Friday, September 1, 2017

Red flags - 1

"It is my ambition to say in ten sentences what others say in a whole book."
—Friedrich Nietzsche (German, 1844-1900)
Word for the day
Lineament (n)
A feature or detail of a face, body, or figure, considered with respect to its outline or contour, e.g., His fine lineaments made him the very image of his father.
Malice towards none
FM is absolutely right in saying that the people do not understand the objective of Demonetization.
By the way I forgot, what was that objective?
First random thought this morning
Albert Einstein once famously said, "A person who never made a mistake never tried anything new". Napoleon Bonaparte cautioned, "Never interrupt your enemy when he is making a mistake." And Bapu said, "A full and candid admission of one's mistakes should make proof against its repetition."
I am sure the incumbent government has tried many new things and made some mistakes. The opposition has repeatedly interrupted the government when making mistakes. The government has not admitted to any of its mistakes, and therefore it's ok to expect a repetition.

Red flags - 1

The recently issued Annual Report of RBI, succinctly sums up the macro conditions of the country:
"In the midst of global slowdown accentuated by the vicissitudes of financial markets and the transient impact of demonetisation, the Indian economy turned out resilient, marked by both internal and external stability. While economic growth moderated in 2016-17, there were visible signs of improvement in macroeconomic fundamentals – low inflation, and modest current account deficit and fiscal deficit. Going forward, even as the recent launch of the Goods and Services Tax (GST) gains traction across the country, strengthening fiscal consolidation, particularly at the sub-national level; reviving bank credit, and bringing investment back on rails, remain a challenge."
There are simply too many red flags to be ignored.
First, in my view, proving the resilience of the Indian economy against the global economy, by arguing that we are still growing faster than others  has little meaning.
In my view, if the world was an airport, the Indian economy is presently on the runway, taking off. Other economies which are resting at their respective bays, waiting for their turn to takeoff, or taxing towards the runway can afford to stop, slowdown or modulate their speed. But our economy having started to takeoff has only one legitimate option - to accelerate. Any push on the brake pedal at this stage would put the passengers (Indian citizens) in grave danger.
Secondly, the resilience of the economy has to be tested in the context that Indian economy has not seen any contraction since FY80. In these 37yrs we have seen it all - extreme political uncertainty, near default, extreme inflation and interest rates, severe droughts, two Iraq wars and consequent spurt in energy prices, war at Kargil, multitude of scams, at least three major financial market collapses (1992, 2000, 2008), years of insurgency in Punjab, J&K, North East, Central India, two very popular prime ministers brutally killed, extreme controls (FERA, CCI, MRTP) to liberalization, transition from CCI to SEBI and free pricing of IPOs, VAT, LERMS, FEMA, shift from MRTP to CCI, transition to WTO, and many other such events.
The resilience in Indian context therefore has to be tested on the parameter that whether we can grow higher even if there is a temporary disruption or global economy is not supportive.
Thirdly, the whole construct of Indian economy growing at the fastest pace and being resilient seems to be building mainly around five key premise - (a) Lower inflation; (b) strict fiscal discipline; (c) improving current account deficit; (d) reforms like GST, RERA, Bankruptcy Code, Financial Inclusion, digitization, etc.; and (e) political stability.
I would like to share my thoughts on these issues with the readers.
....to continue next week.

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