India experimented with half MMT. Didn't work.

 "The idea that a government that can freely print and spend its own currency shouldn't deny anyone a job is gaining currency in our pandemic-ravaged world," wrote Andy Mukherjee. This is known as Modern Monetary Theory (MMT) which postulates that "any government spending can be paid for by creation of money, with the purpose of taxes being to limit inflation, by controlling the money supply". The only limit to government spending is the availability of "real resources, like workers, construction supplies etc", and when money supply exceeds available resources it will result in inflation. Taxes will not be used to finance government spending but only to drain excessive cash out of the system in case of inflation. "Monetisation of (fiscal) deficit was in practice in India, whereby the central bank automatically monetised government deficit through the issuance of ad hoc treasury bills," wrote Deepthi Mary Mathew. According to the FRBM Act of 2003, the Reserve Bank (RBI) "was completely barred from subscribing to the primary issuances of the government from April 1, 2006". The Act could have been precipitated by double digit consumer price inflation (CPI) between 1990 and 2000. "Emerging markets have reasons to be wary of MMT." "For instance, New Delhi is finding it tough to explain to people, why, with India's economy expected to shrink in real terms this year, it's hesitant to boldly expand its budget deficit." "Experts across the ideological divide thus agree on the need for India to create jobs and output growth. Without these, high government deficit or even credit growth could lead to inflation and currency instability," wrote Prof Anant Narayan. Do fictitious job creation schemes like MGNREGA increase productivity or national wealth? Problem is that no government in India will dare to eliminate income tax which is seen as a means to reduce inequality. 'The maximum marginal tax rate that an individual taxpayer has to pay in India is 42.744 percent. This includes a basic tax rate of 30 percent plus Surcharge of 37 percent plus education cess of 4 percent." Retail inflation soared to an 8-month high of 7.34% in September. In its last Monetary Policy Committee (MPC) meeting, the RBI kept interest rate at 4%, which means that the real interest rate is close to minus 4%, according to Prof Raghuram Rajan. High taxes with loss of value of savings is hitting the middle class out of existence. "Half of all work tasks will be handled by machines by 2025 in a shift likely worsen inequality, a World Economic Forum has forecast." How can any government hand out cash to half its workforce? Cash will become confetti.      

No game of thrones in India.

 "As the Thai queen's yellow Rolls Royce slowly made its way past a few dozen protesters calling for the resignation of the prime minister in the early evening of 14 October, the unthinkable happened. Even though they were hemmed in by security forces, several raised the three finger salute, which has been adopted by student protesters from the film The Hunger Games in demonstration after demonstration in Bangkok since August. Many shouted 'Our Taxes' as Queen Suthida's motorcade went by," wrote Rahul Jacob. The three finger salute "first emerged in 2014 to signal defiance against a military regime which seized power in a coup, suspending democracy and curtailing free expression". Protests have been led by college and school students. "Some students also wore white ribbons to show their support for protesters, who seek (Prime Minister) Prayuth's departure, a new constitution and an end to the harassment of activists. Some students have also called for a reforms to the monarchy, once a taboo subject." A report in the Financial Times "estimated that the Thai king was one of the wealthiest monarchs in the world with a net worth in excess of $40 billion". Thai activists have a way of disappearing. "As the respected political scientist Chris Baker recently observed, Thai dissidents are sometimes found 'weighed down by concrete in the Mekong river' even while in exile in Cambodia and Laos." Previous Prime Minister Thaksin Shinawatra was ousted in an army coup in 2006 and lives in self-imposed exile in Dubai. Thaksin's youngest sister Yingluck was elected prime minister in 2011 but also had to flee overseas after she was charged with corruption. "King Vajiralongkorn is an anomaly; he is an Asian strongman, but akin to an absentee landlord. He spends most of the year in Germany in picturesque Bavaria," with a "harem of 20 concubines who had taken over an entire hotel in Bavaria". "The king is alleged to possess 38 aircraft, including 4 Boeings and three Airbuses." But the army overplayed its hand. "Despite gaining huge support among Bangkok's young, Future Forward Party, led by a handsome 41-year-old Thai tycoon, Thanathorn Juangroongruankit, was disbanded in February after a constitutional court ruled the party and the founder were guilty of technicalities." In Thailand the army and the monarchy protect each other. In Pakistan there is no monarchy so the army uses India as the bogyman to frighten people. "In Pakistan's latest episode of Game of Thrones, India remains the favorite bogey and whipping boy for all sides," wrote Sushant Sareen. India's throne is solid. It's the one playing game with us.      

The bigger the pot, the more there is to go around.

 "The business of mobile phone assembly is a rare Make-in-India success story. India had two mobile manufacturing units in 2014. By 2019, there were over 200. The number of mobile handsets produced shot up from 60 to 290 million in the same period; the value of handsets produced jumped 10 times to $390 billion," Impressive. But, "China exported phones worth over $100 billion in 2019; Vietnam over $35 billion. India exported less than $3 billion in 2018-19." Export is a must as India itself is a small market. "Our per capita income is about $2000 as compared to China's $10,000 or Korea's $32,000," said Hari Om Rai of Lava. "Macroeconomists and politicians in general have invested too much in the idea of GDP growth without considering its quality," wrote R Jagannathan. "The fact is that growth does not significantly improve underlying economic strength, as it can be driven by any factor of production, and post-2000, it has been driven mostly by automation." The government gets "no pats on the back for the long-term investments made in improving social indicators -- toilets, electricity connections, pucca homes, financial inclusion, and piped water for all households". "GDP is an important measurement for economists and investors because it is a representation of economic production and growth." "The government's ambitious Swachh Bharat Mission has resulted in annual benefits to the tune of more than Rs 53,000 (727 US dollars) per household in rural India, including through reduced diarrhea incidence and from sanitation access time savings, according to an international study." "Slum residents have been hit hard by the pandemic, arguably harder than people in similar circumstances in rural areas. Having exhausted their savings, piled on debt at ever-higher interest rates, and mortgaged or sold their meager assets, slum families find it hard to cope," wrote Prof A Krishna and Emily Rains. In Mumbai, "An army of women and men, from domestic workers to store-clerks, staff of small manufacturing and service units to delivery staff and drivers, has been without their fixed income for seven months. Their salaries were too meager for a savings cushion which is now frayed, if not gone." How to help the millions of poor without growing the economy? Finance Minister Nirmala Sitharaman recently said that India has to shed its "socialist baggage" from Nehru's days. India has a plethora of social schemes to help the poor, so what does the minister want to shed? And, why? Because, fiscal deficit in the first half of the financial year has reached Rs 9.1 trillion, when it was projected to be below Rs 8 trillion in this year's budget. To help pay for the poor the government needs money. And that can only come from growth. Distribution of poverty does not help the poor.    

What to do when the problem is so powerful?

 "Chinese aggression has made it impossible for New Delhi to continue with its usual 'engagement where possible' refrain, because there are hardly any areas where engagement seems possible between the two Asian neighbors," wrote Prof Harsh V Pant. "But one aspect which remains unchanged is the Indian strategic establishment's aversion to the term alliance." "But to preclude the possibility altogether just because some confusing notion of 'strategic autonomy' hobbles our thinking is downright dangerous. If not idiotic." The Quadrilateral Security Dialogue, or the Quad, is a group comprised of the US, Japan, Australia and India which could act as a buffer against Chinese hegemony in Asia. "If Quad succeeds, it will signal the end of the post-Cold war era and the beginning of a new multipolar security architecture in Asia, and, gradually the world," wrote Indrani Bagchi. "The world's eyes are rightly on India, because whither goes India, will go the Quad, the Indo-Pacific and global rebalancing." "China is pumping in a huge amount of financial resources in Nepal, helping the landlocked country in laying new roads including connecting it to Chinese cities for transportation of petroleum and other essential products." "The power gap between China and India was large but it was shrinking. What has happened since 2007-08? That gap is no longer shrinking, it is actually expanding," wrote Shyam Saran. "In relation to China, a fundamental policy flaw over the last six decades-plus has been the make-believe frame of reference that the Indian political apex has chosen to inhabit," wrote C Uday Bhaskar. "The reality of China's intent in relation to India has tested the perspicacity of India's higher gene-pool to make an objective and effective assessment of the Xi gameplan and arrive at policy options that are viable and sustainable in the long run," "Actually the time has come for the two sides to settle their dispute, or, settle down on mutually acceptable LAC," wrote Manoj Joshi. "Xi bears the main responsibility here, having roiled the situation in the first place." The reason for the cowardly ambush of Indian soldiers at Galwan in Ladakh, resulting in the death of 20 soldiers, was that, "China wanted to teach India a lesson for the setback in Doklam and divert domestic attention from the shaking popularity of the CCP (Chinese Communist Party) and Xi Jinping," said Maj Gen M Vinaya Chandran in an interview. "In the current situation Xi is worried about what India will do and he is psychologically preparing the PLA (People's Liberation Army) and the Chinese public, to avoid a loss of face." "The pathology of global hegemony and dominance always reveals two underlying maladies: hubris and insecurity," wrote Prof V Anantha Nageswaran about China's aggression. "They seal the fate of empires and hegemons." Amen to that. 

Perhaps, men are no better off than women.

 "The Indian economy may contract or stagnate this fiscal but it will bounce back to be among the fastest growing in the world next year, Finance Minister Nirmala Sitharaman said." The minister is a woman. Can she promise a similar growth rate for women in India? "Women's share in new payroll additions fell below the 20% mark in August, part of a gradual decline in female participation in formal work over the past few months, according to government data. The latest monthly data showed a sharp decline from 2019-20 when women's participation in formal work was almost 23%." "According to data payroll collected from the Employees' Provident Fund Organisation (EPFO), 669,914 people joined the formal workforce in August, and only 133,872 of them, or just 19.98%, were females -- down marginally from 20.49% in July and 21.11% in  June." Shameful figures. While female labor force participation rate (LFPR) has increased to 36% in neighboring Bangladesh it has fallen to 20% in India, according to the World Bank. Hence, "The IMF sees India's per capita GDP (in dollar terms at current prices) falling to $1,877 in 2020 a decline of 10.3 percent. For Bangladesh, the corresponding figure is seen growing to $1,888, a rise of 4 percent." "While why this has happened remains a matter of debate, its implied loss was quantified by a McKinsey Global Institute report in 2018, which said that India would gain $770 billion in output by 2025 if women had the same opportunities to work as men," wrote an editorial in the Mint. Women have to do a lot of unpaid work, such as housework, looking after children, looking after old parents. In Australia women do 5 hrs, 11 minutes of unpaid work to 2 hrs, 11 minutes for men, while in India women do 5 hrs, 52 minutes of unpaid work to just 52 minutes for men. "According to Unicef, 650 million women alive today were married before they turned 18. India is home to 223 million or one in three of these child brides," wrote Prof Shruti Rajagopalan. "India has one of the highest levels of female feticide, where female fetuses are aborted through sex selection technology." Last month, a low caste (Dalit) woman was gang-raped and battered in Hathras in Uttar Pradesh (UP), and died after 2 weeks. "But neither of the young woman's two allegations of rape, made within hours of being attacked, were entered into police records," wrote Geeta Pandey. Dalit women in India are the most oppressed of all women in the world, wrote Soutik Biswas. "These women, who comprise about 16% of India's female population, face a 'triple burden' of gender bias, caste discrimination and economic deprivation." However, if women are being oppressed by a patriarchal society, then men in India should be ecstatic. Turns out, "For every 100 suicide deaths, 70.2 were male and 29.8 females, the NCRB, which collects data from police recorded cases, stated." Perhaps, life in India is generally miserable. And misery turns people into beasts. 

Seems to be a lack of funds throughout the system.

 "The Nomura India Business Resumption Index (NIBRI) hit another post-lockdown high of 83.5 for the week ended October 25, signalling a stronger recovery during the month compared to September." "The government's second stimulus aimed at boosting consumption has been touted as insufficient. Experts argue that the Center needs to expand its expenditure, so as to cushion demand in the economy, rather than focusing solely on supply," wrote Karan Bhasin. "The latest round of stimulus measures announced by the government will have minimal impact on growth and highlight India's limited budgetary firepower, which proved to be credit negative, according to global rating agency Moody's." Stimulus should be targeted towards the poor, wrote SA Aiyar. "Meanwhile, the government should greatly increase cash handouts to the masses through MNREGA and Jan Dhan Accounts. The poor are worst-hit and most likely to spend additional cash, boosting the economy. Richer folk are more cautious and less likely to spend." However, "Consumption, the pillar that normally accounts for over 60% of GDP, is majorly reliant on spending by middle class consumers, both urban and rural." "The past few months under the pandemic's shadow have made for a multiple whammy kind of situation for the Indian middle class." "The economy had already been weakened by years of mismanagement before this crisis struck." The GDP has been falling year on year to 4.4% last year. Why? "Investment shrank by almost 3% over the year. This is despite increase in government spending by 12% last year, more than twice the growth rate of private consumption". Social safety nets have normally been targeted at the rural poor, wrote Desai, Deshmukh and Pramanik. But "the lockdown has disproportionately affected urban workers, particularly wage workers who had few assets to begin with". Absent government spending, the Reserve Bank (RBI) has stepped into the breach. "The Reserve Bank has been more accommodative than many central banks in the world according to former RBI governor Raghuram Rajan. Rajan explained that given the surplus liquidity in the system the overnight reverse repo rate at which marginal cost of funds are priced is close to 3.25% and the inflation figure has reached 7% which implies a real interest rate being close to negative 4%." This means middle class is losing money on their savings. "The RBI on Thursday completed the first ever open market operation (OMO) purchase of state government bonds worth Rs 10,000 crore (Rs 100 billion) with two states -- Karnataka and Maharashtra -- accounting for half the amount." Is this the first instance of monetising the fiscal deficit? High spending last year has left nothing in government coffers, the middle class is losing jobs as well as savings and the poor had nothing to start with anyway. Can we call it holistic poverty?

How will it affect us?

 The United States presidential election will be held on 3 November, exactly one week from tomorrow. The entire 435 seats in the House of Representatives, which is the lower chamber in the US Congress, is up for election and opinion polls give a comfortable margin of victory to the Democrats. The upper chamber, the Senate, has a total of 100 seats of which 35 are up for election. At present Republicans hold 53 seats to 47 held by Democrats. Opinion polls project 49 seats for Democrats and 47 seats for Republicans with 4 seats up for grabs. If the Democrats can flip those 4 seats they will have a majority in both chambers of the Congress. The presidential election is decided by electoral college votes with each state assigned a number of votes according to population. California has the largest number of 55 electoral college votes followed by Texas with 38, New York State and Florida with 29 each and Illinois and Pennsylvania with 20 each. Democrat Joe Biden seems to have a solid lock on California, New York, Illinois and Pennsylvania. Whoever gets to 270 wins. According to predictions, 290 votes are definite for Biden, between 160-170 for President Donald Trump and the rest are undecided. Therefore, on 20 January 2021, we may expect a clean sweep of Democrat president, Senate and House of Representatives. However, Democrats cannot afford to lower the guard even with overwhelming predictions of victory, wrote Neeraj Kaushal. Even exit polls got the results completely wrong in 2016 when they gave Hillary Clinton a 75-99% chance of victory. On election day, polls were suggesting Clinton victory in key battleground states. However, "This time, pollsters have changed their sampling design to increase the representation of low-educated voters. But there is not much they can do about the undecided voters and non-responders." Republican and former Governor of Arkansas Mike Huckabee said that Trump supporters do not declare themselves for fear of being attacked. A man was shot dead just for wearing a MAGA (make American great again) hat. "From India's point of view, an important question in this election is how the Democrats will deal with China," wrote Seema Sirohi. India is not important for Democrats. Biden was vice-president to Barack Obama who was humiliated by China but still gave in to them. As things stand Biden will probably win. Bad luck for us.

Reform could so easily become deform.

 "The government is left with about 25,000 tonnes of onion stock in its buffer that will get exhausted in the first week of November, cooperative Nafed Managing Director Sanjeev Kumar Chadha said on Friday. Currently, Nafed is offloading onion buffer stock in the market to boost domestic availability and check onion prices which surpassed Rs 75 per kg in some parts of the country in the last few weeks." Also, "To contain prices, the Center on Friday imposed stock holding limit on retail and wholesale traders till December 31 to improve the domestic availability of the commodity and provide relief to consumers." At the same time, "State-owned FCI and state procurement agencies have bought 98.19 lakh (9.819 million) tonnes of paddy till Monday for Rs 18,540 crore (Rs 185.40 billion)." This was done at minimum support price (MSP)  which is at higher than market price, so rice farmers win and onion farmers lose. The government passed three farm bills to "provide greater choice and freedom to farmers to sell their produce and to buyers to buy and store, thereby creating competition in agricultural marketing". "It seems the government has one foot on the accelerator to liberalise agri markets and the other on the brake (ban on onion exports). All this dents its credibility." wrote Prof Ashok Gulati. "MSPs provide 'guaranteed prices' and 'assured market' to farmers, and save them from price fluctuations," wrote Misra and Iqbal. "But although MSPs are announced for around 23 crops, actual procurement happens for very few crops such as wheat and rice." The farm bills are meant to provide "freedom to the farmers from the 'villainous and exploitative' Agricultural Produce Marketing Committee (APMC) mandis", but "The middlemen are a source of information, inputs, and sometimes credit without collateral," wrote Prof Himanshu. Farmers realise that these bills give "freedom to private capital to purchase agricultural produce at cheaper prices", and will shift trade from "regulated APMC mandis to private markets without any commitment to investment in infrastructure and regulation from government". Prime Minister Narendra Modi's farm reforms "could turn out to be the most far-reaching. If they succeed, India could not only feed itself, but become a major food exporter," wrote Prakash and Parija. MSP protection for cereals means that, "Compared to an influential diet for promoting human and planetary health, the diets of average Indians are considered unhealthy -- comprising excess consumption of cereals, but not enough consumption of proteins, fruits and vegetables, said a new study." Cannot be a free market if the government keeps interfering. Stopping that itch would be the greatest reform.       

Can we direct the storm northwards?

 "A high-profile kidnapping of a police chief in Pakistan -- allegedly by official paramilitary troops -- has signaled deepening of the political turmoil in a country bracing for further opposition protests aimed at ousting Prime Minister Imran Khan." The paramilitary troops, known as Rangers raided the house of the inspector general of police in Southern Sindh province to force him to sign an arrest order for an opposition leader Safdar Awan. The Pakistan army has been abducting and killing nationals of Balochistan who oppose its exploitation of Baloch land. Responding to the stink this time, "Pakistan's Army Chief Gen Qamar Javed Bajwa has ordered a inquiry into the kidnapping of the Sindh police chief by paramilitary Rangers Force to compel him to sign orders that had led to the brief arrest of Mohammad Safdar Awan, the son-in-law of exiled prime minister Nawaz Sharif." Because, "addressing a mammoth opposition rally in Gujranwalla on October 16", Nawaz Sharif, speaking by video link from London where he has been hiding, "named the army chief Gen Qamar Bajwa and ISI chief Lt Gen Faiz Hameed and held them responsible for all the ills of the country, for stealing the mandate of the people and foisting an utterly incompetent Imran Khan on the hapless people of Pakistan. He went on to threaten that they will have to answer for their actions." Naturally, Indians were delighted and speculated about impending civil war in Pakistan, much of which was fake. "Four big opposition parties, the Pakistan Muslim League (Nawaz), Pakistan People's Party, the Jamiat Ulema-e-Islam (Fazlur), and the Pakhtunkhwa Milli Awami Party, and some smaller ones, including the Baloch National Party and the Pashtun Tahaffuz Movement, have come together to channelise public discontent at rising prices, power cuts, closure of businesses and other economic misery. Their alliance is called Pakistan Democratic Movement," explained Nirupama Subramanian. Gen Bajwa is indebted to Imran Khan for a three year extension in his post as army chief, which caused a lot of anger among other generals whose promotions were blocked, and so a fall of Imran will weaken Bajwa himself. "If mainstream parties continue to fade, Pakistani politics may well see a three-way tug-of-war between a middle-class populist, an aggressive military establishment and radical Islamists. That is in nobody's interest -- no even the Pakistan Army's," wrote Mihir Sharma. If Islamists take control of Pakistan's nuclear weapons, can India channel their anger towards China which is beating up Pakistan Army soldiers, and Chinese officials are brutally sterilising Muslim Uighur women to reduce their numbers? Get our enemies to fight against each other. Sun Tzu would approve. 

Perhaps, more hope than confidence.

 "The government on Thursday unveiled a new series for the consumer price index for industrial workers (CPI-IW), a measure of inflation used to calculate dearness allowance for government employees, wages for industrial workers and dearness relief for pensioners." "The new index assigns more weight to spending on services such as education, healthcare, housing, travel and transportation", while the weight assigned to food has been brought down from 46.2% to 39%. This is expected to lead to a rise in salaries and dearness allowance (DA) of government employees. At present government employees get DA at the rate of 17% of their basic salary to shield them against rising prices but their is no relief for private citizens as the Reserve Bank (RBI) kept interest rate at 4%, hammering their earnings from savings. "Consumer inflation in the country increased to 7.34 percent in September from 6.69% percent in the previous month" which was blamed on food inflation of 10.68%. "Millions of households are staring at negative returns from their savings", leading to an alarming situation for households that are already facing growing financial insecurity as a result of widespread disruptions caused by the pandemic", wrote Shayan Ghosh. "On Wednesday, the Union Cabinet cleared a Rs 3737-crore (Rs 37.37 billion) bonus for 30.6 lakh (3.06 million) central government employees." No wonder, "The consumer confidence index declined to 49.9 in September, as against 53.8 in July. However, the index has improved from 105.4 to 115.9 on a one-year ahead expectations basis, indicating a recovery in the consumer confidence level over the next twelve months." The present figure is a response to the dire state of the economy but the future should perhaps be called 'consumer hope' instead of 'consumer confidence', because no one is sure what is going to happen, but hope that the epidemic will be controlled, a vaccine will be protective and jobs and earnings will come back. "It is unlikely output will get back to pre-covid levels before the end of the next financial year. That is two lost years, and a permanent output loss of around Rs 350-400 crore (Rs 3.5-4 billion)," wrote Niranjan Rajdhyaksha. However, government stimulus has been more like that of western countries than emerging economies. Maybe, because this government cannot do any more than it is doing already. "The Modi government has been practicing socialism more than preceding Congress-led governments" and "has been hand-holding the economy, nudging, encouraging private sector players to do this, to do that, holding melas not just for investors but also for entrepreneurs, innovators", wrote P Venkateshwar Rao Jr. The result is that the private sector has been reluctant to invest. Government employees should be paid but taxpayers should not be punished with financial repression. It is better to be a government peon than an officer in a private company. Consumers may hope. They are likely to be disappointed.  

Chances of falling on his flat face.

 "Major European countries, including Italy and Sweden, are pushing back against China's attempts at controlling economies and gaining a strategic foothold in the continent." "Italy had been gradually shifting towards China after its previous government joined the BRI infrastructure project in March 2019." BRI is the Belt and Road Initiative, also called One Belt One Road or OBOR, which is a gigantic infrastructure project conjured up by President Xi Jinping, which aims to link China with over 70 countries. However, there are concerns that, as China's economic growth slows, this is mainly being used to create jobs for Chinese labor, dump excess production of steel and cement and to gain control of other nations by trapping them in debt that they cannot repay. Italy tried to show its love for Chinese by hugging them. "In an attempt to curb racism against Chinese and 'Asian looking' the Mayor of Florence in February launched 'hug a Chinese' campaign." This fear of being called racist paralyzed Italian authorities, resulting in a spread of the coronavirus with consequent large number of deaths. "Sweden has banned telecoms equipment from Huawei and Zte 000063.SZ in its 5G network, joining other European nations that have restricted the role of Chinese suppliers on security grounds." In an instant retaliation, "The Chinese foreign ministry warned Sweden that it should revoke its ban on Huawei Technologies to avoid hurting prospects for Swedish companies." A report by the Defense of Democracies says that "China now sees Germany, and with it the rest of Europe, as the key battleground in its path to global supremacy". "China is closing in on the US as the most powerful country influencing the Asia-Pacific, as America's handling of the Covid-19 pandemic tarnishes its reputation, a study showed." "China has taken a sudden turn towards 'gross aggression' against its neighbors, including India, and in the Indo-Pacific, a senior administration official said after the conclusion of the Quad ministerial in Tokyo, wherein the leaders vowed to coordinate in ensuring peace and stability of the strategically vital region." "The challenge for the Indo-Pacific is getting more acute by the day," wrote Prof Harsh V Pant. "But it is India that is the critical anchor in making the idea of Indo-Pacific a viable strategic geography." "No other country has done more than India in making the regional stakeholders believe that there is an alternative to just acquiescing to a China-led Asian order." "China's gross domestic product (GDP) rose 4.9% year-on-year last quarter", but "Too much has depended on state-driven industrial activity, credit-fuelled land sales, and a construction binge." The Chinese have accepted Xi as their emperor, but the rest of the world is refusing. The more force he uses the more will be the resistance. Every chance of falling flat on his face. We hope.        

What if the middle class disappears?

 Pratik Parija wrote about a woman called Nafisa who, along with her husband, "struggled to make even 1 rupee a day from their tailoring business after India went into a Covid-19 lockdown in March". Her 4-month old child died of starvation because she could not produce enough breast milk. "It is an especially cruel tragedy because it happened in a country which boasts about having the world's largest food aid program. Government warehouses brim with more than 70 million metric tons of grain, or almost 15% of global stockpiles, and the nation's wheat and rice harvests have surged to records." "State-owned FCI and state procurement agencies have bought 98.19 lakh (9.819 million) tonnes of paddy till Monday for Rs 18,540 crore (Rs 185.40 billion)." A telephone survey by the National Council of Applied Economic Research (NCAER) showed that employment of men was affected more than that of women, those who were self-employed suffered less, urban areas suffered more than rural areas and "individuals at the bottom of the income pyramid have been affected by job losses far more than the individuals at the top of the income pyramid and this difference is striking in cities", wrote Desai, Deshmukh and Pramanik. "India ranked 94 among 107 countries in the Global Hunger Index (GHI) 2020 and continues to be in the 'serious hunger' category, though it has made some progress, particularly since the enactment of National Food Security Act." However, this hunger cannot blamed entirely on coronavirus induced lockdown. "After a collapse in rural incomes and a de-growth in casual wages -- heightened by the ban on high value currency notes in end 2016 -- a recent National Statistical Office (NSO) survey report leaked by Business Standard showed a significant 9% drop in rural consumption, including on staples, between 2011-12 and 2017-18," wrote Sayantan Bera in December 2019. "The last time a fall in consumption was recorded was half a century ago in the early 1970s." The Indian Human Development Survey of 42,556 households found "22% poverty rate in households with children and 8% poverty rate in households without children", wrote Sana Ali. "Among the urban middle classes, it is no longer unusual to find families stopping at one child, even when this child is a girl," wrote Profs Basu and Desai in a paper in July 2012. India needs to grow the middle-class if it is to become a rich nation. "Consumption, the pillar that normally accounts for over 60% of India's GDP, is majorly reliant on spending by middle class consumers, both urban and rural." Every government in India has seen middle class taxpayers as cash cows to be squeezed into oblivion. With vanishing fertility the middle class may disappear leaving only the poor. Hunger can only grow.  

Didn't work last time. How will it work this time?

 "While India had for some time prided itself on being the world's 'fastest growing economy', it has since fallen far from that pedestal. And the decline began much before Covid hit," "Thus, presenting the 2018-19 Budget, Arun Jaitley announced that he was making a 'calibrated departure' from the policy of the previous two decades of cutting tariffs by enhancing some of them. Since then India has been raising import duties on more and more tariff lines as the philosophy of 'import substitution' -- tried and failed in post-independence years leading up to the 1991 liberalization when India began to integrate with global markets -- made a comeback." Import substitution is part of Prime Minister Narendra Modi's vision of 'Atmanirbhar Bharat', which means 'self-reliant India'.  During a speech on 13 May, "Modi used the word, 'Atmanirbhar' at least 19 times and 'Atmanirbharta' seven times. From 1951, India adopted a policy of Five Year Plans for its economy and, "With each passing plan-period, the country adopted more and more restrictive controls on imports such as higher import duties, massive license-permit raj on who could import what, how much and for what reason," wrote Udit Misra. This led to black marketing of imports, promoted inefficient domestic industries and sale of import quota at higher price. Consumers got shoddy goods at high prices. "Till about 1990, India and China had roughly the same annual Gross Domestic Product (GDP)." China's exports grew from about 1% of global exports in 1980 to 13% in 2018, while India's exports declined from 2.2% of global trade to 1.7% in 2018. "Between 1991 and 2014, average tariffs declined from 125 percent to 13 percent. However, since 2014, there have been tariff increases in 3,200 out of 5,300 product categories, affecting about $300 billion or 70 percent of total imports," wrote Subramanian and Chatterjee. The largest increases have been since 2018 based on the perception that India's growth since 1991 was not related to exports, especially manufacturing exports. Not true. India's overall exports grew by an average of 13.4% annually between 1995 and 2018, manufacturing exports grew by an average of 12.1% annually. "Bangladesh is doing well because it's following the path of previous Asian tigers," wrote Andy Mukherjee. "India, however, has gone the other way, choosing not to produce the things that could absorb its working age population of 1 billion into factory jobs." For economic recovery following the Covid crisis "in India's current circumstances, India does not have the luxury of abandoning export orientation" because "India's market is too small to sustain any serious import substitution strategy or even as a way of offering investors the domestic market as bait and incentivising them to export." Meanwhile, people are cutting their expenditure because of a fear of high prices and job losses. The government thinks that there can be no balance of payments crisis as in 1991 because we have over $551 billion in foreign currency reserves. But foreign exchange markets reached $6.6 trillion per day in April 2019. That's an awfully huge ocean.    

What to do, that is the question.

"The Prime Minister's Office is clearly the driving force behind India's fiscal conservatism. Most likely, the PMO fears that a fiscal spending spree will send inflation soaring to 9%, the level at which voters have historically rebelled against the ruling party," wrote SA Aiyar.  "The government's announcement to boost consumer demand such as leave travel concession (LTC) cash voucher scheme (Rs 5,675 crore) and special festival advance scheme (Rs 4,000 crore) are mostly frontloading expenditure with balancing offsetting changes later that will benefit over 11 million central government employees." wrote Asit Ranjan Misra. "To boost spending on capital expenditure, which has a multiplier effect on growth, Sitharaman announced a Rs 25,000 crore (Rs 250 billion) additional spending by the center on roads, defence infrastructure, water supply, urban development and domestically produced capital equipment." "Measures by the government to stimulate demand must not burden the common citizen with future inflation," she (Finance Minister Nirmala Sitharaman) said, "and must not put government debt on an unsustainable path." India's retail inflation accelerated to 7.34% in September," while, "factory output contracted by 8% in August, at slower pace than in July, indicating that economic activity is gradually gaining pace after the government eased lockdown restrictions". "India's public debt ratio, which remarkably remained stable at around 70 percent of the GDP since 1991, is projected to jump by 17 percentage points to nearly 90 percent because of increase in public spending due to Covid-19, the IMF said on Wednesday". While "the US is considering an additional stimulus taking the total to over 30% of GDP," "all of India's fiscal stimuli add up to barely 2% of GDP". and yet, even with little spending, our retail inflation jumped to 7.4%, while that of Indonesia is at 1.4%, Thailand's is at minus 0.7% and China's is at 2.4%. Writing on effects of unconventional monetary policy in western countries, Prof VA Nageswaran wrote, "They include income inequality and wealth concentration in many countries; asset bubbles in stock markets; an unsustainable boom in private equity and valuations in technology startups with no sign of profitability over any horizon." But now he is not in favor of inflation targeting by the Reserve bank of India (RBI). "The RBI should define overheating more broadly than only through inflation," he wrote, such as thfough trade deficit and asset price bubble. "Stock valuations hit historic highs among headwinds," wrote Vivek Kaul. Confused?    

First Vietnam, and now Bangladesh!

 According to the International Monetary Fund's (IMF) latest World Economic Outlook report, "India is about to slip below Bangladesh in per capita gross domestic product (GDP) in 2020 (calendar year) as a result of lockdown impact. The IMF sees India's per capita GDP (in dollar terms at current prices) falling to $1,877 in 2020, a decline of 10.3 percent. For Bangladesh, the corresponding figure is seen growing to $1,888, a rise of 4 percent." Though India was far ahead till a few years back the gap has been closing because of soaring exports, savings and investments of Bangladesh. Thankfully for our ego, "On 'more appropriate' economic metric Bangladesh has not surpassed India and is unlikely to be in the future, former chief economic adviser (CEA) Arvind Subramanian said on Saturday." "The former CEA said there is need to measure real GDP in local currency after taking out effects of inflation and then, convert all local currency estimates of real GDP into comparable dollars." A bit of hocus-pocus, by using exchange rate of the rupee, never goes amiss. In June, "Importantly, according to the RBI's (Reserve Bank) real effective exchange rate (REER) index, based on the export-weighted average of 36 currencies, the rupee was 'over-valued' by almost 16% in April, despite the depreciation in recent months. The domestic currency had remained overvalued by just over 16% in FY19 (financial year) and close to 20% in FY20%, according to the index." In September 2020, the RBI hinted that it will use the strength of the  rupee to control inflation by lowering prices of imports. "The reason behind the rupee's sudden appreciation is the extent of foreign capital that is coming in, in the form of both institutional and direct investments (FIIs and FDIs)," wrote Karan Bhasin. Imported inflation is due to a steady rise in customs duties "with the government trying to protect domestic industry". Female labor force participation rate is 36% in Bangladesh compared to 20.3% for India, mortality rate due to unsafe water and sanitation is much lower in Bangladesh and it is far ahead of India in gender parity rankings, wrote Misra and Iqbal. "Bangladesh is doing well because it's following the path of previous Asian tigers. Its slice of low-skilled goods exports is in line with its share of poor-country working-age population," wrote Andy Mukherjee. "India, however, has gone the other way, choosing not to produce the things that could have absorbed its working-age population of 1 billion into factory jobs." "After World War II the 'Asian miracles' -- first Japan, then Taiwan and South Korea, most recently China -- built themselves into manufacturing powerhouses" by growing their exports by an average of 20%, wrote Ruchir Sharma. "Vietnam has sustained a similar pace for three decades. Even as global trade slumped in the 2010s, Vietnam's exports grew 16% a year, three times the emerging world average." Per capita GDP of Vietnam is much higher than that of India. Why compare? Let us bury our heads in sand.      

China and s-risks for India.

Following the global financial crisis of 2007-08, "the power gap between China and the US, both in economic and security terms narrowed substantially", wrote Shyam Saran. "There is a sense in China today that thanks to Covid-19 and the very early and very remarkable recovery from the pandemic, China is very well placed in terms of the future. So what has happened is that China sees an opportunity for itself to emerge as the dominant power in Asia." "China has been pumping in huge amount of financial resources into Nepal, helping the landlocked country in laying new roads including connecting it to Chinese cities for transportation of petroleum and other essential products." Apparently, China's "primary focus is in an arc from Japan, past Taiwan to the South China Sea, a border which the US has continued to press in on the past 70 years", wrote Manoj Joshi. It should be in China's interest to settle its border dispute with India. But Chinese President Xi Jinping doesn't see it that way. "China is seeking to set up more logistics facilities in about a dozen countries, including Pakistan in India's neighborhood, to allow the People's Liberation Army to project and sustain military power at greater distances, according to a Pentagon report." "The leadership in Beijing announced in 2017 that it wants to become world leader in artificial intelligence by 2030." "Researchers at the Center on Long-Term Risk, a non-profit research institute in London, have expanded x-risks with the even more chilling prospect of suffering risks. These 's-risks' are defined as 'suffering on an astronomical scale, vastly exceeding all suffering that has existed on Earth so far'," worte Di Minardi. "If a malevolent group or government suddenly gained world-dominating power through technology, and there was nothing to stand in its way, it could lead to an extended period of abject suffering and subjugation." "China has taken a sudden turn toward 'gross aggression' against its neighbors, including India, and in the Indo-Pacific, a senior administration official said after the conclusion of the Quad ministerial in Tokyo, wherein leaders vowed to coordinate in ensuring peace and stability of the strategically vital region." "China's march towards global supremacy continues -- its focus is expanding, its methods are deepening and its goals are clear -- laid out in plain text by the ruling party." "Specifically, the report says China now sees Germany, and with it the rest of Europe, as the key battleground in its path to global supremacy." US Secretary of State Mike Pompeo has called for an "alliance of democracies" against authoritarian China. "From India's point of view, an important question in this US election is how the Democrats will deal with China," wrote Seema Sirohi. Sadly, 72% of Indian-Americans intend to vote for Democrat candidate Joe Biden for selfish reasons. That's why India is so much weaker than China.

Why are trilemmas so impossible?

 "Consumer inflation in the country increased to 7.34 percent in September from 6.69 percent in the previous month as food prices continued to move higher, government data showed on Monday." "Food inflation was recorded at 10.68 percent last month compared to 9.05 percent in August." "India's wholesale price inflation accelerated in September touching a seven-month high of 1.3%, mostly because of rising food prices, which may force the Reserve Bank of India (RBI) to opt for a prolonged pause on policy rates." "The increase in food prices have come against the backdrop of a good agricultural season," wrote Karan Bhasin. "Supply disruptions following the Covid-19 outbreak and subsequent curbs increased costs." "A rise in minimum support price (MSPs) besides aggressive government procurement could also put pressure on food prices." However, if supplies have been constrained, demand must also have fallen substantially because all hotels, bars and restaurants have been closed till now. "Urban retail inflation in services was 7.74% in September, while rural came in lower at 6.12%," wrote Aparna Iyer. "What is keeping core inflation elevated is telecom price hikes last year and a second round impact of the large hike in retail fuel prices on bus fare, taxi etc." wrote analysts from Edelweiss Securities. The Indian economy has been grappling with a series of 'impossible trilemma' choices, wrote Niranjan Rajadhyaksha. No country "can simultaneously have an open capital account, a flexible exchange rate and an independent monetary policy". "India is far from ready for embracing capital account convertibility. The SS Tarapore panel on capital account convertibility laid down the preconditions: 3 percent fiscal deficit, 3 percent current account deficit and 1 percent NPA." Combined fiscal deficit of Center and states is likely to touch 12% this year and NPAs may soar to 14% as debt moratorium comes to an end. Prof Dani Rodrik proposed that it is "not possible to maintain national sovereignty, economic globalization and democracy simultaneously". This government is returning to a policy of import substitution industrialization (ISI) which we followed till 1991 and which ended in failure, wrote Prof Arvind Panagariya. "The Indian state is the antithesis of what any state should do. It barely provides public goods and is instead overwhelmingly present in provisioning and subsidizing private goods or regulating private interactions," wrote Prof Shruti Rajagopalan. Another impossible trilemma is that "It is not possible to keep farm support prices high, retail food prices low and overall inflation under control." "Union Minister Rajnath Singh assured the farm community that the Minimum Support Price, MSP will not only stay, it will be continuously increased too in coming years." Which means, the government will continue to fan retail inflation. That's why trilemmas are impossible. 

Selective quotes are no different to anecdotes.

 "Several large studies have now examined the effects of demonetization carefully", relying on "evidence from large samples and thereby avoid biases that can result from inferences based on anecdotes", wrote Chief Economic Adviser (CEA) to the Government of India KV Subramanian. Growth rate of India's gross domestic product (GDP) was 8.26% in 2016-17, 7.04% in 2017-18, 6.12% in 2018-19 and 4.18% in 2019-20, before coronavirus hit the economy. These are accepted statistics, not anecdotes. Apparently, a study by the International Monetary Fund (IMF) found that "other economic shocks" affected India during this period. "Salient examples include the election of Donald Trump which occurred on the same day as the demonetization announcement, a rise in the global price of crude oil of 60% from January to October 2016." The price of oil fell from over $102 per barrel in 2011 to $39 in 2016 and has stayed below $60 since. Instead of passing this oil bonanza on to the economy and stimulating growth the government increased taxes and earned an eye-watering Rs 11 trillion in 4.5 years. It is to earn another Rs 2.25 trillion from fuel taxes, despite the economy contracting by 23.9% in the April-June quarter of this year. As for Donald Trump, the real GDP in the US grew at higher than 2% in 2017, 2018 and 2019, after he took office on 20 January 2017 and India's exports were growing since 2016. So, what were the benefits of demonetization? Direct tax collections and digital payments increased. Direct tax collections have increased because of addition of a 4% cess on taxes paid and surcharge of 20%-30% on high income earners. Going digital may help the government in snooping on citizens but it leaves us helpless victims to cyber criminals who are much more adept at using technology than majority of people. "Toyota Motor Corp won't expand further in India due to the country's high tax regime" "which "also put owning a car out of reach of many consumers". Nominal GDP growth in 2019-20 fell to just 7.2%, the lowest since 1975-76," wrote Roshan Kishore, leading to fall in growth of private final consumption expenditure (PFCE) and gross fixed capital formation (GFCF). "Six years of headline management should have been enough for PM Modi's government. From justifying its bizarre overnight ban on most banknotes in 2016 to defending suspiciously cheerful gross domestic product data and suppressing a not-so-rosy household survey, Team Modi has left no stone unturned when it comes to spinning a narrative in which it's doing everything right," wrote Andy Mukherjee. CEA Subramanian is clearly a loyal member of the team. Since we don't know economics he tries to fool us with selective quotes of a few studies, like blind men feeling an elephant. Should not misuse his knowledge to fool fellow citizens. Should not sacrifice self respect. 

Either way it seems pointless.

 "The central government on Monday announced a Rs 73,000 crore (Rs 730 billion) demand push to the economy ahead of the festive season", but "the measures to boost consumer spending as well as capital expenditure are modest and designed to stimulate demand in a fiscally prudent manner", wrote Asit Ranjan Mishra. "The LTC (leave travel concession) cash voucher scheme allows government employees who haven't availed it, to get fare as cash vouchers to be spent by March. However, they have to spend three times the ticket fare on items that attract 12% GST and above. For this only digital transactions are allowed and GST invoice needs to be produced," explained Shuchi Bansal. It means that, "If your LTA is Rs 1 lakh (Rs 100,000) for the current financial year, you either produce tickets to claim it as a tax-free allowance or pay Rs 30,000 tax on it." Now you can avoid paying that tax without traveling "provided you spend Rs 3 lakhs to purchase a car, laptop, TV set, fridge, smartphones or a combination of these items which attract over 12% GST. Among services, term insurance premium, and even Ulips, would qualify given that they face 18% levy." Is this a cash handout to government employees, or is there a sting in the tail? In the above example, if a person takes Rs 1 lakh in cash she will pay Rs 30,000 as income tax. However, if she spends Rs 3 lakhs, she will be paid Rs 1 lakh tax-free. But, she will have to pay a minimum of 12% GST on Rs 3 lakhs, which will be Rs 36,000. The government gains Rs 6,000. Except for a car, people have a buy a lot of items to avail of this 'gift'. "Perhaps the real point to note is the nearly negligible fiscal impact of Sitharaman's goody bag. Her latest stimulus package, as she made clear, will not alter the Center's current borrowing target of Rs 12 trillion for this fiscal year, already up from Rs 7.8 trillion planned back in February," wrote an editorial in the Mint. "India Inc was unimpressed with finance minister Nirmala Sitharaman's additional budget allocation of Rs 25,000 crore (Rs 250 billion) towards government-driven capital expenditure and an additional Rs 12,000 crore (Rs 120 billion) in loans to states." Naturally, "Market investors were not very enthused by the government's package meant to lift consumer demand and infrastructure spending." These measures "are unlikely to provide any meaningful, durable push to economic activity. Yet they signal an acknowledgement on the part of the government of the need for measures to boost demand -- and raise expectations that more measures are in the offing," wrote an editorial in The Indian Express. If the government is waiting to time a stimulus just before next year's state elections it may not work. It takes time to increase productivity so a sudden injection of funds into the economy may raise inflation by raising demand. Or maybe it is plain broke. 

Is the Center hiding a deficit we don't know about?

 "There is no end to the stalemate on the issue of borrowing to compensate the states for shortfall in revenue collection as the GST Council failed to reach consensus on the issue during its meeting on Monday." The Central government collects goods and services tax on all transactions in the country and is supposed to pay a compensation to the states in case of shortfall. States account for 60% of total government spending in India, so their revenue is essential for the economy. "The 14th Finance Commission set the share of states in central taxes at 42%. States' share reached a peak of 36.6% in 2018-19 and has fallen sharply since," wrote Roshan Kishore. Finance Minister Nirmala Sitharaman explained that borrowing by the Center will raise yields and interest cost for both governments and the private sector. Given that tax collections are finite, why borrowing of an equivalent amount by state governments will not raise borrowing costs is not clear. "It is much more convenient for the Center to borrow to meet the shortfall in the cess fund," wrote Finance Minister of Kerala TM Thomas Isaac. "When there was a surplus in the cess fund, as was the case in the first two years, the surplus funds were deposited in the Consolidated Fund of India (CFI) Even the undistributed portion of IGST, which at times was over Rs 1 lakh crore (Rs 1 trillion) was deposited in public account of Government of India. Symmetry demands that when the cess fund is in deficit and requires temporary accommodation, the Government of India should support it." This was supported by the Comptroller and Auditor General (CAG) of India which "found that the government itself violated the law by retaining Rs 47,272 crore (Rs 472.72 billion) of GST compensation cess in the CFI during 2017-18 and 2018-19, and used the money for other purposes". "The ruling Bharatiya Janata Party (BJP) promised 'cooperative federalism' when it came to power in 2014; its manifesto for 2019 elections made the same promise," wrote Rajrishi Singhal. "That promise now stands broken." "The controversy surrounding the compensation for the loss of revenue to the states due to implementation of GST is not merely about revenue loss," wrote M Govinda Rao. "The real issue at stake is whether commitments and agreements will be honored or not." This government has a contempt for rules. On 20 September, the broadcast of a call for "division by count" by opposition members in the Rajya Sabha "never reached the public ear because footage was doctored to such an extent that it was muted", wrote KTS Tulsi and Tanessa Puri. "Stop crying wolf over democracy, enjoy the quality of sheep's clothing," advised TK Arun. Why is the Center so reluctant to borrow? Is it hiding a humongous deficit already? 

If the RBI is make-believe, why not get rid of it?

"The Reserve Bank of India (RBI) on Friday kept rates unchanged as inflation remained stubbornly high, but unleashed an array of other tools to reduce borrowing costs in a bid to revive growth in Asia's third largest economy," wrote Gopika Gopakumar. "Citing inflation as a transient worry, the central bank retained its accommodative policy stance with reviving growth as the primary objective." "To push credit flow into the economy", the RBI also said that "it will introduce an on-tap window for banks to borrow up to Rs 1 trillion and invest in corporate bonds and other debt instruments of companies in certain sectors". "RBI also rapped the bond market for demanding a higher yield on sovereign papers, which led to the devolvement of recent government auctions. Das said market participants and RBI should share the responsibility of ensuring the orderly evolution of the yield curve." Interesting. Our central bank is openly trying to game the bond market. At a recent auction the RBI did not find any buyers for its bonds at the kind of yields it was prepared to accept and a large chunk of bonds remained unsold. Granted sovereign bonds are guaranteed payment if held to maturity but that will be at the face value of the bonds. Yields are inversely proportional to the price of bonds so dealers will be buying the bonds at a higher price if they accept yields that the RBI is forcing on them. A meeting of the Monetary Policy Committee last week kept the benchmark lending rate at 4% and committed to an accommodative monetary policy well into next year despite expectation of retail inflation rising to 6.8% in September. "It is time for India to shed the make-believe that inflation targeting is the ideal objective of monetary policy, and accept that output and jobs growth and financial stability are other valid objectives of monetary policy as well," wrote an editorial in The Economic Times. This means that the RBI is being asked to take over functions of the government. If inflation is to be allowed to go unchecked, at some point it will reach double digits as it did in 2009-10. At that point interest rates will have to go up with concomitant increase in bond yields and bond holders will suffer losses. High inflation affects currency negatively so bondholders will see the value of their investments falling in real terms. Though the rupee is currently trading at around Rs 73 to the dollar it could fall if economic growth remains weak along with high inflation. Inflation helps the government reduce its debt by increasing tax collections on higher priced goods, increased income tax collection on rising wages and by reducing the value of the currency. But high prices are disastrous for the poor because they suffer a severe reduction in what they can buy. "Price stability is a goal too worthy to give up on," wrote an editorial in the Mint. The RBI, and its governor, have to decide if they are here to serve the people or the government. If its sole function is to serve the government let us "shed the make-believe" and get rid of the RBI. That will at least save an awful lot of money. 

What's the point of stimulating the wealthy?

 "The market capitalization of all listed companies in India hit a record Rs 161 trillion ($2.11 trillion) on Thursday, as the rebound in several macro indicators and earnings optimism fired up stocks," wrote Sultana and Sonavane. "The World Bank expects India's economy to contract 9.6% FY21, steeper than 3.2% shrinkage projected earlier." The Reserve Bank (RBI) agreed. "In a grim message for the economy, RBI governor Shaktikanta Das said today at the central bank's monetary policy meet that India's GDP for FY21 is likely to contract 9.5%." "Prime Minister Narendra Modi had announced a relief package of Rs 20 lakh crore (Rs 20 trillion) or about 10 percent of GDP" but the actual fiscal cost of the relief measures announced by Finance Minister Nirmala Sitharaman amounted to just Rs 1.50 trillion, or 0.75% of GDP. Global securities research firm Sanford Bernstein termed the stimulus measure a "lost opportunity". Given all the dark predictions why the explosion of "irrational exuberance" in our stock markets? "The surge in global liquidity, balance sheet expansion by central banks, and stimulus measures by governments have contributed to the overall rally in Indian equities for the past few months, said Prasanna Pathak, head-equity and fund manager, Taurus Mutual Fund." The global economy is expected to shrink by at least 4.3%, according to a report. But, "The wealth of the world's billionaires reached record heights this year despite the global coronavirus crisis, led by tech, health and industry 'innovators and disruptors' like Elon Musk, said a report." Regarding the S&P 500 in the US, Wang and Ballentine wrote, "All year, no matter how bad things have gotten, investors have located a bright side." Traders expect a second stimulus from the Congress. Also, "Thanks to another source of stimulus, the Federal Reserve, it's been virtually impossible since March to convince traders that any threat to the market will prove permanent." There is a "clear disconnect between the sharp surge in the stock markets and the state of the real economy, as surplus liquidity was driving up asset prices across the world", said Governor of RBI Shaktikanta Das. The RBI created excess liquidity in banks to the tune of over Rs 8 trillion, wrote Aaryan Khanna. In the latest meeting of the new Monetary Policy Committee (MPC), the RBI "opened its liquidity tap further", wrote an editorial in the Times of India. Fund manager Nilesh Shah said that equity markets will be comfortable with the RBI governor's prediction that "liquidity will be there for a long period of time and there will be policy rate cuts as and when inflation comes down". Economists expect retail inflation to rise to 6.88% in September, which gives a real interest rate of minus 2.88%, which means savers will continue to lose money while the rich will get richer through rising value of their portfolios. The RBI seems to be part of the crony capitalist system. How unfortunate.

The worry about good intentions.

 Following Prime Minister Narendra Modi's 'Make in India' plan, "As many as 11 global handset and input makers -- Foxconn and Samsung among them -- are reported to have qualified for special incentives spanning five years, along with five domestic entities, including the makers of Lava and Micromax devices. The government expects the initiative to result in output worth Rs 10.5 trillion over a decade, about 60% of it from exports," wrote an editorial in the Mint. Unfortunately, the cowardly ambush of Indian soldiers by Chinese troops in Ladakh in June, the uncontrolled spread coronavirus infections and the severe contraction of the economy this year creates doubts as to how much foreign companies would be willing to invest in India. "Even as Indian troops have been engaged in a tense confrontation with China since April, the share of Chinese imports in India's trade basket has only gone up, despite the rhetoric of 'self-reliance'," wrote Nikita Kwatra. "The grouping of four democracies -- India, Australia, US and Japan -- known as the quadrilateral security dialogue or quad, was first mooted by Japanese Prime Minister Shinzo Abe in 2007." However, at a meeting of the quad a few days back, no one except US Secretary of State Mike Pompeo dared to mention China. "There was no mention of China or the problems arising from its provocative moves in Ladakh or in the larger Indo-Pacific region, in the Indian statement." Because, "Japan, the US, Australia are all dependent on supplies from China to manufacture products that they export." Not just supplies, "According to data from Refinitiv, a financial solutions firm, since 2015, private equity (PE) firms from China have invested $3.3 billion in India, largely in firms catering to the internet-based economy," wrote Kwatra and Devulapalli. "In what can been seen as a silent retaliation against India, China has hiked prices of key starting materials (KSMs), used for making medicines, by 10-20 percent." "It doesn't look like India sees itself as the world's next factory, which requires openness. Emboldened by its recent free trade agreement with the European Union, Vietnam may be more suited to playing that role, even though the Southeast Asian nation of fewer than 100 million people lacks India's labor power," wrote Andy Mukherjee. Then there are the civil servants, more specifically the Indian Administrative Service or IAS, which is like a steel noose around India's throat. "The IAS is possibly the most powerful professional association in the country and will likely be resistant to any reform that encroaches on its authority," reported Reuters. "India's employer regulatory cholesterol universe is vast: 1,536 Acts that create 69,233 compliances and 6,618 filings every year. More painfully, this changed eight times a day last year," wrote Sabharwal and Agrawal. "The answer is that India continues to be a world beater in terms of bureaucratic 'killer apps', or rules and regulations that trip business-folk at every step," wrote R Jagannathan. Intentions are good. We must be careful where we end up.