Friday, September 28, 2018

Leaving a trail of simmering issues and ashes

Some food for thought
"If I take death into my life, acknowledge it, and face it squarely, I will free myself from the anxiety of death and the pettiness of life - and only then will I be free to become myself."
—Martin Heidegger (German Philosopher, 1889-1976)
Word for the day
Habiliment (n)
Characteristic trappings or dress
 
First random thought this morning
The Supreme Court of India is in overdrive these days. Destroying many archaic structures and creating new pathways. After reading down section 377 of IPC (decriminalizing same sex relationships), it has struck down Section 497 of IPC (decriminalizing adultery) completely. In the interim, SC upheld that the Right to Privacy is integral to the Right to Life, and hence effectively scuttled the State's attempts to invasion in our private lives. Aadhar Act verdict is a landmark in that sense. Allowing live streaming of SC proceedings in select cases is also a major milestone. Hopefully we shall see another remarkable judgment on Ayodhya dispute.
The government did a Shah Bano with the verdict on SC/ST Act. It is reportedly considering a legislation to undermine the Aadhar Act judgment also. It is inappropriate and unacceptable.
To the contrary, it's high time that the government takes a cue from the SC's line of thinking and initiates a comprehensive review of IPC and synchronizes it with the modern times.
Various laws should be suitably amended to provide for a "Dignified Life" to all citizens of the country. Do whatever it may take to ensure that.
 
Chart of the Day
 

Leaving a trail of simmering issues and ashes

Adhocism is the key word in policy making these days. Without a robust conceptual framework, the governance and administration has been reduced to mere fire fighting. Short of resources and constricted by poor vision, they are leaving a long trail of simmering issues and ashes, as they set out to fight a new fire every morning.
With most couples needing to work and many singles forced to stay alone for work, refrigerator and washing machine are commonly acknowledged as nothing but essential accessories, just like mobile phone.
It's not even two months when the government cut GST on air conditioners and washing machines materially. I took this as an recognition by the government of ground realities.
Suddenly comes a rude shock. Custom duties are hiked, inter alia, on air conditioners, and domestic washing machines.
Worst, it's not only the import of white goods, the government might have hit the investments made in "Make in India", by hiking the duty on AC compressors.
Given the insignificant amount of potential revenue and forex savings through this hike, the only inference I could draw is that somewhere it is a mindset problem. Apparently, the bureaucrats sitting in North Block at Raisina Hills are still not able to reconcile with the ground realities.
The political establishment is torn between the necessity to keep the middle class in good humor, while addressing the concerns of the people at bottom of the pyramid and protecting the interest of India Inc. Obviously they are not successful in pleasing anyone.
By committing to complete normalization of the policy by 2019, US Federal Reserve has further queered the pitch for our policy makers. A stronger USD consequent to higher US rates, will certainly impact capital flows to emerging markets, including India. Higher crude prices shall also keep the current account position persistently under pressure.
The imported inflation, at a time the domestic prices are also looking to rise due to rain caused supply disruptions and rise in logistics cost, shall add to the complexities being faced by the Monetary Policy Committee of RBI.
Conceptually, if MPC adheres to its mandate of price stability, it shall be looking at raising rates rather aggressively at its review meeting early next week, to stem INR depreciation, augment foreign flows and curtail domestic consumption demand.
This may result in collateral damage in the form of growth slowdown, renewed cycle of financial slippages, and increasing fiscal pressure as cost of government borrowing rises. This all is happening when the incumbent government is going to face the toughest test of its popularity in BJP's home turfs (MP, Rajasthan, Chhattisgarh) in next couple of months.
The question is what the government should be doing under the circumstances! The answer in opinion lies in politics and not in economics. For example, if I were PM today, I would not be scared to go to my people today. I would admit shortcomings in the DeMo exercise and thank them for bearing the pain. I would strongly commend their contribution in terms of voluntarily surrendering LPG subsidy, and committing to better tax compliance. I will seek their cooperation in managing the current account by minimizing the fuel consumption for 3months. Request them to travel only if necessary, use car pool & public transport and deferring their foreign travel programs to next summer. Most important, for once I will focus on delivery and refrain from making tall promises that cannot be delivered in next 6months.

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Thursday, September 27, 2018

Back to fragility ward

Some food for thought
"When someone shows you who they are, believe them the first time."
—Maya Angelou (American poet, 1928-2014)
Word for the day
Blellum (n)
An idle, indiscreet talker.
 
First random thought this morning
It is commonly believed that the popular movies generally reflect the contemporary society. Cinema highlights the current social problems, achievements, concerns, aspirations, joys, fantasies, trends, etc.
Post independent movies of 1950s emphasized on national integration, social harmony, industrialization, tribute to freedom fighters, character building, socio-economic inequalities etc.
War with neighbors, abolition of Zamindari and privy purse, bank failure, shortages (and black marketing) of food grain, gold smuggling, Naxalism, drugs, labor migration, atrocities on poor and backwards and rise of dacoits in rural areas etc. were major issues in 1960s and 1970s. Lead characters were still simple people.
Rise of urban mafia, youth rebellion, political corruption, exploitation of women, misuse of law enforcement agencies, police corruption, etc. dominated the Cinema themes in 1980s.
The waves of economic liberalization in early 1990s and political empowerment of socially backward post Mandal era, was reflected in movies of 1990s and 2000s. Middle class aspirations were fueled by family dramas set in opulent backgrounds. Foreign locations became the norm. The lead characters were now exaggerated and indulgent. Poor and backwards were either rebelling or exploiting the opportunities opened to them. Joint families started to breakup. Divorce became a totally acceptable arrangement.
The popular movies in past few years have been set up in smaller town middle class families. The areas and regions which are demographically young, growing and transforming much faster, and supporting the consumption boom.
One thing that is bothersome is that in real life the number of people visiting temples and undertaking pilgrimage is rising exponentially. But we have not seen any religion based movie in many years. Even there has been no popular movie Bhajan since Lagan.
Chart of the Day
 

Back to fragility ward

As per recent media reports, the government is planning to sell its stake in SJVN Ltd and Power Finance Corp. to other government-controlled companies in deals that may fetch the federal government about ₹ 20,000cr, helping it to rein in the fiscal deficit amid growing risks of a slippage. (See here)
This, if true, would be yet another of many such sham transactions done by the government. Every time any such is done, I am reminded of an old bedtime story, my grandfather used to narrate. Though, I have shared this story with the readers earlier also, I find it pertinent to reiterate.
"In a village, there lived a widow with her two sons. Both the sons were lazy and hated studying or working. Once when the annual fair of village was going on, the mother prepared some sweets and told her sons to go and sell those sweets in the fair and earn some money. She also gave one rupee each to both the boys for buying some food for lunch.
Both the sons reluctantly went to the fair, found a shaded place under a big tree and dozed off only to wake up at the lunch time. Feeling hungry, the younger boy bought sweets from his elder brother and gave him one rupee the mother had given him. In return, the elder brother bought sweets worth two rupee from the younger one. In one hour, they had sold all their sweets, had satiated their hunger and had also saved the two rupees their mother had given them.
Happy and satisfied, they returned home by late afternoon; of course, to the utter dismay of the poor woman."
The "poor woman" in our case are the Citizens of India.
Who are "Sons"? I would leave the answer to the imagination of the readers.
In 2013, when the taper tantrum of US Federal Reserve were reverberating in most emerging markets, a US based bank (Morgan Stanley) coined the term Fragile Five for economies considered most vulnerable to external shocks. Turkey, Brazil, South Africa India and Indonesia were identified as the infamous fragile five to begin with.
Alarmed by the perilous conditions, the government finally swung into action. The newly appointed RBI governor Raghuram Rajan and Finance Minister P. Chidambaram took a series of radical measures to improve current account and stabilize the currency.
Within a year, the conditions improved materially. Current account deficit reduced from 4.7% of GDP to 1.7% of GDP. Forex reserves increased from US$270bn to US$315bn. Economic growth started to recover. India was declared out of fragile five grouping by Diwali of 2014. (See here)
Some may find it interesting to note that the famous claim of current government that they brought out India of infamous category may not be true, as by the time PM Modi and FM Jaitely settled into the saddle, Indian vulnerability to the external shock had already diminished materially.
However, hawkish US Fed, strong USD, global monetary tightening, and trade restrictions etc., have led to renewed strain on emerging economies. Macro indicators in India have also shown a tendency to worsen. Consequently, we again face the risk of getting pushed to fragile category. The incumbent government may thus actually be blamed for undoing all the good work and pushing India back to the fragility ward, if things do not improve in next few months.
 
 
 
 
 
 
 
You may also like to glance through the following links:
 
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