in the recent elections to the European Parliament in Brussels, we do not know. Trump has suggested Farage as the desired ambassador to Washington but that has been swiftly rejected by the government. Boris Johnson is not seen as trustworthy He is prepared to leave the EU without a deal, the so-called 'hard Brexit'. A no-deal Brexit could be disastrous for the British economy and Scotland may demand another referendum for independence from the UK. A divided Britain will probably lose its seat on the UN Security Council and other key international bodies. If the US is dysfunctional, the UK could end up dismembered.

A Las Vegas budget.

The first budget presented by the new Finance Minister Nirmala Sitharaman on 5 July shows her to be a gambler. "Sitharaman raised excise duty and road and infrastructure cess on the auto fuels by Rs 2 per liter each to raise over Rs 28,000 crore (Rs 280 billion)." She is betting that the price of crude will stay at the present level or may even fall. Oil prices are fluctuating because of uncertainty caused by the trade war between the US and China, although talks are set to resume following a meeting between US President Donald Trump and Chinese President Xi Jinping at the G20 meeting in Japan. Falling global growth is likely to reduce demand for oil. Shale oil has made US the largest oil producer and will soon make it the largest exporter of oil, ahead of Saudi Arabia. Despite sanctions on oil shipments from Iran and Venezuela the price of oil is holding steady, making Sitharaman optimistic. However, situation in the Middle East could easily get out of hand. Iran is threatening to seize a British vessel in retaliation for Britain seizing an Iranian tanker off the coast of Gibralter. If Iran's oil export is completely choked off it may react by attacking tankers passing through the Gulf, as it has shown already. Trump said that the US will not use ground troops against Iran, but it may have no choice if Iran attacks Saudi Arabia which shares a long border with Iraq. Shia Iran and Sunni Saudi Arabia are implacable enemies and Shias are a majority in Iraq. Saudi troops are no match for Iranian forces. The second bet made by Sitharaman is that retail inflation, which was 3.05% in May, will remain below the target of 4% set by the government despite high fuel prices. The government earned Rs 11 trillion in the last 5 years by heavily taxing fuel and is unwilling to break its addiction. Unfortunately, the monsoon has been somewhat reluctant so far this year so food production could easily fall. In an effort to increase income of farmers, the government has already increased the minimum support price (MSP) for several crops which may result in higher prices for consumers. The third bet by Sitharaman is a decision to finance government spending by borrowing in foreign currencies abroad. She is betting that the US Federal Reserve will lower its Funds rate. Yields on the benchmark 10-year government bonds fell to 6.66% because supply of bonds will decrease. She is also betting that the rupee will remain strong relative to dollar which will make repayment easy. At the same time the Economic Survey called for lower interest rates in India which may discourage foreign investors from buying Indian bonds. A strong rupee is not in our interest, wrote Prof A Panagariya. With so many bets the Budget would be at home in Las Vegas rather than in the Indian parliament. Gambling with the economy is gambling with our lives.

Blue sky not necessarily good for India.

Following resignation of Arvind Subramanian, the Economic Survey for 2018-19 was prepared by the new Chief Economic Adviser Krishnamurthy Subramanian who has a PhD in financial economics from the University of Chicago, supervised by Luigi Zingales and Raghuram Rajan, who was the Governor of the Reserve Bank (RBI) until his contract was not extended. Rajan was vilified by ruling BJP members for high interest rate to control retail inflation and for forcing banks to reveal their non-performing assets, or bad loans, which exposed companies which had defaulted on their loans. This is called the twin balance sheet problem, wherein banks cannot lend until they clear up their books and defaulting companies are denied new loans until they clear their dues. The Economic Survey presented by Mr Subramanian "employs unfettered, 'blue sky' thinking to evolve an appropriate economic model for India," with a view to "realising Prime Minister Narendra Modi's vision of a $5 trillion economy by 2014-25". 'Blue sky' is probably meant to indicate optimism but farmers are praying for cloudy skies of southwest monsoon. How will we jump to $5 trillion? "International experience, especially from high growth East Asian economies, suggests that sustained high rate of growth needs a catalytic virtuous cycle of savings, investment and exports supported by a favorable demographic phase." Savings rate has been falling in India over 5 years ending in 2016-17, and household savings fell from 23.6% to 16.3% of GDP. Household savings were 17.2% in financial year 2017-18 (FY18) it was "way below 23.6% savings rate in FY 2011-12". According to the International Monetary Fund, the Chinese savings rate stood at an astonishing 46 percent in 2016, compared to a global average around 25 percent," wrote C Balding. But, the Chinese spend less and save because the state provides less social support than India does. Investment has been declining. Gross fixed capital formation "which means capital expenditures on machinery and equipment and dwellings" fell from 34.31%  in 2011-12 to 28.53% in 2016-17, which means fewer new projects. The current decade has seen few new entrepreneurs but has seen a higher rate of destruction of old businesses, wrote H Damodaran. The Survey suggests giving VIP privileges to high taxpayers which will be just show. Instead, if taxpayers get pensions and free healthcare, like politicians get, everyone will pay at least some taxes even if they do not earn enough. The Economic Survey "failed to provide a correct assessment of the state of the economy, which is its primary objective", wrote Prof Himanshu. "Despite the overwhelming evidence of the economy showing signs of acute distress and growing unemployment, there is neither a diagnosis of where things went wrong, nor an acknowledgement of the challenges of reviving growth." A Barman finds the Survey to be "woolly, irrelevant and of little use". Sunramanian may have learnt from Rajan. Better not to tell the truth.  

Assured returns needed if savings are to increase.

Normally we Indians enjoy a spectacle called the Budget once a year, but this year, instead of presenting a vote on account just before the general election, as is the protocol, stand-in Finance Minister Piyush Goyal presented a full interim budget on 1 February when Finance Minister Arun Jaitley flew off to the US for treatment. Taxpayers in India do not get any pension or healthcare from the state. Today, new Finance Minister Nirmala Sitharaman is the star of the show as she gets to present a post-election-victory budget. Prime Minister Modi has demanded that India should become a $5 trillion economy by the next general election in 2024, so the Economic Survey presented yesterday suggested several simple steps to get there. There are three small challenges for the Finance Minister. Economic growth has slowed down even if the present Chief Economic Adviser (CEA) denied it. Fiscal deficit of center plus states is 9% of gross domestic product (GDP). Figures for economic growth and fiscal deficit have been cooked and cannot be trusted. The CEA denied that is weak growth but the Governor of the Reserve Bank (RBI) has cut interest rate 3 times and shifted the stance from neutral to accommodative, promising more rate cuts, because the economy is "losing traction". New investments are needed to create jobs and increase tax collections. But in the quarter ending 30 June, "Investments in the manufacturing sector decreased particularly sharply, falling by 75% compared to the March quarter and 68% compared to the same period last year. Investments in the services sector also fell sharply (94% compared to the previous quarter and 98% compared to the same period last year)," wrote S Alexander. "History shows that no country has succeeded in accelerating growth rate without raising the domestic saving rate to close to 40% of GDP," wrote R Nagaraj. "The domestic saving rate has declined from 31.4% in 2013-14 to 29.6% in 2016-17". "The aggregate savings rate has fallen by around 4 percentage points since 2008. But most worryingly, household sector savings have dropped by 4 percentage points," wrote A Ranade. "And almost all the slippage is in financial savings. Investments in gold, real estate and other non-financial savings have gone up." Mortgage becomes cheaper when interest rate falls. Those who invested in debt mutual funds, thinking they are safe, have suffered heavy losses recently. Debt of listed companies have been downgraded. Dividend on shares are taxed at up to 60%, wrote V Kedia, and long term capital gains on shares were reintroduced in 2018. People have no trust in financial savings so they buy gold and because it is taxed so heavily, an estimated Rs 90 billion worth of gold is smuggled in from Myanmar. People do not trust the government and increasing taxes to increase handouts are not going to work. If they leave things alone instead of changing them every year people may begin to trust them. But then, what will the finance ministry fellows do?

Will Libra be liberating?

Facebook announced that it is going to launch a new cryptocurrency called Libra. "The Libra currency, as described in this white paper, will not be run by Facebook, but rather by a non profit association supported by a range of companies and associations. But Facebook does have a plan to profit from it with a new subsidiary, Calibra, which is building a digital wallet of the same name for storing and exchanging the currency," wrote J Boorstin. "There's 1.7 billion people around the world that are unbanked, the same number are underserved by financial services," said leader of Facebook's Calibra division David Marcus. So Facebook is trying to help the poor. Like the billionaires wanting to pay more taxes to reduce inequality. Politicians should be thrilled, but "the US House Committee on Financial Services is calling on Facebook to halt its plan". "It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival US monetary policy and the dollar," the committee wrote in a letter. "Already, the Libra Association, a Geneva-based not-for-profit group that will operate the digital currency, counts companies such as Uber, eBay, Lyft, Mastercard and PayPal among its founding members. Libra could, therefore, become the dominant global currency -- but one run by a corporation, not a central bank," agreed Prof K Basu. Unlike Bitcoin, Libra will be linked to official currencies either through the user's bank account or through exchange with national currencies, wrote N Rajadhyaksha. But that will mean that central banks will not be able to control money supply. "Monetary systems are not just about economics. They are central to the power of modern nation states, perhaps as much as an army is." Exactly. "What if Facebook's crypto, backed by fiat-currency assets and offering stable value, starts our by paying for coffee but over time becomes people's preferred store of wealth? What will it mean for monetary sovereignty?" asked A Mukherjee. China yearns to make the renminbi a reserve currency like the dollar and maybe India and Indonesia will want to do the same. Their central banks could create their own cryptocurrencies and pay interest on them. "Other central banks may join the battle for continued relevance," creating a new type of currency war. The Indian government likes to ban anything it doesn't like and so is proposing to jail anyone who deals in cryptocurrencies. Hence, the government wants a cashless nation, with people using only digital transactions so that  it can monitor every citizen for total control. How will it stop Libra? Will it ban Facebook in India and risk a backlash from the people? The more power politicians collect, the more freedom people demand. Maybe Libra will liberate people.  

Why do Indians want to be Americans?

"Three malnourished men in paramilitary costumes check the car as it enters the hotel," Wrote M Joseph. "Maybe their real job is not to deter a terror attack but to be the first to take the bullets so that richer people inside can be warned by the sound." These men maybe masquerading in "paramilitary costumes" but real soldiers are dying everyday due to Pakistan inspired terror to keep us safe in our towns and cities. "And, across all glitzy public places, one sees couples trailed by a pale Jharkhand maid, in cheaper clothes, who carries their baby." Jharkhand was carved out of the state of Bihar where more than 150 children have died this year because of, what has been labeled as, Acute Encephalitis Syndrome (AES). Research has shown that methylene cyclopropyl glycine (MCPG) in litchies causes low blood sugar in hungry children, younger than 10 years of age, but not in older children or adults. Low blood sugar, or hypoglycemia, is the easiest condition to treat. The government should provide pre-filled syringes with 50% glucose to all local doctors and nurses, to be injected as soon as a child shows symptoms. Glucose is cheap, would work instantly and is perfectly safe. Shows how incompetent politicians and civil servants are. But why are little children starving? N Chowdhury wrote about "Chunchun Devi -- thin, short, pale, looking no more than 20 herself, with a 7-month boy in her arms and two daughters, 8 and 6 standing by her side (apart from having lost 4-year-old Raveena) -- was reminder that nutrition was not just about the right kind of food, but also about grappling with early marriage, frequent pregnancies, anemia and mother's nutrition". That is the problem. In order to produce a son she has given birth to 3 daughters without the means of feeding them. One daughter has died and the other two are staring at the same wretched future. Though teenage births have fallen sharply, according to a report, it is still sadly prevalent among the poor who can least afford it. India's population grew twice as fast as that of China's in the last 9 years, which maybe why wealth per adult in China is 6 times that in India. With socialism added to our Constitution by Indira Gandhi it is fashionable to ridicule and blame the upper class for all the ills in India, but, given the choice, wouldn't every Indian want an American lifestyle? The death of 6 year old girl due to thirst on the Arizona desert in the US was headline news recently. Her parents are falsely claiming asylum in the US, not because they face any danger in India, but because the economy of Punjab has collapsed and there are no jobs. Sewage workers die of toxic fumes and their employers are arrested. This has become routine but no one asks why these people are driven to do this. There is great celebration that machines have been bought to do this work, but what happens to these people? Perhaps their children will die after blunting their hunger with litchies. The law of supply and demand applies to human beings as it does to lentils. The upper class will do housework only if they have to. Like they do in the US.

A doom-loop of prestidigitation?

"Major automobile manufacturers Maruti Suzuki, Hyundai, Tata Motors and Toyota Monday reported a decline in domestic passenger vehicle sales in June, continuing the prolonged slump in market due to poor consumer sentiments." "Market leader Maruti Suzuki India (MSI) said its domestic sales during the month were down 15.3 percent at 1,14,861 units last month compared to 1,35,662 units in June last year." So what? We are told that India is a poor country, though absolute poverty, those surviving on $1.90 per day has been reduced drastically, so it should not matter if some of the better off are buying fewer cars. The government collects 29% tax on the smallest car, which jumps to 43% on anything bigger. Collections under the Goods and Services Tax (GST) fell below Rs 1 trillion in June, so any fall in car sales cannot help. Falling sales also means fewer employees in the auto sector, fewer dealers and less business for garages servicing cars. Fewer car sales means fewer people taking loans from banks. "At Rs 2 lakh crore, this portfolio  constitutes almost 10% in the commercial banking system." "Data released Monday underscored the country's slowing economy, which has emerged as the key concern for the new government." "The slowdown in the economy is most severe in the consumer-facing sectors (with all consumer economy indicators in the red) but has also affected the industrial sector, as aggregate demand in the economy has slowed down," wrote Bhattacharya and Kwatra. There is considerable suspicion about our fiscal deficit figure. Minutes of the Monetary Policy Committee (MPC) of the Reserve Bank (RBI) in June showed members dissenting about government figures. "Fiscal 'prestidigitation' or sleight of hand may contribute to our own version of a 'doom-loop', i.e. by pushing expenditure off budget to meet deficit targets and then recourse to borrowing from national small savings fund by state entities keeps administrative interest rates high to incentivise such savings," said Chetan Ghate. Deputy Governor Viral Acharya "pointed out that when public sector borrowing requirements are taken into account, India's consolidated fiscal deficit (between 8-9% of gross domestic product (GDP), according to him) has reached levels similar to the 'taper tantrum' of 2013." Now the country is running out of water which may affect agriculture and industry. So many deficits. What's the answer? 

India could be obliged to the king.

"US President Donald Trump and China's President Xi Jinping reached agreement at the G20 summit in Japan" "to resume trade talks, easing a long row that has contributed to a global economic slowdown". Trump confirmed that he would not be adding tariffs on $300 billion of Chinese goods in addition to the $200 billion worth that are being taxed already. Trump also allowed US companies to sell products to Huawei which is seen as an extension of Chinese intelligence. US firms have been lobbying for a lifting of the ban which was hurting their business. However, White House economic adviser Larry Kudlow insisted that Trump is not backing off but "What's happening now is simply a loosening up of general merchandise" which is available around the world and not for "national security sensitive" material. Huawei declared a fall of $30 billion in revenue because of the ban. Founder CEO of Huawei Ren Zhengfei said, "We did not expect they'd attack us on so many aspects." "We cannot get components, we cannot participate in many global organisations, cannot work closely with universities, cannot use anything with US components, and cannot even setup connection with networks that use such components." "The US has warned the Indian government that companies found supplying equipment or other products of American origin to Huawei or its units could face punitive action, said people with knowledge of the matter." Many large US corporations have begun to move parts of their production lines out of China and probably will not return even if a trade deal is reached. "The US Commerce Department blacklisted five Chinese tech entities" involved in the manufacture of super computers. Some Chinese scholars have been banned from the US over fears of espionage. Even if a trade deal is reached "Global companies would almost certainly respond by continuing to shift at least the final stages of their supply chains out of China," wrote the New York Times. The world's biggest bicycle maker Giant Manufacturing Co started moving production of US-bound products from China to its home base in Taiwan as soon as Trump threatened tariffs. "When Trump announced the plan of 25% tariffs, we took it seriously," said Chairwoman Bonnie Tu. "We started moving before he shut his mouth." Trump has "doggedly pursued what he believes as America's national interests (especially in trade) and has aggressively challenged China in ways that no American president has done for four decades," wrote Ying Ma. This despite the fact that he calls Xi Jinping a king. When Xi objected that he is a president Trump said, "No, you are president for life, and therefore you are king." It is unlikely that China will shift from, what it sees, as a winning strategy so talks are likely to fail again. That will be great for India.  

Will it be pakoda wala tomorrow?

"A simple shop selling 'kachoris' in Uttar Pradesh's Aligarh has left the commercial tax sleuths astounded." Kachoris are a kind of pastry stuffed with lentils and fried, and eaten as snacks. "A team of tax inspectors sat at another shop near Mukesh Kachori and started keeping track of sales. They found that Mukesh was earning anywhere between Rs 60 lakh to Rs 1 crore and even more annually." With an income of Rs 6-10 million one would expect Mukesh, owner of the shop, to be living in a grand bungalow and driving a big car. Not so. "A narrow road, littered with garbage leads to the 225 sq ft dilapidated house of Mukesh Kumar, who is now famed 'kachori wala' who has grabbed the headlines of national media because of his purported sales of Rs 70 lakh, as pegged by GST officials, An old rickety desert cooler in the bedroom, where some plastic chairs are kept for visitors. No car is parked outside the house but an old black colored bicycle and a TVS moped, stand leaning against the house." Tax officials are sticking to their story. It is possible that someone wanted Mukesh out of his shop because he is paying a nominal rent of Rs 300. Mukesh may have been saved by all the media attention but investors in India are not so lucky. Investors in stocks "get dividend from a company after it is taxed at 30 percent. Then the company needs to pay 20 percent dividend distribution tax and then the investor pays a further 10 percent tax plus surcharge on dividend income above Rs 10 lakh," wrote V Kedia. "Truth be told, entrepreneurship in India is today comatose, if not dead," wrote H Damodaran. The period after 1991 "saw the emergence of new capitalists and also the rise of the old not-so-big, on an unprecedented scale". But the current decade has seen few new big enterprises but a whole list of companies "have been neck deep in debt or gone belly-up in the last 6-7 years". If companies are ging bust the government cannot collect taxes. "The government's tack record in raising tax revenue does not inspire much confidence in its ambitions," wrote N Kwatra. "Instead it raises fears of overzealous taxmen raising arbitrary demands to meet unrealistic revenue targets." The reason for unrealistic revenue targets maybe overestimation of GDP growth by 2.5%, as suggested by former Chief Economic Adviser A Subramanian. With weak tax growth the government resorts to borrowing. Instead of looking at fiscal deficit which is kept within forecast by "financial jugglery" we should focus on the public sector borrowing requirement (PSBR), which "may exceed 9% of GDP, wrote SSA Aiyer. "This is almost frighteningly high by international standards." GST can only be collected if people buy goods and services but private final consumption expenditure (PFCE) is falling, wrote R Kishore. Even sales of consumer goods for daily use are not growing. People can spend only if they have money. The government keeps changing tax rules and takes in cess what it gives in higher basic income. People cannot plan long term so they stop spending. Today it is kachori wala, tomorrow it maybe pakoda wala. Terrified people will not spend.

Is this the beginning of his end?

"Turkish President Recep Tayyip Erdogan has often said, 'Whoever wins Istanbul wins Turkey'," wrote Prof M Ayoob. Opposition CHP party candidate Ekrem Imamoglu beat Binali Yildirim of Erdogan's AKP party by an increased majority after, "Under pressure from Mr Erdogan and his party, the High Election Board annulled the March 31 election result on flimsy grounds." Erdogan won a referendum in 2017, granting him excess powers, by blatant cheating. "Astonishingly, Turkey's electoral board announced that it would accept boxes full of ballots but without seals -- all such boxes thus far discovered being, mirabile dictu, full of Yes votes," wrote Melik Kaylan. Erdogan tried everything from lies to abuse but Imamoglu still won in a landslide. "During the 18 days when he ran the city after the last vote before it was annulled, his team uncovered a deficit of almost $4 billion, largely due to state tenders linked to Erdogan's family." Erdogan may use pliant judges appointed by him to unseat Imamoglu because he apparently "insulted the governor of the Black Sea province of Ordu" by denying him use of the VIP section of the airport, wrote Kadri Gursel. The main problem for Erdogan could be the economy with "skyrocketing prices and joblessness". He described high interest rate as the "mother and father of all evil". Retail inflation came in below expectation at 19.50% in April. "The highest price increase last month was seen in food and non-alcoholic beverages -- up 31.86 percent on a yearly basis." "The lira has fallen by more than 10 percent against the dollar this year, adding to losses of 28 percent in 2018. It fell 0.2 percent to 5.97 per dollar in Istanbul on Friday." "Turkey's troubled lira fell to its lowest level since October on Thursday after its central bank scrapped a pledge to raise interest rates if needed." "The bank's benchmark rate is currently 24%." Protests against Erdogan in Gezi Park in Istanbul in 2013 was brutally suppressed by the police, killing 4 people and injuring thousands. There are credible allegations of smuggling of ISIS oil through Turkey, with knowledge and assistance of government institutions. Revelations of emails by Wikileaks suggested that Erdogan's son was actively involved in smuggling ISIS oil. Russia joined the Syrian conflict in 2015 and started bombing ISIS oil trucks, infuriating Erdogan who ordered the shooting of a Russian jet for straying into Turkish airspace for 17 seconds. A failed coup in 2016 gave Erdogan the excuse to sack and jail hundreds of thousands of teachers, police and government workers. There is a strong suspicion that the coup was staged by Erdogan to persecute anyone suspected of opposing him. Clearly, Erdogan is a criminal thug and the noose maybe closing round him. Possibly, around his neck.

Where else can the money come from?

As the new Finance Minister Nirmala Sitharaman presents her partial budget on 5 July she will have to repair the "Real collateral damage under Modi 1.0 was a loss of trust between government and business," wrote R Jagannathan, because trust "has been dented by five years of a relentless pursuit of greater tax compliance and black money". That is not going to relax. The government is preparing for a major crackdown on taxpayers in the belief that everyone is cheating on taxes. "The government dismissed 12 senior income-tax officers on charges of corruption and professional misconduct on June 10 and followed it up with another round of clean-up on June 18, when 15 senior income-tax officers, accused of corruption were made to compulsorily retire." "We are going to see a major crackdown, especially on GST, and to some extent, on the direct taxes side as well," said S Mukherjea. A special task force has been set up by the Finance Ministry, apparently to simplify tax laws and to increase enforcement. The government needs to increase the amount of tax it collects. Deputy Governor of the Reserve Bank (RBI) Viral Acharya resigned recently because he believed that government borrowing not reflected in the fiscal deficit has reached 8-9% of GDP. Bond yields have gone down by 33 basis points even though interest rate has been reduced by 75 basis points by the RBI, wrote A Iyer. "Borrowings by government companies are off-balance-sheet items and do not reflect in the overall government debt. Off-balance-sheet items have surged to 2.4% of GDP in FY19 from 1.4% three years ago, points out Nomura Research." Public sector companies were milked of vast sums of money before the elections to show that deficit was within budget, wrote M Sharma. Bad loans means that banks are unable to lend for new projects. "At 12.3% of loans outstanding, Non-Performing-Assets (bad loans) are at unsustainable levels," wrote A Anand. Now the RBI is warning of serious problems in shadow banks. "The Reserve Bank of India's Financial Stability Report warned that the non-banking finance companies (NBFCs) and mortgage firms in dire straits pose a serious threat." Government owned telecom firm BSNL does not have Rs 8.50 billion to pay June salaries. The telecom department has asked BSNL to stop any spending on new projects or any new purchase. State owned Air India has debts in excess of Rs 583 billion, the Civil Aviation Minister said. However, not every business man has suffered under Modi. Adani Group may take over Dighi Port after another bidder was forced to pull out. Six airports may also be handed over to Adani Group next month. Adani is from Gujarat. There is not going to be any respite for taxpayers. Whatever Jagannathan may wish for.

Can't remove one leg in case it collapses.

"No nation has sustained growth rates of 9-10% for two or more decades without succeeding in global markets. China's share in global merchandise exports rose from 2% in 1991 to 12.4% in 2012," wrote Prof A Panagariya, former Vice Chairman of Niti Aayog from January 2015 to August 2017. "Today India's share in global merchandise exports remains low at 1.7%." India's merchandise exports came in at a record $331 billion in 2018-19, but imports rose to $507.44 billion, giving a record trade deficit of $176 billion. Import of crude oil cost us $111.9 billion last fiscal, part of which was exported after refining, for a total of $35 billion in 2017-18. India has a total coastline of 7,517 km but we hardly produce any oil because most of our offshore areas remain unexplored. A former Petroleum Minister claimed that a strong oil import lobby threatens ministers trying to raise national oil output, but refused to name anyone. "The starting point for this strategy is shedding three of our current obsessions: import substitution, micro and small enterprises, and a strong rupee," wrote Panagariya. "Arbitrarily raising tariffs and bringing anti-dumping suits may benefit producers of some products, but they hurt the economy as a whole." Tariffs are raised to protect local businessmen friendly to the ruling party. Crony capitalism has been rampant in India since independence and nothing much has changed, wrote A Mukherjee. A company which benefits can then donate large sums of money to the party in anonymous electoral bonds. Our laws "incentivise" the creation of micro and small industries with no safety or social protection for workers, said the International Labor Organization. One reason is that companies with turnover of Rs 2.5 billion pay tax at 25%, while those with turnover greater than Rs 2.5 billion pay 30% tax, with a surcharge of 7-12%, and foreign companies pay tax at 40% with surcharge of 2-5%. According to the Organization for Economic Cooperation and Development (OECD) India has the highest effective corporate tax rate of 48.3%, including surcharge, cess and securities transaction tax. Taxes naturally make everything more expensive for domestic users and for exports. Indian citizens pay double for fuel compared to export prices because of 100% tax. The rupee is kept strong to reduce prices of imports which keeps retail inflation under control. Retail inflation rose slightly to 3.05% in May from 2.92% in April. Low retail inflation permits the government to force the Reserve Bank (RBI) to lower interest rate which lowers the rate of interest on government borrowings. Which is why both Urjit Patel and Viral Acharya resigned from the RBI. The government wants the RBI to transfer Rs 3 trillion form its reserves to finance its spending. It is like a three-legged stool. Removing one will make it fall.

Is it already too late to change?

Europe is suffering a hear wave with "Temperatures expected to surge 20 degrees Celsius (36 degrees Fahrenheit) above the seasonal average of 22 degrees Celsius (72 degrees Fahrenheit)." A heat wave in August 2003 killed about 70,000 in Europe, France recording 14,802 deaths related to heat. The shock this time is because it is so early in the season. A Swedish schoolgirl Greta Thunberg has created a sensation by going on strike to force her government to take action to reduce global warming. There has never been so much carbon dioxide in the earth's atmosphere, trapping heat from the sun and resulting in rising temperatures. Rising heat is easy to prove by mapping melting of ice. Photographs taken by spy satellites launched by the US in the 1970s and 80s show that Himalayan glaciers are melting at a much higher rate. A team from Columbia University "looked at 650 glaciers in the Himalayas spanning 2000 km" and "found that between 1975 and 2000, and average of 4bn tonnes of ice was being lost each year. But between 2000 and 2016, the glaciers melted approximately twice as fast -- losing about 8bn tonnes of ice each year on average." Human beings are causing changes, not only by flying, driving, using air-conditioners, but also just by eating food. Studies show that cutting down on meat and sugar is good for health, and for reducing methane produced by grass eating animals. What about milk? No animal drinks milk from another species or after being weaned by its mother but human children drink cow's milk and milk products, like butter, cheese and sweets make up a large part of our diet. It is not just food. We now have 'fast fashion' which apparently means cheap clothing meant to be worn and discarded. This increases profits for producers and retailers and makes people feel they are keeping up with celebrities. It also means that 235 million items of clothing, contributing 1.2 billion tonnes of carbon emissions, are sent to landfills every year. Human beings must live in houses to protect ourselves from the weather, from criminals and from insects. Houses need cement to build. "The most astonishing thing about cement is how much air pollution it produces," wrote V Dezem. "Manufacturing the stone-like building material is responsible for 7% of global carbon dioxide emissions, more than what comes from all the trucks in the world." "China continues to emit an increasing amount of ozone depleting chlorofluorocarbons (CFCs), despite a global initiative to phase out CFCs under the Montreal Protocol", scientists have found. Climate change could end human civilization within 30 years and result in deaths of hundreds of millions of people, from lack of food and water to uncontrolled epidemics. The human population growth could peak earlier than we think, wrote D Fickling. But perhaps, it is already too late. For us and for all life on earth.

Earn less to be safe?

"A Finance Ministry action earlier this week against over a dozen income-tax officials for alleged corruption and professional misconduct has given rise to conjectures and theorisations that a crackdown against tax evasion is in the offing." "The cash ban did not achieve the government's desired objective of digging out black money, though it offered several fringe benefits." "A reliable estimation of unaccounted income in India was not possible, a standing committee on Monday said while submitting the final report before both houses" and "senior finance ministry officials said that a reliable estimation of black money is extremely difficult, since the three independent studies threw up varied results, showing that it could be anything between 7% and 120% of gross domestic product (GDP)". The National Institute of Financial Management "estimations of total illicit outflow in 1990-2008 was at Rs 941,837 crore ($216.48 billion)". Brilliant. They don't know and yet they resort to vicious 'tax terrorism' against citizens to extract more money. This results in appeals of which "The taxman unambiguously loses 65% of his cases." "When the NDA government came to power (in 2014), the amount locked in tax dispute was Rs 4.67 lakh crore (Rs 4.67 trillion); it was at Rs 10.16 lakh crore in March 2018, an increase of about 2.2 times." Demonetization was supposed to push India towards a cashless society since black money cannot be deposited in banks, without giving rise to questions, and so must be held in cash. But, "Currency in circulation (CIC) has jumped by 19.14 percent to a record high of Rs 21.41 lakh crore (trillion) as on March 15, 2019, indicating that cash is back in the reckoning in the financial system." The government should be celebrating the report because "ILO (International Labor Organization) estimates that 90 percent of India's workforce is in the informal sector" and all these people are paid in cash. A lot of such people are migrant workers who move in search of work. It is not possible for them to open bank accounts at each new place they go to because of stringent know your customer (KYC) requirements at banks. Though fees are much higher compared to bank transfers, "As many as 65 million transactions were effected during 2016-17" through post office money order system in India. Labor force participation rate (LFPR), which measures the share of population which is either working or looking for work, was 54.9% for men and 18.2% for women in rural areas," wrote R Kishore. It is 57% for urban men and a dismal 15.9% for urban women. Of those who are working, 92% of women and 82% of men earn less than Rs 10,000 per month. You have to earn Rs 21,000 per month to start paying income tax in India. People aren't working or earning enough. Perhaps, if they treat people with respect the economy might improve. More people will get jobs and pay taxes.

Will our access to the West become impossible?

"India on Saturday asked its airlines to avoid flying on the over-water of Tehran (Iran) airspace with the Strait of Hormuz that connects Persian Gulf and Gulf of Oman at its heart." Pakistan has closed its airspace to civilian flights to and from India since 26 February though India has capitulated by opening its airspace to Pakistani flights from 31 May. All flights from New Delhi to Europe and the US have to take the long route over Gujarat and then south of Pakistan causing longer flight times and higher ticket prices. Pakistan has been extending the ban incrementally to cause economic damage to India, in revenge for the strike on Balakot. By the end of April Air India had suffered a loss of Rs 3 billion, gleefully reported by Pakistan Today which gave a breakdown for the excess cost. The ban on flying over Iranian waters will extend flight time to Russia and eastern Europe but probably not to countries in western Europe. "US mega carrier United has already suspended both its India flights due to closure of en route airspaces of Iran (partially) and Pakistan." It's not just the extra cost and time. If airlines cut flights to the west India's business will be severely affected. Last week, US President Donald Trump stopped an attack on Iran with ten minutes to go because he thought that 150 casualties would be out of proportion to the shooting down of an unmanned US drone over the Gulf by Iran. Iran said that it chose not to shoot down a Boeing P-8 spy plane with 38 people on board that was flying close to the drone. It was a wise decision because it would give Washington no choice but to retaliate militarily. In 1988 the US shot down an Iranian commercial plane with 290 people on board, a crime it would certainly not want to repeat. Iran will retaliate if attacked. "Iran has demonstrated it can launch dozens of road-mobile short-range ballistic missiles beyond its borders. Recent innovations include a cruise missile likely patterned on a Soviet design with a range exceeding 1200 miles," said Miguel Miranda. "Iran will use militias, cells and spies, in Shia communities throughout the region to conduct sabotage, especially of the energy complex, kidnapping of Westerners and attacks on the US and its allies," said John Wood. Iran is already accused of attacking oil tankers with limpet mines which Iran denies. Iran's militia ally Hezbollah is thought to possess 130,000 rounds of rockets, more than most nations on earth. US launched cyber attacks on Iran's weapons system, which seems pointless because Iran will get them going again. Cyber attacks to paralyze Iran's weapons, coinciding with an armed attack, would be extremely effective. Trump has promised to impose even more sanctions on Iran from today. India has had to stop oil imports from Iran. So far crude oil prices are steady but if conflict breaks out prices will shoot up. The cost of flying to the West along a longer route may become prohibitive. Pakistan must be feeling happy.  

Taxes always go up. So why worry about the budget?

The new Finance Minister Nirmala Sitharaman will present a budget on 5 July and "all eyes will focus on the fiscal deficit number", wrote N Kwatra. "Over the past few years, the government has managed to keep the headline fiscal deficit number under check" by "growing use of off-budget financing". So, "if these expenses were to be included in fiscal calculations, India is already in a deep fiscal hole, with the 'adjusted' fiscal deficit hovering near 5% of India's gross domestic product (GDP)". "Data from the Controller General of Accounts (CGA) show that the government reversed about Rs 700 billion of its incurred expenditure on subsidies in 2018-19 and about Rs 420 billion in 2017-18 just before the end of the respective fiscal year." "Macroeconomic indicators, hitherto conflicting, are all now consistently reflecting a severe growth slowdown," wrote Prof S Mundle. "Growth revival will depend critically on the growth of investment and exports." What exports? India's trade deficit was a record $176 billion in 2018-19, and this financial year has started on a similar note with the trade deficit hitting a 6-month high of $15.4 billion in May. "So a large boost to public investment in employment-intensive rural infrastructure, especially rural roads, minor irrigation, rural housing, etc., should be high on the government's agenda." They are. Prime Minister Modi plans to spend Rs 100 trillion in the next 5 years on infrastructure, of which Rs 30 trillion will be spent on the transport sector, to create jobs. Rs 6,000 will be handed out to all farmers every year and a pension of Rs 3,000 will be given to "farmers, shopkeepers, retail traders and self-employed persons" on reaching the age of 60 years. To spend so much the government needs revenues but according to a Reserve Bank (RBI) survey, people's intention to spend "on non-essential items has fallen to an all-time low since September 2015". It is not just that "Passenger vehicle sales declined by 20.55% in May compared to the same period last year, logging the steepest fall in 18 years", but sales of "toilet soaps, hair and edible oils, milk food drinks and salt fell in absolute terms" in 2018. Falling sales mean a fall in indirect tax collections, which, in turn, means a severe abuse of people through extreme tax terrorism. People are so terrified and harassed by tax officials that they pay unjustified taxes just to get relief from their clutches. The government has shown revenues by selling one public sector unit to another so that "Over the last 18 months, as the need to meet disinvestment targets became urgent, such ideas ended up destroying 18-20% of the Nifty Public Sector Enterprise (PSE) index value even as the overall stock market has risen," wrote R Jagannathan. Minority shareholders have suffered but there is nothing they can do. Since money doesn't grow on trees the budget will be smoke and mirrors, as always. Same to same, as we say in India.

What message for Pompeo?

US trade representative Robert Lighthizer told  the Ways and Means Committee of the US Congress that India has the "highest tariffs of any country you can imagine". "They have a very status kind of economy. It's very heavily regulated. They have created problems in the digital space, in the agriculture space, in regular manufacturing. I mean in retail, just across the board," he said. But, in a big sigh of relief a spokeswoman from the State Department said, "The Trump administration has no plans to place caps on H-1B work visas for nations that force foreign companies to store data locally." India is the biggest beneficiary of the H-1B visa program, being awarded three-fourths of the total in 2018. Our IT industry is heavily dependent on these visas to provide onsite engineers at cheaper costs. Since IT contributes 8% to our GDP, a restriction of H-1B visas to India will hurt our economy. Earlier, India imposed tariffs on goods imported from the US in retaliation for the US withdrawing facilities for duty-free imports from India under the Generalized System of Preference. Secretary of State Mike Pompeo is to visit India next week. The US does not want India to buy 5G equipment from Huawei and warned any Indian company supplying US equipment to Huawei will face a tough response. "India's decision to buy the long-range S-400 missile defense system from Russia will have serious implications on defense ties," the Trump administration has warned. India has asked all foreign companies to store data on Indian customers within India, apparently to ensure privacy for us. Which is rich, because in 2017, the Attorney General told the Supreme Court that Indians have no fundamental right to privacy, so citizens maybe forced to provide fingerprints and iris scans for government surveillance. He further argued that Indians have no right over their bodies, thus giving politicians and civil servants life and death control over citizens. The government is asking WhatsApp to fingerprint messages so that they can be traced to their source. Which would allow the police to arrest anyone criticising the Supreme Leader. "Over three years after it struck down Section 66A of the Information Technology Act as unconstitutional, the Supreme Court on Monday said that it was shocked to hear that authorities still continue to book people under the now extinct and draconian provision." Our government continues to use British sedition laws to intimidate citizens into silence. The US says that data localization "would damage digital economy and harm privacy", wrote Prof RK Joseph. With China and Pakistan threatening us we need the US. So what will we say to Pompeo?

Legal system in suspended animation.

"Across India's subordinate courts, the first port of call for most cases, more than a third of the 31 million cases have been pending for more than three years," wrote Padmanabhan and Devulapalli. "Half of all the 8 million cases in the HCs (high courts) have been pending for over three years." This is holding our economy back. "The 2017 economic survey of the finance ministry pointed out that the slow resolution of economic and commercial cases was one of the biggest stumbling blocks in reviving the country's investment cycle." The problem is that the government enacts laws to dishonor unfavorable judgements by the Supreme Court, as when the General Anti-Avoidance Rule (GAAR) was enacted to dishonor the verdict in the Vodafone-Hutch deal. The government tried to stop Vodafone going to an international arbitration court in London but was denied by Delhi High Court. But, officials have already said that India may not accept arbitration orders. "Foreign direct investment (FDI) equity inflows to India in 2018-19 contracted by 1%, according to the government's own data," wrote Prof P Ranjan. "This contraction in FDI inflows comes at a time when global supply chains are shifting base as a result of ongoing trade war between the US and China. India has failed to attract firms exiting China." FDI growth rate began to taper off from 2016-17, coinciding with "India's decision, in 2016, to unilaterally terminate bilateral investment treaties (BITs) with more than 60 countries", perhaps giving the impression that India "does not respect international laws". The Insolvency and Bankruptcy Code was enacted to help lenders get at least some of their money from defaulting firms but creditors have managed to delay cases by endless appeals. The government amended the law to prevent the defaulting creditor buying the company but this resulted in continuing litigation and endless delays. "That lawyers are generally dishonest is a well-known fact. Lawyers are (frequently) humorously called liars, and because they are middle-men between judges and the litigating public they act like dishonest brokers," wrote Justice Ruma Pal. The Supreme Court striking down the Reserve Bank's (RBI's) 'Resolution of Stressed Assets: Revised Framework', which tightened bankruptcy rules, was a bonanza for defaulting companies, wrote Prof V Ranganathan. A large number of companies have "interest cover ratio (IC) of less than 1 -- that is earnings are less than interest due". Debts of companies with IC less than 1 are: "Tata Motors, Tata Power and Tata Tele have borrowings of Rs 1,20,000 crore; Jaiprakash Associates and Jaiprakash Power, Rs 96,000 crore; Reliance Communications, Reliance Infrastructure and Reliance Defence, Rs 80,000 crore; Adani Power, Rs 53,000 crore and GMR Infrastructure Rs 50,000 crore. The system is designed for insider loot. Foreigners beware.

We have protected ourselves by trading little.

"If the world was flat and fast before 2008, today it's fat and slow," wrote Ruchir Sharma. It is 10 years since the Great Recession, the longest period of global recovery and US economic expansion. "Once the crisis hit, however, governments erected barriers to protect domestic companies. Central banks aggressively printed money to restore high growth." This has resulted in rising inequality by giving "big companies favorable access to cheap credit, encouraging them to grow even bigger." "In the United States and Europe, 65% of the major business sectors are dominated by the three largest companies in that sector, up from 40% in the years before 2008. As the power of dominant firms grows, the share of national income that goes to workers has been shrinking, fueling inequality -- and anger." Global trade is slowing. "Global flows of foreign direct investment fell by 13% last year" "the third consecutive annual decline, which officials blamed on multinational corporations bringing cash back to the United States after Trump's tax overhaul". US companies "brought back $85.9 billion in the fourth quarter and $664.9 billion for full year 2018", adding to $155.1 billion brought back in 2017. That maybe one reason why the US has been growing so strongly. "US GDP growth will slow to 2.1% in 2019 from 3% in 2018. It will be 1.9% in 2020 and 1.8% in 2021," wrote K Amadeo. The Federal Open Market Committee (FOMC) "expects headline inflation to grow at slower pace at 1.5%, versus the 1.8% predicted in March" while "GDP growth is still expected to be 2.1% for the year, while the unemployment rate is now expected to hold at a 50-year low of 3.6%". Interest rate was held steady at yesterday's FOMC meeting. The global economy could fall into a recession in 2020, wrote Prof N Roubini. "With central banks' ability to serve as lenders of last resort increasingly constrained, illiquid financial markets are vulnerable to 'flash crashes' and other disruptions." "Factory activity contracted in most Asian countries last month as an escalating trade war between Washington and Beijing raised fears of a global economic downturn and heaped pressure on policymakers in the region and beyond to roll out more stimulus." "Credit to non-financial corporations and governments in emerging markets has soared over the last decade and is at record highs," wrote MR Valladares, but India's debt, as a proportion of the GDP, is lower than others, the IMF said. Since we do not export much anyway a global recession should have lesser effect on us, and since private consumption is dropping it may help us by reducing imports. It's win-win all the way.