"It is better to be the
hammer than the anvil."
—Emily Dickinson (American,
1830-1886)
Word for the day
Bicameral (adj)
Government. Having two branches, chambers, or houses, as a
legislative body.
Malice towards none
How long Hindi-Chini bhai
bhai bonhomie will last after BRICS summit?
First random thought this morning
A recent report suggest that presently economic inequities in
India are highest in almost in a century. The report also highlights that the
economic inequalities reduced consistently between 1920-1980, with the share of
top 1% population in total income falling from over 20% to 6%. From 1980
onwards the share of top 1% had again climbed to over 20% in 2014.
1977-1980 is a key period in Indian political history. This is the
time when the hegemony of Congress party was first defeated by a coalition of
motley opposition of right-center-left ideologies. Since then it had been a
consistent struggle between Congress and others, until May 2014, when BJP won a
decisive mandate. Corruption rose to perilous proportions in this period.
It would be interesting to see if BJP hegemony reverses this trend
in rising inequalities by curbing corruption. In hindsight DeMo might come out
to be the water shed in Indian economic history, success or failure either way.
Red flags - 3
Fiscal consolidation has been one of the remarkable effort of the
government in past three years. Since FY14, the gross fiscal deficit of the
central government has fallen from 4.5% to 3.2% of GDP (FY18BE).
The improvement in fiscal expenditure seems to have come entirely on
account of cut in Revenue expenditure. The government revenue expenditure has
fallen from 12.2% of GDP in FY14 to 10.9% in FY18BE.
There has been no change in net tax revenue (though gross tax
revenue has increased from 10.1% in FY14 to 11.3% in FY18BE), non-tax revenue,
and capital expenditure.
In my view, the fiscal improvement might have already peaked.
I feel, any further rise in incidence of tax could be seriously
counterproductive for growth, especially private consumption growth.
Incrementally the growth in tax revenue may moderate considerably as compared
to past three years.
Similarly, the rate of government revenue expenditure curtailment
may also have peaked. Going forward we may actually see some rise, given the
forthcoming general elections.
Given that petroleum subsidies have been mostly rationalized and
farm subsidies are getting rationalized fast, the incremental rate of subsidy
reduction may also likely moderate.
Stagnant capital expenditure also does not augur well for any
acceleration in growth, especially given that scope for any major spike in
budgetary allocation for capital expenditure is limited. Compensation to states
for GST, elections, lower incremental receipts from auction of spectrum etc.
may also constraint the government capital expenditure.
In view of this it is difficult to expect any major increment in
support for bullish market argument from fiscal side. For all, it may actually
weaken a bit next year.
Also read the following:
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