How to escape when so many are looking after them?

Prime Minister Narendra Modi's government "believes a boost to farm export is a sure-shot way to help double farmers' income by 2022", wrote SN Sharma. "Once a farm product is exported at scale, it reduces a glut in the market, there by checking a drop in prices and allowing farmers to realise better prices for their produce. "Presently, marine products, basmati rice, buffalo meat, spices and non-basmati rice make up 55% of the total agriculture export basket" and the government is "giving thrust to the cultivation of grapes, mangoes, chili, moringa, lemons and pineapples". "India's net agri-export surplus  (exports minus imports) increased from $3.7 billion in 2004-05 to about $27 billion in 2013-14", wrote Prof A Gulati. However, "The net surplus fell to $9.5 billion in 2015-16 and further to $7.8 billion in 2016-17." Global prices of agricultural products have fallen since 2013-14 making our products uncompetitive, but the main problem lies in government policies. "The inherent 'consumer bias' in these policies makes the trading environment unstable and unpredictable." "Exports are restricted through the use of minimum export prices and bans while the Essential Commodities Act is used to regulate private participation." The government procures 22 agricultural products at a minimum price so as to set a floor under market prices and prevent financial losses for farmers. However, wheat and rice are the main products procured by the government in memory of a near famine in the 1960s during which India survived on food aid from the US. Since then, the government has maintained a buffer stock of food grains in case the annual monsoon, on which our agriculture is totally dependent, fails. By June, the buffer stock had reached over 74 million tonnes, 81% above the norm. Since there is a shortage of silos to store the excessive buying by the government, India wastes about $14 billion worth of food every year, even though the nation has the largest number of malnourished people in the world. If farmers are sure of being paid for growing grains they would be reluctant to shift to other produce of which they have little experience and which spoil much more quickly. The Food Corporation of India (FCI) borrowed Rs 1.96 trillion in the last financial year  which has been kept off the official balance sheet. The main problem is the government itself. "Look at the sheer number of union ministries involved in agriculture exports: agriculture and farmers' welfare, fisheries, animal husbandry and dairy processing, food processing, micro, small and medium enterprises, commerce and industry, and even external affairs," wrote Sharma. When the Union cabinet has 64 ministers, there is no shortage of ministries looking after our farmers. They have no escape.

Money is a weapon, hence the currency war.

Couple of weeks back the US Federal Reserve cut its Funds rate by 25 basis points to 2-2.25%. US stocks fell sharply after the rate cut, the S&P 500 closing down 1.09% for the day. "US President Donald Trump called on the Federal Reserve to lower interest rates by a full percentage point, saying the nation's economy was being 'handcuffed' by the US central bank's policy." One percentage point is 100 basis points. Trump wants interest rates lower to weaken the dollar in response to China allowing its currency the yuan to fall below 7 to the dollar. A weaker currency makes Chinese goods cheaper which will increase exports to the US, thus neutralizing tariffs on Chinese goods and maintaining the huge trade imbalance between the US and China. Low interest rate is expected to help American companies to borrow cheaply to set up businesses within the US but "we should fear easy money", wrote Ruchir Sharma. Because, "with credit already dirt cheap, more cuts could bring on the kind of debt fueled market collapse that preceded the downturn not only in Japan in 1990, but in Asia after 1998 and across the world after 2008." If it is so dangerous why do politicians clamor for low rates? "Economists now dread deflation. For centuries, deflation was a common and mostly benign phenomenon, with prices falling because of of technological innovations that lowered the cost of producing and distributing goods. But the crippling downward price spiral of the 1930s and the more recent experience of Japan have given the word its scary connotation." On his visit to China Marco Polo first experienced paper money. "One of the things that astonished him most, however, was a new invention, implemented by Kublai Khan, a grandson of the great conqueror Genghis. It was paper money, introduced by Kublai in 1260." And, "if you didn't use it -- if you wouldn't accept it in payment, or preferred to use gold or silver or copper or iron bars or any of the older form of payment prevalent in China -- he would have you killed." China has not changed much since Kublai Khan. Naturally, monarchs used money to loot their people. "The creation of a single national currency simultaneously consolidated the power of nation states and the modern market," wrote R Bakshi. In early 20th century, regional currencies were created by communities but "as soon as community currency became notable in scale, spread, and efficiency, it was outlawed because it was perceived as a challenge to both the state and banks." Cryptocurrencies are a new invention but India has banned them and proposes jail sentences of up to 10 years for anyone using them. Money is a weapon of control. That is why we are seeing a currency war.

Such a great difference is difficult to comprehend.

Given a choice, which of two men would we prefer asked Chetan Bhagat. "One, a Bachelor of Arts graduate. Two, a 12th pass, in-demand electrician in one of Mumbai's neighborhoods. Or, say, if your cousin was looking to get married, which of the two would you recommend?" Bhagat has degrees from the most prestigious colleges in India, is a well known writer and worked for Goldman Sachs, no less. Whereas, 3,700 PhD holders, 50,000 graduates, 28,000 PGs applied for 62 posts of messengers in UP police last year. "One can hire a 'simple graduate' in India for around ten thousand rupees a month, maybe even less in smaller towns. An in-demand electrician in Mumbai, say Bandra, could easily make eighty thousand to one hundred thousand rupees a month." Yet, who should "your sweet little sister" marry? he asks. It's not people's fault that our education system is so poor that over 80% of our graduates are unfit for employment. Most artisans in India are 'mistiries' or 'cowboys' who have come from distant villages and have learnt their trade from a 'cousin' and the "sweet little sister" maybe educated and unwilling to live away from the facilities of a city. Is vocational training the answer? "Nationally, only 1.8% of the population reported receiving formal vocational/technical training in 2017-18," wrote Anand and Thampi. Of them, "As many as 33% of the formally trained youth were unemployed in 2017-18." Trained in what? "The bulk of the trainees were in the fields of electronics, IT/ITeS, apparels and mechanical engineering." No electrician, plumber, mason or carpenter. But, there is more trouble ahead. "Sectors including ecommerce, BFSI (banking, financial services and insurance) and BPO-IT-enabled services could see a drop of up to 37% in 2019-23 compared with the earlier estimates for 2018-22." Artisans work in the informal sector and, though they maybe earning well today, their incomes fall to zero if they fall ill or meet with an accident. People look for salaried jobs for the security they offer. But Bhagat is right in that, "In 2017-18, around 45% of regular workers  earned less than Rs 10,000 per month, and about 12% earned less than Rs 5,000 per month." These wages are impossible to survive on. Why do people take such jobs? Because, "While the unemployment rate for all age groups increased from 2.2% (2011-12) to 6.1% (2017-18), youth unemployment rate surged to a level never witnessed before in the Indian economy, increasing from 6.1% (2011-12) to 17.8% (2017-18)," wrote Prof S Mehrotra. Agriculture jobs declined from 232 million to 205.3 million and manufacturing lost 3.5 million jobs in that period. People leaving low paid agriculture sector is a good thing, wrote Prof Himanshu, but "the economy should have created at least 83 million jobs between 2012 and 2018 to accommodate those who have entered the labor force and those forced out of agriculture". With too many people chasing too few jobs there is no need to pay higher wages. The "sweet little sister" must learn to adjust.

People don't want to borrow because they don't want to spend.

The Reserve Bank of India (RBI) reduced interest rate by 35 basis points yesterday,in an effort to stimulate growth in the economy. Apparently, the Monetary Policy Committee (MPC) considered a "standard 25 basis point (cut) might prove to be inadequate in view of the evolving global and domestic macroeconomic developments. On the other hand, reducing the rate by, say, 50 points might be excessive, especially after taking into account the actions already undertaken." The RBI maintained its accommodative stance indicating more cuts to come. Low interest rates make it easier for companies to borrow cheaply and set up new projects which create new jobs and thus enhance wealth. That is the theory. "I have had meetings with both public and private sector banks and the system is today ... flush with liquidity," said RBI Governor S Das. Banks do not like money to lie idle so if they have a lot of money lying around they will lend at lower rates anyway. "The answer must be that there's a much greater political short-run payoff from lower interest rates than from higher interest rates," wrote MJ Perry about low interest rates in the US. "That is borrowers (including corporations) must have louder and organized political influence than disorganized savers. In that case, aren't lower interest rates a form of legal plunder and crony capitalism...?" The biggest borrower is, of course, the government which is set to borrow Rs 7.10 trillion this financial year to pay for its expenses. Yields for 10-year government bonds have fallen from over 7.6% in March to 6.37% which reduces its interest payments. Out of the total expenditure of Rs 25 trillion in this year's Budget, revenue expenditure will be Rs 20 trillion, that is around 90%. Revenue expenditure includes "salaries, wages, pensions, subsidies and interest", which do not create any assets and so are considered wasteful. Retail inflation was 3.18% in June, which is below the 4% target set for the RBI. Crude oil prices have dropped into a bear market territory, which is defined as a drop of more than 20%. The RBI is confident of inflation remaining in its comfort zone because we import 84% of our oil consumption and a bear market in oil is highly beneficial. Lowering interest rate can only have effect if banks pass on the cuts to borrowers. Interest rate was cut by 75 basis points in the last few months but banks reduced their lending rates by only 11 points, wrote A Iyer. That is because when the government borrows so heavily, there is little left for the private sector. The RBI has to create trust which means "making the government more honest about fiscal deficit in the first place". Companies will start new projects only if there is demand. Growth in fast moving consumer goods (FMCG) is slowing down. People take loans to buy houses or cars but not to buy toothpaste or washing powder. You can force people to pay high taxes but you cannot force them to spend. Stalemate. 

It is welcome, but are there intrigues we don't know?

In a sudden move the Indian government revoked Articles 370 and 35A on Kashmir and declared it an integral part of the nation. Article 370 gave a special status to Kashmir, partly its own constitution and its own flag and Article 35A banned any Indian not resident in Kashmir from buying or owning property in the state or applying for state government jobs. Special status rights are enjoyed by 10 other hill states, including Assam, Himachal Pradesh and Uttarakhand. Article 370 was not in the original constitution of India but was apparently forced through by our first Prime Minister Jawaharlal Nehru to please Sheikh Abdullah. Even at that time many members of the Congress, the BJP did not exist in the 1950s, were against special provisions for Kashmir but accepted it reluctantly. Even today, Congress leaders are against revoking the article, maybe in loyalty to Nehru's memory, but many of the younger leaders have supported the government's stand. For the ruling BJP, scrapping Article 370 is an act of faith because it was opposed by SP Mookerjee, who founded Jana Sangh in 1951, which was the parent of the modern BJP. "There are times in the history of a republic when it reduces itself to jackboot. Nothing more and nothing less. We are witnessing that moment in Kashmir," fulminated PB Mehta. Which is silly, because Kashmir was a festering sore, constantly used by the Pakistan army to justify its support for terrorists and demand 'constructive dialogue' as an equal. "The removal of 'special status' does allow India to say there is no dispute to discuss with Pakistan anymore," wrote S Sirohi. In its statement, Pakistan said it "strongly condemns and rejects the announcements made today by the Indian Government regarding the Indian occupied Jammu and Kashmir", which is utter rubbish because it has handed a large swathe of Kashmir territory to China to build the economic corridor. The regular bloodshed of Indian soldiers and innocent civilians in Kashmir was unacceptable so this is a welcome, if slightly risky, move. But, why now and why so suddenly? The annual Amarnath Yatra, a Hindu pilgrimage due to end on 15 August, was suddenly stopped and all tourists were told to get out of the valley. Pakistan Prime Minister Imran Khan's recent visit to the US was deemed extremely successful because US President Donald Trump asked for help to end the war in Afghanistan and offered to mediate in the Kashmir dispute, which is a strict no-no for India. India kept the US informed of its move on Article 370. In a blow to Pakistan, the US said that revoking Article 370 is an internal matter for India, prompting an angry Shehbaz Sharif to ask Imran Khan, "Was Trump's offer to mediate his trump card or trap card?" So, has this anything to do with US discussions with the Taliban to get US troops out of Afghanistan? Or, does the US want troops to be safe in Afghanistan if there is war with Iran? Did the US hatch this plan? Such intrigues. Isn't it thrilling?

How low can the yuan fall?

Last week US President Donald Trump announced that he is going to impose 10% tariffs on $300 billion of goods from China, in addition to the $250 billion worth of imports from China that already attract 25% tariffs. In an underhand strategy, China smuggles large quantities of the synthetic opioid Fentanyl into the US. In its usual response, China denied that it is a source of Fentanyl, just as it denies economic espionage, intellectual property theft, forced technology transfer and other crimes. Can China stop smuggling of Fentanyl? Absolutely. This is a nation that has no problems in abducting little children from their parents and confining them in camps for brainwashing. In retaliation to Trump, China weakened its currency, the yuan, and instructed all state owned companies to stop buying US agricultural products to hit Trump's voters. The US has declared China a 'currency manipulator'. Chinese President Xi Jinping maybe banking on Trump losing next year's re-election and a more sympathetic Democratic candidate in the White House, so he is willing to accept any damage to the Chinese economy, probably lulled by China's importance in the global supply chain. Wall Street analysts warned that China's currency devaluation is "on a scale of 1-10, it's an 11" in its trade war with the US. "The most celebrated victories in Chinese history are not based on valor, but on deception. These successful battle strategies are rigorously taught in Chinese academies and are an integral part of the Chinese leadership's worldview," wrote S Deb. No longer. "China wants to capture the emerging hi-tech industries of the future with one goal in mind: to replace the United States as the world's dominant power," wrote SW Mosher. "This is President-for-life Xi Jinping's "China Dream," and it's revealing that he no longer hesitates to admit it." C Block wrote about "the wave of reverse merger frauds from the last decade in which literally hundreds of fraudulent companies from China, listed in the US, collectively raising tens of billions of dollars from investors. The funds went to China, separated forever from those wronged by the fraud." "President Trump's critics like to denounce him for coddling dictators," wrote Ying Ma. And yet, "Trump has proudly and noisily waged a trade war against China, something that no recent US president -- all far more dignified in their rhetoric -- has come close to threatening." At $5 trillion, Japan's economy is less than half the size of that of China, but the Japanese yen is seen as a safe haven currency, while the Chinese yuan is not. China has been overtaken by Mexico and Canada as the biggest trading partner for the US. For us in India it is simple. The US is an on-off friend, but China is an existential threat. Good luck to the US.

A scenario depends on who is looking.

Economists at the World Economic Forum (WEF) used scenario planning in 2006 and predicted that "India's growth would accelerate for a few years and and then it would decelerate if increasing inequalities were not addressed with good politics, and institutions of governance were not improved. This has actually happened," wrote A Maira. Scenario planning involves collecting information from all departments of government and then formulating bold strategies to deal with them. That is not possible in India. "Under Atal Bihari Vajpayee's NDA-1 government, while India saw the pace of market-friendly economic reforms pick up, development seems to have left the poorest out of the country's growth story," wrote Prof Ila Patnaik. Hence, Prime Minister Narandra Modi resorted to handing out free gas connections, free healthcare, free cash and other benefits to win 2019 general election. Prof VA Nageswaran finds that "we Indians sweat the small stuff too much. This includes myopia, staking egos on small priorities and a genuine inability to see the big picture." The government quickly withdrew "provisions in its labor codes making it possible for employers to retrench up to 300 workers without prior government approval". The Budget increased customs duty on a range of items, including gold, apparently to support local industries. The present government's policy of import substitution "will take economy down from turnpike to dirt road", wrote Prof A Panagariya. Increased taxes on gold has made smuggling enormously more lucrative. Gold smuggling from Myanmar is estimated at Rs 90 billion in 2017-18. Why is economic growth slowing in India? "Because India is a high-cost economy that cannot compete with its Asian peers. India has among the highest-cost land, labor, capital, electricity, railway freight rates, air freight, corporate and income taxes," wrote SA Aiyer. Modi has to realise that we have to compete with "China and other competitors like Bangladesh, Vietnam, Indonesia and Thailand. They all have lower costs and faster export growth." A few days back founder of Cafe Coffee Day VG Siddhartha committed suicide by drowning because of increasing debt and harassment by tax officials. To that, the Tax officials responded that they were protecting revenue interests. They do not seem to realise that their job is not to resort to terrorism to increase tax revenues for the government but to help the taxpayer pay fair taxes. The previous Congress government asked companies to spend 2% of profits on social causes but this government has not only made it mandatory but has passed an amendment which punishes companies with fines and prison terms for managers. The perversion of forced charity is hard to comprehend. Private hospitals may go bankrupt because they have to serve civil servants almost for free. India's scenario is that elections can be won by pleasing poor people. The government is doing that very efficiently. Until the economy tanks.

Has the long rope turned into a noose?

"In response to the global economic slowdown as well as the generally subdued inflationary pressures, many Asian central banks (India, China, Indonesia, Malaysia, the Philippines, South Korea) have begun to ease monetary policy," wrote Prof RS Rajan. They feel comfortable doing so because the US Federal Reserve just cut its Funds rate by 25 basis points. "Let me be clear -- it's not the beginning of a long series of rate cuts," said Fed Chairman Jerome Powell. He also said, "I didn't say it's just one rate cut." Thus, thoroughly confusing markets, so that "The benchmark S&P 500 index closed down 1.1% for the day. Yields on 2-year notes, a proxy for Fed policy rates, rose to 1.87%." So, what about India? India is not part of the global supply chain and so has been affected little by the trade war between the US and China. Despite three rate cuts our real interest rate is still higher than our peers, rate cuts are not transmitted to lending rates by banks and our real effective exchange rate (REER) of the rupee is too high. The International Monetary Fund (IMF) has predicted a 7% growth rate for 2019, but we need at least 8% growth. Eight out of 16 economic indicators tracked by the Mint are in the red. "All four indicators of the consumer economy -- passenger vehicle sales, tractor sales, two-wheeler sales and domestic air passenger growth -- continue to be in the red for the fifth straight month, with the first three indicators showing a decline (negative growth) over the year ago period," wrote N Kwatra. Consumer confidence has dropped. "The present government has had a very long rope in terms of being able to deliver on the economy. The lack of any coordinated policy response to deal with the current, and perhaps worsening, economic slowdown is affecting future expectations adversely," wrote R Kishore. There is a lack of 'animal spirits' in the economy with "Eight high-frequency indicators compiled by Bloomberg News showed the economy lacked momentum, with the overall activity dot remaining unchanged from a month ago," wrote A Nag. Credit rating agency Crisil listed 5 reasons for the sluggish rate of growth, including rural distress. Economic slowdown has resulted in increased unemployment, wrote Prof Himanshu, with the total number of workers falling from 472.5 million in 2011-12 to 457 million in 2017-18. Jobs have been created in services and in construction, mining and utilities but manufacturing jobs declined by 3.5 million between the two years, wrote Prof S Mehrotra and J Parida. The share of manufacturing in GDP "has remained stuck at 16% since 1991, while the share of employment in manufacturing has stagnated at around 12.5%". Manufacturing cannot increase if people are not buying and people will not buy if there are no jobs. We are going round in a circle.

Brave to take a risk with re-election.

"US President Donald Trump has said he will impose a fresh 10% tariff on another $300 billion of Chinese goods, in a sharp escalation of trade war between the two countries. It came after the latest round of bilateral talks showed little sign of a breakthrough. The new tariffs, due to take effect on 1 September, effectively tax all Chinese imports to the US." "Adding tariffs is definitely not a constructive way to resolve economic and trade frictions, it's not the correct way," said China's Foreign Minister Wang Yi. Those making money from trade with China and stock market brokers are unhappy They say it will raise consumer prices in the US and hurt company profits. The inflation rate came in at 1.65% in June despite a 25% tariff on $250 billion worth of imports from China, when China wanted to renegotiate an agreement reached after weeks of talks between the two nations. The US Federal Reserve has a 2% upper limit on consumer inflation. "US President Donald Trump's trade war with China is backfiring and impacting the US economy, according to his former chief economic adviser." Gary Cohn is a Democrat and used to be president of Goldman Sachs Bank, described as "a great vampire squid wrapped around the face of humanity" by Matt Taibbi, so his views are doubly suspect. Cohn thinks that Trump's tariffs are actually helping China because the Chinese government wants to slow down its economy anyway. If so, why are they bothering to talk? And why are they threatening retaliation when they should be thanking Trump and sending him a present? China's economy is slowing and there may not be enough jobs for its newly qualified university graduates. If China cannot sell its goods in the US, its biggest customer, factories will have to close and people will lose jobs. There have been mass protests in Hong Kong for over 2 months against Chinese rule, but the mainland has not responded to the protests as it did to Tiananmen Square protests in 1989. Not because the Chinese government has suddenly become civilized and human, but because China still needs Hong Kong as a financial gateway. Trading in shares of Chinese companies are restricted on Shanghai and Shenzhen stock exchanges so companies list on Hong Kong exchange to raise money from foreign investors. "China's total corporate, household and government debt rose to 303% of GDP in the first quarter of 2019, from 297% in the same period a year earlier," said the Institute of International Finance.It is now 15% of all global debt. China's wealth is based on blatant theft of intellectual properties of the US, Europe and other countries and its barbaric practice of forcing foreign companies to transfer technology to domestic ones. Donald Trump is to face re-election next year and may lose if the economy loses steam. Still, he is confronting China when all previous presidents have talked big and done nothing. Surely, that makes him a true patriot. 

The magic of helicopter drop.

"India has been pushed to the seventh place in the global GDP rankings in 2018 with the UK and France forging ahead to the fifth and sixth spots, data compiled by the World Bank showed." Apparently, it is because, "In 2017, the rupee appreciated against the dollar, and in 2018 it depreciated against the dollar," said D Pant. But the pound sterling has fallen to $1.21 to one pound today, from $1.35 to one pound in 2017. Despite a falling pound due to total confusion about whether Britain will crash out of Europe without a deal, the British economy retains its spot above ours. Britain runs a trade deficit and imports a quarter of its food from Europe, so a weak pound should have severely impacted its economy. In India, sales of automobiles, including two wheelers, are falling, with market leader Maruti Suzuki suffering a 37% fall in sales of its cars in July, compared to July 2018. Despite almost everyone above the age of 10 years carrying a mobile phone, telecom company Airtel reported the biggest quarterly loss of Rs 28.66 billion in 14 years. People are refusing to spend money and consumer confidence is down. Even sales of FMCG, which are articles of daily use, are not growing. Household savings have declined. "The financial savings of households has also fallen as a percentage of gross domestic product, and the combined borrowing of the Union government, state governments and public sector entities such as the Food Corporation of India is already absorbing almost the entire flow of household financial savings," wrote N Rajadhyaksha. The only thing that seems to be growing is tax collection, with the Goods and Services Tax (GST) squeezing Rs 1.02 trillion out of consumers in July, compared to Rs 968.23 billion a year ago. This is a tax on sales, so how this is increasing when people are reducing their purchases is a mystery. The Prime Minister Narendra Modi wants India to grow to a $5 trillion economy in 5 years by 2024 when he will be up for re-election. Which means a doubling of our GDP in 5 years, or a growth rate of around 15% per year. But, our economy is growing at around 7%, which is also doubtful. A nominal 12% growth rate of GDP assumed in the budget is fanciful, wrote O Goswami. How to stimulate growth? The government has found, what it thinks, is the perfect solution. Helicopter drop of money. By throwing lots of money at farmers, traders and other vote banks it will increase spending, which, in turn, will increase demand so that companies will have to set up new factories, increasing jobs. More social schemes have been announced and taxes and import duties have been increased to pay for them. We will wait for the magic to work.

A deficit of good intentions.

"Five years ago, when the 14th Finance Commission (14thFC) recommended an increase in devolution of funds to state governments and a hike in the share of untied funds they received, it was heralded as a new era for fiscal federalism in the country, and one that would significantly empower state governments at a time when they were facing rising development demands." wrote N Kwatra. As everything, it turned out to be a big 'jumla'. Why? "The share of Union transfers to states, as a proportion of gross tax revenues, has actually fallen over the past few years as compared to the earlier era, the period of the 13th Finance Commission." Because, "the Center seems to have simply upped its game in raising revenues through cesses and surcharges once again, diluting the promise of the 14th Finance Commission formula." Why the need for flimflam? "The Comptroller and Auditor General (CAG) has said that the central government's key deficit figures may be considerably higher than those stated in the union budget." The fiscal deficit in 2017-18 was 5.85% of GDP, and not 3.46% that the government reported. Why? "India is facing a silent fiscal crisis owing to a shortfall in tax revenues, and the government's budget suggests it may have grossly underestimated the problem." The Budget estimates tax revenues of Rs 25.5 trillion for this financial year but the Economic Survey showed tax revenues of Rs 20.8 trillion last year instead of the revised estimate of Rs 22.5 trillion. Instead of concentrating on fiscal deficit, which is the difference between expenditure and revenues, the government should concentrate on reducing revenue deficit, wrote Prof P Balakrishnan. "A revenue deficit of the Central government is relatively recent, having been virtually non-existent till the 1980s." This despite Indira Gandhi's "exposure to radical ideas in England, and the inheritance of a socialist state from her father Jawaharlal Nehru". After the 1980s "a rampant populism has taken over all political parties, reflected in revenue deficits accounting for over two-thirds of the fiscal deficit such as the case today." What to do? First, the government hides its borrowing by forcing public sector units to borrow instead, wrote Prof N Kaushal. Second, it raises taxes on fuel because retail inflation was still comfortable at 3.18% in June. Higher inflation reduces government debt, so with inflation staying within limits the government is forced to hide its debt from credit rating agencies. On the other hand, high inflation resulted in a decimation of the Congress. To plug the hole in the budget the government is to borrow Rs 700 billion worth in foreign debt because interest rates are very low abroad. Interest payment maybe low but if the rupee depreciates against the dollar, as it has done since 1947, the repayment amount will jump. So the government has to keep the rupee strong, which will hurt exports. Forget about middle income, we are stuck in poverty, wrote A Chhibber. You can win elections with jumla, but not the economy. One day we will stand naked. 

Suicide takes away power of the state.

"For a government with such a massive mandate, the Narendra Modi government is signalling a financial desperation," wrote R Jagannathan. "The recent budget raised taxes on the well-off (those earning above Rs 2 crore a year, including foreign portfolio investors who had routed their investments through trusts), not to speak of import duties on a range of items." The government wants the Reserve Bank (RBI) to transfer its reserves to it, for which a panel under former Governor of RBI Bimal Jalan has been set up. The government also wants the Securities and Exchange Board of India (SEBI) to transfer 75% of its surplus funds to it which becomes "a kind of additional tax on the market participants". The terrible outcome of extreme tax terrorism was recently exemplified when founder of Cafe Coffee Day VG Siddhartha went missing on the evening of 29 July after telling his driver to wait near a bridge over Netravati River in Karnataka. He left behind a letter which says that he was under tremendous financial pressure from lenders and had been harassed by tax officials. "There was a lot of harassment from the previous DG income tax in the form of attaching our shares on two separate occasions to block our Mindtree deal and then taken possession of our Cafe Coffee Day shares, although the revised returns have been filed by us. This was very unfair and led to a serious liquidity crunch." In a hostile takeover, Larsen and Toubro Ltd (L&T) took over Mindtree in June. VG Siddhartha's death is confirmed. His body was found at 6.50 Wednesday morning from the Netravati River. Politicians of all colors have rushed forward with crocodile tears messages. "According to the 306 section of the Indian Penal Code, a person abetting the suicide of another person shall be punished with imprisonment of up to 10 years and shall also be liable to fine. Abetting a suicide is a non-bailable charge." In India politicians and civil servants are above the law. In UP a rape victim set fire to herself outside the house of the Chief Minister because the police refused to register a case against the rapist who is a Member of the Legislative Assembly (MLA) of the ruling BJP party. Instead of arresting the rapist the police arrested her father who died in police custody in suspicious circumstances. The victim and her lawyer are fighting for their lives after a truck rammed the car she was traveling in. In Goa, Atanasio Monserrate, accused of raping a child, has defected to the BJP. Earlier, he had won election as a Congress candidate. His wife has been made a minister, along with another defector Chandrakant Kavlekar, who is accused of running an illegal betting syndicate. "Despite articulating a whole lot of lofty economic goals and social objectives, the Modi government has no elevating vision on the role of the state promoting growth." Of course, he has. Increase power by bribing voters and defectors. That's why high taxes and the need to loot the RBI and SEBI. Simple really.

Why the sudden honesty? What is their game?

"In 2014, the Pakistani Taliban slaughtered 150 school children at Army Public School. All the political parties signed the National Action Plan and we all decided after that, that we will not allow any militant groups to operate inside Pakistan," said Pakistan Prime Minister Imran Khan. "Until we came into power, the governments did not have the political will, because when you talk about militant groups we still have about 30,000-40,000 armed people who have been trained and fought in some part of Afghanistan or Kashmir." The Indian government was extremely pleased and called this a "glaring admission", hoping that Pakistan will take "credible and irreversible action against terrorists". In an interview with Fox News Khan also said that "Pakistan's military spy agency provided the lead that helped the US find and kill al-Qaeda chief Osama bin Laden". It is accepted that, not only did the Pakistani army provide information on bin Laden, but actually cooperated in the attack by forming a protective cordon around the house he was staying in. So, what's Khan's game? Or more precisely, what's the Pakistani army's game? Because no Pakistani prime minister would dare to make such admissions without the army's permission. Everyone knows that Imran Khan won the elections because of the army's interference with the electoral process, as well as suppression of any criticism by journalists, such that opposition politicians called him a "selected prime minister", which has now been banned by the Speaker of the National Assembly. In a recent three-day visit to the US, Khan was accompanied by the army chief and the chief of the ISI. "In what is being seen as a departure from norms, Pakistan's top military leaders -- army chief, General Qamar Javed Bajwa, and newly appointed head of spy agency, Inter Services Intelligence (ISI), general Faiz Hameed -- are also accompanying Khan," wrote E Roche. Bajwa sat in during Khan's meeting with President Donald Trump, apparently to assure him of Pakistan's help in US talks with the Taliban, so that US troops can be withdrawn from Afghanistan before presidential elections next year. Khan received an enthusiastic welcome on his return home to Pakistan. His visit to the US has been deemed a big success because he managed to avoid any discussion on Pakistan's support of terrorism and got Trump to declare that he would like to mediate in Kashmir. The US also promised $125 million to support F-16 fighter jets in Pakistan. Pakistan is playing a double game, helping China to increase its power in the region while indicating that the US cannot withdraw troops from Afghanistan without its help.Perhaps, it is being too clever. We shall see.

Numbers maybe wrong, people are not.

Economist SS Bhalla scornfully dismissed data collected by the National Sample Survey Office (NSSO). Bhalla was a part-time member of the Economic Advisory Council to the Prime Minister and appears to be an ardent supporter of Prime Minister Narendra Modi. The government has decided to merge the NSSO with the Central Statistics Office (CSO) and create a National Statistical Organisation (NSO). Comparing employment surveys in 2011-12 and 2017-18  show "a log growth in average per capita consumption of 24% between the two years. Consumer prices rose by an average of 36% between the two years. Real growth in consumption -- a minus 12% over six years." "A real consumption decline of anything even close to this magnitude has not been observed at any time in Indian history (or even in pre-historic times).." Strong stuff. The methods of calculating unemployment between these two years are completely different and the higher figures could be wrong, wrote Prof N Kaushal. While ridiculing unemployment figures, Bhalla strongly defends the new method for calculating GDP growth after the base year was changed to 2011-12 from the earlier 2004-05, which increased the growth rate during the current BJP government's tenure, while reducing the rate during the earlier Congress-led government. Bhalla is enraged by a paper by the previous Chief Economic Adviser Arvind Sunramanian (AS) suggesting that the growth rate of GDP was overestimated by 2.5%. "You can search far and wide, in journals and in newspapers, but no one, absolutely no one, has made such a calculation and assertion as AS has done for any non hyper-inflation economy for such a long period of time," Bhalla fulminated. Based on electricity consumption Prof Thomas Rawski found that "growth in China averaged just 3% over the four years 1998-2001 compared to the official estimates of 8%+." Apparently Rawski's estimates were "soon discarded by experts". Strange, an eminent economist like Bhalla has not heard of the Li Keqiang index, who happens to be the current Premier of the State Council of China. Since Bhalla is so unhappy about statistics in India, perhaps it maybe time to construct a Li Keqiang index for India, as suggested by TN Ninan. Which is exactly what Arvind Subramanian has done. The Reserve Bank (RBI) has pointed to a fall in India's consumer confidence and a decline in Private Final Consumption Expenditure. Consumption of articles of daily use (FMCG) has fallen. Sales of passenger vehicles crashed by 20.6% in May. As a result, nearly 1 million jobs have been lost in companies producing parts for automobiles. Perhaps, Bhalla should stop nitpicking about statistics and talk to people who have lost their jobs. Real people. Rather than numbers.

What do you do when your stimulus fails to stimulate?

"The Wall Street Journal recently issued an oxymoron alert that high-yield bonds had gone negative. The report says 14 European companies with junk bonds worth more than 3 billion euros ($3.38 billion) are trading with negative yields," wrote Prof VA Nageswaran. "Globally, about $13 trillion of debt is trading at negative yields." "Greek government 10-year bonds are trading at a yield of less than 2.5%. The yield, a few years ago, was at 44%," he wrote earlier. "The common thread that binds all of these is financialization, and it has been fueled by central banks." What about India? The last budget proposed "borrowing by the sovereign state in foreign currency" and "liberalized foreign financial flows", along with higher import duties and higher taxes on the rich. There is also a proposal for "deepening of the corporate bond market, including the market for credit default swaps." "Credit default swap (CDS) is, in effect, insurance against non-payment. Through a CDS, a buyer can avoid the consequences of a borrower's default by shifting some or all of that risk onto an insurance company or the other CDS seller in exchange for a fee." However, when everyone starts lending to subprime borrowers in return for higher returns it can lead to a crisis, as in 2007-08. "Since the global financial crisis, the total value of outstanding corporate bonds has doubled, from around $37 trillion in 2008 to over $75 trillion today," wrote D Quijones. This is because of very low interest rates which have resulted in "reckless risk-taking in financial markets, more leverage, greater inequality and tremendous stress on savers, bank deposit holders and pensioners". Despite record low interest rates central banks are unable to increase inflation so now they are concentrating on price stability and stability of their currencies. Economists are predicting a recession in the US next year. "The highest proportion of respondents thought the slowdown was likely to hit in the third quarter of 2020." "A full-blown currency war where major central banks and governments, including the US, deliberately weaken their currencies can no longer be ruled out, Pacific Investment Management Co's global economic adviser Joachim Fells wrote in a report." "Gains in global personal wealth ground to a near halt in 2018, rising just 1.6% for the weakest growth in five year." Total private wealth stands at $206 trillion, while the "World economy, comprising 193 economies, in 2019 is projected around of US$88.08 trillion in nominal terms against US$84.84 trillion in 2018, according to IMF." Prof N Roubini predicted a global recession in 2020. Of course, if you keep predicting a recession, someday you will be proved right, but the combination of the trade war, tension in the Gulf, stubbornly low inflation, increasing debt, and ever increasing stock markets is a cause for worry. Politicians do not want to do anything different in case they are blamed. If there is a crisis they can blame the world. We are just helpless pawns.

Only because they cannot think of any other way.

In a scathing article, S Deb writes about "a deep malaise that has been affecting millions of families over the past two decades and more". "This is the widespread insane belief among the India middle class that getting into an Indian Institute of Technology (IIT) is a ticket to paradise on earth." Apparently in the 1980s many students rejected IIT for the joy of studying pure science. That maybe because there were few good jobs for engineers as "industry's performance was the worst during (Indira ) Gandhi's tenure". "In terms of per capita incomes, India started lagging behind China and southeast Asia when Gandhi was at the helm of affairs." In fact, in the 1980s, India was hurtling towards a balance of payments crisis that was averted by pledging 67 tons of our gold reserves to avoid defaulting on our loans. Now there are opportunities of being "hired by Amazon/Facebook/whatever at $200,000 a year, with US postings". Not just Indians, "Nearly 50 people, including actors Felicity Huffman and Lori Loghlin were charged on Tuesday in what Federal authorities say was a $25 million scam to help wealthy Americans get their children into elite universities like Yale and Stanford." In 2015, a study in the UK reported that "wealthier parents were using their resources and influence to give their children an unfair advantage", including "finding them unpaid internships, using their social networks to form advantageous connections and ensuring they are able to access better education". The middle class in the US has been accused of 'hoarding dreams' in a book by Richard Reeves. An IIT professor told Deb how most of his students were unhappy to be there. Perhaps, if you ask people a large number of them will confess to hating their jobs. "What the media does not report is that the median salary of a fresh IIT graduate is around Rs 8-10 lakh a year, and that even in the top IITs, at least 15-20% students do not get jobs on campus," wrote Deb. That is because there were 5 IITs in the 1980s but now there are 23. There is only one Harvard, Yale, Oxford or Cambridge but if you treat IIT as a brand, like washing powder, it will become cheap. In India, unemployment level is highest among graduates. "Graduate+ women face a punishing 35 percent unemployment rate." "The unemployment rate for graduate+ men was much lower at 10 percent," a report said. Those with engineering degree from colleges other than IITs are struggling to earn Rs 5000 per month. It is sad that some students commit suicide because they are unable to cope. More than 20 children committed suicide for failing their board exams in Telengana because of a mistake in marking their papers. Parents push their children because they know how hostile India is and not because they "want to achieve their failed ambitions through their children". Does Deb agree that hard work is better than a degree from Harvard?

Let's finish all the money once and for all.

"The International Monetary Fund (IMF) further cut its annual forecast for India, as it expects weaker domestic demand to limit an economic recovery." "The downward revision of 0.3 percentage point for both years reflects a weaker-than-expected domestic demand," IMF said on Tuesday in its update to the World Economic Outlook (WEO). But, "India may have to revise downwards what is considered its 'potential' rate of growth from 7-8% to bring expectations more in line with reality, former Chief Economic Adviser (CEA) Arvind Subramanian has argued in a paper." "Today's 4.5% is impressive as size of the economy now is five times of 1980 levels." Problem is that China is growing at 6.2% with a GDP of around $14 trillion, about 5 times the size of India. Although our GDP calculation is not obviously wrong, "Subramanian already pointed to the fact that from 2011-12 to 2017-18, India's export growth was zero percent," wrote former CEA Prof K Basu. "Turning to other micro data, India's automobile sector is stalling, and the balance sheets of Indian corporations have worsened." He recommends, "We should be prepared to make a measured increase in fiscal deficit for a year or two." But, "Outgoing RBI (Reserve Bank) deputy governor blamed high government borrowing for the asset-liability mismatches of non-banking finance companies (NBFCs)." "Acharya said that while India is not an exception in terms of having a fiscal deficit, it stands out in terms of the size of its fiscal deficit, which was recorded at 6.68% of GDP in 2018, surpassed only by Brazil at 6.84%." Surely not. "India met its fiscal deficit target of 2018-19, which came in at 3.39 percent of GDP, slightly lower than 3.4 percent estimated in the revised estimates of the Budget, on the back of an increase in non-tax revenue and lower expenditure" official data showed. Higher government borrowing sucks out liquidity from NBFCs, which are India's shadow banks, and increases their cost of borrowing. "The universe of more than 11,000 India's shadow lenders draws its sustenance from formal banks, as well as from companies and individuals looking to deploy short term surpluses," wrote A Mukherjee. NBFCs are essential for lending to companies without which growth will stall and unemployment will grow. "That's why during the crisis of confidence triggered by IL&FS's $12.8 billion bankruptcy, emergency liquidity support for shadow-banking became a contested issue between the government and the central bank, which wasn't keen to deploy its balance sheet to take on private credit risk." That is why the government wants the RBI to transfer Rs 3.6 trillion from its reserves. Having looted public sector banks it wants to loot the central bank. Then what?     

Embryology of a police state.

A committee set up by the government recommended a ban and severe punishment  on the use of cryptocurrencies by Indian citizens. Anyone dealing in cryptocurrencies would be fined Rs 500 million and sent to prison for 10 years, the committee has proposed. This is the same government which is doing its utmost to push India towards a cashless society, all transactions to be done digitally. Why is the government so keen on digital transactions while being paranoid about cryptocurrencies? Because, it wants to monitor every activity of every citizen in the country. That is why it slyly made the biometric identification system Aadhaar, which records photograph, prints of all 10 fingers and iris scans, mandatory for every citizen. Since it can be downloaded online it must be vulnerable to hacking and if anyone manages to get your number they can easily steal your identity. "Connecting bank accounts and voter registration to biometrics is a trend seen only in China, some countries in Africa, Venezuela, Iraq and the Philippines," wrote M Choudhary. The National Crime Records Bureau (NCRB) has called for tenders to set up a centralised Automated Facial Recognition System (AFRS) which can be accessed by police officers through hand-held devices. "The fine print reveals, however, that the information used for AFRS will be obtained from CCTV feeds, and matched against information contained in any other potential existing database (specific examples include passport data, information with ministries and so on)," wrote G Bhatia. Also Aadhaar? Use of facial recognition is wrong 81% of the time, the London Police has found. Campaigners in the UK have alleged that "Black and minority ethnic people could be falsely identified". We Indians are brown and black. Three cities in the US have banned their police from using facial recognition technology. The only nation on earth where this malevolent system is in widespread use is China, an extremely repressive state. "Journalism is now being attacked more aggressively than ever before, with journalists routinely in the crosshairs of all manner of entities,' wrote R Burman. "Earlier this year, India fell two places to 138 in the Press Freedom Index put out by Reporters Without Borders." In addition to using threats and legal notices, there is "the highly condemnable, pernicious practice of government and corporates denying media entitities advertisements, veritably misusing taxpayers' money to pressure or influence those which are critical of them." The DNA Technology (Use and Application) Regulation Bill 2019 empowers the state to collect DNA from anyone, including those charged with "offences under the Indian Penal Code, 1860". Using a British law against citizens 72 years after so-called independence. Another British law the Official Secrets Act of 1923 shrouds the activities of the surveillance state. And if anyone should still find the guts to question the Indian Gestapo there is the Sedition Law of the British to shove you into prison. Can we use the term 'Police State'? 

Instead of goods, we export our money.

Bangladesh is benefiting hugely from the trade war between China and the US. "The South Asian nation, which is the world's second-largest garment exporter, has seen the value of its overseas sales rise to a record $3.81 billion in May, coinciding with Trump boosting tariffs on $200 billion of Chinese goods to 25% from 10%." "For Bangladesh, which aims to double total exports to $72 billion by 2024, snaring part of the $41 billion of the clothing business that goes to China will provide a fillip to an economy that the Asian Development bank forecasts will expand at a record 8% for the next two years." India also has a large textile industry "providing employment opportunities to more than 35 million people in the country". "India's Textile industry contributes to 7 percent to industrial output in terms of value, 2 percent of India's GDP and to 15 percent of country's export earnings. India's overall textile exports during FY 2017-18 stood at US $39.2 billion." Sadly, "India's apparel exports have fallen for two years in a row. Estimated at $16.2 billion in FY19, the country's apparel exports fell by 1.2% from FY18, which in turn was 4% lower than the previous year." This has been partly because of "a sharp decline reported during Q3 FY2018, amid downward revision in export incentives under the GST regime". The government's hunger for taxes is hurting the industry. Not just textiles, India's total exports are also falling. "For the first time in nine months, India's exports shrank 9.71% last month to $25.1 billion, while imports declined 9.06% to $40.29 billion." Which puts our trade deficit for the month of June to $15.19 billion. Not surprising that, "India's current account (CA) balance deficit grew to $68 billion in 2018-19 from $49 billion the previous year, according to the International Monetary Fund (IMF), which said the deficit was justified by development needs." In the last three years, our trade deficit has widened with 25 major countries, including "South Korea, Japan, Germany, Iraq and Saudi Arabia". India needs strong exports if it is to grow at 8-10%, said Prof A Panagariya. "He stressed that there is not a single country which has grown on a sustained basis at rates of 8-10 percent for 2-3 decades without rapid growth in trade." "No country in history has ever grown fast over a number of years, while carrying the twin of a persistent trade deficit with the rest of the world, and a long slump in domestic investment," wrote A Barman. What growth if we keep giving money to other countries? We need not worry about being stuck in a middle-income trap because we will remain stuck in a low-income trap, wrote A Chhibber. It's not about GDP growth, the people must have more money. No chance of that.
   

It's all a confidence trick.

Fifty years back, on 20 July 1969, three men walked on the moon, carried there by Apollo 11. That anniversary of triumph of science is being celebrated throughout the world. One day before that joyful event, in a black day for India, on 19 July 1969, then Prime Minister Indira Gandhi nationalized 14 private banks with deposits of Rs 500 million. "The political situation in our country today demands that banking facilities should be extended in an increasing measure to backward areas, to agriculture, to small-scale industry and so on and perhaps banking operations should be informed by larger social purpose," said Gandhi. That move did have beneficial effects. "In July 1969, at the time of nationalisation of banks, there were just 8,262 bank branches in the country. At the end of June 2018, state-owned banks alone had built a network of branches or franchise of over 90,000 (over 29,000 in rural areas) and over 1.45 lakh ATMs, while private banks had 28,805 branches." There is no evidence that this proliferation is because of nationalisation and not a natural result of increasing wealth and population demand. In 2014, Prime Minister Narendra Modi asked banks to open zero-balance accounts so that poor people can avail of banking services. Banks have opened 355 million such accounts, with cumulative deposits of Rs 998 billion. Nationalisation was Indira Gandhi's means of diverting attention from near famine, which we survived by begging for grains from the US under the PL 480 program, and the devaluation of the rupee. Gandhi promised minimum interference but "The fact that successive governments continue to maintain a tight grip on the banking sector shows the political importance of having control over the credit spigots in the economy," wrote N Rajadhyaksha. Economist Shawn Cole of Harvard Business School found that "a more than doubling of agricultural credit to villages led to no measurable increase in agricultural investment," wrote M Sharma. Modi has continued the practice of using depositors' money for political ends which will increase bad loans. The Congress waived loans to farmers in 2008 at a cost of Rs 716 billion to win elections in 2009. Modi promised loan waiver and pensions to all farmers to win elections this year. "Increasingly, the BJP appears to be mimicking the very political force it has replaced as the dominant party of our time, the Congress," wrote R Sardesai. It is encouraging defections from other parties, including "Atanasio 'Babush' Monserrate, who faces a serious charge of raping a minor in 2016", by offering them ministerial posts. "How many Congressmen does it take to make the BJP more like the Congress?" asked the Indian Express. Instead of a "Congress mukt Bharat (India free of Congress)", as promised by Modi, we have ended up with a "Congress yukt Bharat (India tied to Congress)". Modi has been able to convince people that he is different, when he is exactly the same. That makes him a con artist.