How is the economy growing if people have less to spend?

"Belying many doomsday predictions, the Covid struck Indian economy has proven to be resilient," wrote Prof Ram Singh. "The economy is expected to grow at 10% in the next fiscal year to become one of the fastest-growing economies in the Asia-Pacific region." The Ministry of Statistics and Programme Implementation (MOSPI) released "the First Advance Estimates (FAE) for the current financial year". It predicts, "For the full year of 2020-21 then, India's GDP is likely to be Rs 134.4 lakh crore (Rs 134.4 trillion) as against Rs 145.7 lakh crore in 2019-20." At Rs 55,609 the private final consumption expenditure (PFCE), which gauges consumer demand, "will fall below the 2017-18 level" and at Rs 37 trillion, gross fixed capital formation (GFCF) (or the investment demand in the economy) will be even below 2016-17 level. "According to an estimate we need an investment of Rs 500 lakh crore (Rs 500 trillion) over the next seven years." "Weak domestic demand, anemic export growth, and subdued private investments mean that three of India's growth engines are malfunctioning today," wrote Nikita Kwatra and Pramit Bhattacharya. "Government spending remains the last engine of hope for the economy," but "India's public debt-to-GDP ratio has jumped to 89% and would remain at similar levels till at least 2025," according to the IMF. The government needs to spend wisely. "A likely revival in the investment cycle on the back of strong growth in corporate profits will be well supported by capital inflows from the developed world," wrote Prof VA Nageswaran. "Under these circumstances, compared to the situation some three-four months ago, the risk now is that the government overdoes its fiscal stimulus for 2021-22 rather than under-provides it." "Many of us have faced health scares, income disruption, economic uncertainties, debt security default worries in this period," wrote Suresh Sadagopan, but senior citizens have been particularly hit because of low interest rate and high retail inflation, which is down to 4.59% in December from 6.93% in November, but real interest rate is still in negative territory, hitting savings collected over of a lifetime of labor. "About 75 million people above 60 in India suffer from some chronic disease, shows the first part (2017-18) of the world's largest study on the aged -- the Longitudinal Aging Study in India (LASI)" and 78% over the age of 60 years get no pension. Price of petrol in Delhi shot up to a record high of Rs 84.20 so that "central government's receipts from excise duty, the bulk of which comes from petrol, diesel, and crude oil, saw a sharp 40% year-on-year jump in the first seven months of this fiscal year". When the government and the RBI conspire to extort as much as possible from the people there is no avenue of escape. People try to protect what little they have by buying gold. They say the economy is growing. Strange.              

Why no atmanirbhar in finances?

"For most investors, equities are the only game in town precisely because the current Fed (US Federal Reserve) has pretty much said that far from taking the punch bowl away, it will pour as much of the hard stuff as it can keep markets partying," wrote Richard Cookson. Foreign portfolio investors (FPIs) poured over Rs 1.53 trillion into Indian share markets in 2020 which closed at record highs yesterday. FPIs invested Rs 51.56 billion in the first week of January 2021. "On 18 December, the price to earnings (PE) ratio of the Nifty 50 stock market index reached an all time high of 37.84," wrote Vivek Kaul. "Last year, the Fed went all in by buying corporate bonds, there by cutting corporate borrowing spreads," wrote Cookson. "Flows into equity exchange-traded funds smashed records. So did issuance of investment grade and high-yield debt." "Junk bond issuers borrowed $432 billion in the US alone." The Reserve Bank of India (RBI) has refused to sell bonds at higher yields. "The devolvement at four consecutive auctions led bond traders to conclude that RBI does not want the 10-year bond yield (or interest rate) to cross 6%," wrote Aparna Iyer. One reason for high share and bond prices is that the RBI has "flooded the financial system with money. The total liquidity support announced between 6 February and 30 September 2020 was Rs 11.1 trillion." Trying to force lending rates down to help government borrowing is one thing, but how do you control it from collapsing? "Alarm bells must have started ringing on Mint Street (RBI headquarters) overnight after lending rates dropped below RBI's reverse repo rate of 3.35%," wrote an editorial in the Mint. "With overnight rates going below even reverse-repo rates, neither the MPC (Monetary Policy Committee) nor RBI seem to have a handle on the market. This could be the final straw." "The continuing overhang of excess systemic liquidity, estimated at around Rs 8 trillion, has depressed interest rates in the short-term, but also threatens to ignite inflationary fires in the medium-to-long term." "The banking stability indicator has improved on all five parameters but as investors chase returns in the low interest-rate scenario, the disconnect between the real economy and the financial markets is getting worse, the central bank said in its Financial Stability Report (FSR) Monday." "Real interest rates on bank deposits in India are currently in negative territory," and this is fueling a bubble in asset prices. How do you undo the damage without a collapse of the market? "I think inflation is about to pick up sharply, especially in the US, a problem compounded by the falling dollar," wrote Cookson. If that happens, the Fed will have to increase interest rates and there may be an outflow of dollars as in August 2013, known as 'taper tantrum'. The RBI has been accumulating dollars for that eventuality. Foreigners are taking charge. If you do the same as the US don't blame the world if the economy turns turtle. Should have been atmanirbhar in finances as in manufacturing. Be consistent.       

Democracy is the biggest irony in the world.

"A 45-year-old immigrant from India and Twitter's top lawyer, Vijaya Gadde, spearheaded the decision to permanently suspend US President Donald Trump's Twitter accounts." "US House Speaker Nancy Pelosi said Sunday she would push ahead with efforts to remove President Donald Trump from office during the final days of his administration after his supporters' violent attack on the Capitol." Trump is blamed for exciting his followers to attack US Congress after claiming that Democrats stole the election held on 3 November. Four people died in the incident, including a 35 year old veteran of US Air Force, shot by the police. Many officials in Trump's cabinet resigned following the assault on Congress.Worst dictatorships of the world, like China and Iran, are enjoying US discomfiture. However, "The key question to be asked now is whether Trump's successor will have the toughness to take on China, who, under Xi Jinping, allowed the coronavirus to spread worldwide from the wet market in Wuhan," wrote Raghu Krishnan. To hide its crimes China denied entry to a team from the World Health Organization (WHO) and then proceeded to lie about reasons for doing so. Political leaders of many countries expressed their horror for this "attack on democracy" and called for orderly transition of power. Problem is that democracy has come to mean winning an election every few years for one group of politicians to enjoy enormous power and privilege till the next election. British Prime Minister Boris Johnson condemned "disgraceful scenes" and called for "peaceful and orderly transfer of power", while Scottish First Minister Nicola Sturgeon found events "utterly horrifying". Sturgeon wants a referendum in Scotland on independence from the United Kingdom after Brexit, but Johnson has said that another independence referendum will not be allowed till at least 2050. This despite the fact that 62% of Scots voted against Brexit but it scraped through because of higher population of England and Wales. "But let's not forget that fundamental institutions of checks and balances still held firm in the US," wrote Sandip Roy. Arhitiyas in Punjab have been raided by Income Tax officials after supporting farmers' agitation. "Most of the arhitiyas who faced raids informed that some officials of the I-T team told them that they found no reasons to conduct the raids but have to follow the instructions of their bosses." Many of India's current draconian laws have their ancestry in the British era where they were very frankly instruments of repression," wrote Manoj Joshi. The US President is not above the law. But our politicians are. There is no freedom in India, wrote Tavleen Singh, because "Modi has done more to curb press freedom than any prime minister since Indira Gandhi". The loudest voices for democracy come from countries where freedom is curtailed. It is the greatest irony. 

Shouldn't we protect the trust in our vaccines?

"The controversy over speedy approval for Covaxin developed by Indian Council for Medical Research (ICMR), National Institute of Virology and Bharat Biotech exemplifies the risk of damage to the nation's vital interests that single-minded criticism of the government entails," thundered an editorial in The Economic Times. "Opposition parties must give up their knee-jerk response of spreading doubt to delegitimise every effort made by the Modi administration." Then it suggests that the government could have communicated better with the public and the regulator could have published all trial data so that experts could give their opinion. "The recommendations of the Indian drugs regulator's subject expert committee (SEC) released on Tuesday  show that the panel asked Bharat Biotech International Ltd to present more efficacy data for its Covid-19 shot before it could consider approving the treatment," reported Reuters. "The very next day, the committee recommended approving Bharat Biotech's vaccine for 'restricted use in emergency situation in public interest as an abundant precaution'." "How can a coronavirus vaccine be cleared for emergency use by millions of vulnerable people in a 'clinical trial' mode?" asked the BBC. Dilip D'Souza explained the trial numbers. "Covaxin's Phase 1 trial was registered on 1 July 2020." It was to run for 15 months on 1,125 volunteers. Phase 2 was registered just over two months later on 8 September to run on 124 volunteers for 8 months. Phase 3 was registered on 9 November to run till 9 November 2021 on 25,800 volunteers. It has been approved for 1.4 billion people when not even Phase 1 has been completed.  "Covaxin is made of an inactivated vaccine, meaning the vaccine is made up of the virus that had been killed and can no longer cause infection," explained The Print. "On 22 December, Bharat Biotech published data from its phase 2 trial with a follow-up on its phase 1 trial, on a non-peer reviewed website." Suspicion is justified by a letter written by Director-General of ICMR Balram Bhargava in July asking for all trials to be completed by 15 August 2020, India's Independence Day, and threatening "non compliance will be viewed very seriously". "Like many things in India nowadays, the science of vaccine approval has also run into the politics of chest-thumping nationalism," wrote Andy Mukherjee. "China and Russia appear more desperate to beat the West in saving the world," but " as Clara Ferreira Marques has noted, both these countries' vaccine candidates face a transparency deficit, which could limit their global acceptance. That's a risk that India, which manufactures more than 60% of the world's vaccines, should avoid at all cost." This is the only thing that we manufacture better than China. Should we sacrifice it on political propaganda?   

Indians are highly susceptible to bromide.

"We have retained our growth for the current financial year at -7.6 percent, but there are signs, beginning in late November of a stronger economic recovery. Our 2021-22 GDP growth forecast is at 11 percent plus," wrote Saugata Bhattacharya. Based on "signals from an extensive set of 39 leading and concurrent indicators which we track," show that "economic activity has pretty much come back to pre-lockdown levels". First, half of electricity "demand is from industry, suggesting that activity has accelerated across all geographies". "India's power consumption grew by 6.1 percent 107.3 billion units (BU) in December, showing spurt in economic activities, according to official data." But, "Power producers' total dues owed by distribution firms rose over 35 percent to Rs 1,41,621 crore (Rs 1.41621 trillion) in November 2020, reflecting stress in the sector." Second, "Mumbai, a weather vane of overall housing demand, recorded a massive increase in registrations (and hence sales) of housing units." "The last few months have seen the luxury home buyers making a comeback after the pandemic enforced lockdown made many buyers defer their buying decisions." The Maharashtra government has earned Rs 3.67 billion by reducing stamp duty on real estate by 3%, from 6% to 3%. Since properties in Mumbai are the most expensive in India, a 3% reduction in tax amounts to considerable savings, and this, along with negative real interest rate, is a great incentive for the wealthy to invest in real estate. However, "Housing sales in the national capital region (Delhi-NCR) plunged 50 percent year-on-year during the 2020 calendar year to 21,234 units on low demand," and "sales of residential properties fell 37 percent to 1,54,534 units in 2020 across eight major cities as compared with 2,45,861 units in the previous year". Third, "digitalisation and big-tech developments of the last few years". "The Direct Benefits Transfer (DBT) initiative is a technology induced step in improving financial inclusion among other stated goals," wrote R Narayanan and S Dhorajiwala. "More importantly, the workers/beneficiaries have rarely been consulted regarding their preferred mode of transacting. This has created new forms of corruption as has been recently evidenced in the massive scholarship scam in Jharkhand, where many poor students were deprived of their scholarships owing to a nexus of middlemen, government officials, banking correspondents and others. These exclusions are digitally induced." If recovery is broad-based why has unemployment rate risen "sharply to 9.1 percent in December 2020, highest since the beginning of India's recovery from lockdown in June, the Center for Monitoring Indian Economy (CMIE) said on Monday". Why tell people they are better off when clearly they are much worse off? Because bromide works. In India.             

It is the Chinese virus, after all.

 "An international panel of scientists and social scientists, convened by the Wellcome Trust, recently constructed four pandemic scenarios," wrote Erik Berglof. "Not even in the most optimistic of the four scenarios -- characterized by a relatively stable virus, effective vaccines, and improved antiviral therapies -- will SARS-CoV-2 be eradicated in all five settings within five years, though community transmission could be eliminated within certain boundaries." "Already, the pandemic is fueling inequality both among and within countries. Wealth has amounted to the most potent protection from covid-19, as it facilitates social distancing and all but guarantees quality health care." "In the year leading up to the covid-19 crisis, 84% of stock market wealth in the US was held by 10% of shareholders (and 51% by the top 1%) whereas the bottom 50% held barely any stock at all," wrote Prof Nouriel Roubini. In India, stock markets have been hitting record highs almost everyday despite the pandemic. New investors are piling into stocks because they are working from home and most have seen a drop in earnings. "Industry data showed that a million new dematerialised or demat accounts  were opened for a fifth straight month in October, taking the total tally to 47.6 million." "And the action is shifting from metros to tier II and III cities, which is a positive sign, say brokerage firms. More demat accounts in non-metros reflect deeper penetration of equity markets." This means a large number of people will lose money when the market tanks. "In the seven-month period between April and October, when businesses were shut and jobs were lost," "the top 50 companies in India's stock market increased their value by $200 billion combined," wrote Praveen Chakravarty. "Excesses of financialization and financial markets are a real threat to social stability and harmony, not just in India but in many other countries such as the United States and United Kingdom." "Globally, private and public debt has risen from 320% of gross domestic product (GDP) in 2019 to a staggering 365% of GDP at the end of 2020," wrote Roubini." "Over time, the world will be firmly divided between two competing systems -- one controlled by the US and Europe, and a few democratic emerging markets, the other controlled by China, which by then will dominate its strategic allies (Russia, Iran, and North Korea) and a wide range of dependent emerging markets and developing economies." India was given a bloody nose by China, wrote Prof Brahma Chellaney. "In the previous six years, Prime Minister Narendra Modi had met with Chinese President Xi Jinping 18 times, in the hope of fostering friendlier relations (and weakening the China-Pakistan axis)." But China occupied Indian territory in Ladakh, Having sickened the world China will gain. Rest will suffer. Or fight.   

Of, by and for the people cannot be transplanted on India.

Prof Arvind Panagariya makes four recommendations for the Union Budget to be presented by Finance Minister Nirmala Sitharaman on 1 February 2021. "One, in the next six months, the government must speedily clear the payments it owes in the form of pending tax refunds, overdue GST revenue to states and payments for goods and services received from private companies." That will need enormous revenues. "If the gross domestic product (GDP) for this year contracts by 10% over last year, the government will lose an estimated Rs 5 trillion (or $60 billion) in potential tax income," wrote Prof Amir Ullah Khan. "An estimated 190 million Indians sleep hungry on most days." Hungry children or private companies? Tough choice. "Second, the government must recapitalise in advance public sector banks (PSBs) on a sizable scale." The Reserve Bank (RBI) has said that "banks will need additional capital of up to one and a half percentage points of risk weighted assets". "Given that total bank loans are around Rs 104 lakh crore, the capital requirement would be Rs 1 lakh crore (Rs 1 trillion)." To generate revenue, "Third, there is now little excuse for foot dragging of a large number of public sector enterprises (PSEs)." Prime Minister Narendra Modi should bypass bureaucratic hurdles and set up a disinvestment ministry like former PM Vajpayee did. But, it is not just bureaucrats. There are ministers who would see a reduction in portfolio without PSEs. In addition to Modi, there are 21 cabinet ministers, 9 minsters of state with independent charge, 6 of whom are also ministers of state under cabinet ministers, and 23 other ministers of state, making 53 in all. If petroleum, natural gas and steel are privatized Mr Dharmender Pradhan will have nothing to do, as will Mr DV Sadanand Gowda if chemicals and fertilizers are sold off. In the US, a $21 trillion economy in 2019 according to the World Bank, the President appoints 15 Secretaries in the cabinet and 7 officials of cabinet rank, making 22 in all. There are an additional 20 heads of various departments. "Finally, in the Budget, the government must commit to a program of phased tariff reductions such that average tariff comes down to 10% from its current level of 14% by 2024." The outgoing US Ambassador to India Kenneth Juster said that the two sides could not finalise even a "small trade package" because of "growing restrictions on market access for some US goods and services, increasing tariffs, new limitations on free flow of data and 'less than predictable regulatory environment for investors'." The US is one of very few countries with which we have a positive trade balance, which was $28.8 billion in 2019. Modi believes that all Indians cheat on taxes which led to demonetization of high value banknotes in 2016. The government is constantly seeking to 'widen the tax base', when the vast majority of Indians earn less than the threshold for income tax, wrote Praveen Chakravarty. Panagariya has been out of India too long. He has probably ingested the "of the people, by the people, for the people" opium. In India, it is for the government, by the police, up the people.

Short term gain for long term pain?

In the annual game of speculation about the Budget, SN Sharma advises the Finance Minister Nirmala Sitharaman to analyse what previous finance ministers did in times of crisis. The natural tendency is to ask citizens to sacrifice by paying higher taxes. Already a surcharge ranging from 10% to 37% is levied on those earning from above Rs 5 million to Rs 100 million. People over the age of 60 years have to pay tax on income above Rs 300,000, instead of Rs 250,000 for those younger than 60 years of age, but receive no pension or healthcare guaranteed for all elected politicians for life. While most are arguing for increases in personal and corporate tax rates, economist Pronab Sen feels that "The economy itself is the patient today. The budget can't tap into this economy to save the economy." The government must increase expenditure on investment in infrastructure and development, wrote Prof Amir Ullah Khan. "A one percent slowdown in growth rate in India typically results in a 0.5% decrease in employment potential." "An estimated 190 million Indians sleep hungry on most days." Businesses have to comply with too many regulations. To manufacture cosmetics, "As I went through the Gazette Notification, I was struck by what can only be called an Orwellian obsession with details, with rules for manufacturing space and laboratories, for the maintenance of equipment, etc," wrote Prof VA Nageswaran. "The Indian regulatory landscape has 1,536 Acts, more than 69,233 compliances and 6,618 regulatory filings across the Center and states," wrote Remya Nair. The US has only 3 pages of regulations on cosmetics and "About 97% of the toiletries, perfumes and cosmetic products that have commercialization authorized in Brazil are exempt from registration". Regulations are to trap people into breaking the law. Although the "IHS Markit's Manufacturing Purchasing Managers' Index (PMI) rose from 56.3 in November to 56.4 in December" there is concern about rising input prices. While inflation eased in most countries due to the pandemic it remained higher than the upper limit of 6% for India. As the global economy begins to grow again prices of commodities are rising which can only add to inflationary pressures. The Nomura Business Resumption Index for India reached its highest level of 94.5 for the week ending 3 January but labor force participation rate (LFPR) fell to 40.3% from 40.9% in December. The Reserve Bank has flooded the market with cash. "The size of the India's central bank's balance sheet has increased by Rs 14.2 trillion since December 2019 -- from Rs 42.6 to Rs 56.8 trillion," wrote Niranjan Rajadhyaksha. That is causing inflation. With elections coming up in 4 large states in April-May what will Sitharaman do? Increase handouts or increase taxes? Inflation or unemployment? Conundrum. 

Biden will increase China's danger.

Instead of slowing down due to the coronavirus, "Exports from China increased by 21% in November and the country is the only large economy in the world on track to register growth in 2020 of about 2% and likely 8% in 2021," wrote Rahul Jacob. "In fact, China's global trade surplus for the first 11 months of 2020 was $460 billion, up by a fifth. The surplus is more than India's total annual merchandise exports." "China, over the past year, has strategically captured the entire supply chain of the US, making it vulnerable and dependent on Beijing, said Lucas Kunce, the national security director at the American Economic Liberties Project. "Last week, in another major setback for China, the US designated 58 Chinese companies out of 103 companies as foreign entities with military ties thereby restricting export, re-export and transfers with them." "The New York Stock Exchange plans to delist three state-owned Chinese telecommunications companies from US stock exchanges by Jan 11, following President Donald Trump's November executive order prohibiting US investment in companies that Washington says support the Chinese military." A change of administration to Joe Biden will not change US suspicion of China as new legislation "could remove Chinese companies from US exchanges if American regulators are not allowed to review their financial audits". The European Union (EU) has rushed to conclude an investment deal with China before Joe Biden is sworn in as president. "For the EU, this was an opportunity to display its 'strategic autonomy' in foreign relations before the US administration set in. For China, it was a way to drive a wedge between the EU and the United States." At home, "In just five years, China says it has lifted from extreme poverty over 50 million farmers left behind by breakneck economic growth in cities." Local cadres fanned out to identify impoverished households -- defined as living on less than $1.70 a day. They handed out loans, grants and even farm animals to poor villagers. Officials visited residents weekly to check on their progress." "The Biden administration is likely to retain the tariffs and technology restrictions and the forward posture in the South China Sea and then negotiate a rollback of tariffs in exchange for Chinese cooperation in a range of areas like climate change, pandemics and international trade," wrote Manoj Joshi. "As for India headwinds will only increase in the coming years." Ominously for India, Chinese President Xi Jinping has assumed total control of the military which probably portends more aggression against neighbors, including India. Biden will need to form a coalition of democracies to confront China's territorial ambitions, wrote Shreejay Sinha. But, does he have the nous?    

When there is so much smoke, there has to be a fire.

Farmers are suspicious of the new farm laws. "The protesting farmers fear they could be exploited by private players who buy crops at cheap prices," reported The Washington Post. "But there is one, somewhat disturbing, quality of the discourse at the protest site and in Punjab that merits more scrutiny," wrote Chanakya. "In the process, they have adopted a rhetoric that is opposed to Indian capitalism in general, and specific corporate groups perceived to be close to the government and beneficiaries of the government's approach in particular. This has even taken form of calls for mass boycotts of corporate products and sporadic attacks on corporate assets." "Farmers and their kin have allegedly cut the power supply to a little over 1,500 Reliance Jio mobile towers amid the ongoing protest against the Centre's farm laws." Andy Mukherjee agrees with the farmers. "Like in South Korea, people may one day realize how a few conglomerates are sapping the entrepreneurial energy of everyone else. By then, it will be too late, and the country may be burdened with the equivalent of a 'chaebol discount'." "The private sector is much more than the price for the farm produce, it's much more than a guaranteed MSP, and it's much more than Jio. For starters, it's the first step towards being 'Atmanirbhar' (self-reliant), as a farmer, as a community of farmers, and consequentially as a nation," fulminated Tushar G. "There has been no democracy which has grown economically without corporate capitalism." "Contrary to what is often believed in India, corporate capitalism can even aid, rather than, weaken, democracy," wrote Chankya. Trouble is  that India is not a capitalist state. Socialism was written into our Constitution by former Prime Minister Indira Gandhi. "It means that the socialist economic construction will be based on the socialised means of production and central planning," wrote Communist leader Sitaram Yechury. "The market forces, however, shall be subsumed under the guidance of central planning." Former Chief Economic Adviser Arvind Subramanian said that opinion of the Indian public "has changed from the popular 'crony socialism' to 'stigmatised capitalism'. "The survey said that the public formed a negative perception of the Indian capital which was little liability instead of limited liability." Regarding hate speech rules on Facebook, it's powerful director of public policy for India, South Asia and Central Asia Ankhi Das allegedly told "staff members that punishing violations by politicians of Mr Modi's party would damage the company's business prospects  in the country, Facebook's biggest global market by number of users", reported the Wall Street Journal. "We lit a fire to his (Modi's) social media campaign and the rest of course is history," wrote Ankhi Das in an internal memo to the company's employees. Modi introduced 'electoral bonds' with just one purpose: "To conceal the identity of the donor of political funds". India's politicians and business fellows have been scratching each other's backs since the beginning. Now, they are 'butt buddies'.          

Legions of devotees. Why should he care?

Punjab farmers, protesting against new farm laws at the borders of Delhi, have sent legal notices to 2 union ministers Giriraj Singh and Nitin Patel as well as to BJP leader Ram Madhav "seeking unconditional apology and unambiguous withdrawal of the alleged defamatory and derogatory statements made by the three leaders". Earlier, BJP leaders alleged that farmers are linked to Sikh separatist movement of Khalistan. To counter false propaganda from the government an alliance of farmers' groups called Kisan Ekta Morcha has launched a Facebook page, which has 312,000 followers, and its channel on YouTube has 1.22 million subscribers. Data released by the fifth National Family Health Survey (NHFS5) shows an increase in child malnutrition in some states between 2014 and 2019. In NHFS4 survey in 2015-16, 36% of children in India were underweight, more than Bangladesh at 22% and Nepal at 27%, wrote Prof Jean Dreze. The present survey shows that "Child nutrition indicators have not improved between 2015-16 and 2019-20." Economist Surjit S Bhalla, an ardent supporter of Prime Minister Narendra Modi, took exception to Dreze's analysis. Actually, "The data show that there has been considerable improvement in many of these 131 indicators of social welfare" and the article by Dreze is full of "typos, falsehoods, misinterpretation of the data". He is disgusted that "Not one of the authors looked at the data on wasting (weight for height)." In his rejoinder Dreze notes that "this is not Bhalla's first self-goal". He dismantles Bhalla's arguments and writes, "I ignored wasting because it is a tricky indicator of child nutrition: It has the odd effect of classifying stunted children as well-nourished if they have adequate weight for their height." Former Broadcast Audience Research Council (BARC) Partho Dasgupta was arrested on 24 December for taking hundreds of thousands of rupees from editor-in-chief of Republic TV Arnab Goswami to alter its viewership ratings. In November, Arnab Goswami, another ardent supporter of Modi, was released on bail by the Supreme Court after being arrested for abetting suicide of Anvay Naik and his mother in 2018. At this, Supreme Court Bar Association President Dushyant Dave wrote a letter to the secretary general of the court expressing "strong protest" at the expedited hearing of Goswami's case. In the last few years, the Supreme Court has displayed "judicial evasion, judicial deference, and judicial inconsistency" and "The effect of each one has been to benefit the State,"wrote Gautam Bhatia. "Modi has done more to curb press freedom than any prime minister since Indira Gandhi. Foreign correspondents who have written critical pieces on him have found restrictions imposed on their visas. Within India editors have been summarily dismissed for having the wrong attitude," wrote Tavleen Singh. Non-stop propaganda through complete control of the media, a compliant judiciary and surveillance of citizens using any excuse, has elevated Modi to the most popular leader in the whole world. He can do whatever he likes. He does.    

Shouldn't Indians expect anything more than food?

"India has kept its fiscal stimulus at no more than 2% of GDP. I have been a critic of this," said SA Aiyar. "If you do not have a large enough fiscal stimulus, you will not revive the economy fast enough either." But now he thinks that "India has proved far more resilient than expected", "despite having the smallest fiscal stimuli among major nations" and " Indian growth was steadily falling even before the pandemic -- from 8.3% in 2016-17 to 7%, 6.1% and 4.2% in subsequent year".   "In March Aiyar wrote that the fiscal package was "Outrageously small," and "At least triple the relief package and put more money into the bank accounts of the needy." "This mega stimulus should be financed by RBI, just printing the money needed." So, why the change of tune? Because, "Inflation has exceeded the RBI's range of 2-6%." This is mainly because of high vegetable prices and exorbitant taxes on fuel in excess of 60%. Which should be a big relief because earlier we were paying 275% taxes on petrol. Although price stability is important, for India, "there is enough empirical evidence to suggest that a 4% inflation rate is too low a target", wrote Prof VA Nageswaran. The Monetary Policy Committee (MPC) of the Reserve Bank (RBI) may have been too focused on inflation which may have affected growth of the economy, wrote Bhattacharya, Kwatra and Devulapalli. Governor of RBI Prof Raghuram Rajan's contract was not renewed because of his public comments and "growing frustration in the government, especially in the Finance Ministry that was led by Arun Jaitley at that time, about the RBI not bringing down interest rates in the economy", wrote Udit Misra. Rajan was replaced by Urjit Patel, who resigned, and retired IAS officer Shaktikanta Das was appointed Governor of RBI to "repeatedly cut the repo rate" as he was expected to do. Naturally, barring March 2020, inflation has stayed above 6% since December 2019 and growth has not picked up as well. Now the RBI is worried that interest rates have been cut too low and this is a threat to financial stability. A research paper from the RBI itself recommends that inflation target should remain at 4%. Because "Experts believe retail inflation is likely to average 6.3 percent this fiscal and mostly will remain sticky going forward owing to pick-up in demand across sectors." The accepted wisdom is that the RBI consistently  overestimates inflation by focusing on household inflation expectations which is based mainly on food inflation. Food and beverages constitute around 45% of the basket of items in the consumer price index (CPI), but since this is dependent on supplies, which depends on rainfall, it cannot be controlled by raising rates, which damages growth without controlling inflation. GST collection rose to a record high of Rs 1.15 trillion because of 27% increase in import duties, resulting from an increase in tariffs on imports. Naturally, when cost of imported goods rise, local manufacturers also raise prices, which increases tax collections. By concentrating on food and ignoring other household goods and services, it maybe that the CPI is underestimating rise in prices. After all, man shall not live by bread alone. RBI is right to be alarmed.      

What happens when reality catches up?

Share markets in India will be starting the new year at record levels. Foreign portfolio investors (FPI) bought Indian equity worth net Rs 1.70 trillion while they sold debt worth net Rs 1.05 trillion. Possibly because the rate of interest is at 4%, while retail inflation was at 6.93%, lower than 7.61% in October, but higher than the upper tolerance limit of 6% for the Reserve Bank (RBI), compared to 1.2% over twelve months to November 2020 in the US. Negative real interest rates in India allows businesses to borrow cheaply, thus reducing their costs. "In India, the net profits of listed companies grew 25 percent (in real terms) last quarter. This despite revenues shrinking because firms aggressively cut costs, including employee compensation," wrote Sajjid Z Chinoy. Higher profits mean higher dividends which maybe why share prices are skyrocketing. "Equity issues apart, this portends ominously for future demand." "The combined net profit of listed companies reached a record Rs 1.52 trillion -- up two and a half times on year-on-year (YoY) basis." Hindustan Unilever and Infosys joined Reliance Industries, Tata Consultancy Services and HDFC Bank to end the year with a market capitalisation value of Rs 5 trillion. High inflation in India compared to the US means the rupee will have to adjust downwards against the dollar at some point, and this along with negative real interest rates maybe the reason why FPIs are net sellers of debt. More ominously, "With the post-tax return on fixed deposits plummeting to 4%, way below consumer inflation, more and more investors are driven towards equities, notwithstanding the risks," wrote an editorial in The Economic Times. "But a number of market experts say while Indian equities are a dearer bet, they are not in bubble territory," wrote Harsha Jethmalani. Even if the economy returns to prepandemic level next year "profits of listed firms may grow at a much faster pace," because, "The brunt of the slowdown has been borne by much smaller firms, mostly privately held, according to Credit Suisse research." "On 18 December, the price to earnings (PE) ratio of the Nifty 50 stock market index reached an all-time high of 37.84," wrote Vivek Kaul. This is because it is easy to trade online at low cost, because FPIs have "invested $28.66 billion in Indian stocks since April, the highest they ever have during a single financial year, and because of first time investors who are called Robinhood investors. This is the Druesenberry effect in which "individuals who get used to a certain level of income ... find it difficult to reduce their spending when their income level declines". "The large contrarian bet taken by India's Robinhood in April to June 2020 seems to have paid off" because of the huge rise in share prices, wrote Neil Borate. What happens when reality catches up? Poor Indians!          

Should refugees be taxed?

The Chilkur Balaji Temple near Hyderabad has "gained popularity as the Visa Temple because its devotees believe prayers to the deity here for a US visa rarely go unanswered", wrote Sanjaya Baru. "Studies show that Indian students remit anywhere between $10 to $13 billion annually as tuition fee abroad." Remittances into India from Indian expatriates was $83 billion in 2019, highest for any country, but is expected to fall by 23% to $64 billion in 2020 because of the pandemic. A large chunk of this comes from the Gulf, mainly from manual laborers, who send a large portion of their earnings to families back in India. "The out-migration of educated and skilled Indians that is not balanced by a return flow of income, knowledge, investment and talent, constitutes both a drain of cash and brain power," wrote Baru. The Indian Express tracked down "86 men and women who stood first in India, between 1996 and 2015, in their Class 10 and 12 exams conducted by the Central Board of Secondary Education (CBSE) and the Council for the Indian School Certificate Examinations" and found that, "More than half the toppers live overseas today, the US being the destination of choice." Baru found it is much worse. "Data collected by this writer from a couple of high-profile private schools in New Delhi show that while around the turn of the century about 20 percent of their high school students went abroad for graduate studies, the number shot up to close to 50 percent by 2010 and to 70 percent in 2019." Baru strongly recommends a 'brain-drain tax' proposed by economist Jagdish Bhagwati in the 1970s. "In his academic publications as well as in his writings for the popular press, Bhagwati was a forceful advocate for free trade and globalization," wrote the Encyclopedia Britannica. Globalization for the world and ghettoization for India. Patriot. But how will Baru tax those paying Rs 600,000 to Rs 1.2 million to people smugglers to be smuggled into Guatemala and Rs 2.5-3 million for the US. If these people can gamble so much money to pay smugglers they are not the malnourished poor of India. Delhi, Gujarat, Prime Minister Narendra Modi's state, and Mumbai have the highest per capita GDP in the country, so why do people flee these states? This tragedy was a little girl from Punjab. Over 800,000 Indians are desperately waiting for a green card which allow them to live and work in the US. More than a better life, these people will do anything to avoid returning to India. Why? Modi wiped out 86% of India's cash with just 4 hours notice on 8 November 2016, and imposed the strictest lockdown with 4 hours notice on 24 March 2020 when coronavirus cases were just around 500. Videos of policemen sanitizing sticks to beat people with went round the world. Indians escaping abroad are refugees. You shouldn't tax refugees.          

Words coming back to bite.

"Th government has used financial innovation to recapitalise Punjab and Sind Bank by issuing the lender Rs 5,500 crore (Rs 55 billion) worth of non-interest bearing bonds valued at par." "Though these will earn no interest for the subscriber, market participants term it both a 'financial illusion' and 'great innovation' by the government where it is using Rs 100 to create an impact of Rs 200 in the economy." These bonds cannot be traded and will mature in 10-15 years. In 2007, one dollar bought Rs 40, today one dollar buys Rs 73. If these bonds cannot be traded they have no market value, they pay no interest and their value at maturity could be halved if the rupee falls in value, then how do they improve the credit rating of the bank? Mystery. The government maybe resorting to sleight of hand because it has to borrow Rs 12 trillion instead of a budget estimate of Rs 7.8 trillion in the financial year 2020-21, and last week, Cairn Energy announced that "it has won the arbitration against the Indian government over a tax dispute arising from demand of $1.2 billion from tax department on listing of Indian operations back in 2007". Now India has to pay $1.2 billion to Cairn along with interest. The three-member tribunal at the Permanent Court of Arbitration in The Hague, which "consisted of one member appointed by the Indian government", quoted the election manifesto of Prime Minister Narendra Modi's party BJP in the 2014 general election, former Finance Minister Arun Jaitley and Modi himself, who promised that the government "will not resort to retrospective taxation; we are making our tax regime transparent, stable and predictable". Earlier, Vodafone won its arbitration against a retrospective tax demand of $2 billion in the same court and the government was ordered to pay $5.47 million as compensation to cover Vodafone's legal costs. The government refuses to see sense. "India has challenged an international tribunal's verdict in favor of British telecom giant Vodafone Group in a case involving a Rs 20,000 crore demand from the Indian income tax authorities, in Singapore, government sources," even though our own Supreme Court found in favor of Vodafone way back in 2013 when the previous Congress-led UPA government was in power. "For the government, businesses using past bilateral investment protection agreements to seek damages for tax demands infringes on its sovereign right of taxation, can't be allowed to go uncontested," wrote Gireesh Chandra Prasad. The government cannot win. It can renegotiate all the past trade agreements which could result in a fall of investment by foreign companies and retaliatory measures by other countries. At the very least it should respect our Supreme Court judgement and stop wasting taxpayer money on lawyers. Who knew foreigners will use Modi's own words against the government? Words more dangerous than sticks and stones, it seems.         

Who has enough wealth?

"India is one of the worst affected countries due to coronavirus but it'll become the world's fifth largest economy by 2025 and the third largest by 2030 after overtaking the UK in 2025, a UK-based think tank has said. As per the Centre for Economics and Business Research (CEBR), India will surpass Germany in terms of GDP by 2027 and Japan by 2030." Very reassuring indeed. "Abstracting from the inherent flux in high frequency indicators, the underlying trend would reveal that the pick-up in momentum of economic activity that commenced with the second half of 2020-21 is sustained," RBI said. Quite. Though volatile the economy is picking up, says the Reserve Bank (RBI), but future growth depends on whether the government provides a fiscal stimulus and on whether consumer inflation remains under control. After contracting by 23.9% in the first quarter, the Indian economy contracted by 7.5% in the July-September quarter as compared to the same quarter last year. JP Morgan's estimates suggest that on a quarterly basis, India's GDP plunged 25% in the 1st quarter of 2020-21 and recovered by 21% in the second quarter. "India did not suffer two consecutive quarters of negative growth, and, therefore, is not in a recession," wrote Jahangir Aziz. What is required is extensive income support immediately. If the government won't, can the rich get the economy growing faster by spending more? asked Roshan Kishore. "The pain has gone down to the bottom 30%-40% of the enterprises and individuals. While from an inequality perspective that is a disastrous outcome, from an economic momentum perspective that is actually the best possible outcome," said Neelkanth Mishra. This is because "The top 10% of the Indian economy consumes more than the bottom 50%," and these people have seen their savings grow. However, "The top 8% of salary income earners had a share of just 14% of PFCE (private final consumption expenditure) . This is less than even 10% of the overall GDP." The rich cannot stimulate growth, only the government can.  2020 showed the power of the Indian State, wrote Prashant Jha. "The State decided what would be the protocol for testing citizens for Covid-19, who would be prioritised in terms of treatment, what would be the manner of differential treatment, who got admission to hospitals and who had to wait." But it was spectacularly absent when millions of jobless migrants walked hundreds of miles back to their villages because "it was not the sarkar, the government, but their samaj, the community back home which inspired hope". Those who stayed back in cities have suffered. "The urban poor faced the brunt of job losses during the pandemic and saw their incomes plunge the most," wrote Nikita Kwatra and Tauseef Shahidi. "Among whose who earn less than Rs 20,000 a month, 11% of those without a professional degree reported losing their jobs. In the same income bracket, only 5% those with professional university degrees lost their jobs the data shows." Post Brexit Britain wants a trade deal with India so no harm in a bit of old fashioned buttering. CEBR trying to help.         

Payment for karma cannot be avoided.

2021 is going to be electorally tough for the BJP, the party of Prime Minister Narendra Modi, feels SA Aiyar. "The biggest battle will be in West Bengal, where the BJP will lose despite high hopes after a great Lok Sabha performance in 2019. Along with its local ally, the AIADMK, the BJP will be thrashed in Tamil Nadu and Puducherry. It will also, as usual, be drubbed in Kerala. Only in Assam are its re-election prospects good." "The footprint of the BJP over Indian states has been shrinking since 2018." "The BJP's electoral success is largely attributed to Mr Modi's charisma and the politics of religious polarisation and strident nationalism," wrote Soutik Biswas. "In recent years, the BJP has also thrived on generous and 'opaque' funding', and the unwavering support of a wide swathe of uncritical mainstream media." "Till the farmers brought their trolleys, tractors and their protest to the borders of Delhi, Narendra Modi had the image of being the the most powerful Prime Minister of India ever," wrote Tavleen Singh. "For the first time in seven years he is beginning to look weak. Not just because the farmers openly attack him personally on national television but because he seems no longer to know what to do." Farmers, mainly from Punjab and Haryana, have been protesting on the borders of Delhi for 33 days demanding repeal of 3 farm laws. The problem for Modi is that these farmers are rich and he cannot ignore them contemptuously as he did farmers from Tamil Nadu who desperately wanted help after a vicious drought in 2017. This time, farmers have set up a "protest town with a number of langars providing hot meals, makeshift toilet complexes, medical camps run by NGOs, laundry facilities and sleeping accommodation, whether in tents and in tractor trolleys". "The international non-governmental organisation Khalsa Aid has set up a Kisan Mall at Tikri border in Delhi to provide items of daily use to protesting farmers for free. The racks of the mall are stacked with everything from toothbrushes, soaps, oil, shampoo and vaseline to combs, mufflers, healing pads, knee pads, thermal suits, shawls and blankets." Modi wants to stop NGOs receiving money from abroad but he cannot stop these. "India's tougher rules on foreign funding for non-profits will severely crimp their activities, the chiefs of some bodies said" in September "after human rights group Amnesty International suspended its work in the country, citing government harassment", reported Reuters. There have been protests in London against Modi's treatment of farmers. There have been protests against Modi in the US only 4 months after the euphoria of 'Howdy Modi'. Sikhs are not Muslims, and the present protests could be a turning point for the Modi government, whether he stands firm or he gives in, wrote Prof Mohsin Khan. Modi has employed ruthless violence against anyone daring to oppose him, including inhuman treatment of those shoved into prison on charges of sedition. India is the land of karma and rebirth to pay for it. It will be a long reckoning.         

Banks will have more money when people have more. Only natural.

An Internal Working Group (IWG) formed by the Reserve Bank (RBI) released a paper recommending changes to the banking sector with a view to increasing the number of banks in India. The idea being that more banks mean more money which will mean more lending to businesses and more jobs, thus making India a wealthy nation. It does not say where the more money is going to come from seeing that "78% of the adult population have personal wealth below $10,000 or about Rs 7,30,000" according to the Credit Suisse report on global health in 2019. Non-banking financial companies (NBFC) and payment banks will be allowed to apply for banking licenses, but what generated the maximum controversy was the proposal that large businesses will be allowed to open banks. "The problem with banks owned by corporate houses is that they tend to engage in connected lending," wrote Acharya, Kelkar and Subramanian. "This can lead to three main adverse outcomes: Over-financing of risky activities; encouraging inefficiency by delaying or prolonging exit; and entrenching dominance." "Unfortunately, even if one were to be more charitable, the unmistakable feeling one gets from a careful reading of the report is that even as it urges reversal of the established practice of keeping banking out of bounds of corporate houses, it fails to give any convincing reasons why," puzzled Mythili Bhusnurmath. "Even more puzzling is that the recommendation makes the cut even though the report admits the 'prevailing corporate governance culture in corporate houses is not up to the international standard'." Profs Raghuram Rajan and Viral Acharya wondered, "How can the bank make good loans when it is owned by the borrower?" "Currently, India's banking system  as a percentage of gross domestic product (GDP) is just 70%," defended banker KV Kamath. "The only other large nation with rapid growth is China, which has a figure of 170%." "So, by China's benchmark, banking in India must become eight times its current size in the span of a decade." China's GDP is nearly 5 times that of India at over $14 trillion while India's is less than $3 trillion. China's foreign exchange reserve is $3,310 billion, again 5 times India's reserve of $581 billion. China's total exports are $2.49 trillion and total imports are $2.13 trillion, giving it a trade surplus of over $359 billion. In contrast, India's total exports are over $322 billion and our imports are $618 billion, giving us a trade deficit of just under $300 billion. While China's wealth is increasing, ours is leaking out to other countries. It's only natural that China's banks have more money. Kamath is putting cart before horse. First make citizens rich. Banks will be bursting with money.     

Can't blame capitalists for loving cronies. Can we?

"A groundswell of diverse voices seeking to reform capitalism, and radically alter how companies do business, has been growing over the past few years," wrote Rajrishi Singhal. In India, the Bombay Plan "forged a symbiotic, yet turbulent, partnership with government and, even though the association has waxed and waned over the past 75 years with ties periodically reset, the pandemic has now brought it to an interesting intersection". Hospitals and companies are charging usurious prices and large companies are elbowing smaller ones out. Andy Mukherjee warned against crony capitalism. "The worry is that dominance by a handful of capitalists may not leave enough space for others." "Barring some notable exceptions, the Indian business class is overextended, trapped in the debris of assets created with the help of syndicated loans from pliant state-run banks." "There are a few undesirable trends in some sectors where market share is becoming dominant with potential monopolistic trends," wrote VK Vijaykumar. "Another undesirable development is the monopoly trend in some crucial infrastructure segments." "The government has extended the moratorium on insolvencies by another 3 months to the end of March. Recently, Finance Minister Nirmala Sitharaman claimed, "I wouldn't hesitate here to say that we shall be the engine of global growth along with a few other countries," and Telecom Minister Ravi Shankar Prasad said, "Now I am pushing India to surpass China," in manufacturing mobile phones, wrote Rahul Jacob. Meanwhile, the fifth National Family Health Survey (NFHS 5) found that, "The share of children who were stunted (low height for their age) increased in 13 states, while the share of children who had low weight for their height increased in 12 states," reported the Hindustan Times. Improving nutrition in children below the age of 5 years have monetary benefits. "In India, the benefits ranged from anywhere between $45 and $139 for each dollar spent towards reducing child stunting," wrote Udit Misra. Rural India is suffering. "When compared to levels two years ago, too, the real wages of general agriculture laborers and non-agricultural laborers declined 0.2% and 0.8% per annum," wrote Prof Himanshu. Prime Minister Narendra Modi has "on multiple occasions, done his bit to exhort industry to invest", but they have chosen to donate "large sums of money to the PM Cares Fund (PMCF) while simultaneously laying off employees on grounds of revenue loss and inability to pay wages", wrote Singhal. The previous Congress-led government initiated many reforms which led to GDP growth of 6.9% in 2013-14 and 7.4% in 2014-15, wrote Arvind Mayaram. "The sudden negative shocks of demonetisation and hasty introduction of GST started the downward spiral which has led the economy into recession this year." So, resort to bombast. As long as it works.  

Fair or foul, the deed is done.

Britain and the European Union have reached a deal on Brexit, announced British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen, reported CNN. "Johnson claimed that the UK had achieved a 'Canada style' trade deal worth 660 billion pounds (US $893 billion) and addressed the agreement on fisheries -- a key point of contentions in the negotiations --  saying that the UK had taken back full control of its waters." Britain had to agree to customs checks between Northern Ireland and the rest of the UK so that there is no hard border between Northern Ireland and the Republic of Ireland which is a part of the euro zone. The Protestant Democratic Unionist Party (DUP) of Northern Ireland was totally against such an arrangement because it sees this as closer relation with the Catholic Republic than with the rest of the UK. However, Johnson had no choice because Democrat leaders in the US, including Speaker of the House of Representatives Nancy Pelosi and President-elect Joe Biden, warned there would be no trade deal with the US if the Good Friday Agreement, which ended years of civil strife in the North, was not respected. One big sticking point was on the rights of European boats to fish in British territorial waters. Apparently, British boats will have increased quotas from now on but final details are still unknown. "The UK government's Office for Budget Responsibility (OBR) forecast that, with a deal, Britain would see a loss of output of around 4% over 15 years compared to remaining in the EU," reported Reuters. The EU will lose around 0.38% and 280,000 jobs. The financial services industry is the largest business sector in the UK, giving it a trade surplus of $88 billion. "Under a system known as equivalence, access to EU markets will not be granted to banks, insurers and other financial firms based in Britain unless their home rules are deemed by Brussels to be 'equivalent', or as robust as regulations in the block." Britain appeared to negotiate in bad faith because Boris Johnson has always been highly critical of the EU and the dislike is mutual. In order to force the EU to give in, Johnson passed an Internal Market Bill which empowered  his government to change parts of the withdrawal agreement unilaterally. Instead, it was Johnson who got a huge dose of reality when 3,000 trucks piled up at Dover when France closed its border to stop a new mutant coronavius discovered in the UK and "British supermarkets warned of shortage of some goods just days before Christmas". This is a hard Brexit and there is "an avalanche of new trade barriers that is coming", wrote Faisal Islam. What is chastening is that Britain's trade with Europe is $893 billion and it has the liberty to agree deals with the US and the rest of the world, while India's total trade was just over $800 billion in 2019. Britain has a population of just 68 million, while ours 1,300 million. We really are dirt poor.  

Moratorium is just another word for evergreening. Isn't it?

"India's economic activity showed signs of stabilizing in November," as "All eight high-frequency indicators tracked by Bloomberg News were steady last month, keeping the needle on a dial measuring the so called 'Animal Spirits' unchanged at 5." "Animal spirits was a term coined by the famous British economist, John Maynard Keynes, to describe how people arrive at financial decisions, including buying and selling securities, in times of economic stress or uncertainty." Indian share markets are certainly showing signs of ferocious animal spirits by scaling record heights. "The contrast between the euphoric Indian equity market and anemic underlying economic growth is getting sharper by the day," wrote Harsha Jethmalani. "But a number of market experts say while Indian equities are a dearer bet, they are not in bubble territory." "The tally of newly incorporated companies, as well as electronic permits raised for transporting goods, declined on a sequential basis in November for the first time since April," reported the Hindustan Times. "In an in-house 'economic comeback indicator' that ranges between -2 and 10, Care Ratings has assigned a score of 2.62 for November." A case of glass half full. "With the post-tax return on fixed deposits plummeting to 4%, way below consumer inflation, more and more investors are driven towards equities, notwithstanding the risks," wrote an editorial in The Economic Times. "The story is playing out in a market that has run ahead of fundamentals: the Sensex is trading at 31-32 times its earnings against an average price-to-earnings multiple of 20 in the last two decades." The Sensex reached price/earnings ratio over 28 in 2008 and over 30 in 2018 and sharp corrections followed on both occasions. This time is much more hazardous as many people are playing with their savings after losing their jobs, so we can expect a wave of suicides if the market crashes. "A new study by economists at Denmark's central bank finds that the unusual monetary policy tool (negative interest rate) can encourage more investment and employment in an economy," wrote Nikita Kwatra. Negative interest rates are supposed to combat falling prices, or deflation, so if Danish companies are increasing production during falling prices that will only add to downward pressure on prices, though increasing employment may mitigate some of this pressure by increasing demand. The Federal Reserve in the US has rejected adopting negative interest rates. Chairman of the Insolvency and Bankruptcy Board of India (IBBI) MS Sahoo warned recently that India will witness a spike in insolvencies in coming days. In response the government has extended the suspension of the bankruptcy code till 31 March. That's when the proverbial will hit the fan and thousands will become paupers. Unless they extend it again. Good old evergreening is back. Officially.    

Another trilemma to deal with?

An analysis by Prof VA Nageswaran found that "countries that enjoyed a capital inflow, domestic credit and investment boom along with currency appreciation in the first decade of the millennium experienced a reversal in the next decade". Measured in dollars at current prices, growth of India's per capita annual GDP "dropped off from 11.8% in the decade 2000-2010 to 3.1% in 2010-2020". "It might be happening already. On current trends, this year could see India's highest foreign institutional investor inflows (debt and equity) since 2014-15." Foreign portfolio investors (FPIs) brought in Rs 603.58 billion in November and Rs 527.22 billion till 23 December. "In the coming decade, India will have big opportunities and face big risks," he wrote. "So, what should India do to effectively deploy the abundance of capital flows that India is going to receive this decade? Governments, state and central, should get out of the way. Simplify and reduce rates of both the goods and services tax (GST) and income tax, remove restrictions on startups and simplify categories of micro, small and medium enterprises (MSMEs). India has 63.4 million MSMEs employing 111 million people, contributing 29% to India's GDP and 49% to its exports. Trouble is, the government has an enormous hunger for revenue and so is always looking to increase taxes. "India plans to set tough financial targets for state-run firms" because the government "is trying to rein in its fiscal deficit, wants state-run firms to focus on improving market capitalisation and dividend payouts from 2021/22 fiscal year, starting April," reported Reuters. As the majority owner, if the government sucks out all the profits from public sector firms they will have nothing left for new investments and new jobs will not be created. "India's unemployment rate jumped to 9.90 percent in the week ending December 13, recording a 23-week high, latest weekly data from CMIE said." However, the labor force participation rate, which measures people working and actively looking for work, may be increasing, showing that some of those who had dropped out of the workforce are beginning to return, wrote Prashant K Nanda. "Between March and December, Brent crude prices have fallen more than 3%, but petrol and diesel prices have climbed 17% and 15% respectively. Since "fuel prices are not under GST, tax increases cascade into higher prices of everything". A third of tax revenues goes in paying interest on past debt and adding salaries, pensions and subsidies means there is almost nothing left for capital expenditure, wrote Ajit Ranade. To attract new investments the government needs to keep tariffs low. But high tariffs on imports gives protection to domestic industries to increase prices which increases tax collection. As growth returns, following the virus-induced global recession, commodity prices will cause inflation, interest rates will rise and FPI flows may turn negative. The rupee will adjust lower against the dollar, raising inflation in India. You cannot have high taxes, low inflation and high growth. Another impossible trilemma.