Vijay Kumar Gaba

Friday, April 7, 2017

MPC declares demon of DeMo dead and burried

"One cannot conceive anything so strange and so implausible that it has not already been said by one philosopher or another."

—Rene Descartes (French, 1596-1650)

Word for the day

Fanfaronade (n)

Bragging; Bravado; Bluster.

Malice towards none

Yogi ji gives 15days to his officers, to chalk out a comprehensive strategy for improving business climate in the state of UP!

Bullock cart gets a Ferrari engine.

First random thought this morning

Syria is a true reflection of the acute leadership crisis prevailing in the world. The traditional global powers, i.e., US, UK, Germany, France, and Russia continue to be bogged down by their domestic issues. Japan refuses to get over its WWII guilt. China is making little effort to gain acceptance as global leader.

India is too fragile to lead an act in a foreign land. The Nehruvian legacy of Panchsheel and Non-alignment also prevents us from asserting in cases of human rights violations in other parts of the world.

The question is whether we are drifting towards a disintegrated world, where regional issues dominate the geo-political agenda, leading to emergence of multiple conflict zones, much like 16-17th century Europe.

MPC declares demon of DeMo dead and burried

The monetary policy committee of RBI seems unanimously positive on economy. The committee sees the risk to global growth receding rather precipitately.

The committee noted that "indicators of global growth suggest signs of stronger activity in most advanced economies (AEs) and easing of recessionary conditions in commodity exporting large emerging market economies (EMEs). In the US, high frequency data indicate that the labour market, industrial production and retail sales are catalysing a recovery in Q1 of 2017 from a relatively subdued performance in the preceding quarter. Nonetheless, risks to higher growth have arisen from non-realisation or underachievement of macroeconomic policies. In the Euro area, the manufacturing purchasing managers’ index (PMI) rose to a six-year high in March amidst improving consumer confidence and steadily strengthening employment conditions. In the Japanese economy, nascent signs of revival are evident in the form of falling unemployment, improving business sentiment on fixed investment, and rising exports helped by the depreciation of the yen; however, deflation risks linger."

The committee also noted that "For EMEs, the outlook is gradually improving, with indications that the slowdown characterising 2016 could be bottoming out. In China, supportive macroeconomic policies, surging credit growth and a booming property market have held up the momentum of growth albeit amidst concerns about financial stability and capital outflows. In Brazil, hardening commodity prices are providing tailwinds to reforms undertaken by the authorities to pull the economy out of recession, although financial fragilities remain a risk. Russia is benefiting from the firming up of crude prices and it is widely expected that growth will return to positive territory in 2017."

The committee highlighted that inflation is edging up in advanced economies on the back of slowly diminishing slack, tighter labour markets and rising commodity prices.

With few exceptions like Turkey and South Africa, the inflationary pressures have eased in emerging markets. Consequently, "Global trade volumes are finally showing signs of improvement amidst shifts in terms of trade, with exports rising strongly in several EMEs as well as in some AEs whose currencies have depreciated."

On the domestic front, the key noting of the committee are as follows:

(a) In FY17, agriculture expanded robustly year-on-year after two consecutive years of sub-one per cent growth. However, in the industrial sector, there was a significant loss of momentum across all categories, barring electricity generation. The services sector also slowed, pulled down by trade, hotels, transport and communication as well as financial, real estate and professional services. Nonetheless there are several indicators that point towards modest improvement in the macroeconomic outlook.

(b) The 77th round of the Reserve Bank’s industrial outlook survey indicates that overall business sentiment is expected to improve in Q1 of 2017-18 on the back of a sharp pick up in both domestic and external demand.

Coincident indicators such as exports and non-oil non-gold imports are indicative of a brighter outlook for industry, although the sizable under-utilisation of capacity in several industries could operate as a drag on investment.

Activity in the services sector also appears to be improving as the constraining effects of demonetisation wear off.

(c) The 77th round of the Reserve Bank’s industrial outlook survey indicates that pricing power is returning to corporates as profit margins get squeezed by input costs.

(d) Balance of payments data for Q3 indicate that the current account deficit for the first three quarters of the financial year narrowed to 0.7 per cent of GDP, half of its level a year ago. For the year as a whole, the current account 5 deficit is likely to remain muted at less than 1 per cent of GDP.

(e) Foreign direct investment (FDI) has dominated net capital inflows during April-December, with manufacturing, communication and financial services being the preferred sectors.

(f) Headline CPI inflation is set to undershoot the target of 5.0 per cent for Q4 of 2016-17 in view of the sub-4 per cent readings for January and February. For 2017-18, inflation is projected to average 4.5 per cent in the first half of the year and 5 per cent in the second half. The upside risks to inflation forecast stems from the uncertainty surrounding the outcome of the south west monsoon in view of the rising probability of an El Niño event around July-August, and its implications for food inflation.

(g) GVA growth is projected to strengthen to 7.4 per cent in 2017-18 from 6.7 per cent in 2016-17, with risks evenly balanced.

(h) Significant improvement in transmission of past policy rate reductions into banks’ lending rates post demonetisation should help encourage both consumption and investment demand of healthy corporations.

The committee stressed that along with rebalancing liquidity conditions, it will be the Reserve Bank’s endeavour to put the resolution of banks’ stressed assets on a firm footing and create congenial conditions for bank credit to revive and flow to productive sectors of the economy.

The committee noted that the transmission of policy rate cuts done in past has accelerated in recent months. However, the committee felt that further scope for a more complete transmission of policy impulses remains, including for small savings/administered rates.

In consistency with the neutral stance of monetary policy, the committee unanimously decided to keep repo rate unchanged at 6.25%, and narrow the liquidity adjustment facility window by raising reverse repo rate by 25bps to 6%.

The next meeting of the MPC is scheduled on June 5 and 6, 2017.

Thursday, April 6, 2017

Seek new horizons

Wednesday, April 5, 2017

See the part in whole, and whole in parts

Thought for the day

"I am accustomed to sleep and in my dreams to imagine the same things that lunatics imagine when awake."

—Rene Descartes (French, 1596-1650)

Word for the day

Platitude (n)

A flat, dull, or trite remark, especially one uttered as if it were fresh or profound.

Malice towards none

Does the social status accorded to any of the following people need to be reviewed?

(a) N. R. Narayan Murthy

(b) Anna Hazare

(c) Akhilesh Yadav

(d) Sonia Gandhi

First random thought this morning

In past couple of decades we have seen a material rise in contemptuous remarks against various deities, revered religious scriptures, practices and institutions. Some of these may be coming from the rise in awareness about the malpractices prevalent in the religious practices and institutions. But certainly easy access to religion does also have a role to play in breeding of this contempt.

Expecting someone, who knows Krishna only from TV serials, to have same devotion as someone who has been breathing Krishna consciousness for years would be too much to ask.

If someone walks 300kms from Rishikesh to Kedarnath and Badrinath through dense forest and arduous hilly terrain, reverence occurs naturally to him. Air dropping at temple might not have that impact.

See the part in whole, and whole in parts

Continuing from where I left it last month (see here), I would like to point out that many of the recent measures taken by the government have been analyzed as socio-political steps that could potentially have serious negative implications for the Indian economy.

It feels terribly sorry to discover that many of the armchair economists and financial experts are so disconnected from the ground realties. These experts have been analyzing events and policy decisions piecemeal on standalone basis, whereas most of these steps are natural, logical and essential extensions of a series of positive developments in past two decades.

Demonetization was one such case in point. A number of reputable experts took no time and minced no words in terming it a monumental disaster. My assessment after travelling to hinterland was diametrically opposite (see here). In hindsight I feel fortunate to have relied on what I saw rather than what I heard and read.

The shakeup in the animal product industry is yet another case in point. A number of experts are codenaming the move as purely political (some are even terming it religious bigotry). the general view seems to be that it will lead to massive job losses. Some experts have estimated the economic loss in trillions of rupees.

In my view, this is clearly a case of political and personal prejudices overriding the professional judgment.

I sincerely believe that the move could have just created a multibillion dollar business opportunity that may significantly uplift living standards of people engaged in one of the most derided profession.

As per the government records "India has the world’s largest population of livestock and is world’s 5th largest producer of meat."

"India's livestock sector has continuously provided structural support to the rural economy as an important vocation for rural population, next only to crop raising. On account of favourable socio economic factors such as changing eating habits, higher purchasing power, urbanization, increasing health consciousness towards protein rich diet, there has been increase in demand for meat and the sector has gained importance in terms of contribution to income, employment and forex earnings." (see here)

But unfortunately, the sector has remained mostly unorganized and has miserably failed to realize its full potential. In FY14, export of meat contributed less than 1.5% to India's total exports. The conditions in which meat trade is done are seriously sub-human. The social status of butchers and meat sellers is amongst the lowest in society.

If this business gets organized like other food processing businesses like dairy, ready to eat packaged food, etc., with the help of better capital, technology and market access, this could metamorphose the lives of millions of families engaged in the business. To understand what I am trying to say - just close your eyes and imagine your neighborhood meat shop as a fully air-conditioned kiosk with a large refrigerator, selling animal produce in nicely sealed packets with no foul odor bothering vegetarians like me....to continue

Thursday, March 23, 2017

Adjusting to new normal

सभी पाठकों को नव विक्रम संवत्सर एवं चैत्र नवरात्र उत्सव की बहुत शुभकामनाएं.

The next post of Morning Trekk will be published on 3 April 2017.

Thought for the day

"All the ills from which America suffers can be traced to the teaching of evolution."

—William Jennings (American, 1860-1925)

Word for the day

Comportment (n)

Personal bearing or conduct; demeanor; behavior.

Malice towards none

Now that SC has effectively admitted that Ayodhya land dispute may not be decided through legal route, what are the options left?

First random thought this morning

Once a group of people comprising statesman, entrepreneurs, economists, bureaucrats, business managers, and financial analysts were asked a question – “What would you do if you get a INR100bn lottery? The replies were as follows:

Economist: “The proposition is purely hypothetical. I cannot answer this.”

Bureaucrat: “Will take early retirement, buy a bungalow on a hill station and enjoy”.

Business Manager: “Will put 75% in fixed deposit and start a business with the rest.”

Financial analyst: “Buy a good house, make a world tour, put 75% of money in fixed deposit and take a high risk bet with the balance.”

Entrepreneur: “Will leverage the money 3x and begin a new business venture.”

Statesman: “Will investment money in projects that makes 1mn people capable of earning INR100k every year.”

You decide who from this group is fit to govern the country like India.

Adjusting to new normal

It is almost five years since the markets started discussing about the "New Normal" in global economics. The jargon essentially means that we should get used to a lower level of economic growth for a longer period of time.

The recent data, policy statements and policy actions suggests that the thought has begun to gain wider official acceptance.

Most global agencies like World Bank, IMF, ADB, OECD etc. have lowered the levels of global growth, which they would consider good or satisfactory. Even China sounds happy with 6.5% growth projection.

Central bankers like US Federal Reserve have already started to reverse the loose monetary policy, accepting that 3% GDP growth and 2% inflation would good targets to achieve. The others like BoE, BoJ, ECB, RBI, RBA etc. are also talking about the same.

In my view, as we adjust to a lower pedestal, new horizons would emerge. We are already witnessing the adjustment phase of the economic cycle shifting to a lower orbit. For example consider the following:

Corporate: Companies are selling core assets, acquired in past few years with great hopes; airlines are competing with railways; hotels are competing with home stay; automobile manufactures, realtors are offering humongous discounts to get rid of inventory; IT companies are delaying calling the new hires; instead of jumping over each other to capture airwaves, telecom operators are merging operations to spare existing airwaves; road projects that were awarded with exuberant premiums are getting cancelled; sports and entertainment events are finding it difficult to get sponsors; managements are working overtime in cutting corners to save margins, as topline are no longer priorities; many fancy startups have stated to wind up to cut losses.

Consumers: Consumers are not crowding the red sales; household budgets have reconciled to higher energy prices, rail fares, vegetable prices, service tax on every rupee spent and lower return on savings; savings are settling at lower level, and credit outstanding is rising.

Government: The government has become austere; has taken many unpopular decisions even during crucial elections

Financial institutions: Usually, the financial institutions, especially those in public sector, bear a substantial part of the cost of adjustment. We have seen in past 3years that the “restructured” assets of PSU banks have risen significantly. The credit growth is lagging even the GDP growth. The banks appear to have adjusted to the reality of “restructuring” and hence are conserving capital (by lending less and selectively).

New horizons

Historically, the adjustment phase has always resulted in durable cost efficiencies, higher productivity, smarter consumption patterns, stricter lending norms, better compliance levels and reformed policy framework.

Material (esp. cement and metal) companies, large banks, consumer (both durable and staple) companies and IT companies have come out much leaner and stronger out of this phase.....shall discuss it in more detail later

Wednesday, March 22, 2017

Where INR is headed

Thought for the day

"Burn down your cities and leave our farms, and your cities will spring up again as if by magic; but destroy our farms and the grass will grow in the streets of every city in the country."

—William Jennings (American, 1860-1925)

Word for the day

Anthophilous (adj)

Attracted by or living among flowers.

Malice towards none

Why a sudden rush in media to highlight the secular credential of the Yogi?

First random thought this morning

The common market area of Europe (European Union) is looking distinctly similar to the Congress Party of India.

The people outside it are not very sure if it will survive. The people currently inside are divided. Some, primarily who have lost their niche and suffer from a relatively stronger Euro, want to leave. Some, primarily who have gained from market access and relatively weaker Euro, hope that it is a sustainable arrangement, and therefore want it to stay.

Few appear confident about its relevance or otherwise in the current context.

Where INR is headed

A lot of people have expressed their surprise as well as concerns over sharp appreciation in INR value versus its global peers, especially USD, in past few months. Many have sought my views on the likely path for INR in near future.

I want to make it clear that I am no expert in the matters of macroeconomics, foreign trade or currency trades. While I do assign a small weight to the currency impact in my investment decisions; the consideration is mostly limited to avoiding companies that are unduly impacted by currency volatility.

I also strongly believe that Portfolio investment of few billion dollars may not have any lasting impact on the exchange rate of INR. However, sustained FDI inflows do support the case for some currency appreciation.

In my view, like any other tradable commodity, the exchange values of a currency vis-à-vis other currencies depends on the relative demand and supply of these currencies at any given point in time.

In simple terms, the recent sharp appreciation of INR vs. USD in recent months indicates that the demand for INR vs. USD has sharply outpaced the supply. There could be several reasons for this higher INR demand versus USD. For simplicity, I classify these reasons in three categories (a) structural, (b) cyclical and (c) speculative. Some examples are as follows:

Structural reasons

(a) There have been some significant changes in the composition of foreign trade of India in past one decade or so leading to structurally higher demand for USD.

The structure of our imports has changed in favor of consumer goods as the domestic supply has failed to meet the burgeoning consumption demand. A large part of this demand has in fact been generated through massive government social sector spending and managed Chinese currency. The imports and therefore demand for USD is mostly inelastic to economic growth.

On the other hand the composition of exports has changed in favor of engineering goods, from dominantly consumer goods (tea, tobacco, leather, spices, textile, jewelry etc.). This has increased the correlation of exports to global growth, which is likely to remain below par in at least for next few years.

(b) The change in political regime in 2014 has restored the confidence of global community in Indian political establishment and therefore markets & economy. This confidence was seriously impacted by a spate of scams, scandals and policy flip flops in the preceding 5-7yrs. This has certainly led to reduction in risk premium for INR denominated assets. Besides this has also prompted higher inbound FDI. There is nothing to suggest that this trend will reverse in near future.

(c) The efforts to improve infrastructure and remove procedural constraints are likely to help improving India’s export competitiveness and result in higher exports growth.

The structural reasons are therefore mostly in balance at this point in time.

Cyclical reason

(d) The success of RBI's measures in reigning the runaway inflation, strict fiscal discipline and improvements in trade balance have helped lowering rates in the economy to a limited extent.

As of now, both the inflation and fiscal deficit seems to have bottomed out and accordingly RBI has changed its policy stance to Neutral from the earlier Accommodative. The interest rates are therefore not seen changing materially from the current level in very near term.

This stability has made INR assets attractive to foreign investors.

(e) The protectionist measure taken by the government in past one year to curb imports and promote exports through various tariff and non-tariff measures have also helped the trade balance to some extent. For example, from a large steel importer, India may have turned into a net steel exporter in past one year.

(f) The outlook of EUR is clouded by the political calendar of Europe, especially schedule for Brexit, French and German elections. This is also seen helping Indian currency that is being perceived as safe haven by many under the current circumstances.

Speculative reason

(g) The Fed Chairman’s recent remark about the gradual trajectory of rate hikes, against the widely speculated steep hikes, has led to recovery in US bond yields and weaker outlook for USD. This has made emerging market local currency assets attractive on relative basis.

(h) The move to abolish 86% of Indian currency in circulation is speculated to have resulted in material reduction in informal market for USD, known as hawala trade in common parlance. This is speculated to have resulted in significantly lower demand for physical dollars in Indian market, resulting in stronger INR.

On balance, I feel the current strength in INR is mostly cyclical and to some extent speculative. It may not last beyond few months, in my view. Presently, I am working with 67/USD as average exchange rate for my FY18 earnings.

Tuesday, March 21, 2017

The road ahead - 4

Thought for the day

"The opposite of a correct statement is a false statement. But the opposite of a profound truth may well be another profound truth."

—William Jennings (American, 1860-1925)

Word for the day

Overwinter (v)

To pass, spend, or survive the winter, e.g., to overwinter on the Riviera.

Malice towards none

Why no one is highlighting that incorruptible image, frugality of needs and capacity to work round the clock could have worked in Yogi's favor!

First random thought this morning

The present round of assembly elections is over, with seemingly stable governments in place in all the five states. Election rhetoric is behind us as all Chief Ministers are talking serious business only.

Hopefully, Delhi MCD election will not become an issue of national importance, and we'll see focus on improving execution, rather than devising new plans and making promises. At least till Gujarat elections are announced later in the summer.

The road ahead - 4

Continuing from the last Friday (see here), the point I am trying to make is that the Empowerment stage if Indian democracy is almost over. The prime minister, the leader of opposition in Lok Sabha, and at least 23 out of the present 31 state Chief Ministers are first generation politicians from very modest socio-economic background.

In past two decades, the process of Enablement of these empowered people has also gathered remarkable pace. Particularly, in past three years a number of programs have been initiated to enable the people. For example, financial inclusion through Jan Dhan, MSME financing through MUDRA, Skill enhancement and training through Skill India, improved accessibility through deeper and wider digital penetration, rural road connectivity, improved air connectivity, expansion and improvement of highway network, social security through crop insurance and universal insurance schemes, augmented electricity supply through higher generation (including focus on renewables), better transmission and distribution and restructuring of SEB finances, etc.

It is now time to begin the Engagement phase of the evolution.

Empirically the Engagement phase is usually the best phase of evolution of a democratic society. In this stage, the economy transcends from the entitlement based structure to contributory structure. Subsidies and grants make way for fees and taxation.

A majority of empowered and enabled population contributes to the economic growth and development through higher taxation and fees for civic services. This is therefore the phase when the demand for physical and social infrastructure, like roads, power, ports, healthcare rises exponentially and investment in these sectors becomes economically and financially profitable.

Historically, for the capital markets this is the golden period. As more and more people join the mainstream economic growth and development process, the savings and investment rates rise on sustainable basis. The demand and supply of capital is usually maximum in this phase of evolution; and so is the capital market activity and wealth creation.

I see some of the recent events as an attempt to trigger the engagement phase of socio-economic development and growth - the most notable being the sudden move to abolish high denomination currency notes forming 86% of currency base in the country. This, in my view, is a courageous attempt to engage a large section of society in the mainstream economic development through better tax compliance.

Complete abolition of subsidy on transportation fuel, and gradual withdrawal of subsidy on cooking fuel, implementation of a uniform GST law, reforms in state electricity distribution, self funded social security through pension and insurance schemes, rationalization of farm and food subsidies and stricter tax compliance standards are some more indicators of the transition.

These are however early days to jump to a trade on this transition, but I am keeping a close watch.

Friday, March 17, 2017

The Road Ahead - 3

Thought for the day

"Say not, 'I have found the truth,' but rather, 'I have found a truth.'"

— Khalil Gibran (Lebanese, 1883-1931)

Word for the day

Cimmerian (adj)

Very dark; gloomy; deep e.g., Cimmerian caverns.

Malice towards none

A senior journalist who has written millions of reams about caste dynamics in Indian elections, was found to be blissfully unaware that

(A) Nai, Mochi and Halwai fall under the same category of non Yadav OBC.

(B) Marwari Vaishya are OBC in Bihar.

(c) Jat in UP, Punjab, Rajasthan, Haryana and Uttrakhand are not the same.

(d) Muslim and Sikh communities also have deep social divisions like Hindus.

First random thought this morning

With a variety of challenging roles, performed nearly to the perfection, the young actress Alia Bhatt has earned respect and admiration of millions of cinema lovers, critics and fellow professionals in the entertainment industry.

She is the same girl who was trolled and harassed on social media, not long ago, for not being able to correctly name the President of India in a TV chat show.

Ms. Bhatt, through her hard work and brilliant performances, has demonstrated well that if you do your work honestly and with perseverance, you need not bother about who is President, Prime Minister or Chief Minister. You can attain success in your field, regardless.

The Road Ahead - 3

Talking about the form and extent of wealth redistribution effort that PM Modi would need to make to put the Indian economy on sustainably high growth path, I would like to reiterate my views about the stages in which a typical democracy evolves.

Evolution of a free democratic society occurs broadly in three phases – empowerment of people, enablement of people and engagement of people.

In the empowerment phase people are empowered with constitutional and legal rights so that they could construct the social and economic organizations they would want to live in. The political organization is largely derived from the socio-economic organization of choice. In modern world, parliamentary democracy is the most popular political organization for societies choosing to organize themselves in a free and capitalist economy.

The transition from an aristocracy or oligarchy to parliamentary democracy is often a chaotic process because the people might not be properly equipped by education to select the best rulers and the wisest courses.

In the second, enablement phase of evolution the so empowered people are enabled through a variety of endeavor so that they could pursue the socio-economic path of their choice. Social equality, economic equality and gender equality are some key desired outcome in this phase. Wealth redistribution through taxation, welfare schemes and legislative provisions (like land ceiling, currency elimination, restrictions on business and asset ownership etc.), inclusion of economically poor, socially oppressed and women in government and economic activities are some of the major efforts seen in this phase.

The conflict between the wealthy & powerful (landlord) and the poor & oppressed during enablement phase often causes civil unrest. The inadequacy and inefficiencies of institutional framework to supervise the wealth redistribution process invariably leads to rise in instances of corruption in public life.

Unfortunately, in many cases it is also seen that some intended beneficiaries become too powerful and appropriate power and resources meant for their peers. This creates division and mistrust in the society and elongates the process of enablement.

In the last phase of the evolution, the empowered and enables people take part in the building of strong economic institutions and free market by engaging themselves in the growth and development process. This is usually the golden period for any democratic society that has chosen free market economy as their preferred socio-economic organizational setup. In this phase a large part of the population participates in the virtuous cycle of higher earnings – consuming – saving – investing – earning leading to sustainably higher consumption and investment demand.

In Indian context, our constitution envisaged a democratic social organization with free market economy. The people were constitutionally and legally empowered from day one of constitution coming into effect. (Interestingly, the USA took almost 200years to give full and equal rights to all its citizens through The Voting Rights Act of 1965).

However, in practice the empowerment process was delayed by at least three decades. Firstly, the Indian National Congress (INC) which was the primary vehicle for freedom movement transformed itself into a political party. The transformation ensured that the Congress Party which was dominated by the feudal lords and elite class at the top became overwhelmingly dominating political force in the country leaving little for the dissent or competition. The policy making thus focused on retaining control of most resources and activities with the government (by proxy with Congress party) and providing for just the elementary necessities to the common man.

All the voices who spoke for social justice, empowerment and enablement were forced either to fall in line with top echelons of the party or quit. The opposition to the Congress thus mostly came from communist/socialist forces which survived on parochial support base amongst some caste, community or region. The empowerment and enablement processes were thus hindered to a great extent.

It was in 1980’s when first time a nationwide movement took shape to seek empowerment and enablement for common people of the country. The enablement process started a decade later with government slowly giving up control over resources and economic activities.

Given that the process of enablement has so far mostly been involuntarily and heavily influenced by electoral considerations rather than social-economic reality, it has been marred by large scale irregularities, corruption, and inefficiencies.

The socialist movement in the country gained tremendous momentum in past 3 decades. These forces ruled many states and often played a critical role in formation and running of the federal government. However, for the lack of a credible and wise leadership, these forces have been often seen degenerating into feudal fiefdoms of few individuals and their families.

We should analyze the failure of the likes of Samajwadi Party (SP) led by Mulayam Singh Yadav, Rashtriya Janata Dal (RJD) led by Lalu Prasad Yadav, Bahujan Samaj Party (BSP) led by Mayawati etc., and continued domination of Congress by feudal forces, in this light.

PM Modi has shown solid resolve in accelerating the process of enablement of people. Massive drive for financial inclusion, digitalization, skill enhancement, social security etc. have been undertaken during last three years. The results of the same in the economic terms may not be visible as yet. But hopefully, we shall see positive outcome in next few years.

The unconventional move to abolish 86% of national currency in circulation, shall also be seen as part of the drive to redistribute wealth for enablement of people. Its success, though questionable at this point in time, shall reflect in better tax compliance (hence more tax revenue for public social expenditure) and lower cost of credit for SME borrowers (due to better CASA and higher money velocity for bank).

This enablement effort should logically lead to beginning of engagement phase of evolution - the golden period for economy and markets.

....to continue

Thursday, March 16, 2017

The road ahead - 2

Thought for the day

"You have your ideology and I have mine."

— Khalil Gibran (Lebanese, 1883-1931)

Word for the day

Arithmancy (n)

Divination by the use of numbers, especially by the number of letters in names.

Malice towards none

Business people who abused PM Modi for Demonetization, should not rush back to his fold.

You don't know what's coming next!

First random thought this morning

The recently concluded assembly elections in Goa and Manipur have again brought to the fore the debate over the role and relevance of governor in the state administration.

It is an undisputed fact that most governor appointments are political in nature, and are made by the party running the central government of the day with a view to seek favor in return, should a situation arise in the state.

The best way out perhaps is to abolish the office of governor and assign his constitutional duties to the Chief Justice of the High Courts of the respective states.

The road ahead - 2

“…democracy ruins itself by excess-of democracy. Its basic principle is the equal right of all to hold office and determine public policy. This is at first glance a delightful arrangement; it becomes disastrous because the people are not properly equipped by education to select the best rulers and the wisest courses”.

"As to the people they have no understanding, and only repeat what their rulers are pleased to tell them";

“to get a doctrine accepted or rejected it is only necessary to have it praised or ridiculed in a popular play. Mob-rule is a rough sea for the ship of state to ride; every wind of oratory stirs up the waters and deflects the course. The upshot of such a democracy is tyranny or autocracy; the crowd so loves flattery, it is so hungry for honey, that at last the wiliest and most unscrupulous flatterer, calling himself the ‘protector of the people’ rises to supreme power.” (Plato as quoted by Will Durant in “The Story of Philosophy”)

In the heat of 2014 general elections, PM Modi promised that if elected to power, he will bring back all the black money stashed abroad. The estimates of Indian black money in foreign lands, though mostly unsubstantiated, were mind boggling. He allegedly said that this money would be sufficient to give rs15lacs to each poor household in the country.

Though everyone appreciates that these were purely rhetorical statements made in the heat of fierce election contest, opposition leaders have made it a point to criticize the prime minister.

In my view, this criticism is unfair and uncalled for.

But at the same time, it cannot be denied that seven decades have passed since India attained independence from the British rule. This period has seen Indian economy growing to become one of the leading economies in the world. Unfortunately, the growth has remained mostly unequal and unjust to a large extent. The time therefore is ripe that an extensive effort is made to minimize the economic disparities amongst people.

Conventionally the effort to bridge the economic divide is limited to wealth redistribution through taxation and subsidies. In Indian context, bribery has also been a major channel of wealth redistribution.

However, in Indian context, these conventional methods are least likely to succeed in meeting the objective of economic equality, in my view. Because (though many may like to disagree with me on this) in my view, the structure of traditional Indian businesses and democracy itself remains quintessentially feudal. This structure does not favor efficient wealth redistribution.

PM Modi has this challenge at hand of breaking this nexus between feudal business and politician, to pave way for the efficient redistribution of wealth.

Those who consider good politics as bad economics must appreciate that an economy of Indian size and character would need 60-70% people "Earning-Saving-Consuming-Investing" to grow on sustainable basis. With 20-25% "Earning-Saving-Consuming-Investing", the growth cannot be sustainable.

....to continue tomorrow.