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”.
*************
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!
Thursday, October 28, 2010
The Economic Phase-out avalanche?
The U.S. government, is perhaps stimulating growth in the moribund economy by stoking the fires of inflation. But by leaving interest rates low and buying up bonds - a policy known as quantitative easing (QE) - the U.S. Federal Reserve risks debasing the dollar, which could lead to a prolonged period of hyperinflation that would send prices skyrocketing.
Lower inflation warranted looser monetary Policy. Banks are willing and prepared to ease policy to boost inflation expectations shortly. The Government was keeping interest rates at record lows, and purchased $ 1.7 trillion of US securities to keep the economy in subdued humour. Another round of expectant quantitative easing would make the economy further sober.
The weary financial system, already hanging with bouts of flows of money, with further money flowing into the system, the Government may well be sowing the seeds of hyperinflation. With pumping in more and more Cash into the System, deficits of $1.3 trillion and additional QE of $1 trillion on the table, the odds are getting greater all the time that a bout of hyperinflation could be in the cards. Hyperinflation can be simply defined as very high inflation, a condition in which prices increase rapidly as a currency loses its value. It usually occurs when monetary and fiscal authorities of a nation issue large quantities of money to pay for a large stream of government expenditures.
In numbers, hyperinflation could mean anything from a 100% cumulative inflation rate over three years to inflation exceeding 50% a month. For example, an inflation rate of 100% a month would reduce the value of a $20 bill to $2.50 in four months.
In order to sustain the economy, and bail out banks with $ 700 billion ‘Troubled Asset Relief Programme (TARP) and a stimulus programme worth $ 787 billion to boost the battered economy, and launching of a near $ 1 trillion rescue of government backed housing authorities, the Government has racked up $ 12.7 trillion in debt guarantees. Without hard assets like Gold in store to back these guarantees, the only alternate for the Government is to print more money to meet its debt obligations.
Hyperinflation can also be viewed as a form of taxation. The most serious consequence of hyperinflation is the reallocation of wealth. It transfers wealth from the general public, which holds money, to the government, which issues money.
A few examples of predominant occurrence of hyperinflation in world economic history are recounted below:-
Germany or the Weimar Republic went through its worst inflation in 1923. The highest currency issued was a 100,000,000,000,000 Mark note, which was the equivalent of about US $ 25. The rate of inflation peaked at 346% per month, meaning prices doubled every two days. The main cause is believed to be the "London ultimatum" in May 1921, which demanded reparations in gold or foreign currency to be paid in annual installments of 2 billion gold marks plus 26% of the value of Germany's exports. Although the Government blamed the massive run up in prices in the hefty war reparations due as a result of the Treaty that ended World War I, many experts say and feel that those payments accounted for only a third of that Country’s deficit. Bankers and Foreign speculators exacerbated the price of escalation, which during the last half of 1922 saw the cost of living index soar from 41 to 685(increase by more than 16 times roughly). 60 marks to the US Dollar in the early 1921 to 8000 marks to a Dollar in Dec 1922. Paper mark/Gold ratio rose from 1 in 1921 to 1 trillion in 1923!
On July 22, 2008, the value of the Zimbabwe dollar had fallen to approximately 688 billion per US $ 1. After the country's independence, inflation was stable until Robert Mugabe began a program of land reforms that primarily focused on taking land from white farmers and redistributing those properties and assets to black farmers. Rampant hyperinflation ensued when this policy sent food production and revenues from exports of food plummeting;
Hyperinflation in post World War II Hungary may be the highest on record. In April 1946, prices zoomed higher by 195% every day, meaning they doubled every 15.6 hours. The war caused enormous costs and, later, even higher losses to the relatively small and open Hungarian economy. The national bank was practically under government control. The government spent more than it could raise in taxes and the central bank printed more paper money to finance the deficit.
America has the financial strength and capacity to keep the hyperinflation under raps by balancing its interest rates to keep runway inflation in check. However, unless watched, inflation tends to take off rather quickly. If the prices bubble in few short months, inflation would be a hard not to crack.
There are business people, who sensing inflation, convert money into stocks of commodities and hoard them, creating artificial scarcity in the Market;
Distortion of relative prices;
People tend to convert their assets into non monetary ones or keep their assets in relative stable foreign currency;.
People regard monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that foreign currency.
Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period.
Then how do people protect themselves from inflation and lowering of their purchasing Power.
Government need to control their free wheeling spending. Bring in discipline in spending. Reduce stimulus. Take action to prevent the rise in prices for hard assets. Take precaution against hoarding, high exchange of currency in the market.
India is in a similar plight, as the tweedledum and tweedledee Policy in raising and lowering interest rates, and meddling with the export stimulus, hazy decisions to bring down the Non Performing Assets (NPA) by writing off Crores of Rupees worth of loans from the agricultural debt, playing with the saving interest rates without appropriate planning in developing thrift. Hoarding in Food grains, edible oils, and indiscreet import of commodities including Crude and edible oils, increasing continuously the prices of petroleum products saying they are inevitable, and nervous cycle of food and common inflation, Consumer Price Index showing lazy upward movements, all show that India too is slowly entering the league of Countries where hyperinflation will make a foray. Better beware.
Lower inflation warranted looser monetary Policy. Banks are willing and prepared to ease policy to boost inflation expectations shortly. The Government was keeping interest rates at record lows, and purchased $ 1.7 trillion of US securities to keep the economy in subdued humour. Another round of expectant quantitative easing would make the economy further sober.
The weary financial system, already hanging with bouts of flows of money, with further money flowing into the system, the Government may well be sowing the seeds of hyperinflation. With pumping in more and more Cash into the System, deficits of $1.3 trillion and additional QE of $1 trillion on the table, the odds are getting greater all the time that a bout of hyperinflation could be in the cards. Hyperinflation can be simply defined as very high inflation, a condition in which prices increase rapidly as a currency loses its value. It usually occurs when monetary and fiscal authorities of a nation issue large quantities of money to pay for a large stream of government expenditures.
In numbers, hyperinflation could mean anything from a 100% cumulative inflation rate over three years to inflation exceeding 50% a month. For example, an inflation rate of 100% a month would reduce the value of a $20 bill to $2.50 in four months.
In order to sustain the economy, and bail out banks with $ 700 billion ‘Troubled Asset Relief Programme (TARP) and a stimulus programme worth $ 787 billion to boost the battered economy, and launching of a near $ 1 trillion rescue of government backed housing authorities, the Government has racked up $ 12.7 trillion in debt guarantees. Without hard assets like Gold in store to back these guarantees, the only alternate for the Government is to print more money to meet its debt obligations.
Hyperinflation can also be viewed as a form of taxation. The most serious consequence of hyperinflation is the reallocation of wealth. It transfers wealth from the general public, which holds money, to the government, which issues money.
A few examples of predominant occurrence of hyperinflation in world economic history are recounted below:-
Germany or the Weimar Republic went through its worst inflation in 1923. The highest currency issued was a 100,000,000,000,000 Mark note, which was the equivalent of about US $ 25. The rate of inflation peaked at 346% per month, meaning prices doubled every two days. The main cause is believed to be the "London ultimatum" in May 1921, which demanded reparations in gold or foreign currency to be paid in annual installments of 2 billion gold marks plus 26% of the value of Germany's exports. Although the Government blamed the massive run up in prices in the hefty war reparations due as a result of the Treaty that ended World War I, many experts say and feel that those payments accounted for only a third of that Country’s deficit. Bankers and Foreign speculators exacerbated the price of escalation, which during the last half of 1922 saw the cost of living index soar from 41 to 685(increase by more than 16 times roughly). 60 marks to the US Dollar in the early 1921 to 8000 marks to a Dollar in Dec 1922. Paper mark/Gold ratio rose from 1 in 1921 to 1 trillion in 1923!
On July 22, 2008, the value of the Zimbabwe dollar had fallen to approximately 688 billion per US $ 1. After the country's independence, inflation was stable until Robert Mugabe began a program of land reforms that primarily focused on taking land from white farmers and redistributing those properties and assets to black farmers. Rampant hyperinflation ensued when this policy sent food production and revenues from exports of food plummeting;
Hyperinflation in post World War II Hungary may be the highest on record. In April 1946, prices zoomed higher by 195% every day, meaning they doubled every 15.6 hours. The war caused enormous costs and, later, even higher losses to the relatively small and open Hungarian economy. The national bank was practically under government control. The government spent more than it could raise in taxes and the central bank printed more paper money to finance the deficit.
America has the financial strength and capacity to keep the hyperinflation under raps by balancing its interest rates to keep runway inflation in check. However, unless watched, inflation tends to take off rather quickly. If the prices bubble in few short months, inflation would be a hard not to crack.
There are business people, who sensing inflation, convert money into stocks of commodities and hoard them, creating artificial scarcity in the Market;
Distortion of relative prices;
People tend to convert their assets into non monetary ones or keep their assets in relative stable foreign currency;.
People regard monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that foreign currency.
Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period.
Then how do people protect themselves from inflation and lowering of their purchasing Power.
Government need to control their free wheeling spending. Bring in discipline in spending. Reduce stimulus. Take action to prevent the rise in prices for hard assets. Take precaution against hoarding, high exchange of currency in the market.
India is in a similar plight, as the tweedledum and tweedledee Policy in raising and lowering interest rates, and meddling with the export stimulus, hazy decisions to bring down the Non Performing Assets (NPA) by writing off Crores of Rupees worth of loans from the agricultural debt, playing with the saving interest rates without appropriate planning in developing thrift. Hoarding in Food grains, edible oils, and indiscreet import of commodities including Crude and edible oils, increasing continuously the prices of petroleum products saying they are inevitable, and nervous cycle of food and common inflation, Consumer Price Index showing lazy upward movements, all show that India too is slowly entering the league of Countries where hyperinflation will make a foray. Better beware.
Friday, September 24, 2010
Crisis of Confidence?
The World Trade Organization(WTO) has revised its projection for World trade growth upwards to 13.5 per cent in 2010, following faster than expected recovery in trade flow so far this Year. “The surge in trade flows provides the means to climb out of this painful economic recession and can help put people back to work. It underscores, as well, the wisdom governments have shown in rejecting protectionism”, says the Report. However, WTO in its published report in early March, 2010 had forecast global trade volume to expand 10 % in the current fiscal. Merchandise exports of developed economies are predicted to expand 11.5 per cent in volume terms while the rest of the world including emerging economies and the Commonwealth of Independent States, is expected to inch towards a growth of 16.5 per cent.
The 13.5per cent growth in global trade volume would be the fastest year-on-year expansion recorded since 1950. However, the current expansion is on a low base of the previous year (2009) when the world trade volume was severely depressed. The world exports had plunged 12.2 per cent in 2009-10. The fastest YoY growth so far since 1950 was the 11.8 per cent growth recorded in 1976, one year after the then unprecedented decline of 7.3% in 1975.
The total world trade in 2009-10 was in the region of $ 31.2 trillion, against which China topped the Trade table with $1.2 trillion, Germany came second with $ 1.16 trillion and United States sliding to the third positon with exports at $1.05 trillion. Brazil was ranked (23) with exports worth $ 153 billion, Russia (11 position)($303 billion), India (18th position)($176.5billion). The total export trade realized US $ 12.5 trillion.
World merchandise trade rose sharply in the first two quarters of 2010, boosted by a recovery of GDP in both developed nd developing economies. However, many economists expect output growth to slacken in the Second half with the expiry of fiscal stimulus measures and the winding down of the inventory cycle. The slackening of trade growth in the second half accentuate that an eminent fall in the rate of growth in GDP in developed Countries. While there can be risks of downside, particularly in case an unforeseen financial or microscopic shock triggers another economic downturn, the Report hopes that the upside potentials could trigger better than expected growth in the Second half.
Coincidentally, the Bloomberg quarterly Global Poll forecasts predicts that the United States will lag behind the emerging markets of Brazil, China and India as a preferred destination for investment, having slid from the first position it held during the last Poll conducted three months ago. US economy has been rated as in the fourth place with Brazil and China tied for first, and India in the third Place. The slide in sentiment came as US GDP slid to 1.6% in the Second quarter from 3.7% in the first quarter. Expectations for2011 are down to a median forecast of2.5% from 2.9% in first quarter of 2011-12. The Survey showed that there were dim chances of double dip recession and that United States was slowly on to the path of slow yet steady growth. US people are wary of US budget deficits as a result, crisis of confidence would provoke a dramatic increase in interest rates within two years. The present budget deficit is forecast to be around $ 1.47 trillion for2010 and $1.42 trillion for 2011.
Even though stimulus offered through the various Schemes of the Foreign Trade Policy was evenly balanced, the downsizing of Duty Drawback rates for crucial sectors when it is struggling to find competitive space in the international market show that the policy makers have not become wiser by the bad experiences of the Past. While China’s exports are clocked $1.2 trillion, India has an export figure of just US $ 176.50 billion, the bulk of which comes from textiles and leather segments. As the dollar rate parity with the Rupee is slowly widening, choking inflation is already bleeding the bottom line of Cost of production, Government’s insensitiveness to the export related problems will cost the Country dear in terms of Balance of Trade and BoP, resulting in depletion of Foreign Exchange Reserves. When huge fund outlay is ear-marked for Populist schemes, the export sector becoming cost prohibitive would lead to India loosing advantage in world Trade.
The 13.5per cent growth in global trade volume would be the fastest year-on-year expansion recorded since 1950. However, the current expansion is on a low base of the previous year (2009) when the world trade volume was severely depressed. The world exports had plunged 12.2 per cent in 2009-10. The fastest YoY growth so far since 1950 was the 11.8 per cent growth recorded in 1976, one year after the then unprecedented decline of 7.3% in 1975.
The total world trade in 2009-10 was in the region of $ 31.2 trillion, against which China topped the Trade table with $1.2 trillion, Germany came second with $ 1.16 trillion and United States sliding to the third positon with exports at $1.05 trillion. Brazil was ranked (23) with exports worth $ 153 billion, Russia (11 position)($303 billion), India (18th position)($176.5billion). The total export trade realized US $ 12.5 trillion.
World merchandise trade rose sharply in the first two quarters of 2010, boosted by a recovery of GDP in both developed nd developing economies. However, many economists expect output growth to slacken in the Second half with the expiry of fiscal stimulus measures and the winding down of the inventory cycle. The slackening of trade growth in the second half accentuate that an eminent fall in the rate of growth in GDP in developed Countries. While there can be risks of downside, particularly in case an unforeseen financial or microscopic shock triggers another economic downturn, the Report hopes that the upside potentials could trigger better than expected growth in the Second half.
Coincidentally, the Bloomberg quarterly Global Poll forecasts predicts that the United States will lag behind the emerging markets of Brazil, China and India as a preferred destination for investment, having slid from the first position it held during the last Poll conducted three months ago. US economy has been rated as in the fourth place with Brazil and China tied for first, and India in the third Place. The slide in sentiment came as US GDP slid to 1.6% in the Second quarter from 3.7% in the first quarter. Expectations for2011 are down to a median forecast of2.5% from 2.9% in first quarter of 2011-12. The Survey showed that there were dim chances of double dip recession and that United States was slowly on to the path of slow yet steady growth. US people are wary of US budget deficits as a result, crisis of confidence would provoke a dramatic increase in interest rates within two years. The present budget deficit is forecast to be around $ 1.47 trillion for2010 and $1.42 trillion for 2011.
Even though stimulus offered through the various Schemes of the Foreign Trade Policy was evenly balanced, the downsizing of Duty Drawback rates for crucial sectors when it is struggling to find competitive space in the international market show that the policy makers have not become wiser by the bad experiences of the Past. While China’s exports are clocked $1.2 trillion, India has an export figure of just US $ 176.50 billion, the bulk of which comes from textiles and leather segments. As the dollar rate parity with the Rupee is slowly widening, choking inflation is already bleeding the bottom line of Cost of production, Government’s insensitiveness to the export related problems will cost the Country dear in terms of Balance of Trade and BoP, resulting in depletion of Foreign Exchange Reserves. When huge fund outlay is ear-marked for Populist schemes, the export sector becoming cost prohibitive would lead to India loosing advantage in world Trade.
CWG: Don't look with squint eye!
There has been lot of slur to India as a Country which is slated to host the prestigious Commonwealth games. From the take off stage, the games, conduct of the games, Chairman of the Indian Olympic Association have all been mired in one controversy or the other. Added to that, the Ministry of Sports looked the other way at every event connected with the organization of the Commonwealth games. Worst still, India’s former Sports Minister, even predicted that the ‘Commonwealth games shall fail.’
The games are scheduled at the worst of the worst times. The East based monsoon is slated during this period. There is already terrible floods and destruction of crops resulting in losses. As it is, Agriculture industry which is the back-bone of Indian economy is in adverse days due to plethora of reasons. The date(s) of the games coincided with the pronouncing of the Ayodhya verdict regarding a civil land dispute caste. The post law and order situation appears to be grim. Some terrorist groups have threatened to disrupt the games.
In the meantime, our overzealous electronic media does not waste a single space in their telecasts by picturizing one or the other defect; showing the shabby bathrooms, washing closet, collapse of the overhead bridge to the Nehru Stadium, breaking up of Plaster of Paris in the hall meant for weightlifting events, comments by veterans including Politicians. This has already presented the image of India being sullied in the international eyes as Poor organizers, an event steeped in corruption, unhygienic surroundings, mosquito menace, incomplete infrastructure, and many faults here and there.
Prime Minister, it is shown in the media, is seen taking rounds of various stadia where events are to take place. He has also warned Chief Minsiter, Delhi, Sports Minister, GoI, and President of Indian Olympic Association to act in tandem and finish the job instead of out-pouring their wrath openly.
India needs to take advantage of such a massive event for which Crores of Rupees of tax payers money is being spent. There must be accountability between the Organizers and the Government. If a private body like BCCI can conduct a IPL most successfully with its own generated funds, why can’t Government in association with these Sports bodies organize an international event.
Individual members of the different Countries have started withdrawing from the event. Different countries have expressed their inhibitions in participation. We do not know whether they will come.
With all these failings, India which Obama saw as a sparkling booming growth oriented economy, Indian image will suffer. And the contributors to the fallen image will be Indians themselves. Very sad, indeed.
The games are scheduled at the worst of the worst times. The East based monsoon is slated during this period. There is already terrible floods and destruction of crops resulting in losses. As it is, Agriculture industry which is the back-bone of Indian economy is in adverse days due to plethora of reasons. The date(s) of the games coincided with the pronouncing of the Ayodhya verdict regarding a civil land dispute caste. The post law and order situation appears to be grim. Some terrorist groups have threatened to disrupt the games.
In the meantime, our overzealous electronic media does not waste a single space in their telecasts by picturizing one or the other defect; showing the shabby bathrooms, washing closet, collapse of the overhead bridge to the Nehru Stadium, breaking up of Plaster of Paris in the hall meant for weightlifting events, comments by veterans including Politicians. This has already presented the image of India being sullied in the international eyes as Poor organizers, an event steeped in corruption, unhygienic surroundings, mosquito menace, incomplete infrastructure, and many faults here and there.
Prime Minister, it is shown in the media, is seen taking rounds of various stadia where events are to take place. He has also warned Chief Minsiter, Delhi, Sports Minister, GoI, and President of Indian Olympic Association to act in tandem and finish the job instead of out-pouring their wrath openly.
India needs to take advantage of such a massive event for which Crores of Rupees of tax payers money is being spent. There must be accountability between the Organizers and the Government. If a private body like BCCI can conduct a IPL most successfully with its own generated funds, why can’t Government in association with these Sports bodies organize an international event.
Individual members of the different Countries have started withdrawing from the event. Different countries have expressed their inhibitions in participation. We do not know whether they will come.
With all these failings, India which Obama saw as a sparkling booming growth oriented economy, Indian image will suffer. And the contributors to the fallen image will be Indians themselves. Very sad, indeed.
Friday, September 10, 2010
Is Brazil entering the economic trap?
Is Brazil heading into the eye of a storm?
Brazil, the media-darling of the world financial press and the poster child for emerging-markets investing, is heading directly into the eye of the storm. Brazil was a great country to invest. Returns were equivalent of 160%. But, this famous forward looking growing economy faces problems, if immediately not rectified.
Will Brazil remain a favourite of BRIC countries...?
Brazilian government brought in changes in its business approach. The Parliamentary and Presidential election is due soon. Official government spending was budgeted to grow by a moderate 10.7%, and was subject to further trimming to accommodate more spending. Brazil’s state owned Companies, which has been accelerating in recent years (119), is set to increase further by 32%. Brazilian Development Bank’s exposure in lending expected to touch US $ 87billion, while housing lending for the first half grew stealthily by 51% (over the same period of 2009). Government has proposed US $ 886 billion Infrastructure Investment Plan for the next seven years. State lending has increased from 1% of Brazilian GDP to 7%. This would further the deficit in its budget.
Brazilian government passed a Law to wrest control over Oil firms. The increase in oil price fixed by the Government will force Peteroleo Brasilerio to raise $ 65 billion in equity to pay the Government and to finance capital investment needed for exploiting its sub salt Tupi Oil resources. The difference of amount of US $ 42.5 billion received by overcharging is accounted as revenue, but would constitute 2.8% of the GDP. This covers up the fiscal deficit to the extent of 2.8% of GDP.
The lending of money by the state owned banks and Petrobras cash subsidy would make Brazilian deficit postulation at 10-12% of the GDP.
Yet, unlike the U.S. and British economies that have suffered under deficits of this magnitude, the Brazilian economy is in the middle of a roaring boom, with projected GDP growth of 7.8% for this year.
It's not as if Brazil was under-indebted, either; the excessive public debt nearly sent the country into bankruptcy in 2002, and the leeway before debt repeats the process is less than Brazilian commentators seem to think.
The road economic policy will take in Brazil would culminate with the election results which are due in October. If Centrist come to power, a favourable private sector policy without prolifigating public spending will be the central theme of the Economic policy. However, if a Socialist were to be elected to power, they could carry the country to high government spending and income redistribution. The Road map to peruse the current policies has been already set out. Monetary policy would quickly change if an inflationist comes to power.
However, with a true public-sector deficit of 10% of GDP and public spending that's already the highest in Latin America, there isn't much room to expand the state sector before the country runs into big trouble. While commodity prices keep rising, the commodity-dependent Brazil will at least be able to borrow the money it needs.
But if commodity prices falter, a crisis of confidence would be more or less inevitable.
There are positives. Brazil's central bank continues to maintain an admirably sound interest-rate policy, which has kept the short-term rate - currently 10.75% - far above the current inflation level of roughly 5%. That has prevented the inflationary spiral that would otherwise be well underway.
Brazil has had these bursts of growth before, and they have always been ended by a debt crisis followed by a period of forced austerity that has wiped out the previous boom's income gains and worsened the country's huge inequality.
For Brazilian investors and citizens alike, that will certainly be a pity after such a strong run. . But Brazil is currently regarded as one of the world's four great growth economies, and under current policies, that "high fashion" image that has buoyed its economy needed tinkering, if it has to continue to be the ‘Country to Watch tommorrow’
Brazil, the media-darling of the world financial press and the poster child for emerging-markets investing, is heading directly into the eye of the storm. Brazil was a great country to invest. Returns were equivalent of 160%. But, this famous forward looking growing economy faces problems, if immediately not rectified.
Will Brazil remain a favourite of BRIC countries...?
Brazilian government brought in changes in its business approach. The Parliamentary and Presidential election is due soon. Official government spending was budgeted to grow by a moderate 10.7%, and was subject to further trimming to accommodate more spending. Brazil’s state owned Companies, which has been accelerating in recent years (119), is set to increase further by 32%. Brazilian Development Bank’s exposure in lending expected to touch US $ 87billion, while housing lending for the first half grew stealthily by 51% (over the same period of 2009). Government has proposed US $ 886 billion Infrastructure Investment Plan for the next seven years. State lending has increased from 1% of Brazilian GDP to 7%. This would further the deficit in its budget.
Brazilian government passed a Law to wrest control over Oil firms. The increase in oil price fixed by the Government will force Peteroleo Brasilerio to raise $ 65 billion in equity to pay the Government and to finance capital investment needed for exploiting its sub salt Tupi Oil resources. The difference of amount of US $ 42.5 billion received by overcharging is accounted as revenue, but would constitute 2.8% of the GDP. This covers up the fiscal deficit to the extent of 2.8% of GDP.
The lending of money by the state owned banks and Petrobras cash subsidy would make Brazilian deficit postulation at 10-12% of the GDP.
Yet, unlike the U.S. and British economies that have suffered under deficits of this magnitude, the Brazilian economy is in the middle of a roaring boom, with projected GDP growth of 7.8% for this year.
It's not as if Brazil was under-indebted, either; the excessive public debt nearly sent the country into bankruptcy in 2002, and the leeway before debt repeats the process is less than Brazilian commentators seem to think.
The road economic policy will take in Brazil would culminate with the election results which are due in October. If Centrist come to power, a favourable private sector policy without prolifigating public spending will be the central theme of the Economic policy. However, if a Socialist were to be elected to power, they could carry the country to high government spending and income redistribution. The Road map to peruse the current policies has been already set out. Monetary policy would quickly change if an inflationist comes to power.
However, with a true public-sector deficit of 10% of GDP and public spending that's already the highest in Latin America, there isn't much room to expand the state sector before the country runs into big trouble. While commodity prices keep rising, the commodity-dependent Brazil will at least be able to borrow the money it needs.
But if commodity prices falter, a crisis of confidence would be more or less inevitable.
There are positives. Brazil's central bank continues to maintain an admirably sound interest-rate policy, which has kept the short-term rate - currently 10.75% - far above the current inflation level of roughly 5%. That has prevented the inflationary spiral that would otherwise be well underway.
Brazil has had these bursts of growth before, and they have always been ended by a debt crisis followed by a period of forced austerity that has wiped out the previous boom's income gains and worsened the country's huge inequality.
For Brazilian investors and citizens alike, that will certainly be a pity after such a strong run. . But Brazil is currently regarded as one of the world's four great growth economies, and under current policies, that "high fashion" image that has buoyed its economy needed tinkering, if it has to continue to be the ‘Country to Watch tommorrow’
Sunday, September 5, 2010
Bangaluru, the beauty that has faded?
Banagaluru had a salubrious climate throughout the Year, and was a wonder city hailed as the Pensioners’ paradise. Its blooming orchards, greenery, perched trees in full bloom, flame of the forest, mallige, sampigee, and pleasant weather, will make Bangaluru, one of the best holiday locations. The British built a Cantonment, and many towns in Bangaluru East resemble English counties with a number of Churches built in Anglican architectural style, as vestiges of a splendoured Past. Besides the sobriquet of Garden City, parks, gardens, tree-lined streets and quaint buildings make up for Bangalore’s yesterdays, while the other face is that of a cosmopolitan city brimming with multi-national call centers, burgeoning software industry, imposing buildings, hep pubs, cafes, shopping arcades. Bangaluru is a City of Contrasts.
Most of the retireed people made a beeline to this prosperous town with temples, churches, and mosques. Kampagowda Road was well known for its location of cinema halls. The Cubban Park with its plants and flowery gardens was an epitome of a big orchard. Lal Bagh, which was one of the rarest gardens in India, had a historical touch, as it was here that Smt Indira Gandhi broke away from the Congress establishment to form Congress Indira. Its glass house is vivid with history. The Bull temple near here is world famous. Vidhan Soudha, red-sandstone Attara Kacheri, Tipu’s Palace, Ulsoor Lake, Sankey Boat Club, Bull Temple, ISKON Temple, Prasanna Anjaneya Temple, Infant Jesus church are some of Bangaluru’s attractions.. Jalahalli has India’s airforce camps. Banguluru had central investments like HAL, BEML, BHEL, etc. Peenya, Krishna Raja Puram, Yeshwantpur, Tumkur Road accommodated SMEs. The Devanahalli International Airport is built on PPP model. The Metro Rail will soon add another dimension to the City’s CBD.
It was this town, with its hoary past and cool climate, which had grown beyond its size. The Greater Bangalore had grown, and small houses in big compounds have been raced to the ground to make way for concrete jungles, the biggest malls with fancied western manufactured goods are available here, and the latest cars sneeze past one another. The road is chocked with traffic, it takes almost ½ an hour to cross the Indian Institute of Science to Yeshwantpur Road and drive past Metro. The Road from ISKON to Rajajinagar at least takes 40 minutes for you to cross. The traffic on Mysore Road from Vijayanagar to Kalasipalayam Bridge will take not less than 1 hour. In the peak hour traffic, you can always get lost. If you are a pedestrian, you need to cross the court, you will have to patiently wait for many minutes, before your turn comes.
“One half of our Society guzzles aerated beverages while the other has to do with playful of muddled water. On a three way lane of liberalization, privittization and globalization must provide safe pedestrian crossings for empowering India.” This comment may look little harsh, but nevertheless a fact. No state in India can backdate its achievements. It needs to attract capital and Corporates so that it could provide jobs to the vast majority of people. Bangaluru had excellent Colleges, institutes, polytechnics. Today States need to market their states and the Chief Minister must modify himself to a Corporate CEO. The successful State will attract capital through spelling out its cost advantage, through strategic and pointed marketing. At the macro level, the born again Federal covenant is altering the way CEOs of different States are evaluating their investment decisions. As location has an impact on almost every corporate activity, it is the basic cost driver. And since Cost advantages translate into competitiveness, location becomes a powerful tool in the new competitive economy. Location paradigms of businesses in post-liberalization India are adapting to the evolution of a more Federal structure. State’s objective parameters would provide a pointer to the emerging investment climate, especially Foreign Direct investments.
Bangaluru became the Silicon Valley of India. It had both the software czars like Wipro, Infosys, and more than 200 MNCs, who set up establishments in the State. Banguluru was well known destination in the software lexicon. It became the software capital of India. It had software parks, more out of the private initiative rather than through government investment. The state reaped a gold mine. The Services export which galvanized India’s export sector contributed more than US $ 50 billion, more than one-half coming from this place. The biggest software companies, and the renowned hardware companies, have their establishment here. This brought a glow to Bangalore. Urban explosion also saw a booming night life and an emerging pub culture. Concrete jungles took over vacant space. There was a convergence of people from all over the world. It became a cosmopolitan city. From a sleepy city it soon changed to sleepless city.
The book, the Blooming Bangalore by T P Issar, a bureaucrat had flowers in full bloom photographed from different parts of Bangalore. I have walked across roads where there was a rich canopy of trees provided shade to the pedestrians. Today two wheelers, three wheelers, autos, motor cars, buses, crumple for a little space on the roads, making walking along the roads a nightmare. Many of the trees have gone, many ways side parks disappeared, and cute houses with their distinct small orchards have disappeared. Pensioners’ paradise has become a pensioners curse. The mandis which were full of fresh vegetables is always crowded. Their places have been taken by the multiplex malls, and big chain stores that are into retail though remaining wholesale.
Bangaluru has become the Central business district (CBD) defining the city’s business character. Invariably, business houses prefer to have an office here as it adds to the corporate image.
The reign of Shri Ramakrishna Hegde, as Chief Minister was considered as a unique progressive period in the history of Karnataka. Shri S M Krishna laid the foundation stone for modernization of Bangaluru.
When we look at Bangaluru with its fast growing software, hardware, technology based industries which robbed it of its charm, are these software czars responsible for making the pensioner’s paradise into a buzzling town? Has software industry paid a price for robbing Banguluru of its old charm? An old yet famous photographer Shri Kamat, told foreigners when they came to get old Bangaluru photos from him:” Most Bangaloreans do not frequent pubs, do not own computers or do not shop in the commercial district”(His photo of old Sampige st reproduced).
Friday, September 3, 2010
India's paradox wilderliness?
We hear government telling us that the high presence inflation in food has dwarfed economic growth. We also hear government telling us that in view of the perilous production of oil seeds and their conversion into edible oil, we needed to import a high quality to break-even between supply and demand. Our Planning experts are telling us that food grains growth would stabilize once the monsoon hits India. Monsoon did hit India, and very severely that the flood devastated many areas with its fury. Even the national capital was not spared.
The Supreme Court had faulted the government for having amassed food grains more than the stock required and due to clumsy storing, the entire stores got devastated by the rats that ate what was supposed to be given for distribution amongst the poor through Public Distribution System and through Antodya Anna Yojana. The Court ordered their free distribution with a time tag. But our iron clad bureaucracy is sitting tight and is in the process of devising a plan to distribute the food grains. When and how will be the reason that there will be delay?
The Planning Commission is of the view that the total BPL families in India are around 6.25 Cr. However, the States do not agree. They estimate the BPL families at 10.7 Cr. Why a head count was not taken is any body’s guess. As against Antdodya Anna Yojana, the beneficiaries entitled to benefits has been reackoned as 2.5 Cr. However, the State government has been able to enlist 1.82 Cr households, and they have been given Ration cards. While 0.68 Cr needs to be accounted, the subsidy for 2.5 Cr households have been calculated, and the amount budgeted and will be released pro rata. What will happen to the budget relating to 0.68 Cr will lie in the wilderliness.
Government, according to Economic Survey (Page 205, Table 8.29) says that in 2008-9, the production of oil seeds was 281.57 lakh tones of which edible oil was produced to the extent of 85.98 lakh tones, while 67.20 lakh tones was imported of which 83% was accounted by Palm Oil. So the available oil was 153.18 lakh tones when the actual requirement was only 132.80 lakh tones. The imported oil in surplus was 20.38 lakh tones which accounted for 15.34% excess. During 2009-10, 255.09 lakh tones was the production of oil seeds and converted into edible oil was 82 lakh tones. The import figures went staggering to 101 lakh tones. The total available oil was 183 lakh tones against the requirement of 138.18 lakh tonne. The difference was 44.82 lakh tones which accounted for 32.44% in excess of demand. Another factor was these oil were imported at ‘nil’ duty for Crude and 7.5% for Refined against the normal 45% and 52.5% and the loss on this account was in the region of Rs 25,000 Cr. Added to this, government thought it wise to release Rs 15 per Kg on imported oil for release through PDS. The recurring expenditure stand at Rs 1,500 Cr!
The question that comes to the fore is why are we importing in excess of what is required. There will inevitably be a closing stock which will become next year’s opening stock. What happened to that? The excess of import during the next year, what will happen to that? To whom do these reserves sold or given?
During 2008-09 an amount of Rs 43,668.08 Cr was released as agricultural subsidies which grew by a staggering 39.69 % over 2007-8 and upto Dec 29, 2009, Rs 46,906.68 Cr was spent which was in excess of 7.42 % over the full year’s spending of 2008-9. This was the time, the Government announced time and again, food inflation going to double figures and crossing 16%. During the same period, our Planning Commission stood ground with the theory that India’s agricultural growth will be 4% and to reduce it in the last quarter to negative 0.20%. Just to upset them, the agricultural growth turned positive and recorded 0.20% growth.
Our Government talks of austerity. Government is committed to fiscal consolidation. Bringing down the fiscal deficit from 5.5%. Our Planning Commission talks of apparatus to enhance growth through paradigm change growth models. While all these are professed, there is waste, excess expenditure, unexplainable imports, poor support to India’s domestic sector which is in the wilderliness.India, paradox, thy name?
The number inconsistencies, will anybody reveal the correct figures. Where is the accountability vis-a-vis facts,figures, subsidies, necessity, decision makers?
The Supreme Court had faulted the government for having amassed food grains more than the stock required and due to clumsy storing, the entire stores got devastated by the rats that ate what was supposed to be given for distribution amongst the poor through Public Distribution System and through Antodya Anna Yojana. The Court ordered their free distribution with a time tag. But our iron clad bureaucracy is sitting tight and is in the process of devising a plan to distribute the food grains. When and how will be the reason that there will be delay?
The Planning Commission is of the view that the total BPL families in India are around 6.25 Cr. However, the States do not agree. They estimate the BPL families at 10.7 Cr. Why a head count was not taken is any body’s guess. As against Antdodya Anna Yojana, the beneficiaries entitled to benefits has been reackoned as 2.5 Cr. However, the State government has been able to enlist 1.82 Cr households, and they have been given Ration cards. While 0.68 Cr needs to be accounted, the subsidy for 2.5 Cr households have been calculated, and the amount budgeted and will be released pro rata. What will happen to the budget relating to 0.68 Cr will lie in the wilderliness.
Government, according to Economic Survey (Page 205, Table 8.29) says that in 2008-9, the production of oil seeds was 281.57 lakh tones of which edible oil was produced to the extent of 85.98 lakh tones, while 67.20 lakh tones was imported of which 83% was accounted by Palm Oil. So the available oil was 153.18 lakh tones when the actual requirement was only 132.80 lakh tones. The imported oil in surplus was 20.38 lakh tones which accounted for 15.34% excess. During 2009-10, 255.09 lakh tones was the production of oil seeds and converted into edible oil was 82 lakh tones. The import figures went staggering to 101 lakh tones. The total available oil was 183 lakh tones against the requirement of 138.18 lakh tonne. The difference was 44.82 lakh tones which accounted for 32.44% in excess of demand. Another factor was these oil were imported at ‘nil’ duty for Crude and 7.5% for Refined against the normal 45% and 52.5% and the loss on this account was in the region of Rs 25,000 Cr. Added to this, government thought it wise to release Rs 15 per Kg on imported oil for release through PDS. The recurring expenditure stand at Rs 1,500 Cr!
The question that comes to the fore is why are we importing in excess of what is required. There will inevitably be a closing stock which will become next year’s opening stock. What happened to that? The excess of import during the next year, what will happen to that? To whom do these reserves sold or given?
During 2008-09 an amount of Rs 43,668.08 Cr was released as agricultural subsidies which grew by a staggering 39.69 % over 2007-8 and upto Dec 29, 2009, Rs 46,906.68 Cr was spent which was in excess of 7.42 % over the full year’s spending of 2008-9. This was the time, the Government announced time and again, food inflation going to double figures and crossing 16%. During the same period, our Planning Commission stood ground with the theory that India’s agricultural growth will be 4% and to reduce it in the last quarter to negative 0.20%. Just to upset them, the agricultural growth turned positive and recorded 0.20% growth.
Our Government talks of austerity. Government is committed to fiscal consolidation. Bringing down the fiscal deficit from 5.5%. Our Planning Commission talks of apparatus to enhance growth through paradigm change growth models. While all these are professed, there is waste, excess expenditure, unexplainable imports, poor support to India’s domestic sector which is in the wilderliness.India, paradox, thy name?
The number inconsistencies, will anybody reveal the correct figures. Where is the accountability vis-a-vis facts,figures, subsidies, necessity, decision makers?
Thursday, September 2, 2010
America piggyback on world growth?
During a period of increasingly worrisome headlines about the U.S. economy, there is one bright spot. The rest of the world is doing much better than America.
In the long run, that's good news for the United States. Rapid world growth will eventually rekindle the economic fires in the United States, producing a growth that is more balanced than the bubbles of 1995-2008. Still, getting to that point will be a challenge, since - economically speaking - the home fires don't appear to be burning all that brightly.
The U.S. recovery appears to have slowed to a crawl - or perhaps even ground to a halt. The "advance" estimate of U.S. second-quarter growth was reported at 2.4%, indicating a long road to recovery - during which unemployment is likely to soar.
Almost half of the quarter's gross-domestic-product (GDP) growth projected for the second quarter was inventory buildup. Government spending and a temporary housing blip - caused by the homebuyer tax rebate, which expired April 30 - accounted for the rest.
June durable goods orders, reported July 28, were unexpectedly down 1%, suggesting that even manufacturing is currently slowing. Add to that weak consumer confidence numbers for July and house sales well below expectations for both May and June, and it becomes clear that there's cause for grave concern on the domestic front.
While inflation does not seem to be an immediate problem, unemployment remains appallingly high. That's especially true of long-term unemployment, which - at 4.6% of the working population - is at a post-World War II record. The federal budget deficit is hovering at roughly 10% of GDP and interest rates remain close to zero, thanks to polices that are looking increasingly eccentric when compared to the routes that other countries have chosen to pursue.
It looks as if the U.S. economy will be dealing with the "Great Recession" for a long time to come. But most of the world's other major economies are experiencing fairly rapid recoveries, meaning that they are putting the "Great Recession" firmly in the rearview mirror.
The other countries which were in economic throes are slowly recovering. Canada posted first-quarter growth of no less than 6.1%, and its budget is almost in balance. Even sluggish Britain expanded at 4.5% in the second quarter, and its heroic effort to balance its budget will undoubtedly help growth going forward. German industrial production was up 12.4% in the 12 months through May.
In fact, the overall Euro zone is safely into a growth mode - although its overall budget deficit is still dangerously high. The Economist estimates that shortfall it will reach 7% of GDP this year.
Turning to Latin America, Mexico is something of a basket case. But Brazil is expected to grow at 7.8% this year, with Chile not far behind at 5%. Meanwhile, China is projected to grow at 9.9% in 2010, India at 7.9%, and wealthy South Korea at 5.9%. Even sluggish Japan will manage 3.1% growth.
The bottom line: The wise investor will allocate most of his money internationally.
Modest quantities should go into Europe - particularly Germany and Britain, where valuations are reasonable and growth prospects good. Some should go into Canada, China, Brazil and Chile - each of which has natural-resource-based economies. Canada and Chile also will benefit from having thoroughly reliable governments.
A large proportion should go into Asia: A little into Japan, where prospects appear somewhat brighter than they did a few months ago, and a substantial amount into China. Somewhat less should go into India, where valuations are too high and there are signs of inflation. Finally, a substantial chunk should head for South Korea, which boasts good growth, stability and a capable government.
The Indian consumer is slowly growing in importance. The country has a well-educated, young and ambitious work force, rising wages and is heavily focused on domestic consumption, which means it is less susceptible to the ills of Europe and the United States than China. The government is as messed up as anywhere and civic infrastructure is a nightmare, but both of which will improve over time.
It's important to remember that prospects for the U.S. economy are not universally gloomy. The bad news is that the Obama administration and the U.S. Federal Reserve are together following the policies that Japan has followed for the most of its last 20 years, prolonging recession and producing dangerous bouts of deflation. There are, however, two bits of good news. The first is that U.S. policies may change. However, the movement towards budget balancing is gathering strength in both political parties, and it seems likely that fiscal discipline will be restored once the new Congress takes office in January - following the midterm elections. If the budget is brought towards balance, as is happening in Britain, resources are freed up for the private sector and economic growth becomes easier.
The second, bigger piece of good news - not noticed by those who fear a Japanese "Lost Decade" type of future - is that the U.S. position differs from Japan's in one important respect: Whereas Japan has always had a large balance-of-payments surplus, the United States currently has an enormous balance-of-payments deficit.
The United States has a huge advantage when world economic growth is strong, as is currently the case. With export markets growing faster than domestic consumption, exports will tend naturally to increase faster than imports, producing the most pleasant of all economic states - export-led growth.
Japan couldn't grow its way out of its malaise, because its huge international reserves made the yen too strong, intensifying deflation. Furthermore, foreign countries became disquieted by Japan's surpluses and erected hidden trade barriers against Japanese imports.
In the U.S. case, rapid growth in exports would reduce global imbalances, not increase them. The U.S. balance-of-payments deficit would decline, reducing its need for foreign funding. That would make the world economy more stable and increase its intrinsic growth rate. But it wouldn't push up the dollar, because the balance of payments would still be in a deficit.
Stern action has to be taken to rein in the budget deficit, U.S. economic growth would accelerate and unemployment would decline. If the budget deficit remained huge, there wouldn't be so much money coming in from abroad, meaning domestic savers would be forced to buy U.S. Treasuries. That would force up interest rates and restrict the flow of funds to private-sector borrowers.
U.S. investors should be optimistic for 2011 and beyond. Rapid global growth should rectify the U.S. balance-of-payments problem, so that even modest fiscal discipline will produce a quickening of U.S. growth rates, and a full economic recovery.
In the long run, that's good news for the United States. Rapid world growth will eventually rekindle the economic fires in the United States, producing a growth that is more balanced than the bubbles of 1995-2008. Still, getting to that point will be a challenge, since - economically speaking - the home fires don't appear to be burning all that brightly.
The U.S. recovery appears to have slowed to a crawl - or perhaps even ground to a halt. The "advance" estimate of U.S. second-quarter growth was reported at 2.4%, indicating a long road to recovery - during which unemployment is likely to soar.
Almost half of the quarter's gross-domestic-product (GDP) growth projected for the second quarter was inventory buildup. Government spending and a temporary housing blip - caused by the homebuyer tax rebate, which expired April 30 - accounted for the rest.
June durable goods orders, reported July 28, were unexpectedly down 1%, suggesting that even manufacturing is currently slowing. Add to that weak consumer confidence numbers for July and house sales well below expectations for both May and June, and it becomes clear that there's cause for grave concern on the domestic front.
While inflation does not seem to be an immediate problem, unemployment remains appallingly high. That's especially true of long-term unemployment, which - at 4.6% of the working population - is at a post-World War II record. The federal budget deficit is hovering at roughly 10% of GDP and interest rates remain close to zero, thanks to polices that are looking increasingly eccentric when compared to the routes that other countries have chosen to pursue.
It looks as if the U.S. economy will be dealing with the "Great Recession" for a long time to come. But most of the world's other major economies are experiencing fairly rapid recoveries, meaning that they are putting the "Great Recession" firmly in the rearview mirror.
The other countries which were in economic throes are slowly recovering. Canada posted first-quarter growth of no less than 6.1%, and its budget is almost in balance. Even sluggish Britain expanded at 4.5% in the second quarter, and its heroic effort to balance its budget will undoubtedly help growth going forward. German industrial production was up 12.4% in the 12 months through May.
In fact, the overall Euro zone is safely into a growth mode - although its overall budget deficit is still dangerously high. The Economist estimates that shortfall it will reach 7% of GDP this year.
Turning to Latin America, Mexico is something of a basket case. But Brazil is expected to grow at 7.8% this year, with Chile not far behind at 5%. Meanwhile, China is projected to grow at 9.9% in 2010, India at 7.9%, and wealthy South Korea at 5.9%. Even sluggish Japan will manage 3.1% growth.
The bottom line: The wise investor will allocate most of his money internationally.
Modest quantities should go into Europe - particularly Germany and Britain, where valuations are reasonable and growth prospects good. Some should go into Canada, China, Brazil and Chile - each of which has natural-resource-based economies. Canada and Chile also will benefit from having thoroughly reliable governments.
A large proportion should go into Asia: A little into Japan, where prospects appear somewhat brighter than they did a few months ago, and a substantial amount into China. Somewhat less should go into India, where valuations are too high and there are signs of inflation. Finally, a substantial chunk should head for South Korea, which boasts good growth, stability and a capable government.
The Indian consumer is slowly growing in importance. The country has a well-educated, young and ambitious work force, rising wages and is heavily focused on domestic consumption, which means it is less susceptible to the ills of Europe and the United States than China. The government is as messed up as anywhere and civic infrastructure is a nightmare, but both of which will improve over time.
It's important to remember that prospects for the U.S. economy are not universally gloomy. The bad news is that the Obama administration and the U.S. Federal Reserve are together following the policies that Japan has followed for the most of its last 20 years, prolonging recession and producing dangerous bouts of deflation. There are, however, two bits of good news. The first is that U.S. policies may change. However, the movement towards budget balancing is gathering strength in both political parties, and it seems likely that fiscal discipline will be restored once the new Congress takes office in January - following the midterm elections. If the budget is brought towards balance, as is happening in Britain, resources are freed up for the private sector and economic growth becomes easier.
The second, bigger piece of good news - not noticed by those who fear a Japanese "Lost Decade" type of future - is that the U.S. position differs from Japan's in one important respect: Whereas Japan has always had a large balance-of-payments surplus, the United States currently has an enormous balance-of-payments deficit.
The United States has a huge advantage when world economic growth is strong, as is currently the case. With export markets growing faster than domestic consumption, exports will tend naturally to increase faster than imports, producing the most pleasant of all economic states - export-led growth.
Japan couldn't grow its way out of its malaise, because its huge international reserves made the yen too strong, intensifying deflation. Furthermore, foreign countries became disquieted by Japan's surpluses and erected hidden trade barriers against Japanese imports.
In the U.S. case, rapid growth in exports would reduce global imbalances, not increase them. The U.S. balance-of-payments deficit would decline, reducing its need for foreign funding. That would make the world economy more stable and increase its intrinsic growth rate. But it wouldn't push up the dollar, because the balance of payments would still be in a deficit.
Stern action has to be taken to rein in the budget deficit, U.S. economic growth would accelerate and unemployment would decline. If the budget deficit remained huge, there wouldn't be so much money coming in from abroad, meaning domestic savers would be forced to buy U.S. Treasuries. That would force up interest rates and restrict the flow of funds to private-sector borrowers.
U.S. investors should be optimistic for 2011 and beyond. Rapid global growth should rectify the U.S. balance-of-payments problem, so that even modest fiscal discipline will produce a quickening of U.S. growth rates, and a full economic recovery.
Saturday, August 28, 2010
Urgent judicial reforms needed
Indian judiciary, one of the pillars of the Indian Constitution, was venerated, respected and believed to be conscience keeper of the Country’s constitution. Certain land mark judgments, which recognized the right of the individual over absolute Power, independence of the IV estate and Executives invasion into the freedom of the Press had been considered sacred by the Courts, even Courts looked into certain legislative actions from the strict eyes of Law and juristic covenants, precedents and templates, have bee lauded and respected. It acted as an accountable body protecting the fundamental rights, the Courts struck acts and laws transgressing the limits of the Constitution, and kept up its supremacy.
However, when the Governments at the Centre and States started tinkering with Laws, and any arbitration between Centre and states, states and States, States Vs individuals were referred to the Courts for adjudication, the Executive wantonly transferred its responsibility to Courts. When even administrative matters were not solved on the basis of Driot Administratef, Central Government and State Government Rules, but referred to Courts,. Examples of this are Ayodhya dispute, Cauveri Water dispute, etc were referred to Courts for its arbitration. There are many issues which had been referred by the President of India to the Supreme Court for its clarification, Courts naturally became highly pro active, and took upon itself, cases which normally should not have been admitted. The Public Interest litigation was easy route for anybody to approach the highest Court of the land, whether the applicant had prima facie interest and affected by a particular order or action of the government, he surpassed the usual channels of law available to him, and knocked at the Supreme Court whether he was bona fide affected or not. This PIL later became a nuisance, and Supreme Court had warned the petitioners not to file vexatious PIL without sufficient reasons.
The present judiciary is losing common man’s respect for obviously many reasons. Cases have been piled up in the lower Courts, higher Courts and Supreme Courts for ages, there are corruption charges against Judges of the higher Court, there are impeachment proceedings against some Judges, some judges involved in the PF case have brought shame to the judiciary. Criticism of one judge by another pusine judge through twitter or speeches have become common, there are parallel trails by the visual media 24x7 which prejudices the Case and one of the sad repercussions of these are loss of faith by the litigants on Courts which is supposed to dispense Fair Law. There have been past judgments which have been reversed 360 degrees by higher Courts. The recent incidents involving some of the sitting judicial officers for their Post Graduate legal examination at Andhra Pradesh were caught red handed copying by a CCTV camera is a shame on the entire judicial system. If a judicial officer who should administer fair justice indulge in incorrect procedures, who will give justice to the litigants? Can litigants have faith in such judicial officers or the judicial system?
There are also reports that appointments to the High Courts and Supreme Courts and transfer of High Court judges from one state to another are not fair. Good lawyers do not want to become Judges. Another factor in delay in delivering Justice is shortage of Judges. Even cases filed in the Fast Track Courts are unusually delayed.
There is a need for overhauling reforms in Judiciary. The left over of the colonial past including Rules, regulations, acts, laws have been a stumbling block to deliver Law in these days when speed is a necessity. Globalization has changed global laws. World has changed. There are States or nations which indulge in Wars. There are non state actors who indulge in terrorism acts or take Law into their hands. Whether these acts are out of frustration, economic backwardness or political thinking is another matter. Judges are human, they can commit mistakes. But when some of the judicial officers think that they are conferred with infinite powers, they should be told that there are checks and balances in the judicial system. There are many acts of indiscipline within the Court rooms. The Judges are accountable to the system and Rule of Law. They are also accountable to the Constitution of India. They must be mild in their observations for the litigant who has obeyed the Law and stringent in their language against law breaker. Government also should respect protocols and act impassionately. During the vote on account during the introduction of the Financial bill, CBI told the Supreme Court that enough evidence of financial irregularity against Mayawati is not there; but when to get the Nuclear Bill passed, where there was necessity to get the Left and BJP to support the Government, the CBI took a 360 degree turn and now says that evidences are there against Mayawati. This is the highest political misuse.
Judicial Reforms is the need of the hour. Like the Fourth estate, Indian judiciary needs to exert self discipline. The hallowed institution should command respect, reverence and worship! It must regain its lost legacy.
However, when the Governments at the Centre and States started tinkering with Laws, and any arbitration between Centre and states, states and States, States Vs individuals were referred to the Courts for adjudication, the Executive wantonly transferred its responsibility to Courts. When even administrative matters were not solved on the basis of Driot Administratef, Central Government and State Government Rules, but referred to Courts,. Examples of this are Ayodhya dispute, Cauveri Water dispute, etc were referred to Courts for its arbitration. There are many issues which had been referred by the President of India to the Supreme Court for its clarification, Courts naturally became highly pro active, and took upon itself, cases which normally should not have been admitted. The Public Interest litigation was easy route for anybody to approach the highest Court of the land, whether the applicant had prima facie interest and affected by a particular order or action of the government, he surpassed the usual channels of law available to him, and knocked at the Supreme Court whether he was bona fide affected or not. This PIL later became a nuisance, and Supreme Court had warned the petitioners not to file vexatious PIL without sufficient reasons.
The present judiciary is losing common man’s respect for obviously many reasons. Cases have been piled up in the lower Courts, higher Courts and Supreme Courts for ages, there are corruption charges against Judges of the higher Court, there are impeachment proceedings against some Judges, some judges involved in the PF case have brought shame to the judiciary. Criticism of one judge by another pusine judge through twitter or speeches have become common, there are parallel trails by the visual media 24x7 which prejudices the Case and one of the sad repercussions of these are loss of faith by the litigants on Courts which is supposed to dispense Fair Law. There have been past judgments which have been reversed 360 degrees by higher Courts. The recent incidents involving some of the sitting judicial officers for their Post Graduate legal examination at Andhra Pradesh were caught red handed copying by a CCTV camera is a shame on the entire judicial system. If a judicial officer who should administer fair justice indulge in incorrect procedures, who will give justice to the litigants? Can litigants have faith in such judicial officers or the judicial system?
There are also reports that appointments to the High Courts and Supreme Courts and transfer of High Court judges from one state to another are not fair. Good lawyers do not want to become Judges. Another factor in delay in delivering Justice is shortage of Judges. Even cases filed in the Fast Track Courts are unusually delayed.
There is a need for overhauling reforms in Judiciary. The left over of the colonial past including Rules, regulations, acts, laws have been a stumbling block to deliver Law in these days when speed is a necessity. Globalization has changed global laws. World has changed. There are States or nations which indulge in Wars. There are non state actors who indulge in terrorism acts or take Law into their hands. Whether these acts are out of frustration, economic backwardness or political thinking is another matter. Judges are human, they can commit mistakes. But when some of the judicial officers think that they are conferred with infinite powers, they should be told that there are checks and balances in the judicial system. There are many acts of indiscipline within the Court rooms. The Judges are accountable to the system and Rule of Law. They are also accountable to the Constitution of India. They must be mild in their observations for the litigant who has obeyed the Law and stringent in their language against law breaker. Government also should respect protocols and act impassionately. During the vote on account during the introduction of the Financial bill, CBI told the Supreme Court that enough evidence of financial irregularity against Mayawati is not there; but when to get the Nuclear Bill passed, where there was necessity to get the Left and BJP to support the Government, the CBI took a 360 degree turn and now says that evidences are there against Mayawati. This is the highest political misuse.
Judicial Reforms is the need of the hour. Like the Fourth estate, Indian judiciary needs to exert self discipline. The hallowed institution should command respect, reverence and worship! It must regain its lost legacy.
Tuesday, August 24, 2010
We need to change our Agricultural prespectives?
Our lives are so fragile and vulnerable dependent on the monsoon winds. A deflection of even four degrees in the travel of these winds in any year can make for the draught in several States. To this day, with all the economic and technological advancements, the irony is that farmers continue to look up to the sky and pray for the winds and the rains on time; urban cities in their search for solutions for water and power shortages, are so completely dependent on the monsoon for life and living. If the farmer cannot grow food without the winds and the rains, the urban dweller does not get power at home and food at the Mall, without the rich water catchments that either generate hydel power or increase the inflow of greens and cereals into the market.
The rainfall pattern has held for many years on the same. So on what does this pattern depend upon? The Indian sub continent is the only region in the entire world which is dependent on winds that flow 24/7 from across the seas to the land and back again to the Arabian Sea and Bay of Bengal and the vast Indian Ocean that lies beneath. These northwest and southwest monsoon are as old as Time, and travel at a speed of 12/18 Kms an hour. These winds might have taken the present directions after the formation of Himalayas which must be just over 15-20 million years ago; this is nothing compared to the fact that the creation of earth goes back to over 4,000 million years.
Malabar Coast became a leading trading hub and a vibrant passage of cross cultural mergers and dialogues because the sea lanes beyond the borders led the ancients to this place because of the wind movement. Monsoon lands in Kerala in India at the first instance. The guts of wind that herald rain bends and break the Coconut trees, which are very weak or too stiff and upright, but the more flexible ones bend and extend their palm leaves to break the downpour and so many tiny waterfalls hang out from their branches.
Like the self sufficiency in food while mass hunger continues in many parts, it is another great contradiction of India that there is too much water in some areas while draught prevail in others. Distribution is the key word in both cases. Meanwhile, traditional and local water management practices, which sustain the most deprived in remote areas are ignored and damaged by modern development.
The full moon day in the thick of monsoon, is a day villagers come in herds to worship the water itself; the life sustaining element created by the harmonies of nature.
Monsoon if bountiful will push our agricultural output; if deficit, it will hit the food economy. Rainfall in 2009 was lowest since 1972, yet that fiscal accounted for a diminishing 0.2% in output. If monsoon comes, India’s agriculture will regain resilience. Output of Khariff food grains fell by 15% and oil seeds by 5%. Government released the figures that the agricultural growth accounted for 0.2% in agricultural GDP. Are the estimates correct? The Economists, who are policy advisors, have to anticipate problems and suggest solutions before problems turn to crisis. And not justify the crisis as a fall-out of international reasons. Devaluation of the Dollar has been a frenzied monster, and to offset that, the Rupee: Dollar parity should have been narrowed down, which if done, would have angered the business crowd.
Our Agricultural policy is ridiculous. Planning Commission and MoA, and the economic advisors of the PM/Finance Ministry have been fooling people. Inflation is directly related to hoarding of food grains. The solution lies in bringing down stocks to appropriate levels, and inventory should relate to food grains required for PDS. Government has no business to buy food grains more than what is required for PDS and that too at the prevalent market rates. Government policy appears to be: give farmers highest prices and give the grains at throw away prices. Traders do not keep any inventories of food grains, and what they did was paid the farmers and allowed the goods to be kept with them, and took them and sold them at savaging prices during mid inflation in food. The price raise has been caused by a plethora of problems, the government needs to accept them and the opposition need to understand them and then evolve effective policies to solve it. Instead, destructive arguments for all the wrong reasons see Parliament adjourned again and again.
Government’s only solution appears to be imports of food grains and essential oils. And to curb inflation, its only solution is minimizing Customs duties. It has also banned import of edible oils by canalizing imports and has prohibited all sorts of exports of essential edible oils. With free import of oils from abroad at nil customs duties, the market is invaded nakedly by the imported oils that it sounds death knell for indigenous edible oils. But our agricultural ministry behaves like King Canute, who asked the waves to roll back. Is the Government not acting like King Caunte by asking the monsoons to come? The economists have no other option or armory. Our agricultural minister thinks that agriculture prices are like a 20:20 match. The more the price goes up, the more will be supply. But unfortunately, the Opposite happens!
In the context of Growth Vs Inflation, it is intellectually and methodologically flawed. Economic strategy must reflect high yield, high growth with modest inflation and high employment. When prices were falling globally, Govt adopted an aggressive food procurement programme. When there were enough stocks, the right approach should have been to release that and allow market forces to act. This would have allowed demand and supply equation, and the prices would have been in sync with global prices. Government also did not undertake any global market operations. Food issue was dealt with too many ministries- Finance, Cabinet Committee on prices, NAC, PDS was not good. There is also a need to know behaviour trends like cropping pattern, emerging trends in growth in different crops, weather trends. Food prices are high, Foreign exchange reserves is not a problem, monsoon is good, food supplies are ample available. How to do, what needs to be done and that too, very fast.
We need to restructure the PDS model, as PDS has not been able to perform for the last 60 years.
In a general equilibrium model, you need to operate in both. Demand side is a larger issue, whereas spillover of food inflation into a more of generalized inflation is a core issue. If you have a strategy that is led by consumption instead of investment, then the demand side management is an issue. On the supply side, we need to take care of wastage. More than 45% of the food and vegetables are wasted.
The rainfall pattern has held for many years on the same. So on what does this pattern depend upon? The Indian sub continent is the only region in the entire world which is dependent on winds that flow 24/7 from across the seas to the land and back again to the Arabian Sea and Bay of Bengal and the vast Indian Ocean that lies beneath. These northwest and southwest monsoon are as old as Time, and travel at a speed of 12/18 Kms an hour. These winds might have taken the present directions after the formation of Himalayas which must be just over 15-20 million years ago; this is nothing compared to the fact that the creation of earth goes back to over 4,000 million years.
Malabar Coast became a leading trading hub and a vibrant passage of cross cultural mergers and dialogues because the sea lanes beyond the borders led the ancients to this place because of the wind movement. Monsoon lands in Kerala in India at the first instance. The guts of wind that herald rain bends and break the Coconut trees, which are very weak or too stiff and upright, but the more flexible ones bend and extend their palm leaves to break the downpour and so many tiny waterfalls hang out from their branches.
Like the self sufficiency in food while mass hunger continues in many parts, it is another great contradiction of India that there is too much water in some areas while draught prevail in others. Distribution is the key word in both cases. Meanwhile, traditional and local water management practices, which sustain the most deprived in remote areas are ignored and damaged by modern development.
The full moon day in the thick of monsoon, is a day villagers come in herds to worship the water itself; the life sustaining element created by the harmonies of nature.
Monsoon if bountiful will push our agricultural output; if deficit, it will hit the food economy. Rainfall in 2009 was lowest since 1972, yet that fiscal accounted for a diminishing 0.2% in output. If monsoon comes, India’s agriculture will regain resilience. Output of Khariff food grains fell by 15% and oil seeds by 5%. Government released the figures that the agricultural growth accounted for 0.2% in agricultural GDP. Are the estimates correct? The Economists, who are policy advisors, have to anticipate problems and suggest solutions before problems turn to crisis. And not justify the crisis as a fall-out of international reasons. Devaluation of the Dollar has been a frenzied monster, and to offset that, the Rupee: Dollar parity should have been narrowed down, which if done, would have angered the business crowd.
Our Agricultural policy is ridiculous. Planning Commission and MoA, and the economic advisors of the PM/Finance Ministry have been fooling people. Inflation is directly related to hoarding of food grains. The solution lies in bringing down stocks to appropriate levels, and inventory should relate to food grains required for PDS. Government has no business to buy food grains more than what is required for PDS and that too at the prevalent market rates. Government policy appears to be: give farmers highest prices and give the grains at throw away prices. Traders do not keep any inventories of food grains, and what they did was paid the farmers and allowed the goods to be kept with them, and took them and sold them at savaging prices during mid inflation in food. The price raise has been caused by a plethora of problems, the government needs to accept them and the opposition need to understand them and then evolve effective policies to solve it. Instead, destructive arguments for all the wrong reasons see Parliament adjourned again and again.
Government’s only solution appears to be imports of food grains and essential oils. And to curb inflation, its only solution is minimizing Customs duties. It has also banned import of edible oils by canalizing imports and has prohibited all sorts of exports of essential edible oils. With free import of oils from abroad at nil customs duties, the market is invaded nakedly by the imported oils that it sounds death knell for indigenous edible oils. But our agricultural ministry behaves like King Canute, who asked the waves to roll back. Is the Government not acting like King Caunte by asking the monsoons to come? The economists have no other option or armory. Our agricultural minister thinks that agriculture prices are like a 20:20 match. The more the price goes up, the more will be supply. But unfortunately, the Opposite happens!
In the context of Growth Vs Inflation, it is intellectually and methodologically flawed. Economic strategy must reflect high yield, high growth with modest inflation and high employment. When prices were falling globally, Govt adopted an aggressive food procurement programme. When there were enough stocks, the right approach should have been to release that and allow market forces to act. This would have allowed demand and supply equation, and the prices would have been in sync with global prices. Government also did not undertake any global market operations. Food issue was dealt with too many ministries- Finance, Cabinet Committee on prices, NAC, PDS was not good. There is also a need to know behaviour trends like cropping pattern, emerging trends in growth in different crops, weather trends. Food prices are high, Foreign exchange reserves is not a problem, monsoon is good, food supplies are ample available. How to do, what needs to be done and that too, very fast.
We need to restructure the PDS model, as PDS has not been able to perform for the last 60 years.
In a general equilibrium model, you need to operate in both. Demand side is a larger issue, whereas spillover of food inflation into a more of generalized inflation is a core issue. If you have a strategy that is led by consumption instead of investment, then the demand side management is an issue. On the supply side, we need to take care of wastage. More than 45% of the food and vegetables are wasted.
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