Growth and G20.

"Although India is among the world's fastest growing major economies," "it emerges that the fastest growing major Asian economy over this seven-year (2014-22) period (inclusive of the crisis period) was neither China nor India, but Bangladesh," wrote Alok Sheel. "Thus, while GDP growth of 7% provisionally estimated for 2022-23 by the CSO (Central Statistical Organization) (and 6.8% by the IMF), is very good by global yardsticks, the average annual growth over the four years ending 2021-22 is just 3.2%." Also, at minus 18.2% of GDP, India suffered the highest output loss in the last 4 years compared to Asian countries, the US and the euro area. "In 2023, India is chairing the Group of 20 (G20)," wrote Prof Adam Tooze. " "Rather than a national triumph, the claim - that this is 'India's moment' - could almost seem like a sardonic joke," as India "finds itself thrust into the center of world affairs when it is still struggling to reach basic development objectives with regard to health, poverty alleviation, and education." "The National Health Policy of 2017 set a target for government spending on healthcare - 2.5% of GDP by both the Centre and states - to be achieved by 2015. But budgetary outlay for healthcare has been range-bound between 1.2% and 1.4% in the period 2014-20," wrote Rajrishi Singhal. It rose to 2.1% in 2021-22 but is likely to be 1.3-1.4% in 2022-23. Combined spending on education in 2022-23 is likely to be 2.8-3.1% instead of 6% of GDP, seen "as a worthwhile target in the 2020 National Education Policy". "The Gujarat government cancelled the competitive exam for the recruitment of junior clerks hours before its scheduled time on Sunday after the Police found the question paper was leaked by an organised gang." TH. "Lakhs (hundreds of thousands) of candidates from villages and far-flung areas had already arrived at the exam centers across the state." In 2022, a civil services examination was cancelled in Bihar due to the leaking of question papers leading to massive protests by candidates. Also in 2022, Class 12 Board exams were cancelled in 24 districts in UP when exam papers were leaked. TIE. Why the desperation? Because "the labor force participation rate in India - the fraction employed or looking for a job - is currently around 46%," wrote Prof Raghuram Rajan et al. "Youth unemployment has also been increasing steadily - it stood at 22% in 2019 (and was 28% in 2021) as compared to 18% in 2010." The 2022 Annual Status of Education Report found that the reading ability of school students had dropped to pre-2012 levels "across both government and private schools in most states and in both boys and girls." The Wire. Citizens may be partially literate, unhealthy, and unemployed. But the G20 is an opportunity to rub shoulders with global leaders. And a great photo op.

Really real, or not.

"Nirmala Sitharamna's budget has been widely hailed for achieving what can be called an impossible trinity - increasing capital spending by 33%, slashing income tax, and yet reducing the fiscal deficit," wrote Swaminthan SA Aiyar. But economist Prachi Misra has been warning of an "unspectacular but inexorable rise in interest payments that are eating into resources that should be spent on infrastructure, social sectors, and other 'public goods'." No worries. "To sustain a fiscal deficit, real GDP growth should be faster than the real interest rate." The problem is that the ratio of central tax receipts to GDP was 10.1% on 2013-14, 11.2% in 2017-18 (when the economy was booming) and then slid to just 9.8% in 2019-20. It was 11.1% in 2022-23. Real GDP is calculated from nominal GDP by adjusting for inflation using a base year as a deflator. Investopedia. India uses 2011-12 as the base year, wikipedia. In 2021-22, India's GDP at current prices, or nominal GDP, was Rs 236.65 trillion, while GDP at constant prices, or real GDP, was Rs 147.36 trillion. The Quint. The enormous difference of nearly Rs 89 trillion was because of extremely high inflation. "A real interest rate is an interest rate that has been adjusted to remove the effects of inflation." Investopedia. It is derived by subtracting the rate of inflation from the nominal interest rate. The Reserve Bank kept interest rate fixed at 4% for 24 months from May 2020 to May 2022, NDTV, even though the consumer price index (CPI) inflation was never below 4%, often rising above the upper tolerance limit of 6%, rateinflation.com. It was 7.8% in April 2022. Thus, the real interest rate has been negative all this time, severely hurting savers by giving lower returns and eroding the value of their savings, while helping the government by keeping borrowing costs low. Essentially, the RBI was transferring money from citizens to the government, thus acting like the government's tax department rather than the country's central bank. Aiyar is therefore being disingenuous when he claims that the tax/GDP ratio has not increased. The RBI raised its interest rate for the first time in two years in an emergency meeting on 4 May. ET. This was a panic reaction to the anticipated rise by the Federal Reserve in the US in its meeting on 5 May. Forbes. Even so the RBI's policy remained accommodative and towards supporting growth of the economy. High prices also help the government by increasing GST collections. "GST collections for the month of January stood at Rs 1.55 lakh crore (Rs 1.55 trillion), according to data shared by the Finance Ministry. This is the second highest mop-up, next only to the collection reported in April 2022. ET. Real GDP and real interest. Are they real if one is suppressed? By the RBI.

Free houses or free food?

"Finance Minister Nirmala Sitharaman announced an increase of 66% for a program that seeks to democratise home ownership in the country, bolstering financial commitment that goes far beyond the definition of 'incremental'." ET. "The Pradhan Mantri Awas Yojana (PMAY), Sitharaman announced, will now have an outlay of more than Rs 79,000 crore (Rs 790 billion), and this is expected to support, development of more low income housing across the country, especially in peripheral areas of the city." "A public capital expenditure (capex) of Rs 10 lakh crore (Rs 10 trillion, or $122 billion) for FY24, as proposed in the union budget is mammoth." ET. In fact, "While the proposed Rs 10 lakh crore capital outlay is equivalent to 3.3% of India's GDP, the effective capex of the Centre for the next fiscal, pegged at Rs 13.7 lakh crore (Rs 13.7 trillion), is 4.5% of the GDP. Effective capex includes grants to states for the creation of capital assets." All this is in the hope of nudging private sector investment by increasing demand. "Total spending will rise 7.5% to 45.03 trillion rupees ($549.51 billion) in the next fiscal year starting on April 1." Reuters. "Sitharaman said the government would target a fiscal deficit of 5.9% of GDP for 2023/24 compared with 6.4% for the current fiscal year." She will spend more but lower market borrowing at the same time. How will she square the circle? "Her deficit plan will be aided by a 28% cut in subsidies on food, fertiliser and petroleum for the next fiscal at 3.75 trillion rupees." "The government has reduced spending on the rural jobs guarantee scheme for the next fiscal to Rs 60,000 crore (Rs 600 billion, or $7.34 billion)." ET. "Under the Mahatma Gandhi National Rural National Rural Employment Guarantee Act (MGNREGA), introduced over 15 years ago, citizens can enrol for work such as building roads, digging wells, or creating other rural infrastructure and receive a minimum wage for at least 100 days a year." Subsidies for the poor, by reducing spending on essentials like food, free up spending on non-essential goods and services. A bulletin from the Reserve Bank (RBI) predicted annual inflation cooling to 5.9% in January-March 2023 and to 5% in April-June, but will rise to 5.4% in the next 3 months. Reuters. "The RBI's projection of 6.8 percent inflation for FY23 was outside the upper target limit of 6% according to the Economic Survey 2023. The report stated the number is neither high enough to deter private consumption, nor too low to weaken inducement to invest." ET. "Estimates made by economist Nikhil Gupta of Motilal Oswal suggest the net household financial savings 'plunged to a three-decade low of 4.0% of GDP' during the first half of 2022-23," wrote Vivek Kaul. Households were financing their consumption by running down their savings. That cannot continue indefinitely. "The balance sheets of companies and banks are better than they were in the past. Nevertheless, private corporations tend to invest when they expect strong and robust consumer demand." Acquiring land and awarding tenders require months, if not years. Cutting subsidies and rising prices are immediate. Are they planning large handouts next year just before elections in May? That would be truly Machiavellian.

So many questions. No answers.

Markets closed for the weekend. Time to take a deep breath. Yesterday, "After a tumultuous past few days that almost halved value of the Adani group, embattled tycoon Gautam Adani-led conglomerate had some pressure eased on Friday as two global rating firms stuck with their calls on its credit profile and its French partner backed its investments in the group firms." Stock market indices rose. "The Nifty rose 243.65 points, or 1.38 percent, to 17,854.05. The Sensex climbed 909.64 points, or 1.52 percent, to 60.841.88."money-control.com. "The flagship Adani Enterprises made the worst intraday fall in history - 35 percent - then recovered over 50 percent from the day's lows to close 1.25 percent higher on BSE. Adani ports closed up about 8 percent." "The Centre...moved to soothe sentiments of investors, with finance minister Nirmala Sitharaman saying the exposure of banks and financial institutions to the Adani Group was well within permissible limits." TOI. "She added that investor confidence in India would remain high as the markets were well-regulated." However, "Financial contagion fears spread in India on Friday as the Adani Group's crisis worsened, with ratings agency Moody's warning the conglomerate may struggle to raise capital and S&P cutting the outlook on two of its businesses." ET. "The listed Adani firms now have a combined market value of $107.5 billion, versus $218 billion before the report." In order to avert margin calls on money borrowed against shares, "Adani Group Chairman Gautam Adani is in talks with lenders to prepay and release pledged shares as he seeks to restore confidence in the financial health of his conglomerate, Bloomberg News reported." Reuters. Shares are risky instruments where the holders have to swallow any losses but bondholders are assured payment in full.  "Citigroup Inc's wealth arm has stopped accepting securities of Gautam Adani's group of firms as collateral for margin loans as banks ramp up scrutiny of the Indian tycoon's finances following allegations of fraud by short seller Hindenburg Research." Mint. Credit Suisse "has assigned a zero lending value for notes sold by Adani Ports and Special Economic Zone, Adani Green Energy and Adani Electricity Mumbai Ltd." In all this cacophony, intentional or otherwise, about Indian markets, Adani's offshore dealings through his brother Vinod Adani's shell companies in Mauritius have been conveniently ignored. "Hindenburg cited examples of a $253 million loan from a Mauritius entity where Vinod Adani serves as a director and another example of an investment of $692.5 million from a Mauritius entity controlled by the head of the Adani Group's private family investment office." Prime Minister Narendra Modi promised to bring back illicit funds held in Swiss Banks, TIE, and inflicted enormous suffering on citizens by suddenly withdrawing all Rs 1000 and Rs 500 notes from circulation to get rid of black money. ET. But the government has refused to comment on Adani crisis so far. ET. Mr Adani has denied friendship with Mr Modi as "baseless" allegations. HT. However, he has not commented on his relationship with Chinese national Chang Chung Ling who is said to have been part of the Augusta Westland scandal. Is there a cover up afoot? After all, our motto is 'sab chaltaa hai' (everything goes).

Goldilocks or the three bears.

The Union Budget for 2023-24 proposes to spend just over Rs 45 trillion, estimates a nominal GDP growth rate of 10.1% and aims to limit fiscal deficit to 5.9% of GDP. PRS. Admirers of the government were fulsome in their praise. "With her fifth Union Budget, FM Sitharaman should be seen as one of the best in recent times," as "India, apart from being a rare bright spot among big economies, is entering Goldilocks territory where a virtuous cycle of growth with falling inflation is within reach," wrote R Jagannathan. Goldilocks was a golden haired girl in a fairy tale who was chased by three bears. The stock market index the Sensex is up over the 60,000 level but "Adani Enterprises, the flagship group company, was locked at the temporary lower circuit of 15 percent," and "Adani Transmission and Adani Green Energy were locked at 10 percent lower circuit limit." BS. "Despite the pressure of a forthcoming election, this year's budget has done an excellent job," as "the central government's spending on capex has been increased," "The 50-year loans to states for encouraging capex, announced in Budget 2021-22, can be availed by states only till FY23-24. So, states will have to undertake the capex either this year or the next," wrote former CEA Krishnamurthy Subramanian. "The 15th Finance Commission has mandated that the Centre transfer 41% of gross tax revenue to states. However, the share of budgetary allocation made for this exercise was 29.6% for 2022-23" because the Centre does not share taxes raised from cess and surcharges. So, state governments, robbed of their fair share of taxes, are being asked to take loans for capital expenditure so that the BJP can make tall claims for next year's general election. That is indeed brilliant. "Nearly, 47% of the Indian population is expected to join the middle-class ranks by 2030," wrote Rajesh Shukla. To be middle class you have to earn money, which can only come from paying jobs. "India has a labor force participation (LFP) rate of 45% against China's 68% (share of the 15-year-old-plus population working or looking for work)," wrote Prof Neeraj Kaushal. LFP for Vietnam is 74%, Thailand 67%, Malaysia 65%, Bangladesh 57% and Pakistan 50%. The biggest talking point of the budget is the increase in the tax exemption limit to Rs 300,000 and slight increase in the slabs at lower rates. cleartax.in. This will apparently help the middle class by increasing disposable income and give them the freedom to splurge on goodies, which, in turn, will increase investment and jobs. Akin to killing 3, not 2 birds with one stone. The rupee was about 61 to one dollar in 2014, Thomas Cook, when this government grabbed power, and is at 82 to one dollar this morning, xe.com. The massive erosion of wealth is hardly made up by this niggardly increase in basic allowance. If the government is actually reducing tax extraction why is the Revenue Secretary Sanjay Malhotra satisfied that more than 50% of taxpayers will shift to the new regime. ET. Surely, his job is to increase revenue? Unfortunately, it is impossible to gt a sensible discussion because of effusive sycophants. A nation of chamchas.  

Realisation at last.

On 30 January 2023, a suicide bombing inside a mosque in the Police Lines area of Peshawar, Khyber Pakhtunkhwa, Pakistan, during midday prayers killed 101 people and injured 220 others. wikipedia. "The outlawed Tehreek-i-Taliban Pakistan (TTP) claimed responsibility for the attack." Dawn. "Peshawar police chief Muhammad Ijaz Khan said that more than 90 percent of the victims were policemen, between 300 and 400 of whom had gathered in the compound's mosque for prayers." It is terrifying that anyone can carry such explosives on his person that can blow out walls one foot thick. Dawn. "Days after Pakistan witnessed a deadly attack on its security forces inside a Peshawar mosque, the country's Interior Minister Rana Sanaullah has admitted inside the National Assembly that it was a collective mistake to prepare the mujahideen to go to war with a global force." Zee. He also said that the former Prime Minister Imran Khan's government had released TTP members who were "serving death sentences". But, even now, he failed to acknowledge Pakistan's role in the terrorist attacks inside India. "Authorities in Indian controlled Kashmir tell NBC News that militants trying to annex the region for Pakistan are carrying M4s, M16s and other US-made arms and ammunition that have rarely been seen in the 30-year conflict. A major reason, they say, is a regional flood of US-funded weapons that fell into the hands of the Taliban when US-led NATO forces withdrew from Afghanistan in 2021." NBC. The US did not withdraw, which suggests an organized evacuation of US armed forces, from Afghanistan. In fact, US troops fled in complete disarray, reminiscent of their panicked flight from Saigon in 1975. google.co.in. After killing tens of thousands of Afghans in their own country the abject US surrender left behind $7.5 billion worth of weapons and military equipment for the gleeful Taliban. "Denied international recognition, with aid suspended and the financial system in paralysis, the UN says that Afghanistan faces humanitarian catastrophe. About 20 percent of the 38 million population are already on the brink of famine." Arab News. On 1 January 2023, terrorists shot 4 people to death and injured 9 others at Dangri village of Rajouri district in Jammu & Kashmir. On 2 January, an IED exploded in the same village killing one child and injuring 5 others, one of whom died later, bringing the death total to 6. wikipedia. In response, authorities are "arming and training thousands of residents along the border region to defend themselves from attacks by 'armed insurgents'. DW. "Many villagers have been equipped with automatic rifles and given defense training for 'terrorist attack' scenarios, according to officials." Pakistan released the genie of terrorism. Now it is paying the price. Can India keep it out?   

The Wolf of Dalal Street?

One week back we were shocked to hear that "Ahead of the launch of the Rs 20,000 crore (Rs 200 billion) mega follow on public offer (FPO) of Adani Enterprises, Adani Group shares lost up to 10% in Wednesday's trade after Hindenburg Research said it holds short positions in companies owned by billionaire Gautam Adani." ET. "The report alleged that the Adani Group was involved 'in a brazen stock manipulation and accounting fraud scheme over the course of decades'." TOI. In a 413 page response, the Adani Group said that "The document is a malicious combination of selective misinformation and concealed facts relating to baseless and discredited allegations to drive an ulterior motive." ANI. Calling Hindenburg Research the "Madoffs of Manhattan", Adani Group accused it of conducting a "securities fraud". BS. Bernie Madoff, one time chairman of the NASDAQ stock exchange was sentenced to 150 years in prison in 2009 for running the largest ponzi scheme in history worth $64.8 billion. wikipedia. Adani Group called the report a "calculated attack" on India, its growth story and its institutions. TOI. "Fraud cannot be obfuscated by nationalism or a bloated response that ignores every key allegation we raised," was Hindenburg's riposte. It questioned the billions of dollars of the Group's "suspicious dealings with the chairman's brother, Vinod Adani, and his labyrinth of offshore shell entities." Adani Group did not clarify its relation with Chinese national Chang Chung Ling, who ran Gudami International which was "said to have been part of a massive corruption scheme in the Augusta Westland scandal, one of India's largest bribery scandals". "The son of Chang Chung Ling is the beneficial owner of the major contractor to Adani Group called PMC Projects." Very specific charges. "While its rebuttal does go point for point, as it should, a zoom-out picture offered by these points doesn't inspire much confidence in the group's corporate governance." Mint. Adani Group "sought to explain AEL's ( Adani Enterprises Ltd) sky-high price earnings ratio as reflective of future value currently in incubation" and "claimed that the fraction of pledged equity in major firms had dropped by 2021-22 to under a fifth." "Pledged equity" means money borrowed against shares as collateral. ET. About "30% of Adani's borrowings are denominated in foreign currencies," wrote Shuli Ren. "For instance, Adani Ports and Special Economic Zone Ltd, the group's biggest dollar-note issuer, is rated at BBB-, the lowest level of investment grade." "One bad margin call on pledged shares, one credit rating downgrade, and everything unravels." In October, UK pension funds had to dump assets to meet margin calls forcing the Bank of England to buy government bonds to stabilize markets and the pound. Public sector banks are controlled by the government, but will any private or foreign bank dare to initiate a margin call on Adani? If one bank does, others may be forced to fall in line and suddenly everything could collapse. Adani denied being personal friend of Prime Minister Narendra Modi. Reuters. And yet, his FPO for Rs 200 billion sailed through with the help of fellow industrialists. ET. There was The Wolf of Wall Street. wikipedia. What about 'The Wolf of Dalal Street'? Great suspense. 

The excess of cess.

"The budget continues to be seen as the centerpiece of the State's annual economic planning, even though its importance has been dipping in recent years." HT. "In some ways the Indian State is still considered the proverbial mai baap (benefactor of last resort)." Also, "Decisions on taxes on profits or capital gains can have a significant impact on the finances of companies and high net-worth individuals." "The 2022-23 Budget assumed a nominal GDP growth of 11.1% for the Indian economy. First advanced estimate of GDP for 2022-23 put India's nominal GDP growth to be 15.4%," wrote Pavitra Kanagaraj. Since taxes are collected on the nominal GDP, higher collections are to be expected for the last financial year. The 15th Finance Commission has mandated that the Centre transfer 41% of its gross tax revenue to states." However, states will get only 29.6% of revenues in 2022-23. In 2021-22, the central government raised 28% of gross revenue through cess and surcharges which it does not share with the states. TNIE. Why this is not labeled as robbery is a mystery. "In the 2022-23 Budget estimate of revenue earned from GST (goods and services tax) was Rs 7.8 lakh crore (Rs 7.8 trillion) compared to Rs 7.2 trillion from corporation tax and Rs 7 trillion from income tax." TOI. India's labor force participation rate (LFPR), which is the ratio of the population employed or looking for work, was 47.5% in the second quarter of 2022, TE, which means that over half the population had dropped out of the workforce. "With poor quality employment and low wages, the share of those earning more than Rs 250,000 per annum or about Rs 21,000 per month, the level above which income tax applies, is very small." By equalizing taxes throughout India it was thought, that GST would increase investment in poorer states where land and labor should be cheaper and, since the richer states are the manufacturing ones, the poorer states will get a higher share of GST because it is a consumption-based tax. However, "over half of the proposed industrial investment - including capacity expansions - are still accounted for by just three, relatively industrialised states: Gujarat, Maharashtra, and Karnataka. Ten states account for over 85% of investment proposals made between 2018 and August 2022." Mint. "As it turns out, more industrialized states such as Maharashtra and Gujarat also have a high consumption base comprised of a relatively more affluent population, and are thus able to 'capture' the tax within their state borders." "While India's rapid economic growth since the 1990s has undoubtedly expanded the spending capacity of its 1.4 billion people, acute and rising inequality - among the worst in the world - makes for a notoriously budget-conscious median consumer." ET. 'Mai baap' means 'my dad'. Which permits impunity in clobbering us with cess and surcharges. Perhaps, we would be better off as orphans.  

Secular or not at all.

"There have been huge bubbles in the stock market, real, estate, cryptos and venture capital funding over the last three years," wrote Vivek Kaul. Bubbles keep coming back because "some people can make more money by ensuring that the bubble continues to thrive and inflate than by calling it out and letting it burst too soon." "Further, regulators are also reluctant to call out bubbles. First, because no one really knows when a bubble is likely to burst. Second, as and when a bubble bursts, it can create trouble in the overall economy and no regulator wants that to happen on his watch." Trouble is assured, writes Prof Nouriel Roubini. "Inflation rose sharply through 2022 across both the advanced economies and emerging markets. Structural trends suggest that the problem will be secular, rather than transitory." There are five hot and cold wars in the world. The war in Ukraine, in the Middle East, against climate change, against future pandemics and against rising inequality. "Fighting these 'five' wars will be expensive, and economic and political factors will constrain governments' ability to finance them with higher taxes." "The Great Moderation is dead and buried; the Great Stagflationary Debt Crisis is upon us." Not so, wrote Prof Tyler Cowen. "It is possible, contrary to the predictions of most economists, that the US will get through this disinflationary period and make the proverbial soft landing." "The US may sidestep a recession for mysterious reasons specific to the aggregate demand model." "In most places, measured savings rose during the pandemic. Yet the problem of insufficient demand has vanished, and so secular stagnation theories no longer apply." "The US economy did better than expected at the end of last year, despite higher borrowing costs and rising cost of living dragging on growth. The economy grew at an annual rate of 2.9% in the last three months of 2022, official figures show." BBC. "Grounds for more hope that the global economy can avoid a major slump may emerge in the coming week in business surveys showing gradual improvement across much of the advanced world." ET. "Vladimir Putin has lost the gas war against Germany." DW. "Germany has the largest natural gas storage capacities in the whole of the EU. And if these are more than 90% full in mid-January, at the height of the heating season, it means the loss of Russian gas supplies no longer constitutes a threat." "More central banks around the world are pausing their tightening campaigns as inflation shows signs of cooling and economies slow down." ET. "India's economic transformation is kicking into high gear. The government is spending nearly 20% of its budget this fiscal year on capital investments, the most in at least a decade." But, "The Indian government is set tap the brakes on a torrid pace of capital investment growth in the coming fiscal year," and "Food and fertiliser subsidies that help two-thirds of India's 1.4 billion people will also be scaled back." ET. Less investment means fewer jobs and lower subsidies mean weaker spending power. So, will the world avoid recession? Or only India and the US? 

Domino economy.

"While wage earnings of casual workers in urban areas increased by 3.3% per annum between 2017-18 and 2020-21, those actually declined for regular workers by 0.8% per annum. In fact, the earnings of a regular worker in the April-June quarter of 2021 were 3% lower than in the same quarter of 2018," wrote Prof Himanshu. "Essentially, a regular worker was earning 14% lower wages than a decade ago. Much of this decline was among highly educated workers." "A large part of the demand for discretionary spending comes from urban India. With inflation further eroding the purchasing power of urban consumers, we are facing the biggest demand crisis we have seen in recent times." One huge reason for inflation is the price of fuel as "net profits of top three oil-marketing companies (OMCs) in the country - IOC, BPCL and HPCL - have grown exponentially. IOC's net profit stood at INR5,273 (Rs 52.73 billion) in FY15." ET. In FY22 its net profit was 5 times higher at Rs 241.84 billion. "The combined net profit of all three OMCs for FY21 was Rs 515.42 billion." In the last 7 years excise duty on petrol has gone up by 258% and on diesel by 820%, while the Center has raked in Rs 24 trillion. The Budget for 2023-24 will be revealed on 1 February. indiabudget. gov.in. "Ahead of next week's Union Budget, speculation over an expansion of the government's Production -Linked Incentive (PLI) scheme is running rife." ET. "The PLI scheme - which offers incentives on incremental sales of products manufactured in India - was initially rolled out for three sectors in early 2020 and then extended to 11 more." Why not cover the whole lot? "In FY2022-23 of every Rs 100 budgeted to be spent, debt servicing, defence, transfers to states, subsidies and pensions take up 2/3rd of the budget. If one adds salary costs of the current establishment, this will go up to 3/4th of the budget," wrote Somnath Mukherjee. "While the Centre has said it will tighten its fiscal deficit to 4.5% of GDP by 2025-26 (it is budgeted at 6.4% this year), anxiety has been aired at this being too big a target." Mint. Because government debt is above 80% of GDP, so that "Already, the Centre's allocation for its interest bill takes up roughly half its revenue." "It is likely that this core fiscal target (6.4%) will be met despite the fact that the subsidy bill will overshoot the budgeted target by over Rs 2 trillion," wrote Niranjan Rajdhyaksha. That is because of higher tax collections. "The main reason why this extra money has flowed into the tax coffers is high growth in nominal GDP; it will be lower in the next financial year as economic growth loses steam while price pressures ease." Nominal GDP is the value of total production at current prices without correcting for inflation. Investopedia. The government collected huge taxes because of soaring prices and the rebound in spending. This will not be repeated in the next fiscal. To add to it, "India's goods exports in December declined by 12.2% to $34.48 billion on an annualised basis and imports fell by 3.46% to $58.24 billion." HT. Increase prices by huge excise duties on fuel, which bring in a windfall Rs 24 trillion in taxes, higher profits and, hence, higher dividends from OMCs, higher tax collection from goods and services tax (GST) and, bingo, the fiscal deficit is controlled. Like a domino effect. Sheer genius. 

To eat or not to eat.

"After eroding investor wealth worth around Rs 1 lakh crore (Rs 1 trillion) on Wednesday (25 January), the selling pressure in stocks of Adani Group companies intensified on the second trading session on Friday and lost up to 20% on claims made in short-seller Hindenburg report." ET. "Billionaire US investor Bill Ackerman said on Thursday that he found short-seller Hindenburg Research's report on India's Adani Group "highly credible and extremely well researched'." Reuters. "India celebrated its 74th Republic Day on Thursday with a colorful parade displaying military might and cultural diversity." BBC. Markets were closed on Thursday, so when they opened on Friday, the sell-off accelerated wiping out over $50 billion in market value in two sessions. ET. When caught cooking the books it is better to resort to bluster. "Describing Hindenburg's report as maliciously mischievous and unresearched, the company said it is deeply disturbed by this intentional and reckless attempt by a foreign entity to mislead the investor community and the general public, undermine the goodwill and reputation of the Adani Group and its leaders, and sabotage the FPO (Follow-on Public Offering) from Adani Enterprises." ET. Note the mention of 'foreign entity', calculated to rouse the ire of imbecile nationalists. In 2021, protesting farmers shut down an Adani dry port in Ludhiana, Punjab. The Wire. In 2020, "A group of nearly 500 farmers staged a protest outside a silo constructed by Adani Agro-Logistics at Dagru village in Moga district." In 2021, apple growers protested against Adani Agro Fresh because, "In 2020, Adani offered Rs 88 per kg for premium quality apples, which after two years was reduced to Rs 76 per kg." These apples "according to the growers fetches the company not less than Rs 250-300 per kg in off season". Not much goodwill there. The Adani Group has threatened to sue Hindenburg for a "malafide and mischievous" report just before the company's FPO for Rs 200 billion. BS. "In the 36 hours since we released our report Adani hasn't addressed a single substantive issue we have raised," Hindenburg Research said on Twitter. "At the conclusion of our report, we asked 88 straightforward questions that we believe give the company a chance to be transparent. Thus far, Adani has answered none of these questions." Adding "it has a long list of documents it will demand in a legal discovery process." ET. Mr Adani would be well advised to stay in India where he is safe. "First, the Adani bubble is unlikely to burst unless there's a change in the political wind." Bloomberg. In Asia, "Adani is not the only conglomerate with lofty valuations and questionable corporate governance. China's HNA Group Co. and Evergrande Group naturally come to mind." "Shorts gained momentum only when Beijing changed its attitude." The government may bail out Adani with taxpayer money. The Life Insurance Corporation of India (LIC) and the State Bank of India, both controlled by the government "have liberally financed the Adani Group even as their private sector counterparts have chosen to avoid investing," said Congress General Secretary Jairam Ramesh. LIC has already invested Rs 740 billion and is "spending about $37 million as an anchor investor in a $2.5 billion new share sale by Adani Enterprises Ltd, according to a filing." HT. "Na khaunga, na khane dunga" means "I will neither eat (be corrupt), nor allow anyone else to do so (take bribes)". Official handouts of taxpayer money from LIC and SBI is not corruption. It's called crony capitalism.

Finger in the dike.

On 1 February, "Amid rising inflation and high-interest rates, taxpayers are expecting a host of relief measures from the Budget this time. Some of the items on the taxpayer's wishlist from this year's Budget include an increase in basic income tax exemption, higher deduction limit in Section 80C, sops for homebuyers, a separate deduction section for life insurance." TN. "Net export depends on what is happening globally." ET. "Consumption has been the main driver to date; but as inflation begins to bite, this is bound to slow down. Investment, especially private sector investment, has not picked up as we hoped earlier. That leaves government spending" which is "constrained by the extent of funds available to the government" and by "the amount it can borrow without upending the market by pushing up interest rates". "Advance estimates by NSO project India's nominal GDP growth for FY23 at 15.4 percent against the Budget estimate of 11.1 percent, thanks to the high inflation of FY 23. The estimated nominal GDP of Rs 273 lakh crores (Rs 273 trillion) against the Budget estimate of Rs 254 lakh crores (Rs 254 trillion) is the bounty bestowed on the finance minister by the unusually high GDP deflator (a mix of CPI and WPI inflation) of around 8.5 percent," wrote VK Vijaykumar. That led to very high tax collections which may not be repeated next year. "Alas, the bad news is that India's current account deficit for the July-September quarter skyrocketed to a terrible 4.4% of GDP, up from 1.3% in the corresponding quarter a year earlier. This was way above the official comfort level of 2.5%," wrote Swaminathan SA Aiyar. So, what is to be done? "Fiscal caution should replace adventurism. The RBI should let the rupee weaken. India needs a competitive currency, not a strong one." The RBI has been selling dollars to stop the rupee from weakening because that will increase prices and make inflation worse. "India's foreign exchange reserves rose by a whopping $10.417 billion to $572 billion in the week ending on January 13." ET. It was $645 billion in October 2021. However, India's trade data for the first 8 months of 2022-23 have been revised. "The import bill for April to November 2022 is now estimated to be $493.5 billion. This amount is about $1.7 billion higher than initial estimates. Total merchandise exports are at $298.3 billion, nearly $12 billion higher than that originally estimated." The Wire. The trade deficit has been reduced to $25.6 billion for $30 billion originally estimated. News media are predicting an increase in customs duty on "electronic items, vitamins, helicopters, plastic goods, jewelry and high-gloss paper among others". DH. Previous two budgets also increased tariffs on a range of imports. This is apparently to reduce the trade deficit with China. Unfortunately, "While trade in 2022 between China and India touched USD 135 billion, imports from China were at USD 118.5 billion and exports at USD 17.48 billion. The trade deficit crossed the USD 100-billion mark." This is despite ever increasing customs tariffs on imports. China's consumer price inflation rate was 1.8% in December, investing.com, compared to 5.72% for India and 6.7% of FY23. ET. A relatively stronger rupee with inflation nearly 3 times that of China's makes China's goods cheaper regardless of tariffs. Only helps domestic industries to increase prices further. A finger in the dike has never helped. Or even two fingers.    

India's moment

"In 2023, India is chairing the Group of 20 (G20). This has triggered talk of 'India's moment'," wrote Prof Adam Tooze. Is it? "The chair of G20 has no real authority. The dominant global powers are China and the United States (US). Nothing has changed about that." Whoops. "India is huge, but it finds itself thrust into the center of world affairs when it finds itself struggling to reach basic development objectives with regard to health, poverty alleviation, and education." Actual prosperity is less than that in "Bangladesh and Vietnam". The reason is simple. Every institution and policy is geared towards winning elections, which means handouts for the poor and huge taxes on the middle class. "Less than half a million taxpayers have opted for the new exemption-less income tax regime since its rollout," so "Policymakers are now examining the regime more closely to see what could be done trigger shift to the simpler, without exemptions, personal income tax regime." ET. "Simpler" means simpler ways to increase effective tax rates on hapless taxpayers. "India's top 1% owned more than 40.5% of its total wealth in 2021, according to a new report by Oxfam. In 2022, the number of (dollar) billionaires in the country increased to 166 from 102 in 2020, the report said." BBC. This, despite the ferocious coronavirus Delta wave in 2021 which killed millions of people, Vox, and an almost total lockdown of the nation for 21 days in 2020, followed by slow relaxation over months, wikipedia. "Gautam Adani who is the world's second richest person with a wealth of Rs 10.94 lakh crore (Rs 10.94 trillion), has added more than Rs 1,600 crore (Rs 16 billion) to his earnings per day in the last one year, according to IIFL Wealth Hurun India Rich list 2022." TOI. What is the secret of his Midas touch? "Trapeze artist Adani now owes Rs 4.5 lakh crores as NPA (non-performing assets) to banks," Interest on Rs 4.5 trillion must be humongous? A generous Reserve Bank (RBI) is there to help. The RBI kept interest rate unchanged at 4%, well below the rate of inflation, for 24 months, from May 2020 to May 2022.  NDTV. Mr Adani could buy a variety of assets to augment his wealth, Mint, as "Richest Asian Gautam Adani's group will invest USD 150 billion across businesses ranging from green energy to data centers to airports and healthcare as it chases the dream to join the elite global club of companies with USD 1 trillion valuations." ET. Adani Group got control of six of India's airports for Rs 24.40 billion. ET. In 2020, it acquired 74% stake in Mumbai Airport. BS. Meanwhile, "At the bottom of India's socioeconomic pyramid, meeting daily needs is a struggle even when gross domestic product is expanding at 7%," wrote Andy Mukherjee. Low earnings, soaring prices and "simple" income tax regime. Is this "India's moment"?  Which India? 

Wheat flour as a counterbalance.

"According to Zafar Iqbal Yousafzai...China is supplying the Taliban with contemporary weapons in response to the Islamic State Khorasan Province's (ISKP) recent attack on a hotel in Kabul that primarily housed Chinese nationals, ANI reported." TN. "The Jamestown Foundation claimed that as a result, the US exit and the Taliban's ascent to power - with whom Beijing has deep ties - were viewed as positive geopolitical developments for China." In 2021, "Chinese President Xi Jinping...hailed relations between China and Pakistan as between 'iron brothers' in a phone conversation with Pakistani Prime Minister Imran Khan." Iron Brother Pakistan must be very uneasy. "As the Pakistani Taliban (TTP) ramp up their murderous attacks on Pakistani soldiers, ISI officers, police and ordinary citizens, the men who run Pakistan's security establishment are trotting out the usual bluff and bluster. Over 100 attacks have occurred over the last 50 days." Dawn. "The Pakistani 'establishment' believed it had pulled off a spectacular coup in ensuring a hasty US retreat from Afghanistan, and the Taliban regaining control in Kabul in August 2021." TOI. But the Afghan Taliban "haven't cooperated with Islamabad's demand of reining in the TTP (Tehreek-e-Taliban) - a group that Pakistan considers the biggest threat to internal security." What is even more worrying, "Estimates vary. But given the current pace of business closures, temporary shutdowns, and planned reduction in industries' outputs, around 6.025 million people or 8.5 percent of the total workforce of 73m may remain unemployed during this year." Dawn. Terrorists find it easy to recruit from hungry people. In November 2022, Lieutenant General Upendra Dwivedi said that around 300 terrorists were present in Jammu and Kashmir (J&K), while another 160 were waiting across the Line of Control to sneak across to our side. ET. On 1 January 2023, 4 people were killed and 9 injured in indiscriminate firing by militants at Dangri village in the Rajouri district of J&K. wikipedia. On 2 January, an improvised explosive device (IED) exploded in the same village, killing one child and injuring 5 others, one of whom died later. Six people were killed in total. "Protests and shutdowns continued in some parts of Jammu division...following the twin terror attacks in Rajouri, with protester's criticising BJP's inability to control the situation on the ground and demanding action against Pakistan." ET. Following protests "the ministry of home affairs... rushed 18 companies of Central Reserve Police Force (CRPF) to intensify anti-terror operations in the region." HT. The price of wheat flour has shot up in Pakistan, causing serious hardship, Zee News. So, should India supply wheat flour to Pakistan at concessional rates? Will that pacify the terrorists?    

Don't have to change.

"Less than half a million taxpayers have opted for the new exemption-less income tax regime since its rollout,  prompting a review to see if measures are needed in the budget to promote its adoption, people familiar with the matter said." ET. Out of "75.2 million income tax returns have been filed in the current assessment year." It's easy to understand why. "Individuals and HUFs (Hindu undivided families) can opt for the Existing Tax Regime or the New Tax Regime with lower rate of taxation (u/s 115 BAC of the Income Tax Act). The taxpayer opting for the concessional rates in the New Tax Regime will not be allowed certain Exemptions and Deductions (like 80C, 80D, 80TTB, HRA) available in the existing tax regime." incometax.gov.in. Income up to Rs 2,50,000 in a financial year does not attract any income tax in both regimes, but after that there are 3 slabs in the old regime while there are six in the new one, and because the slabs are so narrow a small income will send an individual into a higher slab. Also, every year taxable items, such as capital gains, and tax rates are changed in the budget. The new regime could therefore be a trap. Middle class "Households have about a third of what they earn taken away at lifestyle levels that are modest in comparison with their counterparts in well-off countries. In the US, for example, where the top income tax rate is 37%, a 32% rate kicks in only once an assessee rakes in roughly over $170,000 (Rs 13.94 million) a year, which affords a cushy life even by American standards of comfort with the result that professionals who make, say, $85,000 (Rs 6.97 million) and live middle-class lives do not feel a tax pinch." Mint. Then there is tax terrorism. Every budget sets an imaginary target on tax officials, ET, who then resort to strong-arm tactics on taxpayers, leading to disputes. "In 2017, the income tax law was amended to weaken the checks on tax authorities," wrote Suyash Rai. They can now conduct searches and seize assets without giving any reason, thus operating like historical secret police forces (toptenz.net). Authorities are successful in over 50% of cases of tax disputes in OECD countries. "In 2020, the average for 47 jurisdictions included was 66%. In India, this was only 7.9%." To enhance job creation, the government has introduced Production Linked Incentive (PLI) Schemes providing incentives to increase production in manufacturing. wikipedia. The budget should extend the PLI schemes to more sectors, enhance the "Remission of Duties and Taxes on Exported Products scheme", concessional taxes on research, and funds for sustainable development, wrote Arun Chawla, Director General, Federation of Indian Chambers of Commerce & Industry. It is impossible to invest and create wealth if the budget keeps changing tax regimes every year to penalise hard work. Perhaps, a printed budget should be presented to Parliament for debate and amendments, like in the US. To take away the grandstanding by the Finance Minister. Sadly, they prefer coercion.  

Savings and loans.

"India's economy picked up speed in December as business conditions improved, marking a rebound for the South Asian nation that had showed signs of a slowdown the preceding month." ET. "The needle indicating so-called animal spirits moved right after holding steady for five straight months," as "Consumer spending boosted tax collection and manufacturers signaled optimism about the future, while services sector saw expansion of new businesses." "The Reserve Bank of India (RBI),...said that India's economy has witnessed improvement in macroeconomic stability due to the slowing down of inflation." ET. "The RBI bulletin further said that the real GDP growth may decelerate from 7 percent in 2022-23 to 6.5 percent in 2023-24. India will be a $3.7 trillion economy in 2023, and move to a fourth place in 2025 and third place in 2027 when it will be a $5.4 trillion economy." "India's retail inflation eased to 5.72 percent in December on an annual basis as against 5.88 percent in November 2022." ET. On an "annual basis" means that the rise in prices was calculated on prices a year earlier when, "India's benchmark inflation rate, measured by the Consumer Price Index (CPI) firmed 5.59% year-on-year in December 2021." ET. As prices have soared households in India have struggled to maintain their expenses. "Recent estimates suggest that the net financial savings of households in India fell to a three-decade low of around 4 percent of Gross Domestic Product (GDP) in the first half of the current fiscal, the Financial Express reported." BS. "The net household financial savings are estimated to have been around Rs 5.2 trillion in the first half of 2023 compared to Rs 17.2 trillion in FY22." So, our economic growth has been fueled by households spending Rs 12 trillion of their savings and at some point they will have to cut down their expenses. However, India turned up in force at this year's World Economic Forum at Davos in Switzerland (NDTV), as emissaries form India "have taken over at least eight storefronts with appeals to the elite gathering's political and business class". CNN. If it can maintain its growth rate, "India can overtake Germany as the world's fourth largest economy in 2026, knock Japan from the number three spot in 2032 and become only the third country with GDP worth $10 trillion by 2035." However, foreign portfolio investors (FPIs) are bearish as "In less than three weeks, on a net basis, these fund managers have taken out nearly $2.1 billion (over Rs 17 thousand crore or Rs 170 billion) from the domestic stock market, data from CDSL showed." TOI. As foreigners have reduced their exposure, domestic investors have poured Rs 1.5  trillion in the stock markets through systematic investment plans (SIPs) in 2022. ET. At the same time personal loans against "fixed deposits, advances against shares or bonds, loans against gold jewelry and other personal loans - grew by 71% between April 2020 and November 2022," wrote Rajrishi Singhal. Are Indians gambling on the stock markets from their savings and by taking loans? We hope not.     

If George Bush can't.

"India holds the Presidency of the G20 from December 1, 2022 to November 30, 2023. The 43 Heads of Delegations - the largest ever in G20 - will be participating in the final New Delhi Summit in September next year." pib.gov.in. "India will host over 200 meetings in over 50 cities across 32 different work streams." The trouble is that G20 meetings attract thousands of protesters from across the world. In October 2021, thousands of protesters marched in Rome during the G20 summit. NYT. In 2017, "German police clashed with protesters before a G20 summit in Hamburg..., tarnishing the outset of a meeting Chancellor Angela Merkel hopes will cement her role as a stateswoman." CNBC. "A BBC documentary, 'India: The Modi Question' looks at" "his role in the large-scale communal violence" in February and March 2002" following the "burning of a train at Godhra on February 27, 2002 carrying kar sevaks which led to 59 deaths." The Wire. "These were very serious claims - that Chief Minister Modi played a pretty active part in pulling back the police and in tacitly encouraging the Hindu extremists," Former British Foreign Secretary told the BBC. The Ministry of External affairs in India dismissed the documentary as "propaganda" and "colonial mindset". HT. But then, Union Home Minister Amit Shah said in November 2022, "During the Congress rule in Gujarat (before 1995), communal riots were rampant." "But after they were taught a lesson in 2002, these elements left that path (of violence)." TOI. Any Indian knows that "communal" means "Muslims" and what "taught a lesson in 2002" means. AIMIM Chief Asaduddin Owaisi, a Muslim, tweeted, "What lesson did Amit Shah teach in 2002? Lessons from Naroda Patiya (97 Muslims killed, wikipedia)? Lessons from Gulbarga, (35 killed, 31 missing, wikipedia)? Best Bakery lesson (11 Muslims and 3 Hindus killed, wikipedia)? Lessons from Bilkis Bano (gang rape of pregnant Bano and killing of 14 family members including her 3-year old daughter, BBC)?" In November 2022, "In his remarks last week over defending immunity to Saudi Crown Prince, US state department principal deputy spokesperson Vedant Patel cited immunity given to several heads of state including Indian Prime Minister Narendra Modi." TN. Immunity only as long as he is head of state. Interesting. The misuse of the national investigation agencies - the Central Bureau of Investigation (CBI), the Enforcement Directorate (ED) and the National Investigation Agency (NIA) - against opposition parties has reached intolerable levels. The Wire. For all these reasons it is of paramount importance for Modi to win the 2024 general election, by any means possible. But, what will he do if foreigners come to India to protest against him? After all, he cannot use the draconian UAPA law against Americans and Europeans like he did against Indian citizens in 2019 for protesting peacefully. Legal Service India. We understand that President George Bush does not travel abroad even though there is no arrest warrant against him. Politifact. And, he is American.      

ExxonMobil and Cairn Energy.

"The annual circus, alias the Budget, is here again. Zee. "Given that it's his last, big spending opportunity before next year's general elections, it won't be unreasonable to expect Prime Minister Narendra Modi to sprinkle the Fed 1 government budget with a dose of populism," wrote Andy Mukherjee. "The global economy is slowing." "Even with a bumper tax harvest - thanks to faster-than-expected domestic inflation - the federal government will just about meet its targeted budget deficit of 6.4% of gross domestic product for the fiscal year that ends on March 31." "India's macroeconomic imbalance is already among the worst across major economies." "Energy giant ExxonMobil is keen to invest in the Indian upstream sector, but wants the country to offer protection against expropriation, neutral arbitration and globally competitive returns that must stay intact through the term of the contract." ET. Sounds extremely reasonable. And, India's "Crude oil production at 29.69 million tonnes in 2021-22 (April 2021 to March 2022) was 2.63 percent lower than the 30.5 million tonnes output a year back and 11.67 percent below the target of 33.61 million tonnes, according to official data." Outlook. "According to official data, India's total petroleum consumption in 2019-20 was 194.3 million metric tonnes (MMT)." HT. "The annualised consumption growth in April - September 2022 was 107.7 MMT." "India, the world's third biggest oil consuming and importing nation, spent USD 119.2 billion in 2021-22 (April 2021-March 2022), up from USD 62.2 billion in the previous year, according to data." ET. So, we desperately need enormous investment in our oil and gas sectors to reduce our import bill. But then, there was Cairn Energy. Using a retrospective tax law "the tax department in 2014 attached and subsequently sold the residual shares that Cairn held in the India unit. It also withheld tax refunds and confiscated dividends due to it to settle part of the tax demand. All this totaled Rs 7,900 crore (Rs 79 billion)." ET. Cairn moved courts abroad to attach flats used by Indian diplomats in Paris and Air India planes. Finally, in February 2022 the government had to refund the entire amount. A humbling experience. The government abruptly changed rules for e-commerce in December 2018 affecting US companies Amazon and Walmart, which had just bought the Indian company Flipkart. This, after Walmart bought a 77% stake in Flipkart for an eye-watering amount of $16 billion, ET, and had paid taxes of Rs 74.39 billion. ET. What has all this to do with the budget? Because tax rules and rates can be changed to finance handouts for the election in 2024. After all, the government earned over Rs 8 trillion in taxes on petrol and diesel in the three years to 2021. ET. ExxonMobil is right to be terrified.  

A race to wealth. Or old age.

"China's population fell last year for the first time in six decades, a historic turn that is expected to mark the start of a long period of decline in its citizen numbers with profound implications for its economy and the world." Reuters. Its population declined by 850,000 in 2022. "That possibly makes India the world's most populous nation." "Online searches for baby strollers on China's Baidu search engine dropped 17% in 2022 and are down 41% since 2018," while in India, "Google Trends shows a 15% year-on-year increase in searches for baby bottles in 2022, while searches for cribs rose almost five-fold." Will India benefit from a 'demographic dividend' as the number of young people increases? "The South Asian nation's working age population stands at over 900 million, according to 2021 data from the Organization for Economic Cooperation and Development (OECD). The number is expected to hit more than 1 billion over the next decade, according to the Indian government." CNN. Sadly, India's labor force participation rate stood at 46%, the lowest in Asia, while that for women was just 19% in 2021, as per World Bank. Why do we quote foreign organizations for our data? Because, "for the first time India's decennial census - which was set to be held in 2021 - has been delayed, with no clarity on when it will be held." BBC. Shockingly, "observers don't expect the exercise to take place before late 2024, as India is scheduled to hold its general election in the first part of next year." The growth rate of India's population has fallen sharply, and "has averaged 1.2% since 2011, compared to 1.7% in the 10 years previously". Reuters. "India's total fertility rate (TFR) - children per woman - fell to 2 in the latest assessment period, for 2019-2021, from 3.4 in 1992-93." A TFR of 2.1 is taken to the replacement level for the population in developed countries, NIH, possibly because neonatal and child mortality is higher in most developing countries. The neonatal mortality rate for India was 20 per 1,000 live births in 2020, much higher than an average of 4 for OECD members and 3 for North America. World Bank. The number of youth was 333.4 million in 2011 and was projected to reach 371.4 million, according to a government report, wrote Vivek Kaul. However, possibly, "The number of youth in India is expected to contract to 367.4 million by 2026, 356.6 million by 2031 and 345.5 million by 2036." Around 71.4 million women were single, according to the 2011 census, and this number is rising, especially in urban areas. BBC. A higher number of children result in less savings in banks. As the TFR fell from 1991 to 2011, savings in banks increased, peaking at 70.6% of GDP in 2010. "These rising deposits in turn funded increased lending by banks, which rose from 10% of GDP in 1971 to 20.2% in 1991 and 51.6% in 2011," wrote Vivek Kaul. This led to India's economy growing by over 7% in most years. macrotrends. Most alarming is that, as India population grows older, there will be a lack of enough savings to finance pensions and healthcare, resulting in poverty among retired people. India may grow old before becoming rich. ET. It's a race to be rich or to be old. Which one comes first?

Social capital is the key.

There is a stark contrast in the growth stories of India and China. Mint. "For India, consumption - essentially, spending by households - has been the economic driver." Household consumption accounts for 60% of GDP. "By comparison, consumption accounts for 39% of China's GDP." "China's great strength, and India's weakness over the past 15 years or so, has been investment, or the net addition to capital goods like machinery and equipment." "One thing that enabled China to grow this fast, and for this long, was the social capital it had in place in 1980," which was that "Although it was a developing nation then, China had in place building blocks in education and healthcare, helping it to harness the demographic dividend provided by a large young population." In 75 years since independence, India's GDP has grown from Rs 2.7 trillion to Rs 135.13 trillion and is now the sixth largest economy. NDTV. The problem is that India has suffered premature deindustrialization, the share of manufacturing and agriculture in our GDP has shrunk, "The services sector is one of India's largest and most important sectors, from a growth perspective," and "For a long time now, India's net importer position has widened its trade deficit vis-a-vis other countries," wrote Prof Deepanshu Mohan et al. "India will need to increase manufacturing to become a viable alternative to China, as the world is looking to move their production from the factory floor," but "Recent data shows that while India's gross domestic product (GDP) grew at 6.3%, a sharp fall in the manufacturing sector has raised alarm bells." ET. In the developing world, we can think of four-wheeler ownership as a proxy for upper middle class status and two-wheeler ownership as a proxy for lower middle class status," wrote Pramit Bhattacharya. The share of households owning a two-wheeler was 50% in 2020 in India, 54% in 2017-18 in Pakistan and 79% in 2017 in Indonesia. "The penetration of two-wheelers and four-wheelers in India today is roughly at the level where Indonesia was in 2007." "Never bet against Indian (stock) markets," exulted Somnath Mukherjee. "Over the last 30 years, through global and local ebbs and flows, the zeitgeist of globalization and now the unraveling of the same, through conflict and wars, Indian stocks have been massive outliers to all its emerging market (EM) peers." But, "RBI data for commercial banks shows consumer loans in four categories - advances against fixed deposits, advances against shares or bonds, loans against gold jewelry and other personal loans - grew by almost 71% between April 2020 and November 2022. It is quite likely that a large proportion of these loans found their way into stock markets," wrote Rajrishi Singhal. Stock markets on steroids. For how long?