Where is India’s economy heading- any clue?
As the country gets embroiled in so many unusual happenings like scams which are surfacing on a daily basis, there is a missing link in the governance and perception about the state of the economy, where does it lie in the midst of economic ruins of growth, or world trade? Any body has bothered making an empirical analysis on the state of the Economy? Planning Commission is busy wiping out the residue of outlays of the 11th Plan while trying the grasp the inputs and working the methodology of the 12th Plan, which is going to be a vast expanse of the country’s exchequer.
In spite of 12 attempts made to raise the interest rate since last March, RBI has no clue as to how to control the galloping inflation, both headline, food inflation which has been playing hide and seek, and crossing double figures when the expectation is that it is going down. There is quiet an unease between Government and RBI. Government is completely at a loss to rein in inflation. Worsening the inflation problem through periodic hikes in administered prices, especially Petroleum is widening the Balance of Trade – Balance of Payment positions. Combating inflation through sharp rise in interest rates has made cost of Credit higher with the result that GDP growth has come to a halt, and may not even cross 7% unless some miracle happens. Economic development initiatives do not produce economic growth because of the stagnancy in the industrial growth. Real returns have gone negative, capital formation stands still, FDI has come down, Industrial activity is at a low ebb, and stock markets are plummeting.
The sudden devaluation of the Rupee, Rs 50 to a $ 1, has made exporters jubilant, but country as a whole and the Government in particular needs to worry about Balance of Payment position not only from trade but also from debt and forex volatility as its expenditure on this account will increase proportionately. During the last 3 months, India cut the US debt exposure by US $ 4.20 billion (withdrawing it from US Treasury Bonds-debt securities) and presently, India’s exposure stands at US $ 37.9 billion against US $ 42.2 billion in June 2009 and US $ 42.1 billion in April 2011. India’s present Forex Reserves stand at US $ 316.76 billion as on September 2011.
While, RBI raised the Repo and reverse Repo rates, there would been consternation and pandemonium by the powerful Corporate lobby of India. But nothing of that sort happened. Why?
The Government of India raised the limit of External Commercial Borrowing in a single financial year from US $ 20 billion to US $ 30 billion. External borrowing from international market for the six months ending Jan 2011 was US $ 12.2 billion and subsequent 6 months ending July 2011, it peaked to US $ 19.3 billion. It was reported that there was a 60% surge in ECB during the period March 2010 to date, when the cost of Credit went up from 3.25 percent points to 8.25 percentage points which is the base level interest RBI charges Banks. A further factoring of this is what it would cost to the Corporate. The differentials in the interest rates which douses break even for businesses, and when interest rates between external and domestic market widen, the tendency of big borrowers is to borrow from abroad to meet domestic expenditure and augment finance their expenditure plans in the domestic markets. There is a mismatch between the currency in which debt service commitments on external loans must be made and currency in which revenue are garnered from the domestic market oriented activities that are financed by such loans. Debt service commitments in Rupee terms can rise sharply if there is depreciation of domestic currency (like Rs 50= $1) neutralizing the benefit of a lower interest rate externally. This also results in the Current account deficit rising, Balance of Payments over-shadowing Balance of Trade. The weaking of the rupee forces the external commercial borrowing to rise, which is a serious cause for concern. The hard earned export proceeds which could be used to import capital goods, technology up gradation and vitalizing the crucial infrastructure growth. The borrowing in f March, 2010 stood at US $ 5631 million, July 1, 2010 at US $ 4189 million, and Dec 2010 @ $ 3416 million. In addition to raising the limit by US $ 10 billion during a Year by way of External Credit Borrowing, the benign Government also increased the cap of borrowing by individual firms in micro finance, services, infrastructure, others (for loans with maturity of more than 5 years under the automatic route) from US $ 5 million to $ 10 million, $ 100 million to $ 200 million and $ 500 million to $ 750 million permitting use of External credit Borrowings to refinance Rupee loans.
We are making a big noise about 2 G Spectrum FCFS sale. The Telcom companies which bid for Spectrum 3 G acquisitions have exploited this facility substantially. This increases the BoP which restrains its use to buy machines, capital manufacturing equipments which would have provided higher productivity. Foreign Exchange Reserves need to be used to pay off the debt obligations. And what happened to the $ 4.2 billion government withdrew from off loading US treasury Debt bonds?
Corporates are using ECB lever to counter the sharp rise in interest rates in the domestic market. This increases external vulnerability, which has been responsible for the stand off between RBI and Finance Ministry. Does the Government have any ready made formula or solution to bring down the inflation? Is it in a position to take some concrete steps?
Speaking to journalists, India’s Finance Minister who had gone there to attend the IMF and World Bank after creating a storm in the tea cup way back in the North Block, spoke of the crisis manifested in different forms in different countries. He attributed the risk aversion to the global investors who wanted to peddle softly in the emerging markets which was beset with higher BoP problems due to 70% of the Crude Oil imports. He wanted the world to take serious note to mitigate the problems unitedly. From where will the silver lining come, beset as we are with the darkest clouds!
Saturday, September 24, 2011
Thursday, September 22, 2011
Back dated History- Impressions of Yesterday
A sense of the Past with American Policymakers and Businessmen- A tale of the Nineties
America was a distinct dream for many. The land of opportunities. Opportunities to grab. Formidable chances to come up in Life. A country of chance and luck. Many wanted to go, many succeeded and many had a try. In the 90s of the 2nd millennium, you had people in queue, up the whole night, Monday to Friday, standing in rain or shine, just to get a Visa in front of the high walled structure which had a wicked gate near the Gemini square, opposite to Safire threatre, where Malayalam and English pictures were screened. The scene is in front of the Visa gate at the Madras consulate. The splendor of opportunities in America’s wonderland dawned with the Computer software industry’s growth in the late 90s. Narayanamurthy, Aziz Premji, and many czars of the software companies were unknown entities. Bangalore was still a pensioners paradise. The crowd of people, with papers and certificates, were mostly from Andhra and Karnataka. A few from Kerala, and a substantial of the Mylapore boys were there, standing in queue, and taking a token and waiting to be called. I was visibly moved and surprised at man’s decision to suffer if there were odds for him to go to Paradise. That is man, wanting to create opportunity. If not here, anywhere where he can. Every year, the Americam embassy announces one lakh H1 visas have been allotted to India. Every year, a few more thousands will be added. The Consul General is happy so long as he sees the long winding queues outside his visa gate. Be damned with what papers print about America, and what Government’s perception to American opinion is. B1, F1 visas are well known. There are business visas for the Business people. The validity of the visa is Ten Years.
Today, the scene is somewhat sober. There is chair seating inside the visa counters. You are given token on First-cum-first based number in the queue, two decades ago. Now, computers have taken over. You can ask for the appointment date. You do not have to stay in a queue. There are water cans to provide you water. Fans to cool the heat of Chennai which has hot, hotter and hottest climate.
I had opportunity to express my views and concerns to the American officers on behalf of the intending prospective visitors as Regional Secretary of Indo American Chamber of Commerce. I accosted the visitors from America involved in Policy making, understanding India, trying to make MoUs with their counterpart Indian Businessmen, etc. There were Political scholars, men of letters, academicians, politicians, Senators,etc.
Mr Ron Brown , Commerce Secretary under President Clinton, came to Bangalore by a special Boeing carrying planeload of American businessmen who wanted to do business with Indian Companies. The Fortuine 500 companies were there. They were in Bangalore for 2 days in 1992, and the trip and local itenarary was organized by our Chamber and I had a distinct role in it. It was sad to read subsequently that Mr Ron Brown died in an air crash when his plane and entourage perished. He was a jolly good man who wanted to boost Indo American dialogue. In the next year, a plane load of Chief Executive Officers of well known American companies came by a special place hosted by the Overseas Private Investment Corporation, America. They did talk and made business with their inter counterparts. Mr William Weld, who was to be Republican Presidential candidate against Clinton’s 2nd term, and Governor of Massachusetts, brought all his charm to the garden city of India. Ms O’Leary, Energy Secretary, brought a team of people, and a business delegation of Insurance players came to India to discuss opening up of the Insurance Sector in India. It was after a tough competition, Ford set up their motor car manufacturing unit in Tamilnadu. Our Chamber had played a very important part in the deal. Today, when you hear American companies or bi-lateral trade between India and US of A were worth several billions of Dollars. As the Head of the Regional body of Indo American Chamber of Commerce, we had played a very important role, have taken the delegations to almost all the southern India state capitals. As the trade developed, more and more people started planning their higher education in America.
Many of the prospective candidates who stood in the huge queue in the 90s, used to come and narrate their experience. They always explained that they were disappointed, for they could not understand the English spoken by the American officer, he asked about the Toffel marks, or questioned about their decision to undertake higher education in America and so on. Confidence levels of the student fraternity were very low, and they went inside the Consulate with an inferior complex built anxiety. I used to tell most of them, that it was necessary to be positive, and honest. Every body cannot know everything; there are areas of subjects we know nothing about. But why not admit it, which our boys seldom do. Today, many of them, who would have met me, are sitting in envious positions, top desks of Fortune 500 companies, Multi nationals.
I had a queer experience about a top diplomat who came from America, and I was to accompany him to Trivandrum, Bangalore and Hyderabad. While in Bangalore, we had planned a trip to Mysore for this top diplomatic person. We went to the outskirts of Srirangapatna, and stood at a place where I showed them the River cauveri in spate. Just across the Road, there was a closed barricaded compound wall where a Board stood which read: Tipu died here. I explained to them the little of History, Tipu’s reign coming to an end with the Battle of Mangalore in 1799, with Tipu Sultan’s death at the hands of British soldiers. The diplomat was well aware of the British intrigues as he was a Master in History from some well-known University of America. There was a big Board showing Lord Cornwallis receiving two of Tipu Sultan’s kids as hostages at the end of the War. I asked my famous visitor and the American officer who had accompanied him from Delhi, as to whether they could draw a parallel of Lord Cornwallis, the then Governor General with American History. They could not. Cornwallis was the Commander of the British forces who was defeated by George Washington at the Battle of York in the American War of Independence. Lord Cornwallis, who was deputed to India, won a big battle which saw a large part of South India coming under the British reign. He was hero in India according to British history scholars. With a heavy laughter, the American diplomats shook my head. Back dated knowledge- tales of History, forgotten History.
I left the Chamber in 1996, after a decade of association, and I had the privilege of meeting some of the top most people in American judiciary, State office, Commerce wing, academics, and businessmen, Politicians, who were always cheerful and most cordial to all of us. On their return, they have written mails to thank us as well.
America was a distinct dream for many. The land of opportunities. Opportunities to grab. Formidable chances to come up in Life. A country of chance and luck. Many wanted to go, many succeeded and many had a try. In the 90s of the 2nd millennium, you had people in queue, up the whole night, Monday to Friday, standing in rain or shine, just to get a Visa in front of the high walled structure which had a wicked gate near the Gemini square, opposite to Safire threatre, where Malayalam and English pictures were screened. The scene is in front of the Visa gate at the Madras consulate. The splendor of opportunities in America’s wonderland dawned with the Computer software industry’s growth in the late 90s. Narayanamurthy, Aziz Premji, and many czars of the software companies were unknown entities. Bangalore was still a pensioners paradise. The crowd of people, with papers and certificates, were mostly from Andhra and Karnataka. A few from Kerala, and a substantial of the Mylapore boys were there, standing in queue, and taking a token and waiting to be called. I was visibly moved and surprised at man’s decision to suffer if there were odds for him to go to Paradise. That is man, wanting to create opportunity. If not here, anywhere where he can. Every year, the Americam embassy announces one lakh H1 visas have been allotted to India. Every year, a few more thousands will be added. The Consul General is happy so long as he sees the long winding queues outside his visa gate. Be damned with what papers print about America, and what Government’s perception to American opinion is. B1, F1 visas are well known. There are business visas for the Business people. The validity of the visa is Ten Years.
Today, the scene is somewhat sober. There is chair seating inside the visa counters. You are given token on First-cum-first based number in the queue, two decades ago. Now, computers have taken over. You can ask for the appointment date. You do not have to stay in a queue. There are water cans to provide you water. Fans to cool the heat of Chennai which has hot, hotter and hottest climate.
I had opportunity to express my views and concerns to the American officers on behalf of the intending prospective visitors as Regional Secretary of Indo American Chamber of Commerce. I accosted the visitors from America involved in Policy making, understanding India, trying to make MoUs with their counterpart Indian Businessmen, etc. There were Political scholars, men of letters, academicians, politicians, Senators,etc.
Mr Ron Brown , Commerce Secretary under President Clinton, came to Bangalore by a special Boeing carrying planeload of American businessmen who wanted to do business with Indian Companies. The Fortuine 500 companies were there. They were in Bangalore for 2 days in 1992, and the trip and local itenarary was organized by our Chamber and I had a distinct role in it. It was sad to read subsequently that Mr Ron Brown died in an air crash when his plane and entourage perished. He was a jolly good man who wanted to boost Indo American dialogue. In the next year, a plane load of Chief Executive Officers of well known American companies came by a special place hosted by the Overseas Private Investment Corporation, America. They did talk and made business with their inter counterparts. Mr William Weld, who was to be Republican Presidential candidate against Clinton’s 2nd term, and Governor of Massachusetts, brought all his charm to the garden city of India. Ms O’Leary, Energy Secretary, brought a team of people, and a business delegation of Insurance players came to India to discuss opening up of the Insurance Sector in India. It was after a tough competition, Ford set up their motor car manufacturing unit in Tamilnadu. Our Chamber had played a very important part in the deal. Today, when you hear American companies or bi-lateral trade between India and US of A were worth several billions of Dollars. As the Head of the Regional body of Indo American Chamber of Commerce, we had played a very important role, have taken the delegations to almost all the southern India state capitals. As the trade developed, more and more people started planning their higher education in America.
Many of the prospective candidates who stood in the huge queue in the 90s, used to come and narrate their experience. They always explained that they were disappointed, for they could not understand the English spoken by the American officer, he asked about the Toffel marks, or questioned about their decision to undertake higher education in America and so on. Confidence levels of the student fraternity were very low, and they went inside the Consulate with an inferior complex built anxiety. I used to tell most of them, that it was necessary to be positive, and honest. Every body cannot know everything; there are areas of subjects we know nothing about. But why not admit it, which our boys seldom do. Today, many of them, who would have met me, are sitting in envious positions, top desks of Fortune 500 companies, Multi nationals.
I had a queer experience about a top diplomat who came from America, and I was to accompany him to Trivandrum, Bangalore and Hyderabad. While in Bangalore, we had planned a trip to Mysore for this top diplomatic person. We went to the outskirts of Srirangapatna, and stood at a place where I showed them the River cauveri in spate. Just across the Road, there was a closed barricaded compound wall where a Board stood which read: Tipu died here. I explained to them the little of History, Tipu’s reign coming to an end with the Battle of Mangalore in 1799, with Tipu Sultan’s death at the hands of British soldiers. The diplomat was well aware of the British intrigues as he was a Master in History from some well-known University of America. There was a big Board showing Lord Cornwallis receiving two of Tipu Sultan’s kids as hostages at the end of the War. I asked my famous visitor and the American officer who had accompanied him from Delhi, as to whether they could draw a parallel of Lord Cornwallis, the then Governor General with American History. They could not. Cornwallis was the Commander of the British forces who was defeated by George Washington at the Battle of York in the American War of Independence. Lord Cornwallis, who was deputed to India, won a big battle which saw a large part of South India coming under the British reign. He was hero in India according to British history scholars. With a heavy laughter, the American diplomats shook my head. Back dated knowledge- tales of History, forgotten History.
I left the Chamber in 1996, after a decade of association, and I had the privilege of meeting some of the top most people in American judiciary, State office, Commerce wing, academics, and businessmen, Politicians, who were always cheerful and most cordial to all of us. On their return, they have written mails to thank us as well.
Wednesday, September 21, 2011
Where is Economics Heading?
Great Depression of ‘Economics’
The other day, I was listening to an Economic discourse on the Television by a group of Harwardians who were discussing the debt trap that America was in after a wash out of mortgage pledged by the house owners in what is known as sub prime lending. Like nine pins, many Banks began to feel the tremours of collapse of the financial system, albeit revisiting the old days of the Grand Depression of 1929. They used a variety of theories of eminent economic thinkers like Prof Gal birth, John Maynard Keynes, Friedrich August von Hayek Simon Kuznet, Amartya Sen, Alfred Marshall, and Karl Marx,etc and tried to adopt them to the current situation. In the end, all of them agreed to disagree, the usual trade mark of Economists. That itself was a great achievement.
Indian Government keeps on telling the people there is enough money byway of liquidity. They go on raising the interest rates, at least a dozen times during the current fiscal to tame inflation. They said, good monsoon, progress in rabi and kharif crop, bumper yield, yet continue with excessive import like never before. The Forbes List of millionaires reveal that Indians in the list have enlarged. Many companies have made record profits. Finance Minister says economic growth is around 8%. He says food inflation has been tamed but it is likely to hover around 9-9.5% for some time before settling at 6%. The headline inflation is little shaky because of international economy, and Indian economy is safe and sound, he says. Planning Commission Vice Chairman says the growth is unprecedented and long term planning will yield long term results. Commerce Ministry says that our exports is booming and has surpassed our expectations. In July 2011, it grew by 85%. Incredible, it says. Change isn’t necessarily progress, Union Ministers looking after economic ministries will tell you. Does value have any real value anymore; people ask and get no answer.
Many of the powerful forces that help business, hurt business, and shape our civilization today stem directly from the theories formulated by economists in the past, put into practice in the real world. The field of economics has suffered from a lack of respect since its formative years; Scottish essayist Thomas Carlyle dubbed it “the dismal science” in 1849. Today, when economics makes headlines, it’s typically as a whipping boy (“Why Economists Failed to Predict the Financial Crisis”) or as part of a sales pitch (“Prominent Economists Support Changes to Medicare”).
And to think, when I stuied 50 years ago as an undergraduate student at the Maharaja’s College, Ernakulam, Economics has been delivered to n an off-putting package of mathematical equations and unintuitive charts, and it’s no surprise that most people tend to see it as a difficult subject producing dubious results. We were told that economic inequality increases overtime while the Country is developing, then after a certain average income is attained, inequality begins to decrease. In the early stage of development, investment in physical capital is the main mechanism of growth, inequality encourages growth by allocating resources towards those who save and invest. Human capital accrual as an estimate of Cost that has been incurred but not yet paid, takes place of physical capital accrual as the main source of growth and inequality slows growth by lowering educational standards because poor people cannot afford education.
Feminist Beatrice Webb (1858–1943), who formulated the idea of the social safety net in the 1890s, and American economist Irving Fisher (1867–1947), who presciently discovered portfolio theory, countercyclical monetary policy, and index numbers, as well as inventing the Rolodex and founding the company that became Remington Rand. Economics has progressed to the point where it can explain definitively how to avoid the kinds of economic catastrophes that produced the Great Depression. All the nations that have grown steadily in recent years, are following the basic economic playbook that began to take shape as Marshall visited the factories of Britain’s Industrial Revolution, whereas countries that ignore those lessons are doomed to failure. But the dismal science has less to say about how to balance the roles of governments and markets or how to determine the optimal level of taxation.- the United States and Sweden, two countries with very different policy and fiscal profiles, but very similar — and enviable — standards of living.
India has overtaken Japan and is in the 4th place, economic papers will tell you. How that improves the lot of people, you may well ask. There is various growth patterns in Economics- V shaped, U shaped, double dip, zero, etc. What do all these mean to the person who gets a monthly pay less than Rs 5,000 and have to feed four people in addition to attending to the schooling and his aged mother.
Petrol prices will go up and up in India, like the interest rates. When the international price of Petrol drops, and when the parity between Rupee and Dollar is in India’s favour, our oil companies will add the price saying devaluation. Gross Service tax in the Country which was just Rs 600 Cr in 1990-91, has gone up to Rs 40,000 Cr per annum. Direct and indirect taxes have been levied to the fullest extent leaving no lee way. The budget said that Rs 40,000 Cr will be added through disinvestment. Not one paisa has been collected through disinvestment, due to reasons known only to Government.
The financial crisis has shattered the main street’s belief in scientific economics; Economics that doesn’t consider economy’s human element will remain inexact Science; and the fact that economics as a Science can go wrong explains the rise of Popular Economics. After mastering Economics with a First Class, four and half decades ago, I understood that the Economics which we were taught has fundamentally changed and scientific economics which can always go wrong has taken over Economics.
The other day, I was listening to an Economic discourse on the Television by a group of Harwardians who were discussing the debt trap that America was in after a wash out of mortgage pledged by the house owners in what is known as sub prime lending. Like nine pins, many Banks began to feel the tremours of collapse of the financial system, albeit revisiting the old days of the Grand Depression of 1929. They used a variety of theories of eminent economic thinkers like Prof Gal birth, John Maynard Keynes, Friedrich August von Hayek Simon Kuznet, Amartya Sen, Alfred Marshall, and Karl Marx,etc and tried to adopt them to the current situation. In the end, all of them agreed to disagree, the usual trade mark of Economists. That itself was a great achievement.
Indian Government keeps on telling the people there is enough money byway of liquidity. They go on raising the interest rates, at least a dozen times during the current fiscal to tame inflation. They said, good monsoon, progress in rabi and kharif crop, bumper yield, yet continue with excessive import like never before. The Forbes List of millionaires reveal that Indians in the list have enlarged. Many companies have made record profits. Finance Minister says economic growth is around 8%. He says food inflation has been tamed but it is likely to hover around 9-9.5% for some time before settling at 6%. The headline inflation is little shaky because of international economy, and Indian economy is safe and sound, he says. Planning Commission Vice Chairman says the growth is unprecedented and long term planning will yield long term results. Commerce Ministry says that our exports is booming and has surpassed our expectations. In July 2011, it grew by 85%. Incredible, it says. Change isn’t necessarily progress, Union Ministers looking after economic ministries will tell you. Does value have any real value anymore; people ask and get no answer.
Many of the powerful forces that help business, hurt business, and shape our civilization today stem directly from the theories formulated by economists in the past, put into practice in the real world. The field of economics has suffered from a lack of respect since its formative years; Scottish essayist Thomas Carlyle dubbed it “the dismal science” in 1849. Today, when economics makes headlines, it’s typically as a whipping boy (“Why Economists Failed to Predict the Financial Crisis”) or as part of a sales pitch (“Prominent Economists Support Changes to Medicare”).
And to think, when I stuied 50 years ago as an undergraduate student at the Maharaja’s College, Ernakulam, Economics has been delivered to n an off-putting package of mathematical equations and unintuitive charts, and it’s no surprise that most people tend to see it as a difficult subject producing dubious results. We were told that economic inequality increases overtime while the Country is developing, then after a certain average income is attained, inequality begins to decrease. In the early stage of development, investment in physical capital is the main mechanism of growth, inequality encourages growth by allocating resources towards those who save and invest. Human capital accrual as an estimate of Cost that has been incurred but not yet paid, takes place of physical capital accrual as the main source of growth and inequality slows growth by lowering educational standards because poor people cannot afford education.
Feminist Beatrice Webb (1858–1943), who formulated the idea of the social safety net in the 1890s, and American economist Irving Fisher (1867–1947), who presciently discovered portfolio theory, countercyclical monetary policy, and index numbers, as well as inventing the Rolodex and founding the company that became Remington Rand. Economics has progressed to the point where it can explain definitively how to avoid the kinds of economic catastrophes that produced the Great Depression. All the nations that have grown steadily in recent years, are following the basic economic playbook that began to take shape as Marshall visited the factories of Britain’s Industrial Revolution, whereas countries that ignore those lessons are doomed to failure. But the dismal science has less to say about how to balance the roles of governments and markets or how to determine the optimal level of taxation.- the United States and Sweden, two countries with very different policy and fiscal profiles, but very similar — and enviable — standards of living.
India has overtaken Japan and is in the 4th place, economic papers will tell you. How that improves the lot of people, you may well ask. There is various growth patterns in Economics- V shaped, U shaped, double dip, zero, etc. What do all these mean to the person who gets a monthly pay less than Rs 5,000 and have to feed four people in addition to attending to the schooling and his aged mother.
Petrol prices will go up and up in India, like the interest rates. When the international price of Petrol drops, and when the parity between Rupee and Dollar is in India’s favour, our oil companies will add the price saying devaluation. Gross Service tax in the Country which was just Rs 600 Cr in 1990-91, has gone up to Rs 40,000 Cr per annum. Direct and indirect taxes have been levied to the fullest extent leaving no lee way. The budget said that Rs 40,000 Cr will be added through disinvestment. Not one paisa has been collected through disinvestment, due to reasons known only to Government.
The financial crisis has shattered the main street’s belief in scientific economics; Economics that doesn’t consider economy’s human element will remain inexact Science; and the fact that economics as a Science can go wrong explains the rise of Popular Economics. After mastering Economics with a First Class, four and half decades ago, I understood that the Economics which we were taught has fundamentally changed and scientific economics which can always go wrong has taken over Economics.
Monday, August 29, 2011
Is our Growth Rates escalated or fudged?
Where is Indian economy heading? Is it stable? Moving upward or sliding downward? Gross Domestic Product which was to attain double digits by the end of 11th Plan, after many changes, alterations, touched 7.8% as against 8.3% of 2010-11 and 9.6% of 2006-7. The Index of Industrial Production (IIP) had been showing a downhill growth (base 2004-5=100) while the growth percentage in manufacturing has been sliding ever since Dec 2010. To be specific, automobile sector which produced a growth rate of 30% a few years ago posted 4.3% last fiscal. Recently, the Governor of the Reserve Bank of India lamented that ‘policy prescriptions of the apex bank provide ineffective, because of the bewildering quality of data) has confounded confusions. Though the mood of the country is optimistic, no body has any clarity on its future. RBI has raised the interest rates (they had been doing this rather ritually) citing a] inflation b] food inflation c] international economic turmoil, but has no prescriptions for controlling the continued inflation rate growing up without respite.
The Planning Commission, which pilot schemes to deliver growth through Plans are in a bind because of the blind assumption of theories? Every time, it comes with a growth rate to discard it in every alternate month and announcing a new growth rate which shows a reduced figure. We find that after spending Crores of Rupees, Indian agriculture seems to stand at the cross roads. Its recorded growth rate during one of the years of the 11th Plan was -0.1%. The planned growth rate was 4% against which huge outlay was made. From 2004, the Agriculture Ministry is headed by the same minister who should have taken responsibility. But he blames rains, monsoon, and draught, for deficit agri growth. If the Prime Minister of the day cannot enforce accountability of the Hon’ble Minister of Agriculture due to coalition dharma, could he not exercise the constitutional dharma?
The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has been responsible for higher food consumption, contends the Government. As poor people are eating more, the prices of food stuffs have gone high and hence food inflation argues Government economists. The Scheme has an allotment of around Rs 40,000 Cr annually, which is split into 60:40 ratio, 60% for food and 40% for materials. Though the laudable objective was to provide employment for 100 days at the least, not more than 40 days of labour, presently,
is provided to an individual. Central Statistics Organization estimated that Rs 16.20 lakh Cr for consumption expenditure of food. Even assuming that the beneficiaries used all the Rs 28,000 Cr for food, it works to 1.7%, showing that these people do not cause any upheaval on supply constraints in agriculture. Supply side and cost factors are responsible for high inflation in food. We import around 20% of our pulse requirement and 70% of edible oils which results in international prices going up to cater to India’s supply constraints. Hence imported inflation gets into our system. Further, 40% of the crop is wasted due to absence of logistic support.
Coming to the Yojana Bhavan, they ear-mark money without knowing the ground reality. To illustrate a point, after spending Crores of Rupees, distribution of essential commodities at a very low price through PDS, we find the number of BPL Families is increasing YoY. The population of BPL may increase, but to say the number of BPL families is increasing is mysterious. There is something wrong, somewhere? This arithmetic needs to be explained.
Economic Development initiatives differ from Economic Growth. Economic Growth is one aspect of economic development. Economic growth is a policy intervention. Economic Development is static theory that documents the state of economy at a certain time. Rising interest rates scenario has seen the money loosing its value. Inflation has reduced real returns, and our economic experts in the North Bloc are wondering how to tame inflation. Prime Minister candidly admitted as much. All the reasons why economic growth has gone hay wire is due to negative global cues, debt restructuring by Greece, weak world wide economic data are a few among the number of reasons for putting the experts in a fix(contends the experts of North Bloc). American market is universal. If anything goes wrong there, world economy is in bubbles.
Inflation causes uncertainty about future prices, interest rates, exchange rates, promoting risks, discouraging trade. Inflation was around 9% and food inflation was in the neighborhood of double digits expected to escalate to double digits. In spite of repeated interest rate hikes, inflation rates have been consistently going up showing no signs of slowing down. Inflation brings down the Net Asset Value (NAV) of funds like Securities. Consistent high inflation has been impeding growth.
Gross Domestic Savings which constituted 10.3% of GDP (1950-55) went up to 36.4% (2006-7) mainly due to active interest rates and anti inflation policies resulting in higher household financial savings which rose from 1.6% of the GDP to 10.6% during this period. Public sector savings declined from 1.7 %( 1950-55) to 0.6 %( 2003-4) which saw Public investment giving way to Private investment in terms of GDP. Foreign and domestic MNCs, FDI, SEZ concept was responsible for rapid capital formation and accumulation. Growth was a casual factor in India’s capital accumulation. Money supply falls as interest rates are high, which discourages savings. Economic growth is reduced because economy needs certain level of Savings to finance investments which boost economic growth. Inflation and high interest rates disrupt the operations of a nation’s financial institutions and discourage its integration with the rest of the Markets.
The growth surge in India has been on a low from 9.5% in 2005-7, 6.7 %( 2008-9). 7.4 %( 2009-10). Was it neo-classical (a la ROBERT M Solow & T W Swan Concept?) which emphasized the role of Savings- translated into investment, in economic growth? B) Was it demand driven (John Maynard Keynes theory) where ‘x’ amount of expenditure even if not backed by Savings, would lead to a multiple ‘yx’ of income? C) Was it economic growth and rising incomes that triggered both savings, investment (Arthur W Lewis, Capitalist surplus concept)? D) Or was it technology innovation that shifted up the growth path trajectory and endogenised technical change (Paul Romer hypothesis)? E) Or was it Manmohanmics? No great economy is generated without innovation or invention and embedding them in the growth process. This is India’s missing link (Parthasarathi Shome)
In India, presently, standard of growth is measured by the Gross Domestic product . Dr Amrtya Sen, Nobel Prize recipient believed that Human Development is the real measure for progress compared to the material output. Human development Index, according to him, is the composite index of achievements in human development. Shri Mahubul Huq had also pleaded for Human development growth to be considered as a measure for progress and growth of a Country.
Consumption is proving to be a major force driving India’s GDP growth.
Private sector ‘output’ is measured by the Price, people are prepared to pay. Government’s output is measured by its Costs. GDP increase is proportional to its spending-productive/non productive. When VI Pay Commission pay was released, it increased the growth rate, even though it only created higher disposable incomes in the hands of the Government servants who seldom used it towards saving it or in investment. We order Planes. We conceive projects. These costs are factored in the GDP. Most of the budgets of projects get plagued by huge cost overruns which sometimes may lead to its cancellation. These are added to the GDP. Public funding stimulus programme are effective means of raising the percentage of GDP. Their costs are simply added to the ‘output’. In order to shelter importers of edible oil whose import landing prices are stimulus imports with tax cuts, which nevertheless increase consumption though the income with profits, is garnered by another Country? This when factored in the GDP allows it to grow in its percentage. Stimulus in this case, has fuelled growth in importing countries rather than the Country of import. Government spending stimulates economic growth. This mathematical engineered economic growth in the GDP, does not translate to Economic welfare, though it enlarges the percentage of GDP growth. Private Sector initiatives would have created wealth at lower cost and generated greater output and provided large scale employment, none of which is provided by the stimulus consumer spending through import with tax cuts.
In Economics, most things created are produced for sale, and sold. Therefore, measuring the total expenditure of money used to buy things is a way of measuring production. This is known as the expenditure method of calculating GDP. Note that if you knit yourself a sweater, it is production but does not get counted as GDP because it is never sold. Sweater-knitting is a small part of the economy, but if one counts some major activities such as child-rearing (generally unpaid) as production, GDP ceases to be an accurate indicator of production. Similarly, if there is a long term shift from non-market provision of services (for example cooking, cleaning, child rearing, do-it yourself repairs) to market provision of services, then this trend toward increased market provision of services may mask a dramatic decrease in actual domestic production, resulting in overly optimistic and inflated reported GDP. This is particularly a problem for economies which have shifted from production economies to service economies.
Gross Domestic product refers to the market value of all final goods and services produced in a Country in a given period. The GDP can be measured by a) income approach b) Expenditure approach c) Product or output method. India has been adhering to the Expenditure approach for calculating the Gross Domestic Prdouce.
GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M).
Y = C + I + G + (X − M)
Here is a description of each GDP component:
C (consumption) is normally the largest GDP component in the economy, consisting of private (household final consumption expenditure) in the economy. These personal expenditures fall under one of the following categories: durable goods, non-durable goods, and services. Examples include food, rent, jewelry, gasoline, and medical expenses but do not include the purchase of new housing.
I (investment) include business investment in equipments for example and do not include exchanges of existing assets. Examples include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households (not government) on new houses is also included in Investment. In contrast to its colloquial meaning, 'Investment' in GDP does not mean purchases of financial products. Buying financial products is classed as 'saving', as opposed to investment. This avoids double-counting: if one buys shares in a company, and the company uses the money received to buy plant, equipment, etc., the amount will be counted toward GDP when the company spends the money on those things; to also count it when one gives it to the company would be to count two times an amount that only corresponds to one group of products. Buying bonds or stocks is a swapping of deeds, a transfer of claims on future production, not directly an expenditure on products.
G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits.
X (exports) represents gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added.
M (imports) represents gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreign supply as domestic. Fully equivalent definition is that GDP (Y) is the sum of final consumption expenditure (FCE), gross capital formation (GCF), and net exports (X – M).
Y = FCE + GCF+ (X − M)
FCE can then be further broken down by three sectors (households, governments and non-profit institutions serving households) and GCF by five sectors (non-financial corporations, financial corporations, households, governments and non-profit institutions serving households). The advantage of this second definition is that expenditure is systematically broken down, firstly, by type of final use (final consumption or capital formation) and, secondly, by sectors making the expenditure, whereas the first definition partly follows a mixed delimitation concept by type of final use and sector.
Note that C, G, and I are expenditures on final goods and services; expenditures on intermediate goods and services do not count. (Intermediate goods and Services are those used by businesses to produce other goods and services within the accounting year.) In exports, transaction costs are about 40-45%, with inefficient turnaround time which upsets the delivery schedule. Unorganized sector output which has is regionalized and geographically centric does not fully figure in the GDP.
Keynesian theory which got reflected during World War II got America out of depression which suggests that bigger the stimulus, greater is the percentage of GDP growth, which solves economic problems. Keynes preferred to split the general consumption to two parts, private sector consumption and public sector (government) spending. Government consumption can be treated as exogenous so that different government spending can be brought within a meaningful macro economic framework.
Persistent inflation is regarded as a Post -World War II phenomenon, which suggests a positive co-relation between inflation and growth. Under the Aggregate Supply- Aggregate Demand framework, there is positive relationship between Inflation and Growth. As growth increased, so did inflation. AS curve is upward sloping rather than vertical which is a critical feature? If AS curve is vertical, changes in the demand side of the economy affects only prices. There is positive co-relation between personal savings and rate of increase of inflation. Inflation co-relates to a rise in prices as measured by Consumer Price Index. A rise in price means inflation is on the run. Price rise because consumers have a higher income and more money is in circulation. If the money supply extends too quickly, prices escalate and people’s savings worth comes down.
Economists like Paul Krugman, has articulated the position of Keynes on GDP based on government sending. When expanded as a lousy growth, slower than population growth, then the growth rate achieved is negligible. Gross private Product (GPP) which involves the total output of the private sector which has been investing overtaking the Public investment in cardinal sectors of the economy thanks to its release from government monopoly and Government’s spending on schemes which have utility and populist value, cannot determine the growth rate of the Country.
However, measuring Private enterprise output in terms of its price and government’s spending becomes the criteria to measure growth rate in GDP, would it indicate the correct measurement of growth? Keynes formulated his thesis in the context of a closed economy. Neither massive stimuli nor austerity budget is likely to produce much needed growth. A lower export to GDP ratio would indicate that exports contribute to a lesser amount to the GDP and greater portion of economic growth will be internationally driven instead of internally driven or consumer driven. Without growth, debt/GDP ratio will keep worsening.
Conclusion:
There are many Economists who share the view that Expenditure approach is not the realistic way to calculate GDP. It is not an accurate measure to establish the growth rate in an economy. The present system needs review.
The Planning Commission, which pilot schemes to deliver growth through Plans are in a bind because of the blind assumption of theories? Every time, it comes with a growth rate to discard it in every alternate month and announcing a new growth rate which shows a reduced figure. We find that after spending Crores of Rupees, Indian agriculture seems to stand at the cross roads. Its recorded growth rate during one of the years of the 11th Plan was -0.1%. The planned growth rate was 4% against which huge outlay was made. From 2004, the Agriculture Ministry is headed by the same minister who should have taken responsibility. But he blames rains, monsoon, and draught, for deficit agri growth. If the Prime Minister of the day cannot enforce accountability of the Hon’ble Minister of Agriculture due to coalition dharma, could he not exercise the constitutional dharma?
The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has been responsible for higher food consumption, contends the Government. As poor people are eating more, the prices of food stuffs have gone high and hence food inflation argues Government economists. The Scheme has an allotment of around Rs 40,000 Cr annually, which is split into 60:40 ratio, 60% for food and 40% for materials. Though the laudable objective was to provide employment for 100 days at the least, not more than 40 days of labour, presently,
is provided to an individual. Central Statistics Organization estimated that Rs 16.20 lakh Cr for consumption expenditure of food. Even assuming that the beneficiaries used all the Rs 28,000 Cr for food, it works to 1.7%, showing that these people do not cause any upheaval on supply constraints in agriculture. Supply side and cost factors are responsible for high inflation in food. We import around 20% of our pulse requirement and 70% of edible oils which results in international prices going up to cater to India’s supply constraints. Hence imported inflation gets into our system. Further, 40% of the crop is wasted due to absence of logistic support.
Coming to the Yojana Bhavan, they ear-mark money without knowing the ground reality. To illustrate a point, after spending Crores of Rupees, distribution of essential commodities at a very low price through PDS, we find the number of BPL Families is increasing YoY. The population of BPL may increase, but to say the number of BPL families is increasing is mysterious. There is something wrong, somewhere? This arithmetic needs to be explained.
Economic Development initiatives differ from Economic Growth. Economic Growth is one aspect of economic development. Economic growth is a policy intervention. Economic Development is static theory that documents the state of economy at a certain time. Rising interest rates scenario has seen the money loosing its value. Inflation has reduced real returns, and our economic experts in the North Bloc are wondering how to tame inflation. Prime Minister candidly admitted as much. All the reasons why economic growth has gone hay wire is due to negative global cues, debt restructuring by Greece, weak world wide economic data are a few among the number of reasons for putting the experts in a fix(contends the experts of North Bloc). American market is universal. If anything goes wrong there, world economy is in bubbles.
Inflation causes uncertainty about future prices, interest rates, exchange rates, promoting risks, discouraging trade. Inflation was around 9% and food inflation was in the neighborhood of double digits expected to escalate to double digits. In spite of repeated interest rate hikes, inflation rates have been consistently going up showing no signs of slowing down. Inflation brings down the Net Asset Value (NAV) of funds like Securities. Consistent high inflation has been impeding growth.
Gross Domestic Savings which constituted 10.3% of GDP (1950-55) went up to 36.4% (2006-7) mainly due to active interest rates and anti inflation policies resulting in higher household financial savings which rose from 1.6% of the GDP to 10.6% during this period. Public sector savings declined from 1.7 %( 1950-55) to 0.6 %( 2003-4) which saw Public investment giving way to Private investment in terms of GDP. Foreign and domestic MNCs, FDI, SEZ concept was responsible for rapid capital formation and accumulation. Growth was a casual factor in India’s capital accumulation. Money supply falls as interest rates are high, which discourages savings. Economic growth is reduced because economy needs certain level of Savings to finance investments which boost economic growth. Inflation and high interest rates disrupt the operations of a nation’s financial institutions and discourage its integration with the rest of the Markets.
The growth surge in India has been on a low from 9.5% in 2005-7, 6.7 %( 2008-9). 7.4 %( 2009-10). Was it neo-classical (a la ROBERT M Solow & T W Swan Concept?) which emphasized the role of Savings- translated into investment, in economic growth? B) Was it demand driven (John Maynard Keynes theory) where ‘x’ amount of expenditure even if not backed by Savings, would lead to a multiple ‘yx’ of income? C) Was it economic growth and rising incomes that triggered both savings, investment (Arthur W Lewis, Capitalist surplus concept)? D) Or was it technology innovation that shifted up the growth path trajectory and endogenised technical change (Paul Romer hypothesis)? E) Or was it Manmohanmics? No great economy is generated without innovation or invention and embedding them in the growth process. This is India’s missing link (Parthasarathi Shome)
In India, presently, standard of growth is measured by the Gross Domestic product . Dr Amrtya Sen, Nobel Prize recipient believed that Human Development is the real measure for progress compared to the material output. Human development Index, according to him, is the composite index of achievements in human development. Shri Mahubul Huq had also pleaded for Human development growth to be considered as a measure for progress and growth of a Country.
Consumption is proving to be a major force driving India’s GDP growth.
Private sector ‘output’ is measured by the Price, people are prepared to pay. Government’s output is measured by its Costs. GDP increase is proportional to its spending-productive/non productive. When VI Pay Commission pay was released, it increased the growth rate, even though it only created higher disposable incomes in the hands of the Government servants who seldom used it towards saving it or in investment. We order Planes. We conceive projects. These costs are factored in the GDP. Most of the budgets of projects get plagued by huge cost overruns which sometimes may lead to its cancellation. These are added to the GDP. Public funding stimulus programme are effective means of raising the percentage of GDP. Their costs are simply added to the ‘output’. In order to shelter importers of edible oil whose import landing prices are stimulus imports with tax cuts, which nevertheless increase consumption though the income with profits, is garnered by another Country? This when factored in the GDP allows it to grow in its percentage. Stimulus in this case, has fuelled growth in importing countries rather than the Country of import. Government spending stimulates economic growth. This mathematical engineered economic growth in the GDP, does not translate to Economic welfare, though it enlarges the percentage of GDP growth. Private Sector initiatives would have created wealth at lower cost and generated greater output and provided large scale employment, none of which is provided by the stimulus consumer spending through import with tax cuts.
In Economics, most things created are produced for sale, and sold. Therefore, measuring the total expenditure of money used to buy things is a way of measuring production. This is known as the expenditure method of calculating GDP. Note that if you knit yourself a sweater, it is production but does not get counted as GDP because it is never sold. Sweater-knitting is a small part of the economy, but if one counts some major activities such as child-rearing (generally unpaid) as production, GDP ceases to be an accurate indicator of production. Similarly, if there is a long term shift from non-market provision of services (for example cooking, cleaning, child rearing, do-it yourself repairs) to market provision of services, then this trend toward increased market provision of services may mask a dramatic decrease in actual domestic production, resulting in overly optimistic and inflated reported GDP. This is particularly a problem for economies which have shifted from production economies to service economies.
Gross Domestic product refers to the market value of all final goods and services produced in a Country in a given period. The GDP can be measured by a) income approach b) Expenditure approach c) Product or output method. India has been adhering to the Expenditure approach for calculating the Gross Domestic Prdouce.
GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M).
Y = C + I + G + (X − M)
Here is a description of each GDP component:
C (consumption) is normally the largest GDP component in the economy, consisting of private (household final consumption expenditure) in the economy. These personal expenditures fall under one of the following categories: durable goods, non-durable goods, and services. Examples include food, rent, jewelry, gasoline, and medical expenses but do not include the purchase of new housing.
I (investment) include business investment in equipments for example and do not include exchanges of existing assets. Examples include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households (not government) on new houses is also included in Investment. In contrast to its colloquial meaning, 'Investment' in GDP does not mean purchases of financial products. Buying financial products is classed as 'saving', as opposed to investment. This avoids double-counting: if one buys shares in a company, and the company uses the money received to buy plant, equipment, etc., the amount will be counted toward GDP when the company spends the money on those things; to also count it when one gives it to the company would be to count two times an amount that only corresponds to one group of products. Buying bonds or stocks is a swapping of deeds, a transfer of claims on future production, not directly an expenditure on products.
G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits.
X (exports) represents gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added.
M (imports) represents gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreign supply as domestic. Fully equivalent definition is that GDP (Y) is the sum of final consumption expenditure (FCE), gross capital formation (GCF), and net exports (X – M).
Y = FCE + GCF+ (X − M)
FCE can then be further broken down by three sectors (households, governments and non-profit institutions serving households) and GCF by five sectors (non-financial corporations, financial corporations, households, governments and non-profit institutions serving households). The advantage of this second definition is that expenditure is systematically broken down, firstly, by type of final use (final consumption or capital formation) and, secondly, by sectors making the expenditure, whereas the first definition partly follows a mixed delimitation concept by type of final use and sector.
Note that C, G, and I are expenditures on final goods and services; expenditures on intermediate goods and services do not count. (Intermediate goods and Services are those used by businesses to produce other goods and services within the accounting year.) In exports, transaction costs are about 40-45%, with inefficient turnaround time which upsets the delivery schedule. Unorganized sector output which has is regionalized and geographically centric does not fully figure in the GDP.
Keynesian theory which got reflected during World War II got America out of depression which suggests that bigger the stimulus, greater is the percentage of GDP growth, which solves economic problems. Keynes preferred to split the general consumption to two parts, private sector consumption and public sector (government) spending. Government consumption can be treated as exogenous so that different government spending can be brought within a meaningful macro economic framework.
Persistent inflation is regarded as a Post -World War II phenomenon, which suggests a positive co-relation between inflation and growth. Under the Aggregate Supply- Aggregate Demand framework, there is positive relationship between Inflation and Growth. As growth increased, so did inflation. AS curve is upward sloping rather than vertical which is a critical feature? If AS curve is vertical, changes in the demand side of the economy affects only prices. There is positive co-relation between personal savings and rate of increase of inflation. Inflation co-relates to a rise in prices as measured by Consumer Price Index. A rise in price means inflation is on the run. Price rise because consumers have a higher income and more money is in circulation. If the money supply extends too quickly, prices escalate and people’s savings worth comes down.
Economists like Paul Krugman, has articulated the position of Keynes on GDP based on government sending. When expanded as a lousy growth, slower than population growth, then the growth rate achieved is negligible. Gross private Product (GPP) which involves the total output of the private sector which has been investing overtaking the Public investment in cardinal sectors of the economy thanks to its release from government monopoly and Government’s spending on schemes which have utility and populist value, cannot determine the growth rate of the Country.
However, measuring Private enterprise output in terms of its price and government’s spending becomes the criteria to measure growth rate in GDP, would it indicate the correct measurement of growth? Keynes formulated his thesis in the context of a closed economy. Neither massive stimuli nor austerity budget is likely to produce much needed growth. A lower export to GDP ratio would indicate that exports contribute to a lesser amount to the GDP and greater portion of economic growth will be internationally driven instead of internally driven or consumer driven. Without growth, debt/GDP ratio will keep worsening.
Conclusion:
There are many Economists who share the view that Expenditure approach is not the realistic way to calculate GDP. It is not an accurate measure to establish the growth rate in an economy. The present system needs review.
Monday, February 14, 2011
Obituary: Small Coins
Is Coins that were exchanged at times of continuous inflation, lost their purchasing Power? We present a Coin, and in exchange we get something in return. In major stores, franchise stores thanks to the glare of Globalization sweeping Indian economy, like never before, the bill amount in paisa is rounded off. If the bill comes to less than 50 paisa, it is omitted, and if it is more than 50 paise, it is rounded off to the next Rupee. Nobody complains.
The other day, an Old man came to my door seeking some charity. Today, nobody will accept anything less than Rs 10/- for any kind of philanthropy. The so-called Civic Society, if they are collecting money for a good cause or no cause, they would like atleast Rs 50/-. Rs 100/- would be better.
The aluminum coins of 5 paise, ten paise and twenty paise will disappear and will become a non legal tender from June 30, 2011. Metal coins of 10 paise and 25 paise also will cease to hold value. They will go to some Numismatist who may keep it as a Vestige.
There was Re 1/- issued by the Secretary, Finance, Govt of India. Today, it has disappeared. Rs 2/- was also in circulation. It is rarely seen. The difference between Rs 1/- and Rs 2/- was the first variety was issued by GoI, while Rs 2/- was issued by the Reserve Bank of India against security back-up.
With the obituary to these small Coins, 50 paise coin will be the smallest coin that will have validity. All the other smaller denomination coins will lose its parity in terms of purchasing power.
Whenever we take about the value of Rupee, we say that the Rupee is equivalent to 20 paise or 30 paise etc. Now, with these small coins going to antiquity, the value of the Rupee against its purchasing power will be compared to what. Today Rs 45/- is equal to a Dollar. They say that Rupee has become stronger to the Dollar. When the Rupee: Dollar parity goes down in Rupees, we say Dollar has improved in its value. Exporters will cry hoarse, if more Rupees will be equal to a $. Some time ago, there was strong rumours that Rs 1,000/- will be demonetized. This would facilitate money coming into the Open.
Bank Chiefs always say there is enough liquidity in the system. Only sometimes, there is movement of money. If you go to semi urban banks, they will say that they have no currency to pay. Some ATMs will not give you money, but will say, Transaction closed. And the money you pressed will be debited to your account. You will have harrowing time to get a reversal of the wrong debit. No body would say for want of a 10 paise coin, one’s battle was lost.
Good bye small paises!!!
Sunday, November 28, 2010
Are our penal Code/CrPC obsolete?
Are our Penal Code and Criminal Procedure out-dated?
The Court had taken cognizance of the offences of defiance against Arunditi Roy and others for their speeches made in a Seminar “Azadi: The Only Way” wherein the noted writer is stated to have strongly opined on the alleged military excesses in Kashmir. On the basis of a Compliant filed under Sec 156(3) of the Cr PC at the Tilak Marg Police Station against the writer Arunditi Roy, Syed Geelani, Varavara Rao, SAR Geelani and some others who made speeches which were anti-Indian Statements when no action was taken by the Police Station, the case was brought before the Metropolitan Magistrate who asked Police to book the culprits under the relevant Criminal procedure Code and file cases against them in a competent Court of Law, after examining the documents produced before him.
Sec 156 of the Cr P C, 1973 states:
(1) Any officer in charge of a police station may, without the order of a Magistrate, investigate any cognizable case which a court having jurisdiction over the local area within the limits of such station would have power to inquire into or try under the provisions of Chapter XIII.
(2) No proceeding of a police officer in any such case shall at any stage be called in question on the ground that the case was one, which such officer was not empowered under this section to investigate.
(3) Any Magistrate empowered under section 190 may order such an investigation as above mentioned.
Union Law Minister M Veerappa Moily slammed Roy’s speech as “unfortunate” and said "Freedom of speech cannot violate the patriotic sentiments of the people and country.” The government maintains that peacefully making pro-Azadi speeches does not amount to sedition but inciting hatred through inflammatory oratory in an already emotionally charged atmosphere in the Valley may lead to violence. However, when the Police filed a report in the Metropolitan Magistrate’s Court that the speeches were not inflammatory and no offence under sedition could be made out, the Magistrate who had seen the documents chided the Police for filing a wrong report.
Act of Sedition appears in Chapter VI of First Schedule (Offence against the State) which is a cognizable non bailable offence that is defined in Sec 124 (A) of IPC. The law defines Section 124A of IPC as “whoever by words, either spoken or written, or by signs, or by visible representation, or otherwise, brings or attempts to bring into hatred or contempt, or excites or attempts to excite disaffection towards, the Government established by law in India can be booked under sedition.”
In today’s Hindu, (Nov 28, 2010) Arundhati Roy has described the various wordings of Jawaharlal Nehru, which she characterized as amounting to sedition. In his statement in the Security Council (in the 765th meeting of SC on 24 January 1957), Shri V K Krishna Menon committed that India believed in honouring international commitments and obligations it has undertaken.
Perhaps, Arundhati might be referring to the agreements, both oral and written that were arrived at regarding partition of India into India and Pakistan. Hindu majority regions which had a Muslim King, would decide for it whether it would cede to India or Pakistan. Junagadh, Hyderabad, Kashmir had identical problems. Junagadh was a Hindu territory with Muslim King, Hyderabad ditto, while Kashmir had a Hindu King. The case of Kashmir was different in so much that the Pakistan army inflicted a military attack, and to defend the Country, the Maharaja of Kashmir, through an act of accession, acceded to India with a signed Instrument of Accession. He asked India’s help to repulse the invaders. Once this was done, the Pakistan army was repulsed, even though they occupy a chunk of land in Azad Kashmir or what is called as Pakistan occupied Kashmir, even today. Pakistan was West Pakistan and East Pakistan(14 August 1947). Today, East Pakistan is ruled by its own people and ceded from Pakistan and became Bangladesh. Therefore, when there was an aggression, and Pakistan started it, they jumped the gun, and today, they have no locus standi in any part of Kashmir. They have waged innumerable Wars with India. The unrest in Kashmir is largely due to the broad propaganda of the jihad leaders. To say that there is wanton attack on Indian soil, the military should keep quiet cannot be termed as a genuine freedom of expression.
It is true, that the Father of the Nation, Mahatma Gandhi was tried for Sedition in 1922; then the Mahatma had said “Section 124 A, under which I am happily charged, is perhaps the prince among the political sections of the Indian Penal Code designed to suppress the liberty of the citizen.”
In his trial Gandhi has clearly stated that if one had “no affection for a person or system, one should be free to give the fullest expression to his disaffection, so long as he does not contemplate, promote, or incite to violence.”
“Some of the most loved of India’s patriots have been convicted under it. I consider it a privilege, therefore, to be charged under that section,” he said.
Is this Section deterring free speech, guaranteed under the Fundamental Rights in the Constitution? Activists argue that sedition cases rarely stand in a court of law and that there should be clear demarcation between offences committed by cross-border terrorists opening fire on innocent citizens and citizens voicing dissatisfaction with governance. They should not fall under the purview of one common law.
Social activists have slammed Section 124A as “draconian”, pitching for freedom of speech and expression in a non-military state. The draconian laws should it remain in a sovereign, democratic Republic Statute?
The damage done to Tata through the release of Nira Radira tapes selectively is another infringement and consequently, the Right to Life which includes Right to privacy, had been breached in a callous manner. How did the Income Tax tapes come into the possession of ordinary people and electronic media already tainted for their role in the 1.73 lakh Cr pilferage? I think the Rights of the people are supreme. If the purpose of the IT department was to unearth fraudulent deeds, they should undertake to do that, and not leak sensitive tapes selectively. The Supreme Court should get into the nexus, culpability must be fixed. Guilty must be given deterrent punishment.
It is high time, we need to update our penal Code and Criminal procedure Code. We are a sovereign independent Republic. The people of India are Supreme in India. For it is the “People of India who gave unto ourselves the Constitution of India”.
*************
The Court had taken cognizance of the offences of defiance against Arunditi Roy and others for their speeches made in a Seminar “Azadi: The Only Way” wherein the noted writer is stated to have strongly opined on the alleged military excesses in Kashmir. On the basis of a Compliant filed under Sec 156(3) of the Cr PC at the Tilak Marg Police Station against the writer Arunditi Roy, Syed Geelani, Varavara Rao, SAR Geelani and some others who made speeches which were anti-Indian Statements when no action was taken by the Police Station, the case was brought before the Metropolitan Magistrate who asked Police to book the culprits under the relevant Criminal procedure Code and file cases against them in a competent Court of Law, after examining the documents produced before him.
Sec 156 of the Cr P C, 1973 states:
(1) Any officer in charge of a police station may, without the order of a Magistrate, investigate any cognizable case which a court having jurisdiction over the local area within the limits of such station would have power to inquire into or try under the provisions of Chapter XIII.
(2) No proceeding of a police officer in any such case shall at any stage be called in question on the ground that the case was one, which such officer was not empowered under this section to investigate.
(3) Any Magistrate empowered under section 190 may order such an investigation as above mentioned.
Union Law Minister M Veerappa Moily slammed Roy’s speech as “unfortunate” and said "Freedom of speech cannot violate the patriotic sentiments of the people and country.” The government maintains that peacefully making pro-Azadi speeches does not amount to sedition but inciting hatred through inflammatory oratory in an already emotionally charged atmosphere in the Valley may lead to violence. However, when the Police filed a report in the Metropolitan Magistrate’s Court that the speeches were not inflammatory and no offence under sedition could be made out, the Magistrate who had seen the documents chided the Police for filing a wrong report.
Act of Sedition appears in Chapter VI of First Schedule (Offence against the State) which is a cognizable non bailable offence that is defined in Sec 124 (A) of IPC. The law defines Section 124A of IPC as “whoever by words, either spoken or written, or by signs, or by visible representation, or otherwise, brings or attempts to bring into hatred or contempt, or excites or attempts to excite disaffection towards, the Government established by law in India can be booked under sedition.”
In today’s Hindu, (Nov 28, 2010) Arundhati Roy has described the various wordings of Jawaharlal Nehru, which she characterized as amounting to sedition. In his statement in the Security Council (in the 765th meeting of SC on 24 January 1957), Shri V K Krishna Menon committed that India believed in honouring international commitments and obligations it has undertaken.
Perhaps, Arundhati might be referring to the agreements, both oral and written that were arrived at regarding partition of India into India and Pakistan. Hindu majority regions which had a Muslim King, would decide for it whether it would cede to India or Pakistan. Junagadh, Hyderabad, Kashmir had identical problems. Junagadh was a Hindu territory with Muslim King, Hyderabad ditto, while Kashmir had a Hindu King. The case of Kashmir was different in so much that the Pakistan army inflicted a military attack, and to defend the Country, the Maharaja of Kashmir, through an act of accession, acceded to India with a signed Instrument of Accession. He asked India’s help to repulse the invaders. Once this was done, the Pakistan army was repulsed, even though they occupy a chunk of land in Azad Kashmir or what is called as Pakistan occupied Kashmir, even today. Pakistan was West Pakistan and East Pakistan(14 August 1947). Today, East Pakistan is ruled by its own people and ceded from Pakistan and became Bangladesh. Therefore, when there was an aggression, and Pakistan started it, they jumped the gun, and today, they have no locus standi in any part of Kashmir. They have waged innumerable Wars with India. The unrest in Kashmir is largely due to the broad propaganda of the jihad leaders. To say that there is wanton attack on Indian soil, the military should keep quiet cannot be termed as a genuine freedom of expression.
It is true, that the Father of the Nation, Mahatma Gandhi was tried for Sedition in 1922; then the Mahatma had said “Section 124 A, under which I am happily charged, is perhaps the prince among the political sections of the Indian Penal Code designed to suppress the liberty of the citizen.”
In his trial Gandhi has clearly stated that if one had “no affection for a person or system, one should be free to give the fullest expression to his disaffection, so long as he does not contemplate, promote, or incite to violence.”
“Some of the most loved of India’s patriots have been convicted under it. I consider it a privilege, therefore, to be charged under that section,” he said.
Is this Section deterring free speech, guaranteed under the Fundamental Rights in the Constitution? Activists argue that sedition cases rarely stand in a court of law and that there should be clear demarcation between offences committed by cross-border terrorists opening fire on innocent citizens and citizens voicing dissatisfaction with governance. They should not fall under the purview of one common law.
Social activists have slammed Section 124A as “draconian”, pitching for freedom of speech and expression in a non-military state. The draconian laws should it remain in a sovereign, democratic Republic Statute?
The damage done to Tata through the release of Nira Radira tapes selectively is another infringement and consequently, the Right to Life which includes Right to privacy, had been breached in a callous manner. How did the Income Tax tapes come into the possession of ordinary people and electronic media already tainted for their role in the 1.73 lakh Cr pilferage? I think the Rights of the people are supreme. If the purpose of the IT department was to unearth fraudulent deeds, they should undertake to do that, and not leak sensitive tapes selectively. The Supreme Court should get into the nexus, culpability must be fixed. Guilty must be given deterrent punishment.
It is high time, we need to update our penal Code and Criminal procedure Code. We are a sovereign independent Republic. The people of India are Supreme in India. For it is the “People of India who gave unto ourselves the Constitution of India”.
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Thursday, November 4, 2010
Welcome President Obama to India
As we brace to welcome Obama, the President of the United States of America, who brought hope but one year down the line, less cheer as he celebrates the aftermath of his assuming charge of the largest democracy in the World. The recent elections where, the Democrats lost majority in the House of the People, but managed to maintain a slight upper lead over the Republicans in the Senate. Number of fortress fell as Republicans candidates won the Governorship by a convincing margin.
One year ago, people thought that the regime of Obama will open up vistas. As the first black President in the United States, he will change the geography of the greatest nation where democracy of the people, by the people, to the people is the gospel of the Bible.
Today, the economy continues to be in the titters. Even though China has overtaken America as the greatest exporter with exports worth US $ 1.25 trillion, and Germany with US $ 1.05 trillion is ahead of America which stands at the 3 rd place with 1.04 trillion. Though the dollar has depreciated against almost all currencies, it stays mobile and strong even though penultimate parity has decreased and Dollar has lost its sheen. More Countries including China has placed all the Balance of Trade dollars in the American treasury Bills. This is good and positive encouragement to the economy, as America need not print more paper money and reach hyperinflation, as wealth is with it.
All along, America as a country outsourced jobs, as the cost of labour compared to the outsourced labour is very high in the former compared to the latter. Indian software engineers get paid around $1.5 dollars/ hour against $ 40 which an American will demand. Further more, the quality of supply is assured as work is part of Agreement and not an agreement of Contract with an American for doing a Job.
Outsiders stretch their working hours and are flexible while the Americans will stand by the ethics of duties and responsibilities. There again, it is advantageous for America to outsource people rather than providing employment.
With loss of income from work, how do you spread money? The Economists believed that by giving low interest credit to the workers to improve their standard of living, there will be money flow from the Banks to the Services sector and it would cause an economic cycle causing an economic bloom. But nothing of that sort happened. The people, who helped themselves to easy Credit, couldn’t repay, and once there was a struck repayment, banks began to feel the absence of money flow to and fro. The Houses that were mortgaguged decreased in value to the Credit, as there was a huge fall in demand. The Net Present Worth began to lower than the Worth which was perceived by the Banks at the time of handing the Credit. When there was a large re-payment crisis, the Banks could not continue the stagnation of money flow, with the result, the Banks bubble burst. Though Government intervened, the Banks had to progress on stimulus which was entirely different from capital infusion. It just served as working capital. With an abnormal trade deficit, cost overruns in Afghanistan and Iraq, enhanced military spending to quell the anticipated terrorist attacks, dilapidated economy, America of the present day looks crest fallen like the America of 1929. Survival is difficult, and maintaining the economy is extremely Herculean, and removing the scar of the backlash of the 2 nd millennium is gargantuan. President Obama requires all the support if he has to marshal America to its growth decades. Time alone will tell, whether he is successful or he will go down in history as somebody who tried and tried and tried, but it Went with the Wind!
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